Firm that seeks to run lottery gets good reviews AWI has had troubles, but has solid record in other states

THE BALTIMORE SUN

Despite corporate troubles in recent years, the company that is offering to operate Maryland's lottery for less than half the current price has a solid record of running lotteries in other states.

Automated Wagering International Inc. is performing satisfactorily or better in at least six states where it supplies and maintains lottery computers, according to lottery officials in those states. A seventh state declined to comment because its contract is up for bids, and the eighth launched a contract with the company only last week.

That overall record may bode well for Maryland, which will save millions of dollars if it accepts the offer and Automated Wagering does its job.

The Atlanta-based firm wants to provide Maryland's lottery computers and games for $40 million over five years -- almost $50 million less than the only other bidder, incumbent GTECH Corp.

During the next two weeks, lottery officials expect to complete an examination of AWI's operations and finances. If they conclude the company can do all that it has promised, then AWI will take over lottery operations here next year.

The firm's performance seems to have been unaffected by upheavals in its parent company, Video Lottery Technologies Inc., in the past four years, including boardroom turnover and falling stock prices.

In Montana, for example, a lottery official noted that Automated Wagering took only a few minutes to get computers up and running after a confused beaver chewed through a telephone line this fall.

"It's an excellent vendor," said Rodger Leonard, executive director of the South Dakota Lottery, another AWI client. Lottery directors in Pennsylvania, Delaware, Minnesota and Washington state also say they are satisfied.

The Florida lottery would not discuss its experience with AWI because it is seeking bids for its coveted, $40 million-a-year contract. Lottery spokesman Ed George said he feared any comment could be misconstrued by rival contractors and spark charges of favoritism.

On Nov. 1, AWI began its eighth state lottery contract, in Arizona. Various glitches kept the new computer system from starting on time, and by Friday 10 percent of the lottery terminals still were not working.

Competition

GTECH, the Rhode Island firm that runs 26 state lotteries, is locked in a bitter battle with AWI for control of an industry that sold $28.5 billion of U.S. lottery tickets last year. Company officials blasted their smaller competitor for having trouble taking over a relatively "simple" contract.

"If you can't convert a system like Arizona's without any difficulty, you shouldn't be in this business," said GTECH spokesman Robert J. Rendine. His firm lost the Arizona contract to AWI.

Arizona lottery spokeswoman Andrea Katsenes said it was too early to say how much blame for Arizona's bumpy switch should rest on AWI. A thunderstorm and other problems beyond the company's control contributed to delays, she said. However, AWI likely will be fined for problems with instant ticket validation machines, she said.

GTECH's Mr. Rendine claimed that Marylanders should expect similar troubles if AWI gets the lottery business here, possibly resulting in lost revenue to the state. But Charles Brooke, AWI's executive vice president, disagreed, saying, "Maryland's start-up will go just fine."

Fueled by its competitor's comments, AWI's operations have come under local scrutiny since its Maryland offer was made public Oct. 10.

Some state legislators wondered how AWI could do a good job for so little money. Last month, Baltimore Del. Clarence Davis asked if changing companies is "playing craps" with state revenues. The Maryland lottery, now operated by GTECH, raises $385 million a year for state government coffers.

Lottery Director Lloyd W. Jones replied, "There is no reason to believe [AWI] cannot do the job."

GTECH has described its competitor's low bids as a sign the company is in "dire" financial straits. "They're clearly not a healthy company right now," Mr. Rendine said.

But does that matter? In fact, Maryland lottery officials don't care how profitable a company is, only that it is financially sound and stays in business. To safeguard lottery operations, the state will require whoever wins the contract to provide a $30 million bond as an insurance policy if the company fails to meet requirements.

Parent firm's woes

According to a Sun examination, AWI is not in the trouble its competitor claims, although its parent company had serious problems that forced a major management shake-up last year.

Parent Video Lottery Technologies experienced both boardroom turnover and financial trouble in the early 1990s, and there are lingering signs of weak financial performance. But those signs stop far short of suggesting bankruptcy.

Recent events strongly bolster AWI's view that it has mended most of its problems.

AWI benefits from a partnership forged last year with Electronic Data Systems Corp., the Dallas computing giant founded by H. Ross Perot. EDS's size -- about $10 billion in annual sales -- and its agreement to lend AWI money if necessary to finance AWI's growth, provide more financial security.

Video Lottery refinanced its short-term debt at attractive rates this year, an important sign of financial stability, and complies fully with tough financial covenants related to the loans, according to disclosures to federal securities regulators.

The corporation has a prominent new chairman, former U.S. Assistant Secretary of State Richard R. Burt, as well as a new finance chief and a new chief executive.

But this image of relative solidity is still new. As recently as early 1995, AWI's management record inspired little confidence.

At the end of 1994, AWI's short-term assets were much lower than its short-term debts -- potentially a dangerously unstable situation, especially for a company that got more than a third of its 1994 revenue from the Florida contract that is now up for bids.

Richard M. Haddrill, Video Lottery chief financial officer, said short-term finances got out of whack last year because he suspended bill payments after he arrived Dec. 1. He said he needed time to diagnose the company's problems and find a new lender to help restructure its debts.

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