Intralot wins the lottery

In the end, all the talk about seeking competitive bids to operate the Ohio Lottery and provide other gambling services turned out to be just that – talk.

Indeed, it could be said that Intralot, the Greece-based company that has had the contract since 2009, made the State Controlling Board an offer it couldn’t refuse.

Thus, after several weeks of toying with the idea of forcing the Ohio Lottery Commission (OLC) to solicit bids, the controlling board, which is responsible for approving all state contracts, decided that the status quo was the best bet for Ohio.

The approval to extend the OLC-Intralot relationship until 2027 came without any objections from controlling board members.

But the Associated Press reported that the deal to allow the commission to waive competitive bidding for two-year contract renewal options for the next decade prompted two board members to file formal objections.

The last request for proposals to operate lottery games was issued 10 years ago.

However, Nicole Kostura, deputy lottery director, told the wire service that the extensions are optional, and the commission retains the ability to change vendors.

But the chances of that happening are slim to none.

Why?

Cost analysis

Because a cost analysis by independent consultant Rossi Enterprises of Intra-lot’s contract and performance offered this rationale for not seeking competitive bids:

“When a contract is one of the least expensive in the industry, as in this case, going out to bid should be considered carefully. A vendor incurs substantial upfront costs to plan, implement, and customize a gaming system and the associated infrastructure, equipment, and services. This makes it extremely difficult for non-incumbent vendors to underbid an incumbent. Without realistic competitive pressure, opening an existing contract for bid also opens the possibility of the incumbent vendor increasing its commission rates and still submitting the best value bid. Here, it is worth noting that the OLC (Ohio Lottery Commission) is paying the lowest commission rate charged by Intralot to a U.S. lottery. In short, there is a real risk that no vendor, including Intralot, will beat or even match the existing commission rate and services.”

The new two-year agreement will result in Intralot earning another $71 million over that period. In addition, the Greek company with operations throughout the United States will be paid $12 million to purchase and operate up to 750 “Quick Keno” self-service lottery terminals at retailers.

The company has earned $259 million since it began running Ohio’s gambling operations.

In addition to providing the lottery terminals that are located in more than 1,000 retail outlets, Intralot also is responsible for the electronic slot machines at the seven racinos around the state, including Hollywood Gaming at Mahoning Valley Race Course in Austintown. A racino is a horse-racing track with a slots casino.

In an interview with this writer prior to the controlling board agreeing to an extension of Intralot’s contract, the company’s vice president for government affairs, Byron Booth, insisted that the state has benefitted greatly from the deal it struck in 2009.

The Greek company won the Ohio lottery systems contract by submitting a bid that was $26 million less than GTech, which had operated in the state for years.

Booth said Intralot has provided the lottery with exceptional technology – he claimed that the terminals have worked 99.99 percent of the time – and has increased gaming content and services.

But it is the company’s manufacturing plant in Mason, Ohio, that probably sealed the deal with the State Controlling Board.

The plant was opened in 2008 to manufacture and assemble lottery self-service machines. More than 80 percent of the machines’ parts are sourced or manufactured by Ohio companies.

These self-service machines have generated more than $1.2 billion in gross sales for the Ohio lottery.

Intralot also has invested more than $175 million in Ohio since 2009.

As for the future, Booth said that new gambling content will add at least $10 billion in revenue over the next 10 years.

But despite the decision by the State Controlling Board to extend the agreement with Intralot, the issue of seeking bids for government contracts cannot be ignored.

As the Cleveland Plain Dealer reported, an independent assessment of the lottery, sought in 2016 by the state agency, determined that bids should be sought.

The newspaper quoted from a report from Spectrum Gaming Group that said, “ … allowing vendors to maintain long-term contracts without re-bidding is an ineffective management practice.”

The controlling board can require the lottery commission to seek bids when the appropriation is requested every two years, according to the Plain Dealer.

However, lottery officials say the bidding process can take up to three years because of the complexity of the gaming system.

That being the case, the State Controlling Board and the Ohio Lottery Commission may want to consider going out for bids to coincide with the 2019-20 biennial budget.

Such a move would silence the board members and state legislators who have misgivings about Intralot’s no-bid contract.

As for the Greece-based company, the arguments it put forth to continue its relationship with the state of Ohio would make it the favorite in any competitive bidding process.

But after a decade of having one company operate the state lottery, it would be good public policy to explore what other alternatives exist. After all, there are three major companies that operate state lotteries: Intralot; Scientific Games; and, International Game Technology (formerly GTECH).