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May 4, 1999

Who Will Run Alabama's Lottery Should Voters Say "Yes"?

by Cathy Donaldson

With former campaign chiefs of the state's two head legal officers leading the crusade for Alabama's proposed lottery, it could have the feet of a bear.

Gtech, a scandal-ridden global gambling and financial data-processing consortium, has an inside track to operate the Alabama lottery, if voters change the constitution. The world's biggest lottery operator, Gtech has in recent months helped form the nation's biggest gambling conglomerate. It also employs a successful corporate strategy of hiring political insiders with lines to power brokers to break into a state's lottery game.

Attorney General Bill Pryor's campaign manager Claire Austin was the first Gtech lobbyist to register with the Alabama Ethics Commission. "I'm working on the lottery," Ms. Austin said. "The other people Gtech hired are Joe Fine and Bob Geddie."

The influential Montgomery lobbying firm of Fine Geddie & Associates is a big player, with eleven political action committees (PACs) representing special interest groups that poured nearly a half million dollars into 1998 State House campaigns.

J. Carter Wells, who was Governor Don Siegelman's campaign field director, runs the governor's Alabama Education Lottery Foundation. That PAC was formed to raise money to fund a planned televised pro-lottery campaign to air soft ads focusing on Alabama's educational needs.

Education sells well in some lottery markets, according to Gtech's annual report. Its strategy is to expand the lotto player base by focusing on "good causes" such as the arts, environment, charity, tax relief or scholarships.

Siegelman maintains his plan to change the state constitution -- which prohibits gambling -- to allow a lottery would raise $150 million a year for college scholarships, school computers and pre-kindergarten programs.

"Across the United States, as well as here in our own community, there is an unprecedented focus on reforming education," Gtech founder, chairman and CEO Guy B. Snowden wrote last year. He resigned in February 1998 after a British jury found he tried to bribe an English billionaire regarding the lottery contract. A horn used to hook Great Britain into its Heritage Lottery was tax revenue to restore landmarks, churches and purchase old masters' paintings for national museums.

With record $1 billion revenues last year, Gtech operates lotteries in more than half the states, including neighboring Georgia. However, a strong economy is slowing lotto revenue rates, Gtech's financial reports show.

Another lottery company, Arizona-based PowerHouse Technologies which operates lotteries in Florida and other states also is vying for the Alabama contract, but so far there is no plan to take bids.

PowerHouse lobbyist John D. Crawford said if Alabama is going to have a lottery, he hoped it would be operated by the best firm. "I personally believe PowerHouse Technology is that firm," said Crawford, who confirmed he has not yet been able to speak with the governor about PowerHouse's proposal.

His competition is Gtech (pronounced gee tech) and its new lobbyists. Crawford recently lost a leading client, the giant Waste Management landfills, to the new firm representing Gtech.

Ms. Austin, who also worked for former Attorney General Jeff Sessions as public affairs and legislation director and was his U.S. Senate campaign public relations director, was Pryor's main campaign fund-raiser. She left Pryor's employment after his November election to set up her own business for lobbying, public relations and PAC development.

Lanny Young, her business partner in their new Montgomery firm of Austin & Young Capital Resources, is a frequent visitor to the governor's office. Young is trying to get a state permit to open a Lowndes County landfill south of Montgomery. Last year he sold the Three Corners Landfill in Cherokee County to Waste Management -- now one of his lobby clients.

Austin & Young intends to sell investment "memberships" with no registration under federal or state securities laws, according to its incorporation papers filed January 26.

Several other contract lobbyists are being paid by Gtech to push the lottery in Alabama.

Last year, under new CEO William Y. O'Connor, Gtech said it ended its practice of paying its lobbyists a percentage of the lottery profits after its former national sales manager was imprisoned on federal charges for kickbacks to lobbyists who helped land the New Jersey lotto contract. That practice is illegal in Alabama anyway. But the state's loose lobby laws only require lobbyists to report spending over $250 a day on a lawmaker, so there is no way to track gambling lobby payments, gifts, or favors to legislators.

Few outsiders even knew which of several contract lobbyists were working the Senate floor last month for Gtech when the lotto measure passed. Late Friday afternoon before the lottery bill was up before the Senate early the next week, Claire Austin was the only Gtech lobbyist registered with the Alabama Ethics Commission. Alabama lobbyists have ten days between signing a contract with a customer and registering with the Ethics Commission, according to commission director James Sumner, who defended the practice.

Gtech, as the nation's leading lottery contractor, is giving new meaning to lottos. This is not your “mamma's lottery, nor your father's grocery store,” as Gtech's annual report puts it.

If the lottery proposal passes, the State of Alabama will become one of 80 governments around the world relying on Gtech's lottery systems for smooth operation of their game. Gtech has a remarkably large, widespread and powerful infrastructure that reaches thousands of retail locations throughout the industrialized world -- a powerful asset in a state that lacks sophisticated data networks.

Their operations ride on the backbone of the beast, as pundits call the Internet. Gtech claims no other company in the world has the kind of high-speed transaction-processing network at retail outlets that it has. It plans to put video lottery machines in malls and stores with checkout lanes, like supermarkets.

Gtech isn't a household word in Alabama yet, but mark the name. The corporation speaks several languages and has powerful computers in several nations. It's a seven-headed corporate entity with a lottery and electronic data network linking five continents from Colorado to Brussels, England to Europe and Asia, Georgia to Brazil.

In Brazil, Gtech has built its own new casino/lotto halls and arranged with the country's biggest bank for customers to pay utility bills at lottery retailers. Its financial deal is with Caixa Economica Federal, which is fully owned and controlled by the Brazilian government with 2,500 branches spread throughout the country of 160 million.

In Bolivia, the Gtech lottery, which fed on the needs of the elderly for nationally insured health care, has been a bust. The lottery has failed to provide the required sums, and the waiting line of elderly requiring medical attention is steadily increasing, according to officials of Caja Nacional de Salud, the state body managing the service.

National Lottery president Juan Rivero has said that the insurance for the elderly was nothing but a political move on the part of the former Bolivian president to gain votes. "It clearly was an electoral action that did not have any sound feasibility study," Rivero said in Brazilian papers. "They did not even contribute 10 percent of what they promise. And if they declare bankruptcy, we will sue them for breach of contract."

The corporation runs the lotteries in 38 countries including New Zealand, Turkey, Singapore, Estonia and Lithuania, where a new Gtech television-based lotto game is popular. Half the world's lottery countries have on-line Internet lottos.

In Poland, Gtech is in a venture called DataTrans. "Utilizing a common backbone with the lottery network, we are providing the data network for the ATM commercial banking transactions of EuroNet,” Don Stanford, Gtech’s senior technology officer, wrote.

Lottery is lucrative. Gtech founders Guy Snowden and Victor Markowicz were among the highest paid executives in Rhode Island, where the holding company is based. Each had a $4.7 million pay package. Called a "brutish executive" in a 1996 Fortune magazine article, Snowden built Gtech into the world's leading lottery vendor in fifteen years. According to Fortune, Gtech never lost a contract it went after. "Somebody was said to have the ear of a governor? He'd be retained by Gtech, often on the eve of bidding. A political contribution was needed to help a legislator see things from Gtech's point of view? Never a problem. Was a little wining and dining in order? Snowden would go all out," Fortune wrote.

"We'd go to dinner with the lottery director and find out that Gtech had hired a yacht and taken out the whole goddamn legislature," said Hubert Plummer, the former president of Automated Wagering, Gtech's archrival. "It was like shooting your popgun, and they were firing a howitzer."

Automated Wagering, Inc., a part of PowerHouse which also is seeking the Alabama lottery business, has a nine-year Florida lottery contract worth an estimated $300 million, despite two protests filed by competitor Gtech after AWI won the contract with Florida -- its largest lottery customer. However Gtech has the lottery contracts in most other sister states. In Georgia in 1993 lottery director Rebecca Paul allowed Gtech, which had bid $50 million higher than AWI, to chop its price in a closed-door meeting. Gtech got the business even though its bid was still $27 million more.

Post-bid enhancements also help Gtech. In Maryland in 1992 Gtech's $94 million lottery contract was supplemented by a $49 million award to run a new statewide video lottery game called keno. Georgia and several other states have added keno machines to the traditional ticket lottery base.

Gtech's bet on the lottery opening in Alabama may pay off. Paralleling Siegelman's election in Alabama, Kentucky got a state lottery in 1989 after Wallace Wilkinson rode the issue into the governor's mansion. His former campaign manager, Danny Briscoe, was immediately hired as Gtech's lead lobbyist. His contract paid him $372,000 over five years -- if Gtech got the lottery contract.

Gtech's former national sales manager, J. David Smith, was convicted for fraud and bribery involving lotto lobbyists in New Jersey. In 1997 The Houston Chronicle reported that Smith boasted about bribing at least ten state legislators to ensure passage of the lottery bill in Texas and getting the contract for Gtech. The paper said a former Kentucky lottery official told investigators that in 1993 Smith named eight or ten Texas lawmakers he said he paid up to $10,000 apiece for "favorable consideration" of a lottery bill.

The reported boast took place about six months after a major lottery push in a special Texas legislative session. Texas voters approved a state lottery in 1991, and Gtech began running its on-line games in 1992. Nora Linares, Texas Lottery Commission director, was fired in 1997 after confirming that a close friend -- an indicted state official who later went to prison -- worked as a Gtech consultant. In California a Gtech lobbyist was captured on tape bragging that California's lottery director was "our gal."

The Alabama legislature has passed a bill to put the lottery up for a statewide vote, with no provisions regarding who will oversee it other than political appointees. The House voted down an amendment preventing felons from serving on a proposed seven-member Lottery Commission to be appointed solely by the governor.

Meanwhile Gtech has gotten new officers. Snowden resigned following the U.K. lottery scandal, and Markowicz stepped down effective March 1 last year after the shake-up at Gtech. A jury in the United Kingdom found Snowden had libeled Richard Branson, who had asserted Snowden tried to bribe him to keep his Virgin companies from competing for the U.K. lottery license.

Gtech is moving into wider global circles. In March Gtech hired an executive out of the computer giant Unisys Corporation as its facilities manager. David Calabro's expertise indicates Gtech is eying more government lottery and data management work. He is a former special advisor to the Army Chief of Staff and was an assistant professor of diplomacy and economic policy at the U.S. Military Academy at West Point.

The mission of Gtech's Worldwide Lottery Group is to win business, so in addition to its traditional lottery and new television games, its GameScape subsidiary has developed a colorful lotto game machine to appeal to a new generation of gamblers in the South. Using tactical marketing polls and cultural studies, Gtech has come up with HotTrax, a new interactive 3-D game featuring racecars speeding around a track. "Designed to appeal to consumers who don't ordinarily play traditional lottery or casino-style games, HotTrax stimulates a high level of player involvement and friendly competition," says Gtech's annual report.

Gtech is on a roll. In recent weeks the lottery corporation has formed partnerships with the biggest casino syndicates on the globe. On April 5, Gtech's wholly-owned subsidiary Dreamport announced a lottery video machine manufacturing deal with the Bally Gaming unit of Alliance Gaming Corp. Headquartered in Las Vegas, Alliance is the nation's largest gambling machine operator and operates two casinos.

Last month Gtech joined a group including Harrah's Entertainment -- part of Promos casinos -- to buy Turfway horse track near Florence, KY. They plan to open a casino there if it's legalized in Kentucky. Harrah's, the world's largest gaming company and called the McDonald's of gambling, operates two casinos in neighboring Mississippi and is attempting again to open a New Orleans casino this fall.

Several other groups have been seeking casinos in Alabama, including the state's dog track owners, such as Milton McGregor of Montgomery. Though the state's media have been referring to attempts to have gaming at the race tracks as video poker bills, the dog tracks have made no bones about wanting to have casino-type gambling.

Milo Dakin, McGregor's lobbyist for his Shorter and Birmingham tracks, said the video poker bills backed by the state's dog tracks were unrelated to the lottery. "I wouldn't touch the lottery with a 20-foot pole," Dakin said. "We have kept our hands out of the lottery." In the past eleven years fifteen lottery bills have been introduced in the Alabama Legislature.

Dakin worked to kill them all in committee -- except this year. He said the state's four dog tracks are being gutted by the Mississippi casinos, whose owners "funneled money into Alabama in suitcases" to help church coalitions fight the video poker bill. "It's the same old story," Dakin said; "it's the preachers and bootleggers getting together again."

Apparently the dog track gaming measures sound enough like casino gambling to pull in lobbyists working for Mississippi casinos to fight them in the Alabama legislature. While Alabama gambling opponents got sidetracked from the lottery and have been wearing themselves out fighting the nightmare poker machines, Gtech has been designing a dream machine. If Alabama's lotto amendment passes, Gtech's gaming machines could be at all the racetracks, coin laundries and service stations. The company's marketing strategy is to place the machines everywhere there's a checkout counter, including service stations, groceries and malls.

They want to make it simple to play the lotto on Gtech's new EZ Express, a self-service kiosk designed to be "an easy, fun way to play in busy retail settings," according to Gtech. Slot machines are called the "crack cocaine" of gaming, and Gtech could be inventing a new drug.


(Note: Most information on Gtech is from its 1998 annual report, available on the Internet at http://www.gtech.com)


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