Province making bad bet on lotteries, Hydro One
Ontario is still selling Hydro One but not its provincial lotteries.
It’s selling the thing it should keep and keeping the thing it should sell, making two wrong decisions because the government needs the money.
The Hydro One sale is carrying on in stages, one chunk at a time. The lottery disposal was scrapped last Friday when the Ontario Lottery and Gaming Corp. decided it couldn’t make enough bank off contracting it out.
It got plenty of interest, the agency reported, but “after a period of due diligence and consultation with globally-experienced proponents, OLG has determined that the selection of a single service provider would not provide increased value for the province.”
“The province and the government looks at its assets and tries to maximize its value in a way that benefits all Ontarians,” Finance Minister Charles Sousa explained to the legislature Monday morning, answering questions from New Democrat MPP Jagmeet Singh. “The process by which the OLG was proceeding recognized that there was more value to the province to have it in-house because of the way it functions.”
Mind you, a little later in the same exchange, Sousa used a slightly different line: “Ontario Lottery and Gaming’s modernization process is about providing service delivery. It’s not about privatizing the OLG.”
In a strict technical sense, Sousa’s right: the OLG was never planning to “privatize” the lottery. It just set out find a private company that would run the lottery’s day-to-day operations, come up with new lotteries and market them, recommend large-scale changes to the lottery business, and make a profit doing so. In exchange, the private company would give the OLG some money. And the whole thing was scuttled because nobody would give the OLG enough money.
Singh was trying to get Sousa to say that the Liberal government has realized that privatizing public things is a bad idea, which of course the finance minister would not do. But he did say, plainly, that the driving consideration here is how much cash any particular move will bring in. The lottery has “more value to the province” in the OLG’s hands. Whereas “we are talking about broadening ownership of Hydro One for the benefit of the people of Ontario, recognizing the returns that we can make,” Sousa said.
Recognizing the returns that we can make.
There’s no principled reason for the government to run lotteries. It’s a long and profitable habit, obviously (worth $2.2 billion last year) but there’s no more reason why the state should have a monopoly on lotteries than it should have one on movies or food. Somebody ought to make sure lotteries are run according to their stated rules, sure, but it doesn’t take ownership to achieve that.
Lotto 6/49 and its cousins are a different branch of the gambling business from online casinos, where the state-run operation is consistently pantsed by offshore competitors, but it has the same problem. If it’s really easy to play and presented in a fun way, people will participate even though they know it’s statistically a bad deal, but lining up at a corner store to buy tickets was never all that much fun and it’s relatively less so now compared with, say, the downloadable game Candy Crush Saga, if you’re looking to spend a bunch of money on a casual amusement.
Now compare Hydro One, where there actually is a principled reason for the government to keep ownership and control. Nobody but Hydro One does what Hydro One does. We’re not going to have competing networks of high-voltage wires criss-crossing the province, linking generating stations and local distribution companies such as Hydro Ottawa via different routes. Certainly rural customers who get their electricity directly from Hydro One aren’t going to get multiple sets of wires to their houses. Even stubborn libertarians usually see the case for the government to be in charge of something if competition isn’t realistic.
Instead, we’re in the middle of selling a majority stake in Hydro One to private investors.
The provincial government will keep some important veto powers and a large minority stake, but this is explicitly about “unlocking” money in Hydro One shares, trading long-term operating profits for a short-term cash payoff that can be spent now. The bet is that the $9-billion windfall, divided between paying off provincial debt and building new infrastructure, will produce more long-term benefits than Hydro One’s perpetual profits. Ontario’s budget watchdog has pegged the lost income at $500 million a year by 2025, so that’s a lot of revenue to be made up, but it could work out.
Regardless, in the end we’ll end up with (1) a government-owned gambling business battling forever against a lot of competitors and (2) a largely privatized utility with none.