DC Contracting: Blood Sport

July 6, 2019

 

     The behavior of several so-called liberal members of the DC Council has continued to flummox some residents, business owners, and myself. While those legislators have claimed they support small, local and minority companies, their actions have provided a different story.

 

“They always call into question any firm of color or people of color,” said one high level DC government official, who requested anonymity in order to speak freely. The more recent example cited is the sports-wagering contract, which has been the subject of several Washington Post articles and opinions.  

 

I predicted in a DCLine.org column that businesses who lost out on the sports wagering contract likely would mount a campaign to discredit the winners. That prediction has been realized.

 

What is most disappointing about the entire smear campaign is that elected officials who should know better have become players in that destructive effort. In the process, they have helped to taint the reputations of legitimate small, local, and minority businesses, hoping to expand their companies and their skills.

 

     Let’s go to the clips: Last year, after a Supreme Court ruling allowing Internet gambling, the council passed a law permitting sports wagering in the District. That law, in my view, gave far too many bennies to billionaire sports owners; however, that is an issue for later in this discussion.

 

In order to implement the Internet gambling system, the Chief Financial Officer (OCFO) and the Office of Lottery and Gaming (OLG) went to the experts with whom they had a relationship: Intralot, a Greek-based corporation, and its joint venture partner DC09 LLC, headed by Emmanuel Bailey. Those two companies have been successfully operating the city’s lottery games. Since 2010 Veterans Services Corporation (VSC), also owned by Bailey, has run the contract—without incident-- as operations manager.

 

After much discussion, a public hearing and intense lobbying by major gambling operators like MGM, the council decided to permit the OCFO and OLG to enter into sole-source contract negotiations with Intralot and its partner DC09.

 

Next week, the council will decide whether to approve the $215 million, five-year contract that includes not only sports wagering but enhanced technological upgrades for lottery games and expanded management services. Sports wagering alone could bring in more than $90 million to the public coffers between 2020 and 2023, according to OLA’s director Beth Bresnahan.  

 

She estimated the “total net profit of $333 million would be transferred to DC between 202 and 2024.” Moreover, the vendor would generate lottery and sports wagering sales of $2.67 billion. Intralot’s compensation would be contingent upon OLG’s sales performance, Bresnahan told the DC Council last month.  

 

There is reason to believe that stated goal could be met, given Intralot and DC09’s lottery performance. Bresnahan indicated that OLG “budgeted $46.1 million for transfer to the General Fund for Fiscal Year 2019. Through the end of May, $35.1 million, or 76 percent of this target, has been transferred.” The agency in on track to exceed its goal. No one would believe that considering the wholesale trashing of Intralot, DC09 and the businesses it has selected as subcontractors. (In full disclosure, VSC has provided a small grant to my nonprofit organization, which helps girls and women suffering from the trauma of father abandonment; we are not alone, however. VSC and DC09 has provided contributions to a wide array of groups including the Boys and Girls Club of Greater Washington and the Greater Washington Urban League.)

 

     When the terms and conditions of the proposed contract were released, Intralot also listed the companies it intended to hire as subcontractors—although by law, it was not required to make that information public. But according to government documents, it asserted that it wanted DC officials and others to know that it was serious about providing opportunities to small, local, minority businesses. That’s not surprising given that VSC has received numerous awards from the DC Department of Employment Services, including recognition for First Source Hiring.

 

The companies’ attitude and record should be lauded. However, in the category of no-good-deed-goes-unpunished, council members and others have sought to denigrate their effort. Moreover, it wasn’t enough that small businesses reputations were attacked, absent any claims of unethical behavior or corruption, proprietary information about their companies was deliberately released to the press, which failed to mention that by law, the council lacks jurisdiction over the selection of subcontractors. The leaking by council members of private information about the companies has been called illegal, by CFO spokesperson David Umansky, who declined to respond to press requests about the list.

 

“Don’t these businesses and individuals have the right to the same opportunities as the larger companies,” continued the government official. “Don’t we want to ensure this benefits all people in our community.”

 

Barbara Lang, a former head of the DC Chamber of Commerce who now owns and managers Lang Strategies LLC, was so troubled by the actions and rhetoric of several council members, she sent a letter earlier this week to council Chairman Phil Mendelson.

 

“I am extremely disappointed watching the ‘circus-like’ atmosphere surrounding this contract put forth by some of your colleagues and from some in the media,” Lang wrote. “This is a mockery of the very businesses that support this community daily...I am disgusted and disappointed at the visceral attacks.”

 

     The chief criticism against these subcontractors seems to be that they are politically connected.  Why is it that small, minority and women-owned businesses, who win contracts and seek to exercise their constitutional rights consistent with local campaign finance laws, invariably are accused of play-to-pay. Interestingly, some of the same council members making such accusations, rarely lob similar complaints about large majority owned firms or favored nonprofit organizations and their leadership.

 

Truth be told, the politically-connected-attack is born of ignorance about DC. While local officials and residents want and deserve statehood, the fact of the matter is that the District is a small geographic area. It may have 700,000 residents, but the number of people who are regularly involved in the political and civic culture is now and always has been minimal. Add to that reality, most of them are members of the same political party. They see each other at meetings; In most instances, they support each other’s campaigns or pet civic projects.

 

To argue that some business shouldn’t be selected because they are politically connected is ludicrous.

 

Equally, important is that the subcontractors listed in the sports wagering contract were selected from a roster of companies that were approved by the District government as certified business enterprises (CBE) in good standing. That process requires being subjected to a certain level of scrutiny by executive branch managers. (If someone believes a business is not legitimate, there is a process to challenge the company’s certification.)

 

Finally, the subcontractors are being judged as a group, without any specific care taken to understand the role they may play within the new sports wagering industry. For example, M. Jones Companies, headed by Mark Jones, has somehow been hoisted as undeserving. He is a former deputy director of the DC Lottery. For the past several years, he has been performing a similar task as the one he would do under the Intralot contract: installing equipment, recruiting retailers and warehouse staff. Jones fought his way into the business years ago, engaging in intense negotiations with current CFO Jeffrey DeWitt when everyone was decrying the fact that there were insufficient numbers of minorities involved in a new game. Now, when there is an opportunity for expansion, to become more deeply involved in the industry, some council members want to kick him and others like him to the curb.

 

Octane LLC headed by Everett Hamilton is another company that has received undue scrutiny because he handled the public relations for then-Council member Muriel Bowser’s 2014 mayoral campaign. Wouldn’t the fact that she won be an indication of the company’s ability to design and execute a “digital marketing” strategy? (BTW, Octane also won contracts under former Mayor Anthony A. Williams’ administration.)

 

I am no fan of Thorn Pozen, but he has been a lawyer for decades—inside and outside the government. Can he not perform similar duties for sports-wagering contractors?

 

     Completely puzzled by the foolishness of some council members, I reached out to Chairman Phil Mendelson hoping he could explain why his colleagues were so deeply involved in the public dissing of local businesses. I sent a copy of my email to all the other members; maybe someone would provide reason and clarity, I thought.

 

Was this yet another case of discrimination as some have claimed—a trend that has troubled me for several months, even beyond the sports wagering contract issue? Had the council suddenly given itself control over how and which subcontractors are selected beyond the legal requirement that at least 35 percent of contract monies be spent with CBEs?

 

If the council was establishing a new standard for the approval of a contract based on subcontractors, did it intend to apply that standard to all government contracts going forward, including those involving housing construction and preservation and school modernization?

 

Mendelson did not reply to my email request for comment, although when he saw me last week in person, he promised to get back to me. Council Chairman Pro Tempore Kenyan McDuffie also said he would provide a comment in writing. None was sent, however. 

 

At-large council member David Grosso, who did not support the original sports wagering law, told me that he thought the reason for the scrutiny was because it was a “sole source” contract. (Didn’t the District begin negotiations of a sole-source agreement with Universal Health Services and George Washington University to operate a hospital east of the Anacostia River? Haven’t there been other sole-source contracts signed by the city and approved by the council?)

 

“The whole thing is a complete boondoggle and a mess,” continued Grosso, speaking about sports wagering. “I think we should start all over.”

 

     If there is a boondoggle, as he claimed, it does not involve small businesses, that’s for sure. Billionaire sports owners have been recipients of the greatest benefits under the law.

 

 While much is being made in the press about whether subcontractors have political ties with existing elected officials, no one has even broached the relationship between elected officials and big team owners, like Ted Leonsis, head of Monumental Sports and Entertainment, DC United Holdings, owners of the soccer team and Mark Lerner who, with his family, owns the Washington Nationals. They, too, have made campaign contributions to the mayor and certain council members.

 

What’s more there has been no significant no media coverage about the unique advantages given to those team owners. The sports wagering law is, in my view, a sole source, no-bid contract, awarding team owners enormous territorial and license carve outs that will provide huge profits.

 

“This is a sad commentary on all front, particularly because large global casinos and owners of our sports franchises all lobbied the council to gain access to sports gaming,” Lang wrote. “Yet I have not seen the same level of scrutiny on these businesses.”

 

Consider this: Only team owners can hold Class A sports wagering licenses. The law establishes an exclusive two-block zone around each of the four sports facilities. No other business can hold a license or operate a betting parlor within that zone. And as recently approved in the Fiscal year 2020 budget, not even the District government can operate its app within that area, creating a sports-wagering monopoly for the big guys.

Council members won’t take them on. It’s easier to bully the little guys.

 

     The public will have to wait to see what ultimately happens with the sports wagering contract. The CFO has said that failure to approve the agreement should result in the loss of as much as $17 million in revenue that was included in the city’s Fiscal 2020 Budget and Financial Plan. That amount could expand given the fact that the contract includes provisions for updating and digitalizing the current lottery games. Not enhancing the technology could leave DC further behind Virginia and Maryland.

 

In the document Mendelson circulated on Wednesday to council members, he urged his colleagues to approve the agreement. He noted all the arguments he had heard about why it should not go forward-- it was a sole-source contract; the city can get a better price, for example-- and offered counterpoints. He also disagreed with the contentions about the subcontractors being politically connected. “The proposed contract is between the District and Intralot. The decision on who to hire as subcontractors was (and is) entirely and exclusively the decision of Intralot. The District has no relationship with any of the subcontractors, did not choose them, cannot fire them, cannot direct them, does not pay them, etc.,” wrote Mendelson.

 

“If this contract is rejected and an RFP is issued, I assure you that each of the new bidders will come back with equally connected subcontractors -- we have seen it before and we know who they are -- except there will be more of them and they  will be lobbying us to favor or disfavor the winning bidder,” continued Mendelson. “We saw a taste of it last December when local companies and lobbyists for MGM, Monumental [Sports and Entertainment], Lerners, Scientific Games, etc. were roaming the halls trying to change the legislation in their favor. 

 

“Not only will there be more subcontractors, and they will be actively lobbying us, but how we vote will be seen as favoring certain subcontractors, which is not now the case with the contract before us,” he added.

 

Those seem solid, logical arguments. However, logic seems to have taken a vacation down at the council these days.

 

 

 

 

 

 

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