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The Sun-Times runs a story that looks into whether the state can really get $10 billion for the lottery.
“No one will give them $10 billion,” said Kip Peterson, president of Transnational Market Development, a Georgia consulting firm that has helped start 16 lotteries worldwide.Because the lottery only generates $500 to $600 million in profits annually, it would take nearly 20 years to earn back the initial investment, he said. “It just doesn’t make sense financially.” […]
“There seems to be a market,” said Ted Damutz, a vice president with the Chicago office of Moody’s Investor Service. “Lots of European companies are already in the market for privatizing lottery systems. But it’s hard to know about this $10 billion. They still have to work out a lot of details.”
On the other hand…
Blagojevich staffers says they’ve considered those variables and stand by their $10 billion figure, saying it’s based on the value of current earnings. The $1.8 billion Skyway lease is 60 times the value of its annual earnings. They only expect to bring in 15 times the value of the lottery’s earnings.“We have complete confidence in our numbers,” said Becky Carroll, Blagojevich’s budget spokeswoman.
That’s a good point about the Skyway.
Meanwhile, the Sun-Times editorial page doesn’t like the idea.
This latest idea from the desk of Gov. Blagojevich is long on merit but short on a real solution for long-term funding. […]But this funding plan would last only until 2024, and then what? Luckily for the governor, he doesn’t have to worry about that because he won’t be in office then. […]
We have to wonder, along with state Sen. Steve Rauschenberger (R-Elgin), that if this were such a splendid program, why was it not introduced while the General Assembly was in session. “To do this now seems so overtly political and self-serving,” Rauschenberger says. “There is a lot of cynicism out there already.” Cynics are most apt to believe that after four years Blagojevich will be long gone but the lawmakers in Springfield will still be scratching their heads about how to invest in our schools, and the real losers will be our grandchildren.
And a Tribune story today begins the nit-picking that the plan will surely be bombarded with over the next few months (if it even survives that long).
Virtually every aspect of the agenda–from state takeover of failing schools to merit pay for teachers to mandated after-school tutoring–has its skeptics and detractors.
And Krol makes a point so well that I’ve had to rework my Sun-Times column.
Gov. Rod Blagojevich is no stranger to calling for radical changes to education in Illinois - but he’s also frequently backed away from his plans.In the past three years, the freshman governor has advocated doubling the number of gaming positions to generate money for schools, legalizing Keno to pay for building schools, giving parents of college students $1,000 tax credits, and getting rid of the State Board of Education. None of those proposals became reality, with Blagojevich eventually backing down on each of them.
So, it’s understandable that a day after proposing the sale of the Illinois Lottery to get $10 billion up front to give more money to schools, one question that loomed large was whether Blagojevich is serious this time.
Bernie makes the same sort of argument.
But it’s possible that the Blagojevich plan could actually work to Topinka’s advantage. If the governor’s proposal is seen by the larger electorate as merely a ploy to sidetrack Meeks and give the governor another issue on which he might not deliver, there could be a backfire factor.After all, in 2002, Blagojevich talked a lot about a new venture capital fund to create jobs. He advertised its benefits. But he never got it through the legislature. Even this spring, the governor advertised that he was fighting for his “jobs” plan, using a dubious figure for the number of jobs he wanted to create. The legislature didn’t pass that either.
UPDATE: YDD makes some interesting points. Read the whole thing.
posted by Rich Miller
Thursday, May 25, 06 @ 9:25 am
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The difference between the Tollway and lottery tickets is that you can raise tolls, and people still have to get to work every day.
If you raised the cost of lottery tickets or lowered payouts, there’s nothing that compels people to keep buying them.
Becky Carroll can argue what the lottery is worth all she wants. I’ll quote the Cohn Brothers, from Raising Arizona: “Fair price is what the market will bear.”
Given that, according to Peterson, there are only three companies in the world that would be in the running for this buy, and given that one of them is John Wyma’s client GTECH, why don’t we just call them up and ask them?
Comment by Yellow Dog Democrat Thursday, May 25, 06 @ 9:38 am
“The $1.8 billion Skyway lease is 60 times the value of its annual earnings. They only expect to bring in 15 times the value of the lottery’s earnings.”
But the skyway lease is for 99 years. How long are they looking to lease the lottery for? Anything longer than 20 years (after the annuity runs out) and they’ve simply borrowed future tax proceeds to pay for stuff for now. How will they make up for the $650 million per year after that?
Comment by Anon Thursday, May 25, 06 @ 10:02 am
So now Bernie is included in the rational discussion on this subject? With all due respect, he has hardly had a good thing to say about this governor since he was elected in 2002. He didn’t even report on him fairly while he was a candidate. This is an important subject that merits thorough debate, however, we have to consider the source when hearing all of the arguments. There are some reporters who can actually report the news objectively — when it comes to Blagojevich, Bernie isn’t one of them.
Comment by dude Thursday, May 25, 06 @ 11:21 am
The skyway lease appears not to have been predicated on a maximum yield on the investment, Yes, it is 16x current revenues, plus depreciation expense. But as tolls expand, so will profits.
Regarding the lottery, the only ways to increase profits is to lower payouts as a percentage of bets, or to go to an on line lottery, or to be given a franchise for additional games, such as Keno, as part of the lease.
They won’t lower the payouts. That is suicide.
The on line gambling business is the most interesting area. Huge profits using the Illinois game, even if they only do it overseas. Come to think of it, with limited overhead, the State should do that itself.
If you will look on the back of the lottery ticket, you will see the odds on winning a Free Ticket or a small cash award. Numbers runners pay off better, and you don’t have to scratch anything.
So the $10 Billion price to generate $500 Million for 20 years is a zero rate of return At 7% the deal is worth only $5.3 Billion.
Obviously it is more than the lottery as it is today, something which, to generate a 7% rate return would throw off $944 Million to justify $10 Billion
Comment by Truthful James Thursday, May 25, 06 @ 11:38 am
It’s obvious that the Gov. and most of his administration have lived off the dole their whole lives. Including his spokespeople. They don’t have a clue on how to run a business manage money.
Any person who has been in business for themselves, knows that when you start selling assets just to generate enough cash to keep the doors open usually means that you are in serious trouble financially.
Not only are you decreasing your balance sheet but you are limiting your ability to generate income down the road. Without serious cost control measures this usually means the end is near.
Furthermore doesn’t it bother anyone that we are trying to sell key infrastructure and income generating assets? Especially to foreign investors. This is shameless and very short sided. The people of Illinois should be embarrassed of what their elected officials are doing to this state.
Comment by banker man Thursday, May 25, 06 @ 3:21 pm
Did Meeks get a MOU? If not, he’s trusting the Guv to bring this up in the veto session, when he could be a lame duck. Even if Rod wins re-election, how much political capital will he spend for this program after the election?
Comment by respectful Thursday, May 25, 06 @ 4:32 pm
Of course, everything is going to benefit Judy. Everything is going to backfire on Rod. Yesterdays post about the poll that had Rod up by 6 points was a good thing for Judy by yesterday evening.
Judy is sitting it out for a reason! Her handlers know what they are doing! It’s the rope-a-dope strategy! She has a plan! An inside source tells me that she is getting ready to unleash. Bla, bla, bla.
People, your candidate is a dud. She has no money coming in, no good advice coming in, and she knows that she is in over her head.
Comment by B Hicks Thursday, May 25, 06 @ 5:09 pm
B Hicks gets it right especially the dope part. anyone ask old kip whyhe is thrashing the idea? trying todrive down the price me thinks
Comment by reddbyrd Thursday, May 25, 06 @ 5:49 pm
You know, I spoke with Bernie for several minutes at a Democrat County Chairman’s function a few months ago at the Hilton in Springfield. Now I’ve never claimed to be the sharpest tool in the shed, but I do have to say that a couple of minutes on the sharpening stone wouldn’t do Bernie any harm. I wouldn’t put a lot of stock in what Bernie thinks.
Just my opinion.
Comment by B Hicks Thursday, May 25, 06 @ 7:10 pm
B. Hicks you are in THE zone today
Comment by Reddbyrd Thursday, May 25, 06 @ 7:35 pm
If Meeks gets an MOU, does it really mean anything? Just ask Bomke all about the MOUs and the Lincoln Developmental Center.
This Gov. lies just to stay in practice and conveniently forgets what was agreed upon verbally or contractually.
Comment by Tired of the Mess Thursday, May 25, 06 @ 9:14 pm
The Skyway included a physical asset, which in a lease can have some tax advantages for the leasholder. There is no physical asset when it comes to the lottery to speak of, the value comes from the license to sell.
Comment by OneMan Thursday, May 25, 06 @ 9:33 pm