Like lotteries, GTECH draws controversy, cash R.I. company dominates the industry

The company that landed the controversial contract to brin keno to Maryland next month has come to dominate the lottery business throughout the nation with a widely acclaimed product and a big-spending approach that has drawn the scrutiny of two federal grand juries.

Since it was founded in 1980, GTECH has earned respect -- and rising profits -- in its industry for a laser-like devotion to selling lottery computers, the only product it makes.


The Rhode Island-based company controls 70 percent of the lottery computer industry.

"Anybody who's gone head to head with GTECH for any period of time ends up with a headache and a bad one," said a local computer industry analyst who spoke on condition of anonymity.


Shearson Lehman Brothers, a New York brokerage firm, reported to investors on Dec. 15 the results of its own inquiries about GTECH and its grand jury involvements.

". . . Rumblings are not uncommon, and where there is contract bid activity there is also a wealth of accusations and publicity," the advisory said.

So far, mere investigations have had no discernible impact on the company's ability to win new contracts and add new games. Hungry for a reliable and growing stream of revenue, state after state chooses GTECH over a dwindling corps of competitors.

Earlier this month, GTECH cemented its hold on Maryland when the state awarded a $49 million, 3 1/2 -year contract for keno without competitive bidding after Lottery officials said no other company could do the job.

Individual investors have rushed to own a piece of the company. GTECH's stock started trading publicly in July, and lucky investors could have had it for $17 a share. It closed yesterday at $38.12 1/2 a share -- up nearly 125 percent compared with generally flat stock prices over the same period.

Reflecting its string of new lottery contracts, GTECH's revenues have also been on a roll, rising nearly 50 percent to $116.3 million in the three months that ended Aug. 31, 1992 from $78 million a year earlier. Quarterly profits grew to $11 million from $8.8 million.

Company officials see nothing remarkable in their ability to withstand negative publicity. Much of the controversy, they contend, is traceable to complaints from disgruntled losers in the bidding wars.

"What you have to realize, and what our investors do realize, is that we operate in one of the most strictly regulated industries in the world," says Craig Watson, a company vice president. "It is understood that there are many levels of review and inquiry in our business. In most jurisdictions it is a routine activity for a


company, its directors and officers to be fully reviewed."

GTECH -- short for Gambling Technologies -- operates in 25 of the 36 states that have lotteries and in 33 of the 42 computerized lotteries in foreign countries. Over the past five years, the company has won 28 of the 39 new contracts awarded worldwide. It is the only lottery computer supplier with customers on five continents, according to an analysis by Shearson.

Some argue, in fact, that GTECH got a near-corner on its industry by rolling the dice on new games. Calculating that states would almost have to add keno and the like, the company consistently bid low on contracts, betting it would do well in time.

New games bring with them a promise of "new customers," people who are not now lottery players but who might take a turn at keno or video poker if it were available in their local restaurant, bowling alley or bar.

Maryland's controversial venture into keno, scheduled to start here Jan. 4, was one of the triggers for the grand jury action.

In California, a federal grand jury is examining relationships between the computer company, state legislators and lobbyists.


"We are told we are not a target," Mr. Watson says, "and we are cooperating and assisting the grand jury [in California]."

GTECH made campaign contributions exceeding half a million dollars in 1986 and 1987 after the California legislature got involved in setting guidelines for a $120 million lottery contract.

"You want people to know who you are when you speak on an issue," GTECH's president Guy B. Snowden told The Sun last year.

A former California state senator admitted taking an illegal campaign contribution from a GTECH lobbyist. Alan Robbins, the former legislator, said he accepted $13,500 in exchange for his vote against a bill the company opposed.

New York State officials inquired with California authorities about the grand jury investigation there -- and then awarded its business to GTECH earlier this month.

In Maryland, as it has in many other states, GTECH hired the most prominent, highest-paid and best-connected representative, Bruce C. Bereano. He immediately hired former Gov. Marvin Mandel, a friend and ally of Gov. William Donald Schaefer, to assist him.


The company and its lobbyist succeeded in moving the lottery contract award process out of the usual procurement channel. Mr. Schaefer named an outside consultant to prepare a bid proposal and in 1990 appointed two panels, one to examine the technical sufficiency of the bids and one to examine the financial aspects. GTECH beat Control Data in 1991.

Though GTECH has not been active as a political contributor in Maryland, Mr. Bereano bought $7,500 worth of tickets to a Democratic Governor's Association fund-raiser at the request of Gov. William Donald Schaefer's staff, shortly before Maryland's lucrative contract was awarded. The association had asked its member governors to invite ticket-buying guests.

The company's lobbyist said it was only coincidence that his ticket purchases came at a time the contract award was imminent. GTECH, itself, bought $22,500 worth of tickets to the same affair.

After GTECH won the Maryland contract, its president, Mr. Snowden, was critical of Mr. Bereano's hiring of Mr. Mandel. The former governor's conviction for political corruption was overturned after he served a 19-month jail term.

"It seemed like overkill to me," he said. "I was not happy that Bruce made that commitment." At the same time, he credited Mr. Bereano with "creating a theater in which we could operate."

In Missouri, Mr. Snowden said, he discussed his company's needs with Jo H. Frappier, a former aide to Missouri Gov. John Ashcroft. GTECH won the state's business, and Mr. Frappier later got a 10-year, $80,000-a-year consulting contract with GTECH.


"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. Mr. Frappier suggested a "skinny bid" and

GTECH complied, following the approach it seems to have used in Maryland. It won the contract.

Missouri legislators subsequently tightened the state's ethics laws after legislators complained of a lucrative revolving door through which public officials could be enriched after they became private citizens.

In Texas recently, state officials conducted a sweep of the Texas Lottery agency offices in what some thought was a search for bugs designed to relay inside information on bidding. No bugs were found. As in Maryland, Texas hired an outside computer expert as a consultant to help insure that the contract process was clean. GTECH won the Texas contract, too.

In New York, the GTECH lobbyist, Tonio Burgos, was a former patronage chief for and top aide to Gov. Mario Cuomo. Mr. Burgos was paid $20,000 a month for about three months for his services. As in Maryland, where Mr. Bereano brought in Mr. Mandel, Mr. Burgos hired an assistant, also well-connected. Mr. Watson, the GTECH spokesman, said Mr. Burgos was hired to keep the company current on a number of gambling bills. He is no longer on the payroll, Mr. Watson said.

Earlier this month, GTECH prevailed in New York over Video Lottery Consultants, which bought the computerized lottery business from Control Data Corp., Maryland's former computer supplier. The two companies had half of New York's lottery business.


Now, GTECH has it all.

Shearson said it was concerned that the grand jury investigation in Maryland, announced Dec. 13, might hurt the acceptance of keno by other state lottery jurisdictions. "Our discussion with California would suggest otherwise. For California to (halt installation of its game) it would need to be something serious, perhaps, an indictment."

Behind that judgment is this compelling reality: As in Maryland, keno is a tonic for California's budget. With the game available in only half the anticipated locations, keno is already generating $7 million a week in addition to regular lottery revenues.