Minnesota Lottery leader feels the heat from Legislature

A powerful and bipartisan group of legislators are edging toward a showdown with Minnesota Lottery officials over their expansion into online ticket sales.

"I'd like to put a stop to it," said House Taxes Committee Chairwoman Ann Lenczewski, a Bloomington DFLer who is sponsoring a measure to block online lottery sales.

The head of the Minnesota Lottery has faced a steady grilling at the Capitol this week over expanding online offerings to include electronic versions of the lucrative scratch-off lottery games. The move is designed to appeal to younger, tech-savvy Minnesotans and potentially transform the lottery business in coming years.

"The other gaming interests have got everyone stirred up," said Ed Van Petten, executive director of the Minnesota Lottery. "It's the Internet boogeyman."

The proposal has caught the attention of state tribal gambling interests who are trying to protect a multibillion-dollar industry. The gambling industry nationwide is facing relentless pressure from the sagging economy, newer gambling destinations and the looming threat of legalized online gambling as other states jump into Internet sales.

The tribes have given significantly to candidates and causes of both parties, making them a major lobbying force whenever talk turns to gambling at the Capitol. These same groups have successfully beaten back new gambling proposals, from a downtown Minneapolis casino to Las Vegas-style slot machines and other games at horse racing tracks.

"We don't pick fights, unless someone picks one with us," said John McCarthy, executive director of the Minnesota Indian Gaming Association. "We are not so concerned about what is going on right now, but where it is going. We also feel as if they probably overreached and probably don't have the authority to do this."

"When the lottery talks about special interests, it's like: Watch out for your own back yard," McCarthy said.

The gambling issue is enormously complex around the Capitol, testing the politics and ideologies for both parties. In this issue, conservative crusaders find themselves closely aligned with liberal DFLers who share a moral objection to state-sponsored gambling.

"To me, that's just not a way to run a government," Lenczewski said. "We shouldn't need gambling to run a state government."

Online gambling makes up a fraction of the state's $560 million annual lottery business.

The lottery has about 8,500 consumers who actively use the new online accounts, compared with about 1.2 million Minnesotans who buy tickets at least once a month.

Internet players can choose from a host of online scratch-off lottery games, which are digital replicas of paper lottery tickets. Online players can bet up to $50 a week, and problem gamblers can block themselves from the site, something lottery officials note can't happen at retail locations.

The lottery website also has a "cooling-off period," which delays a request for a limit increase, to discourage consumers from betting excessively. The lottery has several high-tech ways of ensuring customers are old enough to play and geolocators to make sure the player is in Minnesota.

Legislators are most upset that lottery officials are proceeding without legislative approval.

"I think it is outrageous," said Rep. Greg Davids, R-Preston. "They need to be reined in."

Van Petten contends that offering lottery tickets for sale online does not constitute an expansion of gambling. He maintains that the law does not require the State Lottery to seek legislative approval.

Sen. John Marty, DFL-Roseville, said those voters never imagined the possibility of Internet gambling and smartphones.

"They foresaw people going to their local convenience store and buying a lottery ticket," Marty said. "This is not eliminating what has been done in the past, this is stopping an expansion of gambling."

Senate Taxes Committee Chairman Rod Skoe said that in a hearing before the session started, he was struck by what he called Van Petten's brazen disregard for legislative approval.

"At that point, it was clear to me they were, 'Damn the Legislature, we are going to do what we want to do,' " said Skoe, DFL-Clearbrook. "That was a mistake, in my opinion."

Skoe said that when he left that hearing, he immediately returned to his office and started drafting a measure to block the online expansion.

When Dayton appointed Van Petten to the lottery job in early 2012, the governor's charge to him was simple: "Be successful, generate money for the great causes we are serving," Van Petten recalled.

Dayton said he would like to sit down with Van Petten and legislative leaders who want to stop online sales.

"Gambling is something that the citizens of Minnesota were willing to support for the revenues and the good things that could be done with that," he said.

The governor wants to know whether the opposition to online sales comes purely from interest groups.

"Are these exclusions benefiting the people of Minnesota, or are they benefiting the special interests that make money off the status quo?" he asked.

"Online is the future, it's the retail future," he said. "We have to operate as a retail business."