Hard to Pick a Winner for D.C. Lottery

A decision on who will be the next D.C. Lottery operator has been stalled for months.
A decision on who will be the next D.C. Lottery operator has been stalled for months. (By Michael Lutzky -- The Washington Post)

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By Marc Fisher
Thursday, December 11, 2008

W hen the D.C. Council picks a company Tuesday to operate the city's lottery, it will try to determine the best way to spend many millions of taxpayer dollars, provide a trustworthy gambling experience for players and bring the lottery's technology into the digital age.

What the council won't do is address the real reason the lottery contract has become a political nightmare and a forbidden topic in the city's top echelons: race. At issue are the District's well-meaning efforts to legislate social change by encouraging big, national companies, such as those that dominate the lottery industry, to team up with local minority-owned businesses to land a D.C. contract.

The months-long delay in approving a new lottery contractor "is one of the strangest phenomena I've ever seen," council Chairman Vincent Gray says. "This issue has been a big problem for months, and nobody talks about it among the members -- ever. It's almost as if it doesn't exist."

Why the silence? Let's hear from two council members, both of whom say they have not discussed the matter with their colleagues, and neither of whom would talk about it unless I agreed to keep their names out of the paper.

"The truth is that nobody wants to give the contract to the current operator, and nobody wants to give it to the alternative company," one member says. "The truth is, we're stuck because of our own rules."

Those rules are in some ways the pride of the District -- minority set-asides that over a quarter-century have helped create a black business elite and thriving black middle class. In the rules' current form, companies controlled by people who are "socially disadvantaged because the individuals have faced chronic, not fleeting, instances of prejudice or bias because of their identity as members of a group" get preference points on the scorecard by which the District determines who wins city contracts.

In many cases, the rules give an edge to local companies over out-of-town competitors. On many contracts, big businesses make deals with local, minority-owned operations to be partners on a bid. In the best scenarios, the big businesses become mentors and help local firms get off the ground and up to industry standards.

But the lottery contract is the kind of unusual and complex business for which the city's preference system fails, another council member says. "This is a sordid mess, because there is no company in the District with any experience running a lottery, yet under our rules, we have to pick a local operator," says this member, who favors rejecting both current bidders and starting over.

The local company that runs the D.C. Lottery, Lottery Technology Enterprises, has held the contract, in partnership with international lottery giant GTech, since the inception of the games in 1982. But in 2006, LTE experienced the biggest security breach in U.S. lottery history. In addition, the company gets lousy marks for its operation of the games and proposes to charge the city about $5 million a year more than the company that is challenging it.

Just as it is hard to find a council member who has anything good to say about LTE, so is it difficult to get any to praise the challenger, D.C.-based W2I, which also has no experience running a lottery.

W2I, which proposes to team with GTech's worldwide rival, Intralot, is run by a family that until now has been in the housing and nightclub businesses. Although the patriarch, Warren Williams Sr., is no longer associated with W2I's management, council members say they are loath to hand over a $120 million contract to a family that has had troubles with housing code violations and a fatal stabbing at a U Street club it owned. The family says it has addressed the housing issues and should not be blamed for the acts of nightclub patrons.

At the District's procurement office, the choice is clear: W2I won the competition and, in Chief Financial Officer Natwar Gandhi's view, the credibility of the District's bid process depends on the council's approval of the winner. Awarding the contract to W2I would save taxpayers about $40 million over the next 10 years, according to the city's Contract Appeals Board, which affirmed the contracting office's recommendation of W2I last month.

But some council members, desperate for an alternative, have been talking to Charles Hopkins, a Greenbelt-based real estate developer with no experience running a lottery. He confirms he is interested in bidding for the contract if the process is reopened. He wouldn't say which lottery operator he is teaming up with, but council sources said it is Scientific Games, another major player in the industry.

What council members won't do is publicly question the role that minority preferences have played in the lottery mess: "You try being an African American in this city and arguing against the minority set-aside requirement," says one council member, who is leaning toward demanding a rebid. "No Caucasian would do it for fear of being called racist. And no African American would do it; they'll accuse you of being an Uncle Tom."

Hopkins, who is black, says the current system need not be dumped to ensure a strong and profitable lottery.

"Yes, by definition, larger companies have long experience and the expertise in certain industries, but a smaller company can bring strategic advantages to the partnership," he says. "Without preference systems, minorities don't stand a chance."

Join me at noon today for "Potomac Confidential" at http://www.washingtonpost.com/liveonline.


© 2008 The Washington Post Company

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