Numbers game: looking inside the great Lotto machine meltdown

After racking up losses of €43 million, Greek gaming giant Intralot last year pulled the plugged on a pretty disastrous foray into running part of the state lottery in Victoria, Australia.

It had been granted a 10-year “category two” licence in 2007 to sell scratch cards, bingo tickets and Keno, a popular draw-based game, through about 500 outlets across the state. The Athens-based company now claims, however, it was sold a pup.

It blames its losses on the exclusive arrangement that rival Tattersalls, which operates the other part of the Victoria lottery licence, had with retail agents to control prime position in shops for its products.

Whether this is spin or legitimate gripe is open to conjecture. As a parting shot, Intralot filed a legal claim with Victoria’s supreme court to recover its losses, plus the costs of participating in the tender process and damages.

The episode is worth noting for two reasons. First, Intralot is now playing a central role in the running of the Irish lottery, albeit as technology supplier rather than operator. Second, it shows that privatisation, hailed by the industry and the Irish Government as providing a win-win scenario for state and operator, is far from a sure thing, to use a betting cliché.

In terms of generating better outcomes for the state, it is yielding, at best, mixed results, judging from other jurisdictions.

In the US, Illinois recently fired its private manager Northstar, a consortium involving former Irish technology supplier Gtech, for failing to deliver expected revenues. The same consortium may be fined for missing sales targets in Indiana.

When the National Lottery here went into meltdown mode last week, questions about the Government's decision to privatise the franchise, which had been largely put to bed, resurfaced.

Operator Premier Lotteries Ireland (PLI) had already been under fire over its new technology before it was forced to postpone Wednesday's €10 million draw in the face of a near complete systems crash – which was unprecedented in the Lotto's 28-year history.

Under pressure

Now it is under pressure to prove privatisation has not cheapened the brand and that the technical infrastructure underpinning the franchise is up to scratch.

PLI remains adamant the systems crash was entirely down to an outage at Telefónica, hired as the lottery’s telecoms provider through a third party in the UK known as WestBase.

However, industry sources suggest there is more to the tale than a wireless network going down and that the lottery’s new technology platform may have added to the problem in some way. PLI has promised the National Lottery regulator a full report.

Prior to the incident, retailers had already been unhappy about the lottery’s roll-out of new ticket terminals, supplied by Intralot, which were said to be plagued with glitches and prone to crashing during transactions.

Intralot's chief operating officer Nikos Nikolakopoulos tells The Irish Times that the company's patented Photon ticket terminals, which use high-spec cameras instead of scanners, are being successfully used in 10 lotteries across Europe, the US and Asia.

“There are no problems with the machines other than the normal teething problems of every operation. The system is robust and provides full redundancy should any one element fail,” he says.

“The only issues that PLI has tackled are related with connectivity that has nothing to do with the system.”

Successful transition

Barring a few minor technical snags, Nikolakopoulos says the Irish transition had been a marked success given the scale of the task.

“In this context, it is important to highlight the scale of what has been achieved - this was a very successful transition involving the installation of 20,000 pieces of equipment in 3,700 retail outlets across Ireland,” he says.

“More than 72 million plays have been made on the Intralot system since it began on November 30th last and 98 per cent of all transactions on the system have been completed within three seconds.”

On top of the 3,700 new ticket terminals, Intralot has supplied the Irish lottery with new gaming software and an updated web platform.

The financial terms of its contract with PLI have not been disclosed, but it is understood to be nowhere near as large as the arrangement with former supplier Gtech, which was reckoned to be about €15 million-€17 million a year.

That said, the company is not supplying the same range of services as Gtech did, and so a simple comparison is perhaps unfair.

Intralot is one of the largest gaming companies in the world, operating as a technology supplier or operator in 57 jurisdictions.

The company, now one the heavyweights of the decimated Greek bourse, boasts an annual turnover of €2.1 billion.

It was founded by controversial Greek telecoms and gaming magnate Socrates Kokkalis in 1992. Kokkalis, formerly owner and chairman of Greek football club Olympiacos, was the subject of a major spying investigation in 2002 over alleged links to East Germany’s Stasi, the communist state’s feared secret police. He was never charged.

The company, however, never seems to be far from controversy. In 2010, it was ejected from the tender process for the Illinois lottery – one of the most lucrative in the world with nearly $3 billion in annual sales – at the first stage, a decision that erupted in recrimination and a prolonged legal battle.

The firm handling the probity checks on behalf of Illinois claimed in a leaked report that Intralot’sKokkalis and chief executive Constantinos Antonopoulos had been indicted on several occasions for alleged money-laundering, fraud, embezzlement, bribery, misleading investors and even espionage in the case of Kokkalis.

Smear campaign

Intralot sources, however, insisted the accusations were unfounded and were merely part of smear campaign by rivals.

Perhaps the most salacious titbit about the company relates to Stamatina (Tania) Marmara, wife of former Intralot official Giorgos Salonikis, who is alleged to have cashed in lottery winnings amounting to €7.5 million at various stages between 2003 and 2005.

Again company sources say Marmara was never indicted for any wrongdoing and consequently there is no basis for the allegations against her or Salonikis, who has since left the company.

Company insiders say tender processes are typically subject to rigorous financial and legal probity checks of all applicants, its shareholders and key personnel, and that Intralot’s recent successes demonstrate its high standards.

The big money involved in lottery contracts has prompted a blurring of the line between technology supplier and operator. Intralot has different roles depending on the jurisdiction. “We consider this one of our key competitive advantages as we understand the needs of an operator and can meet them effectively as a provider,” Nikolakopoulos says.

The company appears to be tight with UK operator Camelot, which is owned by Ontario Teachers’ Pension Plan. The latter provided the majority of the cash for the €405 million outlay for the Irish licence.

“As far as our co-operation with Camelot is concerned, we examine potential projects on a case-by-case basis,” Nikolakopoulos says.

Nevertheless, observers suggest the pairing is likely to have a tilt at the forthcoming tenders in the US, provided, of course, the Irish equation does not end in divorce.