By Kevin Bogardus - 12/02/12 11:00 AM EST
Legislation to legalize online poker has driven a wedge between lottery providers and the convenience stores that have long been the primary seller of their tickets.
Senate Majority Leader Harry Reid’s (D-Nev.) push to ban all forms of online gambling except for poker has led to a split between the two major trade associations for each industry. Lotteries want to bury the bill, while convenience stores are pushing for passage.
Next week, about a half-dozen state lottery officials are flying to Washington, D.C., on a trip organized by the North American Association of State and Provincial Lotteries (NASPL). They will meet with lawmakers to lobby against Reid’s legislation, which could come up for a vote during the final weeks of the lame-duck session.
“I think it's the first time that we have come as a group,” said Arch Gleason, president and CEO of the Kentucky Lottery Corporation, which is a member of NASPL. “There is a sense of urgency. If this attached to legislation, this can have a negative impact on state lotteries and how their funds are raised for public benefit.”
Several state lottery directors have personally lobbied against the bill by reaching out to their states’ congressional delegations or to Capitol Hill leaders. In letters to lawmakers obtained by The Hill, senior lottery officials such as Gleason and others from Iowa, Massachusetts and Michigan have voiced their opposition to the poker bill.
The National Association of Convenience Stores (NACS), meanwhile, is trying to round up support in Washington. In October, the group’s board of directors voted unanimously to support the online poker bill, according to Lyle Beckwith, NACS’s senior vice president of government relations.
Beckwith said lottery officials have tried to sway convenience stores to their side, but to no avail.
“The lotteries have tried to come to us on numerous occasions saying that this wouldn't hurt us. They just want to expand their base of customers to people who don't play these games already,” Beckwith said. “From our perspective, this could hurt our business.”
At issue is how the proposed legislation could affect state lotteries’ expansion into online sales.
Lotteries that have a drawing no more than once a day could sell their tickets online if Reid’s bill became law. But instant-win games similar to scratch-off cards and casino-type games would not be permitted online.
That’s lost revenue for lotteries — many offer those types of games now — if they decide to do business on the Internet.
“It unfairly limits the states' rights to determine their own destiny,” Gleason said. “The states stand to lose a fair bit of money if they decided to opt in because of the restrictions in the bill.”
A ban on instant-win games online would be welcome news for convenience stores, which want to remain the primary seller of scratch-off games.
Without the restrictions of Reid’s bill, convenience stores believe fewer people will come to buy scratch-off cards and other lottery products and opt instead to gamble online.
“They just don't buy lottery tickets when they're in a store. They buy a cup of coffee. They fill up their tank,” Beckwith said. “I would prefer that they ban everything but this bill is far, far better than nothing being banned. If Reid's bill doesn't pass, the lotteries will try to put a casino in everyone's living room.”
Convenience stores have warned lawmakers that their sales could fall if the poker bill doesn’t pass. The average convenience store customer who comes to buy a lottery ticket spends $10.35 in the store, compared to $6.29 for those who don’t, according to NACS.
In addition, more than 2,000 NACS members have sent letters to lawmakers saying, “The legislation NACS is advocating sets guard rails that are essential to ensure that the convenience store industry is not cut out of the lottery business.”
Gleason disagrees, and says business would grow for stores. He noted that when lottery tickets were first sold online in the United Kingdom, sales continued to go up in stores.
“They have been able to increase their revenues in their traditional brick-and-mortar locations,” Gleason said. “It begins modestly, measured at two to five percent of the total business, and then it begins to grow over a number of years.”
The push on online gaming comes after a Justice Department ruling last year found that the Wire Act only prohibits online gambling on sports. Since then, several states have either legalized or introduced legislation to legalize Internet gambling.
“What they did is really open up what I think will be the largest expansion of gambling in the United States ever unless Congress acts,” said Frank Fahrenkopf, president and CEO of the American Gaming Association.
NACS joins the gaming trade group, which represents the country’s biggest casinos, in support of the online poker bill. Fahrenkopf said the convenience stores were a welcome partner, calling them “very active, very knowledgeable and very smart.”
The lotteries have their own allies in the National Governors Association and the National Conference of State Legislatures, which both argue that Reid’s bill would infringe on states’ rights.
Despite having a champion in the Senate majority leader, the online poker bill has a tough road ahead. Reid has been working with Sen. Jon Kyl (R-Ariz.) on the legislation but needs more GOP votes.
“Unfortunately, we are still looking for more Republican support, as only Senators [Dean] Heller [Nev.] and Kyl have indicated their support for the bill,” said a Senate Democratic aide.
Kyl is retiring from the Senate, and with more states expected to move into online gambling, Washington may be too late to the game by next year.
“The best chance would be clearly the lame-duck,” Fahrenkopf said. “If nothing happens, we will have to regroup and prepare for the next Congress, but we are hopeful something will get done now.”