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Vikings stadium: Why electronic pulltab gambling flopped

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Electronic pull tabs
A patron plays an electronic pull tab machine at The Pines Bar & Grill in Maple Lake, Minn. Wednesday, Sept. 11, 2013. Amy Koch, the owner of The Pines, said she has seen the popularity of electronic pull tabs at her bar wane in the last two months.
MPR Photo/Jeffrey Thompson

Gamblers would love electronic pulltabs. Cash would flow and the state's cut from the new games would pay the public share of a new Vikings stadium. That's what Gov. Mark Dayton and other politicians predicted.

A year later, that billion-dollar promise has mostly been a bust. Revenue is down nearly 100 percent from projections. Bar owners dismiss e-pulltabs as not worth the cost and hassle to install. Gamblers say the electronic games just aren't that much fun.

A fiscal train wreck? More like a plane crash, Dayton told MPR News.

"The National Transportation Safety Board says that in an airplane crash, there's seldom just one factor, one mistake that is the sole causation, and I would say in this case as well," Dayton said in a recent interview. "You know, there were multiple errors made, and in hindsight, obviously we were terribly wrong. But everything, as far as I know, was done in good faith with the best of intentions."

The NTSB typically identifies who's at fault in plane crashes. A year into e-pulltabs, people are still picking through the pieces, trying to understand what happened.

"We all agreed that we didn't want to use general revenue funds, so this was a new source of revenue, and one that everyone who was involved appeared to believe," said Dayton, who backed a hike in cigarette and corporate taxes to finance the Vikings stadium bonds after it was clear e-pulltabs were falling short.

"These projections were as good as anybody could do."

Few see it as clearly now as former Republican State Sen. Amy Koch. 

As Senate majority leader in 2011, she was among the inner circle debating a stadium deal, and eventually voted to approve the plan in the Senate. After she left the Legislature she bought a Maple Lake bowling alley and the bar and grill attached to it, complete with an e-pulltab business.

Koch says the state got some key things wrong when it banked on electronic pulltabs.

First was the expectation that 2,500 bars would install more than 15,000 games as fast as they could plug them in. The latest count has about 300 bars and only about 1,300 games.

"The bars, it's incredibly expensive to put them in," Koch said. "I'm not a big bar. There are smaller bars, yet. There's no way they're going to be able to afford to buy equipment and take six, eight months to pay off your investment and then see maybe a couple hundred bucks a month. It's not worth the trouble."

Meanwhile she says many customers still prefer paper pulltabs. 

That's been true all over the state. As electronic pulltabs have flopped, regular pulltabs are actually booming. Charitable gambling revenue overall was up by 8 percent last year over the year before. 

WHY WERE PULLTABS APPROVED?

The state wanted the new electronic games more than the gamblers did.

Why? The deal didn't require a tax increase or spend general fund money, which both the governor and lawmakers ruled out. Charitable gambling had been filling state coffers for decades and the state needed the money quickly, as the NFL was threatening to relocate the Vikings.

Amy Koch
Former state legislator Amy Koch talks with a customer at The Pines Bar & Grill, the establishment she owns in Maple Lake, Minn. Wednesday, Sept. 11, 2013.
MPR Photo/Jeffrey Thompson

But the idea was untested: Minnesota was going to be the first state in the U.S. to roll the games out. 

Koch says the government shutdown in 2011 also made it harder for lawmakers to voice doubts about the prospect of easy dollars rolling in.

"I think there was healthy skepticism of them," she said. "But you add to that the political pressure of the stadium, you add to that, you know, a governor that wanted to get a stadium done. And, of course, we learned in the budget battle that the governor's agencies, their numbers were the gospel."

Dayton says he still trusts the Department of Revenue and the state's Gambling Control Board, who came up with the projections.

Gamblers say it's easy to see what went wrong.

Sharri Moen plays e-pulltabs in Amy Koch's bar. Moen is exactly who the state had in mind when it legalized the games.

"It's something fun to do, you know, and it's right in town," she said. "So instead of traveling an hour and a half to go to a casino, and have fun there, we get to come to a bar, and we're only 10 minutes from home."

But she and player Bob Wold, who have tried different versions of the games, say many of the e-pulltabs aren't much of an improvement on the old-fashioned pulltabs.

Some machines are "very interactive, like a slot machine, pretty fun," Wold said. "Other ones, they're basically just like paper ones, except that they go beep."

That's reflected in revenue figures. 

WHAT'S THE TAKE?

The iPad games from one company, Express Games, took in an average of about $100 a day on each iPad last month. That's eight times as many bets as the next biggest competitor, per machine. And some of lower-performing machines took in less than $2 a day in August, on average.  

That compares to the $225 a day, per machine, the state was expecting.

The Vikings stadium and electronic pulltabs may have been doomed from the start, said Al Lund, who heads Allied Charities of Minnesota, which represents about half the state's charitable gambling operators.

Joking with customers
Surrounded by pull tab boards, electonic bingo screens and other signage, Amy Koch jokes with customers at The Pines Bar & Grill in Maple Lake, Minn. Wednesday, Sept. 11, 2013. Amy Koch, the owner of The Pines, said she has seen the popularity of electronic pull tabs at her bar wane in the last two months.
MPR Photo/Jeffrey Thompson

While the e-pulltabs promised excitement, operators were reluctant to break out of their old habits, using the same games and the same suppliers they've been using for decades, Lund said. ""The loyalty that charities had to their distributors was underestimated," said. 

Looking back, he says it was unrealistic to expect the business could grow so large. The state projections suggested e-pulltabs could rival the estimated size of tribal gambling in Minnesota in a matter of months.

The problems though, aren't a reason to give up on electronic gambling, Lund added. 

The distribution, accounting and playing experience of electronic pulltabs have a clear advantage over the paper games and will likely give charities more money for more causes in the long run, he said.

"If there were no examples of people that had taken this new technology and run with it and had great success, I would be in the camp of people that said maybe this wasn't a good idea," Lund said. "But I looked at the top 10 sites in August and they netted $81,000. I would call that good. Is it as good as we'd hoped? Absolutely not."

In the end, Dayton says it doesn't matter much what happens to pulltabs as far as the Vikings stadium goes.

A one-time cigarette tax and a new tax on out of state corporations are expected to fund most of the actual mortgage payments on the state's share of the stadium.

"There's every indication that closing some of the corporate loopholes is also going to meet its mark, and we'll have the stadium adequately financed for as long as anyone can foresee," he said. 

The state will test that promise this fall. 

Minnesota is expected to borrow $498 million for the new stadium and break ground on the new facility sometime soon after Nov. 1.