Lucrative Lottery Contract Fight Escalating : All-Out War Is Being Waged for Right to Build Computerized Gaming System
The lobbyist leaned in close to a reporter.
“General Instruments and Control Data both do business in South Africa,” whispered the representative of GTECH Corp., dropping a bit of gossip about two of his competitors for a $200-million computerized lotto contract to be negotiated soon.
The next day in the mail came more attempts to discredit rival companies. A stack of 2-year-old newspaper clippings from a General Instruments Corp. source described a $600,000 GTECH loan investigated by the government. Also in the envelope were articles about a controversial hiring by Scientific Games.
A week later, it was the chairman of the board of a major lottery company’s turn. In an off-the-record phone chat, he spilled tales of Machiavellian deals and double crosses by a couple of his major competitors.
Welcome to the bitter world of “on-line” lottery bidding.
And it is expected to get worse. Rarely is a big lottery contract awarded in any state without subsequent lawsuits by the losers.
While attention this week is focused on the instant ticket “scratch-off” game that starts Thursday, behind the scenes an all-out war being waged for the largest lottery contract ever negotiated. Indeed, the decision about who builds California’s massive computerized gaming system could literally make or break some of the nation’s high-rolling lottery businesses.
Unfriendly Competition
“It’s a very competitive business for a very lucrative contract,” said lottery Director Mark Michalko. “The competitors don’t particularly care for one another and they’ll take every opportunity they can to promote their own capabilities and cast aspersions on the others.”
Michalko says he is prepared. The bidders will be judged not on what they say about each other, but mainly on their experience and technical know-how. Besides, when the bidding process formally starts Oct. 14, there will be a gag order on all prospective vendors prohibiting them from discussing the contract with anyone but a designated lottery official. In part, said Michalko, “we don’t want one bad-mouthing others.”
In addition to the sniping, the dozen or so companies that plan to bid on the lottery’s computerized lotto game have spent more than $1 million on slick media packets, press conferences, lobbying, donations to legislators, travel, staff time, entertainment, demonstrations of computer equipment and a host of other activities, trying to put themselves in the best possible position to be named the winner (or winners) when the lottery announces its on-line contract decision Dec. 16.
At stake is the right to supply 5,000 terminals, plus all the backup technology, for the state’s first legalized “numbers” game, which is scheduled to start in late spring or early summer of next year. The winning company--or companies, as the lottery might pick two firms to handle the job--will receive 0.5% of the daily take of each terminal, plus costs.
When the miles of communications cables are laid (under a separate $100-million contract with four telephone companies) and the computers are whirring, California lottery players will be able to pick six numbers, hoping to match the ones picked by the lottery once or twice a week for jackpots in the multimillion-dollar range.
Lured by Profits, Prestige
The companies are being lured by the potential profits and the certain prestige of landing the big California prize.
“This is as important as anything can be,” said Richard E. Ponton, a vice president for the lottery division at General Instrument Corp. “It’s the largest (contract) in the world, so that’s the one we want to get.”
General Instrument, which recently lost contracts for on-line systems it was operating in Maine, New Hampshire, Vermont and Ohio, is one of the companies banking heavily on landing the California deal.
The firm has opened a separate lottery division and unveiled a new computer terminal Wednesday in Sacramento to blow its own horn within earshot of lottery officials.
$37,000 for Lobbying
To enhance its standing in Sacramento, General Instrument, which operates the Massachusetts lottery, has spent about $37,000 on lobbying in the first half of 1985, state disclosure reports show.
As for its business dealings with South Africa, Ponton said General Instrument sells computer terminals to race tracks but “has nothing to do with political, military or government work of any kind. . . . I would think the guys who are talking about us and South Africa should be worrying about some of the things they’re doing.”
GTECH Corp. is another firm hot on the trail of the California contract. It has won four out of the last six contracts awarded in the United States, including Oregon’s new $20-million contract to install 1,300 terminals. By the end of the year, GTECH will operate more than half the lottery terminals in the United States.
GTECH put in a high-powered lobbying effort--which included board chairman Robert K. Stern, out from Rhode Island--in the closing hours of the legislative session to persuade Democrats to stop fighting a bill that would allow GTECH to bid.
Bill on Disclosure
The bill, eliminating stringent disclosure requirements that GTECH’s stockholders wouldn’t meet (but their competitors would) had been held up by top black and Latino Assembly members hoping to force minority and female hiring guarantees on all major lottery contracts.
For a time, it looked as though GTECH was trapped.
But shortly before the Legislature shut down Sept. 14 for the rest of the year, GTECH’s lobbyists surged ahead, spreading the word about the South African connections of General Instrument and Control Data while ballyhooing GTECH’s own minority hiring record. And the bill squeaked through.
GTECH operates the lottery in mostly black Washington, D.C., in a joint venture with a minority-owned firm.
Dealings Questioned
GTECH’s dealings with the District of Columbia lottery often are called into question by its competitors, board chairman Stern says. The company loaned the lottery’s advertising sub-contractor $600,000 while GTECH was trying to win the bid there--a loan that later became part of a government investigation of the advertising company. “It always gets thrown over the transom by our competitors,” Stern said.
Stern contends that the loan has not prevented GTECH from winning any other bid, including one in New Jersey, although a probe of the loan helped delay GTECH’s contract there. In fact, protests over the loan and a competitor’s lawsuit held up GTECH’s New Jersey contract for nine months.
“And if New Jersey was dirty in terms of fair play,” Stern said, “it’s going to be nothing compared to California.”
Through the first six months of this year, GTECH spent $57,500 on lobbyists’ fees alone, according to state disclosure reports.
Powerful Rival
Then there is GTECH’s chief rival, Control Data Corp., which has the contracts to supervise the nation’s largest lotteries--in New York, Illinois and Pennsylvania--plus Maryland, Washington state and Delaware.
“We’re the No. 1 people in the lottery business,” boasted Control Data marketing manager Russell Pessina. Then, dismissing GTECH’s lead in the terminal count, Pessina added: “It takes no talent to put in a terminal. The number of terminals is irrelevant. It’s the amount of money you generate for the state from each terminal that counts. We generate more revenue per terminal.”
Control Data employs about 300 computer sales and service personnel in South Africa, although officials say the company is opposed to that nation’s system of race separation.
Firm From Georgia
Also vying for the lottery contract is Scientific Games Inc., the Georgia-based firm that wrote and financed the initiative campaign last fall to get a lottery in California. (Scientific Games--the only firm that could bid for the instant “scratch-off” games because of the way it wrote the initiative--won the $30-million to $40-million contract to operate the first games due to kick off the lottery Thursday.
The firm spent about $47,000 on lobbying activities through June, state reports show.
Included in the packet of old newspaper clippings that the General Instruments representative sent to The Times were some describing how Scientific Games hired as a consultant a Washington man who was employed by that city’s lottery.
“It blows my mind that someone dredges up, out of context, distorted facts that seem designed to discredit us when discrediting could (cause us to lose the contract),” said Robert Mote, executive vice president of Scientific Games.
“That facts are that we disclosed to the (Washington) lottery that we intended to accept what we thought was a former employee’s offer . . . and it was then we found out he was not yet terminated. It was investigated and we were given a clean bill of health.”
Another Tack Tried
Syntech International of Dallas also plans to bid on the on-line contract and has spent $18,750 on lobbying, mainly for the bill to modify disclosure laws. But unlike its competitors, the firm has steered clear of the brickbats that have been flying back and forth. “We don’t feel any need to backbite--performance speaks for itself,” said Peter Simmons, president of Multigame Ventures Inc., a subsidiary of Syntech that operates the Michigan lottery.
Two California-based companies also plan to bid.
International Totalizator Systems of San Diego spent $10,700 on a trip to Hong Kong for three Assembly members--Sunny Mojonnier (R-Encinitas), Sally Tanner (D-El Monte) and Gwen Moore (D-Los Angeles)--and one state Senate staffer, Terry Frost, consultant to the Government Organization Committee, which hears lottery bills.
The foursome looked over the company’s lottery and horse race system in that Far East city. International Totalizator spent about $9,000 on additional lobbying activities and, according to Brian Roberts, the firm’s lottery systems vice president, has built a $1-million mock-up of its Hong Kong system in San Diego to help convince lottery officials in California and other states of its ability to compete.
Large Contributions
Electro-Sport of Costa Mesa, which operates lottery terminals in Mexico and Guam, made two large campaign contributions recently in an effort to boost its presence in the state capital. The firm gave $2,000 to Sen. John Garamendi (D-Walnut Grove) and $2,000 to Sen. Paul B. Carpenter (D-Cypress), whose district includes the Electro-Sport plant.
The company has also spent “a couple of thousand” on lobbying, says board chairman Robert L. Burr, including a recent dinner Burr staged with Assemblyman Richard Alatorre (D-Los Angeles) to lobby for loosening the disclosure laws.
Burr says his competitors are interlopers.
“We pay California taxes. All those guys on the East Coast don’t. GTECH, Scientific Games, all those guys can’t say that even though they say they’ll build their stuff here,” Burr complained.
