The D.C. Council dodges questions about sports betting

By Jeffrey Anderson

With the future of digitized lottery games and mobile sports betting on the line, one might expect total transparency from a global vendor about to receive a lucrative sole source contract to operate the D.C. Lottery.

Or at least scrutiny from the legislative body set to waive the entire procurement code to enable the District to start raking in revenue from sports betting as soon as possible.

Such is not the case in the District of Columbia, however, where a sharply divided D.C. Council is reconciling a negative cash-flow rating of Greece-based lottery operator Intralot, with a letter this week from the lottery’s Executive Director Beth Bresnahan that vouches for the company’s  “financial ability to meet its obligations to the [D.C.] Lottery.”

Last Friday, District Dig reported on a financial ratings downgrade of Intralot compliments of Moody’s Investors Services, which just last year bestowed D.C. with a coveted Aaa rating. (According to Moody’s, Intralot’s financial rating is the weakest of the three companies equipped to run a revamped lottery.)

The revelation, first announced on Twitter by Washington Post columnist Colbert King, prompted a letter to Bresnahan on February 9 from Intralot CEO Antonios Kerastaris to “provide additional clarity and context” to the firm’s financial results from 2018.

Bresnahan recycled that into a February 11 letter to Council Chair Phil Mendelson to “address recent concerns raised about Intralot’s financial condition.”

Despite such a swift reaction by the lottery director, members of the Council, which voted 7-6 last week to approve the waiver, were reticent to say whether they even knew about the Moody’s rating prior to the vote.

After receiving just one response from the 13 members since last Friday–an email from a spokesperson for At-Large Councilmember Robert White, who did not know about the ratings dip prior to voting against the proposal–The Dig trudged down to the John A. Wilson Building in search of answers.

When pressed, almost all of the members said they were not aware of the Moody’s report prior to last week’s vote–Ward 3 Councilmember Mary Cheh has not responded to questions–and almost none had anything to say about the matter.

One exception was At-Large Councilmember Anita Bonds, a proponent of the procurement waiver who was not surprised to hear of Intralot’s ratings downgrade. Having been briefed by Chief Financial Officer Jeffrey DeWitt–whose name does not appear on the letter from Bresnahan to the Council–Bonds said that Intralot has made significant expenditures in its efforts to compete for gaming contracts all over the U.S., straining cash flow and driving down its financial ratings.

Intralot’s ratings downgrade also reflects the contrast  between its international and U.S.-based business portfolio, according to Moody’s, and the other major ratings services, Fitch’s and S&P Global. (The latter two also forecast negative cash flows for Intralot into 2020.)

In its letter to Bresnahan, Intralot says that it is focused on expanding its lottery presence while breaking into the sports betting business in the U.S. According to its CEO, Kerastaris, “Footprint rebalancing is geared toward strengthening Intralot’s presence in the United States while at the same time disinvesting from selected emerging markets.”

“This is a well-designed strategic move that creates better income quality, revenue visibility and is consistent with our strategy for long-term value creation,” he continues. “It is this geographical reshuffling strategy that has triggered the anticipated ratings agencies’ technical reaction.”

Kerastaris points out the acknowledgement by Moody’s that his firm is a leading supplier of integrated gaming systems with 87 contracts and licenses in 50 jurisdictions. And he touts recent contract renewals in Wyoming, New Hampshire and New Mexico, and new contracts in Illinois, Germany, the Netherlands and Croatia.

Bresnahan says in her letter to the Council that contract renewals in Arkansas and Ohio also signal “the confidence of the marketplace in Intralot’s business strategy.”

But while Bresnahan assures the Council that Intralot has been transparent in its ability to meet its obligations to the lottery, she doesn’t actually say whether the company disclosed the ratings downgrade by Moody’s (and the other top two ratings services).

In fact, last Friday, several hours after The Dig posted its story about Moody’s, the OCFO spokesman David Umansky released a statement that read in part: “Recent concerns about Intralot’s financial ability to meet its obligations to the Lottery were discussed as part of this process and were satisfactorily addressed by Intralot’s leadership. The Lottery received assurances that the company is financially viable and able to meet its contractual obligations. The Lottery has requested that Intralot formally provide in writing, information about their financial position and ongoing viability…”

Besides appearing to have been caught flat-footed, the OCFO might be indulging in a level of satisfaction that is not supported by Intralot’s standing in the industry, or the actual value of what they are proposing.

Seasoned observers wonder whether, given its weak cash flow, and the urgency of its pitch to the District, Intralot needs D.C. more than D.C. needs Intralot.  

The Dig spoke with veteran investors, a gaming industry analyst and a former sports book maker who question the outlook Intralot is pitching.

“Intralot doesn’t have much of a presence as a sports betting operator in the United States,” says Dustin Gouker, a former reporter with Legal Sports Report, a leader in online sports betting coverage. “I don’t think they can return the kind of revenue they are promising.”

According to Gouker, who now manages a portfolio of websites focused on legal online gambling, sports betting and fantasy sports, Intralot’s value is inextricably tied to its standing as a lottery operator. “It would be nobody’s first choice in the United States to operate sports betting,” he says. “It’s strange to say the least.”

Echoing Gouker’s observation,, a casino review site that offers industry news, guidance, advice and tips,  writes that Intralot is planning to use a “high-hold sports betting model” that will return 70-80 percent to the customer, rather than the 95 percent that Las Vega offers. “Using this model, it will be impossible to offer customers competitive odds,” the site has reported.  

Experienced sports book makers take a dim view of the company’s strategy. “Intralot might have experience with sports betting in other parts of the world, but the U.S. market is unique,” says one former sports book maker who requested anonymity in order to speak freely. “They suggested a percentage that is unreal for this market. People across the industry are laughing at them for suggesting this.”  

In pressing their case, Intralot and Bresnahan emphasize a newly acquired contract in Illinois to illustrate the company’s  momentum. But observers have noted that Camelot Illinois attained that contract without bidding, and then brought Intralot in to provide a gaming system and equipment for the state’s 8,000 realtors.

Just this week, Intralot lost its bid for sports betting in Turkey to a major international company with a U.S.-based sports betting portfolio, a firm that would be one of two other competitors should D.C. go out to bid. The loss in Turkey brought Intralot’s bond ratings that had risen, back down to where they had been, according to investors who are watching the market.

Detractors with a stake in the game in D.C. have pointed to Intralot’s position on the stock market, trading well below $1 a share, which is more than 20 times less than its competitors. More neutral observers say it is unclear whether stock value is a good measure for the District to consider. Even if it is, with no actual competition taking place, such comparisons are irrelevant for the time being.

Even comparative revenue assessments are difficult to evaluate. Intralot’s letter to Bresnahan includes a chart that shows “Intralot and Key Competitors Financials,” but it only shows data for FY2017.

“They at least could have given updated figures,” the  former sports bookie says.

As Intralot tries to shift its business from less stable foreign markets to the U.S., credit agencies are likely to note that near-term capital expenditures will continue to stress their liquidity, investors say. The big question is will it be able to secure the funds needed to roll out its new strategy, and how will it secure those additional funds?

Meantime, there is no sense that the Council is interested in answers, much less challenging Bresnahan’s regurgitation of Intralot’s pitch, or DeWitt’s judgment in lobbying for a procurement waiver for Intralot.

“I still think we are moving too quickly,” says At-Large Councilmember Elissa Silverman, who voted against the procurement waiver and was unaware of the Moody’s report. “I still would like to find out if there’s a way to capture sports betting revenue [in the near-term] and compete the lottery contract. My colleagues and the CFO are not interested in pursuing that approach.”


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