- The Washington Times - Sunday, December 19, 2010

D.C. Lottery Executive Director Buddy Roogow showed his optimism in July when he sent an e-mail to DC09, the joint venture that operates the lottery: “The project is going to go well. Get ready to set records.”

But after a questionable procurement and approval process that put the lottery in the hands of a new vendor for the first time in 27 years and a new operating system that has produced mixed reviews from retailers and customers alike, Mr. Roogow has been forced to resolve technical difficulties with the lottery’s latest premier product, Race to Riches, which simulates horse racing on video terminals in about 80 retail outlets across the city.

While lotteries in Virginia and Maryland are setting sales records, an insufficient telecommunications network to support the D.C. Lottery’s signature new game is the latest sour development for Mr. Roogow, who is staring at a 10 percent decrease in revenue in recent years that, along with a $200 million city budget gap, has prompted the District to make a long-shot bid for online poker.

On Tuesday, the D.C. Council will review for a second time a budget amendment bill it quietly approved on Dec. 7 by an 11-2 vote that would establish a private computer network run by the D.C. Lottery to allow customers to play online poker in the District in their homes or in hotels, bars and restaurants.

In the meantime, lottery officials are promoting Race to Riches as a more sophisticated answer to the Maryland Lottery’s Racetrax game, which is designed to offer “the thrill of being at the track with the payout and prizes similar to live horse betting.”

The District’s version was developed by Denver-based Tournament One Corp., a lottery subcontractor, said sales and marketing representative Tom Kidneigh. The software allows for 15 million race outcomes, Mr. Kidneigh said, and was custom built for the D.C. area, with animated graphics and audio featuring the voices of real horse-racing announcers.

“It’s about as real as it gets,” said Mr. Kidneigh.

Except the game was rolled out shortly before it was due to go live at retail outlets, lottery officials say, and lottery agents soon discovered technical problems.

Joseph Park, owner of Watergate Wine & Beverage, said the Race to Riches game at his store was rebooting in the middle of races, preventing customers from watching the animated horse race live on the video screen installed by the lottery vendors. “I’ve called many times and they said they are going to fix it,” he said recently.

Yong Sok, owner of the 800 Corner Store on North Capitol Street in Northwest, said his video monitor wasn’t working at all. After a mechanic came out to have a look, he said, lottery officials told him to shut it off until they fixed the system.

At Tenley Mini-Market, the area’s most popular and winningest lottery retailer, The Washington Times bet on three straight animated horse races recently without interruption and lost $5.20.

On Friday, Mr. Roogow’s spokeswoman, Athena Hernandez, said that “in a few locations,” it is necessary to switch telecommunications providers “to achieve a richer video display without interruption.” But lottery officials, who spoke with The Times on the condition of anonymity because they were not authorized to discuss the deal, said roughly half of the retail outlets have reported glitches related to the system’s wireless 4G network, with some reporting complete failure. They said the wireless network is being replaced by Comcast cable on a case-by-case basis.

The cost of the transition from 4G to cable is being absorbed by Greek gaming giant Intralot, a 49 percent partner in DC09, along with a Virginia company called Veterans Services Corp. (VSC), run by Maryland businessman Emmanuel Bailey. Ms. Hernandez called the Race to Riches system launch “a major accomplishment,” but declined to disclose the cost of the repairs.

David J. Umansky, a spokesman for the D.C. office of the chief financial officer, which oversees the lottery, declined to comment, saying he has decided not to talk to The Times because of its negative bias on previous lottery stories.

Mr. Bailey, DC09 president and chief executive officer, also declined to comment and threatened to file a police report alleging unauthorized entry after The Times visited his offices on Dec. 10. Mr. Bailey followed the threat with a letter to The Times titled “Cease and Desist unlawful and fraudulent entry upon premises.”

Intralot spokesman Byron E. Boothe did not return a call for comment, and Intralot’s general counsel Jay M. Lapine did not respond to questions sent by e-mail.

It remains unclear how such technical problems reflect on DC09’s ability to deliver a functional online poker system.

According to a Jan. 25 memo from D.C. attorney Teisha C. Johnson to Mr. Lapine and Intralot lobbyist Kevin P. Chavous, Intralot has been eyeing online poker and fantasy sports games for at least a year as a means to boost the D.C. Lottery’s flagging revenues. Figures released by the city show that lottery revenues have declined by more than $36 million since 2006.

The memo said Intralot’s proposed games would not require equipment that would constitute “gambling devices” under the Johnson Act, which prohibits the manufacture, possession, use, sale or transportation of such devices in the District.

But a recent budget amendment slipped into a larger bill by D.C. at-large council member Michael A. Brown to bring online poker to the District met with swift opposition from House Republicans, who would have to approve such a measure and have resisted a similar proposal by Senate Majority Leader Harry Reid, Nevada Democrat.

Mr. Brown, who has tried for months to generate support for his proposal but only recently disclosed it during a marathon budget hearing, has said the chief financial officer’s office estimates a potential $13 million increase in revenue through 2014 if the District adopts online poker through the lottery - if the proposal receives approval in Congress.

That’s a big “if” that CFO Natwar M. Gandhi appears to recognize.

In a Nov. 22 memo to Mr. Brown, Mr. Gandhi wrote that “no consensus exists on whether the proposal is permissible under federal laws.” Mr. Gandhi also said should a legal determination be made by the Justice Department that computer servers come under the definition of a gambling device for purposes of the Johnson Act, then a change in federal law would be required to make Mr. Brown’s proposal legally permissible.

Mr. Gandhi added that because the Lottery Board and Intralot had not presented a technical implementation plan, he could not yet say whether the District could offer online poker and limit participation to within city limits, as the law would require. His memo said that determining a person’s physical location through an Internet Protocol (IP) address “might prove to be a difficult challenge in the District,” and that such technology “is not always reliable at the city and state level.”

Of Intralot’s plans to require static IP addresses for online poker players, Mr. Gandhi said that would require customers to have access to business-level services, “which are considerably more expensive than residential services.” Under Mr. Brown’s proposal, players 18 or older could access online poker games from home or “approved hubs” such as hotels, bars and restaurants.

That might be news to hospitality industry representatives.

“We have not been involved directly in discussions between our members and lottery officials on the prospect for online poker,” said Candice Siegel, a spokeswoman for the Restaurant Association of Metropolitan Washington.

“I understand the city is in financial crisis but I haven’t spoken to Councilman Brown or Mr. Gandhi about this,” said Solomon Keene, acting president of the Hotel Association of Washington, adding that he didn’t know about Mr. Brown’s proposal until it came up at a recent budget hearing and was first reported in The Times. Asked whether there is any precedent for lottery games being offered in the District’s hotels, Mr. Keene replied, “I have never seen lottery inside of a hotel.”

The D.C. Lottery procurement overseen by the Mr. Gandhi’s office, which did not call for bids on online poker, went through multiple phases and was marred by accusations and counteraccusations of cronyism and contract steering. The approval process, which involved Intralot winning the contract as a solo bidder then partnering with VSC after being told by council member Marion Barry, among others, that it needed a local partner to gain approval, came under investigation by the D.C. office of inspector general.

D.C. Attorney General Peter J. Nickles, who asked for the investigation, said the inspector general’s office interviewed him four weeks ago. He said he was under the impression that the investigation is “serious and ongoing.”

The D.C. Council, led by Mayor-elect Vincent C. Gray in his role as council chairman, rejected a lottery contract award in December 2008 that went to Intralot and a different local vendor deemed unacceptable by Mr. Gray and the council. In a Dec. 11, 2008, letter to Mr. Gray, Mr. Nickles warned that throwing out the first contract award “would create significant uncertainty as to the operation of the lottery until late Spring 2010, result in significant loss of savings to the city, and a continued deterioration of the operation of the lottery.”

Mr. Nickles was reacting to an Oct. 6, 2008, memo from Jay Young, who was chief operating officer of the D.C. Lottery, that anticipated council rejection of the first lottery contract award “on grounds not related to the substance of the offers, the soundness of the proposed solution, or the administration of the procurement process, but rather on the discretionary latitude provided to the council by legislative fiat.”

In concluding his memo, Mr. Young noted: “The rebid scenarios are fairly unattractive and filled with uncertainties and the prospect of inferior results.”

• Jeffrey Anderson can be reached at jmanderson@washingtontimes.com.

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