Schwarzenegger wants California lottery privatized

By Jim Christie

SAN FRANCISCO (Reuters) - California Gov. Arnold Schwarzenegger wants to privatize the state lottery in what would be the first such move in the United States, aides said on Thursday.

Nearly all U.S. states have lotteries, a popular source of revenue, but many state officials are reconsidering their value because of the costs of managing them. If California opts to let the private sector take on its lottery system, smaller states could follow.

Schwarzenegger has concluded that California's lottery system, approved by voters in 1984 to help raise money for public schools, is not living up to its financial potential and that the private sector could do better.

California gets just over $1 billion a year from lottery ticket sales, or less than 1 percent of total revenues.

"This is about maximizing the return for California taxpayers," Schwarzenegger spokesman Adam Mendelsohn said on a conference call. "It's underperforming."

The lottery posted sales of $3.58 billion last year. Just over a third of its revenues go to schools, half pays for prizes and some 16 percent covers operating costs.

The state's lottery games are already managed by two private companies: Scientific Games Corp. and GTech, which last year merged with Italy's Lottomatica SpA.

But full privatization would free the state of cumbersome retail and marketing operations that private companies may regard as attractive opportunities, said former California Treasurer Kathleen Brown, now managing director and head of West Coast Municipal Finance for Goldman Sachs.