Tuesday, January 23, 2007

Private companies seeking to operate the Hoosier Lottery couldn't rely on
expanded gambling to increase profits under a bill filed yesterday. That
might dampen enthusiasm among companies interested in Gov. Mitch Daniels'
plan to lease the lottery to a private operator and use the proceeds to
create scholarships and boost spending on higher education, one gambling
consultant said. A ban on new gambling would "really handicap whoever's
going to do this -- fairly significantly," said Kip Peterson, founder of the
Thorsborg Institute, a gambling consulting company. "But it could still be
done." Sen. Jim Merritt, R-Indianapolis, filed legislation yesterday to
authorize Daniels' lottery proposal. It would require a company to bid at
least $1 billion to operate the lottery for 30 years and pay the state
another $200 million annually, money lawmakers would use to maintain
existing programs. The bill allocates 60 percent of the private firm's
upfront payment to a scholarship fund for the state's brightest students and
the remaining 40 percent to lure top researchers to Indiana universities.
Some lawmakers have been skeptical that any company would be interested in
the deal unless it was permitted to expand the types of games offered by the
lottery. House Speaker Pat Bauer, D-South Bend, has said a private vendor
would likely launch keno, a fast-paced numbers game that is currently
allowed under state law but has never been introduced.
Or, Bauer said, the operator might want to offer video gambling similar to
slot machines. But Merritt said he opposes any expansion of gambling, and so
his Senate Bill 577 prohibits keno and video lottery games as well as sports
wagering. In fact, the bill authorizes only those games the Hoosier Lottery
already offers or variations of those games approved by the Indiana Gaming
Commission. Yesterday House Majority Whip Dennie Oxley, D-English, said he's
surprised the bill includes the ban. "I think it will certainly hinder the
governor's efforts," said Oxley, who opposes the privatization proposal. "I
think it will make it harder for the state to make any money on the deal."
But Merritt said he's confident a company would still be interested in
bidding to operate the lottery. David Schwartz, director of the Center for
Gaming Research at the University of Nevada, Las Vegas, agrees. He said a
private company doesn't need new gambling to improve the efficiency of a
state operation.

"It's the same thing that happens when private companies take over publicly
traded ones," he said. "They prune them and run them more efficiently."

He said a company probably could cut a lottery's operational costs
significantly and therefore reap bigger profits.

But Peterson said Indiana is "asking a lot" of a private vendor. He said a
company already would be taking a risk by signing a 30-year contract that
could be changed by a later state law.

"Whoever puts this money down will want some ironclad agreement," he said.

The Daniels administration is already working to find suitable vendors. It
has issued a request that companies interested in bidding for the eventual
contract become pre-qualified.