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Lies and Lobbyists

By Byron La Fleur

Back in 2013, the Minnesota State Lottery became the first lottery in the United States to start selling online instants. Sales were good, albeit small relative to physical instant tickets. But despite the small sales, the Minnesota Lottery was under intense political pressure for beginning online sales. And that political pressure never waned—if anything, it mounted for two years. The Minnesota Lottery did everything in its power to inform legislators that what they were doing was legal, beneficial to the state, and would have no negative repercussions on casino or charitable gaming. They provided evidence, facts, and testimonies to support their case, but it did them no good. The dissemination of misinformation by casino interests spread so much fear through the state legislature that nothing they did mattered. This is the story of how lies won over facts and fear over evidence.

From 2012 to 2015, Ed Van Petten was the director of the Minnesota Lottery. Before he joined the Minnesota Lottery, he worked at the Kansas Lottery for over a decade. However, his experience in the industry was used against him. During one committee meeting, Van Petten was accused of starting up online instants in Kansas. The Senator went on to say the internet gaming had failed “so miserably that the Kansas Lottery was forced to terminate sales after two years.”

This claim was a lie. Van Petten clarified the record by explaining to the senator that the enabling legislation in Kansas specifically prohibits the sale of any products over the internet and that law has been in place for years. After asking questions to clarify, the senator finally accepted that the Kansas Lottery had never sold any form of e-instant game. Many would assume that the matter would have stopped there. But the very next day on the Senate floor, another senator made the exact same statement in the full debate of the senate.

I asked Van Petten where the senator would have gotten this information. “They sure as hell didn’t get it from me, because it never happened. They could not have gotten it off the internet, because it didn’t happen.”

For me, that leaves one other realistic option. They, and probably all the other legislators, got their misinformation from casino lobbyists.
The casinos had lobbyists in every Minnesota hearing concerning internet gaming. Not just one or two lobbyists, either. “During one conference committee hearing, we were delayed in starting. So a senator made a comment about how rare it was for a conference committee hearing to be that crowded. The senators then asked for everyone to introduce themselves and who they are representing here. I didn’t count, but at least 40 lobbyists announced they were representing casinos. There were also another eight to ten that, after she made that announcement, decided it would be best if they got up and left the hearing without introducing themselves. I always found that very interesting,” Van Petten said.

The Minnesota Lottery knew that it would be an uphill battle. They used a worldwide survey that looked at over 100 different lotteries. Fifty of those lotteries actively sold online instant tickets on the internet. The lottery compared those internet sales to the casino sales to see if there was any before/after effect on the market. The evidence was clear: In no jurisdiction in the world did the sale of internet lottery tickets adversely affect casino sales or charitable gaming.

I asked Van Petten how the legislators reacted to the report, considering it countered the special interests argument completely: “They didn’t read it. In fact, the legislators threw our report away.”

This refusal to listen to any evidence continued. In one hearing, the lottery brought in two lottery experts to testify: David Gale, director of NASPL, and Chuck Strutt, then the head of MUSL. They were officially on the agenda. But neither was allowed to testify.

On the other hand, the casino lobbyists never testified themselves. But that didn’t stop them from telling legislators behind closed doors that internet instant tickets were going to ruin both charitable and casino gaming. They etched into legislators’ minds that people would just stay in their homes and gamble online.

They also implied that selling e-instants was illegal under the Federal Wire Act. “I found out later that the lobbyists filed a letter of complaint with the US Attorney’s Office. I heard the Attorney’s Office laughed them out of the building.”

But that did not stop many legislators from reiterating the lobbyists’ argument that it was illegal. “Whenever I heard this, I would always respond, ‘If any of these parties truly believed what we are doing is illegal, we would be in a courtroom having this discussion, not a legislative hearing,’” Van Petten said. “No one ever argued that point.”

In 2014, the Minnesota legislature passed a bill banning the Minnesota Lottery from using online instant tickets. The governor, however, vetoed the bill. But because the veto happened at the end of the session, the legislature had no time to overturn it. The casinos blamed house and senate leadership for not getting the bill passed sooner in the session. To get the point across, the casinos apparently made no contributions to their political parties for the next election.

In 2015, the bill came up again, but this time it happened very early in the session. To no one’s surprise, it passed quickly and the governor didn’t veto the bill. With that, the Minnesota Lottery had to turn off internet sales at the end of the summer. Interestingly enough, what the legislature did was illegal. Both the United States Consitution and the Minnesota State Consitution have what is referred to as a contract clause. It says, in layman’s terms, that no legislator can enact legislation that infringes on an existing, lawful contract. Despite being informed of this, leadership gave no indication they cared and passed the law anyway. This set the state up for a potential lawsuit. Scientific Games documented a loss of seven million dollars in damages in direct expenses they incurred. They didn’t calculate potential loss of profit. This was a significant loss of money. Scientific Games, fully aware of the Minnesota Lottery’s predicament, settled for only $3.5 million dollars.

Internet gaming would have helped the Minnesota General Fund significantly over the next decade. Instead, the state lost: $3.5 million. The lottery lost: a tool to reach out to new audiences. The players lost: a fun new way to support their state. So who won? The lobbyists. They won despite never presenting one fact to support their position. They won despite never testifying in a hearing. They won using only fear and innuendo, and they did it all behind closed doors.

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2017-03-10T14:06:58+00:00

2 Comments

  1. John Gorman March 11, 2017 at 4:22 pm - Reply

    Thank you for this well-researched and insightful article. The DC Lottery watched with great interest when MN went live with their e-instant games. Following the crushing experience we had with almost being able to sell lottery products online we had hoped that a smooth, successful roll-out in another jurisdiction would help assuage the concerns that precluded DC from going live with our own program. I remember seeing the MN e-instants product being presented at several industry conferences and I was impressed with the quality of the execution and excited about the prospect of someday being able to offer a similar product to our players.

    When I heard the news of the program being challenged by the MN legislature and ultimately cancelled I never really investigated what went down there. This article revealed what went on behind the scenes and how it was the influence of the casino lobbyists that ultimately led to the abrupt reversal. This whole episode causes me concern because it’s just another example of how hard it is to be innovative in this industry. What is the incentive for the next jurisdiction to put their necks on the line to move their lottery forward in the 21st century, to find new players and new revenue streams, when all of that hard work can be reversed by the stroke of a pen?

  2. Stephen Wade March 17, 2017 at 9:43 pm - Reply

    Thank you for this ‘inside story’ on how entrenched interests were able to stop a really progressive lottery effort. I recall speculation at the time that owners of small retail shops were an important driver of the backlash against e-games. This account suggests that the more important opponents were fewer in number, and with deeper pockets and connections. It would be very interesting to know who the parties who left the conference committee hearing were representing!

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