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EYE ON THE PIE: Privatization of lottery is a winning ticket

December 3, 2007

It happened on the day that does not exist. Black Friday, the day after Thanksgiving, is not a good news day. This year, we got an extra serving of admonitions about obesity from the Centers for Disease Control. Beyond that, we heard the usual stories of indignation and indigestion, miracle recoveries from swallowed wishbones, and promising/disappointing retail sales.

Also on that day, Gov. Mitch Daniels deferred for another year his proposal to "privatize" the Hoosier Lottery. Last year, the state Senate approved this concept, but it was stillborn in the House. The governor said he'd try again in the coming session. Now he sees that the legislators cannot pay attention to tax reform and the lottery in the same session. Is attentiondeficit disorder operating here?

The governor has a grand idea. Let some private company run the Hoosier Lottery. Give that right for a period of, say, 30 years, and have the company pay us a fee upfront of $2 billion or so, plus annual fees of another, perhaps, $200 million. The details are unsettled and a bid process would have to be opened.

This great idea tops other fine initiatives from the governor. Sincerely, no kidding.

The Hoosier Lottery was the Legislature's gift to itself in 1989. Since then, the lottery has had revenue of $11.2 billion, of which it paid 58 percent in prizes.

What happens to the rest of the money? Another 6.7 percent went to the retailers who sold the tickets to buyers who have more hope than sense. Selling lottery tickets is not a game of chance; retailers have been paid $747 million since the inception of the lottery.

Then, $3.1 billion was transferred to the state for a host of "good things." (Don't let it bother you that the numbers reported above don't add up to the total. The lottery doesn't seem to care; why should we?)

These "good things" are redefined regularly by the General Assembly. In some years, lottery funds support capital projects to "build Indiana." They also support retirement funds for teachers, firefighters and police officers. And some minor amount has gone to fund the Help America Vote Act, which, no doubt, is virtuous.

Some lottery monies may have gone to cut your auto excise tax. Who benefited from that? I'd guess members of the General Assembly who thumped their collective chests over that one. It's hard to know where the lottery dollars go, because the accounting is intermixed with riverboat gambling funds. It's sort of like trying to determine which waters are coming from the Wabash River and which from the Eel River beyond Logansport.

Yet letting a private firm run the lottery would be excellent. Gambling is a business activity. It should not be a public monopoly. Yes, the public sector needs to monitor the honesty of gambling, just as we need to make sure we get a full gallon at the gas station. But there is no inherent public interest with gambling, once we determine it is legal.

Gambling addicts are sad cases for themselves and their families. But are they significantly different from bowling or gymnastics addicts? The activity is a form of private consumption we have deemed to be legal and which we have not limited in quantity. So get government out of the business.

Now, the sweet part of this is that Indiana has established a monopoly on lottery sales in Hoosierland. This means we can lease the rights to that monopoly or we can open the whole business to competing firms.

Can't you see it? Imagine the Indiana Lottery Corp. trying to attract bettors away from the BP Lottery or the Macy's Lottery. Now that's competition and free enterprise.

I hope the governor revives his lotteryprivatization proposal. It would make honest men and women out of our legislators. OK, I go too far.



Marcus taught economics for more than 30 years at Indiana University and is the former director of IU's Business Research Center. His column appears weekly. To comment on this column, send e-mail to mmarcus@ibj.com.
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