$121-Million Pact for Lotto Games Is Given to GTECH
The state Lottery Commission awarded a $121-million contract to the GTECH Corp. of Providence, R.I, Friday to create for California the largest computerized lottery system in the world.
The four-year contract provides for the installation and maintenance of 5,000 computer terminals and ancillary equipment throughout the state for use in the state’s first legalized numbers game.
Other board-approved contracts with Pacific Telephone, General Telephone Co., AT&T; and MCI for a supplemental telecommunications system raise the overall cost for the network to about $188 million, making it the biggest deal ever negotiated by the state of California.
The lotto games, expected to be in operation by late summer or fall, will offer a “pick-six” format, with payoffs to players who correctly predict six numbers drawn from a field of 40.
With potential top prizes of $50 million or more, the lotto games are expected to be even more successful than the lottery’s current scratch-off games, which have consistently set sales records since the lottery went into operation last October. Sales of the $1 instant winner tickets through this week totaled more than $1.125 billion, an average of $8.6 million a day.
A precise start-up date for the computerized lotto games remains uncertain.
Originally scheduled to kick off lotto this summer, lottery officials already are two months behind schedule. But Lottery Director Mark Michalko said Friday he is confident GTECH will bring the system on line within six months, as specified in the contract.
Services Seven States
GTECH currently services the lottery systems in seven states, with additional operations in Canada, Australia and Singapore. By the end of 1985, the firm was operating more than half the lottery terminals in the United States. Earlier this week, the firm won half of a $105-million contract to operate the computerized lotto system in New York.
The seven-member lottery staff panel assembled to evaluate the bids submitted last November for California’s system was impressed by GTECH’s track record, saying the firm’s technical competence “clearly exceeded” that of the other bidders--Control Data Corp. of New York; General Instrument Corp. of Hunt Valley, Md.; International Totalizator Systems Inc., of San Diego and Scientific Games International of Norcross, Ga. Scientific Games has the contract to run the current “scratch-off” ticket game, which will not be affected by Friday’s decision.
GTECH has “the necessary experience and stability” to handle the huge contract, the panel wrote in its report to Michalko. “GTECH offers a state-of-the-art, well-tested and reliable” computer system that “produced an incredible 400,000-plus transactions per minute on lotto bets, over three times the number required.”
The lottery director made it clear from the start that the bidders’ ability to deliver the goods--to bring a top-notch system on line as soon as possible and keep the system running--was more important than who offered to do the job for the least money.
In evaluating the bids, the staff gave the most weight--65%--to the bidders’ technical capability, planning, training, quality control and experience in the lottery field, with another 10% reserved for security and the involvement of women and minorities in their operations. Only 25% went to the price of each bid.
“You get what you pay for,” Michalko said. “The better systems cost more.”
The board awarded the contract to GTECH on a 4-0 vote. Board member William Johnson, former superintendent of the Los Angeles Unified School District, abstained, saying he wanted more time to consider the proposal.
‘We Are Prepared’
“We are prepared,” Pete Morrisey, GTECH’s vice president for marketing, told the commission. “We have been preparing for this for five years,” he said. “We have the financial ability, the technical capability, the manufacturing capability.”
The $121-million figure arrived at for GTECH is based on a percentage of sales--.5%--coupled with the estimated cost of providing the goods and services specified by the contract.
Michalko said this combined figure gives the state the best possible deal--providing GTECH with the incentive of a piece of the action, but denying the firm excessive windfall profits that might result from unexpectedly brisk sales.
In addition to the 5,000 terminals, the GTECH contract approved Friday calls for hookups for another 7,000 terminals to be added later; software; major computer centers in Sacramento and Whittier to which the terminals would be connected by dedicated communications lines and maintenance of the entire system.
Because of the size of the system, Michalko and his staff considered letting two firms split the contract. But in the end, he went with one, “because it makes it easier for us to achieve our long-term objective--taking over the entire system ourselves.”
The $67 million worth of telecommunications-system contracts have been approved in pieces, with the latest and largest--for $44 million over a five-year period--awarded Friday to Pacific Bell.
Intense Competition
While there was little public squabbling over these telecommunications contracts, the competition among the five bidders for the main lotto contract was intense.
Lobbying and courting the news media intensified to such a level last fall that an Oct. 14 gag order was imposed by Michalko on all five bidders.
“We don’t want one bad-mouthing the others,” Michalko said at the time, but he was already too late.
GTECH had begun sniping at Control Data and General Instruments about their business deals in South Africa, only to be criticized itself for a $600,000 loan it made that became part of a government investigation.
Scientific Games came under fire in some quarters for having written and bankrolled the successful 1984 initiative that established the California Lottery. But the Georgia-based firm picked up a prize for those efforts--the initial contract with the state last May to provide a one-year supply of “scratch-off” tickets for the instant winner games that began in October. That contract, based on a percentage of sales, has been valued at $40 million to $50 million.
The new lotto game will differ from the instant winner games in several respects.
In the instant games, participants can purchase tickets at any of approximately 20,000 retail outlets in California. Purchasers scratch off an opaque film covering six symbols printed on each ticket to see if there are any winning combinations of the symbols. In most cases, the dollar value of the winning combination is indicated by the symbols.
Instant games are considered “passive,” because the purchaser has no control over what the printed combination will be.
In the lotto games, participants will be able to purchase gaming cards at 5,000 retail outlets. After the participant has marked six of the 40 numbers on his card, it will be inserted into the computer terminal at the store.
Within a few seconds, the numbers selected and an identification code will be recorded at a central computer facility. The retailer’s terminal will then print out a receipt containing the numbers selected, the time, the date and the place of purchase.
Frequent Drawings
Chances to win big will recur frequently, with drawings of some sort probably scheduled weekly or even daily to determine the winning numbers. To claim their prizes, winners must present their receipts.
The size of the prizes will be determined by the number of people who buy tickets. If no one picks all six numbers, the top prize will be “rolled over” to the next drawing, which means the grand prize payoffs could mount quickly. Lotto rollovers in New York during the last six months have led to grand prizes of $30 million and $41 million, the largest lottery payoffs in North American history. The top prize in California’s instant games thus far has been $6.3 million.