Lottery Board Awards Gaming Giant $300-Million Deal for New Machines
The California Lottery will get a face-lift in the coming year as roughly 19,000 decade-old ticket-dispensing machines are replaced in grocery stores and bars across the state.
Under a contract approved this month by the Lottery Commission, gaming industry giant GTECH Corp. will install sleek black and purple machines that promise to work faster, better and more cheaply than the last generation of terminals.
GTECH was the sole bidder for the last such overhaul in 1992. Complaints at the time that the lottery had grown too cozy with the Rhode Island company cost the lottery director her job.
Still smarting nine years later, lottery officials set out to attract as many bids as they could from an industry with just three major companies.
They got two, and said they were happy for it.
“We’re thrilled,” said the lottery’s chief deputy director, Dennis Sequeira. “It’s been something hanging over our heads because of the sensitivity of the contract, but it’s really paid off.”
GTECH won the contract by bidding a whopping $307 million less overall than Scientific Games International of Georgia. GTECH’s contract is worth an estimated $300 million over six years.
The nation’s only other major supplier of lottery equipment, Automated Wagering International, chose not to bid.
“No lottery in the United States is getting a lot of bids,” said Michael Huffenberger, lottery consultant for Battelle Memorial Institute, a nonprofit consulting firm based in Columbus, Ohio.
“It’s not that easy to enter the business, and there aren’t that many companies in it,” he said.
The latest GTECH contract not only dramatically undercut its competitor’s bid, it is approximately $45 million a year cheaper than the Lottery’s previous contracts for its gaming and related telecommunications systems, according to lottery officials.
In the past, the lottery has hired one company to install and maintain the machines that dispense Super Lotto, Daily Three, Fantasy Five and other game tickets, and other companies to electronically consolidate the data.
This year, the lottery fashioned a “bundled” contract, so that GTECH would be responsible for the computers as well as processing the data, a job now done by Pacific Bell and Verizon.
The new machines, which must all be installed by October 2003, are smaller. That should please space-conscious store owners, who earn roughly 6 cents for every dollar spent by Lottery players.
“The obvious difference between the old and the new is appearance,” said Richard Yamadera, manager of the Lottery’s Office of Enterprise Information Technology. “It’s the same games being offered. It comes down to the look and the size of the machine.”
With the new machines, the Lottery may some day sell gift cards worth $10, $25, $50 or $100, an innovation embraced by the Lottery director, Joan M. Wilson, a former executive with 7-Eleven Inc. “We’re trying to run this like a business,” she said.
Business is better than ever. Sales hit a record $2.89 billion last year with the help of two big Lotto jackpots and appear headed to match or top that this year, Lottery official Sequeira said.
Last year, the 17-year-old Lottery generated $1 billion for public schools. By law, 34% of lottery revenue must go to education.
Under the new contract, GTECH stands to earn between .99% and 1.19% of overall sales, depending on which pricing option the lottery chooses.
GTECH dominates the U.S. lottery business. In the 38 states with lotteries, according to Huffenberger, GTECH holds about two-thirds of the contracts, including those with the highest sales, among them New York, Massachusetts and Texas.
Scientific Games handles the lotteries for Connecticut, Vermont, Montana and New Hampshire, and has begun bidding on larger venues--including California.
“It probably did work to California’s advantage that Scientific Games was bidding against GTECH,” said Huffenberger, who was hired by the California Lottery to assess both bids. “Scientific Games has been known as a very attractive pricer. That may have influenced GTECH to be even more careful with their pricing.”
