The mysterious provenance of the no-bid sports betting contract.
By Jeffrey Anderson Photo by Andy DelGiudice
How does a law to abandon procurement law for the purpose of awarding a single no-bid contract end up in court, with one judge saying it likely runs afoul of the Home Rule Act, and another saying the exact opposite?
District Dig has been pressing officials for weeks about how they have gotten themselves into this mess, and trying to find out who is responsible for drafting the Sports Wagering Procurement Practices Reform Exemption Act of 2019 (“Exemption Act”).
For weeks, the response was avoidance, denial or willful ignorance—or a combination of all three. But as The Dig examined the process and questioned the responsible parties, it became clear that they either can’t quite say, or they really would rather not.
D.C.’s foray into sports betting was inevitable, but perhaps ill-fated from the start. After the Supreme Court allowed states to legalize sports gaming last year, but before the Jack Evans political scandal had peaked, Evans introduced legislation to legalize sports betting, on September 18, 2018. The bill would set the stage for the award of a combined sports betting and lottery contract to Greek gaming company Intralot and its local joint venture partner, Veterans Services Corporation (“VSC”).
The D.C. Lottery, which will manage the whole operation, reports to the Office of the Chief Financial Officer (“OCFO”), which at the time estimated that sports betting would increase revenue beginning in fiscal year 2019 by more than $7 million and generate a total of $91.7 million by the end of fiscal year 2022. By all accounts, sports betting is months away from launching, much less raking in dollars for what is supposed to go to early childhood care and violence interruption.
Another talking point for Chief Financial Officer Jeffrey DeWitt—and Evans—was that the District needed to get out ahead of Virginia and Maryland, though neither state is even close to launching.
Under the law Evans introduced, players would be able to place bets at major sports arenas and licensed establishments outside of a two block radius of those venues, and through a sports betting app that the Intralot-VSC joint venture would develop under a monopoly contract with the District.
Earlier this year, gaming and community interests came out and testified before Evans’s Committee on Finance and Revenue, but little did they know that the OCFO in late 2018 had already cancelled a contract with a Wisconsin-based consultant who had been selected to draft a Request for Proposals from prospective vendors.
Sports betting wasn’t legal in the District just yet, but competitive bidding was already dead—and Intralot and VSC already had the contract sewn up.
Thus, when the legalization bill passed by a vote of 10-2, on December 18, DeWitt—and Evans— already knew they needed a workaround for the Procurement Practices Reform Act of 2010 (“PPRA”), which requires competitive bidding for such contracts.
It was just a matter of recourse; The expedient thing to do would be to get rid of it.
Passage of the Exemption Act, introduced in January by D.C. Council Chairman Phil Mendelson, and the subsequent award of the sports betting contract to Intralot, provided months of legislative wrangling and political theater. After the dust settled, attorney Donald Temple filed a complaint in D.C. Superior Court arguing that it runs afoul of the federal Home Rule Act—the Magna Carta of D.C. governmental autonomy—which binds the OCFO to its procurement laws and cannot be amended without a voter referendum.
A pivotal aspect of the legal challenge is whether The Exemption Act is what it says it is: an exemption of the contract from the requirements of the PPRA. Or, whether it is what the D.C. Attorney General says it is, an “implicit” amendment of the PPRA that exempts the contract from it.
The two people who are likely to know the intent and rationale are DeWitt and Evans. Neither of them are talking, and now the Attorney General’s office is saddled with a circular argument that is destined for appeal. (D.C. Superior Court Judge Joan Zeldon granted a temporary restraining order earlier this month and ruled in favor of Temple’s client, D.C. resident Dylan Carragher, who had wanted to compete for the sports betting app component of the contract; Judge John Campbell then denied a preliminary injunction, reversed the TRO, and ruled from the bench that the Council can do whatever it pleases with its “broad legislative authority.”)
Embroiled in scandal, Evans stopped answering questions from the media months ago. And in spite of heavy lobbying for the Exemption Act by DeWitt, his office has started insisting that all communications be handled by the D.C. Lottery.
In explaining the origins and meaning of the Exemption Act, D.C. Lottery Director of Marketing and Communications Nicole Jordan has maintained for months that the answer is a simple one. For months, the word “amendment” has never come up.
“Pursuant to the [Exemption Act], the contract for sports wagering, lottery gaming systems and related services is exempt from the [PPRA],” Jordan wrote in an email to The Dig on August 6. “The contract was awarded through direct negotiations in accordance with…the OCFO Contracting Procedures for the Exempt Gaming Contract.
“In short, Council legislation exempted the sports wagering contract from D.C. procurement law. Therefore, the sole source requirements under procurement law did not apply. The contract was awarded through direct negotiations with the incumbent contractor.”
Note the date of her statement though, says Temple:
“There is a reason that the D.C. government did not refer to its [Exemption Act] as an amendment prior to and during its consideration, but rather beginning on October 1, 2019, nearly seven months later,” he wrote in his reply to the Attorney General’s request to deny a preliminary injunction.
“[The] Defendant’s legislative act itself, and its legislative record, confirms that [Chairman Mendelson] and its other sponsors did not introduce the Exemption Law as an ‘amendment’ to the PPRA or consider it as such during the debate on the bill. Based upon this essential record, an ‘amendment’ the Exemption is not.”
Council records show that the Exemption Act came out of the CFO’s office on December 28, 2018, when DeWitt sent to Mendelson a “Fiscal Impact Statement,” indicating that funds are sufficient through fiscal year 2022 to implement the proposed law: “To expedite the establishing of sports wagering operations, the bill exempts the [D.C. Lottery’s] procurement of the gaming vendor and systems from the [PPRA].”
On January 2, Treva Saunders, an associate general counsel in the OCFO’s Personnel and Procurement office, sent her finding of the “legal sufficiency” of the bill through OCFO General Counsel David Tseng to DeWitt, who the following day sent it to Mendelson with a request for expedited enactment.
“While the requested procurement of a new contract would be exempt from competition, the contract which would be negotiated would remain subject to the requirement that the contract be approved by the Council and meet or exceed [small business requirements],” the CFO’s letter stated.
Mendelson introduced a temporary version of the bill that same day, January 3, stating that it was necessary to act on an “emergency” basis to avoid a “prolonged procurement process that could delay the implementation of sports wagering in the District by as many as three years.” He then took ownership of the bill and introduced a virtually identical, permanent version five days later.
“I’m today introducing the permanent version of the [Exemption Act],” Mendelson said on January 8. “The purpose is to exempt the initial procurement used in connection with [sports wagering laws] from the requirements established under the [PPRA].”
Once introduced, the Exemption Act was assigned to Evans’s finance committee, which received additional assurance from the Council’s general counsel, Nicole Streeter, who reports to Mendelson.
“The measure is legally and technically sufficient for Council consideration,” Streeter wrote to Evans, on January 28, reiterating that the Exemption Act would “exempt” the procurement from the PPRA.
As the bill was about to go to the Council, DeWitt once again wrote to Mendelson, on January 29, that funds were sufficient to implement the Exemption Act, and that failure to do so could result in a loss of $60 million against a projected windfall of $91 million for launching sports betting ahead of Virginia and Maryland.
After the Council passed the Exemption Act in an 8-4 vote in February—with At-Large Councilmember Robert White flipping from “No” to “Yes,” and Ward 5 Member Kenyan McDuffie off on an economic development trip with Mayor Muriel Bowser—it landed on Bowser’s desk for signature. Before signing, however, Bowser sent the bill over to the Attorney General’s office for an additional legal sufficiency review, “as is typical,” according to that office’s spokesperson.
The Attorney General’s office review is dated February 26, the spokesperson said, but because it is conducted on behalf of the Mayor, it is subject to the attorney-client privilege, which only the Mayor can waive. Bowser’s office did respond to a request to waive the privilege.
***
The adverse ruling by Judge Campbell all but ensures an appeal by Temple, and given the complete lack of mention of amending the PPRA, the question arises whether the OCFO and the Council ever saw the lawsuit coming. “How can you have an amendment when it neither is explicitly nor implicitly amending anything?” says Temple. “There’s nothing there.”
Mendelson’s staff pushed back for days on questions about the origins of the Exemption Act, insisting that it is not for the Council to get involved with who writes legislation that doesn’t originate from the Council, much less judge whether it was done properly. “I don’t know what they’ve got going on over there,” communications director Lindsey Walton told The Dig during one of our conversations. “All we know is that the CFO said they wrote it, and we can’t speak for that office.”
So it remains a mystery why neither Mendelson’s office—nor Evans’s committee—identified a potential legal challenge, or did anything to alter the bill’s language. Evan Cash, legislative director of the Committee of the Whole, confirms that Mendelson’s bill “was virtually identical to the one submitted by the CFO,” and said that the Exemption Act is “ambiguous” and poorly drafted. “Had I done it, it would have been a lot cleaner,” Cash said. (He did not respond to any further questions.)
Nicole Jordan at the D.C. Lottery signaled that she had nothing further to add, but then on October 16, she replied to another email inquiry that “The Exemption Act is the subject of pending litigation and we do not discuss matters in litigation.”
Further inquiries—to the OCFO and the D.C. Lottery—elicited the following response from Jordan, about four hours later: “Good afternoon: The OCFO does not typically comment on matters subject to pending litigation, however, no outside source drafted the bill. Please let me know if you have any additional questions.”
One day last week, however, Cash supplied copies of previously undisclosed drafts of the Exemption Act. “Normally the Chairman’s staff carbon copies any such circulation to all members and staff onto our ChairmanMendelson.com/circulation website, but in this case I think we forgot to upload it (it would have been our first week back for [Council Period 23).”
Indeed, embedded in the digital properties of the drafts, in the “author” box, there is the name of an assistant general counsel in the CFO’s office.
Sources who are familiar with how legislation gets drafted say that if the bill was an organic product of the OCFO, they would expect it to clearly reflect what the CFO intended it to say; That is, if the OCFO sent legislation over to Mendelson saying it would exempt the sports betting contract from the requirements of the PPRA, then that is precisely what DeWitt intended to do.
Former OCFO Assistant General Counsel Eric Payne, who served as the office’s chief procurement officer, says it would not be unusual for outside input to factor into legislation that emerges from that office. Payne himself resisted pressure to meddle in the lottery contract more than a decade ago, prompting his firing, and resulting in a $3.4 million award in a wrongful termination lawsuit.
Most of the legislative work conducted by OCFO has to do with the budget amendments or bond issuance, Payne says. Drafting a legislative workaround regarding a single procurement contract would be an unusual task for lawyers at the OCFO, Payne believes.
In his experience, Payne says, the OCFO had a number of ways in which it handled legislation that was outside its ordinary course of business. Payne, who was granted whistleblower status, says he observed times when the office would consult with outside counsel who drafted legislation for retroactive approval by the OCFO’s lawyers.
“The other method I’ve seen is the simplest of all: Lobbyists for special interest clients would appear and offer pre-drafted legislation at no charge for the approval of OCFO legal counsel,” Payne says.
Temple, who represented Payne in his decade-long legal battle, has his eye on the case law, which he says is on his client’s side. And right now, he has two Superior Court judges issuing diametrically opposed rulings that he intends to reconcile through the appellate process if need be.
Though he is fighting for his client’s right to compete on a public contract, Temple also sees the lawsuit as a matter of public policy. “It’s depriving the District of the best price and services it can get for its money,” he says, “and the greatest tragedy is that citizens are doing the job of the government.
“Accountability is coming from the bottom up, not the top down.”
*This is Part 2 of a two-part series. Stay with The Dig for ongoing coverage of the sports betting controversy.
