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

December 24, 1992|By C. Fraser Smith | C. Fraser Smith,Staff Writer

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.

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