The 20-year contract extension that Rhode Island Governor Gina Raimondo proposes with International Game Technology to run the states lottery, which includes its two casinos, raises concerns in an independent report.
The report by Christiansen Capital Advisors concludes that the state would probably do better financially by going to competitive bid, and not committing to 20 years, although supporters of the governor’s proposal argue that if IGT loses the contract more than 1,000 jobs will leave the state. Currently IGT also leases 85 percent of the machines that the two casinos employ, something that has aroused criticism from Twin River Worldwide Holdings (TRWH), which has complained that IGT machines underperform its other Lottery machines. Note: TRWH and IGT have settled their differences and issued a joint statement this week (see below.)
Christiansen Capital Advisors writes: “It is important to remember that, in 2020, this is more than just a contract extension. By entering into this contract, the Rhode Island General Assembly would also be locking in gambling policy for the next 23 years.”
The report was commissioned by the House leadership after the minority party requested more information than just the governor’s endorsement.
Gaming is important in Rhode Island, providing the third largest source of revenue for the state budget. Up until recently it generated almost $400 million in taxes annually. Then the Encore Boston Harbor opened last year, and put a good-sized dent in those figures.
The report notes that it has never recommended to any lotteries that it serves such a long-term contract: “A 10-year initial contract term, with optional extensions, has been a standard recommendation from Christiansen for the last 15 years. The primary reasoning behind a 10-year term is to mitigate the impact of a lottery getting caught between technology changes.”
Conceding that IGT has led the industry in lottery technology for more than three decades, and that that is unlikely to change soon, it cautions, “it is still possible that IGT could fall behind in new payment systems or other technologies that the Rhode Island Lottery may wish to adopt in the future. It may be a relatively small risk, but one that could have significant implications for Rhode Island and Rhode Island taxpayers.”
Although IGT and TRWH have clashed during the hearings on this proposal, this week they appeared at a joint press conference to announce a rapprochement. They declared, “Our discussions have centered on a framework to better support Rhode Island’s third largest source of revenue.”
The two have clashed over the requirement that IGT provide 85 percent of the VLTs for the two casinos. Twin River has said this puts it at a competitive disadvantage with other states in New England.
The report also concedes that it doesn’t include in its calculations of possible pro and cons the economic impact of the 1,000 jobs and IGT’s commitment to keep them in the state.
The contractor suggests that if a competitive bid for the “central monitoring system” that IGT currently operates was floated: “Rhode Island could expect to pay about 1 percent of gross gaming revenues, a substantial reduction from the 2.5 percent contemplated in the contract extension. Based upon FY2019 [net terminal income] of $522.7 million, that 1.5 percent is over $7 million a year.”
Christiansen Capital Advisors also questions why Rhode Island leases its VLTs, saying it could save considerable funds by purchasing them: “The math behind this is simple,″ the report says. “In FY2019, Rhode Island casinos paid $272 and $277 per machine per day at Tiverton and Twin River. That is approximately $100,000 per machine per year. Most slot machines or VLTs cost between $15,000 and $25,000. Most machines have at least a five-year useful life, and some remain on slot floors for 10 years or more. Thus, it is easy to see why…. 90 percent of casino owners … chose to buy rather than lease.”
