Government and Retail

Retailers riled by state plan for online lottery sales

Last year Michigan merchants took in $172 million in commissions.

May 3, 2013
| By Pete Daly |
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The state government’s plan to start online sales of Michigan lottery tickets has triggered ethics debates in the Legislature and complaints from behind the counter of thousands of convenience, liquor and grocery stores from Detroit to Ironwood.

The debate in Lansing was triggered by the Snyder administration’s recent budget request for more than $3 million to set up an “iLottery” to launch early in 2014.

The National Association for Convenience and Fuel Retailing reported online that Michigan lottery officials estimate the iLottery could increase lottery profits by as much as $471 million in its first seven years.

During the state’s 2012 fiscal year, between 10,000 and 11,000 stores in Michigan were selling lottery tickets, which earned them a little more than $172 million in 6 percent commissions on total sales of $2.4 billion, according to the lottery website. Michigan Lottery players won prizes worth $1.36 billion, and the government’s enterprise generated $770 million for Michigan public education.

“We’re dead set against” online lottery sales, said Craig Hoppen, former chair of the board of the Michigan Petroleum Association/Michigan Association of Convenience Stores, and president of J&H Oil Co. in Wyoming, which operates 37 convenience stores in Michigan, all of which sell lottery tickets.

“I think every sale that’s made online is one that’s not going to be made in our stores. That’s the selfish side of it,” he said. Then he added a different kind of viewpoint.

“Something seems fundamentally wrong with our state trying to sell in-home gambling” on the Internet, said Hoppen.

Lottery tickets are “just one of those added-on things that make some stores profitable, without which they wouldn’t be,” said Hoppen.

Convenience store owners always hope someone coming in for a lottery ticket will buy something else, and that does often happen with typical customers, he said. Non-typical customers are those who only come in to buy tickets when there is an unusually large jackpot. Hoppen said they often do not buy anything else, so in those cases, the stores are relying on ticket sales alone to make money.

Another point that Michigan retailers like to make is the state’s seemingly contradictory approach related to other types of Internet sales. Hoppen mentioned it and so did Mark Griffin, president of the MPA/MACS.

“It seems odd to us that, on one side, you have the Legislature trying to pass legislation that will tax Internet sales because they believe they are losing tax revenue to the Internet when it doesn’t go through brick-and-mortar locations. And yet, you have the Lottery wanting to move away from brick-and-mortar locations and go to the Internet” to sell tickets, said Griffin.

Proposed bills went before the Michigan House tax policy committee last week that would require Internet companies to collect sales tax on all purchases by Michigan residents, and similar legislation proposed on a national level is under consideration by Congress.

Hoppen said Michigan lottery officials have told retailers that going to online sales will actually help increase revenues for the retailers. When asked about Hoppen’s statement, Michigan Lottery spokesperson Andi Brancato said, “We have consistently talked about this with retail groups, the Legislature and the public. Internet sales do not detract from bricks-and-mortar businesses — and in fact, enhance them.

“We have consistently talked about this since we publicly announced (in November) that we would be moving toward selling tickets over the Internet. The commissioner has testified to this” before Michigan House and Senate appropriations subcommittees, she added.

Later, in an email to the Business Journal, Brancato said, “We do plan to create new opportunities for retailers to earn commissions related to iLottery transactions. Likewise, there may be opportunities for players to redeem tickets purchased over the Internet at retailers. But again, there are no specifics yet on either of these. Also, we expect that there will be many, many players who will continue to purchase tickets at retail outlets as that is their preferred way of conducting transactions.”

Michigan government officials have indicated the state of Illinois has had Internet lottery sales experience that backs up the claim about Internet sales helping boost retailers’ revenues.

Griffin said lottery sales in Michigan have always been a partnership between small business and the state.

“It’s very hard to survive as a business in the convenience store industry, as it is,” said Griffin. “Gasoline sales have very little if any margin (of profit) at all, so you survive on those in-store sales — and this is just another product that sells. We would hate to see this diminish because our partner has decided to move to something else.”

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