The mat that lies on the counter at the Warren Mart makes it easier for lottery players to select one of the many games available.

The Providence Journal / Bob Thayer

PROVIDENCE — For five decades, state governments have maintained a stranglehold on lotteries, reaping huge gambling profits from the monopoly.

That tradition could be coming to an end, as cash-strapped states consider selling their games to private operators. The sales would generate a windfall to pay for roadway and school construction or to erase unfunded pension liabilities, while drying up annual lottery revenues that have been propping up state budgets.

For global lottery operator GTECH Holdings Corp., however, the potential changes would likely boost yearly profits.

GTECH, headquartered in Providence, is paid a percentage of the money generated by the lotteries it operates for states. If private equity firms raise those returns, GTECH’s cut would grow as well.

The idea of selling of lotteries has opponents, who have argued that the drive for profits would undermine a range of public policy goals. Private operators, the critics say, would target low-income neighborhoods and blanket TV and radio with the slick advertisements governments have largely avoided.

GTECH already runs lotteries in Europe and the Caribbean and its parent company, Rome-based Lottomatica SpA, controls the Italian lottery. In the United States, it helps run publicly owned lotteries in 25 of the 42 states that permit them, and it has acquired companies that sell equipment to many others.

GTECH spokesman Robert Vincent said the company does not have the capital to bid for a state lottery. But the discussion of privatization, he said, has already proved “beneficial.”

“Even if nothing happens, it’s good for us,” Donald R. Sweitzer, GTECH’s senior vice president for global business development, said. “It’s our job, wherever we are, to encourage states to have better games and better marketing. That’s great for everybody involved.”

So far, GTECH has not publicly endorsed the privatization model for the United States, a transition that would eliminate the jobs of the lottery operators who now control the company’s state contracts.

But the company is not exactly silencing the debate, either. GTECH executives have been meeting with state legislators across the country to discuss privatization and to project the potential growth in lottery revenue. Their message: squeamish state governments are surrendering millions in gambling winnings.

“States put on artificial limitations based on community concerns,” Vincent said. “It becomes a public policy issue. There are people who are morally against lotteries. That’s not a filter a private company would have.”

The Rhode Island Lottery, operating in GTECH’s shadow, has been relatively open to the company’s guidance, Vincent said. But analysts say most state lotteries are stymied by bureaucracy, inertia and regulations.

In South Carolina, for example, state law prohibits keno and caps the price of instant scratch tickets at $10, five times lower than in Texas.

“This is different than private business. We’re not the Las Vegas Sands,” Ernie Passailaigue, the South Carolina lottery director and president of the North American Association of State and Provincial Lotteries, said. “There are prohibitions and inhibitions that dampen the ability of a lottery to maximize the revenue.”

Private equity firms do not share those hang-ups, a freedom they hope to turn into serious cash. That confidence is expressed in their recent pitches to lawmakers in several states, including Rhode Island, promising multibillion-dollar payments to lease lotteries.

In Vermont, a company is offering at least $976 million for the lottery, with an immediate $56-million payment and an additional $23 million a year for 40 years. Lehman Brothers has valued the California lottery at between $16 billion and $37 billion.

Backed by an unnamed investment firm, Michael Jones, who directed the Illinois lottery from 1981 to 1985, is now trying to buy it. (He has also bid on the Indiana lottery.)

State lotteries, Jones says, have wasted too much energy trying to increase spending by current participants and too little recruiting new players. “Lotteries have potential,” said Jones, who runs a lottery research firm in Chicago. “Everyone is spending a huge amount of time selling to Joe Player. The significant growth is going to come from having a different entity with a different philosophy.”

At least two firms also see room for growth in Rhode Island, where lottery revenue dropped last year after decades of increases. Late last year, Lehman Brothers said a 40-year lease of The Lot could fetch as much as $6.4 billion.

Governor Carcieri has not embraced the prospect.

The state lottery, which oversees keno and all gambling at the state’s two slot parlors, is the third-largest source of income for Rhode Island. In the last fiscal year, it brought in $1.8 billion in sales and $321 million in profits. Carcieri’s spokesman, Jeff Neal, has warned against selling such a lucrative state asset to close short-term budget deficits, calling it a “huge disservice to future generations.”

Elsewhere, however, the privatization argument is winning converts.

In 2006 — the year Indiana leased a major toll road for $3.8 billion — the governor of Illinois proposed privatizing the state lottery. Last year, governors in Michigan, Indiana, Texas, Maine and California said they, too, were ready to cash out.

Last month, the governors of Vermont and New York took the same position, according to Arturo Perez, a fiscal analyst who has studied the issue for the National Conference of State Legislatures.

“As we enter into a period of economic slowdown, states will be somewhat likely to entertain this as a way to bring in revenues,” Kyle R. Gephart, an analyst for Fitch Ratings, said.

So far, no state has sold its lottery.

Critics of gambling say the same restraint that has hamstrung state lotteries should guide the decision to privatize. Private companies, they warn, would market the lottery aggressively to communities that cannot afford to gamble; introduce addictive games; and promote gambling on mobile phones and on the Internet.

Their arguments may well win the day. After all, politicians have regarded lotteries with suspicion since corruption prompted the widespread prohibition of lotteries early in the country’s history, despite their role in raising money for the construction of Harvard, Yale and Dartmouth. In an 1878 decision, the Supreme Court said lotteries have “a demoralizing influence upon the people.”

But the push from private equity groups has already spurred state lottery commissions to rethink their own gambling taboos, a trend that GTECH welcomes.

In Ohio, the governor recently called for the addition of keno. In other states, GTECH has successfully promoted a system for peddling lottery tickets at supermarket checkout counters.

“I look at the whole discussion as beneficial to us,” Vincent, the GTECH spokesman, said. “It hits our core business.”

bgedan@projo.com