Twin River presentation to House Finance Committee - (H 6266) OCTOBER 3RD, 2019 - WPRI.com
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Twin River presentation to
House Finance Committee
(H 6266)
OCTOBER 3RD, 2019
1Click to edit Master title style
Discussion Topics
1. The biggest risk for RI taxpayers is 85% monopoly control over slot
machines
2. The State is paying IGT a premium of ~$300M above competitive
rates for their 20-year contract
3. Camelot/Twin River offer RI a significantly better deal
4. The State could make significantly more money for taxpayers if it
followed industry benchmarks and trends
5. This proposed IGT deal is worse than the 2003 GTECH deal
2The
Clickbiggest
to edit risk for RItitle
Master taxpayers
style is 85% monopoly control over
slot machines
➢ 79% of the State’s gaming revenues are Lottery General Fund Transfer FY19
generated from the slot machines
➢ Biggest threat to the State is the 85%
control of the casino floor by one
vendor
➢ Efficiency process is broken and does
not protect the State when one
company controls more than 50% of the
machines
➢ Conflict of interest for IGT to decide
which and how many of their
competitor’s machines enter the State
➢ IGT’s dominant share of VLTs is commercially
unreasonable, unprecedented and
unsustainable against New England
competition
➢ State needs to maintain competitive checks
and balances that will drive desired
investment/performance
Data based on RI Lottery report
3Click to edit Master title style
Critical provision of Rhode Island Law
RIGL§42-61.2-1(2)
Proposed Legislation
4IGT’s
Click machines significantly
to edit Master title styleunderperform competition in
Rhode Island, delivering ~$31,400 less per machine
FY19 Income Generated FY19 State’s Revenue
per Machine per Machine
59.91%
Lottery %
Source: Analysis based on RI Lottery Video NTI reports
5IGT has
Click to abused its monopoly
edit Master title style power and minimized
investment to the detriment of the State and Twin River
Scientific Games replaces machines Scientific Games converts machines
3.5x more than IGT 6.5x more than IGT
Replacements/New Units Game Conversions/Existing Units
Source: Twin River reports
6Even
Click with mostly
to edit new
Master machines
title style IGT is significantly
underperforming competition at Tiverton
Tiverton Daily Net Terminal Income per Machine
Avg: $350
Avg: $253
Source: Analysis based on RI Lottery Video NTI reports
7The
Clickefficiency program
to edit Master title fails
styleto protect the taxpayers if one
vendor has more than 50% of the machines
A vendor at 85% may perform 17% below competition and still be deemed “efficient”
(i.e. $55 a day less per slot machine, or $12,000 less for the State per machine annually)
Both groups have 50% of machines Group 1 has 85% and Group 2 has
on the casino floor 15% of machines on the casino floor
Note: $277 represents the NTI per unit per day for FY2019 [Data based on RI Lottery reports]
8IGT’s
Click monopoly control
to edit Master title in RI makes Twin River uncompetitive
style
with new Massachusetts facilities
Plainridge Park Casino MGM Grand Casino Encore Casino
Source: Data based on casino survey by Twin River staff
9IGT’s
Click machine performance
to edit Master title style is suffering throughout North
America and IGT has fallen to third place in many categories
“While IGT still had the second strongest expansionary share in the period, operators seem
to not be employing as much IGT content across new floors as they have in the past.” Eilers:
Gaming Supplier KPIs – 1Q19 (June 25, 2019 page 21)
Source: Eilers Report
10Click to edit Master title style
Discussion Topics
1. The biggest risk for RI taxpayers is 85% monopoly control over slot
machines
2. The State is paying IGT a premium of ~$300M above competitive
rates for their 20-year contract
3. Camelot/Twin River offer RI a significantly better deal
4. The State could make significantly more money for taxpayers if it
followed industry benchmarks and trends
5. This proposed IGT deal is worse than the 2003 GTECH deal
11The
ClickState is paying
to edit MasterIGT
titleastyle
premium of ~$300M above
competitive rates for their 20-year contract
VLT (slot machine) central system Lottery central system
fee comparison fee comparison
(Please reference slide 13) (Please reference slide 14-15)
per year
per year
Source: Data based on LaFleur’s World Lottery Almanac and Lottery Annual reports and state documents
12Among
Click to RI’s
editcomparable VLT (slot machine) central systems,
Master title style
RI has the highest fee, overpaying on average by 5x
The VLT (slot machine) central system pricing for comparable states/systems is
$2.4M annually, ~$10M lower than RI
Source: Data based on LaFleur’s World Lottery Almanac and Lottery Annual reports and state documents.
*For MA, FY19 Slot GGR was used since MGM did not open until August 2018 and Encore opened in June 2019
Represents fixed fee contracts 13FY18
Click total sales
to edit (excl.
Master slotstyle
title machine and sportsbook revenues)
for US Lotteries
Based on total sales for US Lotteries, the peer group for RI is Lotteries with
sales of $200M - $400M
All US lotteries between
$200M - $400M of sales
Source: Data based on LaFleur’s World Lottery Almanac
14Among
Click to RI’s
editcomparable Lottery systems, RI has the highest
Master title style
fee, overpaying on average by 2x
The peer group on average pays 2.4% for vendor fees (excl RI) –
~$6.7M lower than RI
Data based on LaFleur’s World Lottery Almanac and Lottery Annual reports and state documents
*OK Lottery pays 3.99% of total sales to the Lottery central system provider, the $2M extra paid to the vendor in FY18 is not clearly explained. It seems to be a combination of fees, equipment and one-
time development effort for new services 15Administration selected
Click to edit Master West Virginia and Delaware as
title style
comparable to RI
Comparing total fees paid for the two systems (Lottery and VLT) against WV and
DE, RI is overpaying IGT ~$300M over the 20-year contract extension
Central system vendor fee
$300M+ lower $285M+ lower
over 20 years over 20 years
Source: Data based on LaFleur’s World Lottery Almanac and Lottery Annual reports and state documents
16Using theedit
Click to number oftitle
Master retailers
style enables suppliers to test their
rates as competitive
In a lottery contract, most costs for a supplier are closely correlated with the
number of retailers it serves.
Product/Service Capital Investment Ongoing Expense Retailer Based
Central Computer System ✓
Computer Operations ✓
Software Development and Maintenance ✓ ✓
Data Communications ✓ ✓ ✓
Terminals ✓ ✓
Terminal peripheral equipment ✓ ✓
Terminal and Peripheral Equipment Repair ✓ ✓
Field Services ✓ ✓
Call Center Services ✓ ✓
Paper ✓ ✓
Supply Chain Services ✓ ✓
Sales Force ✓ ✓
Marketing Support ✓
17Click to edit Master title style
Lottery system vendor fee per retailer for comparable States
RI is paying 300% more than the average
Source: Data based on LaFleur’s World Lottery Almanac and Lottery Annual reports and state documents
Note: Average excludes RI
18Click to edit Master title style
Discussion Topics
1. The biggest risk for RI taxpayers is 85% monopoly control over slot
machines
2. The State is paying IGT a premium of ~$300M above competitive
rates for their 20-year contract
3. Camelot/Twin River offer RI a significantly better deal
4. The State could make significantly more money for taxpayers if it
followed industry benchmarks and trends
5. This proposed IGT deal is worse than the 2003 GTECH deal
19Click to edit Master title style
Camelot/Twin River partnership formed to bid on RI contracts
Camelot Lottery Solutions (Camelot) is wholly owned by Ontario Teacher’s Pension Plan which has Net
Assets of $142 billion
Camelot has decades of lottery experience and has delivered outstanding results on several contracts
including the UK, Illinois and Arkansas
In Illinois, Camelot successfully delivered the largest transition (from IGT) in US lottery history, rolling out
50,000 pieces of equipment across 7,200+ retailers and seamlessly converting the lottery gaming system
Other notable recent achievements:
Illinois Lottery: First full year of operations resulted in delivering a record of $731M for Illinois Public Schools
Arkansas Lottery: Camelot partnered to help grow net income by over 35% since 2014; last year delivered a
record $98.4M to scholarships
Irish National Lottery: Camelot has partnered to help grow sales by over 20% since 2014 and INL is on target
to have a record year
Camelot/Twin River Key Partnership Elements
Partnership is binding through 2022 and requires Camelot and Twin River to jointly bid any RFP in RI that
combines lottery systems and VLTs
Camelot and Twin River have committed to investing the necessary capital and creating 1100 jobs in RI
Camelot will be primarily responsible for all lottery and systems components; Twin River will lead VLTs
20Click to edit Master title style
Camelot/Twin River bid is significantly better for Rhode Island
Rhode Island would secure a much better deal through a competitive bid process
and it should follow the law and allow Camelot/Twin River and others to submit bids
Critical Terms Camelot/Twin River Bid IGT Deal Better Value to State
Allows RI to assess
Contract Term 12 years 20 years (plus 4) market/technology needs and
rebid contract earlier
Total Cost to State Less than $500 million Over $1 billion $500+ million lower cost to RI
No change to RI law; perpetual
competition on VLTs protects
VLT Share 50% 85%
integrity of State’s VLT revenues
(over $300 million annually)
Up to $100 million at risk to
Financial 20% at risk -- $100 million based
guarantee satisfaction of all
Guarantee: Jobs on achievement of all None
commitments and performance
and Performance commitments including jobs
including 1100 jobs for 12 years
• $50 million at Twin River for ~$75 million of economic
New Development development and amenities development; Twin River
& Construction None improvements will enhance
• New Corporate Headquarters ability to compete with MA,
of 50,000 sq. ft. in RI driving State gaming revenues
21Click to edit Master title style
Camelot/Twin River partnership will deliver 1100 new RI jobs
Camelot and Twin River investors manage over $150 billion of assets
and are committed to bid in RI for lottery contracts
The jobs created by the partnership would be in the following areas
RI Lottery Contract Partner Operations TRWH National Growth New Development
• Jobs created by • Twin River, Camelot • TRWH will continue to • As part of the capital
replacing IGT to and its investors and add jobs in RI as it commitment by the
service RI contracts partners will create expands nationally with partnership in the
or move additional pending acquisitions development and
• Preference would
jobs to RI under contract expansion of
be given to hiring
amenities, additional
RI-based IGT • We will also acquire, • TRWH has a strong
jobs will be created
employees and relocate and/or pipeline and desire for
vendors impacted grow businesses additional growth • Camelot and Twin
by transition adjacent to lottery through mergers and River each earn
and gaming acquisitions equity shares in the
partnership by
creating jobs
$100 million guarantee that 1100 jobs will be created & maintained in RI
22Twin
ClickRiver has
to edit an outstanding
Master title style track record of creating jobs in
Rhode Island
Nationwide Twin River has ~4,700 employees and we are in the process of
adding another ~750 employees through pending acquisitions
As of 10/1:
2,511
Source: Twin River HR data, data as of 12/31
23Twin
ClickRiver is proud
to edit Masterthat
titleover
style1500 of our employees are
members of 12 different unions
Twin River Casino and Hotel Tiverton Casino and Hotel
Source: Twin River HR data, data as of 10/1/19
24Click to edit Master title style
Camelot/Twin River bid is a much better deal for Rhode Island
$15M lower fees and $5M higher investment annually compared to IGT
Fee Comparison Camelot/Twin River Bid IGT Deal
Contract Term 12 years 20 years (plus 4)
Total Fees Less than $500 million Over $1 billion
Average Annual Fees $40 million $55 million
Guaranteed minimum investment $150 million $150 million
Average annual investment $12.5 million $7.5 million
Average annual license fee
$2.1 million $1.25 million
($25M upfront payment)
25Click to edit Master title style
A winning partnership for Rhode Island
“As a key technology partner in Illinois, Camelot also has an agreement with Intralot to
provide the central gaming system and the retail equipment to Rhode Island, should an
open bid process go ahead. Intralot USA has 13 contracts in the US and in the past 10 years
has been selected over the incumbent technology of IGT in four jurisdictions (OH, IL, NM and
LA) and has converted systems technology, retail networks and 19,000 retail locations.”
~Wayne Pickup, CEO Camelot Lottery Solutions
- Over 20 years lottery industry - Casino owner and - Lottery systems and technology
experience manager
- 13 lottery technology contracts in
- Experienced lottery operator and - Rhode Island gaming the US
manager, and technology company partner
- Converted systems technology,
- Corporate HQ in Chicago, with retail networks and 19,000 retail
centres of excellence in London,
location from IGT in at least four
Dublin, Athens and Chicago
US jurisdictions
26Click to edit Master title style
System conversions happen frequently in the industry
In the last 10 years, 15 out of 42 States (36%) have successfully switched system providers
7 conversions were done by Intralot, 6 by GTECH/IGT and 2 by Scientific Games
Jurisdiction FY08 Lotery System Vendor FY18 Lottery System Vendor
Arizona GTECH Scientific Games
Colorado Scientific Games GTECH/IGT
D.C. GTECH (LTE) Intralot
Illinois GTECH Camelot (Intralot)
Indiana Scientific Games GTECH/IGT
Kansas GTECH Scientific Games
Louisiana GTECH Intralot
Nebraska Intralot GTECH/IGT
New Hampshire Scientific Games Intralot
New Mexico GTECH Intralot
Ohio GTECH Intralot
South Carolina Scientific Games GTECH/IGT
South Dakota Scientific Games GTECH/IGT
Vermont Scientific Games Intralot
West Virginia Scientific Games GTECH/IGT
Source: Data based on LaFleur’s World Lottery Almanac
Note: Arkansas and Wyoming lotteries were started after FY08 and are not included in the analysis
27Click to edit Master title style
Discussion Topics
1. The biggest risk for RI taxpayers is 85% monopoly control over slot
machines
2. The State is paying IGT a premium of ~$300M above competitive
rates for their 20-year contract
3. Camelot/Twin River offer RI a significantly better deal
4. The State could make significantly more money for taxpayers if it
followed industry benchmarks and trends
5. This proposed IGT deal is worse than the 2003 GTECH deal
28Click to edit Master title style
Industry developments in bids
➢ States such as IL, IN, and NJ went through a competitive bid process to offer long term lottery
management and systems contracts to vendors
➢ All these contracts had revenue guarantees for the State with clearly defined penalties for not meeting
commitments
➢ In NJ, the contract was awarded for a 15-year term and required a $120M upfront payment
➢ GTECH along with its partners initially won all three contracts by providing the highest return guarantee
to the State
➢ They failed to meet their commitments in all three States
➢ They re-negotiated all their contracts to lower their guarantees to the State
➢ In IL, they were replaced by Camelot
➢ In its first year of operations in IL, Camelot generated record sales and significantly exceeded IGT’s
performance
“Of particular importance in Illinois is the performance-based compensation model, which aligns compensation
with net returns versus topline lottery sales. Our contract in Illinois also has tiered performance incentives, which
pays bonuses to the company as we grow returns for the State of Illinois over the term of the contract. A focus on
growing returns and optimizing performance of the lottery aligns with the State’s mission for successful lottery
operations. This model is very similar to lottery operating contracts in New Jersey and Indiana, both IGT jurisdictions,
and a model we recommend the Lottery in Rhode Island consider for its next contract.”
~Wayne Pickup, CEO Camelot Lottery Solutions
Note: In IL, GTECH partnered with Scientific Games to form Northstar Lottery group to bid on the contract. In NJ, GTECH partnered with Scientific
Games and OMERS pension fund to form Northstar New Jersey Lottery Group to bid on the contract. In IN, GTECH bid the contract as GTECH Indiana.
29Click to edit Master title style
Instant ticket weekly per capita sales comparison
Rhode Island Lottery significantly underperforms against New England State Lotteries and
other industry benchmarks –> Millions of dollars of lost opportunity for the State General Fund
Source: Data provided by Scientific Games International
Note: Rankings based out of 44 jurisdictions
30Click to edit Master title style
Discussion Topics
1. The biggest risk for RI taxpayers is 85% monopoly control over slot
machines
2. The State is paying IGT a premium of ~$300M above competitive
rates for their 20-year contract
3. Camelot/Twin River offer RI a significantly better deal
4. The State could make significantly more money for taxpayers if it
followed industry benchmarks and trends
5. This proposed IGT deal is worse than the 2003 GTECH deal
31Click to edit Master title style
Chronology surrounding employment obligation agreement
Key dates Description of events
Public Law requires “at least 1,000 full-time active employees at wage levels not less
May 2, 2003 than those defined in Rhode Island general laws section 42-64.5-2(7) (“Employment
Requirement”)”
Section 6.3 of the Master contract implements Employment Requirement.
May 12, 2003
Post 2009, §42-64.5-2(7) requires 250% of minimum wage
Letter from Gerald Aubin to Robert Vincent: “GTECH is required to employ within the
State on average during each applicable year at least one thousand (1,000) full time
January 23, 2014
active employees at wage rate levels not less than those defined in Rhode Island
General Laws §42-64.5-2(7).”
GTECH and IGT enter into agreement of merger including commitment to deliver cost
July 16, 2014
synergies (i.e. headcount reductions and consolidation of facilities)
Employment Obligation Agreement amends the Master Contract to refer to “150% of
July 31, 2014 the minimum wage in effect from time to time pursuant to Rhode Island General Laws
§28-12-3.” (emphasis added). Section 2.e
April 7, 2015 GTECH and IGT complete merger
IGT closes manufacturing facility in Coventry, laying off 44 people and moving those
jobs to Reno, Nevada. Providence Journal, IGT Closing Coventry Factory, April 22,
April 22, 2015
2015. Per Sixth Amendment to Master Contract dated June 30, 2016, IGT failed to
comply with the employment requirement in 2014 and 2015
August 4, 2017 IGT letter claiming that they are having difficulty in attracting qualified candidates
32Click to edit Master title style
This IGT deal is worse than the 2003 GTECH deal
2003 Public Law/Master Contract Proposed Extension
$70M new building investment in
Economic Activity No such new capital spend
Providence
1000 jobs based on the Jobs 1100 FTE based on Minimum Wage
Jobs Development Act i.e. 250% of Act i.e. 150% of minimum wage.
minimum wage post 2009 Includes self employed individuals
Commitment to expand
Expand
manufacturing in West No such guarantees
manufacturing in RI
Greenwich
“GTECH will relocate and
maintain its world corporate “the continuance of a significant
Headquarters
headquarters in that facility for presence in the State”
the twenty (20) year term”
Year 1 Revenue $30M $55M (2018)
Slot % 50% 85%
Presence of
No Yes
Competitive Bid
Governor and Legislature Governor negotiated the deal in
Process
engaged together private without the legislature
33Click to edit Master title style
Twin River is more of a home team for Rhode Island
TWIN RIVER
IGT
MANAGEMENT GROUP
RI Employees ~2,500 1,007*
New Jobs added in RI since 2010 ~1,500 0
Global Headquarters Providence, RI, USA London, UK
YES AS FOREIGN
Publicly traded on stock exchange YES AS U.S. COMPANY
COMPANY
*Per the joint submission by IGT and the Lottery (Aug 2019)
According to the submission, 1007 includes 37 people with the title “Intern”
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