The Miami Herald from Miami, Florida • 735

Eflorj to Run a kofifiery The Miami Herald International Edition Sunday January 4 1987 10A te looks west to improve odds from Ohio has starred in California Michalko the lottery earned more than $2 billion Of course Sacramento politics are no picnic even for a winning blond choirboy like Michalko To prevent the political novice from being eaten alive in the capital city Deukmejian sent Chon Gutierrez his trusted troubleshooter to the lottery as deputy director At early legislative hearings on lottery progress Gutierrez was more likely to field questions than Michalko Also advance work before Michalko was hired made it easier for the lanky Ohioan to be a hit Now Michalko moves with complete assuredness talking openly and easily about the hard edge of the lottery business and his turf battles with the lottery commission He has the comfort of a good record no big scandals no ticket shortages no accounting lapses strong second-year sales background friendships investments assets business connections and debts looking for any unsavory ties They found a mortgage and a car payment His education was average Cleveland State University law school His experience was average five years as staff attorney negotiating a few key contracts but never part of Ohio lottery director Thomas inner circle His age was below average Deukmejian put off announcing appointment for several days until 31st birthday It was agreed that 31 sounded more seasoned than 30 Indeed he was a distant second choice for Deukmejian The governor wanted to hire a top-ranking Massachusetts lottery official but the salary $73780 enough Yet the unknown performance has been impressive The most optimistic early predictions put first-year lottery sales at less than $15 billion Under By DAVE VON DREHLE Herald Staff Writer SACRAMENTO Calif Imagine the surprise around here when Mark Michalko anonymous nobody was chosen to run the biggest state lottery in America The former staff lawyer for the Ohio state lottery was so obscure that his name even appear in the Ohio annual report Ohio newspapers had never heard of him But plucking Michalko from obscurity was one of the best moves Gov George Deukmejian made in setting up the California lottery according to people inside and outside lottery headquarters By finding a director who was both able and unknown Deukmejian made sure no power brokers or special interests would have an inside track on control of the games How clean was he? Lottery investigators ran an exhaustive check of Mark Michalko: Obscurity was strength in director HKnii California officials traveled the country to study state lotteries then created their own It became the most successful new lottery in US history and the third largest in the world behind the French and Spanish national games Here are lessons for Florida: 2 Keep politics out Of hiring of contracting of management Remember this is a business says California lottery director Mark Michalko and is incongruous to expect political people to make business decisions" 1 Run it like a business This is the hardest part The lottery is a government agency that is expected to do marketing sales and product development to maximize the bottom line This is not what government is used to 3 Put experts on the lottery commission Include experts on accounting law enforcement management marketing etc Its function is not to run the lottery but to oversee it through public meetings Appointments should not be political 4 Find an independent director Should be appointed at the same time as the commission The best: either a venerated local figure or a bright competent nobody from outside the state because this person should owe no favors to anyone LOTTERY from I A fornia Gov George Deukmejian resisted the urge to make these into political appointments in part because he opposed the whole idea of a lottery He want to be too closely linked to the business in case the whole thing backfired In fact Deukmejian has careful- ly avoided being photographed with lottery director Michalko Money is seductive In Florida state Sen Jack Gordon of Miami Beach has proposed having the Cabinet serve as lottery commission but California lottery officials worry that might make the business too political the people running the lottery are elected going to be getting away from business logic to political expediency" Michalko said is nothing as counterproductive as allowing politics to guide And the temptation to play politics with the lottery can be great The money is so seductive Assume that the Florida lottery sells $800 million worth of tickets in its first year a conservative estimate by California standards Also assume that the money is divided along the lines set in California: Half goes back to players in prizes 16 percent goes for management printing advertising and sales commissions Most states divide the take along similar lines That means whoever runs the Florida lottery will have at least partial control over the rest $272 million The authors of lottery law tried to head off political maneuvering for lottery profits by funneling the money directly into local school districts They want the Legislature using lottery money for pet projects or to relieve general budget crunches Battles over profits Even so there have been battles among unions wanting the profits for higher salaries school boards wanting the profits to build more classrooms and principals wanting the money to buy books computers and lab equipment Florida lawmakers can expect some bloody fighting over the limits on how lottery proceeds can be used Every layer of the education bureaucracy from the classroom to the education commission is likely to want control Yet all educators are likely to agree that existing education spending should not be cut The intention of the lottery they will maintain is to fatten the wallet for schools In California it has taken more than a year to arrive at a complicated formula that guarantees a certain level of spending for schools tried to write our lottery laws so that the money is free of state controls while guaranteeing a certain base level of said William Pieper of the California Department of Education Just as the scramble for lottery profits is inevitable so is a battle for lottery contracts Some lucky companies will be paid millions to print and distribute tickets to advertise the games and to string lottery computers from one end of the state to the other When it comes to winning these contracts lottery companies fight rough Michalko said Printer wrote law The largest lottery ticket printer Scientific Games actually wrote the California lottery law and spent more than $2 million campaigning for approval Sure enough when it came time to 6 Limit civil service Key lottery jobs often require unique expertise The only way to hire the right people quickly is to exempt their jobs from normal civil service requirements 5 Make no appropriations Money to run the lottery should come as a percentage of sales not through legislative appropriations Lawmakers just move as quickly as big business sometimes demands would again be the only company able to meet the disclosure requirements So the Legislature scaled back the requirements and the $120 million computer contract went to another firm Scientific Games is often accused of foul play The Atlanta-based company lobbied in favor of a requirement that all California lottery tickets be printed in the state At the same time they were secretly building a printing plant in Gilroy a small out-of-the-way town south of San Jose To keep the plant secret the building chief lived for months under an assumed name Eventually the building was traced to Scientific Games Firm most experienced Nevertheless Scientific Games is the most experienced company in the country at starting new lotteries The firm has helped begin every new lottery in more than a decade Scientific Games lobbyists are likely to put pressure on legislators to hire the firm as a consultant in the early going no room for trial and error when starting a lottery" said James Culver Scientific Games vice president cost of error is so high The best start-ups are the ones where the consultants have been brought in a safe bet that the battles for lottery contracts will be fought with serious ammunition Scientific Games spent nearly $140000 making campaign contributions and paying lobbyists in California alone the past year GTECH the company that won the lucrative numbers game contract spent more than $200000 One further political showdown can be expected in starting the Florida state lottery: the battle for bureaucratic control Experts say the less bureaucracy the better Said Michalko: "You expect the lottery to be a success if it is constrained by bureaucracy The Legislature needs to exempt the lottery from the standard contracting process from civil service requirements and even if they mess up those first two this is crucial from the standard budget Michalko and others argue that because the lottery is a big business not an ordinary arm of government it has to be free to react quickly to changes in the marketplace People with special skills must be hired regardless of civil service background Purchases must be made quickly not through some centralized buying agency And money must be readily available If not the lottery could wind up in trouble It nearly happened in Ohio where all lottery spending must be approved by the Legislature The lottery nearly ran out of tickets when buying went faster than expected and officials had to get legislative approval to buy more In Colorado where interest in instant winner tickets is waning dramatically the Legislature has dragged its heels approving money to start a computerized numbers game And there are similar stories in Oregon Missouri and elsewhere: Lottery profits dwindle because bureaucratic controls hamstring the business "Its not that we operate without controls" Michalko said "We still have controls because the commission meets in public and approves budgets and so forth But you need the flexibility to respond to your market" Michalko said freedom from bureaucracy allowed him to save $76 million in administrative costs in the first year alone Will Legislature which creates and controls much of the bureaucracy be willing to give a state lottery the freedom it needs to make the biggest possible profit? new people oppose the lottery in general and want to see it make said Gerrold Rubin head of the advertising firm that promotes the California lottery here we figure the voters have spoken They want a lottery for the schools so trying to give them the best one Tallahassee is likely to see other smaller political fights as the lottery gets on its feet In these Florida lawmakers can learn from mistakes as well as its successes For example the California lottery has been widely criticized for failing to give enough business to minority contractors and shopkeepers It took more than a year for the lottery to hire a minority advertising firm even though California like Florida is a jumble of cultures and languages But as more and more visitors from Florida government make the trip to Sacramento to see how biggest lottery is run central success will be recited again and again: They have kept the lottery fairly free of political control lottery is a whole new Michalko said in the business of making money rather than spending Monday: The importance of tight security in the lottery games 7 Keep bidding open Lottery contractors especially Scientific Games may pressure for unnecessary disclosure laws to limit competition California allowed that to happen and came to regret it 8 Set up instant games first Instant-winner tickets are easy familiar and relatively cheap to develop Computer games like Lotto are somewhat harder to play and cost more to get started Use instant games to draw players in Sales can finance the Lotto start-up 10 Enforce strict security The public must be confident the games are clean 9 Involve minorities A lottery means a lot of activity that can be used to help minority businesses California failed to plan adequately for minority involvement and it hurt surrender their records for such a small profit need all said Lew Ritter security director for the California lottery wind up with a room full of income tax returns you have no use for But it's hard to argue against full Hard but not impossible When California decided recently to add a computerized numbers game to its successful instant ticket games it looked like Scientific Games easy for Scientific Games because its parent company Bally owns casinos in Atlantic City NJ To get a casino license Bally officers have to disclose their finances anyway For a competitor like Webcraft Games a New Jersey subsidiary of Beatrice Foods the disclosure requirements are nearly impossible to meet Instant tickets are only a tiny fraction of all the business done by Beatrice each year and corporate officers are not eager to award the multimillion-dollar contract to print instant-winner tickets Scientific Games got the nod just as it has done in every new lottery state since 1975 How do they do it? Scientific Games lawyers use a tactic that may surface in Tallahassee They persuade lawmakers to add a requirement to lottery legislation that all contractors disclose the financial records of all corporate officers begins 3 -day tenure as governor fl Quotable Day Gov Hinson Quotes from Wayne inauguration ceremony: MIXSON quoted from Abraham Gettysburg Address: world will little note nor long remember what we say and then he added very appropriate because we going to say or do much in the next few is not a beginning but an end of an administration bringing this flight in after a long flight where been a lot of places together acknowledged his status as a footnote in state history He quoted from Abraham Gettysburg Address: world will little note nor long remember what we say very said the 39th governor we going to say or do much in the next few But the ceremony gave Graham and Mixson a chance to reminisce about their accomplishments in eight years together particularly in the area of economic development For the last four years Mixson has been secretary of the state Department of Commerce And it gave more than 400 relatives friends and longtime political supporters of who packed the House chamber and its overhead galleries to overflowing a chance to honor him Among the most excited wras Parker Lee McDonald chief justice of the state Supreme Court who was a buddy of at the University of Florida in the 1940s McDonald let loose a cheer and grabbed Mixson in a bear hug as soon as he finished delivering the By PAUL ANDERSON Herald Capita! Bureau TALLAHASSEE In a ceremony marked by strong sentiment and wry humor Florida got both a new US senator and a new governor at noon Saturday The senator 50-year-old lawyer Bob Graham of Miami will serve six years The governor 64-year-old farmer Wayne Mixson of Marianna will serve three days Graham governor since 1979 had to resign three days early to assume the Senate seat he won Nov 4 when he beat first-term Republican Sen Paula Hawkins By law Graham became senator Saturday although he won't be officially sworn in until Tuesday in Washington Mixson lieutenant governor automatically became the state's chief executive for the remainder of the term only until noon Tuesday when the governorship passes to former Tampa Mayor Bob Martinez who won a full four-year term Nov 4 At the start of a folksy 15-min-ute speech delivered in the chamber of the state House where he served from 1967 to 1978 Mixson up Mixson himself kept the jokes rolling After he ceremoniously received the sterling silver state seal from Graham and then turned it over to Secretary of State George Firestone Mixson told Firestone: hide it now be needing it again in a couple of to deliver to Martinez Mixson then turned toward Martinez who watched from a front row with Lt Gov-elect Bobby Brantley and their wives and declared "How sweet it is Gov But he and Graham also had some solemn parting words for Martinez who will become the first Republican governor in 16 years Mixson urged Martinez to stick with the economic course set by himself and Graham which he said balances the need to attract business with protection of the environment improvement of education and other services Graham said Florida now the fifth most-populous state in the nation will become a national leader as long as its leaders avoid oath Referring to Mixson and his wife Margie as partners in his administration Graham said would be a mistake to think that their stewardship of our state will be brief Their stewardship has been long longer than just eight years It has been a lifetime of dedication to Mixson taking the liberty of calling it Mixson-Graham said: is not a beginning but an end of an He compared himself to "a co-pilot bringing this flight in after a long flight where we've been a lot of places together he told Graham appreciate this opportunity to bring her Former Gov LeRoy Collins who officiated at the ceremony told Mixson may be some to having such a brief tenure at this time of year: have any Legislature to be kicking you around and perhaps you have any of these slings and arrows that go with the annual press corps skits and you have any hurricanes to mop i complacency only error in Florida would be the error of underestimating our potential" he said have the opportunity for true excellence" After the ceremony Graham went off to write some final letters and autograph pictures for staffers and supporters After spending the night in his townhouse in Tallahassee he leaves for Washington this morning Mixson hosted a round of receptions at the old state Capitol and the mansion.