For sale: One lottery vendor

Anybody wanna buy a lottery vendor? No felons or other people of low moral character need apply.

The Rhode Island company that operates many of the Texas lottery's most popular games is up for sale, and state officials are looking to hire an independent law firm to help them ensure that any potential buyer is committed to upholding the company's contractual commitments.

Lottery officials told a legislative oversight panel this week that Gtech Corp., which has been under contract to the state agency since the lottery was established in 1992, has received an acquisition offer from an unnamed group. The transaction could be worth as much as $4 billion, officials said.

"Realistically, we will want to know about this ownership change prior to the [sale] going through," said Gary Grief, the lottery's acting director. "And we will want to put Gtech on notice [if] we have a problem with potential owners."

Under state law, the lottery cannot enter into a contract with anyone who in the past 10 years "has been convicted of a felony, criminal fraud, gambling or a gambling-related offense, or a misdemeanor involving moral turpitude."

[...]

Grief and lottery lawyer Kim Kipling told the House Licensing and Administrative Procedures Committee that the state agency needs the expertise of an outside lawyer to monitor activities surrounding the proposed sale to ensure that Texas' interests are safeguarded. Because Gtech provides such a specialized service, Texas lottery officials would be hard-pressed to find a new game operator if Gtech were acquired by someone who could not meet standards covered under state law, they said.

"We'd be scared to death," Grief said, adding that Gtech's few competitors are experienced running games in smaller states. "Running Oklahoma is a lot different than running Texas," Grief said. "We know Gtech is an industry leader in being a lottery operator. They're the 500-pound gorilla."

Kipling said that the Texas attorney general's office has identified four Texas law firms that have the expertise to monitor the proposed sale.

[Gtech spokesman Bob] Vincent said he could not disclose any specific information regarding the proposed sale or on Texas' concerns.

"Needless to say, Texas is one of our largest clients and an essential part of our profitability," Vincent said.

Okay, but what happens if GTech gets the proverbial offer they can't refuse, and one of the principals has a "moral turpitude" problem, whatever that may be? Can the State of Texas block the sale? If they do, can GTech sue to recover the lost revenue from that sale? I have a feeling we're in some very uncharted waters here.

Meanwhile, hearings about that disaster recovery center took place on Monday.

The Texas Lottery Commission would not be able to resume critical functions in a timely manner if its headquarters were destroyed because its disaster recovery site lacks important equipment, a former lottery employee told lawmakers Monday.

Shelton Charles, a senior lottery systems analyst who was fired Nov. 4, told the House Licensing and Administrative Procedures Committee that he warned his bosses that backing up data was useless if the agency didn't have the equipment to access it. He said his managers told him they didn't have enough money to buy the hardware.

[...]

Lottery Commission Chairman C. Thomas Clowe and Gary Grief, the agency's acting executive director, told the committee the site has been fully functional for years. But none of the half dozen lottery employees who testified knew the exact date it became operational.

Grief said creating the disaster recovery site was a massive undertaking done over a span of many months with different systems being brought online at different times.

"I think it would be disingenuous of me to try to tell you that on X date everything was done," he said. "I don't think I could do that and feel good about it."

He insisted, however, that lottery employees could quickly resume their duties at the disaster recovery site if necessary, and he invited the committee members to tour the facility.

Lawmakers plan to tour the facility after Thanksgiving.

Grief also pointed out that GTECH Corp., the contractor that runs the lottery's gaming operation, backs up its information in four places. He said that means a problem at lottery headquarters wouldn't affect wagering and prize claiming.

But Charles said there isn't enough bandwidth at the emergency facility for lottery employees to electronically communicate with either GTECH or retailers.

"If you get an analyst, a third party to review that, you're going to find out that I'm right on the money - no ifs, no ands, no buts," Charles said.

Obviously, it cannot be the case that both Gary Grief and Shelton Charles are correct. It should, however, be a fairly easy matter to determine who's right and who's wrong. Any disaster-recovery setup worth its salt includes the means to test it out. (If this one doesn't, then I say Charles wins on a TKO.) Set up a test that both Charles and Grief agree would be conclusive, and let it rip. If the two can't agree on an appropriate test, call in an outside firm to arbitrate. This is not the sort of thing that should be at all subjective. Either it works or it doesn't, so let's test it to find out and get on with our lives.

Posted by Charles Kuffner on November 16, 2005 to Jackpot! | TrackBack