An opinion has been requested concerning whether four management employees of the Maryland State Lottery (the Lottery) may continue a private consulting business to provide advisory consulting services to other states that are starting up lotteries, as well as to other entities involved in the lottery business.
This request involves the Lottery's Deputy Director for Marketing (the Deputy Director), and three other Lottery employees who are supervised by him. The other employees include an Administrator IV who is Director of Advertising and Public Relations (Employee A), a Lottery Specialist VII who is Agency Records Supervisor (Employee B), and a Lottery Specialist III who is the Retail Sales Analyst in the Division (Employee C). Basically, the Deputy Director is the senior official responsible for the marketing and public relations activities of the Maryland State Lottery. He reports directly to the Lottery Director, and his duties include supervision of others involved in advertising, public relations, televised lottery drawings and on-line computerized agent activities operated by the daily vendors. He participates in development of Lottery policy, does sales and budget forecasting, supervises daily and weekly drawings, develops marketing plans, responds to consumer inquiries and deals with other lottery states.
The other three individuals all work in the Marketing Division and are supervised by the Deputy Director and report directly to him. Employee A's duties deal with merchandising and include budget management and coordination of the marketing program with the advertising agency, sales promotion through the media and other forms of public disclosure, and supervision of the agency's Public Relations Office. His job description also lists weekly informational contacts with other state lotteries. The duties of Employee B involve supervision of the Lottery Satellite Office at Hunt Valley. He is responsible for maintaining complete records and computer files for all lottery sales agents, including receiving, reviewing and distributing all computer print-outs regarding agent activities in sales, payouts, earnings, etc., for all games. He monitors all drawings and vendor activities, provides support and information to the rest of the agency, and supervises delivery of all lottery tickets and other materials to agents and field representatives.
Employee C's duties involve primarily research and marketing analysis. He assists other divisions by compiling and interpreting data; he recommends, plans and coordinates new games and special projects as they relate to marketing planning and overall agency strategy; he interviews consultants and vendors regarding research tools for marketing; and he researches market conditions in local, statewide, regional or national scope as needed to determine potential lottery sales, game appeal, and buying habits. This individual also manages a file on lottery and gaming legislation, initiatives and laws throughout the United States. Part of this position involves maintaining a direct relationship with executive divisions of all other state lotteries and acting as liaison to all other lottery states.
All of these individuals were employed by and involved with the start-up of the Maryland State Lottery. According to the Deputy Director, the agency hired a private consultant, which had not, however, had any "hands on" experience to assist in the implementation of the Maryland Lottery. In August, 1984, these individuals formed a company, Lottery Gaming Consultants, Inc., whose purpose is to provide these types of consulting services to other states establishing lottery games.1 The Deputy Director indicates that the group markets its services by contacting other states after a lottery program has been established. He states that the firm does not get involved in legislative activities.
The Deputy Director states that they become aware of action by other states through various publications, discussions with vendors and others involved in legalized gambling, and general discussion within the industry. They propose to advise states with regard to the lottery agency's organization and structure, marketing plans and techniques, selection of agents, design of RFP's and development of games. The Deputy Director indicates that the firm would not deal with any states that geographically border Maryland. Also, though they may work with an advertising agency or other vendor service, they state that these entities tend to be localized, and they would not propose to deal in any way with an entity that does business or is likely to do business in Maryland.
When the business was being planned, the Deputy Director states that he and the other participants coordinated with the Lottery Director, and also consulted an individual who is the former Lottery Director and the firm's counsel. The current Director indicates that he does not see where the fact these individuals are Maryland Lottery employees would be a material issue in their private activities. He states that he advised that the activity would be allowable under certain conditions:
1) they could in no way ever do anything for the State of Maryland,
2) no work could be done at the Maryland Lottery,
3) no more than two of them could be on leave at the same time to perform this work, and
4) leave could be taken in connection with the work for no more than two weeks at a time.
The Deputy Director indicates that the group also relied on the former Director's experience and approval, when he was Lottery Director, for outside employment (as a teacher at a college) as long as it was not on agency time. (Board of Ethics Opinion No. 85, COMAR Title 19.)
The Director indicates that the lottery industry is a close one that performs a public function, but in some ways operates very much like a private business. He says there is a lot of interaction among officials of various states, as well as advertisers, vendors and others involved in these activities. Apparently, although Maryland Lottery employees do not go to other states to provide assistance, the agency does provide information and assistance to other lottery agencies. Representatives may come to Maryland to meet with agency officials, and information and written materials may be provided to other states. According to the Director, to the extent their expertise is required in these situations, these employees would be expected to continue this, and not to involve their private business in it in any way. The Director also recognizes that some employees, particularly at the Deputy Director level, may participate with him in national meetings of lottery officials, but he does not see this type of interaction as presenting a problem.
In April and May, 1985, the Deputy Director provided a week of consulting services to the California Lottery on behalf of the corporation. This activity came about as a result of a contact made by the Deputy Director at a social function attended while he was at a national meeting he attended on State business. Apparently his service was noted in the California press and he was identified as an official of the Maryland Lottery. The story was picked up on the news wire and reported in a Baltimore paper, and the issue of the propriety of the activity was raised in the State Lottery Commission. This group, which performs a primarily advisory function, is divided on the issue, some members believing it presents an issue, with others of the view that it is a matter to be handled by administrative staff. The agency's Assistant Attorney General recommended that an opinion be requested from the Ethics Commission.
All four of these employees are shareholders and directors of the firm, and all apparently contemplate providing services to it. Based on prior Ethics Commission Opinions, they would thus have financial interest and employment relationships with it, as contemplated in §3-103(a)(1)(i) of the Public Ethics Law (Article 40A, §3-103(a)(1)(i), Annotated Code of Maryland, the Ethics Law.) The company would not be doing any business in or with the State of Maryland or the Maryland Lottery, however, and does not appear to be regulated by or otherwise subject to the authority of the Lottery. The strict prohibition of §3-103(a)(1)(i) barring affiliations with an entity that contracts with or is under the authority of one's agency would thus not appear to apply, assuming that the firm would not be assisting vendors who might be involved in Maryland Lottery activity. The primary issues presented here, then, are whether involvement with the entity would be prohibited employment under the more general inconsistent employment provision of §3-103(a)(1)(ii), whether the activities as a general matter violate the §3-104 prohibition against use of prestige of office, and whether there are §3-101 nonparticipation issues resulting from the existence of official supervisory relationships along with private economic relationships.
Subsection 3-103(a)(1)(ii) prohibits any employment by an individual which would "impair the impartiality or independence of judgment of the employee." It has been viewed by us as a complement to §3-103(a)(1)(i), to apply where contractual or authority relationships do not exist, but where there are relationships between official and private activities that would raise questions about a person's ability to carry out his duties impartially. We have on several occasions addressed the issue of activities in other states and generally allowed it, but only where there was no direct involvement with State duties. (See for example, Opinions No. 82-21 and No. 81-33.) In this situation, at least three of the four individuals perform functions for the State about which they are advising other states.
This request also presents issues under §3-104 of the Law, which prohibits the use of prestige of office for one's own private gain or that of another. We have generally applied this provision to bar private activities which grow directly and immediately out of one's State position. We found a problem under this provision, for example, where an employee provided outside consulting service to an entity that sought advice in an official context. (Opinion No. 81-44.) We have also, however, generally recognized that State employees may market general expertise developed in their State employment. (Opinions No. 83-16, No. 81-36 and No. 81-33.) In the context of these approaches, this situation raises issues in several contexts, especially given the nature of this industry and the integral relationship between and among participants in it.
A review of the firm's activity to date, for example, presents evidence of several problems under this section of the Law. The only contract to date appears to have flowed directly and immediately from a contact made at a State funded out-of-State trip. It also appears that, as to the particular employee involved, State status and credentials were of some significance in the marketing and completion of this work task. Additionally, the fact that the employee involved was performing State liaison functions at the same time he was dealing with the other state in a private capacity, creates an undesirable mixing of State and private activities.
We are also concerned about issues presented by the fact that a supervisory relationship exists between the Deputy Director and others with whom he has a private economic relationship. We considered this type of situation and possible issues under §§3-101 and 3-104 in our Opinion No. 82-49, concluding that the existence of a private business relationship did not automatically create §3-101 and §3-104 problems, but that supervisors needed to be careful to avoid certain actions. In that Opinion we set forth several guidelines regarding reorganization of supervisory responsibilities to avoid conflicts or appearances of conflict that could result where a person who supervises others has a private economic relationship with them. This is especially an issue where the private activity involves use of leave time, and presents concerns about use of official time and materials in the outside activity. For example, in this situation, other employees or outside parties may wonder about how these administrative constraints could be effectively monitored as to Employees A, B and C, where the supervisor charged with monitoring these individuals is the Deputy Director, another person significantly involved in the outside activity.2
Considering all of these circumstances and the legal provisions of the Ethics Law, we must conclude that the business as it is currently structured and has functioned, is barred by the provisions of both §§3-103(a)(1)(ii) and 3-104. All of these individuals point out that the lottery industry is close knit and there is substantial interaction between and among officials of the various lottery states. The participants in the business are all visible parts of the top management team of the Maryland Lottery. We are concerned that the very nature of this consulting firm and the involvement of top agency personnel means Ethics Law violations and appearances of conflict are unavoidable. For example, the Articles of Incorporation were signed by another Lottery employee. The firm's first job was acquired in connection with a conference attended by the Deputy Director as a Lottery employee. It was reported in the press, the individual was identified as a Maryland official, and issues were raised at the Lottery Commission. Moreover, for whatever reason, two of these individuals present potential ethics issues by their failure to disclose the interest on their financial disclosure statements.
Our conclusion that this particular business is barred does not mean that no employee of the Lottery can use his expertise in providing private consulting services. Each situation would need to be evaluated and would largely depend upon the duties of the employee, how the work came about, the nature of the client, the relationship between or among the employees involved, and how the work was performed. In evaluating any possible future activity, the Requestors should thus be aware that there are a number of concerns that can affect how this activity is impacted by the Law, and they should keep in mind that Lottery management credibility with the public is of utmost importance. Potential conflicts could arise from relationships with vendors, and situations where Lottery employees would make referrals to them or would recommend their consulting service would have to be avoided. Additionally, Lottery employees doing consulting individually (or as a group), can be in competition with other consulting firms which may believe that the employees' State position is being used for an unfair advantage. Problems involving use of State time or materials, or interacting with State employees on State time as to matters relating to the consulting business, also may present unavoidable pitfalls. If the Requestors, individually or as a group, believe that an approach can be structured to avoid these concerns, the Commission (or its staff) is available for additional review and guidance.
Thomas D. Washburne, Chairman
Herbert J. Belgrad
Reverend John Wesley Holland
Betty B. Nelson
Date: October 23, 1985
1 We note that the business is disclosed by the Deputy Director on his financial disclosure statement covering CY 1984, but is not included by either Employee A or Employee B. Employee C is not required to disclose. We also note that the Articles of Incorporation are witnessed by a Lottery employee.
2 This problem is further complicated by the fact that the agency Director who would be the person expected to control this situation, is himself a co-owner with the Deputy Director in a real estate holding.