Slow influx of games is dragging projections well below already-lowered expectations.
Six months after the state approved a plan to fund a new Vikings stadium with charitable gambling, sales of electronic pulltabs and bingo are running nowhere near initial projections.
Gross revenues for the games are $7.5 million — just over one-fifth the $35 million projected last May. Projections for tax revenue from all charitable gambling, forecast at $17 million this fiscal year, are expected to be scaled back with Thursday’s state budget forecast.
Getting the electronic games into bars and restaurants has been stalled by long waits for background checks and license approvals for manufacturers and vendors. Plus, there’s been little to no product competition or marketing, and many charities have been waiting for their own game vendors to get licensed.
Although the pace of e-gambling is increasing, legislators and other observers are concerned that the plan to pay the state’s $348 million share of the new Vikings stadium may be on shaky ground.
“I think the projections were just too high, which is unfortunate because we are judging success or failure on them,” said Rep. Joe Atkins, DFL-Inver Grove Heights, chair of the House Commerce and Consumer Protection Committee, which oversees gambling.
“The number of sites projected to be up and running was 2,500 by October,” he said. “Last week, we were at 170 [sites]. … The projection was $209 per day per device. We’re at less than half of that.”
Atkins said he will introduce legislation next week to approve a new electronic game run by the Minnesota Lottery, to be placed in bars and not requiring charities’ oversight. Proceeds would be put toward the stadium.
The charities that oversee pulltab gambling and bingo across the state fear they are being unfairly blamed for the slow rollout. They have long considered the stadium financing projections unrealistic and now worry they may be pushed out of the way so that bar owners can directly oversee the gambling — which is currently illegal.
“This was an arranged marriage between the charities and the Vikings,” said Al Lund, executive director of Allied Charities of Minnesota, the trade organization for the 1,500 charities that oversee gambling.
“I’ve come across no one who thought we could double our tax contributions to the state in one year [as was projected]. ... What is broken is the process.”
How it works
The stadium bill was based on the assumption that new electronic games at bars and restaurants would be so wildly popular that they would boost charities’ gambling taxes — $40 million in 2012 — by another $35 million by the end of this fiscal year in July. That expectation was lowered to $17 million in November.
But total charitable gambling revenue — on which the tax increases are based — has not skyrocketed over the past year, making it impossible to generate that kind of money.
The problem, say gambling veterans, is that the state, in its rush to generate stadium funds, launched the electronic games with just one game manufacturer, based in Las Vegas, and one distributor.
That new distributor, ExpressGames Minnesota, had no history with Minnesota charities, which had been working with 18 other game distributors — many for decades.
The situation has led to pressure and suspicion on all fronts. Some charities found that the people selling the electronic games were pitching the games directly to their bars, apparently in hopes of getting someone to lobby the charities. That was unheard of in the past.
“I felt like it was underhanded and cheap — a cheap trick to getting me to buy electronic pulltabs,” said Jay Eull, gambling manager for the Albertville Lions Club.
What’s the holdup?
Meanwhile, longtime Minnesota distributors wondered why it was taking so long for their license applications to be approved by the state Gambling Control Board. In the state of Virginia, by contrast, where electronic games are also rolling out, existing distributors did not have to reapply for licenses, said Michael Menefee, program manager for charitable gambling.
And it wasn’t until December that a second e-pulltab distributor was approved for Minnesota.
The initial revenue projections didn’t factor in the long wait for background checks of both manufacturers and sellers, which have taken months at the Minnesota Department of Public Safety, gambling veterans say. Nor did the projections factor in the months needed for games to be approved and certified.
“We still only have two electronic pulltab manufacturers doing business,” said Lund. “We have two linked bingo manufacturers that would like to be in business but are still in the process of being approved.
“We have seven distributors licensed to sell electronics but no product to sell,” he said, referring to several distributors waiting for their games to get approved.
The state Gambling Control Board has said it must ensure that games follow the approved standards, which can take time. Likewise, the background checks and licensing process are critical to ensuring the integrity of operations, they say.
Minnesota started from a difficult position, noted John Smolic, president of linked bingo manufacturing company EGS, a St. Louis-based company awaiting approval of its bingo game.
No other state has launched electronic pulltabs and bingo on such a scale, so it is working with new technology and with no model to follow.
Another issue is that there’s been little marketing of the new games — unlike the Minnesota Lottery, which has a budget to advertise on billboards and TV, noted Tom Barrett, executive director of the Gambling Control Board.
Under the stadium funding plan, two taxes would “blink on” if revenue projections fall short, said Phil Anthony, research analyst at the Minnesota Department of Revenue. One would be on a new dedicated game from the Minnesota Lottery.
The other would tax the sale of box seats and suites at the stadium.
The outlook is not completely grim. The pace of e-gaming is picking up. Electronic bingo sales look promising. Paper pulltab sales are up about 6 percent. Taxes on all these forms of gambling will help fund the stadium.
Key players in the $1 billion a year charitable gaming industry believe electronic games have real growth potential.
The problem is that too much was expected too fast, they say. Said Lund: “Anyone who thought charities could double their state taxes in one year was wrong.”
Jean Hopfensperger • 612-673-4511
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