The state's lottery operater claims the casino deal has slowed the rollout of additional slot machines at the state's existing gambling venues.

08:03 AM EDT on Friday, June 25, 2004

BY ANDREA L. STAPE
Journal Staff Writer

Journal photo / Connie Grosch GTECH representatives, from left, Robert Goldberg, lobbyist, Marc Crisafulli, general counsel, and Donald Sweitzer, senior vice president of business development and public affairs, convene before heading to House Speaker William Murphy's office yesterday.

PROVIDENCE -- GTECH Holdings Corp. upped the stakes in its battle to guarantee it will profit from a proposed West Warwick casino, charging yesterday that the state may already be in violation of its 20-year lottery contract with the company.

If so, the state may owe GTECH at least $9 million, said Robert Vincent, a spokesman for GTECH.

The state has not given GTECH the go-ahead to add 770 video slot machines at Lincoln Park and Newport Grand, Vincent said. He said the casino debate has put a hold on the rollout of additional gaming machines, and that delay has cost GTECH revenue it says is guaranteed in the contract.

That revenue loss could be a breach of the agreement, said Vincent. Consequently, the state could be liable for the loss. GTECH estimates that keeping the new video slots out of service could cost GTECH $9 million a year in lost revenue. GTECH expected to earn revenue from those machines during its current fiscal year.

The Rhode Island Lottery Commission says the rollout has not been stalled by the casino debate, and it does not consider the contract violated, said Robert Silva, the commission's lawyer.

"The language in the master contract has no implementation date," he said. "I disagree with anyone's interpretation of the contract that would lead anyone to believe we are in violation of the contract."

But Vincent said: "The case could be made that the state would be liable for the revenue lost from the . . . machines [Commitments] need to be respected."

GTECH's charge that its exclusive contract may have been breached is the latest salvo in its displeasure over the casino bills before the General Assembly.

On Wednesday, GTECH said that it was rethinking its pending $100-million investment in the state, including its proposed $88.5-million headquarters in downtown Providence and a promise to keep 1,000 employees in the state, because the casino bills did not include contractual guarantees that the West Greenwich company could operate slot machines in the West Warwick casino proposed by Harrah's Entertainment.

Last year, when the state and GTECH negotiated the 20-year contract to run the state's lottery and operate nearly half of the video slot machines at Newport Grand and Lincoln Park, GTECH was guaranteed the right to operate a percentage of the slots at any future state-run casino, ensuring the new facility would not adversly affect the company's expected $770 million in revenue from the deal.

Yesterday, with the full Senate set to vote on the casino bill, GTECH executives met with Senate President Joseph A. Montalbano, D-North Providence, and an amendment to the bill was introduced. Last night, as the Senate approved the casino bill that would place a statewide referendum question on the November ballot, the amendment was defeated, 24-7.

The amendment would have placed slot machines at the proposed casino under the control of the Lottery Commission, thereby giving GTECH the right to operate 50 percent of the machines. Under the bill, Harrah's obtains the machines directly.

The House is expected to vote on a similar bill today. It also contains no GTECH guarantees. House Speaker William Murphy yesterday said he had no plans to meet with GTECH executives.

Since the casino bills do not assure GTECH a revenue stream from the new casino and the rollout of the promised 770 slot machines has been slowed -- the company says the state is not holding up its end of the contract, which included specific revenue guarantees.

"The state has made commitments on the order of hundreds of millions of dollars worth of revenue to us which they are choosing to ignore," Vincent said.

GTECH said yesterday that it is taking an inventory of charges the state might be liable for, such as the $25 million GTECH paid to upgrade gaming equipment and for licensing fees, Vincent said.

Yesterday, Governor Carcieri, who was instrumental in putting together the GTECH deal last year, said he agrees with the company. During a news conference, he said the General Assembly is sacrificing 1,000 jobs and $100 million in investments in the state for what he called a "complete flimflam." He said he plans to veto the referendum legislation.

Harrah's has said the proposed casino would add 3,100 jobs, and it is working on hammering out a deal with GTECH that would give the company a piece of the action at the casino, according to David Satz, Harrah's vice president and lawyer.

THE LOTTERY COMMISSION yesterday disagreed with GTECH's charges. GTECH's master contract does not include any time frame for the rollout of the additional machines, Silva said. Both Lincoln Park and Newport Grand, he said, do not have the room for any additional machines.

"If they tell us where to put them, we'd put them in there tomorrow," Silva said.

A Lincoln Park spokesman said yesterday that space is only part of the issue. The park and its United Kingdom parent company, Wembley LLC, are about to be sold, and Lincoln Park and Wembley executives are facing federal bribery charges. The potential new owner has committed to expanding the facility and adding more video slot machines, but Lincoln Park wants the state to sign a long-term revenue contract -- ensuring that the state will not make surprise tax changes, said Michael Trainor, a spokesman for Lincoln Park.

"In no way shape or form did the possibility of a casino affect our willingness to add more machines within the authorized limit," Trainor said.

The situation is similar at Newport Grand, according to Diane Hurley, chief executive officer. There is a lack of space. But she said the discussion about a casino has caused a reluctance to invest in expanding the facility.

"To the extent that the casino is going to potentially devastate our revenues, it's definitely going to impact our decision about what kind of capital improvements we are going to do," said Hurley. " . . . This whole casino issue has chilled the whole going forward with additional machines."

GTECH, however, said that regardless of the reasons behind the delay, the issue is the same -- the slow rollout violates its contract with the state as does the lack of provisions to protect the company's revenue in the casino bills.

"It's really about the state's commitment to us as part of our master agreement and the revenues we counted on as part of our master agreement," Vincent said.

With reports from Staff Writer Scott Mayerowitz.