Minn. lawmakers call online games 'lottery gone wild'

Minnesota's online gambling initiative ran into stiff resistance at the Capitol on Tuesday, as lawmakers grilled state lottery officials about the Internet games.

The Minnesota Lottery started selling draw tickets in 2010. It added online scratch off games on Feb. 6, allowing gamblers to play the games right on their computer or smartphone.

Lawmakers questioned whether the plan was legal under the state law that authorized the games. Rep. Ann Lenczewski, chair of the House Tax Committee, is sponsoring a bill that would end online lottery sales. "You can stop this," she told committee members.

Lenczewski, DFL-Bloomington, received bipartisan support Tuesday.

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"It seems like you're coming in the back door," Rep. Greg Davids, R-Preston, told lottery officials, questioning whether the games were legal. "This is the lottery gone wild."

Lottery director Ed Van Petten said extensive legal research by the lottery, its suppliers and even a former state Supreme Court justice found that the games are legal under state law. Van Petten told the committee that the lottery has sold more than $3.3 million in draw game tickets and more than $170,000 worth of online scratch-off games.

Van Petten also said online sales are critical to the future of the lottery as traditional sales have slipped, particularly among young adults.

"That's where retail is going," he told lawmakers. "You have to have yourself out on the Internet so that people can see what your product is."

A state financial analysis provided to lawmakers said traditional lottery games fell to $44.9 million per month in February, from $46.7 million per month in fiscal year 2013. "Assuming sales continue at this level for the rest of the year, the lottery expects to end the fiscal year with sales 4 percent lower than the previous year," the analysis said.

But the lottery's response, expanding to the Internet, has set off a backlash at the Capitol. Lawmakers say neither they nor the state constitutional amendment that legalized the lottery in 1988 authorized Internet gambling. Lawmakers are also thinking of rolling back other lottery initiatives like selling tickets at gas pumps and ATM machines.

Others also lined up asking lawmakers to act.

"Minnesota already has too much gambling," said Jake Grassel, spokesman for Citizens Against Gambling Expansion. "Internet expansion will mean we have a gambling facility in every home, library and Starbucks in the state."

The trade group for the state's charitable gambling operators -- the groups that run pulltabs and other games -- said the state lottery was taking a regulatory short cut by presuming it could sell on the Internet, rather than seeking prior approval, like electronic pulltabs did in 2012.

"The history is they kick out the walls, they stop and see if anybody complains, and if nobody notices, they kick the walls in again," said Al Lund, executive director of Allied Charities of Minnesota. "We do things a little differently: when we seek changes, we come to you."

Faith groups and trade groups for the state's gas station owners also testified in favor of a ban on online lottery sales. Lawmakers questioned the security of the personal information of gamblers online, whether the games would founder like electronic pulltabs, as well as a pledge by the lottery to reimburse the vendor of the existing online games if the state rolls back the Internet gambling.

Lawmakers, though, face a financial hurdle: a fiscal projection of the impact of the bill notes that a ban could cost the state and its environmental trust fund $2.5 million for fiscal year 2014, and as much as $8 million by 2017. They may have to find that revenue elsewhere or make cuts to close the budget gap left if Internet lottery ends.

Lenczewski, the bill's sponsor, urged her colleagues to consider the potential social costs of letting the online games go forward and said the cost of stopping it now would be small by comparison. "We should not be addicted to gambling to fund our government," Lenczewski said.

The measure could get a vote in the House commerce committee later this week. A companion bill, sponsored by Senate Tax Committee Chair Rod Skoe, D-Clearbrook, is poised for a vote on the Senate floor.