There’s More than One Way to Win the Illinois Lottery

February 1, 2007

The governor of Illinois is hoping to win a large sum of money from his state’s lottery–but he’s not planning to purchase a single ticket. Instead he wants to sell the lottery to a private company for a lump-sum payment. From the New York Times:

The state of Illinois yesterday took the first steps in selling its state lottery system, hoping to attract as much as $10 billion from investors who, in return, would own a monopoly that could turn out to be the biggest jackpot yet.

Under the proposed sale, Illinois would receive a multibillion-dollar one-time payment, and the lottery’s new owners would receive all revenue and profit for 75 years.

There are both positives and negatives to this plan. The potential downside: what will happen after the lump-sum payment is used up? Will legislators use it solely–and slowly–for education, or jump at the chance to fund pet projects, shuffling funds so they appear to be using the money for education? When the money runs out, will legislators simply create another source of state-run gambling revenue to fund education without raising property taxes–say, slot machines, as in Pennsylvania?

The upside, however, far outweighs the potential problems. The lottery is a tax, and a poorly designed one at that. Getting the state out of the lottery business would be a step in the right direction. The New York Times article continues:

“This is fundamentally a retail business, and governments are not equipped to manage retail businesses,” said John Filan, the chief operating officer of the state of Illinois. “Gaming is getting so competitive around the world that we’re worried our revenues could go down unless there is retail expertise.”

Filan is correct that the state is not equipped to handle this retail business, but not for lack of ability to remain competitive. Many states are adding video lottery terminals and other lottery innovations to remain competitive, and Illinois could do likewise. Illinois should not be in the lottery business for one reason only: running a lottery is not an appropriate activity for government. Lottery revenue constitutes an implicit tax that is paid disproportionately by the poor, is not transparent (clear to taxpayers as tax revenue), and is not economically neutral. For these reasons–not for lack of sophisticated equipment or retail expertise–Illinois should get out of the lottery business, a business it should never have been part of in the first place.

If this sale takes place, the next logical question is, will other private companies be allowed to run their own lotteries at some point? Lotteries were illegal in all states for over half of the last century; when states began enacting lotteries they removed constitutional lottery bans only to create government monopolies. But if Illinois sells its lottery to a private company, will this open the door for other privately run lotteries someday, akin to the state’s privately run casinos? What would be the state’s justification for creating a lottery monopoly for one company? A sales tax on freely competing, privately run lotteries could continue to generate revenue for the state without all the tax policy problems of state-run lotteries.

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