Bloomberg News

Pennsylvania Lottery Deal Rejected by State Attorney General

February 14, 2013

Pennsylvania (STOPA1:US) Attorney General Kathleen Kane said the contract approved last month by Governor Tom Corbett handing over management of the state’s $3.48 billion lottery to a U.K. company is illegal.

It’s the latest challenge to the Republican governor, whose handling of a sex-abuse case is under review by Kane’s office. Kane, a Democrat who began her elected term last month, said the agreement Corbett struck with Camelot Global Services PA LLC, part of U.K.-based Camelot Group Plc, violates the state constitution because it requires legislative approval.

The governor’s office “exceeded its authority” in granting the contract, Kane, 46, said in a statement today.

“I’m deeply disappointed,” Corbett, 63, said in an e- mailed statement. “I don’t agree with the attorney general’s analysis and decision.”

Corbett said “we will review our legal options.” He didn’t say what they might be.

Last week, Kane named H. Geoffrey Moulton Jr., a former federal prosecutor, to review her office’s handling of the case against Jerry Sandusky, the former Pennsylvania State University assistant football coach convicted last year of child sex abuse.

The state’s Sandusky investigation started under Corbett, who was attorney general in 2009 and was elected governor in 2010. Sandusky was charged in November 2011. During her run for attorney general, Kane promised to review why it took almost three years for charges to be filed against Sandusky.

Democratic Opponents

Corbett’s move Jan. 17 to turn over lottery operations to Camelot drew criticism from Democratic lawmakers and a union representing lottery workers, which filed a lawsuit Dec. 17 in state court. Corbett said Camelot would provide secure funding for services for elderly residents. Lottery profits go to senior citizens.

Camelot, operator of the National Lottery in the U.K., a consultant to California’s game and the sole bidder in Pennsylvania in November, said it will guarantee $34 billion in profits over 20 years.

The company is “disappointed,” according to a statement released by Harrisburg-based public relations firm La Torre Communications.

“We guarantee our proposal will produce unprecedented profits for senior programs and we have backed our investment in Pennsylvania with $200 million -- transferring all risk from state taxpayers,” according to the e-mailed statement.

Legislature’s Turf

Kane said the contract was illegal because it infringed on the legislature’s authority; permitted electronic games that require the legislature’s approval; and allowed Camelot indemnification of “indirect expenses,” which violates the constitution.

State Senator Jay Costa, the Democratic leader, said in an e-mailed statement that “Pennsylvania residents can rest easy now,” and that lottery employees could find ways to generate more money.

Kane’s decision “highlights the need” of legislation to clarify the laws governing the lottery and gambling, said Senate Majority Leader Dominic Pileggi in a statement. He said he was “surprised” by the rejection.

Pennsylvania (STOPA1:US) would have been the third state, after Illinois and Indiana, to hand its lottery to private operators. Corbett is also trying to sell the state’s wholesale and retail liquor business.

The lawsuit is American Federation of State County and Municipal Employees Council 13 v. Commonwealth of Pennsylvania, 706 MD 2012, Commonwealth Court of Pennsylvania (Harrisburg)

To contact the reporter on this story: Romy Varghese in Philadelphia at rvarghese8@bloomberg.net

To contact the editor responsible for this story: Stephen Merelman at smerelman@bloomberg.net


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