Aug 18, 2006, 2:15 pm
The Texas Lottery Commission questioned the chief executive of lottery operator GTECH Corp. for more than three hours on Wednesday about accusations it used unsavory tactics to win or keep business in several countries, but the panel's chairman said he saw nothing unsuitable in the company's sale to an Italian firm.
Investors feared a highly critical Texas Department of Public Safety report delivered to the commission last month could hinder GTECH's sale to Italian lottery operator Lottomatica SpA. Lottomatica wanted GTECH to ensure the sale wouldn't affect its existing contracts and Texas' is a big one, worth about 8 percent of the company's total revenue.
The deal worth $4.8 billion in cash, or $35 a share, is expected to be completed in January.
The DPS report, which stemmed from a routine state background check into the sale, described allegations the company has faced over the past six years, including that it used kickbacks, hefty consulting contracts and unusual loans to win or keep business in Brazil, Trinidad, Poland and the Czech Republic.
GTECH chief Bruce Turner assured the two-man commission that the company has been thoroughly investigating each of those claims and has implemented strict ethics codes and oversight procedures to ward off future problems and deal with those that do arise.
"We at GTECH pursue our business in a manner in which the boundaries of right and wrong are brightly illuminated and clearly visible to every GTECH employee," he said.
Commission chairman C. Thomas Clowe said he found nothing unsuitable in the future company or any of its key personnel. But he suggested establishing a committee within the lottery commission to keep an eye on the company's operations in Texas and around the world.
"We will never stop asking questions," he told Turner. "You've got to give us your best effort as the lottery operator. You've got to give us a scrupulous, fair and honest operation. We just won't accept anything else."
Even if the lottery did have a serious problem with GTECH's operations, it would have little choice but to stick with the contract that runs through 2011. No other company sought the contract the last time it was up for bid, and the commission doesn't have the authority - much less the manpower and hardware - to run the games on its own.
The commission took a tiny step toward gaining the ability to operate its own games on Wednesday by agreeing to ask lawmakers in its budgetary request for the ability to seek permission to hire new employees, spend more money on capital and move funds around in its budget.
If lawmakers agree and if the agency decided it wanted to insource operations, it still would have to get approval from the governor and the Legislative Budget Board.
The budgetary request could also foreshadow bigger problems for the lottery.
Gov. Rick Perry and legislative leaders asked all state agencies to submit appropriations requests at 90 percent of the previous budget.
The lottery submitted a baseline request for $373 million but asked lawmakers to restore $31.4 million of the cuts it made from a variety of areas in last year's budget.
Unless lawmakers restore $20.56 million to the lottery operator contract part of the budget, there won't be enough money to pay GTECH for running the games, lottery controller Kathy Pyka told the commission. If that's the case, the agency either will have to persuade GTECH to take less money or will have to stop selling lottery tickets once the money to pay the contract runs out, she said.
Perry has said the request is just a starting point. The lottery's request is due on Aug. 25 and will be considered in the legislative session that begins in January.
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