Is it time for Congressional review of D.C.’s sports betting gambit?
Words by Jeffrey Anderson ◊ Photograph by Traci Clever
When Congress established the District of Columbia Financial Control Board in 1995, it created the position of Chief Financial Officer, to be appointed by the Mayor, approved by the D.C. Council and subject to Congressional Review.
In 2006, well after the Control Board had become dormant, Congress approved a law that placed the D.C. Lottery under the purview of the Office of the Chief Financial Officer.
The mission of the OCFO as an independent agency is to enhance “fiscal and financial stability, accountability and integrity of the Government of the District of Columbia.”
Appointed in 2014 by then Mayor Vincent Gray to complete the term of his predecessor, and re-appointed by Mayor Muriel Bowser in 2017 for a full term through 2022, CFO Jeffrey DeWitt manages the District’s finances and its $13.8 billion budget, forecasts revenue, and interacts regularly with Wall Street ratings agencies.
DeWitt’s office also represents the District in the federal appropriations process, and coordinates with Congressional committees and the U.S. Office of Management and Budget staff that oversee District affairs.
So when Congress comes calling, as it did late last week, asking why he lobbied for an end run around contract procurement law to speed up the Lottery’s launch of sports betting, DeWitt can be expected to answer.
“Elected officials and appointed decision makers of the local and state government of our Nation’s Capital should strive to make the District a model for our nation,” wrote Rep. William Lacy Clay, a Democrat from Missouri who sits on the House Committee on Oversight and Reform, which has jurisdiction over the District’s municipal affairs.
“The effort to be such a government begins with openness and transparency, protecting the integrity of government processes and retaining the trust of the citizens that government is to serve. It is not evident to me how the sole source contract furthers any of these important goals.”
Congressional involvement in District affairs is a nuclear subject for most Washingtonians. But as the main investigative body in the U.S. House of Representatives, the Oversight Committee has authority to investigate subjects within its legislative jurisdiction as well as “any matter” within the jurisdiction of other standing House Committees.
According to House Rule X, it also “shall review and study on a continuing basis…the application, administration, execution, and effectiveness of laws and programs addressing subjects within its jurisdiction.”
As a senior member of the Congressional Black Caucus, with 55 Democratic members, Clay’s interest can hardly be dismissed as partisan meddling. On its face, his concern is rooted in due diligence, integrity in government processes and best practices as they pertain to fiscal management and government procurement.
Clay’s letter, first reported by The Washington Post, questions the propriety of awarding a sole source lottery contract to incumbent vendor Intralot, a Greece-based firm that saw its financial standing downgraded by Moody’s, S & P and Fitch’s after a poor showing in 2018.
Councilmembers who responded to inquiries by District Dig last week said they had no knowledge of those ratings downgrades prior to a recent 8-4 vote to allow Intralot to retain the lottery contract without competitive bidding. (The Council voted 10-2 to advance the bill on an “emergency” basis.)
In his letter, Clay asks DeWitt whether he was aware of Intralot’s diminished standing with the ratings services, one of which (Moody’s) bestowed the District with a Aaa bond rating just last year.
“If yes, why wasn’t this information shared with the Council?” Clay asks in his letter, which is copied to Rep. Elijah Cummings, the chair of the Committee; Del. Eleanor Holmes Norton, the District’s non-voting member of Congress; Mayor Bowser; Council Chairman Phil Mendelson; and the rest of the Council. If not, Clay asks, “when did your office become aware?”
DeWitt has openly lobbied the Council to expedite a procurement waiver. Clay says in his letter that with Intralot’s “failure to keep its finances in order,” he is “curious” why the CFO would advocate “paying millions of dollars of the District’s residents to [Intralot] for its services and trusting it to generate millions more for the District’s treasury through a sole source lottery and sports wagering contract.”
The letter, dated February 21, prompted the OCFO’s public affairs officer David Umansky to assure the Post of a detailed response within 10 days. Though the Post story says that Norton has convinced Clay to drop his inquiry, the story contains no confirmation from Clay, whose office did not return a call and email in time for this story.
If DeWitt answers to anyone other than the House Committee on Oversight and Reform, it’s Ward 2 Councilmember Jack Evans, chair of the D.C. Council Committee on Finance and Revenue, which has oversight authority over the OCFO and the D.C. Lottery.
Evans has been a fixture at the helm of the Finance Committee for years. There is a nearly constant exchange of emails between his and DeWitt’s staff, according to emails obtained through the Freedom of Information Act, and the two have a regular monthly meeting.
So it has not been surprising that they have been in lockstep in lobbying the Council on sports betting.
Thus, Evans’s fervor in bypassing contracting laws to secure a sole source contract for Intralot might be of interest to the Oversight Committee as well. Even with a purported advantage in being first to market in sports betting, Intralot is a curious choice considering the lengths to which Evans and DeWitt want to go:
Intralot is divesting in emerging markets abroad and recently lost a competitive bid to run sports betting in Turkey, while making capital investments in the U.S. in an effort to get a foothold on sports betting. Yet it has no domestic sports betting portfolio.
The company has an undistinguished 10-year record of running the D.C. Lottery, at times struggling with its technology, and by all accounts falling short of its revenue goals.
Its original introduction as the Lottery vendor is marked by controversy, and it is dependent on a local partner who has an indirect tie to Evans, and whose local connections are rooted in political patronage.
The $38 million contract to run the Lottery was fraught with irregularities that resulted in investigations by various bodies, including a federal grand jury, and a federal wrongful termination lawsuit against the District.
Council members have even alluded to that history in arguing for bypassing competitive bidding, though Clay seems skeptical that such logic is in the public’s best interest.
In 2007, Intralot responded to a Request for Proposal for a Lottery contractor to provide a new gaming system. Consistent with D.C. minority business requirements, it bid (successfully) with a local joint venture partner who many considered to be too tight with then Mayor Adrian Fenty.
In an April 2008 meeting with former CFO Natwar Gandhi, Evans suggested simply dumping the local firm, according to Eric Payne, the OCFO’s contracting director who was fired for resisting pressure from within to scrap the award and re-bid the contract.
Evans was not alone in seeking to scuttle the award.
In a wrongful termination lawsuit he later filed in U.S. District Court, Payne alleged that other D.C. officials also engaged in improper communications in order to steer the contract away from the Fenty ally, a developer and former nightclub owner named Warren Williams Jr.
“Certain council members’ activities fell far outside of [the] legislative process, such as attempting to influence the contract selection…These are not protected activities,” reads Payne’s account of the contract approval process.
Gray, Evans and Ward 1 Councilmember Jim Graham (who is deceased) “engaged in direct communications with the CFO regarding the contract award “during a period of time when there was great pressure being exerted to cancel the lottery contract award, absent any legal or ethical foundation to do so,” the account further states.
During a May 2008 meeting with Gandhi and Gray, Gray made it clear that he would not allow the contract award to come to a vote with Williams’ firm in place, according to Payne, who won a $3.4. million jury verdict in 2016 after a painful and protracted legal battle with the District.
The Council disapproved the contract during the next legislative session, and behind-the-scenes machinations carried over into 2009, when the OCFO, with a new contracting director, issued a new RFP. Bidding without a local partner, Intralot won again, but was informed by a Councilmember and an OCFO representative that it would need to find one in order to gain Council approval.
When the wrangling was over, a government contractor named Emmanuel Bailey emerged as 51 percent partner in DC09 LLC, a joint venture between Bailey’s small, family business-development firm and Intralot.
Bailey had his own inside track. As I reported for The Washington Times, his mother had worked with Gray in the 1990s at the D.C. Department of Human Services, and had served as a labor liaison for Marion Barry when Barry was mayor.
“What they are doing is the old American way,” Barry said at the time of Bailey and his mother, who housed the family business at her Southeast home. “Mothers, sons, fathers getting involved in business together. I commend Mr. Bailey on his maneuverability to get himself 51 percent of the deal.”
The Council approved the Intralot-Bailey team, and the D.C. Office of the Inspector General, after a lengthy investigation, issued a report on the matter, in 2012. The report contained no findings of misconduct, but a reading of the document is instructive, particularly given that many of the same people–and issues–are relevant today.
For instance, the Inspector General found insufficient evidence that Gray, Evans and Graham acted improperly, though it concluded that Bailey had previously misrepresented his business experience when bidding for unrelated federal contracts.
The Council’s approval of the contract with Bailey on board, but without returning it to the OCFO for further review, was “an anomaly,” according to a former OCP Chief Officer, yet the Inspector General upheld the award.
The Inspector General also found that Evans sponsored legislation to establish internet gaming in 2010 without disclosing to the Council that he was a federal sector lobbyist at a law firm that counseled gaming industry clients; nor did he inform the law firm that he was sponsoring the legislation.
Investigators found no quid pro quo or conflict of interest, however. (The federal grand jury investigation into the overall lottery contracting process also failed to yield criminal charges.)
In its final recommendations, the Inspector General said that the Council should consider more clearly defining its purpose in reviewing contracting decisions, and whether it should exercise its legislative powers to guide the process, “rather than nullifying the results of the competitive bid process.”
The Inspector General also suggested that the Council “should consider requiring councilmembers to report, with specificity, the amount and source of income received from outside employment in their financial disclosure filings with appropriate District entities.”
Evans had an earnest reaction to the report: “It really comes out…that decisions were not the wisest,” he said at the time, during an interview for The Washington Times. “The report found no illegality, but the process could have been better. It’s the largest contract in the District, and it hasn’t come up for review in how many years?
“There’s a lot of money at stake, and politicians and people were jockeying for position. We ended up with something not squeaky clean and full of political machinations.
“It doesn’t give the public confidence. If a bill were introduced that brought further review of the lottery contract, I’d support that and further review of qualifications in light of issues the inspector general raised.”
All these years later, it’s not hard to see why today’s CFO might want to avoid competitive bidding, given his office’s handling of the last RFP and the resulting political mess.
Though his predecessor was a more visible and overtly political figure, DeWitt is advised by two of the same top level staff whom advised Gandhi when Eric Payne reported being subjected to improper influence inside the OCFO:
David Tseng, general counsel, serves as DeWitt’s principal legal advisor, overseeing federal and District appropriations, public finance, contracting and procurement, and economic development, according to the OCFO’s website.
Angell Jacobs, a graduate of the Wharton School of Business, still serves as Deputy CFO and Chief of Staff–DeWitt’s second in command.
(Umansky, the current public affairs officer, has also served the CFO since being hired in 2008.)
Despite its tainted past and its familiar cast, appending sports betting to the Lottery contract is an opportunity for the OCFO to “make the District government a model for our nation,” to quote Rep. Lacy.
Meanwhile, DeWitt has staked his reputation on advising the Council to forego competitive bidding, and it is unclear whether Evans is acting in his service, or holding the whip hand.
What is clear is that Evans’ urgency over sole-sourcing a lottery contract to include sports betting has raised questions about his relationships and outside business activities–questions his fellow Councilmembers only ask themselves behind closed doors–if they ask at all.
For instance, in 2016, Evans had his friend, lawyer-lobbyist-developer Bill Jarvis set up a limited liability corporation at his Georgetown rowhouse and act as its registered agent. Jarvis is a lobbyist for DC09 and reports having lobbied Evans on sports betting.
Faced with media scrutiny and scrutiny from the Board of Ethics and Government Accountability–an investigation BEGA says it has suspended in light of a “law enforcement investigation”–Evans has removed Jarvis as registered agent for NSE LLC, and insisted that the two have never had a “business relationship.” (According to a story in the Post, Evans has retained at least one prominent white collar defense lawyer; sources familiar with Evans say he has retained additional legal counsel as well.)
A convoluted series of financial disclosures by Evans show that NSE has taken in somewhere between $200,000 and $450,000 since its formation in July 2016. In those disclosures and other business filings and public statements he has described it as a “consulting” firm, a “legal” firm, a “business consulting” firm and a “legal/consulting” firm. (Evans has an active bar license in D.C. and Pennsylvania, according to state records, and is listed as an inactive member in Virginia.)
Yet in spite of the Inspector General’s 2012 recommendation, Evans has not disclosed, nor has he been asked to disclose, the source of all this outside income. (Evans is the only Councilmember that reports outside income derived from client services, having also worked at major law firms in D.C. for more than 20 years.)
In light of Evans’ relationship with DC09’s lobbyist, and his sole-source advocacy role that has him riding shotgun with DeWitt, there’s little reason to speculate why Mendelson introduced the procurement waiver legislation.
At the Council’s breakfast meeting earlier this month, Evans (and Gray) kept their mouths shut, as members aired misgivings about advancing that legislation on an “emergency” basis, and used words such as “anomaly” to describe the situation.
After some frantic lobbying, however, Evans was able to muscle it through the Council, with more than one member flipping in his favor along the way.
That leaves the path to a sole source Lottery contract extension with sports betting provisions wide open for Intralot, DC09 and Emmanuel Bailey.
Bailey in particular has worked hard to engender goodwill with the Mayor and the Council, and the D.C. Chamber of Commerce and the Greater Washington Urban League, where he serves on their respective boards of directors.
A generous campaign contributor and organizer of fundraisers, Bailey, along with DC09 and its lobbyist Bill Jarvis, have contributed $23,980.25 since 2014 to Mayor Bowser, candidates she has endorsed and Councilmembers who voted for the procurement waiver, according to D.C. campaign finance records. (Bailey is responsible for $17,380.25 of those contributions, including $5,000 to Bowser’s infamous FreshPAC.)
At time of publication for this story, The Dig still could not confirm Del. Norton’s claim, which she also tweeted last week, that Rep. Clay is relenting in his request for DeWitt to justify doing away with competitive bidding for a company with a declining financial rating, simply to accelerate D.C.’s entry into the sports betting market.
Either way, Clay has invoked the authority of a House Committee charged with overseeing the “municipal affairs of the District of Columbia.” That would appear to include affairs managed by the OCFO that Congress created and empowered to oversee the D.C. Lottery:
“There are those that argue sports wagering is the new ‘gold rush’, others argue that there are millions to be collected, so it’s best to be out of the gate first, while others insist the money that sports wagering will produce is exaggerated and overblown…But I am comfortable in saying that 99 percent of the time sending a contract through the procurement process and competition will produce a superior result.”