- The Washington Times - Tuesday, February 7, 2012

The D.C. Council took a major step Tuesday toward reconfiguring the city’s $38 million lottery contract when it voted to repeal an online gambling law once urged by its supporters as a pivotal revenue source for the city.

Shortly before a 10-2 vote to kill the gambling initiative, known as iGaming, Mayor Vincent C. Gray said in a letter to the council that he would conditionally support a rebid of the entire contract if the council eventually revives iGaming.

Jack Evans, Ward 2 Democrat, who oversees the lottery as chairman of the council’s Committee on Finance and Revenue, said last week that more scrutiny of the lottery contract would be forthcoming after his committee advanced the iGaming repeal. His comments on the prospect of rebidding the lottery contract were tepid after Tuesday’s vote.

“I’m not doing anything right now, but I’d always be open to it, yes,” he said.

In his letter to the council, in which he reiterated his support for a repeal of iGaming, Mr. Gray said his position on the lottery contract itself was predicated on the passage of an iGaming law “in a much more publicly transparent manner” than the way it became law as part of a budget bill in December 2010.

“I also would support rebid of the existing lottery contract, with more transparent provisions that are subject to stricter adherence to both procurement law and best practices, and a fairer revenue-sharing arrangement with the District for any iGaming component,” he said.

Council member Tommy Wells, Ward 6 Democrat, who co-sponsored the repeal bill, said after Tuesday’s legislative session, “I certainly have a lot of questions about the process of selecting the [local] partner in the lottery contract, and that’s a conversation I will be having with Mr. Evans.”

Recent concerns about iGaming stem from a report by D.C. Inspector General Charles J. Willoughby, who determined that the city’s lottery contract with the Greek company Intralot “materially changed” to include the online games shortly after its approval in December 2009. Council members in favor of the repeal said they had no way of knowing that “nontraditional” games in the contract could amount to online gambling.

The inspector general issued his report in response to a written request for investigation by two officials at the time, D.C. Attorney General Peter J. Nickles and Chief Procurement Officer David P. Gragan, but not until after Mr. Evans asked Mr. Willoughby to act on the request.

The request for investigation was prompted by reports in The Washington Times that found irregularities in the lottery approval process and a lack of vetting of Intralot’s local partner, Maryland businessman Emmanuel S. Bailey. Mr. Bailey was found by the inspector general to have misrepresented his firm’s business activities during its bid for a stake in the lottery contract.

A spokeswoman for Mr. Gray said Tuesday that his perspective was shaped by the inspector general’s report and public opinion on the online gambling program.

“It’s a combination,” she said.

The council in December 2009 approved the lottery contract between Intralot, the sole awardee in a competitive bid process, and Veteran Services Corp. (VSC), a firm controlled by Mr. Bailey that was appended to the deal after the award. Intralot and VSC later executed a separate agreement that gave Mr. Bailey a 51 percent interest in a subcontracting entity consisting of VSC and Intralot.

Intralot said its company and VSC — which is on the hook for half the startup expenditures — spent $22 million launching the overall lottery system. Among those funds, it spent between $5 million and $7 million on the iGaming portion that will not happen — at least not for now.

VSC borrowed its share of startup expenses from Intralot.

On Tuesday morning, Mr. Evans said city lawmakers should vote on any potential rebid before lobbyists get the chance to “swoop down on the council members.”

“There are so many questions about the lottery contract,” Mr. Evans said. “It was really not done the way it should have been done.”

Council member Michael A. Brown, at-large independent and iGaming’s foremost proponent, said the council should not have rescinded its legal authority on Tuesday to offer online gambling within the District, even if members wanted to revisit the underlying contract that set the table for what would have been the first-in-the-nation program.

“I do think this was a good thing for the District of Columbia,” he said of the statute. “This was going to be our thing, our law, governed by us, and we were going to reap the benefits.”

Mr. Brown sponsored the online gambling law in the budget bill, which led critics to accuse him of sidestepping the public vetting process.

Council member Mary M. Cheh, Ward 3 Democrat, said from the dais that she was open the idea of online gambling but the council should start from scratch.

“I’m going to support the repeal, but I do hope that we don’t just throw this out, that we revisit it and think about a way we can offer a pilot program that offers some promise, but some control,” she said.

Many council members were not on board with Mr. Brown’s plan to salvage the online gambling law while scrubbing the issues related to the lottery contract and public opinion.

“I think this is simply another sleight of hand,” said David A. Catania, at-large independent, at a pre-meeting breakfast. “I’ve been to this rodeo before. I know how it goes.”

The D.C. Lottery had planned to offer four wagered games to preapproved players on home computers or select public sites after a round of demonstration play.

But the controversy around iGaming prompted a series of community meetings to gauge support for the program and dispel concerns among people who feared brick-and-mortar casinos or other drastic changes to the city would follow.

On Tuesday, Mr. Brown said the public spoke in favor of iGaming at a series of community meetings last fall that were designed to hear concerns about online gambling and dispel myths about the program.

“The public didn’t speak — that is garbage,” Mr. Catania said at the breakfast, setting off a heated verbal exchange with Mr. Brown.

In his letter, Mr. Gray said it was “abundantly clear” there were problems with the process that authorized the iGaming component of the lottery.

According to the inspector general, the contract should be rebid with explicit references to iGaming for a fair competition.

Chief Financial Officer Natwar M. Gandhi, whose office ran the lottery procurement that led to the Intralot award, has rejected that conclusion, arguing that each bidder weighed in on potential online games during the lottery procurement process.

Mr. Nickles, the former attorney general who called for a lottery investigation before iGaming surfaced as a major issue, said Tuesday that he tried to warn Mr. Gandhi that the lottery approval process was flawed. The council’s rejection of iGaming bolstered his argument, he said, that the contract bypassed proper review in both the procurement and approval stages.

“When the CFO makes a contract award in a competitive bid process, he must have all relevant material facts before him when he’s reviewing bids, and that didn’t happen here,” he said.

Mr. Nickles added that he disagreed with the inspector general’s report to the degree that it upheld Mr. Gandhi’s approval of the way in which Mr. Bailey and VSC were appended to the contract after the procurement.

“The inspector general report was cursory,” he said. “I see significant legal defects and the CFO has not done his job.”

A spokesman for Intralot said Tuesday that the vendor has brought increased sales, new technology and “much-needed jobs” to the city.

Intralot is disappointed in the council vote today,” said the spokesman, Byron Boothe. “We look forward to assisting the D.C. lottery as they move forward in exploring their space in today’s ever-changing gaming world.”

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