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Illinois Lottery Can't Or Won't Payoff Big Lottery Winners
I'm sure all of this is covered in the small print that no one ever reads, but this is an outstanding example of why we should reduce government's involvement in business to every extent possible. What a shame for the people who paid for tickets and now are held hostage by those they've elected.
One may fully understand the implied or known meaning of "lottery/gambling", eh?
Full faith in one's government
The most sad aspect is whether those in higher government positions in this state, even show a hint of being embarrassed about such a circumstance. And one should wonder why some in society are the way they are ????? Look around at the role models, eh?
I wonder if some who are holding these Lottery IOU's would take 25 cents, or so, on the dollar for their ticket rights? Seems to me there might be opportunity for the ticket holder as well as a scalper.
LLJB, You say: "This is an outstanding example of why we should reduce government's involvement in business to every extent possible." But let's consider state and federal government as a business for a second issuing debt and that debt in this case is the lottery winnings. What is the government's default rate on debt compared to the private business sector? According to Schwab and Moody's default rates for municipal bonds are far lower than corporate bonds at every credit quality level: schwab.com/public/schwab/nn/articles/Corporate-Bonds-vs-Municipals-Which-Make-More-Sense-Now So if your logic is that people shouldn't do business with the government because of this one example of default in Illinois, why should they do business with the corporate sector, which has a much worse record of default?
@LewisBraham, that might be an interesting example if they were related. Without knowing all the details or desiring to research it, I suppose investors should normally require a higher yield on bonds from corporations even at the same credit risk if default is more likely, so they get compensated for the risk. I'm sure there might be cases where that isn't true, but that's the free market so there must be enough people who perceive the corporate bond as preferable or they wouldn't take a lower yield for the same credit risk.
On the other hand, most lotteries that I've ever been aware of, and I don't gamble so I'm no expert on state lotteries, aren't issuing bonds to cover the winnings. They're taking money from selling tickets and using that to pay the winners. If the government is sitting on that cash while they play political games it's completely the point I was making. There's no apparent benefit from the government running this business and there's no reason the state's taxpayers should be on the hook if it's structured such that the lottery could lose money.
Lotteries are a tax on people who are bad at math. Perhaps this news will put a damper on folks throwing their money away. Besides, if they wanted to place a wager, they would head to a Vegas dice table or blackjack table like any wise and forward-thinking American would do.
@LewisBraham, isn't that just hilarious. These are the wonderful things about how our governments work. They want us to stop smoking but they're dependent on the taxes they collect from cigarettes. They shouldn't really want us to gamble but they're not happy when a private administrator doesn't increase revenue. Why not just have a lottery where you get some portion of a share in some local company for every $1 you pay and then at any point in time you can turn your ticket in for whatever it's worth? You can play the Abbott Labs lottery or the Caterpillar lottery or the McDonalds lottery. That would seem like a far better gambling option.
I didn't mean they should outsource the administration and still keep the state's taxpayers as the "investors" in the lottery, I meant privatize the whole thing and let the taxpayer enjoy the benefit of whatever they collect on sales and profit taxes, plus whatever sin tax the state imposes. I'm just glad I didn't say these lotteries are a regressive tax, although I thought about it, because if they're losing money then it's just another public support program based entirely on luck rather than any need.
@LLJB, I'm not saying I like any lottery. It is gambling and is effectively a "regressive tax" on the poor and desperate. But again even if they privatized the whole thing why would that be any better? According to the article on New Jersey: "Northstar spends more in general than the state-run system did. Administration costs for the year ended June 30 were $50.3 million, according to treasury information. That was a 45 percent increase from the $34.7 million under state control a year earlier. " So why would a completely private-sector lottery somehow be better? Also, what do you mean the lottery is "just another public support program based entirely on luck rather than any need." Please spell out which major public support programs are based on luck rather than need. Last time I checked the major public support programs were very much based on need.
@Maurice- I think that your father was correct, but those bookies were private enterprise and had competition, even between different "mobs". Evidently there is only one government mob currently running the betting franchise in Illinois, so they don't have to worry about competition.
@Maurice, I agree the lottery is a voluntary tax. That's why I said "effectively" a regressive tax. Sure, no one is forcing the poor and desperate to buy lottery tickets. It just happens to be that they are the ones with the desperate dreams of instant wealth and the constant onslaught of ads--"All you need is a dollar and a dream" in New York-- prey upon their desperation. I just don't think the lottery would be any more ethically or efficiently run if the private sector ran it instead of the government. In fact, the evidence is to the contrary on that front.
@LewisBraham, sorry, I guess I should have structured the sentence differently. I didn't intend to suggest there are lots of public support programs based on luck. I intended to say that if the lottery is losing money, then it becomes a public support program where the beneficiaries are determined by luck rather than all or almost all of the other support programs where beneficiaries are determined based on some defined need that the government decides to support.
I don't know anything about Northstar so maybe they did a bad job, but I think taking the first year that a private company takes over the administration of a government run business and using that as the basis to question how a completely private-sector lottery could be better overlooks a few key points. First and probably most importantly, if it's completely private then the companies owners/investors bear that risk rather than the taxpayers. Second, one year doesn't tell you much without understanding the details of those costs which wasn't presented, so while the numbers are certainly alarming I don't think you'd want to draw any quick or dramatic conclusions from them. Third, government accounting is complicated, so it wouldn't be surprising if a well-meaning journalist, who's pressured to get stories done and published, didn't manage to get numbers that are really comparable. And finally, I'd always worry about sole bidder contracts regardless of whether it involves the government or not and if you believe that it was done in a rush to solve "momentary budget issues" I think you have to be immediately skeptical of the entire process.
What I think should be even more concerning is that in fiscal 2013 the state of New Jersey recorded revenue of $2.82 billion, which delivered more than $1 billion for a variety of programs. Even if you assume all of the difference was paid out as winnings, which we know isn't true, the profit margin is enormous and a lot of that is coming from people who aren't in the best position to get back less than 65 cents for every dollar they bet, on average. It doesn't really have anything to do with whether the "business" would be better run by the state or a private company, but it's still a bit shocking and I guess the same would be true for many states.
I don’t do lotteries. But the subject and your comments intrigued me. I’m a California resident so I naturally searched for info about my state lottery history. The search was easily done and I was well rewarded. Here is a Link to a comprehensive annual report issued by the California State Lottery:
Don’t be intimidated by its 74 page length; much is boiler plate, but it contains some excellent summary charts and National statistics. I encourage you to thumb through it.
For example, since its inception in 1985, the state has return just under 60% in prize money to its players. It delivered just over 28% to educational programs. The remaining 12% was the cost of doing business (operating expenses, game costs, and retailer costs). That’s great for the state, not so good for the players. Las Vegas offers better odds and always honors its wagers.
The statistical section was of particular interest in terms of who plays the various games and the monies spent as a function of each state in the USA.
A number of pie charts dissected lottery players as a function of their age, their gender, their ethnicity, and their household income. Accompanying pie charts for each of these attributes for the overall state adult population percentages were also presented. This permitted easy comparisons.
I was shocked that no major deviations were revealed. Although the numbers varied a little around the state’s generic distributions, no meaningful distortions appeared. Each group roughly contributed its fair share of dumb and dumber suckers. The odds are so bad in these state run games that I characterize their wayward players as suckers, and not gamblers.
The statistical section of the report also presents a state-by-state table of how much per capita each state player contributes to its lottery pools. A surprisingly huge disparity exists comparing state averages.
North Dakota, Oklahoma, and Montana are the smartest with lottery sales per capita below and in the $50 range annually. Massachusetts is by far the dumbest at $725 per capita. Who said the wisest investors/gamblers were in the Northeast?
Please visit the reference and checkout your state’s propensity to play this Losers game.
This is simply the tip of the iceberg. The State of Illinois is bankrupt with an insurmountable debt owned to retired pension holders. The legislature is prohibited by law from altering or modifying these overly lucrative pensions, negotiated over the past several decades by feckless Chicago politicians and administrations who repeatedly were cowed by the threats of strikes and a desire not to lose an important part of their political base (i.e., think Democratic here). Throw in an intractable battle between Republican governor elect Bruce Rauner and Democratic majority dictator (er, I mean, House Speaker) Michael Madigan resulting in legislative paralysis and you have a state that is financially insolvent.
Illinois' economy and bond rating are, by far, the worst of all 50 states and the s**t has yet to hit the fan. Just wait until they begin to default on their debt (bond) obligations. All of this is complicated, of course, by foolish investors , mutual funds, etc., who have ignored the perilous financial situation as they reach for worthless yield. Illinois is the United States' answer to Greece.
Maybe Chicago can sell the rights to their parking meters...oops, already did that and probably have long ago spent that money already.
If Illinois doesn't turn things around (and honestly, not sure how that's going to happen) and you have problems elsewhere (Puerto Rico, etc), MBIA/Ambac/Assured Guaranty are going to be problematic again, like in 2008.
Beyond anything else though, you can't have a state BS and say things are okay when they take the step of giving lotto winners IOUs..
This is precisely what I am talking about. I would sell FLTMX on this basis alone. This is similar to what Michael Hasenstab did at with his Templeton Global Bond Fund for several years. He stuffed his face and, unfortunately, his portfolio with Greek bonds because of their juicy yields, betting that Greece would never default (or, more likely, never be permitted to default by the EU) and he is now paying the piper. Just my opinion, but I would be pre-emptive in this regard and sell any bond fund with significant holdings in State of Illinois bonds - they are worthless.
Perhaps even twenty five cents on the dollar might indeed be to much for a scalper to pay for an Illinois IOU. They could offer winners a bond in exchange for their IOU. Wonder if they would have any takers?
"Would you want to hold an IOU from someone whom you knew for a fact was broke? Why is this situation any different?"
I'm glad you asked. Every state's GO bonds are rated in the A range, meaning each state "has [at least] STRONG capacity to meet financial commitments". So all the major muni raters are not (yet) concerned about Illinois' (or any other state's) ability to pay.
An "A" rating doesn't mean a state won't go into technical default, just that it could pay if it got its act together. Like California in 2009 (under the Gubernator) and 1992 (under Pete Wilson), that issued IOUs when its legislature couldn't pass a budget either.
A difference between the IOUs of Calif. (especially in 1992) then and Illinois now is that California issued those IOUs to state employees. These were people who had worked for their pay and relied upon that money for their living expenses. Illinois is issuing IOUs until it passes a budget to lottery winners who will be getting windfalls.
Getting back to FLTMX - a state's GO bonds can be rated very differently from revenue bonds or municipal bonds within the state. Each has a different source of cash, a different ability to pay, and thus a different credit rating. For example, on Moody's page for Chicago, there are two Aug 26th ratings actions on Chicago O'Hare bonds - one is affirmed at Baa1, the other at A2. Both differ from Moody's Chicago GO rating (junk), and Illinois' GO rating (A3). One can't judge the risk on the state breakdown alone.
@scott said; If Illinois doesn't turn things around (and honestly, not sure how that's going to happen) and you have problems elsewhere (Puerto Rico, etc), MBIA/Ambac/Assured Guaranty are going to be problematic again, like in 2008.
"Rousseff's approval ratings, which are now in single digits, fuelling opposition calls for her resignation or impeachment."
Markets | Wed Sep 9, 2015 11:27pm EDT Related: BRAZIL Brazil downgraded to junk rating by S&P, deepening woes RIO DE JANEIRO | BY WALTER BRANDIMARTE
Standard & Poor's downgraded Brazil's credit rating to junk grade on Wednesday, further hampering President Dilma Rousseff's efforts to regain investors' trust and pull Latin America's largest economy out of recession.
The faster-than-anticipated downgrade from investment grade will likely rock Brazilian financial markets on Thursday and will increase borrowing costs for the government and Brazilian companies.
Brazil first won its investment-grade credit rating in 2008 and the S&P downgrade is a major setback for Rousseff, a leftist struggling to kick-start the economy and shore up weak public finances.
It further sours market sentiment about the country and Brazilian assets will suffer because many investors will perceive higher risks.
S&P cut Brazil's rating to BB-plus, the highest junk rating, from BBB-minus.
It warned less than two months ago that a downgrade was possible but the unusually fast move underscores how quickly Brazil's economy and public finances have deteriorated since then
The economic crises and the corruption scandal have both battered Rousseff's approval ratings, which are now in single digits, fuelling opposition calls for her resignation or impeachment.
Comments
Full faith in one's government
The most sad aspect is whether those in higher government positions in this state, even show a hint of being embarrassed about such a circumstance.
And one should wonder why some in society are the way they are ?????
Look around at the role models, eh?
So if your logic is that people shouldn't do business with the government because of this one example of default in Illinois, why should they do business with the corporate sector, which has a much worse record of default?
On the other hand, most lotteries that I've ever been aware of, and I don't gamble so I'm no expert on state lotteries, aren't issuing bonds to cover the winnings. They're taking money from selling tickets and using that to pay the winners. If the government is sitting on that cash while they play political games it's completely the point I was making. There's no apparent benefit from the government running this business and there's no reason the state's taxpayers should be on the hook if it's structured such that the lottery could lose money.
Similar problems are also cropping up in New Jersey which privatized its lottery: bloomberg.com/news/articles/2014-11-24/n-j-lottery-missing-christie-goals-with-private-operator
I didn't mean they should outsource the administration and still keep the state's taxpayers as the "investors" in the lottery, I meant privatize the whole thing and let the taxpayer enjoy the benefit of whatever they collect on sales and profit taxes, plus whatever sin tax the state imposes. I'm just glad I didn't say these lotteries are a regressive tax, although I thought about it, because if they're losing money then it's just another public support program based entirely on luck rather than any need.
I don't know anything about Northstar so maybe they did a bad job, but I think taking the first year that a private company takes over the administration of a government run business and using that as the basis to question how a completely private-sector lottery could be better overlooks a few key points. First and probably most importantly, if it's completely private then the companies owners/investors bear that risk rather than the taxpayers. Second, one year doesn't tell you much without understanding the details of those costs which wasn't presented, so while the numbers are certainly alarming I don't think you'd want to draw any quick or dramatic conclusions from them. Third, government accounting is complicated, so it wouldn't be surprising if a well-meaning journalist, who's pressured to get stories done and published, didn't manage to get numbers that are really comparable. And finally, I'd always worry about sole bidder contracts regardless of whether it involves the government or not and if you believe that it was done in a rush to solve "momentary budget issues" I think you have to be immediately skeptical of the entire process.
What I think should be even more concerning is that in fiscal 2013 the state of New Jersey recorded revenue of $2.82 billion, which delivered more than $1 billion for a variety of programs. Even if you assume all of the difference was paid out as winnings, which we know isn't true, the profit margin is enormous and a lot of that is coming from people who aren't in the best position to get back less than 65 cents for every dollar they bet, on average. It doesn't really have anything to do with whether the "business" would be better run by the state or a private company, but it's still a bit shocking and I guess the same would be true for many states.
I don’t do lotteries. But the subject and your comments intrigued me. I’m a California resident so I naturally searched for info about my state lottery history. The search was easily done and I was well rewarded. Here is a Link to a comprehensive annual report issued by the California State Lottery:
http://www.calottery.com/~/media/Publications/Reports_to_the_Public/LotteryAR2013_english.pdf
Don’t be intimidated by its 74 page length; much is boiler plate, but it contains some excellent summary charts and National statistics. I encourage you to thumb through it.
For example, since its inception in 1985, the state has return just under 60% in prize money to its players. It delivered just over 28% to educational programs. The remaining 12% was the cost of doing business (operating expenses, game costs, and retailer costs). That’s great for the state, not so good for the players. Las Vegas offers better odds and always honors its wagers.
The statistical section was of particular interest in terms of who plays the various games and the monies spent as a function of each state in the USA.
A number of pie charts dissected lottery players as a function of their age, their gender, their ethnicity, and their household income. Accompanying pie charts for each of these attributes for the overall state adult population percentages were also presented. This permitted easy comparisons.
I was shocked that no major deviations were revealed. Although the numbers varied a little around the state’s generic distributions, no meaningful distortions appeared. Each group roughly contributed its fair share of dumb and dumber suckers. The odds are so bad in these state run games that I characterize their wayward players as suckers, and not gamblers.
The statistical section of the report also presents a state-by-state table of how much per capita each state player contributes to its lottery pools. A surprisingly huge disparity exists comparing state averages.
North Dakota, Oklahoma, and Montana are the smartest with lottery sales per capita below and in the $50 range annually. Massachusetts is by far the dumbest at $725 per capita. Who said the wisest investors/gamblers were in the Northeast?
Please visit the reference and checkout your state’s propensity to play this Losers game.
Best Regards.
Illinois' economy and bond rating are, by far, the worst of all 50 states and the s**t has yet to hit the fan. Just wait until they begin to default on their debt (bond) obligations. All of this is complicated, of course, by foolish investors , mutual funds, etc., who have ignored the perilous financial situation as they reach for worthless yield. Illinois is the United States' answer to Greece.
Seems so.
If Illinois doesn't turn things around (and honestly, not sure how that's going to happen) and you have problems elsewhere (Puerto Rico, etc), MBIA/Ambac/Assured Guaranty are going to be problematic again, like in 2008.
Beyond anything else though, you can't have a state BS and say things are okay when they take the step of giving lotto winners IOUs..
This is precisely what I am talking about. I would sell FLTMX on this basis alone. This is similar to what Michael Hasenstab did at with his Templeton Global Bond Fund for several years. He stuffed his face and, unfortunately, his portfolio with Greek bonds because of their juicy yields, betting that Greece would never default (or, more likely, never be permitted to default by the EU) and he is now paying the piper. Just my opinion, but I would be pre-emptive in this regard and sell any bond fund with significant holdings in State of Illinois bonds - they are worthless.
I'm glad you asked. Every state's GO bonds are rated in the A range, meaning each state "has [at least] STRONG capacity to meet financial commitments". So all the major muni raters are not (yet) concerned about Illinois' (or any other state's) ability to pay.
An "A" rating doesn't mean a state won't go into technical default, just that it could pay if it got its act together. Like California in 2009 (under the Gubernator) and 1992 (under Pete Wilson), that issued IOUs when its legislature couldn't pass a budget either.
A difference between the IOUs of Calif. (especially in 1992) then and Illinois now is that California issued those IOUs to state employees. These were people who had worked for their pay and relied upon that money for their living expenses. Illinois is issuing IOUs until it passes a budget to lottery winners who will be getting windfalls.
Getting back to FLTMX - a state's GO bonds can be rated very differently from revenue bonds or municipal bonds within the state. Each has a different source of cash, a different ability to pay, and thus a different credit rating. For example, on Moody's page for Chicago, there are two Aug 26th ratings actions on Chicago O'Hare bonds - one is affirmed at Baa1, the other at A2. Both differ from Moody's Chicago GO rating (junk), and Illinois' GO rating (A3). One can't judge the risk on the state breakdown alone.
http://www.msn.com/en-us/news/us/illinois-lottery-sued-for-not-paying-winnings-due-to-state-budget-impasse/ar-AAe7onA?ocid=U305DHP
If Illinois doesn't turn things around (and honestly, not sure how that's going to happen) and you have problems elsewhere (Puerto Rico, etc), MBIA/Ambac/Assured Guaranty are going to be problematic again, like in 2008.
"Rousseff's approval ratings, which are now in single digits, fuelling opposition calls for her resignation or impeachment."
Markets | Wed Sep 9, 2015 11:27pm EDT Related: BRAZIL
Brazil downgraded to junk rating by S&P, deepening woes
RIO DE JANEIRO | BY WALTER BRANDIMARTE
Standard & Poor's downgraded Brazil's credit rating to junk grade on Wednesday, further hampering President Dilma Rousseff's efforts to regain investors' trust and pull Latin America's largest economy out of recession.
The faster-than-anticipated downgrade from investment grade will likely rock Brazilian financial markets on Thursday and will increase borrowing costs for the government and Brazilian companies.
Brazil first won its investment-grade credit rating in 2008 and the S&P downgrade is a major setback for Rousseff, a leftist struggling to kick-start the economy and shore up weak public finances.
It further sours market sentiment about the country and Brazilian assets will suffer because many investors will perceive higher risks.
S&P cut Brazil's rating to BB-plus, the highest junk rating, from BBB-minus.
It warned less than two months ago that a downgrade was possible but the unusually fast move underscores how quickly Brazil's economy and public finances have deteriorated since then
The economic crises and the corruption scandal have both battered Rousseff's approval ratings, which are now in single digits, fuelling opposition calls for her resignation or impeachment.
Following the downgrade, some traders late on Wednesday said the currency could plunge to a 13-year low of 3.9 per dollar on Thursday.
http://www.reuters.com/article/2015/09/10/us-brazil-ratings-s-p-idUSKCN0RA06120150910