Winners and Losers

The "war room" that had been set up in an upper floor suite of Austin's Doubletree Hotel was abuzz when Tom Logans arrived there in the spring of 1992. A pencil-thin black man who had moved to Houston from San Diego in the boom years of the early '80s, Logans was in Austin for an orientation session for a new job he'd recently taken.

All of the frenetic activity at the Doubletree was in the service of getting the recently authorized Texas lottery under way. Gtech, a Rhode Island-based corporation that a few months earlier had won the contract with the state to run the new games of chance, had hired Logans as its sales manager for its Houston district. He was one of the 500 new employees that Gtech would bring aboard as it rushed to build a massive operation that could begin selling lottery tickets to Texans within 60 days. After he arrived for his Gtech orientation, Logans, who had no experience in either lottery management or politics, observed that many of the job slots were being filled by people with skills in one of those particular areas.

"As you walked in there were white sheets [on the walls] all around the room labeled Abilene, Houston, Lubbock, whatever," recalls Logans, now 51. "On those lists everybody who was hired for a district was named. The ones that were written in green were the political hires. That's how we came up with the term 'greenies.' There were plenty of greenies there, I'll tell you."

Most of those Democratic activists and operatives hired by Gtech, say Logans and other former Gtech employees, were people recommended or pushed by state Comptroller John Sharp, the official initially responsible for supervising Gtech's conformance with the state contract. According to Logans, who was later fired by Gtech and is now suing the corporation, it was clear from the beginning that Gtech thought that hiring the comptroller's political friends was part of the price of doing business in Texas.

Ex-employees place the number of Gtech personnel who were hired solely because of their political connections from "dozens" upward to 100 -- and that's aside from the 100 or so hires made by the Texas Lottery Commission, the state's end of lottery operations headed by Nora Linares, a former legislative aide to Sharp.

Recommending friends for jobs has surely been a perquisite of politicians ever since humans invented government, but in this case the hires were made by a company subject to regulation by the office of the elected official doing the recommending. And some former Gtech employees are now claiming that at least a few of the political operatives hired by Gtech did nothing for their paychecks, and that the larding of the company's Texas payroll with political operatives cost both Gtech and the state in lost revenue.

During several of Gtech's early orientation sessions, Logans encountered Bill Glen, the corporation's human resources chief out of Rhode Island. Glen, according to Logans, fumed about having to hire so many people because they had been recommended by Texas politicians. He made no effort to hide his disgust.

"He said that Texas was the worst he had ever been in," recounts Logans. "That in other states they'd had to do this kind of thing but never had it been like this. That the numbers were outrageous. That Texas had more political hires than any other state they'd ever had to deal with." In addition to Sharp's, the other name Logans recalls hearing most frequently in connection with the political hires was that of Ben Barnes.

Barnes is the former Texas lieutenant governor and heavyweight Capitol lobbyist whose political career evaporated when he became entangled in the Sharpstown scandal 25 years ago. Gtech hired Barnes and his partner Ricky Knox to help it win one of the largest contracts the state of Texas ever signed with a private company. In return, their contracts entitled them to 4 percent of the company's Texas revenues, minus some expenses, as long as Gtech holds the contract.

Both Barnes' daughter Amy and his former executive secretary were enlisted in the new Gtech brigade. With the help of Barnes (who did not respond to a request for an interview for this story) and the approval of a Sharp-supervised evaluation team, Gtech beat out a single rival, Minneapolis-based Control Data. The pact guaranteed the company nearly a quarter of a billion dollars by 1997 for launching and running the biggest lottery operation it had yet attempted.

And by almost any accounting, the Texas lottery has been a smashing success. From day one, in late May 1992, when the lottery sold 23 million tickets, to last year, when it grossed more than $2 billion and generated nearly $900 million in state revenue, what was a hot political potato in the abstract has become a real live golden goose that few lawmakers want to tinker with. Because Texans bit so greedily into the lottery apple so quickly, and the revenues exceeded expectations, few have questioned the management of the lottery or the hiring methods of those who operate and supervise it. Only now, as some of the political hires made in the spring of 1992 have been either fired or laid off, have critics begun to emerge.  

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.

An FBI spokesman issued the agency's standard refusal to confirm or deny that an investigation is in progress. What the FBI is trying to gather in Texas, according to sources who have been interviewed by agents, is evidence of cash or favors supplied directly by Gtech officials or lobbyists to lawmakers and other officials in connection with both the Legislature's approval of the lottery and the granting or the supervision of the state contract to operate it. The issue of political hires is not the focus of the investigation. "That is not high on my list of priorities," says FBI agent Mike Anderson, who has interviewed several of the onetime Gtech employees quoted in this article. Deputy comptroller Greg Hartman says he's aware an investigation by the FBI is under way, but he does not believe the agency is examining the actions of Sharp and his staff.

Back in 1992, J. David Smith was just a faceless, alluring voice on the phone to Democratic activists in Texas.

"You have been recommended by John Sharp and Nora Linares for a job," was Smith's blunt but pleasing announcement. Sometimes Smith's pitch line credited "Ann Richards and John Sharp" with recommending the person he was calling. "Are you interested?" Smith would inquire. In most cases, they were.

Among those whom Smith called was Lynda Phillips of Tyler, a member of the State Democratic Executive Committee and a political ally of Sharp. Phillips indeed was interested. She went to Austin not knowing if she had a job, and had no time to give notice to her superior at the state Department of Human Services before she signed on with Gtech, was outfitted with a salary and a new company Buick, and told to go back home and await further instructions.

Beaumont's Betty Smith had to come off disability to take her $40,000-plus position with Gtech, and she insisted that she be allowed to work out of her home at district manager salary. No matter that Beaumont, a small market by lottery standards, was in fact an outlying precinct of the Houston district. Smith was a key member of the Texas Coalition of Black Democrats, a group closely aligned with Sharp. Her home became her office and a storage area for lottery tickets and paraphernalia. One Houston field marketing coordinator who visited her there found little evidence of lottery activity, but plenty of signed photos on the walls from a plethora of Democratic politicians. On at least two occasions, Houston sales representatives say they were commandeered to take Smith grocery shopping or to the pharmacy for her medicines.

Betty Smith declined to comment for this story, except to confirm that J. David Smith had made her a job offer on the telephone. She says her relationship with Gtech, which ended in her dismissal less than a year later, has legal ramifications, and she referred questions to her lawyer son, who did not return a phone inquiry.

J. David Smith's calling list also included Houston's Doris Hubbard, who runs a potent Democratic political organization based in the Acres Homes community in the northwest part of town.

"Doris never went through any application process," recalls Tom Logans, who was Hubbard's supervisor in Houston. "David Smith would call the individual and say, 'You've been highly recommended by John Sharp and Ann Richards to work for Gtech.' Doris said he called her and said, 'What kind of job would you want?' She says, 'What kind of job do you have?' He says, 'We've got sales rep,' and she says, 'No, I don't want that. That's too much work.' He says, 'Oh, we got us a sales rep supervisor.' She asks, 'What does he do?' and then she says, 'That sounds fine, but what does it pay?'"  

Logans, who applied for his job through the employment agency Gtech used, Enterprise Advisory Services Inc., shakes his head in bemusement. "I've never had an opportunity to get a job that way!" But Logans says that Hubbard, who declined to comment on-the-record for this story, performed satisfactorily during his tenure.

Robert Rendine, a Gtech spokesman in Rhode Island to whom inquiries to the company's Austin office were referred, denies that Gtech hires employees to win favor with politicians in the states where it operates.

"We routinely get references for lots of people [but] Gtech hires for itself, period," he says. "We don't hire at anybody's request."

As for particular cases like that of Beaumont's Smith, Rendine replies: "I don't know Betty Smith, and we don't explain why we hire people, except that we hire people we think are going to do a good job for Gtech."

After returning from Austin to direct the start of the lottery in Houston, Logans found that the "greenies" were a source of both humor and anger to other Gtech workers, and employees with political connections were the rule rather than the exception.

"[People] would laugh and say, 'I've got another 'Gtech Opportunity to Excel,' meaning that they are sending us another political hire," Logans says.

The issue of Betty Smith was a continuing irritation, says Logans. "Bill Glen had made her a district manager for Beaumont, but there was no Beaumont district. She wanted a private office, phone, fax. The whole works, to set up in Beaumont."

"That's when I started thinking," recalls Logans, "what have I got myself into?"

It wasn't just the political hires that made him wary, Logans says. As he quickly found out, race was also an issue in Gtech's staffing. He recalls an unsettling conversation with a representative of Enterprise Advisory Services Inc. (EASI), the minority-owned personnel company with Democratic ties that was hired by Gtech to help build the start-up staff.

"She says, 'The Houston district is going to be loaded with blacks. I wasn't able to place blacks anywhere else. You're the black manager, supervisors are black, the manager of technical services is black, so the whole district is basically black as far as management and most of the employees.' That was the first indication I had of any kind of racial stuff."

From the beginning, Logans says, the Houston district had a racial imbalance, with few Hispanic or Asian sales representatives in a district with heavy populations of both ethnicities.

"As far as politicals during the start-up, all these individuals happened to be black. From my viewpoint [as a sales manager trying to create a diverse staff], my ethnic mix was getting worse," Logans says.

Logans soon found that Houston, although it was the lottery's biggest district, was on the same staffing level as the much smaller Austin operation. He says that a Gtech sales officer for the Austin area explained to him that "the reason he got so many political hires was because people who wanted to work for Gtech refused to leave Austin. So they had to hire them in Austin. That's why he was way up there at 22 sales reps." Houston at the time had an equal number, with many more retailer routes to service. The Houston district was the largest on the lottery map and provides about one-third of the revenue for the state.

"So people in Austin were finishing their routes at 10 a.m., noon, and my people were working till 6 p.m., 8 p.m.," says Logans. "They had too many accounts. People might have had a bad attitude about banishment to Houston, and given the situation I can't blame 'em."

Logans says several of the political hires directly under him, particularly Hubbard, were on the outs with his Gtech superiors almost from the day they were hired. It was clear, he says, that while Gtech had hired the politicians' favorites, they were not held in high regard by the corporate managers.

A former Gtech marketing coordinator, Cindy Crowell, confirms Logans' comments. She says Gtech's state training manager at the time briefed her on the situation. According to Crowell, "There was a list of people that Gtech had been given by the state, saying, 'You've got to give these people jobs.' They said, 'These are all our friends. These are the people you've got to take care of. And they kept calling, saying, 'What about this person. Can you find something for this person?'"  

Crowell says that Gtech officials drew the line after the lottery was transferred last year from Sharp's overview to that of the Lottery Commission, a move that was planned at the outset of the lottery.

"It was told to me at that time that, yeah, we were going to wait a certain period of time, but within a couple months of the transfer they were going to start getting rid of those people, the political hires that weren't able to do their job, and anybody who had been hired who could actually perform their job, they'd look at them. But everybody else was going to be out of there. And since Gtech was looking to make cutbacks anyway, they'd be the first to go."

While Gtech was committed to hiring Texans for 95 percent of its work force, in its downsizing the casualties all seemed to be locals, says Logans.

Logans says that Gtech officials in Austin also seemed reluctant to implement programs that would document the problems in servicing retailers in Houston. The agreement between Gtech and the state requires that retailers be serviced every two weeks. It also imposes penalties on the lottery operator if the retailers are not serviced on time. Logans claims that had the Houston operation been monitored competently, Gtech would have had to pay plenty.

"What was happening is that since I did not have enough employees to cover all these people," says the former district manager, "they were not really seeing all these retailers when they were supposed to."

Gtech has forfeited more than $1.8 million to the state in penalties since the lottery started, but $1.47 million of that has been for lottery computer downtime. Most of the remainder has been for failure to deliver lottery tickets in a timely fashion.

Deputy comptroller Hartman says the relationship between Sharp's office and Gtech "was not the most rosy thing in the world."

"I know, when we about gave over the lottery, we had issued and assessed more liquidated damages against Gtech than any other state lottery in the nation. The total we assessed was like $2.3 million. I think we settled for a smaller number."

But Logans contends the comptroller's office never learned of a significant number of contract violations in Houston. He says the supervisory staff in his office actually designed a computer program to monitor how often the retailers were visited and it was clear that the violations were occurring on a wider scale than just Houston, and that they were not being reported to the state, which would have then penalized Gtech.

"We weren't servicing people the way we were supposed to, and Gtech wasn't paying fines to the state like they were supposed to for lost revenue. They had the computer capacity to do this from the beginning. It was something they didn't have an incentive to do." Logans says the computer program was eventually ditched in Houston after he was dismissed.

Gtech spokesman Robert Rendine dismisses Logans' claims, suggesting that Logans is simply seeking revenge for his firing. "People say funny things when they've been fired for breaches of company policy," the spokesman says. "These types of comments are not unexpected in these situations."

(Logans was escorted out of his Houston office and dismissed a year after he was hired. Gtech officials accused him of taking approximately $800 in refunds on overpayments from a caterer hired for a Gtech Christmas Party in 1992. Logans denies the accusation and says he was ousted because he had raised too many questions about the company's procedures. One employee allegedly told Gtech a co-worker had given the money to Logans. According to Logans' lawyer, Rodney Brisco, the second worker has now repudiated an unsigned statement implicating Logans. Rendine refuses to comment on the dismissal other than to claim it was for serious breach of company policy. In any case, no charges were ever filed against Logans.)

Tom Hicks, another former Gtech employee, backs Logans' statements about the lottery operations in the Houston area.

"Right from the opening of the lottery it was blundered. We had approximately 2,800 retailers in the Houston district. It was obvious that retailers were not being serviced. Retailers called us, called the state lottery. We were finding retailers not on routes, retailers on routes not being serviced."

The mismanagement was widespread and cost the state money, Hicks contends. "It just amazed me to watch a company lose millions of dollars for their client and know they were doing it and do nothing about it," he says. "They were supposed to be monitoring every individual retailer from their computer in Austin to find out if that retailer was being visited and serviced. They never did that. They would install stuff that never did anything. They had the lights but none of the electronics behind it."  

Gtech spokesman Rendine replies: "We undergo very serious and comprehensive oversight on a contractual basis. We live by that. I have no idea who Mr. Hicks is or what he's talking about. We stand by our contractual obligations."

Toward the end of his employment, Hicks says Gtech officials Larry King and Diedre Spencer questioned him about the situation in Houston. "They asked me why people were saying the job wasn't being done right. I explained to them that you have the responsibility of visiting these retailers and facilitating them to do their job right and sell as many tickets as possible so that the revenue goes to the state and the state pays them. Half the people we have are political hires and think they don't have to work. We had people who did absolutely nothing who got paid for it. And it was costing this company and the state government millions of dollars."

Hicks was eventually dropped from the company roster, going on disability for a back injury he incurred at a warehouse. He was also involved in a traffic accident in which a company van he was driving was broadsided by another vehicle. Like Logans, he claims his dismissal was really provoked by his outspokenness about the lottery problems in Houston. Like Logans, he has retained Houston lawyer Rodney Brisco, but has not filed suit against Gtech.

Brisco, who also represents a third former Gtech worker, accuses the lottery giant of operating with "an apparent feeling of immunity."

"They seem to act in a manner consistent with the belief that they are above the law," adds the lawyer. "Maybe they feel that way because of their connections to government in states and countries around the world."

Gtech spokesman Rendine says he's confident Logans' comments and lawsuit will be discredited.

"As you know, there's litigation involved in that," Rendine says. "I can only tell you that he was dismissed for serious breach of company policy. Unfortunately, while I would like to tell you the very serious reason, I'm forbidden because of legal action in this matter."

John Sharp chose not to make himself available for an interview, but a spokesman, Andy Welch, initially denied that Sharp's office provided Gtech with lists of recommended hires. After Welch was apprised of some of the statements by Sharp political allies who were offered jobs, he presented a slightly different version of events, saying that since Gtech was unfamiliar with the lay of the land in Texas, Sharp had suggested some people who might be interested in working for the company and said, "If you wanna go find 'em, find 'em. If you want to hire them, hire them."

Deputy comptroller Hartman agrees that the job bonanza provided Sharp's office with a chance to make some friends happy, but says the hirings certainly weren't required of Gtech.

"It wasn't like we said, 'J. David, you gotta hire these people. Here's a company that's hiring a lot of people, and was actually kind of saying, 'We need names, we need to hire people, do you know good people?' And we were trying to take advantage of it and trying to send names over for them to hire."

Hartman says the comptroller is not responsible if some of the resumes turned out to be those of political activists unqualified for their jobs.

"It would be Gtech's mistake to hire people who can't do the job," says Hartman. "If they hired somebody it wasn't with state funds. It's their responsibility to run a good operation. If they want to waste money or do whatever they want, as long as the state is getting good service and the product it demands." Sharp, says Hartman, was satisfied that the company performed at that level.

Texas Lottery Commission spokesman Steve Levine acknowledges that officials with his agency also forwarded names of prospective employees to Gtech. "Obviously," says Levine, "if we suggested to Gtech that they might want to talk to people it would sort of make sense that they said, 'Nora said' or 'John said.' There's no question that we recommended people. It would be silly to think otherwise."

It might also be silly to think that J. David Smith, the political point man for Gtech, would make personal hiring calls around the state just to round up qualified workers for the lottery.  

The jackpot ran out quickly for at least some of the early winners in the Texas lottery job sweepstakes.

Lynda Phillips, the Democratic activist from Tyler, was dismissed last year from her position as a Gtech district manager in another alleged instance of "breach of company policy." She has since taken a job with Land Commissioner Garry Mauro's office. Doris Hubbard is on disability from Gtech and running her Acres Homes political operation. Pat Ford is one of seven women who filed suit in Austin against Gtech after her promotions job was phased out last year. Three have since settled their cases. Non-political hire Tom Logans works at a building maintenance company in Houston, and his federal lawsuit against Gtech is now in the deposition stage. His onetime colleague Tom Hicks remains unemployed.

John Sharp, meanwhile, is flying high in the first year of his second term as state comptroller, having been easily re-elected last year while Ann Richards was ousted by George Bush.

And Gtech just keeps rolling along in Texas, having won another contract almost as big as the lottery -- this one for the electronic system to automate food stamps with Texas grocers. Transactive Corp., a Gtech subsidiary, surprised industry observers by edging out more established competition, and now runs the electronic card program. And if Transactive needs some more workers, the comptroller's office doesn't want to be left out.

"If Transactive were to say we gotta hire 10 people in Houston and if I knew somebody who needed a job in Houston," says deputy comptroller Hartman, "I'd say, 'Hey, call this person up. They're hiring!'

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