Wednesday, July 04, 2007

So we are going to have a committee of the whole meeting to talk about selling the lottery or perhaps we will not.

I have to admit, the letters between Madigan and the Governor have been entertaining. However there is one thing I think Speaker Madigan needs to point out.

We can't really get an idea of what the lottery is worth (part of the governors solution to the pension issue) without knowing what the bill authorizing the lease looks like.

I have blogged a bit on this in the past. In May of 2006 (no we haven't been talking this concept to death at all) I calculated the NPV (what you would pay today to get the next 30 years of cash flow of the lottery) of the lottery at about $24 billion today. The big problem is the number of unknowns in the calc when taking a non-guaranteed cash flow and trying to figure out how much it is worth. If you lease the lottery you don't know if folks are still going to want to play the lottery in 30 years.

I have blogged about some of the issues with valuing the lottery in a post here.

The big advantage is having some sort of 'lease bill' out there is you can then start figuring out what (if any) discount you need to calculate to cover risks such as local taxation of lottery sales (IE the City of Chicago starts taxing lottery sales), changes in the multi-state compact (the Big Game), risks of the lottery being ruled illegal, if a government entity within the state could start it's own lottery (The city of Aurora presents 'City of Lights Ball'), regulatory issues about marketing the games, etc. A bill starts answering these questions, because I don't see how you value a lottery lease until you get some answers to these questions.

Leasing a lottery isn't like leasing a a tollway. You know the lead times to new road creation and know the odds (or can calculate them) of some event or events that can impact your revenues. Gas costing $10 a gallon, people using personal jet packs, etc. The problem with the lottery is there is lots of stuff that can hurt you financially that can occur without any real warning or any regress is it happens.

Heck worse case with a tollway lease where people stop driving you can rent the space out...

The big advantage of a lottery lease bill is you can start eliminating some of the variables that reduce the value and can start evaluating the others.


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