Rocky start gives way to gangbusters revenue for electronic pulltabs

Slow to get rolling when they were started to pay for U.S. Bank Stadium, electronic pulltabs have become a revenue juggernaut, expected to bring in more than $250 million by the end of this fiscal year June 30.

Last year, gross sales from e-pulltabs were over $200 million. That was more than double the previous fiscal year and a steep climb from the first year, when gross revenue in fall 2013 topped out at $16 million, well short of expectations.

"I can't give you a scientific reason why this is happening," said Tom Barrett, executive director of the Minnesota Gambling Control Board, which regulates electronic pulltabs as part of the state's $1.8 billion charitable gambling industry.

The cash infusion has created a fiscal food fight at the State Capitol. It's a complicated formula, but after some $40 million is used annually to pay debt service and ancillary expenses for U.S. Bank Stadium, the excess is rolled into a stadium reserve account. The reserve is a backup created to cover the annual debt payments on $498 million in bonds issued to pay the public's share of the $1.1 billion, two-year-old stadium.

Because the electronic pulltabs are now raking in revenue, the reserve fund will have almost $40 million by the end of June. If it's not siphoned off for other projects, the fund is projected to hit $120 million in 2021.

That robust projection has set up a debate between Republicans in the House who want to spend some of the money now to build three veterans homes and Gov. Mark Dayton's administration, which wants to sit tight and see how the e-pulltab revenues fare in the next couple of years. While no one disputes the need to support veterans, both Dayton's administration and the Minnesota Vikings want to leave the reserve alone for now.

"It's too early," Minnesota Management and Budget Commissioner Myron Frans said about tapping the reserve. He pointed out that the fund revenue balances are just projections, not actual cash.

House Governmental Operations Finance Chairwoman Sarah Anderson, R-Plymouth, laughed at the notion, saying the state budget is always created off revenue projections. What's more, the fund has cash to pay for the veterans homes. "That money is there now. It's real," Anderson said, adding that she wants to spend the cash on "a better purpose" than the stadium.

A bill containing a provision to use the reserve money is expected to come up on the House floor Thursday.

The Minnesota Vikings, the primary tenant at the stadium, opposes taking the reserve for something else and called for a broader discussion about debt repayment and a cash cushion.

"U.S. Bank Stadium has only been open two years — it is a tremendous asset for the state and it needs to be protected," Vikings Executive Vice President Lester Bagley said. "If revenues are coming in strong, perhaps there should be an evaluation of the option to refinance the stadium debt, similar to what Hennepin County did with the Twins deal. Any attempt to take money from the reserve fund would hamstring that effort."

Electronic pulltab sales are a tender subject for the nonprofits that have a huge stake in charitable gambling, which includes paper pulltabs, raffles, bingo and other games of chance played in bars for the benefit of youth sports and other causes.

Although the gaming industry was interested in electronic pulltabs in 2008, legislators didn't become interested until 2012 when the state decided to use them to help pay for a new Vikings stadium. Then e-pulltab sales fell way below projections, forcing the state to tap corporate taxes for the project.

With sales surging now, some nonprofits are wary of further tinkering.

Friar Tuck's in Forest Lake is the largest e-pulltab seller, bringing in $470,000 in March, according to the gambling board. Second was Skarda's Bar in St. Paul, which brought in $340,000. The 1029 Bar in Minneapolis was ninth, bringing in $200,000.

Electronic pulltabs took off immediately at Skarda's, said Glen Jenkins, the gambling manager of the St. Paul Fire Fighters Local 21, which runs the operation. "The people bought into it right away," Jenkins said.

Other sites run by the firefighters weren't as interested, he said. One of the biggest complaints: Patrons didn't want their money to go to the stadium, Jenkins said. "People were wary," he said.

The local grosses about $1 million annually, Jenkins said. After salaries and taxes, up to $100,000 goes to charities, primarily youth sports, Jenkins said. The organization pays up to $70,000 a month in taxes, he said. Last year, charities unsuccessfully sought tax relief from the Legislature.

Jenkins doesn't like the idea of redirecting the stadium reserve fund created by the e-pulltab revenue. "We were made a promise that money from charitable gaming was going to the stadium," he said.

While Anderson is optimistic about the reserve fund, others say to wait and perhaps use it to pay down the bonds early — as Hennepin County has done for the Twins ballpark, Target Field. Hennepin County is on track to pay off the debt on the building almost a decade early. U.S. Bank Stadium's bonds are different, but the debt can be restructured — more easily in 2023.

The state's share of the stadium debt burden also eases in 2021 when the city of Minneapolis starts making payments from sales taxes after paying off the convention center debt. For now, the state is covering payments on the city's $150 million worth of bonds.

"That's the time to make that decision," Frans said about tapping the stadium reserve. "If there's any one theme that Gov. Mark Dayton has had, it's 'Let's be fiscally careful.' "

But for the pulltab revenues and the reserve fund to fall short, Anderson said things would have to go south far beyond anyone's current projections.

Barrett defended the early projections that fell short, saying there was no model on which to base them.

Now that they've caught on, e-pulltab growth has blown away growth for all other forms of charitable gaming here. Overall sales increased 13 percent over 2016. And the electronic tabs don't appear to have hurt old-school paper pulltabs, which have maintained single-digit growth.

"We expected to see a good bit of a drop and that's not happening," Barrett said. "It's been the most interesting element we've seen."