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Illinois Makes A Bet By Outsourcing State Lottery

Tuesday, 23 Jan 2007 | 4:00 PM ET

The state of Illinois is getting ready to take a big gamble on outsourcing its lottery operations in what would be the largest privatization in the U.S. of a state-run program. The lottery in that state has generated about $13 billion for Illinois public schools since its inception in 1974. But if it were leased out to a private business, some worry schoolchildren in that state would be the real losers if the operation were to fail.

It was Illinois Gov. Rod Blagojevich (D) who brought up the proposal in May of last year to privatize the state's lottery for as much as $10 billion--as a way of getting more money to school students. The deal is expected to happen by this coming spring. Other states, including Indiana have similar plans before their legislatures.

Anita Bedell, the executive director of the ILCAAAP (Illinois Church Action on Alcohol and Addiction Problems), and John Filan, chief operating officer of the state of Illinois were on “Street Signs” to give their views on the state's plans.

Filan says the state has long been considering the opportunity for a concession or long-term lease for its lottery in order to stay competitive. Many countries in Europe have their national lotteries run by a private business and still remain profitable, he says. The hope is that a private bidder could run the lottery better than the state and increase revenue – Filan says Illinois would still retain ownership of the lottery system and would get a percentage of any increase in revenue that was generated.

IL Selling its Lottery?
The state of Illinois is considering selling its lottery and could raise $10 billion in the process, with John Filan, State of Illinois Chief Operating Officer; Anita Bedell, Executive Director ILCAAAP (IL Church Action on Alcohol and Addiction Problems) and CNBC's Erin Burnett

But Bedell says that in order to generate more cash flow, the lottery would have to expand – especially Internet and video gambling which are considered highly addictive – and that would only hurt the poor and those who already have a gambling addiction. She adds that the amount of money that the lottery generates for state schools is inflated and it’s actually only around 9% of it that goes toward education funding. Bedell says the chance that a private owner would generate a new revenue stream is too small and not worth the risk to the state or to its schools.

The risk is what makes it worth it, according to Filan. He says it is simply too difficult and too risky for the state to run the lottery system smoothly in the face of competition and new technology – and the only way to stay ahead of the curve is to put it in the hands of a private company who would hopefully run it more efficiently. He does say that the state lottery is “only a piece of the funding puzzle” when it comes to education, but there is no reason why the move would hurt the state’s schoolchildren.

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  • Brian Sullivan is co-anchor of CNBC's "Street Signs."

  • Co-anchor of CNBC's "Street Signs," Amanda Drury is based at the network's global headquarters in Englewood Cliffs, N.J.