Board Agrees to Add 1,500 Lotto Outlets

The California Lottery Commission, reacting to reports that revenue from its new Lotto game is running $280 million below projections, voted Wednesday to buy $11 million worth of new ticket terminals.

Hoping to speed delivery of the 1,500 new machines, the commission decided not to call for competitive bids from computer gaming companies.

Instead, over protests from one computer company and a state watchdog agency, the commission voted 3 to 2 to award the contract to GTECH Corp., the Rhode Island firm that won the original contract in February to install the computer system and the first 5,000 terminals for the Lotto 6/49 game.

Lottery Director Mark Michalko said the new machines, to be installed early next year, will allow the public easier access, thus increasing activity in the dollar-a-play numbers game. The terminals record a player’s number selection in a statewide computer system and deliver a ticket in the form of a receipt.

Michalko called the action “perfectly permissible” under the terms of the original contract with GTECH, and added that the deal would mean tens of millions of dollars more revenue for the state school system, which collects 34% of lottery revenue.

Michalko attributed part of the estimated $280 million shortfall to an unforeseen delay in the start-up of the Lotto game, which began in October. But the lower-than-expected revenue also is partly because potential customers have difficulty finding the existing 5,000 retail outlets and others grow discouraged by long lines outside retailers that do have the machines, he said.

Conclusion of Studies

“It is a forgone conclusion that aggregate sales would increase as a result of increased accessibility of the terminals,” Michalko said in a memo to the commission.

But even with the new machines, the lottery is expected to fall short of its projection that Lotto would bring in $800 million this year, Wednesday’s report concluded.

Michalko initially had called on the commission to authorize the purchase of 2,500 additional terminals. That would have brought another $60 million into lottery coffers, Michalko estimated. He said he was uncertain of the amount of money that 1,500 new machines would raise.

Facing protests from other computer gaming companies that wanted a chance to bid on the contract, the commission balked at Michalko’s request for 2,500 machines. Instead, Commissioner Laverta Montgomery proposed what she saw as a compromise--buying 1,500 machines--and that passed on the 3-2 vote.

“The number of terminals is not the issue,” outgoing commission Chairman Howard Varner said in a losing effort to have the contract put out to bid.

Countering Michalko’s statement that the commission’s “overriding” concern should be to raise money for education, William J. Johnston, the newly elected chairman who also opposed the no-bid purchase, said “the overriding objective is the integrity of the lottery.”

However, arguing for approval of the immediate purchase, Commissioner Kennard W. Webster echoed Michalko’s statement that more terminals would increase revenue to the schools.

“If I’m going to get tarred and feathered, I’d rather be tarred and feathered on the competitive bidding issue,” he said.

Michalko warned that if the commission called for bids on the added terminals, he would not be able to order the new machines until at least August. He added, however, that the commission will need 2,500 to 7,000 more terminals--beyond the existing 5,000 and the 1,500 authorized Wednesday--and said bids on those machines will be sought next summer.

GTECH defeated four competitors when it won the contract to install the computer system and terminals for the new Lotto games. The deal is worth at least $121 million to GTECH and may be worth as much as $200 million, depending on sales, lottery commission figures show.

The watchdog Little Hoover Commission Tuesday released a letter chastising the lottery for failing to put more purchases out to bid.