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Lucrative Lottery Contract Fight Escalating : All-Out War Is Being Waged for Right to Build Computerized Gaming System

September 29, 1985|NANCY SKELTON | Times Staff Writer

SACRAMENTO — The lobbyist leaned in close to a reporter.

"General Instruments and Control Data both do business in South Africa," whispered the representative of GTECH Corp., dropping a bit of gossip about two of his competitors for a $200-million computerized lotto contract to be negotiated soon.

The next day in the mail came more attempts to discredit rival companies. A stack of 2-year-old newspaper clippings from a General Instruments Corp. source described a $600,000 GTECH loan investigated by the government. Also in the envelope were articles about a controversial hiring by Scientific Games.

A week later, it was the chairman of the board of a major lottery company's turn. In an off-the-record phone chat, he spilled tales of Machiavellian deals and double crosses by a couple of his major competitors.

Welcome to the bitter world of "on-line" lottery bidding.

And it is expected to get worse. Rarely is a big lottery contract awarded in any state without subsequent lawsuits by the losers.

While attention this week is focused on the instant ticket "scratch-off" game that starts Thursday, behind the scenes an all-out war being waged for the largest lottery contract ever negotiated. Indeed, the decision about who builds California's massive computerized gaming system could literally make or break some of the nation's high-rolling lottery businesses.

Unfriendly Competition

"It's a very competitive business for a very lucrative contract," said lottery Director Mark Michalko. "The competitors don't particularly care for one another and they'll take every opportunity they can to promote their own capabilities and cast aspersions on the others."

Michalko says he is prepared. The bidders will be judged not on what they say about each other, but mainly on their experience and technical know-how. Besides, when the bidding process formally starts Oct. 14, there will be a gag order on all prospective vendors prohibiting them from discussing the contract with anyone but a designated lottery official. In part, said Michalko, "we don't want one bad-mouthing others."

In addition to the sniping, the dozen or so companies that plan to bid on the lottery's computerized lotto game have spent more than $1 million on slick media packets, press conferences, lobbying, donations to legislators, travel, staff time, entertainment, demonstrations of computer equipment and a host of other activities, trying to put themselves in the best possible position to be named the winner (or winners) when the lottery announces its on-line contract decision Dec. 16.

At stake is the right to supply 5,000 terminals, plus all the backup technology, for the state's first legalized "numbers" game, which is scheduled to start in late spring or early summer of next year. The winning company--or companies, as the lottery might pick two firms to handle the job--will receive 0.5% of the daily take of each terminal, plus costs.

When the miles of communications cables are laid (under a separate $100-million contract with four telephone companies) and the computers are whirring, California lottery players will be able to pick six numbers, hoping to match the ones picked by the lottery once or twice a week for jackpots in the multimillion-dollar range.

Lured by Profits, Prestige

The companies are being lured by the potential profits and the certain prestige of landing the big California prize.

"This is as important as anything can be," said Richard E. Ponton, a vice president for the lottery division at General Instrument Corp. "It's the largest (contract) in the world, so that's the one we want to get."

General Instrument, which recently lost contracts for on-line systems it was operating in Maine, New Hampshire, Vermont and Ohio, is one of the companies banking heavily on landing the California deal.

The firm has opened a separate lottery division and unveiled a new computer terminal Wednesday in Sacramento to blow its own horn within earshot of lottery officials.

$37,000 for Lobbying

To enhance its standing in Sacramento, General Instrument, which operates the Massachusetts lottery, has spent about $37,000 on lobbying in the first half of 1985, state disclosure reports show.

As for its business dealings with South Africa, Ponton said General Instrument sells computer terminals to race tracks but "has nothing to do with political, military or government work of any kind. . . . I would think the guys who are talking about us and South Africa should be worrying about some of the things they're doing."

GTECH Corp. is another firm hot on the trail of the California contract. It has won four out of the last six contracts awarded in the United States, including Oregon's new $20-million contract to install 1,300 terminals. By the end of the year, GTECH will operate more than half the lottery terminals in the United States.

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