Silvan “Sil” Lutkewitte III certainly has his work cut out for him as the man chosen to lead a government business many people believed wouldn't even be a government business by now.
But here he is, new executive director of the Pennsylvania Lottery, charged with bringing back the state-run — and state-run for the foreseeable future — business and convincing 230 full-time employees who worried about their jobs for two years that all is well.
"You've got to be realistic," he said about employee morale. "Nothing is going to change just because some guy stands up in front of them and says a few words. You're not going to change people's beliefs overnight. We all need to work on it, but I think recognizing (a problem) first is a good first step."
Gov. Tom Corbett has pursued selling off the management of the Pennsylvania Lottery for much of his time in office and had an agreement to sell it to British management company, Camelot Global Services PA LLC. But the agreement became the target of heated debate for almost a year, and on Dec. 30, Corbett announced he would no longer pursue the deal. Less than two weeks later, Lutkewitte was named to his new position.
Just about two weeks into the job, he was before the Pennsylvania Senate Finance Committee as part of a contingent asking for relief from the state-approved 30-percent profit mandate for the lottery. There is special legislative authority for a 27 percent profit mandate that expires at the end of fiscal year 2014-15.
Without the special exception, the lottery, a $3.7 billion-per-year operation, would have to "make adjustments to its marketing plan, including diminished payouts," according to the testimony from Pennsylvania Department of Revenue Secretary Dan Meuser.
That reduced payout would "likely reduce total sales over the first five years by an estimated $1.7 billion and profits by an estimated $830 million," Meuser told the Senate committee Jan. 27.
Lutkewitte took some time recently to talk to the Business Journal about the future of the lottery, privatization talk and how a nongovernment employee leads a government entity.
Q: How does your background help you in this position?
A: I think my background kind of starts from my education in accounting. The accounting background helps to look at budgets differently, at profit/loss statements differently, and that education has helped me in a number of different things I've done. I have a background in corporate finance, everything from running an indoor field house to a retail gas station business.
The lottery is a business, it should be evaluated like a business, and it should evolve like one. So I think my education and professional experience, not just as a retailer, all serve me well. The secretary and the governor made that assessment, and I'm glad they did. I think it's going to work out well.
This seems like a rarity, a high-level government job for someone who hasn't really spent that much time in government. How did that come about?
I'm certainly not the guy who's been involved with government for decades. I'd been active in my local government in Derry Township with the planning commission and I ran the municipal authority ... and in the past four years I've been with the (Pennsylvania) Independent Regulatory Review Commission (where he was chairman), where you can kind of get a broad view of the regulatory side. So, no, I'm not one of these guys who have been around for decades, but I've been around some of the folks who played a role in making this decision happen for a number of years.
The lottery has certainly come under scrutiny lately, with Gov. Corbett nearly succeeding in selling it off. What is the biggest test facing the lottery right now?
I think it's developing products that are innovative and respond to the competitive retail nature. And we need to do it with integrity so we meet our obligations in that area that it's all for the benefit of older Pennsylvanians.
We've got to keep our eye on the ball in that way, so we grow the profits for older Pennsylvanians. I think you do that with innovative products and doing it in a responsible way.
How does the specter of privatization affect how you do your job?
The most obvious answer is, if it's not on my radar, it doesn't affect my job. I realize the impact it has on the good folks that work here. I want to be able to boost morale and get people focused on their jobs, on our jobs on a collective basis, so that we can bring about the best results for the lottery. So the answer is really (it doesn't affect me), other than my being aware that we are with our employees in the morale business. It probably goes for everybody in the business, everybody is facing challenges.
Has employee morale picked up since the you got in there and the state decided not to sell off the lottery?
It's a focus of mind and we're going to chip away at it. People are resilient. They're always looking for a sunny day. Folks here are upbeat, they're positive. They can use some encouragement, they can use some positive signals. I wouldn't say they were down at all.
I'm really impressed with how dedicated they are to their jobs and the lottery. We had a staff meeting on the first day, and I asked everyone what their favorite part of the lottery is, and I got some great answers. People are focused on bringing about revenue for these programs at the Department of Aging. It's a tough question for me to answer. I can say the folks are professionals here, and they care.
• Sold at 9,100 retailers in Pennsylvania
• In fiscal year 2012-13, which ended June 30, 2013, the lottery had $3.7 billion in sales, up 6.3 percent from 2011-12.
• In 2012-13, it also had a record year of $1.07 billion in profits.
• The temporary, state-mandated profit margin for the lottery is 27 percent. The lottery’s profit margin was 28.9 in 2012-13. The profit margin goes to 30 percent after the 2014-15 fiscal year without government intervention.
• Silvan “Sil” Lutkewitte, the Pennsylvania Lottery’s new executive director, is a 20-year veteran of the gas station retail business. Most recently, he worked as a manager with Lehigh Gas, which has 57 licensed lottery locations.
• Lutkewitte is a Derry Township resident and is married with three adult children. He has a degree in accounting from Villanova University.