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Foreign-run company to manage Pennsylvania Lottery System

01.25.13

FEBRUARY 2013, LEHIGH VALLEY Edition of The Union News

Foreign-run company to manage Pennsylvania Lottery System

BY PAUL TUCKER
THEUNIONNEWSABE@AOL.COM

REGION, January 13th- The Pennsylvania Republican Governor Tom Corbett Administration awarded the British lottery company Camelot Global Services a 20-year contract to privately manage the Pennsylvania Lottery System before the Pennsylvania Senate Finance Committee hearing was even held on the privitization plan. Mr. Corbett awarded the contract to Camelot Global Services on January 11th, three days before the public hearing was to be held by the Senate Committee.

The office of the governor released a summary of his intension and the terms and conditions of the Private Management Agreement (PMA) which includes the suggestion that privitizing the system would “provide more reliable and predictable revenue to ensure the continued strength and viability” of the Pennsylvania Lottery system.

The deadline to reach a potential deal to privatize the operation of the state lottery system was put off for an additional 10 days on December 31st, 2012, the day reaching a deal was to expire.

The American Federation of State, County and Municipal Employees (AFSCME) Union represent 170 of the 230 state workers employed by the lottery system. The reason given for the extension was to give AFSCME more time to submit their own proposal attempting to save their members jobs, which could be lost under the privitization plan. Mr. Corbett immediately rejected the AFSCME proposal.

The PMA will establish the management relationship between Pennsylvania and a private manager which will govern day-to-day operations of the Pennsylvania Lottery, define the scope and duties of services to be provided by the private manager, establish expectations on Lottery growth opportunities, employ industry best practices for marketing and management of the Lottery by which the contractor will be measured to ensure the Commonwealth is getting expected results.

The Corbett Administration released a summary in 2012 of his intent of privitizing the lottery system, which had $3.5 billion in sales last year, stating the PMA will be a contract between the Commonwealth of Pennsylvania and a private industry expect structured to assure funding to support lottery-funded senior citizen programs, the summary stated.

However, what Mr. Corbett’s summary did not state is why he found it neccessary to privitize the state lottery system which makes millions of dollars for the Commonwealth each year that supplies funds for many programs for the elderly.

The lone bidder for the PMA was Camelot Global Services of Great Britain, however apparently two other companies pulled out for unknown reasons.

Camelot Global Services has guaranteed him they will double lottery profits over 20 years. These are profit thresholds that must be achieved by the manager in order for the manager to earn any incentive compensation.

Under the plan, the PMA manager would provide to Pennsylvania $150 million in cash collateral. It is against this cash collateral that any shortfall payments would be drawn, if the PMA manager fails to meet its annual profit commitment in any year.

If the cash collateral is depleted to less than $50 million at any point in the contract term, then the manager would obtain letters of credit of $50 million to ensure the financial and performance based obligations of the agreement.

Pennsylvania House of Representative Steve Samuelson (Democrat-135th Legislative District) questioned why there is nothing in writing requiring Camelot Global Services to pay taxes in Pennsylvania. Camelot only filed papers on the day the Corbett administration announced the contract to be headquartered in Pennsylvania, rather than Delaware which would have allowed them not to pay Pennsylvania state corporate taxes.

Under the agreement, Camelot Global Services would only need to invite the current Lottery employees to apply for job opportunities during the employment transition period that may take up to a year. However, the manager could use subcontractors and vendors to provide products or services for the management of the Lottery, resulting in the lost of family sustaining jobs for lower paid workers.

David Fillman, Executive Director of AFSCME Council 13 in Harrisburg, which represent the 170 union workers, testified at the Senate Committee hearing and stated the Pennsylvania Lottery is one of the most successful lottery operations in the country, yet Governor Corbett has agreed to the privitization of the system without public input and the input of the legislature.

Mr. Fillman questions why the Corbett adminstration wanted to fix something that was not broken for a so-called guarantee from a foreign-run company.

Pennsylvania Democratic Auditor General Jack Wagner publicly questioned the wisdom of awarding such a large contract to Camelot Global Services, the sole bidder.

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