Governor Corbett Determines Lottery Private Management Agreement is in Seniors' Best Interest

Press Release

By:  Tom Corbett
Date: Jan. 17, 2013
Location: harr

Governor Tom Corbett today announced that contracting private
management of the Pennsylvania Lottery with Camelot Global Services PA LLC is
clearly in the best interest of Pennsylvania's seniors.

This partnership will maximize Lottery profit to ensure secure, predictable funding
for programs benefitting a dramatically growing senior population.

The decision came following nine months of due diligence and deliberative
evaluation to ensure maximum growth while protecting the integrity of the lottery
fund.

"Our state's fast-growing population of seniors demands that we act now to ensure
the continued strength and viability of programs supporting older Pennsylvanians,"
Corbett said. "This is about providing for and protecting seniors, and nothing else.
Today in Pennsylvania there are nearly 2.7 million individuals age 60 and older, and
that number will grow to 3.6 million by 2030. We have the fourth largest
population of older adults in the country, and with that comes significant and costly
obligations."

"This partnership will allow us to add an additional $50 million in the upcoming
budget to preserve and improve the system for seniors," Corbett said. "We will use
this new money to address the need and demand for our programs, specifically, I
propose to use it for home and community-based services so that older adults may
continue to live in their homes."

The additional $50 million in the upcoming budget proposal will include:

· $21 million for the Aging Waiver: The Aging Waiver Program provides
in-homes service to 28,000 seniors over age 60 who are clinically and
financially vulnerable.

· $20 million for the OPTIONS Program: OPTIONS provides care
management, home-delivered meals, protective services and in-home
services for individuals age 60 and older. Additional increases in revenue
would help decrease the waiting list of 5,400 older adults who are waiting
for home support and personal care services to keep them in their homes.

· $5 million for Increased Investment in Area Agencies on Aging
(AAAs): Pennsylvania's 52 AAAs cover all 67 counties and serve as the
front door for the Department of Aging services at the local level. The
AAAs serve 600,000 people.

· $2 million for Senior Center Modernization: This investment will help
senior centers prepare for the changing demographics and make them
attractive to a younger, aging population.

Combining Forces for Record Profits

Under the contract, Camelot's annual profit commitments will provide 9.5 percent
compounded annual growth over the first five years of the contract and 6.1 percent
compounded annual growth over the first 10 years of the contract. Comparative
fiscal analysis against projected Lottery performance shows incremental profit
growth of at least $460 million over the first five years of the contract and at least
$1.3 billion over the first 10 years of the contract.

Camelot is obligated to provide a minimum of $34.6 billion in profit over 20 years,
which is at least $3 to $4.5 billion more than Lottery's sales projections and its
historic performance suggest it could generate over the same time period and
under the same conditions as set forth in the PMA.

Since the contract can be renegotiated at year 10 to ensure maximum responsible
Lottery growth, these impressive incremental gains may likely be significantly
higher over the 20- to 30-year contract term.

"An apples to apples comparison, taking into account Lottery's own projections for
Keno and Internet products, clearly demonstrates that private industry investment
and expertise will grow Lottery profits to support a growing senior population,"
Corbett said.

Camelot plans to achieve the higher profit levels by expanding the player base in
Pennsylvania through marketing changes, retail expansion, enhancement of the
retail experience and exploration of a rebalanced Lottery game product portfolio.
"The Pennsylvania Lottery is one of the best Lotteries in the country, without a
doubt," Corbett said. "We've come up with a win-win scenario where we combine
one of the nation's best lotteries with one of the best private-sector lottery industry
experts in the world to grow and protect Lottery profits for decades to come."

While the commonwealth plans to retain about 70 employees under the PMA,
Camelot intends to retain and hire under its management all current employees
who are committed to working toward increased sales and profits. Throughout the
PMA process Camelot has acknowledged the tremendous asset the Lottery
workforce is to its success, and the private manager intends to expand Lottery
employment in Pennsylvania over time.

Additionally, the commonwealth has committed to identifying opportunities for
employees who do not transition to Camelot to remain state employees, so that not
a single employee is left without a job.

Camelot's Experience

Camelot has managed the United Kingdom National Lottery for the past 18 years,
succeeding in attracting more than 50 percent of U.K. adults to play the National
Lottery on a weekly basis, compared to 29 percent of Pennsylvanians who currently
play the Pennsylvania Lottery on a weekly basis. That 50 percent demonstrates a
greater reach than any other fast-moving consumer goods brand in the U.K.

Beyond the U.K., Camelot was a founding shareholder of the South African National
Lottery and has advised the Interprovincial Lottery Corp of Canada, the California
Lottery, and the Massachusetts Lottery in North America.

In California, Camelot provided consulting services to help it to increase sales and
returns to the state education system. Camelot reviewed the lottery's retailer and
sales support services, as well as consulted on advertising, promotions and
corporate social responsibility. Camelot's expertise on business planning, as well as
sales and marketing support, helped put the California Lottery in a position where
per capita sales have increased by over 40 percent and it now expects to generate
an additional $2.25 billion in incremental sales, and $780 million more in profit over
the next two years.

What Does Not Change Under the PMA

"While this is an exciting time of change that will reap tremendous rewards for
seniors in the immediate and long-term future, it's also worth noting what will not
change as a result of this private management agreement," Corbett said.

"The Pennsylvania Lottery will remain the Pennsylvania Lottery -- an institution of
tremendous integrity and character -- and its important mission to fund vital
services for older Pennsylvanians will not change.

"Pennsylvania Lottery players will eventually see new games and other exciting
changes to the Lottery product line, but the games they know and love will continue
to be available to them for the immediate future.

"The Pennsylvania Lottery's more than 9,100 retailers will continue to receive
unparalleled support as our valued business partners and key contributors to the
Lottery's continued success.

"And finally, the commonwealth will continue to own and control all aspects of the
Lottery, ensuring social responsibility, quality and integrity of games and the
public's absolute trust in Lottery's business practices."

The Process

The notice of contract award was issued Friday to Camelot, completing a
procurement process that began last April, allowing the Corbett administration the
opportunity to disclose contractual and procurement details of the PMA at the
Senate Finance Committee Hearing on Jan. 14.

Last spring, the commonwealth assembled a team comprised of individuals from
various agencies including the departments of Aging, Revenue and General
Services, the Pennsylvania Lottery, the Governor's Budget Office, the Governor's
Policy Office and the Governor's Office of General Counsel, to explore the feasibility
of a Lottery PMA.

The procurement was conducted in phases. The first phase was a Request for
Qualifications (RFQ), which initially qualified Camelot, GTECH Corporation and Tatts
Group Limited to participate in the process based on financial capability, social
responsibility and technical capability and suitability.

Once a pool of qualified bidders was established, the Commonwealth began a
multistep sealed bidding process, also known as an Invitation for Bid (IFB). The first
step of the IFB was a due diligence process with the qualified bidders, in which the
Commonwealth explored the various ways to maximize revenue; conducted initial
probity investigations into each bidder's character, fitness and suitability for such a
transaction; and developed a private management agreement that preserves and
sustains the established integrity, value, and tremendous success of the Lottery
while maximizing revenues for the benefit of senior programs.

Tatts withdrew from the procurement in August 2012 to pursue other U.S. PMA
opportunities it believed to be more commercially attractive.

In the second step of the IFB process, bidders were invited to submit priced bids in
the form of binding APCs for the initial 20-year term of the PMA.

GTECH withdrew from the procurement in November 2012, just before final
business plans were due, citing a one-sided PMA in the commonwealth's favor as its
top reason for not submitting a priced bid.

Camelot's priced bid was received on Nov. 16, 2012. Multiple bid extensions were
negotiated to accommodate completion of a probity investigation into Camelot's
integrity and allow additional time for receipt and review of a counterproposal from
the union representing Lottery employees.

Risk mitigation firm Kroll Advisory Solutions conducted onsite investigations in all
jurisdictions in which Camelot has operated and where individuals proposed to
influence Pennsylvania operations have lived and worked. Kroll's investigation
encompassed work in Canada, South Africa, the U.K. and the U.S. Kroll interviewed
more than four dozen individuals, including current and former government
officials, U.S. and international regulators, former colleagues and business partners,
as well as other individuals with knowledge of Camelot and the individuals. Kroll
did not identify any material misstatements or omissions, criminal litigation or other
issues that reflect negatively on Camelot's or the individuals' backgrounds or
business practices.

After careful review and consideration of the union counterproposal, the
commonwealth determined the alternative plan to be lacking in a number of key
areas, most notably: a lack of new money as security comparable to the $200
million in security provided for in the PMA; a lack of industry experience in building
and balancing a product portfolio to maximize profit, rather than maximize profit
margin; and lack of detail regarding plans for expanding the player base, growing
the retail network and increasing demand for terminal-based games.

At the conclusion of the nine-month meticulous and judicious process, the
commonwealth determined Camelot's bid was responsive, conforms in all material
respects to the requirements of the IFB and proposes the highest responsible
commitments for maximizing revenues to support senior programs.

Corbett thanked Rep. Tim Hennessey, Chester County; Rep. Seth Grove, York
County; Sen. Bob Mensch, Montgomery County; Sen. Mike Brubaker, Lancaster
County; Sen. Pat Browne, Lehigh County; Rep. Stephen Bloom, Cumberland
County; Rep. Mauree Gingrich, Lebanon County; and Rep. Kerry Benninghoff,
Centre County; along with all the Republican leaders who support additional funding
for senior citizens.

The Pennsylvania Lottery was created in 1971 to generate funds for programs
benefitting older adults. Since 1972, when its first game went on sale, the
Pennsylvania Lottery has contributed nearly $22.6 billion to programs that include
property tax and rent rebates; free transit and reduced-fare shared rides; the lowcost
prescription drug programs PACE and PACENET; long-term living services; and
the 52 Area Agencies on Aging, including hundreds of full- and part-time senior
centers throughout the state. The Pennsylvania Lottery remains the only U.S.
Lottery that exclusively designates all proceeds to programs benefitting older
residents. Learn more at www.palottery.com.