Presentation to Senate Finance CommitteeTwin River presentation to Senate Finance Committee (S 1031)...

Twin River presentation to

Senate Finance Committee

(S 1031)

OCTOBER 24TH, 2019

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Click to edit Master title styleGovernor’s three guiding principles for IGT’s extension

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1.New IGT deal has to be stronger than the

2003 GTECH deal in every way

2.Comparable pricing to other states

3.Rock solid guarantee on the jobs

Click to edit Master title styleDiscussion Topics

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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. This proposed IGT deal is worse than the 2003 GTECH deal

Click to edit Master title styleThe biggest risk for RI taxpayers is 85% monopoly control over

slot machines

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Lottery General Fund Transfer FY19

Data based on RI Lottery report

➢ 79% of the State’s gaming revenues are

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

Click to edit Master title styleCritical provision of Rhode Island Law

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RIGL§42-61.2-1(2)

Proposed Legislation

Click to edit Master title styleIGT’s machines significantly underperform competition in

Rhode Island, delivering ~$31,400 less per machine

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FY19 Income Generated

per Machine

FY19 State’s Revenue

per Machine

59.91%

Lottery %

Source: Analysis based on RI Lottery Video NTI reports

Click to edit Master title styleIGT has abused its monopoly power and minimized

investment to the detriment of the State and Twin River

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Replacements/New Units Game Conversions/Existing Units

Scientific Games replaces machines 3.5x more than IGT

Scientific Games converts machines 6.5x more than IGT

Source: Twin River reports

➢ Machines in Lincoln are too old – over 35% of the floor is 10+ years old; 99% are IGT controlled units

➢ IGT has a very high market share – This cannot be efficiently supported by their game mix

➢ IGT’s financial incentives are in conflict with the interests of the State and the facilities

➢ Since 2016, Lincoln has not received a single new slot machine from IGT that wasn’t manufactured by IGT

➢ The last Aristocrat machine installed in Twin River was on May 2013 – over 6 years ago

➢ IGT’s strategy has been to minimize investment at the expense of the taxpayers and facilities

Click to edit Master title styleEven with mostly new machines IGT is significantly

underperforming competition at Tiverton

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Tiverton Daily Net Terminal Income per Machine

Avg: $350

Avg: $253

Source: Analysis based on RI Lottery Video NTI reports

➢ IGT’s own expert admitted that IGT has too many machines at Tiverton

Click to edit Master title styleThe efficiency program fails to protect the taxpayers if one

vendor has more than 50% of the machines

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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

on the casino floor

Group 1 has 85% and Group 2 has

15% of machines on the casino floor

Note: $277 represents the NTI per unit per day for FY2019 [Data based on RI Lottery reports]

Click to edit Master title styleIGT’s monopoly control in RI makes Twin River uncompetitive

with new Massachusetts facilities

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Plainridge Park Casino MGM Grand Casino Encore Casino

Source: Data based on casino survey by Twin River staff

➢ RI facilities have too many IGT machines and not enough machines from

Scientific Games and Aristocrat to compete effectively

Click to edit Master title styleIGT’s machine performance is suffering throughout North

America and IGT has fallen to third place in many categories

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Source: Eilers-Fantini Slot Survey Report

“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)

Click to edit Master title styleScientific Games posted highest ship share in the industry

gaining share while IGT lost share in that period

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➢ IGT’s poor performance and loss of market share trend continues based on the latest quarterly report from Eilers-Fantini

➢ This decade IGT has lost over one-third of its market share

➢ IGT continues to lose market share in Q2 while Scientific Games and Aristocrat continue to gain market share with Scientific Games achieving the best overall performance in the quarter

Source: Eilers-Fantini Slot Survey Report


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machines





Click to edit Master title styleThe State is paying IGT a premium of ~$300M above

competitive rates for their 20-year contract

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VLT (slot machine) central system

fee comparison

Lottery central system

fee comparison

per year

(Please reference slide 15) (Please reference slide 16-17)

per year

Source: Data based on LaFleur’s World Lottery Almanac and Lottery Annual reports and state documents

Click to edit Master title styleAmong RI’s comparable VLT (slot machine) central systems,

RI has the highest fee, overpaying on average by 5x

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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

Click to edit Master title styleFY18 total sales (excl. slot machine and sportsbook revenues)

for US Lotteries

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All US lotteries between

$200M - $400M of sales

Source: Data based on LaFleur’s World Lottery Almanac

Based on total sales for US Lotteries, the peer group for RI is Lotteries with

sales of $200M - $400M

Click to edit Master title styleAmong RI’s comparable Lottery systems, RI has the highest

fee, overpaying on average by 1.9x

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Data based on LaFleur’s World Lottery Almanac and Lottery Annual reports and state documents

*Maine Lottery has a single contract with Scientific Games that bundles both the Instant ticket printing and other services along with the online system services. To compare the $10.4M paid to Scientific

Games in Maine, we should add the instant ticket printing costs of $1.2M in RI. It is worth noting that Scientific Games provides a whole host of services to Maine as part of their rate.

The peer group on average pays 2.6% for vendor fees (excl RI) –

~$6.3M lower than RI

Click to edit Master title styleAdministration selected West Virginia and Delaware as

comparable to RI

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Central system vendor fee

$300M+ lower

over 20 years

$285M+ lower

over 20 years

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


Click to edit Master title styleUsing the number of retailers enables suppliers to test their

rates as competitive

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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 ✓

In a lottery contract, most costs for a supplier are closely correlated with the

number of retailers it serves.

Click to edit Master title styleLottery system vendor fee per retailer for comparable States

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RI is paying 300% more than the average


Note: Average excludes RI

Click to edit Master title styleThe State should consider bidding out the services as a

bundle and in its major component parts

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Bundle the Lottery and VLT monitoring

systems along with VLTs

Bid the major components of the

current master contract separately

➢ State should bid the contract

under existing law

➢ 50% of the VLT to VLT

monitoring system provider

➢ 1100 jobs

➢ Bid out the remaining 50% of

the VLT machines to see and

evaluate other economic

development opportunities

that come with it

➢ State should consider allowing

bidders to propose on the

individual components as well

Components Potential Bidders

Lottery System 3

Instant Ticket Printing

and Management3

Video Lottery System 4

Video Lottery Terminals 5 - 8

Bidding the contracts both as a bundle and in its component parts

enables the State to create transparency on the services and pricing

and allows the State to determine the best overall value

Click to edit Master title styleThe State should require bidders to break out their services

and pricing in the following categories

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Service/Solution Type Compensation Options Term Potential # of Bidders

Central Computer System and Software Infrastructure Percentage of Sales, Fixed Fees 10+ Years 3

Software Development and Maintenance Specialized Labor Hourly Rate 5 Years 3+

Computer Operations Specialized Labor Hourly Rate, Fixed Fees 5 Years 3+

Data CommunicationsInfrastructure/

Specialized LaborHourly Rate, Fixed Fees 10+ Years 3+

Retail Terminals Infrastructure Fixed Fees 10+ Years 3+

Terminal Peripheral Equipment Infrastructure Fixed Fees 10+ Years 3+

Terminal and Peripheral Equipment Repair Labor Hourly Rate, Per Unit Price 5 Years Mult iple

Field Services Labor Hourly Rate, Per Call Price 5 Years Mult iple

Call Center Services Labor Per Call Price 5 Years Mult iple (30+)

Paper Consumable Per Unit Including Delivery 5 Years 3+

Supply Chain ServicesFacilit ies, Labor,

OutsourcePer Unit Shipment Price 5 Years Mult iple

Sales Force Labor Per Call Price 5 Years Mult iple

Service/Solution Type Compensation Options Term Potential # of Bidders

Systems, operations staff and software

maintenanceInfrastructure, Labor Fixed Fee 10+ Years 4

Two Data Centers - Primary and Backup Infrastructure Fixed Fee 10+ Years Mult iple

Financial Services - Cash Management Ticket

ValidationSystem Capability Element of system.

QA Test ing on New Games and Machines Labor Hourly Rate 5 Years 4+

50 Service Technicians Labor Hourly Rate 5 Years Mult iple

Paper Consumable Per Unit 5 Years Mult iple

Spare Parts for Gaming Machines Consumable Per Unit 5 Years 3+

Communications Links Between Two Facilit ies

and the Data CentersInfrastructure Per Unit 5 Years 3+

LOTTERY SYSTEM CONTRACT

VIDEO LOTTERY SYSTEM CONTRACT


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machines





Click to edit Master title styleCamelot/Twin River partnership formed to bid on RI contracts

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Camelot/Twin River Key Partnership Elements

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 out50,000 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 arecord $98.4M to scholarships

Irish National Lottery: Camelot has partnered to help grow sales by over 20% since 2014 and INL is on targetto have a record year

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

Click to edit Master title styleExcerpt from Camelot’s written testimony to the RI Senate

Finance committee – dated 10/24/2019

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“Camelot Lottery Solutions is excited to enter into a

partnership with Twin River to offer a significantly

better deal to the State of Rhode Island. This

partnership is binding through 2022, with the intention

to jointly bid in any RFP in Rhode Island that combines

lottery systems and VLTs. Together, we are committed

to investing the necessary capital and creating 1,100

jobs in Rhode Island. The addition of Scientific Games

to the Twin River consortium further strengthens the

position that an open bid process will drive a better

deal for Rhode Island.”

- Wayne Pickup, CEO Camelot Lottery Solutions

Click to edit Master title styleVirtually the entire global lottery industry has come together

seeking a chance to compete for Rhode Island’s business

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Operating

Expertise

Technology

Expertise

- Over 20 years lottery industry experience

- Experienced lottery operator and manager, and technology company

- Corporate HQ in Chicago, with centers of excellence in London, Dublin, Athens and Chicago

- Casino owner and manager

- Rhode Island gaming partner

- Corporate HQ in Providence, RI with ~4,700 employees nationwide and ~2,500 in Rhode Island

- Lottery systems and technology

- 13 lottery technology contracts in the USA

- Converted systems technology, retail

networks and 19,000 retail location

from IGT in at least four US jurisdictions

- #1 wallet share (dollars) in gaming resulting from strong cabinet offering and successful gam franchises

- Leading system technology provider in Lottery and Casino

- Largest instant game provider in the world, with a significant position as a global lottery systems supplier

Click to edit Master title styleScientific Games lottery division overview

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Trusted partner to the world’s lotteries

150 Lottery

Customers in 50Countries,

including 18 of

the Top 20 Instant

Game Lotteries

worldwide (per

capita sales)

Supplying 9 of the

Top 10 U.S. lotteries

Supplying over $60B

annual instant

game retail sales

Source: Analysis provided by Scientific Games

Click to edit Master title styleScientific Games lottery footprint – North America

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Click to edit Master title styleScientific Games is the instant ticket portfolio manager of

9 of the top 10 performing U.S. Lotteries

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9 of the Top 10 U.S. Lotteries (WPC) choose SG as their

Primary Instant Game Partner

WPC refers to weekly per capita


Primary Relationships Scientific Games Pollard IGT

US Customers 29 8 4

Total Sales $38.02BN $8.43BN $5.27BN

Population 227M 43M 6M

“Real Matters” - Other vendors say they “support” 7 of the top 10

lotteries, defined as they support the instant product through

instant validation only and not as a portfolio manager.

Click to edit Master title styleNo other vendor has more licensed properties than Scientific

Games

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Scientific Games

IGT

Pollard


Click to edit Master title styleScientific Games enhanced partnership leads the industry

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$2.33 $2.29 $2.29 $2.29 $2.35 $2.39

$2.50

$2.67

$2.84 $2.94

$3.10

$2.46 $2.47 $2.76

$2.92

$3.12

$3.29

$3.46

$3.65 $3.66

$3.81 $3.94

$1.50

$2.00

$2.50

$3.00

$3.50

$4.00

$4.50

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Other Suppliers Scientific Games


Click to edit Master title styleCamelot/Twin River bid is significantly better for Rhode Island

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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

Contract Term 12 years 20 years (plus 4)

Allows RI to assess

market/technology needs and

rebid contract earlier

Total Cost to State Less than $500 million Over $1 billion $500+ million lower cost to RI

VLT Share 50% 85%

No change to RI law; perpetual

competition on VLTs protects

integrity of State’s VLT revenues

(over $300 million annually)

Financial

Guarantee: Jobs

and Performance

20% at risk -- $100 million based

on achievement of all

commitments including jobs

None

Up to $100 million at risk to

guarantee satisfaction of all

commitments and performance

including 1100 jobs for 12 years

New Development

& Construction

• $50 million at Twin River for

development and amenities

• New Corporate Headquarters

of 50,000 sq. ft. in RI

None

~$75 million of economic

development; Twin River

improvements will enhance

ability to compete with MA,

driving State gaming revenues

Click to edit Master title styleCamelot/Twin River partnership will deliver 1100 new RI jobs

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RI Lottery Contract Partner Operations TRWH National Growth New Development

The consortium partners and suppliers have over 20,000 employees worldwide

The jobs created by the partnership would be in the following areas

• Jobs created by

replacing IGT to

service RI contracts

• Preference would

be given to hiring

RI-based IGT

employees and

vendors impacted

by transition

• Twin River, Camelot

and its investors and

partners will create

or move additional

jobs to RI

• We will also acquire,

relocate and/or

grow businesses

adjacent to lottery

and gaming

• TRWH will continue to

add jobs in RI as it

expands nationally with

pending acquisitions

under contract

• TRWH has a strong

pipeline and desire for

additional growth

through mergers and

acquisitions

• As part of the capital

commitment by the

partnership in the

development and

expansion of

amenities, additional

jobs will be created

• Camelot and Twin

River each earn

equity shares in the

partnership by

creating jobs

$100 million guarantee that 1100 jobs will be created & maintained in RI

Click to edit Master title style

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Twin River has an outstanding 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

Source: Twin River HR data, data as of 12/31

As of 10/1:

2,511

Click to edit Master title style

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Twin River is proud that over 1500 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

Click to edit Master title styleCamelot/Twin River bid is a much better deal for Rhode Island

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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

($25M upfront payment)$2.1 million $1.25 million

$15M lower fees and $5M higher investment annually compared to IGT

Click to edit Master title styleCamelot/Twin River bid is a much better deal for Rhode Island

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20 Year deal Upfront Payment

IGT $25 million

Twin River $75 million

Additional Value to State $50 million

The additional $50 million of upfront value to the State

can be used towards funding education, human

services, public safety, transportation, etc.

Click to edit Master title styleSystem conversions happen frequently in the industry

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In the last 10 years, 15 out of 42 States (36%) have successfully switched system providers7(8*) conversions were done by Intralot, 6 by GTECH/IGT and 2 by Scientific Games

* SC converted from SGI to Intralot and from Intralot to GTECH/IGT during this period

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

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/Intralot GTECH/IGT

South Dakota Scientific Games GTECH/IGT

Vermont Scientific Games Intralot

West Virginia Scientific Games GTECH/IGT

Click to edit Master title styleRecent conversions out of IGT systems were won by Scientific

Games

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“In the last four years, three states, Arizona, Kansas, and Maryland all went out to bid. Intralot bid on all of

them. Those states could have saved, in excess of $10 million each, had they selected Intralot. They did

not. So, this isn’t IGT’s opinion that Intralot is not a viable competitor, it is what the United States lottery

marketplace is saying.” ― Jay Gendron, Chief Operating Officer, IGT Global Solutions Corp. Public comments at the

Rhode Island Senate Finance Committee Meeting on October 22, 2019 reviewing 2019–S 1031, An Act Enabling the State Lottery Division of the Department of Revenue to Contract with IGT Global Solutions Corp.

Arizona and Kansas were both IGT customers who switched to Scientific Games

during the bid process and Maryland remained with Scientific Games

“We selected Scientific Games

as a technology business

partner because we believe

their technology solution can

enhance our player insights,

game innovation and retail

operations, and ultimately

help us maximize profits for our

state beneficiaries in Kansas.“ ―Terry Presta, Executive Director of

the Kansas Lottery, October 26, 2017

“We look forward to continuing

the successful relationship we

have with Scientific Games. The

Maryland Lottery is eager to

make the transition to the new

system as quickly as possible to

benefit our retailers, players and

ultimately, our state

beneficiaries, through increased

sales and revenue.” ― Gordon

Medenica, Maryland Lottery &

Gaming Director, June 28, 2017

“SGI is an industry leader

in innovation and offers

the best opportunity to

grow lottery sales in this

ever-changing

environment as we move

into the future.” ― Arizona

Lottery Evaluation Committee

Notes and Recommendations,

June 18, 2015

Click to edit Master title styleThese states witnessed materially improved performance

under new Scientific Games systems vs. that of IGT

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Kansas Lottery Total Sales Growth Arizona Lottery Total Sales Growth

Source: Data based on LaFleur’s World Lottery Almanac, NASPL and public reports

➢ RI should consider the opportunity to improve performance and generate

more revenues for the State as part of any competitive bidding process

Click to edit Master title styleRI Lottery has had sub-optimal growth compared to the

industry and its peers

41

Source: RI Lottery 2018 Annual report. FY18 vs. FY17 comparison, data from NASPL and includes VLT sales

FY18 YoY Growth

Click to edit Master title styleInstant ticket sales growth represents a major opportunity for

Rhode Island Lottery

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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 based on LaFleur’s World Lottery Almanac

Note: Rankings based out of 43 jurisdictions

Instant sales weekly sales per capita


43


machines





Click to edit Master title styleChronology surrounding employment obligation agreement

44

Key dates Description of events

May 2, 2003

Public Law requires “at least 1,000 full-time active employees at wage levels not less

than those defined in Rhode Island general laws section 42-64.5-2(7) (“Employment

Requirement”)”

May 12, 2003Section 6.3 of the Master contract implements Employment Requirement.

Post 2009, §42-64.5-2(7) requires 250% of minimum wage

January 23, 2014

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

active employees at wage rate levels not less than those defined in Rhode Island

General Laws §42-64.5-2(7).”

July 16, 2014GTECH and IGT enter into agreement of merger including commitment to deliver cost

synergies (i.e. headcount reductions and consolidation of facilities)

July 31, 2014

Employment Obligation Agreement amends the Master Contract to refer to “150% of

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

April 22, 2015

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,

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

* This was the same time that the Lottery allowed IGT to go from 50% to 85% of the VLTs without any conditions

Click to edit Master title styleThis IGT deal is worse than the 2003 GTECH deal

45

2003 Public Law/Master Contract Proposed Extension

Economic Activity$70M new building investment in Providence

No such new capital spend

Jobs1000 jobs based on the Jobs Development Act i.e. 250% of minimum wage post 2009

1100 FTE based on Minimum Wage Act i.e. 150% of minimum wage. Includes self employed individuals

Expand manufacturing in RI

Commitment to expand manufacturing in West Greenwich

No such guarantees

Headquarters

“GTECH will relocate and maintain its world corporate headquarters in that facility for the twenty (20) year term”

“the continuance of a significant presence in the State”

Year 1 Revenue $30M $55M (2018)

Slot % 50% 85%

Instant Tickets Excluded Included

Presence of Competitive Bid

No Yes

ProcessGovernor and Legislature engaged together

Governor negotiated the deal in private without the legislature

Click to edit Master title styleGovernor’s three guiding principles for IGT’s extension

46

1.New IGT deal has to be stronger than the

2003 GTECH deal in every way

2.Comparable pricing to other states

3.Rock solid guarantee on the jobs

Presentation to Senate Finance CommitteeTwin River presentation to Senate Finance Committee (S 1031)...

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