Tennessee's lottery will have two industry giants -- GTECH Corp. and Scientific Games International -- create and run its games for the first seven years.
The Tennessee Education Lottery Corp. board unanimously voted Friday to award the contracts based on the recommendation of an internal committee that spent a month reviewing proposals.
GTECH got the contract for online games; Scientific Games will run the instant ticket games.
The value of the contracts is based on a percentage of net sales. Tennessee lottery officials said they got a much better deal than other states.
"I am amazed, astonished and very happily surprised at the incredibly low prices we received from the dominant vendors in the industry," said lottery chief Rebecca Paul.
Paul said if the games bring in $900 million in the first year -- an aggressive estimate, she said -- GTECH would get $10.5 million, and Scientific Games would make $5.6 million.
Scientific Games estimates its contract is worth about $80 million over seven years. "We've started the majority of new lotteries in recent years. There are a lot of variables, but based on the demographics, this is what we think," said spokeswoman Lisa Lettieri.
GTECH expects revenues to be between $120 million and $130 million over the life of the contract.
Tennessee officials hope to launch the lottery's instant ticket games by Feb. 10 and the online games within 60 days afterward. Paul said the agreements with GTECH and Scientific Games make it more likely the games will be in place early.
The lottery is expected to raise at least $88 million by June 30 to pay for scholarships for an estimated 65,000 students attending Tennessee colleges and universities next fall.
The lottery board had previously rejected a joint venture proposal from Georgia. Lottery board chairman Denny Bottorff said those negotiations may have played a role in getting a lower price.
"They knew they needed to come in on low rates," he said. "The most important thing, I think, is that this is an endorsement of the staff and says this lottery is going to be very successful not just at startup but over the long haul."
GTECH, based in West Greenwich, R.I., is the world's largest online lottery provider and has a reputation for getting lotteries started quickly. 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.
The company will provide computer equipment and services, including terminals for operating games and satellite dishes connecting them to a central data center. GTECH also will help with instant ticket validation, verification and similar services.
GTECH also had bid for the instant ticket contract, but spokesman Bob Vincent said officials were not disappointed.
"Obviously we would have preferred to provide one point of accountability with the lottery, but we will work as part of the team to make sure it starts up in record time," he said.
GTECH has agreed that at least 20 percent of its subcontractors will be minority businesses; Scientific Games will have at least 15 percent.
Scientific Games, the country's leading supplier of instant lottery tickets, will provide a wide array of instant products as well as ticket warehousing and distribution. The Alpharetta, Ga., company also will provide marketing staff to help recruit retailers. The company also had bid for the online business.
Memorandums of understanding with the two companies will be signed by Dec. 2, and the full contracts approved as soon as possible after that, lottery officials said.
EDITOR'S NOTE: "Online" is lottery industry terminology that refers to retail computer terminals linked to a telecommunications network. It is not a reference to the Internet or the World Wide Web.
About GTECH Corp.
- Headquarters: West Greenwich, R.I.
- U.S. market share of online business: 63%
- Worldwide: Supplies equipment to lotteries in more than 40 countries.
- Handles 280 million transactions daily.
- Introduced "Quick Pick" for players seeking randomly generated numbers.
About Scientific Games International Inc.
- Headquarters: Alpharetta, Ga.
- U.S. market share of instant-ticket business: 65%
- Worldwide: Supplies tickets to lotteries in more than 60 countries.
- Has delivered more than 90 billion instant tickets since 1974.
- Popular tickets carry licensed themes including: Elvis, Harley Davidson, Jeopardy, NASCAR, the NBA, Wheel of Fortune and more.
U.S. Lotteries Using Both GTECH and Scientific Games
- New Jersey
- New Mexico
- New York