State officials awarded a lucrative contract Wednesday to operate the Maryland Lottery to the highest bidder, over the objections of the company that offered the state the lowest price.
The Board of Public Works voted 2-1 to award the contract to Scientific Games International Inc., which currently runs the lottery. Gov. Larry Hogan was joined by Treasurer Nancy K. Kopp in approving the recommendation of the State Lottery & Gaming Agency. Comptroller Peter Franchot dissented.
Scientific Games, of Alpharetta, Ga., made an offer valued at $263 million over 10 years. That was $50 million more than Gaming Innovations LLC of Lanham, which bid $212 million. A representative of Gaming Innovations protested the award to the board, but was turned down after lottery agency director Gordon Medenica told members that Scientific Games was the most technically qualified bidder.
A third company, IGT Global Solutions Corp. of Providence, R.I., finished second in both technical and financial scores, but did not contest the agency's decision after dropping a protest in January. Its offer was valued at $238 million.
The lottery contract is one of the richest the state awards, and one of the most hotly contested among the handful of companies in the industry. When the contract is reopened for budding every decade or so, its award is typically greeted with charges and counter-charges of bias and favoritism.
The contract awarded Wednesday was no different.
Lawyer Ralph Tyler, representing Gaming Innovations, criticized the lottery agency's handling of the procurement.
"Right out of the box, they're giving away $51 million that we submit will not be recovered," he told the board. "The process was skewed to favor the incumbent."
Tyler said the agency changed its rules midway through the bidding process. He said Gaming Innovations was initially told that the fact that it was a joint venture between the Greek company Intralot and the minority-controlled DC09 LLC would not be held against it, but later found that it was downgraded on its technical score for that reason.
Medenica said it was only after the rules were outlined that the agency began to have doubts whether Gaming Innovations was a real entity, and which of its component companies would be in charge.
The lottery chief minimized the importance of the $51 million difference between the highest and lowest offers. He said that amounts to about $5 million a year for an operation that returns about $575 million in annual revenues to the state — or less than 1 percent of the lottery's sales.
Medenica said the agency estimated that Scientific Games would produce about $113 million more in revenue over 10 years than Gaming Innovations.
Emmanuel S. Bailey, chief executive of DC09, said Medenica had no reliable data to back up that estimate.
Also opposing the contract award was Tessa Hill-Aston, president of the Baltimore chapter of the NAACP. Despite heavy lottery sales in the city, she said, Scientific Games had done litttle to help the community.
Medenica defended the firm, saying it produced revenue for the general fund that is used to finance city programs.
Under the contract, Scientific Games is to replace and upgrade the lottery's more than 12-year-old online sales system, as well as the terminals at an estimated 4,600 retail outlets across the state. It will also replace the telecommunications network that is the backbone of the system.
With renewals, the contract could be worth almost $342 million over 12 years, the agency estimates.
Gaming Innovations' opposition to the award was hobbled by the fact it had dropped its challenge to the agency's decision before the Board of Contract Appeals, which typically adjudicates such complicated procurement disputes.
Michael Johansen, a lawyer for Scientific Games, urged the board to reject Gaming Innovations' case because the company had not gone through that process.
Hogan, a Republican who recruited Medenica to head the lottery agency in 2015, moved to approve the contract. Kopp, a Democrat, agreed, saying the agency had responded adequately to the objections.
Franchot, a Democrat, said he objected on the ground of the cost, and expressed skepticism about the lottery's revenue projections.
After the vote, Bailey said he doubted he would bid on a Maryland lottery contract again. He said his venture had been shut out of receiving information to which Scientific Games had access in preparing its bid.
"All you hope for is a fair, open and objective and transparent process, and Maryland has a history of the exact opposite," he said.
Pat McHugh, a senior vice president with Scientific Games, welcomed the result.
"The lottery and the board did a thorough job answering all the questions that were raised," he said. "It was a fair and balanced process."