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Maker of lottery machines is earning big numbers

THE BALTIMORE SUN

WEST GREENWICH, R.I. -- At GTECH, the world's leading maker of computerized lottery machines, winning numbers hit almost every day.

Operating profits are up by $83.2 million this year -- 90 percent beyond the previous year. In January, the company had 46 national, state and provincial lottery contracts. Today, 51 governments buy lottery computers from GTECH.

Leaving little to chance, the company has moved to the top of the lottery industry in a nanosecond of commercial time. Sixty-four percent of lottery terminals anywhere on the globe were made by this company, which was started in the mid-1980s.

One of its newest customers, the Maryland State Lottery Agency, christened its new central computer operating center in Columbia on Friday, the first step toward fulfillment of the company's $64 million Maryland contract. Yet, while GTECH's product has been widely praised, its political tactics are widely questioned. In many of the states where it has won hefty contracts, the complaints of legislators or losing competitors have resulted in court cases or investigations. So far, GTECH has survived them all.

Its business soared even as national and state economies swooned. As the federal government provided less aid to states, more and more legislatures set aside moral doubts to tap revenue streams fed by the public's enthusiasm. The idea that government budgets should not become dependent on betting is an anti-lottery argument that few even remember.

"It's not a flash in the pan," Guy B. Snowden, a GTECH co-chairman and the company's spokesman, insists. "It's a sustainable form of non-tax revenue."

One Wall Street analyst, in fact, suggested that lottery computer stock is becoming about as reliable as that of a public utility.

A 46-year-old systems engineer with a string of racehorses and a risk-taking approach to the politics of state-run gambling, Mr. Snowden and his partner, Victor Markowicz, have convinced one set of lottery officials after another that the GTECH technology and GTECH marketing are right for them.

Outside the company's red-brick world headquarters here, the main parking mall has been extended repeatedly to provide additional room for flagpoles: A new one is needed to fly the flag of every country, state or province signed on to buy GTECH terminals, turning the company grounds into a United Nations of the lottery business.

But winning in the political arena has generated controversfrom coast to coast.

In California, GTECH spread more than a half-million dollars in political campaign contributions between 1986 and 1987, according to the Los Angeles Times, after the state's legislature became involved in setting guidelines for a $120 million lottery contract.

"You want people to know who you are when you want to speak on an issue," Mr. Snowden said.

His company flew one legislator to Rhode Island for a tour of the GTECH plant and paid him $6,500 in speaking fees -- in addition to expenses. The FBI later investigated the activities of the legislator -- hauling the GTECH name through the newspapers.

In Missouri, Mr. Snowden discussed his company's needs and desires with Jo H. Frappier, a former aide to Missouri Gov. John Ashcroft.

Later, Mr. Snowden gave Mr. Frappier a lucrative consulting contract.

That arrangement resulted in an investigation into whether Mr. Frappier had inside information valuable to Mr. Snowden as GTECH prepared its bid.

"I met with him and asked if we should hire a lobbyist, a PR firm. His recommendation was 'You don't need anybody, and I don't think the lottery agency is happy with the current vendor,' " Mr. Snowden said.

He also suggested what Mr. Snowden called "a skinny bid" -- a low one, in other words, in deference to the state's fiscal condition.

"So that's the way we structured the bid," he said. "When we won, I was quite grateful."

The Missouri State Police investigated and found no criminal violation.

But the controversy lingers. Representative Karen McCarthy, a Democrat from St. Louis, says she believes "ethical" questions remain.

Ms. McCarthy said she is concerned that Mr. Frappier, who had responsibility for the lottery agency during the time it entered its contract with GTECH, went to work as a GTECH consultant when he left the governor's office.

State law, she said, was designed to prohibit this sort of revolving door situation. If that law is not clear, she said, it must be made so.

As someone with high hopes for the Missouri lottery, Representative McCarthy said she is troubled by the trail of controversy behind GTECH -- though she concedes it also comes with a reputation for providing state-of-the-art computers and sophisticated marketing services. She said she wonders if the company's tactics have allowed it to move quickly from new kid on the block to virtually the only kid on the block. More and more of the competition appears headed for bankruptcy, she observed.

In Colorado, GTECH's successful bid was challenged because one of its employees, J. David Smith, had been convicted of transporting an illegal gaming device in Kentucky seven years earlier and because a lottery official said GTECH had offered a job to a man who was advising the lottery contract committee. Having discovered that problem prior to filing its bid, GTECH removed Mr. Smith from his involvement in the Colorado contract.

State legislators pursued these complaints, but GTECH was cleared and held on to its $20 million contract.

James E. Hosker, former lottery director in Massachusetts and president of a national association of lottery officials, says GTECH has prevailed in the bidding competition and survived the incessant controversies by providing state-of-the art machinery and attentive service.

But Mr. Hosker's objectivity has been challenged by GTECH's competitors who allege there were ties between him and the company when he was in Massachusetts.

Mr. Hosker, who is now director of the Kentucky lottery, says these charges are sour grapes.

Mr. Snowden agrees with the view that lotteries have been mired in conservative approaches of the past. He found such a situation in Maryland -- a lottery agency that operated in "an ivory tower" -- with obsolete equipment and marketing approaches that left the lottery unable to grow.

To win the contract in Maryland, he hired the highest paid lobbyist in Annapolis, Bruce C. Bereano. Mr. Bereano, in turn, hired Marvin Mandel, the former Maryland governor and the man under whom the state established its lottery. Mr. Mandel, who had been convicted of mail fraud and racketeering, immediately was referred to in GTECH's hometown newspaper, the Providence Journal, as a "notorious" former governor. GTECH and Mr. Snowden winced.

Hiring Mr. Mandel was a decision of dubious merit and one Mr. Bereano did not clear in advance, Mr. Snowden said during an interview last week. "I was not happy with Bruce's decision. He did not consult with me. He said the thing had turned very hot, and he needed help."

Mr. Snowden says he objected to Mr. Mandel's involvement because "one lobbyist is enough." "It seemed like overkill to me. I was not happy Bruce had made that commitment," he said. Yet, Mr. Snowden did not intervene.

And he won with a bid that was $20 million below that of the incumbent vendor, Control Data. At the time, Mr. Snowden told a reporter, "Bereano certainly created a theater in which we could operate."

The lobbyist complained that the state's request for bids on a new computer system were tilted toward Control Data.

Mr. Bereano has said his success at getting the bid specifications adjusted -- and winning the contract for GTECH -- was more difficult to achieve than winning a presidential pardon for Mr. Mandel, a task in which he had some role. (Mr. Mandel's conviction was later overturned in U.S. District Court, following a Supreme Court ruling.)

Control Data, ousted by GTECH in Maryland, has asked the state attorney general to examine relationships between GTECH and other potential bidders for the Maryland contract.

While Control Data's concerns remain, it has taken no formal action to protest the GTECH victory. Company executives did not respond to inquiries made in connection with this article.

Mr. Snowden says he and GTECH are being "bludgeoned" by desperately jealous competitors -- "whitemailed" by surreptitious letters and FAXes carrying damaging allegations and half-truths, some of them printed in newspapers.

Last week, GTECH lawyers at Williams and Connolly in Washington demanded a retraction from the Duluth News-Tribune in Minnesota after the newspaper published a story suggesting a link between GTECH and alleged New Jersey organized crime figures. The purpose of the "fallacious" article, Mr. Snowden said, was to "defame my company."

Even without the specter of organized crime, Mr. Snowden says, technology, gambling and politics have proved a volatile mixture.

Mr. Snowden's company has been investigated in many of the states where it has competed for the usually lucrative lottery computer contracts.

In some cases, the investigations were a matter of routine state policy. In others, the inquiries arose from complaints made by legislators who objected to GTECH tactics.

Mr. Snowden says that he has become "the premier technologist" in his field. But to his competitors, he is the premier in-fighter --a man who will go to great lengths to win.

Mr. Snowden says he will not change his approach despite the controversies.

He said, "I don't think our practices should change. I'm dot dissatisfied with the results. The company is not doing anything wrong."

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