Winners and Losers

Lottery operator Gtech was especially kind to the political friends of Texas Comptroller John Sharp. But when supervision of the company was moved from Sharp's office, the party was over.

That same spring, Pat Ford, a Democratic operative out of Austin, stopped by Sharp's Capitol office. Ford had been through previous political wars with the cigar-chomping, cowboy-booted Sharp and was on a first-name basis with him. This time around, she was raising funds for another politician and hoped to extract a contribution from the comptroller. During the conversation, Ford says "the subject came up" of a full-time job for herself.

"Sharp said, 'Okay, have you considered working for the lottery?'" recalls Ford. "And I said, 'Well, I called them and they've never called me back, John.' And he said, 'Have you considered working for the company that's going to operate the lottery?'" The comptroller, she says, asked her to mull the prospect over and promised to have somebody call her.

Ironically, Sharp had opposed the 1991 constitutional amendment that legalized the lottery and, just prior to the state's awarding of its contract to Gtech in February 1992, had questioned the ethics and actions of figures in the lottery industry. "I didn't know how good a vote that was at the time," Sharp said of his opposition to the lottery amendment, "considering the people that we deal with on a daily basis in the lottery." In a more trenchant description, he labeled those folks "lottery slime."

Ford left Sharp and drove back to her candidate's campaign office, taking about ten minutes. When she walked in the door a Mr. Smith was on the phone from Rhode Island. "He said he was going to have a guy named Bill Glen call me. He did and offered me a job over the phone," says Ford. After thinking over the offer and visiting with the Gtech staff, Ford took a position in the company's promotions department.

The man who phoned Ford, J. David Smith, was no simple personnel functionary in the Gtech pantheon. Today, the mention of his name draws the exclamation, "What a wheeler-dealer!" from one member of Sharp's staff. A stocky, balding man with a manner both ingratiating and radiating self-assurance, Smith is credited with helping build Gtech into the predominate lottery operation in the world. As one former Gtech sales executive, Leslie Hunter, told the New York Times, the 47-year-old Smith "believed we could win every state. As a result, he became the final authority within the company as to the strategy we used."

These days, Greg Hartman, Sharp's deputy comptroller, is careful to put the comptroller's office at a distance from Smith.

"[He was] sort of what you dealt with when you dealt with Gtech -- just one of those guys," says Hartman. "Whatever he was up to, I don't want to try to defend J. David Smith on anything he was doing."

Smith had been Gtech's national sales manager for seven years, and specialized in building bridges to state officials who approved lottery contracts and supervised their operations. By all accounts, he was very good at his specialty. Gtech paid him more than a million dollars a year plus bonuses for his efforts. So when J. David Smith called little-known Texas Democratic operatives to make job offers, their employment was clearly on the wish list of someone deemed necessary to Gtech's success.

Smith has had several brushes with law enforcement over the years. In 1981 he pleaded guilty in Kentucky to possession of illegal gambling devices. Kentucky Governor Wallace Wilkinson pardoned him ten years later. Wilkinson was also governor when Gtech won the Kentucky lottery contract.

In separate indictments filed by federal prosecutors in New Jersey and Kentucky last year, Smith was charged with defrauding Gtech. In the New Jersey case, he is accused of taking kickbacks from lobbyists paid by the corporation. In the Kentucky case, he was alleged to have taken money from a purported supplier for Gtech. That indictment has since been dismissed by a Kentucky federal judge.

While Gtech has never directly been accused of wrongdoing, it is currently the subject of federal investigations in a number of states, including Texas, for its tactics in winning state contracts. Smith, who no longer works with the company, is a focus of the Texas investigation, according to sources who have been questioned by the FBI.

Gtech's hyper-aggressive marketing efforts have landed it contracts with 27 state lotteries and 28 foreign countries. Its U.S. revenues alone exceeded a half-billion dollars last year. Gtech receives roughly 4 cents on every dollar lottery ticket purchased in Texas, which puts it in line to have raked in an estimated $250 million by the time its current contract with the state expires in 1997.

The company was born in 1981, when Guy Snowden and Victor Markowicz purchased the lottery wing of their then-employer, Datatrol, for $4.3 million. The company grew steadily from that point, but really took off when Smith joined the operation in the late '80s.

Gtech's national image has changed in the three years since it nailed down the Texas contract. According to the New York Times, federal investigators met in Atlanta last fall to map a national investigation into the techniques used by this largest of lottery companies to secure state contracts in New Jersey, Kentucky and Texas. Several of the former employees interviewed for this article already have been or have scheduled interviews with the FBI, which last fall subpoenaed documents from the Texas Lottery Commission related to the awarding of the contract to operate the lottery. One of the ex-employees says he was told by an FBI agent that a federal grand jury in Austin is weighing the evidence collected in the probe. Only "non-cooperating witnesses" would be called to testify before the panel, the former employee says he was told by the agent.

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