Minnesota lottery officials try to salvage online sales

Minnesota State Lottery officials are scrambling to craft a last-ditch deal that would stop legislators from slamming shut the lottery's foray into online ticket sales.

Lottery officials have been meeting daily with legislators to broker a compromise that would allow them to continue selling tickets online while prohibiting any new initiatives.

"I am hoping we can we reach some kind of common ground," state lottery director Ed Van Petten said. "I think there is a chance that people will finally look at the facts."

A bipartisan bloc of legislators is upset that lottery officials embarked on the sale of scratch-off lottery tickets online and at gas pumps without their approval. They say it is an unauthorized and dramatic expansion of state-backed gambling, the newest flare-up in a long and divisive battle at the Capitol.

A measure to immediately halt online and gas-pump lottery ticket sales sailed through the Senate in late April and awaits a final vote in the House, where support is strong. The intensifying fury over the issue is drawing a range of powerful lobbyists in the closing days before the final vote.

State Rep. Greg Davids, R-Preston, called the Internet games "online crack."

Rep. Jim Davnie, DFL-Minneapolis, said the lottery is "aggressively" recruiting the next generation of gamblers. "I don't think that is the purpose of government," he said. "I don't think that should be our role."

The venture into online sales is part of the lottery's effort to reach new audiences who are more comfortable with computers and less enamored of conventional paper tickets. Lottery officials contend that online and gas-pump ticket sales are merely marketing measures to help retailers skeptical of the new technology.

The issue has smoldered at the Capitol for months, igniting recently after testy legislative hearings and then an overwhelming Senate vote. Van Petten has argued that he is not required to get legislative approval to conduct Internet or gas-pump sales, since they are the same games consumers buy at convenience stores.

The lottery has become a rare issue that is putting Democratic legislators at odds with DFL Gov. Mark Dayton, who appointed Van Petten and who wants the voter-approved lottery to succeed. Lottery proceeds go into local environmental and conservation funds and help fund the state budget.

Dayton said legislators are trying to micromanage a state agency that is under control of the executive branch. Online ticket sales began under Republican Gov. Tim Pawlenty and have accelerated under Dayton.

"[Van Petten] deserves deference, given his expertise," Dayton said in an interview. "Why would we want to hamstring his ability to make the lottery as successful as possible?"

Dayton said he is trying to listen to all sides of the issue, but a strong bipartisan vote could dissuade him from exercising his veto power.

Leaders in the powerful, multibillion-dollar tribal gambling industry have watched the lottery expand online over the past several years. They are increasingly concerned by the lottery's push online without legislative oversight, and worry what other initiatives could compete with tribal casinos.

"The new scratch-off sales are a little bit of a stretch," said John McCarthy, executive director of the Minnesota Indian Gaming Association. The possibility that the lottery could expand further, he said, "makes us say, 'Hold on, can they do all these things?' "

Rep. Kathy Lohmer, R-Stillwater, says that convenience store owners in her district have visited her, worried that online sales will hurt their business. She said they agreed to take on the cost and hassle of selling lottery tickets only as a means of drawing customers into their stories to buy snacks and drinks.

"If they can do it online or do it at the gas pumps, it really doesn't bring people into their stores," Lohmer said. "It hurts their businesses." Some gas stations now have pumps with TV-style screens and ticket dispensers that allow customers to purchase their lottery tickets without ever going inside.

Dayton is not alone in questioning whether the opposition is really being driven by those, as he said, "who have a very lucrative piece of this gambling business and don't want to give any of it up."

Online scratch-off ticket sales accounted for $200,000 out of the lottery's $139 million in sales since the system went live in February.

The governor said legislators' additional push to ban lottery ticket sales at gas pumps is another sign that "the fires have been lit by some of the interest groups."

Former GOP Sen. Dick Day, now a Capitol lobbyist, said the sudden outrage is stoked by tribes defending their lucrative casinos.

"The Indians run this place. Period," said Day, who saw the tribes outmaneuver him on a plan to bring casino-style gambling to area horse racing tracks. "Anything they want around here, they get. And you know why? It's all money."

Tribes with gambling interests have donated to legislators in both parties and remain a significant political force at the Capitol.

McCarthy dismissed Day's assertion. "We haven't even spoken with the sponsors of the measure," he said.

With the issue gaining momentum, forces deeply vested in the outcome are muscling up their lobbying teams.

Linq3, a New York company that makes the interactive gas station pumps that sell lottery tickets, has upped its lobbying force at the Capitol from three members to eight in the past two months.

Its lobbyists are trying to separate their interactive gas pumps from the furor over online lottery ticket sales.

"There has been a lot of misinformation about what our technology does and does not do," said David Johnson, a lead lobbyist for Linq3.

Van Petten said voiding the contracts with online vendors could cost taxpayers $9 million in early termination fees and hurt the conservation groups that get money from lottery proceeds.

"It's a big mess," said Rep. Mary Liz Holberg, R-Lake­ville, who opposes online gambling. "I don't think you can cut contracts in the middle. … That is going to create more liability for the taxpayers."

House Speaker Paul Thissen, DFL-Minneapolis, said he is troubled by the online sales and expects the ban to be voted on in the coming week.

"Generally, I think we need to look much, much more closely before we let the lottery director expand online," Thissen said.

Baird Helgeson • 651-925-5044