D.C. contract dispute threatens scratch-off lottery games

No more Ca$htastic. No more Cherry Blossom Doubler. No more Lucky Diamonds Tripler. No more Mega Money Multiplier.

A dispute between the District and the company that makes the highly profitable scratch-off lottery tickets led to the recent lapse of the city’s instant-ticket contract. Without a contract, lottery officials warn, the city could run out of tickets within months, costing the government as much as $12 million in revenue.

“There is no precedent for this,” said D.C. Lottery Director Buddy W. Roogow, who is also president of an international lottery trade group. “We’re the only lottery organization in North America that doesn’t have an instant-ticket vendor.”

The dispute over the scratch-off contract has been less prominent than the recent controversy over political meddling in the much larger contract to run the city’s numbers games. But the instant-ticket quarrel, over the inclusion of local businesses as subcontractors, threatens to have a much more significant impact on the lottery’s bottom line.

Instant-ticket sales were a $60 million business for the D.C. Lottery last year, accounting for roughly a quarter of overall lottery sales. “Scratcher” sales have been a strong growth segment for the lottery in recent years, helping to offset flagging sales of the city’s traditional daily numbers games.

City finance officials have warned that the instant-ticket hiatus could take a $5.6 million bite out of the profits paid to lottery retailers, mostly small businesses in the city.

The city’s longtime scratch-off contractor, Georgia-based Scientific Games, appeared poised this year to secure a four-year, $9.7 million contract. But its bid did not incorporate the 35 percent of local subcontracting that is standard on city contracts. The company protested that it could not subcontract more than 17 percent of the deal because the majority of its costs — printing and delivering the tickets — are proprietary and cannot be subcontracted. Other services that it would outsource, such as warehousing, distribution and marketing, weren’t costly enough to get to the 35 percent threshold, it said.

To hire additional local companies, Scientific Games attorney Philip Bauer told the D.C. Council at a June hearing, “we would have had to create a need to hire them.” But a city agency that could grant a waiver to the 35 percent requirement would not do so, and the council voted to reject the contract July 10. The previous contract expired 10 days later, forcing the lottery to scramble to find a way to store and distribute the remaining tickets.

Council members, including Chairman Phil Mendelson (D), have argued that the lottery, which is under the purview of Chief Financial Officer Natwar M. Gandhi, should simply extend a temporary contract with Scientific Games until the contract can be rebid. But Gandhi has refused, saying in a Tuesday letter to Mendelson that it would be “inappropriate” and legally risky.

Roogow said the city’s stock of instant tickets is expected to last four to five months, covering much of the six- to eight-month contract rebidding process. But he said that the revenue hit will start much sooner — within six to eight weeks.

The D.C. Lottery typically rolls out one new ticket a week, and Roogow said players will quickly notice when that schedule starts to slip. “It’s the new items that really provide the impetus for sales,” he said. “The novelty goes down a little bit.”

Besides a drop in instant-ticket sales, finance officials have estimated that the scratch-off hiatus will likely hurt the sales of numbers games as players either spend less or spend in other jurisdictions. Roogow fears that if the District loses players to Maryland or Virginia, it could take years to win them back. “We’ll lose a market that we’ve struggled to gain,” he said.

On Tuesday, the D.C. Lottery held a promotional event at Union Station for D.C. Black II, a million-dollar-jackpot ticket that debuted in March and sells for $20. Passersby participated in dance contests and won chances to step into a “cash booth,” where they could grab at flying bills.

But of roughly a dozen customers who stopped by the lottery’s shop in the station concourse Tuesday afternoon, none was aware that the city’s scratch-off ticket business was in jeopardy. Some said they would switch their spending to numbers games, but most said they would buy tickets in Maryland or Virginia or stop playing entirely.

Carole “C.J.” Johnson, a 62-year-old Oxon Hill resident who plays scratch-off tickets daily, said she had not heard about the contracting issues. Should the city stop offering fresh tickets, she said, she’d leave town to play.

“I like D.C. better. The games are better, the payoffs are better,” she said. But “if D.C. doesn’t have the scratch-offs, I’d have to get them from Maryland.”

Johnson said she doubted that the no-new-tickets scenario would come to pass, though: “I think it’s a scare tactic, like everything else in Washington. I think it will all work out,” she said, pausing. “Because of the revenue it brings.”

Mike DeBonis covers Congress and national politics for The Washington Post. He previously covered D.C. politics and government from 2007 to 2015.
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