Lottery vendor reaps benefits

At $50 million a year, GTECH's deal may be the largest contract in Georgia government

Web posted June 22, 1998

By Frank LoMonte
Morris News Service

ATLANTA -- Georgia's Lottery has been very good to starving college students and pre-schoolers' parents - and it's been very, very good to a Rhode Island contractor that operates its games.

GTECH, the nation's largest supplier of computerized lottery games, has reaped about $220 million from supplying the computers and manpower for Lotto Georgia and other number drawings.

For five years, GTECH has received three cents from every dollar players spent on the lottery, one of the most generous lottery contracts in the country. That payoff declines this year to 2.3 cents per ticket.

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Overall, Georgia spends seven percent of its $1.7 billion lottery budget on administrative costs, with the remaining 93 percent split among prizes, education programs and bonuses to retailers who sell tickets.

The largest slice of that administrative budget goes to GTECH, a publicly traded company founded in 1981 by two former lottery consultants.

GTECH made $800 million last year from 78 state and national lotteries across the globe, according to company documents.

Officials at GTECH, which employs about 75 people in Georgia, won't discuss what it actually costs to supply the computer terminals, telephone lines and support services for the lottery.

``The percentage we are being paid in Georgia offers our company and our shareholders a fair return,'' company spokesman Steve White said.

GTECH was awarded the gaming contract in 1993 after Georgia Lottery Corp. passed over the low bidder, which unsuccessfully challenged the decision in court. The contract was renewed for another five years in 1997 without a new round of bids.

Although the $50 million-a-year deal may be the largest contract in Georgia government, Lottery President Rebecca Paul said it's worth the price to have GTECH's expertise and fast response time, which government can't match.

``There is an upgrade of computer technology continually to provide players with what they want,'' Ms. Paul said.

Only one state, Virginia, operates its own lottery instead of contracting with a private vendor.

Compared with other big-selling lottery states, Georgia compensates its vendor well.

Ohio pays GTECH 1.6 cents per ticket sold compared with Georgia's 2.3 cents. Florida pays 2.1 percent of sales to its contractor, Automated Wagering, but expects to cut that rate when the contract is rebid this year, said a spokeswoman for the Florida Lottery.

Ms. Paul downplays such comparisons, saying each state's contract offers different services and Georgia's is among the most inclusive.

For instance, GTECH provides more services to Texas than to Georgia, and the contract there pays 3.4 cents a ticket over the next five years.

``Hopefully, when this contract expires we'll be in a more competitive environment than we were with the last contract. But I believe we got a good price given the services we were asking for,'' Ms. Paul said.

In addition to supplying and repairing the computers that dispense tickets and validate winners, GTECH handles vendor relations and training.

The company supplies Georgia with market studies about how each game is selling and who is playing. But Ms. Paul said she doesn't use such studies for fear the lottery will be accused of ``targeting'' its sales pitch to poor people or other vulnerable buyers.

GTECH is coming off a difficult year in which its top two executives took early retirement, each receiving $9 million severance pay on top of their six-figure salaries.

Founder and chairman Guy Snowden departed after losing a civil lawsuit in a British court that accused him of trying to bribe a competitor into dropping his bid for a contract.

The company's Texas contract was heavily scrutinized, but renewed, after several politicians and their relatives turned up on GTECH's payroll, including a former lieutenant governor.

That practice drew criticism imperiling GTECH's contract renewal in Georgia when it was disclosed that the company was paying a former Kentucky state treasurer with ties to Georgia Gov. Zell Miller for a lobbying job.

In response to the criticism, GTECH is now doing background checks on all new employees and requiring more approvals before anyone is hired, Mr. White said.

``The facts are that we operate and have operated successfully in an industry that is tightly regulated and highly scrutinized,'' he said.