Behind the Lines: Podcast 
You Lose Again!
Once upon a time, the Texas lottery was the most successful in the world. Then the politicians got hold of it. The rest—and the lottery’s rosy future—is history.
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The genie that the Smith trial let out of the bottle was GTECH’s business practices, which could not stand the inspection they were about to get. Week after week, and sometimes day after day, Texas newspapers prominently featured negative stories about the state’s lottery contractor. By the time the revelations had run their course in the spring of 1997, the three-member lottery commission had voted to fire Nora Linares, the agency’s highly regarded executive director, and the commission had started the process of rebidding GTECH’s contract to run the games. The first revelation was among the most damaging: Smith had a contract with GTECH’s chief Texas lobbyist that at first glance seemed similar to his kickback arrangement in New Jersey. The lobbyist was none other than a former lieutenant governor of Texas, Ben Barnes, whose controversial career has made him a lightning rod for media scrutiny.
Barnes, now 59, had been Speaker of the House at 26, lieutenant governor at 30. Lyndon Johnson had predicted that he would become president of the United States. His career was torpedoed by the 1971 Sharpstown Scandal, which revolved around banking legislation sought by a Houston developer and gifts of bank stock to politicians, including the governor and Speaker of the House. No evidence ever linked Barnes to the scandal, and it is close to a certainty that he was not involved, but when he ran for governor the next year, he didn’t even make the Democratic runoff. Branded for life in politics, he became a professional wheeler-dealer, his most ambitious fling being his real estate partnership with John Connally, which ended in bankruptcy. After that fiasco, he landed the lobbying contracts for two megadeals, first a Texas bullet train, then the lottery, which he helped pass in 1991. Barnes’s emergence as a lobbyist was rather amazing, since he was long out of politics and wouldn’t have recognized most legislators if he had shared an elevator with them. But he understood a fundamental truth about lobbying: It doesn’t matter how well you lobby the Legislature; it only matters how well you lobby your client. Plus, he understood big deals, and the lottery was a big deal for Ben Barnes. So big, in fact, that his involvement alone was enough to turn a New Jersey story into a Texas story.
In the summer of 1992, after Smith began talking about going out on his own, GTECH had taken the unusual step of suspending its conflict of interest rules to allow Smith to make side deals. The next day, Smith and Barnes signed a contract. Out of every $3 Barnes received from GTECH as a lobbyist, he would pay Smith $1. In return, Smith would try to get new business deals for Barnes. To federal prosecutors in New Jersey, this seemed like another kickback scheme. But there were crucial differences. Barnes didn’t work under Smith, nor did he owe his GTECH employment to him. Barnes had a personal friendship with GTECH CEO Guy Snowden, who had found Barnes through their mutual contacts with the Bass interests in Fort Worth. (The Basses had loaned Snowden and his co-founders $200,000 to start GTECH in the early eighties; that investment earned them $40 million.) Nor was there any reason to believe that the arrangement between Smith and Barnes, however peculiar, wasn’t legitimate. Smith knew the gambling business in every state; a referral from him could lead to the big play Barnes is always on the lookout for. (The judge in Smith’s trial recently forced prosecutors to apologize to Barnes for disclosing grand jury information about him in Smith’s presentencing report.)
The next revelation was the size of Barnes’s lobbying contract, which was divided with an associate: $25,000 a month, plus four cents out of every dollar earned by GTECH in Texas after expenses, as much as $3.2 million in a single year. No one was more dumbfounded than Barnes’s cohorts in the lobby. “It’s as if everyone is driving Model T automobiles,” one told the Dallas Morning News, “and a spaceship lands from Mars. It’s a standard beyond what people even dream about.”
Even before the Barnes stories, GTECH had been no stranger to controversy in Texas. While it was still in a bidding war for the state’s lottery contract in the early nineties, consultants for its opponent (now known as Automated Wagering International, or AWI), assembled a book of unfavorable news clippings from other states about GTECH. Today, GTECH, its contract in Texas in jeopardy, does the same to AWI. It is hard for the public to tell what is just smoke, like the Barnes-Smith contract, and what is a smoking gun. During GTECH’s run of bad press in Texas, story after story detailed how many influential lobbyists GTECH had hired; what they didn’t say was that any company that is fighting for a nine-digit contract and doesn’t hire lobbyists is bringing a knife to a gunfight. Nor did anyone other than GTECH point out that none of the stories impugned GTECH’s handling of the operation of the lottery itself, which was, by all accounts, close to flawless.
The Barnes contract was made more controversial just because it involved Barnes. Republicans in particular were outraged. They had always been suspicious that the lottery was a Democratic playpen. Governor Ann Richards had endorsed it; Comptroller John Sharp had overseen it; Sharp had picked Linares, his own employee, to regulate it; and the lottery’s lucrative advertising contract had gone to GSD&M, whose “S,” Roy Spence, had handled the advertising for Walter Mondale’s 1984 presidential race. Now here was Barnes, a generous giver to national Democratic campaigns, getting $3.2 million in one year. “I think we have a gigantic problem, and it needs to be fixed,” said House GOP leader Tom Craddick of Midland. “We have got to see what kind of vendors we have got out there that allow a lobbyist to make $3.2 million a year.” By the end of 1996, as more stories about GTECH’s operations made the papers and the 1997 legislative session loomed just ahead, it was clear that the lottery wasn’t just entertainment anymore. It was politics.
WHAT WAS IN STORE FOR THE LOTTERY at the Capitol became evident at the first Senate hearing on the lottery commission’s budget in January 1997. The absence of any of the three appointed lottery commissioners had senators in a foul mood. Finance Committee chairman Bill Ratliff (R-Mount Pleasant), an uncompromising foe of the lottery, criticized a TV spot that showed an overjoyed winner jumping on a bed in glee. “[W]e are encouraging people to believe that you too can be a millionaire through the lottery,” Ratliff said. That, of course, is what a lottery does; the only way not to encourage it is not to have a lottery. Interim director Zoann Attwood, who had replaced Linares, could only reply, “I’m not sure exactly how you can promote a lottery without advertising it.”
The assault continued in the House. Rob Junell (D-San Angelo), the chairman of the Appropriations Committee, compared Scratchman to Joe Camel, an attempt to get kids hooked. Another House member said that there was no need to increase the advertising budget because the lottery had been around for five years and everybody knew about it by now. Very smart. Tell that to Coca-Cola. When the lottery’s marketing director warned the committee that sales would surely drop, she was berated for lecturing them and wagging her finger. In the end, the Legislature cut the two-year advertising allowance by $12 million, or 13 percent. The lottery commission decided to retire Scratchman rather than risk Junell’s wrath.
The effect of these decisions was devastating. Texas is an expensive state in which to run a statewide advertising campaign. It has twenty “designated marketing areas,” more than any other state. Dallas and Houston are extremely expensive buys. Now there would be fewer dollars to go around. Scratchman was a money-saver; Scratchman spots were cheap to produce and, because he was such a recognizable icon, had to run fewer times to get the message across. Still worse, GSD&M’s upcoming campaigns were based on Scratchman. Now the firm had to start from scratch, as it were, to create new spots and a new strategy, a process that takes months to develop, during which the lottery would be without marketing. Indeed, no lottery ad appeared on television between mid-May and November.
But the Legislature wasn’t through messing with Texas’ lottery. It needed additional revenue to offset the school property tax cuts promised by Governor Bush. At one point a committee voted to slap a sales tax on lottery tickets. Instead, budget writers decided to lower the percentage of each dollar that went for prizes, from 57 percent to 53 percent, raising the state’s share from 31 percent to 35 percent. (The remaining 12 percent goes to run the lottery and to retail ticket outlets.) The payout for new scratch-off games will go as low as 50 percent. You Lose Again!
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