PGRI's Morning Report October 31, 2011

Congratulations to Team NASPL and the Hoosier Lottery for delivering the very best NASPL conference and trade-show experience. It really did exceed expectations in every respect. Attendance was not only fantastic; this was a fully engaged community of industry leaders who are chomping at the bit to make a difference.

And it is a good and timely thing that they are so engaged because the road ahead is not a ‘stay-the-course’ journey. In some vital ways, the course we are on is not looking bright for Lottery stakeholders right now. We have it within our grasp to change course but we have to demonstrate the will to do it. Jeff Anderson (Director Idaho and immediate past president of NASPL) and Gordon Medenica (Director New York and president of NASPL) delivered powerful ‘call-to-action’ speeches. It may sound like melodramatic hyperbole, but this is a make-or-break year in which the community of NASPL members has the opportunity to mobilize and take action to defend the interests of its stakeholders. Our leadership has shown the integrity needed to do it. It is now up to all of us to support them with all our heart, because they can not do it alone. In fact, they can not do it without the support of each and every lottery. This is not about i-gaming. It’s about defending the rights of states against those of very wealthy and politically powerful commercial interests who are attempting to cheat states out of their claim to regulate and tax the gaming and gambling industry. If we can act as one, Team Lottery will prevail for the simple reason that this is still a country that values right over wrong, good over evil.

The problem is that the regulatory and taxation framework for internet gaming is being formed right now, at both the federal and state levels, and lotteries do not have a seat at the table. The solution is for lottery directors to make sure that their state legislators are fully informed about all the implications of different regulatory and taxation structures. As one director so aptly put it, “If not now, when? If not us, who?” There is nobody else who is positioned to defend the interests of lottery stakeholders. So I framed the question rather starkly: Is it the job of lottery directors to stick their neck out to push a states’ rights agenda onto the radar of their legislators? The answer came back a resounding yes. It is the job of the lottery director to defend the interests of Lottery stakeholders. Those interests are being assaulted by huge lobbying efforts that if allowed to take root will have an absolutely devastating impact on lotteries. Our legislators are being barraged with disinformation from these opposing forces. It is a question of integrity. We owe it to those legislators, to the in-state interests that those legislators represent, and to our own lottery stakeholders, to make sure those legislators understand what is at stake and why it is so vital that they take action now to defeat efforts to cheat states out of the massive tax receipts to accrue from the Internet gaming business.

Lottery directors do “serve at the pleasure of the governor”. Even so, now that we are in a crisis, the leadership of the Lottery is thankfully stepping up to take ownership for a problem that has no solution without their bold action. The actions required take us into the political arena and subject us to the challenge of a politically adversarial environment. But never has there been a more clear-cut case of right against wrong and for the actions of one chosen group of people, the U.S. state lottery directors, to have such a decisive impact on the course of a $60 billion dollar industry.

There are at least two big threats. One, the Harry Reid coalition would channel the economic benefits to Big Casino interests in Nevada and New Jersey (by requiring that i-gaming licenses go to land-based casinos of a certain size and length of time in business). The other is that Tribal Gaming interests are lobbying hard for the right to export Internet gaming off of their reservation lands. This is especially galling given the way they have abused the notion of Indian sovereignty to transform the entire country into a giant casino gambling destination that takes shameless advantage of ‘sovereignty’ to pillage state coffers. States need to prevent Tribal gaming interests from doing to the online gaming world what they did to the casino gambling world. In the online i-gaming world, even the smallest competitive advantage is decisive. Paying less taxes, as the Tribal gaming interests insist is their right, constitutes a competitive advantage that would completely disenfranchise state lotteries and, for that matter, any other state initiative to channel the benefits over to the consumers who are actually playing the games. Under the leadership of Director Anderson, NASPL sent to members of Congress a position paper in defense of states’ rights as regards to i-gaming regulatory and taxation policy. Maryland Governor O’Malley went very public with a protest against what he terms the “federalization” of poker and casino gambling regulations. And now in his commencement speech, NASPL President Gordon Medenica made a bold statement as to the role and the purpose that NASPL should serve in defense of the stakeholders of all its members.

My blog and attached article last week (click here to read) attempts to quantify the impact of regulatory change on lotteries. I received lots of feedback that really fell into two buckets. One, we need that kind of concrete data to enable our advocates to put up a defense of states’ rights. And we need more of it. The other comments were to the effect that the impact as measured by that analysis grossly understated the actual impact that i-gaming will have on state lotteries. I could not agree more. The specific migration of lottery spend over to non-lottery i-gaming was calculated to result in a reduction of 8% or 9% in funds available to transfer over to lottery beneficiaries. Big as that is, it is nothing as compared to the long-run impact on lotteries if others are given a leg-up in the i-gaming space. This fact was illustrated in a presentation by Team Facebook at the NASPL conference. It is not about i-poker or the revenue streams of any particular i-games. It is about controlling the social-networking space, and that includes the games people play online. Team Facebook was there at NASPL because they see that lotteries are in the ideal position to take control of the social networking space that surrounds games and gaming. And they want to help us take full advantage of this window of opportunity. But it is just that, a window of opportunity that someone will move into with a bold vision to leverage a social-networking agenda into a powerful competitive advantage. The Big Casino interests hope to be that someone, they do have such a vision, and are moving apace to implement it. It is now incumbent upon Team Lottery to act quickly to give our legislators an alternative to turning this industry over to anti-state interests.

The migration of lottery spend over to i-gaming does represent a measurable impact to lottery. $1.4 billion in funds transferred to lottery beneficiaries is a loss that would devastate the Good Causes supported by lotteries. But there is much more at stake – really the heart and soul of the industry. And a financial impact that would far exceed $1.4 billion. To cede that over to anyone other than the true owners of in-state gaming and gambling, which is the people of each individual state, would be a travesty.

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