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The little firm that got a big chunk of D.C.’s lottery and sports gambling contract has no employees

Atlantic City’s Borgata casino's sports betting lounge, which opened in June. The D.C. Council has awarded a $215 million contract to Intralot to bring sports betting to the District and to continue to operate its lottery. Intralot said most of the contract would go to its small, local partner, Veterans Services Corp., but a Washington Post investigation found that Veterans Services Corp. has no employees and its top executive is paid by a company run by Intralot. (Wayne Parry/AP)
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The Greek company Intralot, which last month received a $215 million contract to bring sports gambling to the nation’s capital and to continue running its lottery, says more than half the work will go to a small D.C. firm — a condition that helped the gaming giant win the no-bid contract.

The firm, Veterans Services Corp., will “perform the ENTIRE subcontract with its own organization and resources,” according to a document signed this summer by a top Intralot executive.

District law requires companies with large public contracts to subcontract some work to small local businesses to create new jobs, expand the tax base and grow the local economy.

However, Veterans Services appears to have no employees, according to interviews and District records. Until recently, the company’s website touted executives who didn’t work there. The man who leads it, Emmanuel Bailey, is a Maryland resident who is employed by an Intralot subsidiary, public records and company financial statements show.

In other documents and in response to questions from The Washington Post, Intralot officials said the work on the new sports gambling and lottery contract will be performed by DC09, a company that a business agreement shows was formed by Intralot and Veterans Services 10 years ago. At the time, Intralot was vying to run the D.C. lottery.

Intralot and Bailey say that because Veterans Services owns 51 percent of DC09, it is responsible for that share of DC09’s work.

Intralot, however, funded the creation of DC09, guaranteed the lease for its office space and controls the company, according to Intralot’s financial statements, public records and interviews. Bailey’s six-figure compensation in each of the past five years has also been paid by DC09, not Veterans Services, according to Intralot’s financial statements.

Intralot said it formed DC09 with Veterans Services to meet the city’s goals of supporting small, local minority businesses.

“Mindful of the District’s support for minority vendors and Intralot’s commitment to diversity, Intralot searched for [an approved] minority firm as a subcontractor,” said an Intralot statement provided by its Ohio-based communications consultant, Sandy Theis.

Veterans Services said it is a D.C. business because Bailey’s 75-year-old mother, Barbara, holds a majority stake and lives in the city. The business also lists DC09’s Southeast Washington office as its headquarters.

Emmanuel Bailey, who declined to answer questions about what Veterans Services can contribute to the contract work, said in a statement that his firm has a good record.

“For the past ten years, VSC has played a central role in the successful administration of the DC Lottery contract through its joint venture, DC09LLC, as Subcontractor to INTRALOT,” he said.

Bailey received $618,562 last year as DC09’s chief executive, according to Intralot’s financial statements, which include revenue and expenses of DC09. He received similar compensation in each of the previous four years, the statements show.

Bailey called Veterans Services “a case study” for the success of the District’s small-business program. “I’m both gratified for the opportunities afforded to the company and proud to have made the most of them,” he said.

The subcontracting plan Intralot submitted this summer to the District to show compliance with the local business participation law does not mention DC09.

Bailey and Intralot both say District officials know about and accept the arrangements between Veterans Services and DC09.

Indeed, as city officials recently approved the plan delegating up to $109.7 million in work to Veterans Services, they repeated Intralot’s boasts of local business involvement.

“The District’s sports wagering contract is the only one in the U.S. to date that mandates 35% local and minority business participation (let alone delivers 55.58% participation),” David Umansky, a spokesman for the District’s chief financial officer, Jeffrey DeWitt, wrote in an email to The Washington Post.

Maryland officials had a different reaction when Intralot and Veterans Services unsuccessfully sought to run that state’s lottery.

Maryland’s lottery director, Gordon Medenica, recommended against the proposal during a 2017 meeting of the Maryland’s Board of Public Works, saying the joint venture’s structure “kept changing on us.”

“We asked several times about who would be responsible for what,” he said, and Intralot “presented us with a lot of suggestions that they would be responsible for everything.”

Bailey declined to discuss those characterizations.

Forming Veterans Services

When Intralot first entered the D.C. market with its bid to run the city’s lottery a decade ago, it didn’t expect big profits. The Greek company, founded by a billionaire and traded on the Athens Stock Exchange, thought the prestige of running the lottery in the U.S. capital would make it worthwhile, according to a later report by the District’s inspector general.

Intralot’s bid beat competing proposals, but some D.C. Council members objected to a local firm with which Intralot had planned to partner; they voted the contract down.

As the bidding started over, Intralot officials found a new local partner in Bailey, an entrepreneur with experience on both sides of the procurement process and contacts within D.C. political circles.

Bailey, 56, has donated more than $30,000 to D.C. political candidates since 2006, campaign finance reports show. He has served on the boards of the Greater Washington Urban League, the Boys & Girls Clubs of Greater Washington and other groups.

A onetime bank branch manager and a former chief diversity officer at Fannie Mae, Bailey has also played roles in several small businesses.

In 2008, Bailey and another officer of one of these companies, Wilson Technologies, settled a lawsuit brought against them by a subcontractor, Fresh Air Duct Cleaning, that accused the company of improperly holding a federal contract to provide janitorial services to Walter Reed National Military Medical Center, court records show.

The plaintiff accused Wilson Technologies of having “no experience with providing cleaning services much less cleaning services in a hospital.” So, it subcontracted all the work to Fresh Air, despite federal regulations requiring the prime contractor to perform at least 51 percent of the work, according to the complaint.

The next year, Bailey met with Intralot officials about the lottery contract. He formed Veterans Services Corp., which applied to the District to be certified as a local business.

The initial majority owner of Veterans Services Corp. was Bailey’s stepbrother, Vernon Wayne Bailey, according to records the company submitted to the District.

At the time, Vernon Bailey was a full-time maintenance worker for Campbell County, Va., a four-hour drive from the District. He had worked there since 1990 and would continue in that job until 2017, officials there said.

Within three months, the Baileys transferred much of Vernon Bailey’s share of the company to Barbara Bailey, making her the 51-percent owner, according to the company’s submissions to the District.

“Ms. Bailey has over 40 years experience in senior government roles, both within the District of Columbia Government and for Fortune 500 companies,” materials the company submitted to the District said. Her résumé, however, included elsewhere in the materials, mentioned no private-sector work.She had been laid off as an employee relations administrator for the District after working there for 25 years, the records said.

In 2009, city inspectors conducted a site visit of Veterans Services’ headquarters, then located in Barbara Bailey’s Southeast Washington home. They found a couple of desks and one working computer at the end of her living room, according to their report. Emmanuel Bailey told them he primarily worked from his home in Burtonsville, Md., but occasionally came into the office.

The inspectors concluded that, given the chief executive’s general absence from the District, Veterans Services did not qualify as local, according to the site visit report. Nonetheless, two days later, a manager overrode that concern and approved the firm’s certification as a small, local business, a subsequent report by D.C.’s inspector general found.

That fall, District officials again found Intralot’s proposal the best of three and submitted it to the D.C. Council for approval. Intralot and Veterans Services then formed DC09.

A certified local business

At a D.C. Council committee meeting in November 2009, then-council member Marion Barry, a champion of minority-owned businesses, spoke of how the city wanted to foster bonds between large companies and smaller local firms, “where they share in the work, and they share in the profits or they share in the losses.”

Barry asked Intralot attorney Jay Lapine about the relationship between Intralot and Veterans Services Corp. Lapine said 51 percent of DC09 would be owned by Veterans Services Corp.

“And VSC would do 51 percent of the work?” Barry asked.

“Correct,” testified Lapine. “Probably more.”

Lapine did not respond to a request for comment about his testimony.

At the 2009 meeting, Bailey said Veterans Services had hired the former director of Florida’s lottery, Rebecca Mattingly, who then lived in Tallahassee, to be executive vice president.

A week later, the council approved the $38 million contract to Intralot to run the city’s lottery. “This can be a model for the country,” Barry said, lauding “this situation where you have the largest minority vendor in the lottery in the nation located right here in Washington, D.C.”

As Intralot began running the District’s lottery in 2010, it did so through DC09. Although Veterans Services had a majority ownership in DC09, Intralot was in charge of the venture, according to Intralot financial statements and public reports from agencies in the District and Maryland.

Intralot “controls the subsidiary DC09LLC, even though it holds less than 50 percent of the voting rights” because it “has signed agreements with other shareholders under which the Company has the ability to direct the business decisions of the subsidiary,” the financial statements said.

To finance DC09’s start, Intralot loaned it more than $12 million, according to people familiar with the arrangement and a document provided by Bailey.

Intralot guaranteed a lease held by DC09 for office space on the third floor of a glass-and-steel building in Southeast Washington, according to a copy of the lease submitted to the District by Veterans Services in 2013. Bailey began listing the location as Veterans Services’ headquarters.

Mattingly, the Florida executive Bailey said Veterans Services had hired, went to work instead for DC09. So did everyone else Intralot needed for the effort, according to the statement provided to The Post from Intralot officials. Bailey went on DC09’s payroll as its chief executive.

Intralot, through its subsidiary DC09, was now doing everything.

However, there was one thing DC09 could not provide. Barbara Bailey’s 51 percent stake in Veterans Services did not extend to DC09. When Intralot submitted a subcontracting plan to the District in 2014, it needed a certified local business to meet the participation law. It listed Veterans Services.

Emmanuel Bailey has said that Veterans Services’ ownership stake in DC09 is no sweetheart deal.

“People tend to think I’ve got 51 percent of the upside only,” he told The Post in 2011. “The bad news part is I’m responsible for 51 percent of the loss.”

In fact, DC09 lost money each of the past five years, according to Intralot’s financial statements. Veterans Services’ share of those losses totaled $1.6 million.

Over the same period, Emmanuel Bailey’s compensation as an employee of DC09 far eclipsed those losses, totaling $2.9 million.

No workers, no wage reports

When Veterans Services sought recertification as a local business in 2013, District officials noted it “has had no (0) employees over the past three (3) years, of which none (0) or zero (0%) percent was a DC Resident,” according to a report by the city’s Department of Small and Local Business Development.

The company again reported no employees in 2015, and District officials said recently in response to a Freedom of Information Act request that they have no wage reports from Veterans Services that are required of D.C. employers.

Intralot officials said in their statement to The Post that “all local employees are employed by DC09LLC (NOT Intralot/Not VSC).”

Mattingly, the lottery executive from Florida, moved to the District as she began work for DC09. In 2013, she got married and moved to Houston, court records show. From there, she continued as DC09’s general manager until she was “promoted in May 2019 to an executive role with INTRALOT,” Bailey’s statement said.

This summer, in a job posting for Mattingly’s replacement, Intralot sought someone who could ensure DC09 workers’ “adherence to the Intralot Employee Handbook.”

For nearly a decade, Mattingly has been featured on Veterans Services’ website as its executive vice president. She declined to comment.

The website has also continued to list Bailey’s mother as the company’s chairman, “with primary responsibility for strategy planning and business execution.”

One afternoon last month, a reporter knocked on the door of Veterans Services’ former headquarters, where Barbara Bailey still lives. She said she couldn’t talk because she had something on the stove; she promised to call the reporter but didn’t.

Curt Merritt, a Virginia construction company executive, has long appeared on the website as “VP of Preconstruction Services.” Reached by The Post, Merritt at first said a reporter had the wrong person. Later, he called back to say he had helped Bailey prepare a proposal for a government contract years ago.

“Then that guy apparently took my information and put me on his website,” he said. “I didn’t even know that.”

Days later, Merritt called back again and left a message: “I did give Emmanuel Bailey permission to use my résumé and stuff.”

Vernon Bailey, who web archives show was initially listed as the chief executive on the Veterans Services’ site, was described as its treasurer as recently as Aug. 1. He retired from maintenance work for Campbell County, Va., two years ago, and he died last year.

After The Post asked Emmanuel Bailey about the website four weeks ago, it was taken down. A second website created in 2015 that listed the same executives but under a different name, Vital Services Corp., was also taken down.

In their 2016 proposal for the Maryland lottery contract, Bailey and Thomas Little, then president and CEO of Intralot’s U.S. subsidiary, said the joint venture between Intralot and Veterans Services would operate under the name Gaming Innovations. They listed its address as that of a firm in Lanham, Md., called Ezra Technologies, which on its website lists Bailey as its chief operating officer.

An evaluation committee noted Veterans Services “has no capital; has very limited business or industry experience; and was unable to provide a coherent and consistent explanation of the role it will play in the operation of the gaming system,” according to a report by procurement officials that was first reported by the website District Dig.

The report said Bailey “acknowledged to the Evaluation Committee that he and VSC had no financial resources whatsoever to undertake their contract responsibilities during conversion.”

The evaluation committee concluded that Intralot’s partnership with Veterans Services resulted in an entity that was “weaker than Intralot on its own.”

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