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Texas lottery officials concerned about sale of GTECH

Nov 16, 2005, 11:25 am

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Texas Lottery

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."

Gtech operates such games as Lotto Texas, Pick 3 and Cash Five, and its contract with the state is worth about $100 million annually. In addition to Texas, the company operates games for 24 other states and 61 foreign nations, said Gtech spokesman Bob Vincent.

The company received what Vincent called "an unsolicited offer" in September, and its board of directors is considering it.

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.

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.

Although Gtech and the Texas lottery have been partners for 13 years, the relationship has had its problems. In late 1996, soon after the company's contract was renegotiated and renewed, lottery officials sought to terminate it, thinking that a better deal could be made with a competitor.

The effort was abandoned after no qualified bidders could be found.

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