Lottery no-bid contract roils Rhode Island politics

Lottery no-bid contract roils Rhode Island politics
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A proposal to extend the Rhode Island Lottery’s contract with one of the state’s most significant employers is opening deep rifts between Democratic Party leaders as industry and good government groups cry foul.

The state legislature will kick off a series of hearings next week that will likely shed light on the relationship between the state government and International Game Technology (IGT), one of the world’s largest gaming and lottery businesses, and the long process that led to a proposed no-bid contract that would mean hundreds of millions of dollars for the company.

The contract has also bled into the political realm because IGT’s former chairman, Donald Sweitzer, is the treasurer of the Democratic Governors Association (DGA), and a longtime political adviser to Rhode Island Gov. Gina Raimondo (D), who is chairwoman of the DGA.

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Sweitzer, who retired at the end of 2018, before discussions about the new extension began, is still a registered lobbyist for IGT. This year, the company has reported paying him $37,500 to influence the state legislature.

Both the company and Raimondo’s office told The Hill that Sweitzer has not attended meetings or internal deliberations about the contract.

IGT has run the Rhode Island Lottery, and provided slot machines at two of the state’s casinos, since winning an initial contract in 2003, signed by then-Gov. Donald Carcieri (R).

The company, known as GTECH when it won the initial contract, has since been purchased by an Italian firm headquartered in London. It has offices across the world, including 1,000 employees based in Rhode Island, a stipulation of the initial contract.

That contract has been valuable to both the state and the company: Gaming is Rhode Island’s third-largest source of tax revenue, and the company, which takes a cut of both lottery and slot earnings, has taken $636 million in commissions since 2004, according to data provided by the state Lottery Commission.

But the current contract expires in 2023, and earlier this year, the company approached the state government about locking in a 20-year extension, without going through a public bidding process.

In the months after their initial meetings in January, a team of two negotiators from IGT and three from Raimondo’s office met to hammer out a new deal. The draft they put together and submitted to the legislature would increase IGT’s payments to the state — and give them higher commissions on lottery sales that could be worth up to an additional $12 million a year.

Raimondo, state House Speaker Nicholas Mattiello (D) and state Senate President Dominick Ruggerio (D) announced legislation to extend the contract on June 27. The extension, which could be worth up to $1 billion for the gaming company, would require IGT to pay Rhode Island $25 million for the right to run the lottery and slots, invest $150 million in capital projects over 20 years and maintain an office with at least 1,100 jobs in Rhode Island, jobs the company says average a $100,000 yearly salary.

“Today’s announcement ensures the company can continue to grow and thrive in our state while providing Rhode Islanders with some of the highest-quality games anywhere in the country,” Raimondo said in a statement at the time.

Mattiello and Ruggerio both offered their own supportive statements. But within weeks, both men withdrew their support.

Few companies in the world have the capacity to run both a lottery system and gaming systems. Both the state government and IGT said it is not unusual for such mammoth contracts able to be serviced by so few providers would be locked in years in advance.

“The state has two major systems that are the backbone of their revenue generation,” Bob Vinson, IGT’s new chairman, said in an interview Friday, referring to the lottery and the slot machines. “They’re substantial systems, and the industry normally takes probably 18 to 24 months to convert the systems” if the state had opted for another contractor.

Add in a bidding and appeals process that could have taken another few years, state officials said, and the result was an urgency to move a new contract even before the old one expired.

Some Rhode Island officials said they felt an implicit pressure from IGT. Without a new contract, they worried the 1,000 jobs IGT maintains in the state could easily be moved elsewhere. Vinson said there had been no threat, but that the realities of a new London-based company owned by Italians in a global marketplace made it important to “understand for our own planning” whether IGT would receive its contract extension.

Asked whether the company had applied pressure, Vinson said: “Not at all. We simply said since 2003 we’ve gone through major transformational mergers and acquisitions. We’re a different company than we were then.”

One of the few companies that can deliver the same services as IGT, Scientific Games, objected to the no-bid process. They said they could deliver Rhode Island’s lottery and gaming systems at a lower cost than could IGT.

And the company that runs Rhode Island’s two largest casinos, Twin River Worldwide Holdings, objected to a provision in the contract that gives IGT control of — and revenue from — 85 percent of the slot machines on those casino floors.

“We believe a more balanced casino floor of 3-4 suppliers would bring about healthy competition, and a fresher, more customer-responsive offering,” Patti Doyle, a spokeswoman for Twin River, said in an email. “We believe it is incumbent upon the State to ensure its taxpayers are getting the best deal, and absent a public bid process, it’s terribly difficult to know if the terms IGT proposes — which on the face, seem exorbitant — are in the taxpayers best interest.”

Both IGT and Twin River are significant donors to the DGA, which Raimondo runs. IGT gave the Democratic group $150,000 as the contract extension was being negotiated, and Twin River chipped in $100,000. Raimondo and the DGA both say she did not solicit those donations.

The DGA said IGT had made contributions beginning in 1997, six years before it won the Rhode Island contract and 14 years before Raimondo won her first election as state Treasurer.

But back home, months of withering coverage in the Providence Journal have strained the already-tense relationship between Raimondo, a second-term Democrat, and Mattiello, the House Speaker.

Mattiello told the Journal he first heard about the proposed new contract in April, several months after negotiations began, during a breakfast meeting with Sweitzer and another IGT lobbyist. Larry Berman, Mattiello’s spokesman, confirmed in an email that Mattiello first heard about the proposal from Sweitzer and the other lobbyist.

In August, Mattiello and Ruggerio, the Senate president, appeared to pump the brakes on the deal. They formally asked Raimondo’s office for documents related to the contract, and they pledged hearings in the fall. Raimondo’s office delivered more than 1,300 documents relating to conversations between the casino and the state.

“We are committed to properly vetting this legislation by way of public hearings to determine the appropriateness of forgoing the normal bid process for a contract of this length, scope and magnitude,” Mattiello and Ruggerio wrote to Raimondo’s office.

In her response, Raimondo too said she was eager for hearings.

“I look forward to a full public vetting of this proposal at your hearings this fall,” Raimondo wrote.

At the same time, the Rhode Island Ethics Commission voted to probe the relationship between Raimondo and Sweitzer, her longtime political adviser, after the state Republican Party filed a complaint alleging the two should legally be considered business associates because of their mutual work at the DGA.

The commission voted to dismiss one element of the Republican complaint. Raimondo’s lawyer expressed confidence that the case would be thrown out for lack of merit.

The legislative hearings begin next week in the state Senate. Berman, Mattiello’s spokesman, said the House Finance Committee will hold its own hearings beginning Sept. 24.

Observers said the hearings have the potential to embarrass Rhode Island’s political class, and potentially Raimondo, as she nears the end of her fifth year in office. Raimondo would not be eligible to seek reelection in 2022, and some believe she is positioning herself for a future job in the next Democratic presidential administration.

“She just won reelection and is term-limited, so the actual political damage is not clear,” said Wendy Schiller, who chairs the political science department at Brown University in Providence. “But if she is on anyone’s short list for [vice president] in the Democratic Party, it can’t help.”

The hearings themselves may pose more of a political threat to Raimondo than a business threat to IGT. Mattiello told the Providence Journal last week that he was still open to delivering a contract without going through a bidding process.

“He understands the significance of retaining the IGT jobs in Rhode Island,” Berman told The Hill.