D.C.’s Internet gambling bid questioned

January 26, 2012

D.C. Council members sharply questioned top finance and lottery officials Thursday about whether the District’s first-in-the-nation Internet gambling proposal went though proper channels on its way to becoming law last year.

Chief Financial Officer Natwar M. Gandhi and his deputies were criticized by the District’s inspector general and two council members for including provisions in a 2009 lottery contract allowing online gambling without notifying lawmakers or allowing other companies to bid on that proposal.

Tommy Wells (D-Ward 6), who has introduced a bill to stop the Internet gambling program, criticized officials for “working backwards,” implementing the program through a contract provision that did not receive public scrutiny and legislation that did not get a stand-alone public hearing before passage.

“Why truncate the process? Why take a shortcut? Why not do this straight-up?” Wells asked. “We have to convince folks we’re not putting our thumbs on the scales just to make more money for the District.”

But Michael A. Brown (I-At Large) — the council’s lead proponent of Internet gambling, or “iGaming” — rejected suggestions that the program was not given proper scrutiny. He suggested that any delay would be caving in to a small but vocal group of critics and would put the city at a disadvantage against states that are pursuing similar proposals.

“What do they know that the world-renowned experts do not?” Brown said of the opponents, dozens of whom signed up to testify at Thursday’s hearing. “It is already happening in neighborhoods throughout our city and, frankly, throughout our country.”

Thursday’s hearing was a crucial test for the Internet gambling program, which first came to light in December 2010 when language authorizing it was included in a broader budget package passed by the council.

After observers inside and outside D.C. government raised questions about the un­or­tho­dox process, lottery officials agreed to hold a series of community meetings before proceeding. Council member Jack Evans (D-Ward 2) also ordered the inspector general, Charles J. Willoughby, to probe the gen­esis of the program.

More than 170 public witnesses signed up to offer testimony at the hearing, which was expected to stretch into Thursday night.

Willoughby issued a report last Friday saying that said Gandhi’s office had erred in adding the Internet option to the lottery contract after the council had approved it and without including it in a formal solicitation.

Gandhi strongly objected Thursday to Willoughby’s finding, arguing that each of the three bidders on the contract was allowed to offer options not specifically included in the solicitation. He said it made no sense to hold a separate solicitation for Internet gambling because the lottery system needed to be “complete, thoroughly integrated and have the ability to innovate.”

“The important point here is, was there a lottery process that was fair, open and transparent? The answer to that is yes,” he said.

But Willoughby said he stood by his report and suggested the contract must return to the council for further approval.

A request for proposals issued by Gandhi’s office in 2009 did not specifically contemplate Internet gambling but allowed bidders to include “offered optional items” in their proposals. The contract subsequently signed by Intralot and forwarded for council approval allowed the company to offer “non-traditional games,” such as Keno.

Only after the contract passed the council in December 2009 was a specific reference to “Internet wagering” added. A contract executed in March 2010 includes an option for a “B-On Platform” that could be introduced “upon a determination made by the District that the games offered . . . are legal in the District of Columbia.”

Under the contract, Intralot is entitled to receive 50 percent of Internet sales; the company receives only 2.6 percent of other lottery sales.

Joseph Giddis, Gandhi’s contracting director, said he did not consider the addition of Internet gambling a “material change to the contract” requiring re-submission to the council.

That answer was ridiculed by David A. Catania (I-At Large), a frequent critic of Gandhi. “There’s no way in my mind that that explanation is sustainable,” he said. He went on to call for the resignations of finance officials involved in the process, “right up to the top.”

“I was robbed of the right to make a choice, informed or otherwise,” Catania told Gandhi. “It is not your right to substitute your judgment for mine.”

Representatives of groups that competed with Intralot said they had not contemplated including an Internet gambling component in their bids.

Darryl Wiggins, owner of a District document-management company that partnered with Rhode Island-based GTECH on a bid, said iGaming was never discussed as an option. “Nobody ever asked me about any Internet gambling. Nobody ever asked us to demonstrate it. It was never brought up as a topic,” he said.

Charles Hopkins, a Maryland businessman who partnered with Atlanta-based Scientific Games, said it never occurred to him to read “non-traditional games” as including Internet gambling. “For one thing, it was illegal at the time in the District,” he said. “We would have been bidding on something that was illegal.”

Hopkins said he agreed with Willoughby that any Internet gambling program should undergo a new round of bidding. “I absolutely believe it would be a better deal for the city if it were rebid,” he said.

Gandhi said Thursday his office would not proceed with the Internet gambling plan until he receives “clear guidance from the council and the mayor.”

Evans, chair of the Finance and Revenue Committee, said Thursday afternoon he had not decided whether to proceed with a repeal bill offered by Wells and Phil Mendelson (D-At Large).

But he agreed the new contract details were troubling. “There is no way that we would have known [in 2009] we were voting on Internet gambling,” he said. “It’s akin to building a baseball stadium without telling anybody.”

Mike DeBonis covers local politics and government for The Washington Post. He also writes a blog and a political analysis column that runs on Fridays.
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