Snake Eyes.

• Author: THOMPSON, NICHOLAS
• Position: Gtech's state lottery contracts

Even education programs can't redeem state lotteries

IN 1990, ZELL MILLER, RUNNING FOR GOVERNOR of Georgia, figured out a way to increase spending on education without raising taxes: Create a lottery to fund scholarships for high school achievers. Miller's proposal, "Helping Outstanding Pupils Educationally" (HOPE) caught on and helped sweep him into office.

HOPE works. It has financed higher education for hundreds of thousands of students in Georgia. It also seems wondrously simple: a voluntary tax (no one is forced to buy lottery tickets) to fund a clear, concise, and universally acclaimed goal. Every high school student in Georgia with at least a B average now has the opportunity to attend one of Georgia's universities; if they keep up their Bs in college they're funded until graduation. HOPE brought Miller national attention and numerous state governments are considering copying the program.

But despite HOPE's success, there's a trap in its seeming simplicity. Lotteries aren't taxes, but they certainly aren't free. They compromise values, feed a very dangerous industry, and end up snuffing out the success of even the most well-intentioned initiatives. Other states should copy the educational blueprint of the HOPE program, but they shouldn't copy the funding.

The trouble with lotteries begins when you hand over your dollar in a convenience store. The money doesn't go straight to the state government or to its college education fund; it is processed by a Rhode Island corporation called Gtech. Gtech prints the tickets for the states, provides the software for the gambling devices, organizes the drawings, and even trains convenience-store owners on how to run their computers. Gtech was founded in the early 1980s and, of the 38 lotteries run nationally, the company has won the contracts to manage 29--getting about a nickel from every dollar ticket sold. It doesn't seem like much, but these nickels have added up. The company has annual revenues of just under $1 billion, and is traded on the New York Stock Exchange.

Much of Gtech's success comes because it has something good to sell and it sells it well. It has always been able to work efficiently and, by most accounts, it has scrupulously fulfilled its contracts.

But to many people in the business, Gtech's extraordinary success doesn't just come because it gets up at dawn and eats its vegetables. It's because the company knows how to work the back alleys with sweet talk, hard bargains, and, its critics say, coercion. In California, a Gtech lobbyist on trial for bribing lawmakers was caught by a hidden tape recorder calling state lottery director Sharon Sharp "our gal." Sharp had handed Gtech the California contract without opening the process to competitive bidding. In Georgia, Lottery Director Rebecca Paul called a closed-door session with the company when Gtech's bid came in $50 million above the low bidder. After Gtech agreed to drop its price by just $23 million, Paul inked the deal. Did Paul cut Gtech a break because she was offered a job? Probably not, but she certainly knows that the company takes good care of lottery directors who show it consideration. Three directors of the New York state lottery have gone to work for the company as lobbyists or consultants, as have numerous directors from other states. After a conflict over Massachusetts' lottery, director James Hosker, a close friend of Gtech's, took the job managing Kentucky's lottery and secured a sweet deal for the company in that state. Where did Hosker move next? A lucrative job on the Gtech payroll.

As one person close to the company said anonymously, "If it loses a contract, it sues everybody. But it usually wins because it offers future jobs to every state lottery director." When asked why he insisted on being quoted off the record, he responded: "It's the third rail of the gambling industry. You touch it, you die."

But Gtech doesn't just make sure that what goes around comes around; it runs an operation that would make any K Street lobbying firm proud. One former gambling industry reporter recalled being taken out to play golf by Gtech. "I played 18 holes with the Gtech guy and he shot something like a 70 on a very hard course. That's almost like a pro and I was very impressed. I asked him at the end how he was so good if he also had to work for Gtech. He told me that Gtech had just hired him to play golf with clients."

Nor would Gtech be Gtech if it didn't understand the importance of well-placed friends, and the company corrals power from any angle it can find. In Texas, it hired the...