Our state recently put the wheels in motion to hire a private management firm to run the Illinois lottery for the next decade. No other state has ever tried to privatize any portion of their lottery. There is a simple explanation for this; taxpayers lose out under a privatization plan.
The rationale behind privatization is to make Illinois' lottery operate like a cutting-edge business. Any private manager that took over our lottery would look like a hero because we are doing such a poor job managing it ourselves. A private manager would cut administrative costs because only one firm would be in charge of business operations which are currently spread between a dozen or more hands. In the end, however, taxpayers will lose out on the full benefit of improved lottery performance.
If the deal is cut, Illinois will pay the management company a hefty fee for its services, plus an additional percentage of the increased lottery profits, allowing the management firm to reap huge benefits from cleaning up a lethargically run state agency. With the stench from the Chicago parking meter deal still lingering this plan should sound familiar. It would behoove our state to proceed with caution whenever the word 'privatize' is uttered. Simply entertaining the private management idea has already cost taxpayers nearly $4 million in consulting fees to help state officials set up bid documents and evaluate offers.
There are severe problems with current management of the lottery in Illinois. A complete overhaul of the lottery's operation is in order. Our lottery system uses antiquated machinery, its superintendent is only a part-time employee and our state's procurement system is archaic. By running our lottery inefficiently, we are missing out on the opportunity to pump hundreds of millions of dollars into Illinois' cash-strapped budget. We can streamline the lottery's management while increasing its benefits to the taxpayers.
Importantly, Illinois places no valuation on online lottery sales because they are not currently legal. But, I believe the federal government will change the law in the near future and those sales will become legal. To properly manage our lottery and maximize profits, we should be placing a value on those assets and plan accordingly.
Illinois is the fifth most populated state in the United States, but it ranks 18th in lottery sales and per-capita sales in Illinois are below average for a population of our size. In fact, Illinois lags behind states that are petite by comparison, for example, Massachusetts, Connecticut and Rhode Island. These smaller states have maximized profits without privatization. Instead, they have employed clever marketing and innovative business practices. It is clear that Illinois can and should have higher lottery sales. Illinois can reach that goal on its own, by centralizing and modernizing the lottery's management. Rather than jump to a privatization deal, we should simply hold ourselves accountable for making the changes we know need to be made.
The bottom line is we need to improve our management of the lottery, ourselves. Two of the firms reportedly interested in bidding on the plan already do business with Illinois' lottery. Handing over the profits to companies that already operate our lottery makes little sense. Moreover, a third interested firm is headed by a highly lauded former Illinois lottery director. We had the talent in-house before, and we should hire that talent in-house again. We have the all the tools we need, we just need to use them wisely and efficiently.
Keeping the lottery in-house will require implementing an entirely new management structure mimicking the private industry. However, profits realized from an improved system will remain in the taxpayers' hands. After all, the purpose of the lottery is to provide funding for the citizens of Illinois, not a corporation handpicked by the Governor. Illinois does not need a private company to manage its lottery. Illinois just needs to do a better job of doing its job.
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