California Lottery Director Recommends GTECH as Gaming Contractor; Competition Results in Service Improvements and Major Cost Savings.

Business/News Editors

SACRAMENTO, Calif.--(BUSINESS WIRE)--July 25, 2002

Following completion of an extensive competitive bidding process, Joan Wilson, California Lottery director, announced the selection of GTECH Corp. as the "apparent successful bidder" for a new gaming and telecommunications systems and services contract. For the six-year contract term, GTECH's lowest price proposal of $216 million is $307 million less than Scientific Games, Inc.'s lowest proposal of $523 million. This is approximately $45 million per year less than the current contracts for gaming and telecommunication services.

Wilson's recommendation goes to the Lottery Commission on August 16, 2002 for final approval. If the Commission approves award of the contract, GTECH will provide a new integrated gaming system, retailer terminals and equipment, a statewide telecommunication network with associated network management components, and support services.

"The Lottery utilized a `best practices' bidding process which emphasized early bidder involvement, performance specifications, and best value evaluation criteria," Wilson explained "This process, under way for more than two years, is unique in the lottery industry and resulted in open and fair competition which will provide better services to retailers and players, improved systems using state-of-the-art technologies, and reduced costs," she added.

"GTECH's proposal meets all of the technical requirements set forth in the Lottery's Request for Proposal and does so at one of the lowest, if not the lowest, price in the industry," said Wilson. The Lottery engaged Battelle, an independent contract research firm specializing in lottery procurements, to compare the bid proposals with recent lottery installations in other states. Battelle concluded that "GTECH's price proposal to California is extraordinarily favorable."

"On behalf of the entire California Lottery, I would like to thank Scientific Games and GTECH for the extensive effort they put into responding to the RFP and for the professionalism of their respective staffs," added Wilson.

Services Provided

For the first time in California Lottery history, a single firm will manage both gaming and telecommunications systems and corresponding support services. The new gaming and telecommunications systems will be fully operable by October 2003. The contract will continue through October 2009 with options for four one-year extensions.

Technological advances which California retailers and players will see include:

-- Terminals that are more reliable, easier to use, take advantage of touch screen technology, and require less counter or floor space;

-- Increased retailer access, through the terminal, to historical daily financial transaction reports and account statements;

-- Display devices that tell players the amount of the current sales transaction and identify a winning ticket and the amount won; and

-- A telecommunications network that uses satellite and wireless technology, making it one of the most advanced in the lottery industry.

"The benefits of replacing outdated systems and terminals will be enjoyed by millions of California Lottery players statewide," said Wilson.

Background

The current gaming system is operated by GTECH Corp. Pacific Bell and Verizon currently provide telecommunications services. In March 2000, anticipating that these contracts would expire in 2003, Lottery officials initiated steps to introduce a competitive bidding process that focused on best value, defined as the best combination of overall value at a reasonable price. Consequently, the evaluation process included review of an array of factors ranging from performance standards to multiple pricing options, and value and risk elements. Experts in procurement, telecommunications, gaming and lottery operations were engaged to help develop the RFP language and requirements. "Prospective bidders were invited to participate in the framing of specific technical and procedural requirements before the RFP was even written," explained Richard Yamadera, project manager.

The bidding process also focused on creating fair and open competition. "It is widely believed that there are only three lottery gaming firms in the United States that are capable of providing the services required in a contract of this magnitude," Yamadera explained. Given the limited field of competition, it is significant that the California Lottery received two bid proposals. The third firm chose not to bid based on business reasons unassociated with this procurement.

"Most Californians only see the terminals that offer Lottery games, but there is a vast technological infrastructure that keeps the system operating 24 hours a day, 365 days a year," said Yamadera. "This new contract will drive overall costs down and provide improved systems as well as better services for our customers and retailers."

Note to reporters/editors:

The Request for Proposal, a background paper, and downloadable digital images of the new Lottery terminals are available via the Lottery's web site at http://www.calottery.com/rfp.asp.

In addition, the following individuals are knowledgeable spokespersons about the lottery industry, the procurement process undertaken by lotteries in the U.S. and of the California retail marketplace.

Lottery Industry Analyst:

Michael Huffenberger, Lottery Consultant, Battelle, 614/424-6445, [e-mail] (retained by the California Lottery to advise regarding bidder comparisons and lottery industry issues/practices).

State Lottery Practices:

David Gale, Executive Director, North American Association of State and Provincial Lotteries, 216/241-2310, [e-mail]

California Retailer:

Barry Gauthier

Gauthier Enterprises, Inc.

714/637-0307; cell 714/815-1876

California Grocers Association

Peter Larkin, President/CEO, 916/448-3545