Tennessee rejects lottery partnership with Georgia

Karin Miller

Thursday, Sept. 4, 2003 | 9:19 a.m.

NASHVILLE, Tenn. -- Tennessee will "go it alone" in implementing a state lottery.

The Tennessee Education Lottery Corp. board voted unanimously Wednesday to reject a joint venture proposed by Georgia lottery officials to help implement the games authorized earlier this year by state lawmakers.

Board members said the risk of a lawsuit was too great in the proposed deal, although it would have made sense from a business perspective.

The partnership, which would have been the first of its kind in the United States, could have brought as much as $249 million in extra net proceeds over seven years by allowing Tennessee to start selling lottery tickets four months earlier than its current March 1 startup date, and by leveraging low Georgia vendor rates.

However, potential Tennessee vendors who would have been excluded by the joint venture had threatened to sue, saying the deal would violate a provision of the law requiring competitive bids for major contracts.

Attorneys hired by the board and the state attorney general's office said the law authorizing a lottery would allow for the proposed partnership, but that a court challenge was likely.

Even though the board probably would win, such a lawsuit could have delayed the startup and eliminated some of the potential savings.

Board Chairman Denny Bottorff said it was important for the board to exercise "good business judgment," and that its primary mission is to maximize net revenue in order to provide the greatest number of lottery-funded scholarships to college students.

"It is unacceptable to go forward with the kind of uncertainty our legal advisers are telling us about," he said. "... We're better off to start up on our own."

Georgia lottery Chief Executive Rebecca Paul, who pitched the partnership to Tennessee officials earlier this summer, said she respected the board's decision.

"I'm sure the board will do the absolute best it can do," Paul said in a phone interview. "The huge benefit to Tennessee students was early startup. Without us, that's impossible."

G-Tech Corp., which is the online vendor in Georgia, would have benefited from the deal by automatically gaining business in Tennessee, but spokesman Bob Vincent said officials "are quite confident in our competitive position." He said the West Greenwich, R.I.-based company was recently awarded a contract in Florida and now operates in 25 states and the District of Columbia.

John Connelly of Oberthur Gaming Technologies, one of the vendors that would have been excluded from competing for a Tennessee contract, said in a statement that officials at the company based in Paris, France, were "very pleased and excited" by the board's decision.

"We know the board's desire is to do what is in the best long-term interests of the children of Tennessee -- and we look forward to supporting the board in every way as they work to get the new Tennessee lottery up and running as soon as possible."

State Sen. Steve Cohen, D-Memphis, a longtime proponent of a state lottery, said it was the right decision.

"I think the people of Tennessee want to have their own lottery and would not have been trustful of such a partnership," he said.

Rep. Chris Newton, R-Benton and a co-sponsor of the lottery legislation, was disappointed because the extra revenues could have been used for pre-kindergarten programs.

Although the majority of lottery revenues must go to scholarships, the law allows for excess funds to be used for pre-K and for K-12 school construction. The lottery is projected to produce an estimated $873 million in annual revenue.

"I think it would have been a very good deal economically," Newton said. "But you've got to step back and factor in the potential litigation. We can't run that risk. It makes sense to go ahead and go it alone."