Should states lease out their lotteries?

Sunday's New York Times reported that government officials in at least 12 states are exploring the possibility of leasing out their state lotteries to private operators. California Gov. Arnold Schwarzenegger has voiced his support for the idea, where he says his state has been told it could reap a windfall of as much as $37 billion.

Critics contend that a privately held lottery would market itself more aggressively -- further victimizing the low-income and minority consumers who already form a disproportionate share of the lottery's customer base. Others worry that the traditional beneficiaries of the lottery -- schools -- would be shortchanged in the long run because the one-time cash infusion would be used to fund other needs.

But there's something else to think about. The only reason that the California Lottery is worth as much as $37 billion is that it exists as a monopoly, exempted from competition because the very government that sponsors it would send anyone to jail if they tried to do the same thing on their own. After all, gambling is wrong!

What makes the lottery a good business is that the payout ratios (tickets sold minus prize money paid out) are very low because there's no competition. If the lottery weren't a monopoly, competition would work, payouts would soar, and the lottery wouldn't be such a great business -- nor would it victimize the poor the way that it currently does.

But of course, private operators want to buy the monopoly rights to the lottery. But from a rational perspective, I have a problem with this: If Goldman Sachs (or whoever ends up winning the auction) can run a lottery, why shouldn't someone else be allowed to? If there's something wrong with the idea of legalized gambling (which, apparently there is, because it's illegal), does using it to raise money for state bureaucracy somehow negate that? What's next? The Massachusetts State Whorehouse?

We shouldn't be talking about privatizing the lottery -- we should be talking about abolishing it.