Lottery Firm’s Conduct Criticized

The new director of California’s lottery, a former prosecutor, is accusing the GTECH Corp. of launching a campaign to intimidate her and other state officials into renewing its $400-million contract to operate Super Lotto and other computerized games.

In her first far-reaching interview since Gov. Pete Wilson appointed her interim director in June, Maryanne Gilliard, 35, said conversations with other state lottery directors and incidents she has witnessed convince her that intimidation may be part of a national strategy the company uses to keep a firm grip on lottery contracts.

“At the very least they’re attempting to influence a decision here and that’s just not going to happen,” she said. “We’re going to go forward with this procurement.”

Officials for Rhode Island-based GTECH called Gilliard’s comments unconscionable and accused her of spreading untruths about their company.

Gilliard’s unusual decision to go public with her complaints about GTECH demonstrates the extent to which relations between the giant lottery contractor and the Wilson administration have soured in recent weeks.

Under the governor’s previous lottery director, Sharon Sharp, the agency was criticized repeatedly for being too cozy with GTECH and at one point was even lambasted by state auditors for writing contract specifications that so favored the company that rivals refused to bid.

Gilliard said it was because of the controversy surrounding the last contract and Wilson’s specific desire for competition that she and the five-member commission have decided to seek competitive bids rather than exercise a one-year option to extend GTECH’s contract.

Gilliard said her first inkling of the company’s tactics came when she told three of its officials at a Sept. 10 meeting that the lottery did not plan to renew the contract when it expires in 1998.

She said the GTECH officials, who had carried a large, covered box into the meeting, suddenly opened it and pulled out a thick, unsolicited report. She said she later reviewed the report and could only describe it as a “hit piece on the California lottery.”

The report charged that the California lottery had been so poorly managed over the years that education, the recipient of its profits, had been denied nearly $2.5 billion in revenue. The report, also distributed to lottery commissioners, has since been made public along with a written statement by the commission chairman who called it misleading and said it was clearly designed to promote the continuation of the GTECH contract.

“I think it was very interesting that one event followed the other in such a close proximity of time,” Gilliard said. “It was when we told them that we were intent on going out for competitive bid that we received the document. This is a document that has a date on it of June and we didn’t receive it until Sept. 10. I think that’s rather curious.”

Robert Rendine, a spokesman for GTECH, said the report was never intended to intimidate but was simply designed to assist the lottery and provide advice on how it could improve sales.

He said a cover letter, which was never made public by the lottery, clearly showed that the company had intended to submit the report whether or not the decision was made to renew its contract.

“To suggest some sort of inappropriate behavior is to us absolutely incredible,” he said.

But as recently as last week, Gilliard said she had another meeting, this time with two GTECH officials, in which there were again, in her view, veiled suggestions of intimidation.

She quoted the officials as saying that their corporate leaders were so angered by events in California that it was all the GTECH California office could do to keep them from “taking the gloves off.”

She said they didn’t explain what “taking the gloves off” meant, except to say that corporate officials had threatened that if “things didn’t calm down” in California they would have the author of their report call a news conference to once again highlight its findings.

Rendine disputed Gilliard’s version of events. He said none of the GTECH officials present could remember anyone using the phrase “take the gloves off,” but he acknowledged that they did convey their concern that the California lottery was spreading misinformation about their company.

He said other lottery directors around the country had reported getting calls from Gilliard complaining of GTECH’s hardball tactics in California and asking if the company had done anything similar in their state.

“Naturally there was concern back here that someone would be trying to call our other customers with what turned out to be, we think, certainly not a positive recognition of what the company was trying to do,” he said.

However, Eugene Balonon, the acting chief deputy director of the lottery, said he too was at the meeting and remembered the reference to gloves.

Gilliard said she had been talking to other lottery directors, but said they had primarily initiated the calls and wanted to relate their own experiences with GTECH. She said most of them were so frightened of GTECH that they would not speak publicly about their concerns about its tactics.

“They don’t want to go on the record. They don’t want to have their names mentioned. . . . They’re just flat afraid,” she said.

Rendine said if anyone was afraid it was GTECH. “We are very afraid of our customers and live everyday at the whim and bequest of all of our customers and their happiness,” he said.

Gilliard, a lawyer who does not plan to make a career at the lottery, said one of the things she found so objectionable in the GTECH report was criticism of lottery management based on the fact that per capita lottery sales in California were extremely low.

“Where GTECH finds fault with California is that on an individual basis your Aunt Rose or your Uncle Pete doesn’t, in their view, gamble enough,” she said. “And I just don’t see that as a negative. I think that’s very good that we don’t gamble as much as people do on the East Coast.”

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BACKGROUND

GTECH Corp., the world’s largest operator of on-line lottery games, has held a contract with the California Lottery since 1986. During that time, the Rhode Island-based company has earned a total of $395 million from its California operations. The current contract, which expires in October 1998, allows GTECH to earn 2.9 cents on every dollar wagered in the lottery’s Super Lotto, Fantasy 5, Hot Spot, Daily 3 and Decco games. That five-year contract was awarded GTECH in 1993 amid accusations by competitors, who refused to bid, that contract specifications had been tailored to favor GTECH. A state audit later found that the lottery, in violation of its own policies, had indeed discouraged competition by bid specifications favoring GTECH.