Shake-up rattles Minnesota's charitable e-gambling industry

Minnesota's rocky experiment with electronic pulltab gambling, once tapped to fund the new Vikings stadium, is undergoing the biggest shake-up in its two-year history.

Express Games MN, the first and largest company distributing the iPad games to Minnesota bars and venues, sent notice to its roughly 120 locations this week that it will cease operations at the end of the day on July 31.

Charities receiving the surprise notices were encouraged to sign on with a new e-pulltab manufacturer headed by a familiar face — Express Games founder Jon Weaver.

Meanwhile, the Las Vegas firm that created Minnesota's first e-gambling devices, Acres 4.0, may be selling its Minnesota e-pulltab system. And other changes are underway among key players in the rollout of Minnesota's e-gambling.

The changes came swiftly and with little notice to the public or charities that run the games.

"I didn't know things would be happening so fast," said Michelle Lange, gambling manager for the Coon Rapids Youth Hockey Association.

Lange said she was told Tuesday that the e-pulltab games played at CR's Sports Bar in Coon Rapids since Day 1 of the e-gambling experiment — Sept. 18, 2012 — will no longer work as of day's end on July 31.

Tom Barrett, executive director of the Minnesota Gambling Control Board, said he was caught off guard, too. The board had just approved a manufacturer's license for Pilot Games Inc. on Monday.

"We were surprised at the abruptness of the discontinuance," Barrett said. "Charities have called in and asked, 'What do we do?' "

Weaver, meanwhile, said that he is looking forward to being a manufacturer of the games — despite a less-than- lucrative two years in Minnesota.

"The market has been a mystery to a lot of people," Weaver said. "I hope my games can do better."

Gambling leaders say the shake-up is the result of tepid sales of the electronic games, a lawsuit pitting Express Games and Acres 4.0, and the shifting dynamics of a new industry.

By contrast, the state had projected e-games would generate $34 million in taxes by the end of 2013 to help pay its share of the Vikings stadium. That figure was later lowered to $2 million, and the plug was pulled on the games as a stadium funder.

Meanwhile, Weaver and Acres, who had been key figures in the rollout of the Minnesota games, attending legislative hearings and offering industry advice, had a falling-out last year. In a March settlement of a lawsuit filed by Express Games that would end that business arrangement, Acres agreed to service his iPad games through November.

This week, charities across the state were called or received notices from Express Games that the Acres arrangement would end next week. Their Acres e-games will no longer work on the iPads.

"Pilot [Games] has developed the next generation of electronics," the notice received by some charities said. "Pilot will of course have a whole line of electronic pulltab games, as well as provide linked bingo. … We are also developing new marketing tools to help you kick the industry into high gear."

Charities said they were aware of the lawsuit but didn't have a clue their games would be shut down.

Not all of Minnesota's e-gaming will be affected. About 100 bars and restaurants use e-pulltabs that aren't from Acres 4.0, Barrett said. However, the Acres games generate the overwhelming amount of sales.

John Acres, CEO of Acres 4.0, said he will be shifting gears in Minnesota. "We will focus for now primarily on casino activities," Acres said in an e-mail. "The electronic pulltab market suffers from a lack of coherence about the way forward."

Other changes are coming.

• A manufacturer has submitted an application to the Gambling Control Board to purchase the Acres 4.0 system, Barrett said. The application has not yet been approved.

• The Woolton Group, based in Florida, was approved to distribute Acres 4.0 games. No contract has yet been signed.

The behind-the-scenes flurry of activity concerns Drew Naseth, a veteran Faribault, Minn., gambling equipment distributor.

"Is anyone minding this for the charities?" Naseth asked. "Why are we willing to keep things so quiet?"

The Gambling Control Board is "mindful of the impact" that the changes have on e-gaming, Barrett said. But he, like others, sees it as the growing pains of a young industry.

"We all learned in the past two years what's working and what's not," said Barrett.

Al Lund, executive director of Allied Charities of Minnesota, said despite the confusion, he's heartened that e-gambling investors are still looking at Minnesota.