Gov.Jim Douglas may have counted his chickens before he layed his bet!
Times Argus
Article published Feb 21, 2008
Wall St. analyst: $50M from lottery is too high
By Dave Gram Associated Press
MONTPELIER – A Wall Street investment banker told Vermont lawmakers Wednesday the $50 million Gov. Jim Douglas hopes to reap from privatizing the state lottery is overly optimistic.
J.P. Morgan Managing Director Jeffrey Hyman, speaking to the House Ways and Means Committee, didn’t give a specific number for what the state of Vermont could expect if it bets on Douglas’ plan to lease the lottery to private investors for 40 years.
But written materials that J.P. Morgan provided to lawmakers said a $10 million a year “revenue upside could equate to an additional $35 million in value.”
Douglas, citing an earlier report from another Wall Street investment house, Lehman Brothers, said the state should expect a one-time, upfront payment of $50 million, plus annual revenues at least equaling the $23 million a year Vermont now reaps from its lottery.
He has proposed splitting the $50 million between reducing the statewide property tax and helping local school districts pay for construction projects.
Hyman noted that the securities markets have been shaken in recent months by the subprime mortgage crisis and other developments, leaving many investors less able to borrow money that likely would be needed to take over a state’s lottery.
“The leveraged finance world has been under a lot of stress for the last six to nine months,” said Hyman, who suggested two other strategies the state might pursue:
# A business study that would look for ways to “extract more value” from the lottery through a combination of increased ticket sales, greater efficiency in operations or some other strategy.
He said taking some of those steps before looking for investors to get involved in the lottery could increase its value. “The savvy seller will paint the house and clean up the yard and get that extra 10 percent kick,” he said.
Hyman said hiring a business consulting firm to look for ways to get more bang from the lottery might cost the state $100,000 to $200,000 for a team of consultants to work for two months.
# Issuing bonds, to be paid back with future lottery revenue, which might be more lucrative deal and give the state more control, Hyman said. Tax-exempt bonds might be a more attractive investment vehicle to some investors, he said.
Committee members listened but took no action Wednesday.
After the meeting, committee member Rep. Jim Condon, D-Colchester, said he thought Douglas had jumped the gun in counting on the money from the earlier estimated $50 million to pay for school construction.
“I think it was a little premature for him to build that into the budget,” Condon said.
But Douglas defended it, saying the Senate Institutions Committee was building a new capital construction budget that didn’t count on the lottery lease money.
“It’s not really built into the budget,” he said.