Maker of lottery machines is earning big numbers

June 23, 1991|By C. Fraser Smith | C. Fraser Smith,Sun Staff Correspondent

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.

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