Navigating the Road to Privatization

With their eye on the prize, U.S. state governments are exploring the privatization of their lotteries, but do they really know what they're in for?

Indiana Gov. Mitch Daniels initiated the wave of lottery privatization in the United States. After the temporary postponement of his state's Hoosier Lottery, similar initiatives in numerous additional states (the Colorado, Texas, Illinois, etc.) followed.

Most striking is that it was government officials who first recognized the pot of gold on the horizon; the are suggesting that astronomical amounts of money would flow to states' treasure-chests--a pattern one usually sees after talking with the likes of Lehman Brothers and Goldman Sachs & Co.

Americans so often use the "up-side-down" approach. The decisions are already made, and they know how much money they get and for how many decades they will be "partners."

Many models exist: partial sale, IPO, the voucher system, beauty contests, concessions, lease contracts, management contracts, long term/short term deals, etc.

Every privatization has its own genetic imprint; there are never look-alikes.

A good gambling privatization process starts, according of the Privatization Information Center (PIC), with conducting a quick privatization scan of the lottery. This covers: reporting within two weeks, operations and distribution; business issues and financials; SWOT analyses; and valuation.

A complete and full gambling privatization process includes:

analyzing the current local market;
benchmarking against relevant comparable (international) gambling operators;
researching which products and distributions will be allowed;
identifying the privatization agency’s objectives;
the latest financials and trends;
fine tuning of the legislation;
obligation and powers of the regulator;
reporting and discussing in a face-to-face meeting with the privatization agency;
choice of type of privatization;
development of a detailed project and timing plan for the work;
development of the relevant tender documentation;
assisting during the entire privatization process;
controlling international standards;
informing financial institutions and top operators;
communication with interested parties; and
the bidding process.

Do the state officials have any idea how much a privatization process really cost? It could very well be that an X-ray taken of the company shows that a restructuring brings more money than a privatization. New management, new products and new means of distribution could turn around a lottery organization, and even make it more profitable.