Rhode Island’s proposed no-bid gaming deal ignites firestorm

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Rhode Island Gov. Gina Raimondo’s proposed no-bid, 20-year, $1 billion extension of a gambling technology contract has become the latest bare-knuckle political controversy in the nation’s smallest state.

The deal, which lawmakers will debate later this month, would extend lottery giant International Game Technology plc’s current 20-year agreement, set to expire in 2023.

Moving parts include a State Ethics Commission investigation into a complaint against Raimondo, launched by former state Republican chairman Brandon Bell; the saturation of the northeast U.S. gambling market; pushback from in-state casino operator Twin River Worldwide Holdings Inc.; and state budget revenue implications.

The dispute features armies of lobbyists targeting individual swing votes in the General Assembly, which must approve the deal. The state’s top 20 lobbyists are split evenly between IGT and Twin River.

Rhode Island’s Senate finance committee will kick off a series of five hearings at 5 p.m. Sept. 19. The first hearing will include an overview of state procurement processes and a review of the current lottery system provider contract.

The House of Representatives also expects to hold hearings.

IGT, now of London but originally GTech of Providence, would have exclusive rights to manage traditional lottery games and operate 85% of the state’s video slot machines in exchange for a $25 million payment plus $150 million in capital investment, either directly or through a third party.

It would provide at least 1,100 in-state jobs, a primary Raimondo selling point.

"I'm not gambling on a company with no track record with Rhode Island's third-largest source of revenue, and I'm not gambling on losing the jobs of 1,000 Rhode Islanders," the governor said on a radio interview. "This would be the only lottery contract in America where there’s a 1,000-job job guarantee for 20 years.”

Raimondo officials last week sent top lawmakers 1,400 pages worth of related documents.

Rhode Island now pays IGT $12.5 million per year for a 20-year contract valued at $250 million.

Twin River has called for a bidding process. It contends that in 2015, Massachusetts engaged IGT, after public bidding, for 10 years with payments of $2.3 million annually. In Pennsylvania, Twin River reports, the contract was extended with IGT for five years, for $17.6 million overall.

Gary Sasse, executive director of the Hassenfeld Institute for Public Leadership at Bryant University, has advised Rhode Island not to rush into the new contract, given the fluidity of the gambling industry.

“We need to slow down on this,” said Sasse, a former director of the state’s administration and finance departments.

Ownership and pricing of gaming devices and services vary between jurisdictions, complicating interstate comparisons, according to Sasse. Rhode Island’s casinos, for example, do not own slots and machine owners take 7% of generated revenues. Massachusetts, by contrast, features no such payments, because casinos themselves own the gaming devices.

“Whether Rhode Island is paying too much is a question we don’t have the answer to,” Sasse said. “We’ve never bid out. The governor wants to go ahead with another 20-year contract. That means 40 years with no idea whether it’s a good deal or a bad deal in terms of the bottom line for dollars.

“The [current] contract doesn’t expire for another four years, so what’s the urgency, unless they’re threatening you with something they don’t want the public to know about?”

Sports betting appeals to northeast states looking to fill revenue gaps.

“It’s something no state can ignore for what it represents,” said Bob Boland, athletics integrity officer at Penn State University, an expert in sports law and a former player agent.

“If you’re the back office for this company, you’re looking at the infrastructure for what could be a large sports-betting operation,” Boland said. “More states are doing it. Massachusetts is moving in, New Hampshire already has. Rhode Island benefits from larger populations in Massachusetts and Connecticut.”

Boland added a caveat.

“This could be a gap closer, but the fear is what’s the possibility of scandal or corruption.”

The Republicans’ ethics complaint alleges that Raimondo is a business associate of Donald Sweitzer, a lobbyist for IGT and its retired chairman. She chairs Democratic Governors Association and he is its treasurer.

The ethics panel, though, dismissed another part of the complaint, which argued that Raimondo violated the ethics code by signing legislation allowing online sports gambling in the state and then having the Rhode Island Lottery award the new business to IGT without a bid.

Rhode Island has also been the home of recent political controversies that include 2011 pension overhaul, the 38 Studios bond financing fiasco, and the Pawtucket baseball stadium ruckus.

“This one is different,” Sasse said. “This is a work in progress.”

According to Sasse, lawmakers must protect the state’s third largest revenue source — gambling — and position the gaming industry to land the necessary technology to be profitable down the road.

“The technology is changing ever radically,” Sasse said.

Gambling expansion, meanwhile, has triggered questions about market saturation.

Wynn Resorts’ Encore Boston Harbor and MGM Springfield, in western Massachusetts, have taken a bite out of Twin River’s flagship casino in Lincoln, Rhode Island. Table game revenue there fell 34% in July, year over year, the company reported, while slots revenue dropped 17% from the same time in 2018.

“At the end of the day, all these revenues sort of even out,” Boland said.

Rhode Island’s budget bakes in projections of tax revenue from Twin River. The casino launched a sports betting app on Wednesday.

According to Municipal Market Analytics, seven states now offer sports betting and more are lining up to do so. All but 9 have either approved or introduced legislation.

"Notwithstanding that robust interest, revenue projections are less than 1% of each state’s general revenues: so this is a positive but still small impact on states’ finances," MMA said.

State officials who look at sports betting see only the potential tax revenue, and fail to consider what’s best for long-term growth, according to Villanova School of Business professor David Fiorenza.

“Gambling at casinos and now sports betting has been viewed by state legislatures as a quick fix to fiscal budget issues,” said Fiorenza, a former chief financial officer of Radnor Township, outside Philadelphia.

“It is a short-term solution to long-term problems that exist and continue to appear each time there are budget hearings. I would hope the tax revenues collected are earmarked for programs that benefit the citizens, such as school taxes, prescription subsidies, and promoting the main streets of small boroughs that are in need or revitalization.”

Fiorenza would prefer states focus on fostering economic growth in communities that is more than one dimensional. “That is, mixed use housing with a business community that thrives for a generation or more,” he said.

Pennsylvania, facing competition from New Jersey, New York and Delaware, has approved sports betting at casinos.

Connecticut’s options for expanding its gambling reach include a Bridgeport waterfront casino; a casino in East Windsor, halfway between Hartford and Springfield and pitched by Mashantucket Pequot and Mohegan tribes to counter MGM Springfield; and gambling at the perennially money-bleeding XL Center arena in downtown Hartford.

In Rhode Island, Twin River and IGT have waged dueling television and newspaper advertising campaigns.

Twin River, which also operates a Tiverton casino, has called the no-bid deal anti-competitive. IGT has touted its Rhode Island roots, having begun as GTech in a cramped office above Capriccio’s restaurant in downtown Providence.

According to Republican National Committeeman Steven Frias, the state’s casinos are entering a period of decline.

He cited Massachusetts competition, a drop in slot-machines play due to changing demographic, and a cost structure that makes it difficult to make the large investments necessary to compete.

“The coming decline of Rhode Island’s casinos will in some ways parallel the demise of Rhode Island’s horse race tracks a generation ago,” Frias said in a commentary. “With Rhode Island casinos entering an era of decline, lawmakers should avoid locking taxpayers into a no-bid contract.”

IGT competitor Scientific Games Corp. of Las Vegas, Nevada, has joined the Rhode Island fray, registering lobbyist Leonard Lopes with Secretary of State Nellie Gorbea’s office. That has generated talk of a possible consortium bid. Another possibility is a compromise under which IGT would get a lesser percentage of the machines, provided Twin Rivers get the necessary technology upgrades.

The messy situation reflects the growing pains in the sports betting market.

“We in the United States don’t have much experience with the betting economy,” Boland said. “We keep looking to Nevada. Now we’re seeing these huge global players come into our space. On my car radio I hear ads for William Hill and other companies as well.”

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