Pennsylvania Determines Key Terms of Potential Agreement For Private Management of Lottery

The state Department of Revenue on Friday announced key terms of a potential private management agreement for the Pennsylvania Lottery.

Such an agreement would turn over some unspecified duties of managing the lottery to a private company, which would pay the state up front but then would be compensated for its work. State officials earlier this year began looking at privatizing the lottery as a way of maximizing its revenue.

According to a release, key terms of the agreement would include:

• Annual profit commitments for two decades to grow funding for lottery-related programs benefiting older Pennsylvanians
• Ownership and control of the lottery to be retained by the commonwealth along with specific business responsibilities
• Other, unspecified responsibilities to transition to the private manager
• $150 million cash collateral to be paid up front by the private manager
• 20-year base contract term, plus performance-based extensions that could increase the term to 30 years
• Private manager compensation
• Personnel plans and employee transition strategy; and
• Implementation of industry best practices for responsible sales growth including monitor-based games and Internet products.

Now that the scope and terms of a management contract have been determined, a multi-agency team is exploring private management and is reviewing the business plans of qualified bidders.

Those business plans will include each qualified bidder’s proposal for managing the lottery. State officials have not disclosed the names of those bidders.

“First we had to understand and decide upon exactly what we’d require and expect from a private manager, and now that we have that basis, we can start to evaluate how qualified bidders react to the proposal and plan to improve Lottery operations,” said Revenue Secretary Dan Meuser in a statement.

In the coming weeks, lottery officials will discuss the proposal with the agency's unionized employees, as required under the union contract, to determine if such an agreement "is in the best interest of the lottery and the seniors who benefit from lottery-funded programs and services," Meuser said.

A decision  will be made after state officials review bidders’ business plans and determine if bids containing specific prices are warranted; if priced bids provide significant value to the commonwealth and justify executing a PMA with the highest bidder; and evaluate any alternate plan the union may propose.

“The Pennsylvania Lottery provides funding for critical services and supports for
older Pennsylvanians,” said Secretary of Aging Brian Duke.

“The Pennsylvania Department of Aging supports the exploration of options that will help us continue to provide vital programs and services to the increasing number of older residents in the commonwealth.”

The Pennsylvania Lottery was created in 1971 to generate funds for programs
benefitting older adults. Since 1972, when its first game went on sale, the
Pennsylvania Lottery has contributed nearly $22.6 billion to those programs.

The lottery reported its most successful year in the fiscal year ending in June, recording $3.48 billion in sales and $1.08 billion in net revenue.