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N.C. Lottery Commission Awards Two Contracts To GTECH

Posted January 30, 2006
Updated December 18, 2006

— The state lottery commission chose GTECH Holdings Corp.on Monday to run the state's first-ever instant-win and lotto-style games, a selection that's likely to ease criticism tied to the company's primary rival.

As part of separate seven-year deals, which could be worth a combined $19.2 million in their first full year, GTECH agreed to start both lottery games sooner than initially expected. The first scratch-off tickets are now set to go on sale March 30, while sales of lotto-style tickets will begin May 30.

"It's been done by several other states, so I think we can get it done," executive director Tom Shaheen of the expedited schedule. He and GTECH executive Timothy Nyman signed the contracts immediately after Monday's vote.

Commissioners said Rhode Island-based GTECH won the contracts on the merits. But the choice could also bring an end to questions about Scientific Games Corp., which is under investigation for possibly breaking state lobbying laws while the Legislature debated creation of the lottery last year.

"In the final analysis, our job is to get this thing started," commission chairman Charles Sanders said. "What's gone on before with Scientific Games is what's gone on before. ... Both companies were measured against them and GTECH came out."

Questions about Scientific Games arose soon after lawmakers voted in August to make North Carolina the last state on the East Coast to start a lottery.

Lottery commissioner Kevin Geddings resigned in November after failing to disclose that he had performed work for Scientific Games during the lottery debate. A federal grand jury has sought information about Scientific Games from the office of House Speaker Jim Black, D-Mecklenburg, who chose Geddings for the commission and whose former political aide also worked for the company.

"It may relieve a little bit of the tension that's circling around the speaker and his various relationships with people," said Thad Beyle, a political science professor at the University of North Carolina at Chapel Hill. He called the commission's choice of GTECH a "very, very good strategy."

New York-based Scientific Games bid for the instant-win ticket contract, but an evaluation team ranked it behind GTECH's. Scientific Games also made a proposal for the lotto-style games, but it didn't include answers to any of the questions posed to bidders nor did it present any specific information about how the company would run such a game in North Carolina.

Shaheen said he didn't know why Scientific Games did not offer a complete bid, and company spokesman Rick Gates declined to answer the question.

"This is a highly competitive industry and we wish North Carolina all the best as the state moves forward," Gates said.

Scientific Games operates both the instant-win ticket and lotto-style contracts in South Carolina, but splits the contracts with GTECH in Tennessee and Georgia. GTECH works with Oberthur Gaming Technologies of Canada to offer instant-win tickets in Virginia. In the North Carolina scratch-off ticket contract, GTECH will subcontract ticket-printing work to Oberthur.

The contracts signed by GTECH will pay the company 1.6 percent of net ticket sales. The office of Gov. Mike Easley, who has pushed for a lottery to support education programs since taking office in 2001, has projected sales of $1.2 billion in the first full year.

The lottery law requires at least 35 percent of gross revenues to be spent on public school construction projects, need-based college scholarships and class-size reduction and More at Four preschool initiatives.

GTECH will be required pay a $100,000-a-day fine through April 5 if it fails to meet the March 30 deadline to begin sales of the instant-win ticket games, and $400,000 a day thereafter. Similar penalties are set for missing the May 30 deadline to start the multistate Powerball automated numbers game.

The accelerated starts could result in an additional $25 million to $30 million more in revenue this year, Shaheen said.

GTECH spokeswoman Angela Wiczek said the company will have people in North Carolina on Tuesday to begin work. The license holder for the Italian lottery, Lottomatica SpA, said earlier this month it will pay about $4.65 billion in cash for GTECH, the world's top operator of lottery systems.

"We're certainly honored and thrilled to be a partner with North Carolina," she said.

Shaheen said the decision to keep the bids secret until after Monday's vote helped the state save millions of dollars, in part because Scientific Games' incomplete proposal wasn't made public.

"We conducted an evaluation that was fair, comprehensive, had the greatest integrity and achieved the best results," Shaheen said.

In two weeks, lawyers for lottery opponents will argue at a preliminary injunction hearing that the games are unconstitutional because state lawmakers took shortcuts to get it passed.

"There's a very strict rule that says a bill must be read on three separate days, and there's now question this law did not comply," said former state Supreme Court Justice Bobb Orr.

If the judge rules in their favor the lottery business would be put on hold.

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