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Will R.I. Lottery win or lose in $1 billion IGT contract battle?

Aug 13, 2019, 8:34 am

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PROVIDENCE, Rhode Island — Is it a wise move that would keep more than 1,000 high-paying jobs in Rhode Island or just the latest example of a "you gotta know a guy" back-room deal?

Is the lottery giant IGT as Rhode Island as Del's lemonade or as British as Big Ben?

In short, is the proposed no-bid, $1-billion, 20-year extension of IGT's current 20-year gambling technology contract a solid win for the Rhode Island economy or an ill-advised "sweetheart deal"?

As state lawmakers prepare to review the proposal this fall, those questions are swirling in the summer heat, fanned by a phalanx of well-paid lobbyists and public relations professionals.

In the months ahead, the smallest state's biggest controversy is expected to be this high-stakes battle over whether IGT gets to run the state's lottery system and provide slot machines at Twin River's casinos through 2043.

Rhode Island stood out for the length of its current contract with IGT even before Governor Gina M. Raimondo got behind the company's proposed 20-year contract extension.

Most gaming system contracts are for eight to 10 years, with extensions possible, according to a 2018 article in Insights Magazine, the official publication of the North American Association of State & Provincial Lotteries.

The article, titled "It's All in the Contract," said that at one end of the spectrum is the Oklahoma Lottery, which is prohibited by law from having any contract longer than one year, and the Arizona Lottery, which has a five-year base contract with five one-year extension options.

"On the other end of the spectrum is the Rhode Island Lottery's 20-year contract with IGT, which is due to expire in 2023," the article said. "That contract was part of a special economic development package with the state that kept the company (then GTECH) from moving its headquarters out of Rhode Island."

So which is better — a long contract or a short one?

Arizona Lottery Executive Director Gregg Edgar told the Globe that before he took over, the state had a poorly written 10-year contract, and going out to bid gave the state a chance to secure system upgrades, technology updates and reduced prices.

"It gives you flexibility so when you go out to the market you start with a five-year contract, but as you look to add games, vending machines and back-end services, it gives you some leverage," he said.

But a longer term contract could be written to ensure that a state benefits from updates and upgrades, Edgar said, and Rhode Island has a unique situation. IGT, which has moved its headquarters to London, lists Providence as one of its "principal operating facilities" and must, by contract, employ 1,000 people in the state.

"You have the headquarters of one of the big companies in the marketplace, and they could easily move elsewhere," Edgar said. "In Arizona, we have a bustling economy and are adding jobs all the time. In Providence, I don't know that you have that same job growth."

Oklahoma Lottery Deputy Director Jay Finks said 20 years is the longest lottery contract he's heard about but he knows of states with 10-year deals. He said the industry is dominated by publicly traded companies that want to secure long-term deals, so Oklahoma loses leverage when it can't guarantee contracts beyond a year and it's now looking to move to longer-term deals.

If Rhode Island is considering a 20-year deal, Finks said, "I would want to know the relationship with the vendor, the age of the equipment, what service you'll get, how much you'll save."

And above all, he said, "You want to build in protection in case something changes 15 years down the road: What happens if the company doesn't evolve? What happens if it's sold to an international company?"

That's not an academic question.

In its effort to win a 20-year contract extension, IGT is playing up its Rhode Island roots, running ads noting the company formerly known as GTECH started in a tiny office over Capriccio's restaurant in Providence.

"We know exactly where Almacs used to be," the IGT ad says, "and you will never see us drinking Del's with a straw."

But Rhode Island Republican National Committeeman Steven Frias — who supports putting the contract out to bid and avoiding what he calls the "you gotta know a guy" approach to economic development — said IGT is now based in Britain and controlled by an Italian investor group.

In 2006, GTECH was acquired by the Rome-based operator of Italy's Lotto. And in 2014, the Wall Street Journal reported that GTECH was buying casino-equipment maker IGT and — in a variation on so-called inversions — moving its base to the United Kingdom, where corporate taxes are generally lower than both the U.S. and Italy.

"So I don't see them as particularly Rhode Island," Frias said. "Rhode Islanders tend to be skeptical of corporate welfare and insider deals. If nostalgia or a Rhode Island connection were enough to get a business what it wanted, the PawSox would be building a stadium in Rhode Island instead of Worcester."

Rhode Island has been paying IGT (formerly GTECH) to manage parts of its lottery system for more than four decades. Lawmakers approved the company's existing 20-year contract with the state in 2003.

In exchange for overseeing the traditional lottery and providing slot machines to the Twin River casino, the company agreed to move its headquarters from West Greenwich to a new, $80-million building in Providence.

Although the current deal doesn't expire for four years, IGT is seeking a new 20-year deal worth more than $1 billion that would keep 1,100 jobs in the state and guarantee the company would have its video lottery terminals — slot machines and video poker games — on 85 percent of the floor at Twin River's casinos in Lincoln and Tiverton.

The company, which would also keep control of state's traditional lottery system, has offered to pay Rhode Island $25 million up front in the deal.

The proposal has the support of Governor Raimondo, who says the state would be at risk of losing many of the jobs IGT has created. But critics, like executives at Twin River, say the state's refusal to put the contract out to bid and the length of the deal is alarming.

Bob Vincent, a senior vice president at IGT, acknowledged his company doesn't have any straight 20-year contracts with other states, although it does have deals that include options that can span for that long. He said the company's willingness to commit to keeping its office and jobs in the state justifies the lengthy deal.

"This is an economic development agreement," Vincent said. "Its underpinnings are support for 1,100 jobs. The economics of that are supported by a 20-year agreement."

IGT maintains the average annual pay for its Rhode Island employees is $100,000, although executives acknowledge not every worker earns a six-figure salary. Company spokesman Bill Fischer said 330 employees are paid at least $150,000 a year.

Twin River has mounted an aggressive campaign against IGT, running full-page ads in The Providence Journal and airing radio commercials to argue the contract should be put out to bid. Twin River would also pursue the contract if given the chance, according to executive vice president Marc Crisafulli.

But Crisafulli, a one-time GTECH executive, acknowledges Twin River would need to find industry partners to execute both the lottery side of the agreement and oversee the slot machines. Despite its interest in the lottery, Crisafulli said Twin River is mostly concerned about the slots, arguing that some of IGT's machines are not as successful as they once were.

"Our primary issue is the quality of the machines on the floor," Crisafulli said.

Vincent, though, insists that IGT produces many of the best-performing slot terminals in the world, noting the casino at Encore Boston Harbor had no problem with bringing in IGT machines.

Crisafulli also accused IGT of attempting to water down its commitment to keep 1,100 jobs in the state as part of the new contract, suggesting the company plans to count consultants — even its army of lobbyists — to cover its bases on the employment guarantee.

"IGT is intentionally misleading the public," he said.

Vincent rejected Twin River's criticism. He said IGT plans to provide members of the General Assembly with company payroll data to back up the promises it is making in the proposal. "We are expecting that the speaker and senate president will keep their commitment to have hearings and act on this in the fall," he said.

The high-stakes controversy is already benefiting one group of Rhode Islanders: lobbyists.

"These are like lobbyist fantasy teams," Frias said. "They are trying to get the best lobbyists and public relations people in Rhode Island. You have the IGT team. You have the Twin River team. I pick Goldberg. You pick Murphy."

The IGT lobbyist team includes Donald Sweitzer, the retired IGT chairman who is now treasurer of the Democratic Governors Association, which is chaired by Raimondo. The state Republican Party has filed a state ethics complaint against Raimondo, claiming she and Sweitzer are "business associates" on the DGA.

The IGT lobbyist team also includes former state Senate Republican Leader Robert Goldberg, former state Democratic Party Chairman William J. Lynch, and former Providence Councilman Andrew Annaldo.

The Twin River team includes former House Speaker William J. Murphy, former House Majority Leader George Caruolo, former Providence Journal Executive Vice President Mark T. Ryan, and R. David Cruise, a former Raimondo legislative director, state senator and Traffic Tribunal judge, according to the secretary of state's lobbyist database.

A third team stepped onto the field recently when Scientific Games Corporation, an IGT rival, hired lobbyist Leonard Lopes. Twin River has said it could partner with Scientific Games if the contract went out to bid.

"The whole thing has become incredibly politicized," said Raimondo, who is pressing the General Assembly to approve legislation for the 20-year IGT extension. "Don't let this become political football. One year ago we lost the PawSox. It became political football. The legislature dilly-dallied. That was a minor league baseball team. This is a corporate headquarters with over 1,000 jobs. We have to get this right."

House Speaker Nicholas A. Mattiello said he has requested information from Raimondo's administration and expects the House and Senate finance committees to take up the proposed legislation this fall. He said he is committed to "open, transparent hearings that the public will take part in."

House spokesman Larry Berman said it's unclear if the full legislature will return to vote on the bill before the end of the year. It's a two-step process, he said, and the first step is for the finance committees to evaluate the legislation before deciding whether the Assembly will reconvene for a special fall session.

Boston Globe

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2 comments. Last comment 1 year ago by cottoneyedjoe.
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Simpsonville
United States
Member #163184
January 22, 2015
2253 Posts
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As many of LP members know I'm siding with IGT.   Leave it in Cranston, RI.   Would Twin River be able to one be able to absorb all of those employees and two would they be able to offer $100K per annum?   No to both.

    cottoneyedjoe's avatar - cuonvFT

    United States
    Member #197033
    March 28, 2019
    541 Posts
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    "IGT...must, by contract, employ 1,000 people in the state."

    "Crisafulli also accused IGT of attempting to water down its commitment to keep 1,100 jobs in the state as part of the new contract, suggesting the company plans to count consultants — even its army of lobbyists — to cover its bases on the employment guarantee."

     

    It's a legit concern. The temptation to fudge their numbers will be hard to resist with a 20-year contract on the line. In the age of increasing automation and "gig economy" contract work I wonder how they manage to come up with 1,000 bona fide payroll jobs that are performed in-state. Split lots of full-time positions into two part-time positions? Hire janitors in-house instead of using a cleaning company?

    ... Sooper dooper top seekrit winning numbers: 5 16 17 24 33 52 ...