State Lotteries and Legalized Gambling: Painless Revenue or Painful Mirage

One of the more interesting developments in state-sponsored gambling has been the subcontracting of lottery games to private corporations such as G-Tech and Scientific Games. When states subcontract--also termed privatize--states permit a private firm to conduct the lottery, and the state merely takes a certain percentage (usually 2 to 4 percent) of either the gross amount in the betting pool (as in pari-mutuel betting) or a certain percentage of net revenue (varying from 5 to 8 percent). The first state to privatize its lottery was South Dakota.

When three states recently ( Georgia, Nebraska, and Texas) began a lottery, they auctioned off the right to run their lottery to either G-Tech or Scientific Games. Since these firms manufacture most of the instant game tickets, which is the game of preference for new lotteries, given the Massachusetts experience, it makes sense to let these firms operate a state's initial lottery offerings. These states, then, proceeded to set up "gambling commissions," which have the task of overseeing the operations of the lottery, racing (all forms), and nonprofit gaming such as bingo. Until this trend started, lotteries had been set up and solely operated by state agencies. Hence, the questions that this chapter addresses are:

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