NEWS ANALYSIS : Favoritism Worries Put Sharp in Hot Seat : Politics: Governor’s staff had asked former aides to sever ties to GTECH. Concern over links eroded lottery director’s support.

The resignation of California’s lottery director Monday amid allegations of favoritism in the awarding of contracts came after nearly two years of rising concerns within Gov. Pete Wilson’s office about the appearance of ties between the Administration and the lottery’s major supplier.

Bob White, Wilson’s chief of staff, urged two of the governor’s former advisers in December, 1991, to sever their connections with GTECH, a fast-growing computer firm based in West Greenwich, R.I.

White also tried, unsuccessfully, to persuade a third former Wilson aide not to lobby for the company.

White’s intervention came after a state senator said he had accepted a bribe from one of GTECH’s lobbyists, Clayton R. Jackson, who is now on trial on corruptions charges.

No one in the Wilson Administration nor at GTECH has been implicated in any crime.

But Jackson’s trial in federal court here pushed the issue into the open, forcing the Administration to explain and defend the connections between GTECH and the governor’s office.

Those associations undermined Wilson’s ability to defend Lottery Director Sharon Sharp against charges of favoritism after she repeatedly awarded contracts to GTECH without competitive bidding. Ultimately, the revolving door between Wilson’s office and GTECH may have cost Sharp her job.

Sharp said Tuesday that her resignation was voluntary. But sources familiar with the lottery have told The Times she was under pressure to leave.

Wilson has asked the state auditor to review the lottery’s procurement process.

The last straw for Sharp, apparently, was the public airing of a secretly taped conversation in which Jackson described Sharp as “our gal.”

Wilson’s arrival as governor in 1991 came at a key point for GTECH, a fast-growing firm with operations in 25 states whose initial contract with the California Lottery was about to expire. Then-Lottery Director Chon Gutierrez, appointed by former Gov. George Deukmejian, had intended to seek competitive bids before extending GTECH’s contract.

As Wilson formed his new Administration, he undertook a comprehensive review of the lottery, which was suffering a steep drop in sales and revenue. Joseph Rodota, a Republican political consultant volunteering as an adviser to the governor’s transition team, conducted the review.

Rodota and the governor’s appointments secretary, Terrance Flanigan, also traveled to a lottery convention in New Orleans to search for a director to replace Gutierrez. The pair forwarded a short list of potential nominees from which Wilson selected Sharp in September, 1991.

GTECH at this point was struggling to understand the new Administration, its intentions and key players.

For help, the company turned first to the lobbying and public relations company Spencer/Roberts, whose Sacramento office is run by Karen Spencer, who was Deukmejian’s representative in Washington when Wilson was in the U.S. Senate.

Soon after taking GTECH as a client, Spencer/Roberts hired Marty Wilson, who had been Gov. Wilson’s deputy chief of staff. Marty Wilson said he met two or three times with GTECH’s president and its California representative.

“I was helping them to develop a general California lobbying strategy in light of the fact that there was a new Administration and a new lottery director,” Marty Wilson said.

A GTECH public relations firm also hired Rodota, who had completed his work for Wilson several months earlier. His biggest project for GTECH was a research paper intended to help Sharp make the case for easing restrictions on the awarding of jackpots to people who were delinquent on child support payments.

Rodota’s work reflected a new strategy by GTECH. After several years of showering elected officials with campaign contributions, the company had decided to reduce its political donations and concentrate instead on building personal links to decision-makers, a company spokesman said.

The strategy seemed to be working. Unlike Gutierrez, who had been critical of GTECH, Sharp was open to the idea of extending GTECH’s biggest contract without competitive bidding.

Then came Alan Robbins’ bombshell.

Just before Thanksgiving, 1991, state Sen. Robbins announced that he intended to plead guilty to corruption charges and resign from the Legislature. Among other offenses, he admitted accepting a bribe from lobbyist Jackson on behalf of GTECH.

Although GTECH officials were not accused of wrongdoing, White, the governor’s chief of staff, urged Rodota and Marty Wilson to cut their connections with the company.

“We got the feedback in no uncertain terms,” Marty Wilson said. “The governor’s office said this just doesn’t look right. This was an inappropriate relationship.”

Rodota and the Spencer firm, for whom Wilson worked, broke from GTECH soon after.

Karen Spencer said she ended her association with GTECH not because of pressure from White but because the company kept Jackson on as a lobbyist even after he was accused of bribery.

A year later, GTECH dropped Jackson and again turned to the governor’s associates for assistance.

“We needed people who could . . . set the record straight,” said Bob Rendine, a company spokesman. Those people, he said, were Terrance and Timothy Flanigan, who formed a lobbying firm after Terrance Flanigan quit as Wilson’s appointments secretary in September, 1991.

Before accepting the contract, Terrance Flanigan told White about the idea. According to both men, White told Flanigan that he was concerned because Terrance Flanigan had helped Gov. Wilson choose Sharp to run the lottery.

“I made it clear that from my perspective, it would not look good for the governor, it would raise suspicions that were unnecessary,” White said in an interview.

Flanigan said he and his brother devised a set of rules to govern their work for GTECH. He said they decided they would not lobby the lottery or the lottery director and that Timothy, rather than Terrance, would handle contacts with the governor’s office.

As White had feared, GTECH’s hiring of Flanigan only increased suspicions about the company’s influence in Wilson’s office. Rodota’s return to the Wilson operation as a full-time secretary of the Cabinet also raised concerns among GTECH’s competitors.

When GTECH was given a five-year contract, rival firms complained that the bid specifications on the $400-million contract so favored GTECH that others had no chance of winning the competition.

Sharp insisted that the specifications were standard for the industry and a special task force appointed by Wilson to audit the procurement found no wrongdoing.

In September, Sharp proposed that GTECH be given another contract without competitive bid, this time for $23 million to set up an automated system for cashing small-prize Scratcher tickets. She said only one other company had expressed interest in the contract and it was not qualified.

The Lottery Commission, however, ultimately decided on competitive bids after it was alleged that two lottery officials had urged a third company to withdraw its interest in the contract.

Wilson on Oct. 7 removed the lottery’s deputy director and replaced him with an Administration trouble-shooter, Adelbert (Del) Pierce, who will run the lottery on an acting basis. Pierce reported to the governor with concerns about the lottery’s procurement procedures, according to a source familiar with the lottery.

Against this backdrop, defense attorneys in the Jackson trial introduced as evidence the tape of Jackson in November, 1991, expressing delight about Gutierrez’s demise and the elevation of Sharp. Jackson’s reference to Sharp as “our gal” was by then the political equivalent of a match thrown on gasoline.

She resigned less than three weeks later.