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GTECH scrutinized in bid for Tennessee lottery contracts

Nov 20, 2003, 7:00 am

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IGTIGT: GTECH scrutinized in bid for Tennessee lottery contracts

GTECH Corp., the lottery giant bidding for Tennessee contracts, has been praised for quick startups and leading technology.

But the company has also been criticized for aggressive lobbying and a series of missteps in the 1990s that led to the criminal conviction of one employee and culminated in an overhaul of top managers three years ago.

"I don't think their past record should reflect adversely on ... the present company, although it does require someone to look at them with a little more due diligence," said state Sen. Steve Cohen, who led the push for a Tennessee lottery.

The Tennessee Education Lottery Corp. will award contracts for online and instant ticket games by Nov. 24.

GTECH, based in Rhode Island, operates or supplies online systems for 26 U.S. lotteries and in 43 countries -- about 70 percent of the entire market. It's one of two companies competing for Tennessee's online contract.

The company is also competing for the instant ticket contract in partnership with Oberthur Gaming Technologies of Montreal.

The competition includes Scientific Games of Alpharetta, Ga., the No. 2 maker of lottery systems, which also is competing for both contracts. Pollard Banknote Ltd. of Canada rounds out the list of instant ticket competitors.

Founded in 1981 by former New Jersey Lottery consultants Guy Snowden and Victor Markowicz, GTECH began with just five customers and $12.5 million in revenue. Two decades later, its annual revenue exceeds $1 billion.

GTECH built a reputation for getting lotteries started quickly -- something that's important to Tennessee, which hopes to launch its games by Feb. 10. GTECH put the Washington D.C., games online in 66 days and Indiana's in 77.

But in 1996, GTECH's former national sales director, J. David Smith, was convicted of accepting $169,500 in kickbacks from lobbyists in New Jersey.

His conviction came three years after former GTECH lobbyist Clayton Jackson was convicted of bribing a California state senator. The company wasn't named in the indictment and cooperated with investigators.

The Atlanta Journal-Constitution newspaper reported in 1997 that federal grand juries have investigated GTECH's aggressive lobbying for vendor contracts in at least five states -- Georgia, Kentucky, New Jersey, New York and Texas -- but never charged the company.

GTECH is "very, very political. All I can say is watch out," said Bill Thompson, a University of Nevada, Las Vegas professor who has studied gaming for more than two decades. "If you give them breathing space, they're going to own legislatures. They spread money around."

GTECH had 10 people registered as lobbyists during Tennessee's most recent legislative session, when the lottery bills were developed and approved. They included the husband of a state commissioner, the daughter of a state senator, and the chief of staff for former Gov. Don Sundquist.

Cohen said GTECH's tactic of hiring politically connected lobbyists isn't unique.

"Unfortunately, that's how Tennessee politics has been for a long time," he said.

In 1998, Snowden, GTECH's co-founder, agreed to resign after losing a libel battle involving British billionaire Richard Branson -- who accused Snowden of trying to bribe him to withdraw a bid to run Britain's National Lottery.

Wyck Knox, chairman of the Georgia Lottery board from 1994 to 2000, said GTECH's problems were a concern in Georgia, which has contracted with the company since its lottery began in 1993.

"When there are allegations of wrongdoing of some moral danger in other jurisdictions, naturally we're concerned and want to check it out," he said. "All we could do is satisfy ourselves that (GTECH) was adequately performing under the Georgia contract, and they did.

"There was never a hint of wrongdoing in Georgia."

GTECH's turnaround began in 2000 with the resignation of its top two executives, which stemmed in part from management's handling of a software problem involving the British National Lottery. The replacement, former industry analyst Bruce Turner, has pushed the company to new levels of success.

In August, the Florida Lottery announced it would switch to GTECH from current online supplier IGT by 2005. Weeks earlier, the Rhode Island Lottery approved a deal giving GTECH exclusive rights to operate its system for 20 years.

And within the past few years, GTECH won a four-year contract extension with the Idaho Lottery and a new seven-year deal in Georgia, which officials say will mean revenue of up to $300 million over the contract's life.

"The proof is in the pudding," GTECH spokesman Bob Vincent said. "We've been very successful over the past three-and-a-half years because of the quality of our products and the quality of our people."

Tennessee already has ties to GTECH through lottery chief Rebecca Paul, who left Georgia for the same role in Tennessee.

Before joining Tennessee's games, Paul proposed a partnership between the two states that would have called for Tennessee sharing in Georgia's new contracts with GTECH and instant ticket supplier Scientific Games in exchange for help with startup here.

Tennessee officials ultimately decided against the deal after other vendors threatened to sue.

Neither Paul nor lottery board Chairman Denny Bottorff would speak in depth about GTECH, citing the bidding process. But Bottorff said, "They're the largest online vendor out there. So you know they're very capable people."


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