A Lotto Luck To You

The concept seems sound enough. With casinos coming to town and potentially cutting into state lottery dollars, have the state protect itself by selling its lottery business for billions of dollars up front. Big investment banks are already lining up across the country to facilitate this type of deal. The idea is so attractive that, even without the threat of casinos, a handful of states are in the process of making it a reality, although none have yet.

Today, a quartet of Republican state senators are filing a bill that would have Massachusetts do the same thing. But according to the well-regarded Chicago marketing firm, Independent Lottery Research, Bay State lawmakers should think twice before cashing us out of the lottery business.

According to ILR nationwide polling, lottery privatization is extremely unpopular. ILR conducts monthly polls of 450 households on lottery-related issues, and they found consistently that “between 55 and 65 percent” of respondents say that if their lottery were to be privatized they would play less.

“People who play the lottery know they’re going to lose, fundamentally,” Michael Jones, an ILR Director and former head of the Illinois state lottery, explains. “But they have to know that what they lost goes to something they believe in.”

In other words, people are a lot more comfortable throwing away five bucks on scratch tickets when they know it’s going to benefit Massachusetts’ 351 cities and towns, as the radio spots constantly remind us. It becomes a much dicier decision when you know the money is only going to end up lining the well-tailored pockets of corporate execs.

Aside from taking away everyone’s favorite rationalization for buying a scratch ticket, privatization could be have disastrous effects down the road. The legislation calls for the Commonwealth to lease (not actually sell it outright) the lottery for a set number of years, and if ILR’s polling numbers become reality, by the time the state has to negotiate that second lease, the lottery’s value will have plummeted. With the up-front money from the first lease presumably all used up, those 351 cities and towns would be left out in the cold.

The more immediate problem for lawmakers, though, would be the political fallout. According to the ILR polls, privatization is just as unpopular among those who say they would play the lottery “less” as with those who don’t play it at all. People just don’t seem to be comfortable with the idea.

Yet another issue, according to Jones, is that he believes the investment banks have been undervaluing lotteries. According to this morning’s Globe story, the lottery could fetch $10 -$20 billion, but Jones says banks produce those numbers with faulty reasoning, i.e. firms treat lottos like any other piece of state infrastructure (like a bridge or toll-road).

“The infrastructure/investment people were merely looking at historical growth patterns and then forecasting that out almost like it’s a bond” Jones says, “And come up with a figure they can offer up front based on those historic norms. And my point is lotteries live and die on consumer demand.”

Granted, Jones runs a lottery marketing firm, so it’s natural for him to think lotteries are undervalued. But what if he has a point here? As big a kick in the head as it would be for the cities and towns to have their lottery income cut by casinos, wouldn’t it be just as big a size-19 boot to the behind to end up selling off the lottery for billions less than it was worth?