The company warns that it may not go ahead with its plans because bills before the General Assembly fail to provide it with a portion of the slot machines in a new gaming facility.
Citing the casino legislation in front of the General Assembly, GTECH Holdings Corp. is reviewing its planned investments in Rhode Island -- including its proposed $88.5-million corporate headquarters in downtown Providence.
GTECH says the two casino bills before the General Assembly do not guarantee that it can operate slot machines in the proposed West Warwick casino, contradicting a contract the company signed with the state last year.
Last year, the state gave GTECH a 20-year deal to run the Rhode Island lottery, which includes operating video slot machines at Newport Grand and Lincoln Park, with the company keeping a portion of the sales. The contract also guarantees that GTECH can operate the the lottery's slot machines at any new gambling facilities.
But the pending legislation circumvents that guarantee, according to the company, and a casino could cause GTECH's sales in Rhode Island to slide.
"We're anxious to understand the state's position on this," said Robert Vincent, a spokesman for GTECH.
Last year, when GTECH negotiated its contract to become the exclusive lottery provider to the state, the possibility of a casino was discussed. Provisions were included in the contract for protecting GTECH's revenue stream if a casino significantly decreases its take at the state's two existing gambling parlors. GTECH operates nearly half the video-slot machines at Newport Grand and Lincoln Park.
However, according to GTECH, those provisions were not taken into consideration during the drafting of the casino legislation. The Senate and the House are expected to vote on bills today and tomorrow, respectively, that would allow a statewide referendum in November on the casino that Harrah's Entertainment is seeking to build.
GTECH said yesterday that its revenue stream is not protected in the legislation, and it could end up seeing significantly less money from its exclusive deal than it originally anticipated.
"I guess it's somewhat startling to us, that 11 months after we had the celebrations that we did [about the contract], that something would be passed by the state leaders that would have such a dramatic impact on that deal," Vincent said.
As far as GTECH is concerned, when the General Assembly drafted the casino legislation it did not hold up its end of the deal.
"I don't know that they appreciate the level of impact [the legislation] has on our investment," Vincent said.
House and Senate leaders couldn't be reached for comment yesterday.
If a casino causes gambling to drop at Lincoln Park and Newport Grand, and GTECH is not guaranteed a revenue stream from a new casino, it would be hard for the company to justify investing $100 million in the state, Vincent said.
"We certainly are reviewing all of the options that we have that were related to the investment decisions that we made in Rhode island," said Vincent.
Under the deal signed last year, GTECH could be freed from several requirements if its state lottery revenue drops due a casino. If there was a 10-percent revenue reduction, GTECH would not have to invest $100 million in its corporate headquarters and in lottery system upgrades by December 2008, and it would not have to keep 1,000 employees in the state. Also, the company would not be obligated to make other lottery system improvements and updates.
If competition from a casino causes total revenue from the state's existing gambling facilities to fall 10 percent compared with the prior year and overall video lottery terminal revenue is less than $450 million a year, the state would have to pay GTECH. The company paid the state $12.5 million last year to secure the contract. If revenue falls, the state would have to return a prorated portion of the fee.
The state made the deal with GTECH last year, after the company said it was thinking about moving its 1,050 employees to Massachusetts. In return for staying in Rhode Island and building its corporate headquarters in Providence, the state offered GTECH the exclusive contract. The contract to run the lottery is expected to generate $770 million for GTECH.
As part of the deal, the West Greenwich-based company receives licenses to run 1,860 of the state's video lottery terminals at Lincoln Park and Newport Grand. GTECH gets to keep a portion of each machine's income. The contract also gives GTECH the rights to run the central computer that manages all the video slots in the state.
Under the terms of the contract, if the Rhode Island Lottery Commission "obtains" any new gaming machines -- such as at a new casino -- GTECH would be entitled to operate at least 50 percent of the new video lottery terminals or "other gaming machines," such as traditional slots.
However, under the recently drafted casino legislation, the Rhode Island lottery would not obtain any machines -- Harrah's would handle them directly. Consequently, GTECH would not get 50 percent of the machines.
Vincent said GTECH does not fault Harrah's. Instead, the company points to state legislators for not making sure the casino would be set up like Newport Grand and Lincoln Park.
Harrah's said it would be willing to work with GTECH.
"GTECH is somebody who we are partnered with in other jurisdictions," said David Satz, Harrah's vice president and lawyer. "[We would be looking to] do future work with them and ultimately provide an opportunity for them to get their product into our other properties throughout the country and be working with them here as well."
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