GTech losing contract

Thursday, August 24th 2000, 12:00 am
By: News On 6

AUSTIN – An unreported computer glitch that prompted the resignations of lottery giant Gtech's two top officers last month has cost the company its contract with one of its biggest foreign clients, the United Kingdom's National Lottery.

West Greenwich, R.I.-based Gtech Holding Corp. – the world's largest supplier of computerized online lottery products and services – has operated the Texas Lottery since its start eight years ago. Texas Lottery officials have been concerned in recent weeks about Gtech's continued financial health.

Dame Helena Shovelton, the United Kingdom lottery commission chairwoman, announced Wednesday that she had rejected a bid by Gtech and its British partners to renew their contract to run the game. Negotiations have been opened with Gtech's lone competitor for the job, The People's Lottery.

Dame Helena told reporters in London that Camelot – the Gtech group – was ruled out of the bidding because of concerns that its software problems have not been resolved. Regulators also were unhappy with the company for failing to report the problems, as required.

Camelot will continue to run the games through September 2001, when its contract expires.

In a prepared statement, Gtech board chairman W. Bruce Turner said the company was "extremely disappointed by today's development." But he did not say what action, if any, the company will take.

"We are going to review today's decision closely, and will not have any further comment at this time," he said.

The company said the loss of the contract will cost it $40 million in lost sales. It now anticipates revenues of $1.02 billion to $1.03 billion and earnings per share of $2.07 to $2.12 for the fiscal year ending Feb. 24, 2001. The company had earlier projected per-share earnings at between $2.25 and $2.30.

Gtech's stock closed Wednesday at $18, off $2.18.

Linda Cloud, executive director of the Texas Lottery, said only that officials here are aware of Wednesday's decision and "are monitoring developments as they occur."

Ms. Cloud called high-ranking Gtech officials before the three-member Texas Lottery Commission earlier this month to discuss the company's finances after rumors surfaced that it was up for sale.

Jaymin Patel, Gtech's chief financial officer, assured the commission that the company is financially sound and committed to the lottery business.

Lottery officials in London had earlier expressed concern when it was discovered that Gtech had failed to disclose a computer problem in 1998 that resulted in some lottery winners being paid either too much or too little by small amounts.

Dame Helena also said Wednesday that Camelot is being investigated for other possible contract breaches.

Citing concerns over how the computer problem was handled, the Gtech board last month accepted the resignations of William Y. O'Connor, the company's chairman of the board and chief executive officer; and Steven P. Nowick, the company president.

Gtech officials acknowledged Wednesday that Mr. O'Connor's handling of the software problem had been a concern of lottery regulators.

Dame Helena said that British lottery officials are not satisfied with The People's Lottery's bid to follow Gtech, and have set a 30-day deadline for negotiations over terms of a new seven-year contract.

If no agreement is reached, the lottery "will ask the Government to take such steps that will keep the lottery running," she said. She did not elaborate, according to London newspapers.

The People's Lottery, a consortium headed by Virgin Airlines owner Sir Richard Branson, was recently joined by Microsoft's Bill Gates in its bid for the United Kingdom's business.