Conklin: Lottery Deal to Cost the State $12 Billion

“An analyst has shared a study with me that indicates the deal struck by the Governor with a foreign company to operate the Pennsylvania Lottery will cost the state $12 Billion over a 20 year period.   The analysis is based on a 6.21% growth rate and does not take into account the future expansion of games.   The lottery system provided a billion dollars last year to help our seniors.   Now European investors will get first crack at that money before we see one dime.  I am outraged that the Governor would offer our lottery to a company that is headquartered out-of-state to avoid paying taxes.   I am also deeply concerned for the Pennsylvania families who will be out of work because the Governor has chosen to outsource their jobs.   It is estimated that 70% of lottery employees will be receiving a pink slip.    The bottomline:  It appears we are going to lose billions in revenue, put Pennsylvanians out of work and line the pockets of a foreign company.”

Here is a copy of the analysis that was shared with me:

Using the lottery's own data from 2002 to present (public reports only go back to 2002)

The lottery has increased revenue in 8 of 10 years.  The 2 years where revenue fell was 08-09 and 09-10. Combined loss of revenue at the height of the great recession was only 0.76% or an average of 0.38%.  The total of annual growth percentages for the 10 year period was 62.09% or an average of 6.21% annual growth.  During this same period, the average net revenue after expenses was 32.44%.

Using the 2011-12 as our base, with an annual growth rate of 6.21% we find the Revenue amortization as follows:

It is reasonable to assume the modest growth rate of 6.21%, without the introduction of additional games.  Over the next 20 years, this would produce a combined revenue of approximately $141,901,328,110.  Camelot Global Services has pledged to return $34 billion to the state.  On the surface this sounds extraordinary.  However when you compare the average rate of return under the current system to the private option, you see Camelot Global Services will be return 35.39% less revenue to the state.  This represents a real dollar loss to the state and state funded programs of $12,031,500,827 over the 20 year period. See below:

All of this assumes there would be no expansion of games.  Should the expand games and thereby revenue, the percentage of revenue returned to the state would naturally be lower.  With 12 billion in lost revenue, this is the greatest fleecing of the PA taxpayer in history!!!