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New gaming in town: With gambling already expanding, technology brings more games, and policy questions, to Midwest states

by Tim Anderson ~ September 2012 ~ PDF of Stateline Midwest article »
PDF of timeline of gambling expansion in Midwest »
The votes were hard to come by, and time was running out on Minnesota legislators trying to find a way to finance a new stadium for the National Football League’s Vikings.
In the end, lawmakers turned to what has become a familiar source in state capitols across the Midwest — gaming.
“Minnesotans love to gamble,” notes Democratic Rep. Tom Anzelc, former executive director of the state’s Gambling Control Board.
They also love football, and will be paying for the new NFL stadium every time they play the new and old games of chance offered by the state’s $1 billion charitable gaming industry.
It is the new games that are expected to provide the additional revenue.
Under the legislation (HF 2958), signed into law in May, the state authorizes the use of electronic pull tabs and linked bingo (players in different locations linked via an electronic device playing the same game) in hundreds of bars, restaurants, fraternal organizations and other establishments.
The measure also puts Minnesota in the vanguard of states expanding “e-gaming” options.
“It’s tough to predict what areas of the state will take to this, what charities and venues will do the best,” Anzelc says. “But I think, in general, the amount of money wagered will increase.”
The state is counting on that additional gaming activity and revenue to build the stadium.
Meanwhile, Kansas had a finance problem of its own this year — how to shore up the state’s retirement system for public employees. Part of the solution came as the result of actions taken by the Legislature five years ago, when it authorized the opening of state-owned casinos. HB 2333, signed into law in May, will pour some of the revenue from those casinos (now up and running) into the state’s pension system.
“It seems gaming has reached a tipping point,” says William Thompson, a University of Nevada, Las Vegas, professor and one of the nation’s foremost experts on gambling law.
Since 2008, he says, with the onset of a national economic downturn and the start of a state fiscal crisis, opposition to gaming has been drowned out by other factors, particularly the promise of more jobs for a state’s residents and a new revenue source for the state itself.
In Ohio, for example, gambling proponents had been pushing for casinos in their state ever since neighboring Michigan and Indiana authorized them in the mid-1990s.
“I kept saying, ‘All I want to do is keep Ohio dollars in Ohio,’” says Republican Rep. Louis Blessing, whose legislative district in the Cincinnati area is a short drive away from an Indiana casino.
He tried and failed to get casinos approved. But in 2009, a proposed constitutional amendment backed by the casino industry won voter approval; as a result, four casinos will open or already have opened in Ohio’s four largest cities.
“Politics is timing, and the casinos promised jobs in 2009,” Blessing says. “Anybody who promised jobs in that year was going to win.”
This year, the Ohio legislature further expanded gambling with HB 386, which, in part, legalizes casino-type games at race tracks, or “racinos.”
The jobs message was also behind Illinois’ latest big gambling expansion, in 2009. That year, the legislature paid for a $31 billion capital construction program by, in part, authorizing video poker in bars, restaurants and other sites across the state.
Over each of the past two years, the Illinois legislature has passed bills to spread gaming in the state even further. Democratic Gov. Pat Quinn vetoed both bills. This year’s measure, for example, would have authorized the opening of five new casinos (there are already 10 in Illinois), added gaming positions at existing facilities, and allowed the state’s six horse tracks to add slot machines.
Proponents of SB 1849 say they will continue to push for the bill’s passage, pointing to its potential to create employment, bring the state new revenue (through one-time licensing fees and ongoing tax collections), and prevent the “leakage” of economic activity from gambling into neighboring states.
Those are all familiar claims made in favor of gambling authorization and expansion. Thompson, though, is skeptical of most of them.
“Unless you can market to players outside [the state], like what has been done in Nevada, all of that money just shifts from one sector of the economy to the other,” he says. “Plus, the owners bring the profits to Nevada or some national company; they’re not local people.”
Illinois, Iowa in online poker mix
Still, there is appeal these days to proposals that can generate new jobs and revenue, and the “economic leakage” argument remains as strong as ever.
In fact, it has become part of the debate over what Whittier Law School professor I. Nelson Rose predicts will be the next wave of state activity on gambling — laws that explicitly legalize and regulate online gaming.
“It’s the Wild West right now,” Iowa Democratic Sen. Jeff Danielson says about the state of video poker right now, “and that doesn’t work.”
He sponsored a bill this year (SF 2275) that would have authorized Internet poker, with the licenses to run the games being offered to Iowa’s existing casino operators. The bill was passed in the Senate but stalled in House.
“It’s not about trying to bring more revenues into state government,” Danielson says. “That should be the last reason for trying to regulate Internet poker. It is about protecting consumers and dealing with an economic problem that is not going away.”
The economic problem, he says, is that the online activity is taking money away from the state’s in-state casinos and local communities, and instead sending it overseas.
At the height of the nation’s poker craze, he says, $100 million was leaking out of Iowa because of the online activity.
Under his plan, Iowans could play poker online against fellow residents as well as players in other jurisdictions where the activity has been legalized.
In addition to Iowa, Illinois is positioning itself to potentially be an early adopter of online poker.
Senate Democratic President John Cullerton unveiled a plan earlier this year to create a Division of Internet Gaming within the Illinois State Lottery. With that new agency in place, the state would legalize online poker and open up the activity to Illinois residents as well as individuals around the world living in jurisdictions where it is legal.
Early adoption, combined with a single Internet gaming platform that can attract large pools of potential poker players, could make Illinois a hub of “i-gaming” activity, Cullerton believes. As a result, instead of economic leakage, Illinois would see an influx of dollars from out-of-state residents, he says.
Earlier this year, Illinois became the first state to begin selling lottery tickets over the Internet.
Those sales began less than a year after a U.S. Department of Justice ruling gave the go-ahead not only for Illinois’ plans, but for almost any other type of intrastate gambling proposals.
“The real-world impact was eliminating the federal law that prevented states from doing whatever they want inside their own borders,” says Rose, a leading international authority on gambling law. “And, in fact, it should even allow states to go across state lines or even international lines as long as it is legal on both ends.”
Rose, for example, envisions new interstate agreements popping up among states that have approved online gaming, similar to what states do currently with multi-state lotteries.
“The politics of this are, The states are desperate for money and there is so much gambling in this country already, so legalizing one more form like Internet poker is not that big a deal,” Rose says.
“Once it’s up and operating in a few states like Nevada and Delaware, and maybe Iowa and New Jersey, you’re going to find a lot of states jumping on the bandwagon.”
“It’s not going to take decades,” he adds. “In less than 10 years, most of the states will have Internet gambling by any definition.”
Policymakers will face many thorny questions along the way. What is the societal impact of legalizing online gambling, of opening up a type of gaming that can be played without leaving the home and that is only a few computer clicks away? And what kind of economic effects will it have on in-person gambling operations?
“Nobody knows the impact,” Rose says.
It is also unclear what will be legal, and what will be outlawed. Danielson wants online poker authorized in his state, but he is emphatically against online slot machines.
“Poker is a game of skill, not a game of chance,” he says. “That is a huge difference, and there is broader consensus [for legalizing online poker] for that reason.”
But what happens, Rose asks, if a state-run online lottery begins putting the image of a scratch-off ticket on a computer screen?
“Then it becomes indistinguishable from a slot machine,” he says.
Minnesota is facing some of those dilemmas now as it begins to roll out electronic bingo and pull tabs.
Tom Barrett, executive director of the Minnesota Gambling Control Board, says the new games will offer “more animation, more bells and whistles.” But at the same time, electronic pull tabs cannot mimic slot machines — no spinning reels, for example. The state, then, must carefully approve the games before they are introduced to consumers in sites across the state.
The introduction of “e-gaming” marks a new era for gambling in Minnesota, and Barrett says other states are watching closely.
States have always been keenly aware of their neighbors’ gambling laws and activity, and that will only intensify as policymakers experiment with new forms of gaming.