Court Ruling Endangers Lottery Ticket Supply

SACRAMENTO —  A court ruling apparently left the state lottery without a ticket supplier Tuesday, as a senator told the lottery director some lawmakers are angry about his handling of the ticket contract.

An arbitrator appointed by a Georgia court ruled that California tickets cannot be printed in Scientific Games’ idle Gilroy, Calif., plant, which lottery officials said will force the state to cancel its contract with the company and immediately go out to bid.

Court-appointed arbitrators recently found that Georgia-based Scientific Games’ sole printing subcontractor, Dittler Brothers Inc. of Atlanta, Ga., had fraudulently overcharged for ticket materials. Lottery officials said the finding precludes any further role for Dittler in the games.

Contract Modification

Scientific Games had asked the court to modify the company’s exclusive contract with Dittler in order to let Scientific Games use its own Gilroy plant.

But arbitrator Ralph Levy, who was appointed by Fulton County Superior Court Judge Osgood Williams, denied Scientific Games’ emergency motion Tuesday, said company spokesman Robert Mote.

Lottery Director Mark Michalko said he would break the contract with Scientific Games and seek bids on a new contract unless Scientific Games won a favorable ruling this week.

Although the lottery has enough tickets on hand to keep the games going for now, swift action is needed to avert a forthcoming shortage, said lottery spokesman Bob Taylor.

Scientific Games sponsored the 1984 initiative that launched the California lottery. The firm then won the first big contract let by the state, a $40-million pact to print tickets for the instant “scratch off” game. Last month, the company won a six-month contract extension worth $16 million to $20 million. It is the money remaining on that agreement, estimated at $32 million, that is in jeopardy.

Scientific Games officials said they hope, with the blessing of a court, to bid for the new contract. The company recently gained permission to bid on a contract in Pennsylvania without involvement of its subcontractor.

‘Anger and Frustration’

State Sen. Ralph Dills (D-Gardena) told Michalko during a legislative oversight hearing that there was “anger and frustration” on the part of lawmakers over Michalko’s handling of the contract, which Dills said left the state vulnerable to a lawsuit.

One of the two involved companies, Scientific Games, plans no lawsuits, however.

Company spokesman Mote said that “there are no grounds for a suit because the state has an absolute right to terminate a contract for its own convenience,” subject to certain notice and reimbursement requirements.

Dills indicated that some of the criticism from lawmakers stems from the lottery’s failing to heed the advice of the Senate.

The hearing came little more than a month after lottery officials ignored a formal plea from the state Senate against a six-month extension on the contract with Scientific Games.