Lottery wars

June 09, 1996|By Barry Rascovar

A WHIFF OF scandal, a hint of mystery. It must be lottery time. Depending on which side you believe, Maryland's new contract to run the daily lottery games is either on the verge of becoming a debacle or the losing bidder is trying to stir up trouble.

Much is riding on this $43 million contract. Given that Maryland reaps $410 million a year from its lottery activities, a botched transition would cost taxpayers dearly. The new operator, too, stands to suffer mightily if there is a foul-up. Automated Wagering International is now the Avis of the lottery-gaming world, but if its Maryland venture flops, the company may never recover.

That's because AWI is coming off a serious setback in Arizona, where its takeover of that state's lottery operations turned out so badly that the contract was terminated. AWI says it was ''sandbagged.'' GTECH is the world leader in electronic wagering; AWI is a distant No. 2, but in recent years has tried harder.

GTECH flourished with aggressive marketing and breakthrough computer technologies. But the company stirred controversies that led to numerous federal and state investigations -- and one in Britain, too. It often hires well-placed government officials and influential lobbyists to give the firm an edge in state capitals.

So successful was GTECH that the prior king of the hill, Control Data, left the field. The remnants of its lottery operation became AWI, now part of Video Lottery Technologies. AWI's recent revival stems from a strong link it forged with giant Electronic Data Services Corp., which was spun off from General Motors last week.

The two companies are bitter enemies. AWI feels GTECH put its predecessor company out of business through less than honorable means. GTECH adamantly denies such assertions. It still engages in aggressive bidding and lobbying to keep its considerable advantage. It doesn't like to lose. But it lost in Arizona, in Kentucky and in Maryland. GTECH underestimated how low AWI was willing to go -- or the sophistication EDS' computer whizzes brought to the firm.

Revenge in Arizona

GTECH got revenge in Arizona. It was slow to cooperate with AWI during the brief two months allotted for the transition (compared with eight months in Maryland), then pressed to have AWI kicked out when snafus persisted. Now GTECH is back in Arizona.

In Maryland, Control Data ran the lottery for 12 years, then lost out to GTECH, which lobbied furiously to have legislators interfere in a procurement award -- normally the realm of the executive department. The strategy worked; eventually, GTECH won Maryland's lottery contract with a shockingly low bid. A short time later, the lottery agency initiated its lotto game -- and GTECH's strategy paid off handsomely.

When this contract came up for renewal last year, Lloyd Jones, the no-nonsense lottery director, eliminated opportunity for political manipulation. He based the contest solely on price. AWI underbid GTECH by a stunning $53 million. It wants to make a name for itself in running a rapid-fire lotto game such as Maryland's. New technologies also have cut the cost of operating a lottery.

GTECH has not left the battlefield. It still has prestigious lobbyists in Annapolis raising doubts about its competitor. At last week's hearing, lawmakers took turns savaging state lottery officials. Some legislators had been well coached. GTECH officials sat in the audience watching the lawmakers' fury mount.

It turned out to be more smoke than fire. Legislators panicked when they read an analyst's report indicating AWI was far behind schedule in preparing for a July 22 start-up. But the document was misleading: Lottery and AWI officials decided in December to alter the timeline when they agreed on a new approach for bringing the computer system on-line. Both GTECH and AWI had suggested this change in their bid proposals.

Since then, AWI has met every deadline. Its CEO says the company is ahead of schedule. The lottery's data-processing chief says things are proceeding smoothly.

Still, legislators are concerned. That's fine with GTECH. In the automated-wagering wars, planting a seed of doubt is all it may take: If AWI stumbles, the outcry in Annapolis will be devastating.

Barry Rascovar is deputy editorial-page editor of The Sun.

Pub Date: 6/09/96

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