State commission seeks solutions for getting more video lottery play

By Bob Mercer

State Capitol Bureau

Net machine income was up slightly through the end of November for video lottery compared to one year ago. After four straight years of constant decline from 2008 through 2012, that turnaround is welcomed by the South Dakota Lottery Commission, whose members are searching for much greater growth as they assemble today for a strategy-setting meeting.

Gov. Dennis Daugaard spoke about video lottery at several points during his budget speech to the Legislature last week. The money lost by players in the privately owned machines is split 50-50 between the businesses and state government.

Daugaard described video revenue as “soft” in the current budget year that began July 1, 2013, and said he was revising downward that part of his budget estimate. Later in the speech he said he was projecting a “modest” increase from video lottery for the 2015 budget he was recommending. That budget starts July 1, 2014.

The lottery’s commissioners and administrators are trying to overcome the lingering effects from the recession, South Dakota’s smoking ban, an aging player base, business owners hesitant about investing too much in new games, and more competition overall from casinos in Iowa, Minnesota, Deadwood and Indian reservations.

They held a planning workshop last month with business people involved in video lottery. At the meeting today they’ll formally approve a set of priorities with short-, medium- and long-range goals.

Many of the ideas from the November gathering require action by the Legislature. But adding table-style games such as an electronic roulette wheel and adding bar-top versions of video lottery can be accomplished by regulatory decisions made by the commission subject to final approval from the Legislature’s rules review committee.

Among the topics are allowing establishments to have up to 30 machines – the current limit is 10 – and getting rid of the old VLC 8700 terminals that were officially declared obsolete years ago by the commission but remain the main fleet of betting machines in bars and side-room casinos.

The movement into progressive jackpot machines is probably at least three to five years away because of the communications network requirements, according to Norm Lingle, the lottery’s director.

But big prizes are attractive to younger people, said Roger Novotny, a commissioner from Fort Pierre. “This is a real important issue as we try to attract upcoming players,” he said. “It gives them a chance to dream.”

Nearly all of the state’s share goes into the property tax reduction fund, which is used to reduce K-12 general-education levies, while a small amount is withheld for operational expenses of the lottery.

Net machine income in total for businesses and state government peaked at nearly $224.7 million in fiscal 2008. The next four budget years saw NMI fall and fall and fall and fall, slipping to $176.6 million in fiscal 2012.

There was a minor rebound in fiscal 2013 to $184.6 million. But that increase didn’t even cover the $15.1 million drop from the year before.

Net machine income for the 2014 fiscal year through Nov. 30 was $76 million, according to information distributed to the commissioners for today’s meeting. That was an increase of 1.16 percent from the same point a year ago.

State government’s 50 percent share would be about $38 million, putting the lottery on track to generate about $92.5 million from video lottery for fiscal 2014, or just slightly more than in 2013.

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