Arnold's Easy Money Ain't So Easy After All

Lotteries make a lot of hay by promising the easily fooled the world in return for next to nothing. And so, it turns out, does Arnold Schwarzenegger.

For months, the governor has proposed "privatizing" (which would certainly mean massively expanding) the state lottery to pay for health care, balancing the budget, etc. He frequently claims the state could make $37 billion off of this gambit -- an astonishing figure, given that not even the 17,000 new slot machines voters approved under Props. 94-7 are expected to generate that much revenue for the state over 20 years.

In other words, free money -- California makes a bundle by doing nothing. Kind of like playing the lottery. But like the lottery, the promised payout here is wildly inflated, and there are far more losers than winners.

The AP took a look at Wall Street's estimates of the state lottery's worth, and found that Arnold was using the most optimistic -- and unrealistic -- numbers, while ignoring the other estimates:

The governor is employing the rosiest of projections from Lehman Brothers, which pegged the value of California's lottery between $16.1 billion and $37 billion over 40 years.

Other Wall Street investment banks — Bear Stearns, Citibank, Goldman Sachs, JP Morgan Chase, Merrill Lynch and Morgan Stanley — were more conservative. Most estimated the value of a long-term lease at between $7 billion and $29 billion with smaller upfront payments, usually less than $9 billion.

What's more, to make that money, Californians would have to be willing to get their government -- or its contractor proxy -- much deeper into the gambling business:

The Wall Street analysts say the state would have to give a private lottery operator freedom to sell tickets over cell phones and PDAs, in malls, on college campuses, at bus stations and through ATM machines. Ticket sales would have to more than double, to $234 per person.

There's the rub: You want the big bucks, you've got to let Sacramento hire charlattans who will try to fleece every gambling addict, fool, poor person, and college student into parting with his money. And even then, the bucks won't be anywhere near as big as Arnold says they will.

That's a far cry from something for nothing.