Should $55 Million Go To the Schools Or In G-Techs Pocket?

Consultant Hired by Lottery Was Being Paid by G-Tech Too ...

Posted: Monday, Jan 25, 2010
Updated: Feb 15, 2010

Update 2/15/10 - Editiorial & Opinions by Dawn Nettles - The Lotto Report

- More About the Lottery Bid (RFP) To Run the Texas Lottery -
Should $55 Million Go To The Foundation School Fund or In G-Techs Pocket?
(The AP News story follows my editiorial)

Last week's hearing before the Texas Lottery Commission to discuss the issues surrounding the recent revelation that both Gtech and the TLC were both employing the same consulting company raised more questions than it answered. The fact that the TLC's own internal investigation cannot rule out the fact that Gtech and Gartner may have had conversations about the RFP should result in this RFP being withdrawn and the Attorney General immediately beginning his own inquiry.

Gtech has a history of doing whatever it takes to win the lottery business and it looks like they are up to their old tricks again. In a 2007 report issued by the Texas Department of Public Safety it was stated that "GTECH is a very aggressive business entity that has a past history of protecting its contracts by lawsuit or threat of lawsuit and of pursuing new contracts with sometimes questionable actions". It appears that nothing has changed and that statement is as relevant today as it was then.

Over the past few years Gtech has begun to lose market share in the United States and since they were acquired by Lottomatica, an Italian gaming company, their debt load has risen and their stock price has plummeted. It doesn't take a Wall Street expert to see how important the Texas lottery (the largest domestic US lottery) is to the financial stability of Gtech.

I believe in their desperation to maintain the Texas lottery business Gtech influenced the drafting of the Texas RFP whether through Gartner or through the many high priced lobbyists they have hired during the process. Let's face it - a company doesn't spend hundreds of thousands of dollars on lobbyists to just attend hearings. They pay them for their influence and in this case the lobbyists on the Gtech payroll are well connected to not only our Governor but to certain members of this Lottery Commission (Chairman Williamson). This is exactly WHY the AG needs to immediately launch an investigation, put everyone under oath and see where it takes them.

As the AP story of February 11th indicated, Gtech has had a hard time being competitive on pricing when that portion of the RFP is weighted heavily. It is so important to them that cost be weighted as low as possible so that they can charge as a high a rate as possible and still be competitive.

Texas currently pays the highest rate in the country at 2.7 %. This RFP weighs cost at only 10%, the lowest in the history of all lottery RFPs. Most RFPs weigh cost at 34% or above and if this RFP did that then we could expect significant savings and more money for public education. Every one tenth of one percent of the rate paid in Texas equals approx. $3.7 million. When you stretch that one tenth of one percent over the 15 years this contract offers it adds up to approximately $55.5 million that will either go to a lottery vendor or to Texas students.

Moreover, if Texas were to have to pay around 2%, which would be a possibility if cost were weighted appropriately, the amount of money in question would be nearly $400 million over 15 years.

When you consider the amount of money on the table, it is not hard to see why Gtech is spending so much money on lobbyists and why they may have hired Gartner. Up until the announcement of the conflict, I think they had everything set up to award them the contract again. But desperate people to desperate things and in this instance - Gtech got caught one more time!

The most important question now remains to be seen - will the TLC do the right thing by withdrawing the RFP and finally telling Gtech to hit the road ridding us once and for all of a company that continues to drag the Texas Lottery and the State of Texas through the mud. Will the AG of Texas see the importance of stepping in to take over this investiagation or will the ritual downplaying of a situation work again for them like it did when those questionable documents were used to change our Lotto Texas game to a 6/54 game in 2000?

The AP Story As It Appeared Statewide on Feb 12, 2010
- More Bad Press For Texas -

AUSTIN, TX -- Texas lottery officials said Thursday that they found no evidence of improper bid information sharing between a consultant company and the lottery's main vendor, GTECH Corp., but they said say they cannot rule it out.

Lottery deputy executive director Gary Grief said as the state agency continues to examine the matter, and a legislative committee possibly holds a hearing to investigate, companies wishing to submit bids to operate Texas' lottery will get a 30-day extension on the deadline to submit proposals.

Meanwhile, the president and CEO of GTECH Corp., Jaymin Patel, apologized to lottery commissioners for the trouble caused by his company having a contract with the consultant Gartner Inc. while Gartner was helping the Texas lottery write its major bid proposal. But Patel insisted there was no information sharing between the two companies about the Texas lottery and no conflict of interest.

"On this point I am certain," said Patel, whose company plans to bid for the upcoming Texas contract.

The dual contracts by Gartner raise questions about whether GTECH has a competitive advantage over other companies. The stakes are high: Winning the Texas Lottery contract can bring a company more than $100 million annually. The lottery hopes to announce the winning bid by August.

"I am extremely disappointed in the actions of both Gartner and GTECH," Grief said. "They've created a terrible perception problem for this agency that we're now left to address." He said the Texas lottery has "the very highest standards of integrity and security."

GTECH has held the main Texas lottery contract for years, but other large companies like Scientific Games, Intralot and Camelot are interested in bidding for the Texas business. Representatives of some of those companies watched as lottery commissioners grilled executives from GTECH and Gartner and asked for more information about contact between lower-level employees of the two firms.

"Unfortunately, I think we're talking to generals and we have privates who have been pulling triggers," lottery commissioner David J. Schenck said.

Afterward, Wendell Moore, a consultant for Intralot, said Thursday's testimony made it clear that Gartner and GTECH have had a long-standing business relationship.

"I continue to believe there should be a third-party investigation and possibly and a federal probe," Moore said.

Moore said that in its request for bids, the lottery placed an unusually low priority on the price it would pay for the winning contract, and that this would favor GTECH because it tends to seek a higher price than its competitors.

Intralot recently won a major Arkansas lottery contract. In that competition, Rhode Island-based GTECH decided not to bid and said Arkansas was basing too much of its decision on the cost -- that it should also look heavily at "greatest overall value" and the best lottery services and products.

Gartner had a $2.1 million contract with the Texas Lottery Commission starting in July 2008 to help state lottery officials write bid parameters. That contract banned the company from working with GTECH. But in mid-November 2009, Gartner signed with GTECH for a six-week $150,000 consulting contract, according to company officials and state records.

The Gartner contracts with the state and GTECH have since been canceled.

Texas Lottery Commission attorney Bob Bierd said an internal review found three contracts between Gartner and GTECH, one involving a more minor subscription service and another involving overseas operations. He said there is no evidence of information sharing about the Texas lottery, based on responses both companies provided lottery officials.

But, he added, "we cannot conclude with certainty that there was no sharing of information between Gartner and GTECH."

Several Gartner executives told lottery commissioners they stand by the work their company did for Texas and said there was no impropriety.

"We deeply regret this internal administrative oversight on our part," said William Kumagai, group vice president for Gartner.

An aide to Rep. Edmund Kuempel, a Seguin Republican who chairs the Texas House licensing committee that oversees the lottery, attended the lottery meeting as did a legislator on that committee, Democratic Rep. Chente Quintanilla of El Paso. Kuempel hasn't indicated if he would call a legislative hearing, his office said.

Quintanilla asked several questions of the Gartner executives. He has written a letter to Kuempel saying the current bidding process should be scrapped.

A battery of lobbyists crowded the lottery commission's meeting room Thursday, several of them representing GTECH. Since the start of the year -- once questions began swirling about Gartner's dual role -- GTECH has added more Texas lobbyists to its roster.

At least four were registered by this week with the Texas Ethics Commission as representing GTECH, at combined estimated payments ranging from $100,000 to $449,997. Two of those lobbyists began representing GTECH as recently as late January, state records show.


A Message From Dawn Nettles - Publisher of the Lotto Report -
Originally Posted Jan 25, 2010

First, let me say ... many thanks to the Associated Press, specifically Jay Root and Kelley Shannon, for re-searching and covering
this story. They did an excellent job. I reported this incident to Jay Root two weeks ago and have waited patiently for them
to report their findings. So, folks be appreciative of the media for keeping you informed - without the media, we'd be lost.

Secondly, many of you saw me on Channel 5 TV, (Dallas), last week and have written wanting to know what
I said explaining that you could see me talking, but no sound. Understand that when one agrees to give an interview
for TV, they only air a small portion of what one says. So that you will all know what I did say but you may
not have heard, here is what I said regarding the consultant who was being paid by both the TLC and G-Tech
to write the lottery vendor RFP (request for proposal) - a serious conflict of interest issue ...

"It’s unbelievable ... it totally defies ALL logic that a company the size of G-Tech - who has been this business for
as long as they have - would make such a gigantic mistake this close to an RFP release.

G-Tech would have you believe it’s a simple oversight on their part. I guess it’s just a coincidence
that this same thing happened in New Jersey 3 years ago where the award to G-Tech was canceled.

This is not a trivial issue that should be swept under the rug with a couple of sound bites. The People of Texas
deserve better. The TLC paid Gartner - who has NO lottery experience - over $1 million to write this RFP.

I applaud the Texas Lottery for firing Gartner but let’s face it, they most likely won’t take
any action against G-Tech who was an equal culprit in this matter and this is wrong.

Having said that, this incident calls for an investigation by the AG - NOT the Texas Lottery."

Now read on ... and be sure to read my questions below the story ...

Lottery consultant had roles with state, vendor
By KELLEY SHANNON Associated Press Writer © 2010 The Associated Press
Jan. 22, 2010

AUSTIN, Texas — A consulting company that helped Texas write bidding rules for its upcoming lottery operator contract was simultaneously getting paid by GTECH Corp., the current vendor that intends to compete again for the state's lucrative lottery deal.

The dual role of consultant Gartner Inc. is raising questions about a potential conflict of interest and whether GTECH has a competitive advantage over other lottery companies bidding this year for Texas' contract, one of the nation's largest. The stakes are high: Winning the Texas Lottery contract can bring a company more than $100 million annually.

GTECH and Gartner say there was no malfeasance and that the Gartner contract with GTECH was halted after the issue surfaced and Gartner informed the lottery commission Dec. 30. They insist the lottery bidding process should move forward. Texas Lottery Commission officials say they see no reason to scrap its request for bids, which went out Jan. 4.

"Based on what we currently know, we don't believe it affects the current procurement process," Texas Lottery spokesman Bobby Heith said Friday. "Both Gartner and GTECH are worldwide companies with thousands of employees, and certainly mistakes can happen. However, the matter is still under review."

Gartner had a $2.1 million contract with the Texas Lottery Commission starting in July 2008 to help state lottery officials write bid parameters. That contract banned the company from working for GTECH. But in mid-November 2009, Gartner signed with GTECH for a six-week $150,000 consulting contract, according to company officials and state records.

Texas abruptly ended its contract with Gartner this month, having paid $1.4 million of the total.

Some lottery commissioners quizzed agency officials and a GTECH representative about the contracts during a commission meeting Jan. 6. After lengthy discussions and questions about any conflicts of interests, Commissioner J. Winston Krause said, "I'm just disgusted with Gartner. That's it."

At least one company considering competing against GTECH is voicing concerns. Intralot Inc. of Greece, which recently landed the online games contract for Arkansas' lottery, says the outcome of the Texas commission's review may determine whether it bids in Texas.

"We respectfully await the results of the investigation by the Texas Lottery Commission," as well as answers to Texas lottery commissioners' questions in the matter, said Wendell Moore, a consultant for Intralot.

Gartner, a Stamford, Conn.- based firm, called its simultaneous contracts an oversight. Gartner spokesman Andrew Spender said the part of the company that contracted with GTECH in a "small engagement" didn't realize the terms of the much larger contract with the lottery commission. He said Gartner brought it to the Texas agency's attention as soon as it realized the problem.

He said the lottery bidding process was not tainted by Gartner's work for both the lottery commission and GTECH.

"Absolutely not — impossible that it would be," he said.

GTECH, a global company based in Providence, R.I., has the current 10-year lottery operator contract for Texas, where the games generate some $3.7 billion in sales per year. The company gets to keep a percentage. Last fiscal year it was paid $101 million by the state.

GTECH gained no information from Gartner about its work on the lottery bidding rules, said GTECH spokesman Bob Vincent.

"Our folks on the ground (in Texas) were unaware of the Gartner relationship," Vincent said. He called the two contracts purely coincidental, something that Gartner should have caught in doing "conflict checks." He said the Texas Lottery's current bidding process "is a fair one, a transparent one and this type of relationship with Gartner is not one that had any impact on it."

Scientific Games and Camelot Group also are expressing interest in Texas' lottery business. The commission expects to receive bids this spring and announce the apparent successor company in August. There would be a one-year overlap period with GTECH before the successor embarks on a seven-year operator contract.

Some companies may bid for the whole contract — including online tickets and instant scratch-off sales — while others may compete to run only part of the operation.

Gartner's dual contracts in Texas are reminiscent of another case involving GTECH. New Jersey decided in 2006 to rebid its lottery contract because of concerns that lobbying firm MWW Group was doing public relations work for the lottery while working for GTECH as a lobbyist. The state said it wanted to avoid an impression of a conflict of interest. Scientific Games contested the bid.

Associated Press writer Jay Root contributed to this report.

Questions? We Deserve Answers - By Dawn Nettles

To me, the timeline of events sound suspect or at least questionable. And, as you can well imagine, there are a host of questions that I have ... the simplest of which are ..

How did the Lottery learn of this connection?

If the Lottery was made aware of the connection on Dec. 30th, why did they then proceed to release the RFP on Jan. 4th without a full and transparent investigation? There was no external or public deadline date that the Lottery was operating under to release this RFP so waiting until an investigation was complete would seem like the most logical thing to do. Why did they post the RFP under these circumstances?

The Lottery admitted that the Gartner Group had NO lottery experience, so, why would Gtech hire them to advise them on Lottery system best practices?

Think the above story is just sensationalism?
Then check these out and understand,
this is just a fraction of what I have.

Problems in Brazil too. March 2004. Click here.

Branson wins in lottery bribe case - BBC News

British tycoon wins case against US lottery boss (the founding
CEO of G-Tech) - Associated Press
(Story no longer there - Link removed 3/17/04)

Man says he OK'd Bush for Guard - Washington Post (Associated Press)

Commentary - RE: Ben Barnes & G-Tech - Kick back schemes - BeLogical

G-Tech, Barnes terminate contract - Texas News - Abilene Reporter

G-Tech -Bribery and kick back investigation - New Mexico

I.S. GA, G-Tech - Lobbyists and politicans make big bucks
by approving lotteries. Special Reports - Georgia, New York,
New Jersey, Texas, Kentucky

U.S. vs J. David Smith (National Sales Mgr. G-Tech) - Opinion of the Court

G-Tech vs Nora Linares - Lubbock Avalanche-Journal

US Exec Is Big Loser in Britain's Lottery (Bribery) - Herald Tribune Int.

Definitely read "Corruption," "Evolution of Lottery Games"
and "Fate of Lottery Winners"
(Story no longer there - Link removed 3/17/04)

U.S. vs J. David Smith (G-Tech Natl Sales Mgr) - Court of Appeals

The National Lottery - 4 year software glitch not reported by G-Tech

Federal Judge: Barnes must answer questions about Bush - Austin American Statesman

Littwin vs G-Tech, Bush, Barnes - Associated Press, Amarillo Globe News

The Lotto Report
Dawn Nettles
P. O. Box 495033
Garland, Texas 75049-5033
(972) 686-0660
(972) 681-1048 Fax

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