Casino PR war 'not a game'

Twin River says deal would overpay IGT $300-400M; Governor Raimondo commits to saving 1,100 jobs

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Is a proposed $1 billion, 20-year extension of the state’s casino gaming contract with IGT a good deal for the state that will save more than a thousand quality jobs, or a thinly-veiled subsidy that subverts common economical sense in order to placate a politically powerful corporation at the massive expense of Rhode Island taxpayers?

It really depends on who you ask.

“There are such conflicting views here and it goes against all of your natural human instincts about the way things should operate,” said Marc Crisafulli, president of Twin River Rhode Island, during an interview Tuesday. “It’s a secretly-negotiated, 20-year, no-bid deal that costs the state over a billion dollars. So, you just put all of those together very quickly and it just raises so many questions that are hard to answer.”

Governor Gina Raimondo disagrees, saying that while the agreement was negotiated behind closed doors, the approval of any binding contract would only occur after public scrutiny occurs via state finance committee hearings.

“I'm getting a little frustrated that there's so many lobbyists, so much PR, radio ads, print ads – this really isn't a game,” said Raimondo in a phone interview on Wednesday. “This is a big deal. It's peoples' lives. It's $400 million of state revenue. Let's have a public process, let's have it vetted, let's look at the facts. Let's try to get the best deal we can for the people of Rhode Island,” she said.

There has been no shortage of coverage in the past couple of months regarding the issue and, as Raimondo alluded to, both IGT and Twin River have launched expansive media campaigns of their own to solidify their positions.

The intention of this piece is to clarify the positions of each side and raise the important facts to help readers make up their own mind about whether or not this deal – which could go to a vote during a special session of the General Assembly as soon as September or October – is actually a good or a bad thing.

What’s in the proposed deal?

Announced in late June by Raimondo and legislative leaders, and put forward in a piece of proposed legislation in the Rhode Island House (H 6266), the 20-year contract extension would cement IGT as the primary provider of certain services to the state’s two casinos in Tiverton and Lincoln – both of which are owned by Twin River Worldwide Holdings, the publicly traded entity that operates casino and race track facilities in Rhode Island, Colorado, Delaware and Mississippi.

These services would include providing 85 percent of the casinos’ video lottery terminals (VLTs), which are essentially electronic slot machines, as well as providing and maintaining the technical support system that supports and monitors the machines and tracks necessary data for other games run by the Rhode Island Lottery (overseen by the state Department of Revenue).

The deal outlined in the bill would require a $25 million payment from IGT to the state, split into two installments to be paid before June 30, 2021 and June 30, 2022. It would also require IGT to invest $150 million “in connection with acquiring interests in real property, improving real property and performing its obligations under the Master Contract...”

However the most crucial piece, according to Raimondo, is the provision that would require IGT to keep its 1,100 jobs in Rhode Island – 112 of which are located in Warwick, according to IGT spokesman Bill Fischer – which have an average salary of $100,000 and a total payroll of $111 million.

It is vital to point out that, if the legislature ultimately approves this bill, it does not mean they have approved the 20-year extension. As of now, Raimondo said that there is only an agreement in principal with IGT. A formal contract would need to be drawn up and approved following the passage of the aforementioned legislation, which would authorize that contract work to happen.

“I'm following the exact same process that was followed in 2003 with Governor [Donald] Carcieri, the exact same process,” Raimondo said. “The governor and his team came to an agreement in principle with the company, then the legislature passed a law which authorized the administration to enter into an actual contract, and then the governor negotiated a contract. So, that's what I'm doing.”

How did we get here?

Raimondo confirmed on Wednesday that negotiations began after IGT’s CEO, Marco Sala, came to her either in late January or early February and indicated that the company needed to consolidate its operations, as they had acquired company headquarters in places like Rome, London, Nevada and Rhode Island.

“They were either going to consolidate away from Rhode Island or consolidate towards Rhode Island,” Raimondo said. “He said if we were willing to consider the contract extension now – go through that process and see if we could negotiate a contract and if we could do that in an expedient way – that they would consider adding as part of the contract major economic development components.”

Those economic development components include the upfront cash offer and the promise to keep their Rhode Island jobs in Rhode Island, as well as the $150 million in additional development over the length of the contract.

To critics of the proposed deal, however, this origin story reads more like a calculated threat to barter a more lucrative deal, especially considering that the original contract negotiated under Carcieri with IGT is structured to run until 2023.

“That’s an interesting way to start a discussion, especially for a contract that goes for another four years,” said Crisafulli.

But Raimondo doesn’t see it that way.

“He has a lot of real estate all over the world and he has to consolidate. So, he was just saying we can take the jobs from Rhode Island or put them in Rhode Island. It was really just can we work together to come up with something that works here?” she said. “I didn't view it as a threat, I viewed it as an opportunity. The fact that we got a 20-year commitment for over 1,000 jobs, I think, is a hugely positive thing.”

Crisafulli said that he was brought in “several months ago” during the initial stages of the negotiations to see if he would approve of the deal. At the time, he said, the deal looked to give IGT 100 percent of the VLTs and only included a $15 million payment up front.

Some digging by WPRI revealed a series of back-and-forth communications between Twin River and Raimondo’s office, as Twin River appeared to be trying to broker a better deal for themselves throughout the process. One proposal uncovered showed Twin River had offered $75 million in upfront money to the state in order to trump IGT’s offer of $15 million to the state – which has prompted some to call out Twin River for what appears to be “hypocritical” behavior by seeking a no-bid deal of their own.

But Crisafulli said on Tuesday that this was misleading, as Twin River’s offers were made solely in an attempt to get the governor’s office to negotiate with them – something he said they were unwilling to do prior to making offers of their own.

“We never once went in and said independently, ‘By the way, we think you should give us a no-bid contract.’ This was always in response to developments on their negotiations with IGT and us trying to counter that,” he said, adding that there was a “series of escalating proposals” that were made to show the state they were serious about fighting what they saw as an unfair, economically unwise deal with IGT.

“If you’re intellectually honest about it, it’s obviously us responding to what they’re trying to do with [IGT], and us trying to get them into a competitive process, or at least a process that is rational and protects us,” Crisafulli continued. “Remember, the number one issue for us, always, is the machines on the floor and making sure we have the most competitive product.”

As it stands, Twin River has officially offered the state $125 million in an upfront payment, and a promise to bring over 1,000 jobs to Rhode Island from elsewhere if they reconsider the arrangement with IGT.

But IGT has disputed the feasibility of this proposal, as Twin River cannot deliver the services provided by IGT and would need to contract with a company that could.

“To date, they have announced no formal partnership, unveiled no plan to produce 1,000 jobs and they have not provided any documentation on how they would replace IGT’s current payroll totaling $111 million,” reads a statement from Fischer.

Numbers games

So, what constitutes the “most competitive product,” as proposed by Crisafulli? In his view, allowing IGT to control 85 percent of all VLTs on the floor of the Twin River casinos in Lincoln (which has about 4,200 VLTs) and Tiverton (which has about 1,000) is “stifling competition,” and harming both the profits for Twin River and the total revenue collected by the state.

He also argues that allowing IGT to have 85 percent of the total VLTs is a breach of the original contract, a charge that IGT and the governor’s office patently deny – as the original contract gave GTECH a 50 percent stake and IGT a 35 percent stake. IGT absorbed GTECH in 2015, giving them an 85 percent stake, and the contract did not stipulate this was not allowed. This distribution of the VLTs has never been challenged by Twin River until these current negotiations began swirling.

Crisafulli further argues, referencing data from the Rhode Island Lottery, that IGT machines under-perform compared to their competitors by as much as 56 percent. A graph available on Twin River’s “StopNoBidDeal.com” website indicates that IGT machines generated about $94,100 per machine in revenue, of which the state captures 60 percent, meaning IGT machines generate about $56,400 in revenue annually, per machine, for the state.

Compare this to machines from IGT competitors Scientific Games and Everi, which generate $87,800 and $66,200 in revenue for the state per machine respectively – a difference of as much as $31,400 per machine in what Crisafulli described as “lost revenue.” Under such calculations, this amounts to as much as $20-25 million in potential revenue lost each year.

The governor’s office and IGT strongly rebuke this data, claiming that 22 of the 25 top performing games at Twin River casinos come from IGT machines, and IGT stated that, “Twin River had made only positive comments on VLT performance before the proposed extension of IGT’s contract,” citing two specific examples including one comment from June 6, 2018 where Gary Liberatore, Director of Slots, Twin River, Lincoln, R.I., stated at a meeting that, “With the recent new games, added to the gaming floor, this is the best mix of game product since Twin Rivers inception.”

But Twin River’s fiscal claims go further, and gets quite a bit more mathematically complex. Crisafulli argues that the state would be overpaying IGT by as much as $300 million to $400 million throughout the course of the proposed contract – a calculation that takes into consider multiple factors, including the alleged, aforementioned lost revenue on the actual VLTs themselves.

He argues that the state pays IGT 2.5 percent of the play from its total revenue (amounting to $12.7 million) to compensate for its central monitoring system services. He claims that IGT performs similar services in Massachusetts for $2.3 million. This, he states, equates to a $200 million overpayment right off the bat over 20 years.

Next, he factors in the 5 percent payment that Rhode Island pays to IGT for total sales up to $275 million, which equates to about $13 million a year for IGT. Crisafulli argues that comparable states to Rhode Island average a 2.1 percent payment for similar sales figures – which given that rate would calculate to $6 million for IGT instead of $13 million.

Add those two “overpayments” together and you get $17 million each year above what the state, in his view, should be paying, amounting to $340 million to $400 million in what Crisafulli has dubbed an overpayment “subsidy” to placate IGT at the expense of Rhode Island taxpayers. Add the aforementioned $20 to 25 million a year in potentially lost revenue due to under-performing machines and it adds up to a particularly raw deal, in his view.

“You’re now looking at a $40 million a year subsidy from the taxpayers – a direct value transfer to IGT for these jobs,” he said. “Now, you may decide that’s good policy. I think it’s really questionable to pay them that much for jobs, but you should know how much you’re paying for the jobs. The only way to know that is to competitively bid the contracts, or at least do a competitive assessment and understand what are other states charging for these exact same services.”

Once again, the governor’s office and IGT strongly disputes Crisafulli’s numbers as intentionally misleading.

“These assertions are patently false,” reads a response from Fischer regarding Crisafulli’s data. “He is literally comparing apples and oranges. Massachusetts and Rhode Island have two entirely different systems and Massachusetts has hundreds of more workers on their state payroll to support its operations. Marc continues to cherry pick data from certain states that he knows aren’t comparable. His goal is to give the General Assembly enough pause to disrupt what has been a very successful partnership between the State of RI and IGT.”

To bid or not to bid

Perhaps the most vocal opposition to the proposed deal has been due to the fact that the state did not seek a public bid for the services that would be provided by IGT.

“Our answer is not to take our proposal over theirs,” Crisafulli said. “It’s put it out to bid, run a transparent process and see what happens. The only reason we were making proposals is that we couldn’t get traction on anything else. We couldn’t get them to just say there is no rush, let’s pause.”

But Raimondo said that there is nothing preventing a public process from happening under the proposed deal – once the legislation is passed, the contract still needs to be scrutinized, finalized and approved, which she said must happen publicly.

“Have hearings, do it in public, have people testify, hire a consultant if you want to go through the deal. Give the thing a proper airing,” she said. “There's lobbyists crawling all over this, advertising all over the place. Put the deal out to the public, have some hearings, have a process…and let's see if we can get it done.”

She further argued that preferring the local company with a history of providing the specialized services to the state was not something she felt was inappropriate.

“There's only three companies in the world that do this, and only one of them is based in Rhode Island,” she said. “So, of course I want to fight for the local company. I'm not going to apologize for the fact that the local company is getting the business.”

Raimondo argued that the state’s sports betting program was put to public bid, and nobody besides IGT put in an offer.

“The other two companies kind of know that IGT is the home team here, they've been doing this for us for 20 years and obviously we're going to support the homegrown Rhode Island business before giving the contract to an out of state company,” she said.

Crisafulli reiterated his claims that a competitive bid process would show the details of how Rhode Island is overpaying for IGT’s services.

“I think if it goes out to a bid process the governor loses control and IGT loses control,” he said. “The economics of this deal are indefensible from a competitive standpoint. The state of Rhode Island is overpaying IGT $300 million to $400 million over this contract, and a competitive process would demonstrate that. It’s much easier to say that ‘We’re trying to protect jobs’ than to say we’re giving a $400 million subsidy for jobs.”

Rhode Island politics as usual?

By this point, many Rhode Islanders likely already know about the connection between Raimondo and the former chairman of IGT, Donald Sweitzer, who now acts as a lobbyist for IGT and is the treasurer for the Democratic Governors’ Association – of which Raimondo is the chairwoman.

Both IGT and Twin River have helped contribute towards record-breaking amounts of donations to the DGA, as reported by WPRI and the Providence Journal. Other news sites, like Inside Sources, have tried to make a connection between Sweitzer’s well-known prowess for fundraising and Raimondo’s ambition for higher office once her final term as governor is over. The assertion they levy is that Raimondo has every incentive to make Sweitzer, and IGT, happy.

Raimondo denied such allegations on Wednesday.

“This is a partisan attack by the Rhode Island GOP to come after me and it's a baseless political attack,” she said, adding that Sweitzer has been involved with the DGA for 30 years. “I think it's unfortunate. It's a volunteer job that he has. It's not a literal position he has, it's an honorary role, a voluntary position. There's not much to it.”

She said her focus as governor is to bring the best deal to benefit the state and its taxpayers, and that Twin River’s proposals are born out of their own self-interest and not the state’s.

“The lottery revenue is the third largest source of revenue for the state of Rhode Island. It's hundreds of millions of dollars. More than anybody, I want every possible penny. We need this money to invest in schools, affordable college, housing, jobs, roads. I don't want to leave a nickel on the table,” she said. “You can’t gamble with the third-largest source of the state’s revenue.”

The clock is ticking…or is it?

For Governor Raimondo, the impetus to move forward with the deal as proposed is clear. She said that, prior to the deal being publicized in June with the House legislation, both Senate President Dominick Ruggiero and House Speaker Nicholas Mattiello were both on board. Mattiello, however, has since publicly expressed reservations about moving forward since media attention has intensified. A Providence Journal report showed many state representatives, both Democratic and Republican, shared hesitant views about the deal.

Raimondo warned that the situation could turn into another PawSox situation, but with much higher stakes.

“I think if the legislature dilly-dallies and this thing blows up, 100 percent the company is out of here. Not because it's a threat but because they have to run a business,” Raimondo said. “I think to have a predictable business climate you have to do what you say you're going to do. The Speaker of the House represented to the company that he would have hearings in the fall. He told them that, they told their shareholders that. So, you should do what you say you're going to do.”

But Crisafulli’s argument hinges on his belief that time is very much not of the essence, since the current contract does not expire until 2023.

“We’ve always said there’s no reason to rush this. Run a process, and make sure you understand there’s four years left on the contract,” he said. “I think any responsible person at this point would have said, we’ve got two different people [Twin River and IGT] competing for this, there are other people in the world that can do it, let’s run a formal process. It can be a relatively quick one, but let’s run a process and actually see what this is worth.”

Raimondo reiterated her fears that what happened to the PawSox could happen again.

“We've seen this movie before. We've seen how it ended,” she said. “The Speaker continued to move the goal posts, and eventually they [the PawSox] got fed up and they went to Worcester. And I really hope that doesn't happen here because there's a lot more at stake.”

House spokesman Larry Berman said that Speaker Mattiello recently had some concerns about whether or not Raimondo had properly vetted the financial information surrounding the deal, but that she has since assured him a consultant was brought in during negotiations to do so. He also had concerns about what financial information would be vetted publicly, but that he ultimately intends to hold hearings this fall.

"We are in the process of inquiring and obtaining additional information in order to begin the public hearing process," Mattiello said in a statement.

Comments

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Cat

I used to work in the gaming industry. IGT (or GTECH as they used to be called) brokered a sweetheart deal with the RI Lottery for 20 years. The games were not maintained properly and the technicians didn't know how to do anything other than change the paper or clear paper jams. Many of the vendors were fed up with it but couldn't do anything because of the contract in place. Why not put it out to bid and see where we get with another company? It doesn't have to be for 20 years either. That is ridiculous. Cut down the years, put it to bid and stop getting swindled.

Thursday, August 8
Warwick_Resident1998

If this is such a great deal then it should still be in place after competitive bidding. I wonder why the governor is so afraid of a little sunshine on her back room deal?

Thursday, August 8
SaltyJake

A no-bid, sole source 20 year contract??!!??!! Gina needs to follow the rules of state purchasing. Competitive bidding is the only way to go on this matter. The feeling I get reading the articles is that IGT is "pressuring" the governor to just sign off or they're gonna take their ball and go somewhere else. Hey IGT, pack up and go just like the Pawsox. I hear there is space available in Worcester next to the new baseball stadium. Maybe she's trying to pave the way to a cushy job after her lame-duck term is over.......

Friday, August 9
BEN DOVER

Me thinks the queen of raimondi, the "roads" scholar, has lost her marbles...Following her logic, committing taxpayers to $35K + per employee under the guise of job preservation is voodoo economics...Hey queena, how about HASBRO, Toray, Alex and Ani, not to mention blowing up the Partners/ Care New England deal to do the bidding of Lifespan...Glad that worked out so well...This Governor needs a check up from the neck up...By the way, CAT is correct about many of the issues she mentioned above...What a way to run an airline.....

Friday, August 9