ST. PAUL, Minn. (AP) — Minnesota lawmakers are in a lottery pickle: Let sales of virtual tickets continue over bipartisan objections or be forced to find millions of dollars to shut the venture down.
Legislation demanding that the Minnesota Lottery abandon a budding system of instant-play and draw game tickets sold over the Internet is steaming ahead at the Capitol. But legislators were told Tuesday that doing so could deprive accounts that pay for park upkeep, wildlife preservation and other environmental projects as well as leave a hole in the general treasury because of how lottery profits are split.
The potential $8 million cost attributable to lost sales within the next few years and vendor contracts that would be breached if the Legislature halts the games. Lottery officials are getting an earful over their recent launch of virtual scratch-off tickets, which angered lawmakers because they didn’t provide explicit direction to the agency.
“The lottery is way out of bounds here and we have to rein them in and tell them how it’s going to be,” Rep. Greg Davids, R-Preston, said Tuesday at the first of this week’s two House committee hearings.
Lottery director Ed Van Petten insists his agency had authority within existing laws to proceed, citing a legal opinion conducted for a vendor that he said he isn’t permitted to release. The new games are essential to keeping the lottery vibrant at a time when traditional brick-and-mortar sales are tapering, Van Petten said.
“We are using this technology to evolve,” Van Petten told the House Taxes Committee, which held an informational hearing ahead of a Thursday vote in the House Commerce Committee. “The retail environment has to evolve.”
Several states now allow the online sale of tickets for draw games like Powerball, as long as the players live within their borders. Minnesota pushed it further when it began offering scratch-off-type games on its website in February.
A companion bill awaits a vote on the Senate floor after clearing committees, and top lawmakers of both parties are co-sponsors.
Gov. Mark Dayton’s office is keeping tabs on the bill’s progress but the Democrat has yet to publicly stake out a position. Dayton said Tuesday he respects the concerns of lawmakers but worries they are micromanaging the lottery.
Weekly electronic purchases in Minnesota are capped at $50 per player. Age verification software is used and winnings or losses are tied to a user’s pre-registered bank account. Since launching in November 2010, online drawings have netted $3.3 million; the instant-play games have pulled in $170,000 in a little more than two months.
Van Petten said the main purpose of the instant-play games is to build brand awareness of the lottery’s offerings, especially to players under 40 years old who are more accustomed to using technology.
But a raft of opposition has emerged. Casinos and charitable organizations that sell pull-tabs in bars and restaurants fear the lottery’s online games will cut into their sales, some brick-and-mortar stores worry about declining purchases and groups battling compulsive gambling say it’s an invitation for trouble.
“I don’t believe voters ever foresaw that this would become a lottery terminal,” said an iPhone-waving Brian Rusche of the Joint Religious Legislative Council, which opposes the new games for fear of social costs tied to addiction.
Jake Grassel of Citizens Against Gambling Expansion added: “We kind of believe it’s an online slot machine.”
The Minnesota Lottery was established after voters passed a 1988 constitutional amendment, which dictated that at least 40 percent of net proceeds are deposited in a natural resources trust fund. It now generates more than $500 million per year in total revenue, about 60 percent of which goes back via prizes. In fiscal year 2012, $124 million went to various state programs.
If the proposed ban on Internet sales prevails, Van Petten said the lottery could be exposed to a potential breach-of-contract claim by a key vendor that could cost the state $2.5 million. Lawmakers expressed no sympathy and said taxpayers shouldn’t be on the hook for a questionable deal.
“We have ability to say we are not going to pay back that $2.5 million,” said Rep. Ann Lenczewski, DFL-Bloomington. “The lottery can eat that.”
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