New Jersey looking to privatize lottery

In exchange for the us$ 120 million up-front payment, the company would get a contract through 2029 under which it could potentially earn 10 times that amount - if lottery revenues grow 7.5 percent a year and the company reaches the income targets it guarantees.

Any such costs to the state would be at least partially offset by guaranteed yearly increases in lottery revenues, as well as reduced state costs to administer the lottery and advertise it. The state doesn’t say how many of its 150 employees would lose their jobs, but it estimates that its expenses, currently around us$ 37 million, would drop to us$ 13 million the first year after outsourcing.

Here’s how the private company would earn its money: The state lists three levels of income for each year of the contract - the base, middle and upper level incomes. The company would keep 5 percent of the amount between the base and middle, 20 percent of the gap between the middle and upper and 30 percent of any portion above the upper amount. The total would be capped at 5 percent of net income.

But the flip side is the prospect of penalties for falling short of income goals. If net income falls below the state-identified base income, the company would owe the state the difference. For any amount above that base but below the income target promised by the company, it would owe the state half. That shortfall penalty would be capped at 3.8 percent of net income.

Privatization of at least part of the New Jersey Lottery isn’t new. Governor Jon Corzine’s administration explored the idea, and a privatization task force assigned by Christie suggested it in 2010.  Illinois outsourced its lottery operations last year. Other states are looking at it, such as Pennsylvania and Indiana, the latter of which hopes to complete a deal by November 1.