International Game Technology, which operates the Rhode Island Lottery, and Twin River Worldwide Holdings, which owns two casinos in the Ocean State in Lincoln and Tiverton, have escalated their war of words to Defcon III levels.
IGT Chairman Robert Vincent last week told WPRI-TV that Twin River contacted his company in May and asked for a share of what the state would be paying IGT to operate the lottery.
He described the meeting with Twin River executive Marc Crisafulli to the Providence Journal, saying, “At that meeting, Mr. Crisafulli made a proposal that would ultimately have Twin River providing 50 percent of the machines.”
He added, “The proposal was not given serious consideration and rejected immediately. It was viewed as a bold-faced attempt to pressure IGT into transferring more of the state’s gaming revenues to Twin River, a plan that would be highly disruptive of the RI Lottery’s role as operator and likely unconstitutional.”
Vincent added, “Obviously the implication there is: ‘You are not going to get it done without us.” He released a copy of Twin River’s proposal and added, “Why would we forego tens of millions of dollars a year in revenues to cut in Twin River?”
Crisafulli, Twin River’s executive vice president of government relations, was quoted by the Providence Journal as conceding that the company offered to expand its own role after the 20-year “tentative deal” between the state and IGT was announced by Governor Gina Raimondo. He said Twin River made the suggestion because the 20-year deal would have “devastating consequences to the long-term revenue stream for the Rhode Island taxpayers.”
Crisafulli added, “We reiterated to the governor that this deal would eliminate any competition and would have devastating consequences … Given the governor’s insistence that she would proceed with a rushed deal this legislative session over our objections, we made a series of proposals that we thought would maximize revenues for the state by ensuring competition in the market.”
One of the proposals, he said, was to split the VLT central system “We offered to pay the state $37.5 million up-front for our portion. When coupled with IGT’s up-front payment, the taxpayers of Rhode Island would have done significantly better than the IGT proposal.”
At one time Twin River offered to pay Rhode Island $20 million for some machines to create a competitive market. After that, claims Crisafulli, the governor and IGT changed sections in the agreement to reduce IGT’s share of the machines to 85 percent and require IGT to pay an upfront fee of $25 million instead of $15 million.
Crisafulli added, “It proves our point that even the hint of competition caused IGT to improve the deal … The state could do so much better here but, for some reason which makes no business sense, the governor insists on proceeding without any competition.”
Twin River has criticized the agreement because it gives IGT a monopoly on providing slots to the two casinos. It claims that IGT machines are less profitable for the casino than other manufacturers’ slots. Crisafulli named several other firms—including Scientific Games— that could run the lottery system and provide slots. “It is beyond comprehension why the governor refuses to allow fair competition and maximize the state’s return.”
Scientific Games, through a spokesperson, told the Journal last week that if the Rhode Island market were open, it would gladly compete.
Currently IGT operates the technology for the state’s video and traditional lottery. It also provides about 84 percent of the 5,175 slot machines deployed at the two state casinos.
The governor’s senior deputy chief of staff, Kevin Gallagher, declared, “I find it ironic that (Crisafulli) is claiming that giving a company 100 percent of the machines ‘would have devastating consequences.′ ” He continued, “That was not his position when he approached us this spring asking for the State to award Twin River 100 percent of the machines. He only talked about how great it would be.”
Gallagher pointed out that Twin River is not a slot machine manufacturer. “I don’t see how or why we would end a contract with a Rhode Island employer/VLT manufacturer and give that contract to a company that doesn’t manufacture VLTs,” he said.
The lottery also challenges Twin Rivers’ contention that the law limits IGT to providing half of the lottery machines. Answering an inquiry by the Journal, the lottery cited a section in the contract waiving that requirement.
Referring to Twin River’s contention that IGT’s machines are qualitatively not as good as other manufacturers’, the lottery stated that if the legislature approves the agreement ,“IGT will be contractually required to replace the lowest-performing 25 percent of machines with new machines, which results in a much better opportunity for the state and Twin River because it will have 884 new VLTs (25 percent).”
A state Supreme Court ruling prohibits Harrah’s and other gaming developers from moving into Rhode Island because of the requirement that the state government operate all lotteries. According to Crisafulli, “If all of a sudden Twin River was providing their own machines, that wouldn’t pass the test.”
Governor Raimondo waded into the controversy personally early last week when she commented on Twin River’s offer to pay the state as much as $125 million to acquire all gaming rights. She called the idea “incredibly risky.”
The governor said she was open to competing proposals to the $1 billion contract extension for IGT, but said of Twin River, “This isn’t the business they are in. And this is the third biggest source of revenue for Rhode Island. I think it would be incredibly risky to turn over this to a business that has zero track record in it.”
Raimondo added, “They don’t run lotteries. They are a hospitality vendor that operates a casino. There are three companies in the world that do what IGT does. Twin River is not one of them. They have a new aggressive management team. They are owned by a hedge fund out of, I think, New York City. Obviously, they are looking to make a profit. I understand that.”
Also drawn into the controversy was House Speaker Nicholas Mattielo, who said he had not been told that the existing contract relieves IGT of the requirement to replace some of the lottery technology “in dire need” of replacement. Reportedly this concession was made in return for IGT paying the state a lower rate for running the lottery.
Mattielo told the Journal he wouldn’t have agreed to such a waiver if he had known about it. “The governor spent at least six months negotiating in secret with IGT while the General Assembly was notified at the end of the legislative session,” he said in a statement. “If the governor is suggesting a ‘deeper dive’ is necessary and a consultant be hired, the House recommends that the governor is the one who should do that. As the chief executive who negotiated this contract, she should hire whomever she deems is necessary. The governor then needs to bring a final product back to the General Assembly when she deems it is a complete contract with final terms worthy of legislative scrutiny.”
When reporters asked Raimondo why the speaker had not been informed of that information, she replied, “We are talking to the Lottery about that now, and I will get back to you this afternoon.”
Governor Raimondo has come under a lot of criticism for the secret negotiations she conducted with IGT, which only became known two days from the end of the legislative session. She told reporters last week, “The preliminary deal, the tentative deal I think is a good one for Rhode Island. It secures 1,100 jobs. It is a local company and it is 1,100 jobs. I think the average salary is about $100,000 a year. Having said that, the legislature was at the table the day before the Senate president and the speaker filed the legislation. We all met in my office. We continued to work on that with their staff, with my staff.”
Asked if she is opposed to putting the contract out to bid, Raimondo said, “If that is what the legislature decides, of course we will comply with that. I don’t see a reason to do that. I think this is an excellent deal.”
The current lottery contract runs until 2023.
Union Complaint
In a related but separate development, the National Labor Relations Board has issued a complaint to the Twin River Casino after the casino’s union— Service Employees International Union Local 334 — accused it of unfair labor practices.
The casino is currently in the middle of union negotiations, according to spokeswoman Patti Doyle.
The dispute arose this spring when the union asked for a list of crimes such as assaults and burglaries committed at the casino. The casino responded by providing a list of crimes involving employees, which caused the union to make the complaint. Union President Joe Marciano says the casino is downplaying the totality of crimes committed on the property, and wants Twin River to take action such as providing employee shuttles so employees don’t have to walk to their parked vehicles in the dark.
Meanwhile, the investment community is giving closer scrutiny to Twin River as the gaming company plans to expand explosively beyond the boundaries of tiny Rhode Island in short order.
SunTrust Bank gaming analyst Barry Jonas wrote a research note last week that observed, “Twin River management has an M&A growth strategy to diversify beyond its Rhode Island origins.” He noted that the company has agreed to pay $230 million for casinos in Missouri and Mississippi. Earlier this year the company announced it was buying three small casinos in Colorado from Affinity Gaming. Currently Twin River derives 70 percent of its income from its two Rhode Island properties.
The Colorado acquisitions indicate that Twin River will be involved in trying to sell the sports-betting initiative before the state’s voters in November. The Colorado casinos—Golden Gates, Golden Gulch and Mardi Gras in Black Hawk—have a total of 20 table games, 700 slot machines, a poker parlor and three restaurants.
Union Gaming Group analyst John DeCree commented last month, “Twin River is an underappreciated, catalyst-rich, regional small-to-midcap-gaming company with a solid balance sheet, strong free cash flow generation, and a proven track record of accretive M&A.” He added, “What makes Twin River unique is that it is still small enough where tuck-in M&A moves the needle but large enough to execute a headline transaction.”
Twin River went public on the New York Stock Exchange in March 2018, shortly after it opened the Tiverton casino. Analysts say Twin River is in a good position to grab some smaller or medium-sized properties if they should be cut loose by Eldorado in its acquisition of Caesars Entertainment in an effort to make it less vulnerable to antitrust issues.
Another analyst, Brad Boyer of Stifel, observed that Twin River’s team has a “considerable deal-making pedigree,” that could enable it to achieve M&A transactions “that complement its existing portfolio.”
Jonas told CDC Gaming Reports, “These guys are smart operators and they know how to put deals together,” but adds that the company would need to partner with experts to put together a real estate investment trusts for a larger property.
