Tax-funded private provision of welfare services in Sweden is among the most extensive in Europe. This paper focuses on a contradictory example of how discrepancies between neoliberal ideals and practice are embedded in the governance of Swedish preschool. Over time, national and local regulations in Sweden have become increasingly comprehensive and moved toward managerial systems. Using Alain Enthoven’s model of managed competition, and drawing on documents and interviews, this paper focuses on two right-wing, urban municipalities with a very high share of preschools operated by private actors, and their organization of local preschool quasi-markets in terms of so-called sponsors concerning five functions: establishing rules of equity, approving all participating private pre-schools, managing the enrollment process, creating price-elastic demand, and managing risk-selection. The findings show how instead of limiting bureaucratic power, municipal managers have been empowered to plan and optimize the organization of the preschool sector in ways discordant with neoliberal ideas.