Twin River presentation to House Finance Committee (H 6266) OCTOBER - - PowerPoint PPT Presentation

Twin River presentation to House Finance Committee (H 6266)

OCTOBER 3RD, 2019

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Click to edit Master title style Discussion 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. 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

Click to edit Master title style The 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 style Critical provision of Rhode Island Law

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RIGL§42-61.2-1(2) Proposed Legislation

Click to edit Master title style IGT’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 style IGT 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

Click to edit Master title style Even 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

Click to edit Master title style The 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

• n 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 style IGT’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

Click to edit Master title style IGT’s machine performance is suffering throughout North America and IGT has fallen to third place in many categories

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Source: Eilers 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 style Discussion 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. 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

Click to edit Master title style The 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 13) (Please reference slide 14-15)

per year

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

Click to edit Master title style Among 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 style FY18 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 style Among RI’s comparable Lottery systems, RI has the highest fee, overpaying on average by 2x

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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

The peer group on average pays 2.4% for vendor fees (excl RI) – ~$6.7M lower than RI

Click to edit Master title style Administration selected West Virginia and Delaware as comparable to RI

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Central system vendor fee

$300M+ lower

• ver 20 years

$285M+ lower

• ver 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

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

Click to edit Master title style Using 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 style Lottery system vendor fee per retailer for comparable States

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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

Click to edit Master title style Discussion 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. 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

Click to edit Master title style Camelot/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 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



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 style

Camelot/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

• n 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
• f 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 style Camelot/Twin River partnership will deliver 1100 new RI jobs

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RI Lottery Contract Partner Operations TRWH National Growth New Development

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

• 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

• r 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 style

Camelot/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 style A winning partnership for Rhode Island

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• Over 20 years lottery industry

experience

• Experienced lottery operator and

manager, and technology company

• Corporate HQ in Chicago, with

centres of excellence in London, Dublin, Athens and Chicago

• Casino owner and

manager

• Rhode Island gaming

partner

• Lottery systems and technology
• 13 lottery technology contracts in

the US

• Converted

systems technology, retail networks and 19,000 retail location from IGT in at least four US jurisdictions

“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

• pen 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

Click to edit Master title style System 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 providers 7 conversions were done by Intralot, 6 by GTECH/IGT and 2 by Scientific Games

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 GTECH/IGT South Dakota Scientific Games GTECH/IGT Vermont Scientific Games Intralot West Virginia Scientific Games GTECH/IGT

Click to edit Master title style Discussion 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. 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

Click to edit Master title style Industry developments in bids

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➢ 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

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.

“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

• perations. 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

Click to edit Master title style Instant ticket weekly per capita sales comparison

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Source: Data provided by Scientific Games International Note: Rankings based out of 44 jurisdictions

Rhode Island Lottery significantly underperforms against New England State Lotteries and

• ther industry benchmarks –> Millions of dollars of lost opportunity for the State General Fund

Click to edit Master title style Discussion 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. 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

Click to edit Master title style Chronology surrounding employment obligation agreement

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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, 2003 Section 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, 2014 GTECH 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

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

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2003 Public Law/Master Contract Proposed Extension Economic Activity $70M new building investment in Providence No such new capital spend Jobs 1000 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% Presence of Competitive Bid No Yes Process Governor and Legislature engaged together Governor negotiated the deal in private without the legislature

Click to edit Master title style Twin River is more of a home team for Rhode Island

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TWIN RIVER MANAGEMENT GROUP IGT RI Employees ~2,500 1,007* New Jobs added in RI since 2010 ~1,500 Global Headquarters Providence, RI, USA London, UK Publicly traded on stock exchange YES AS U.S. COMPANY YES AS FOREIGN COMPANY *Per the joint submission by IGT and the Lottery (Aug 2019) According to the submission, 1007 includes 37 people with the title “Intern”