Convenience stores worry about online lotto sales

February 17, 2012

Alex Keefe

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Just about a month before Illinois is set to begin selling lottery tickets online, convenience store owners on Friday accused lotto officials of rushing through a plan they say would devastate the retail industry and do away with long-standing safeguards to protect minors and gambling addicts.

Representatives of Illinois convenience stores say online lottery ticket sales, set to begin March 25, will bite into sales of one of their most lucrative products and would cut down on "impulse buys" as fewer customers reach for that last-minute soda or candy bar.

"We're not against competition. We're in competition every day," said David Vite, CEO of the Illinois Retail Merchants Association, which represents 5,100 convenience stores across the state. "It's imperative that we get it right."

Illinois lottery tickets are currently only allowed to be bought with cash, in-person, at retailers across the state. The five percent commission store owners earn off of lotto ticket sales account for up to 50 percent of revenue at some locations, said Joe Rossi, president of the 7-Eleven Franchise Owners Association. Poorly regulated online ticket sales could mean the loss of 7,000 Illinois retail jobs, he said.

"It brings a lot of people into our stores and our locations. It's a lot of foot traffic," said Rossi.

Illinois lawmakers approved an online lottery pilot program in 2009. But the plan didn't get the legal okay from the U.S. Justice Department until last December. Since then, the private company that operates Illinois' lottery system, Northstar Lottery Group, has been racing to get an online sales program ready to launch this spring.

But the retail lobby claims Northstar and state lotto officials are charging ahead with a plan that doesn't protect consumers and could put convenience stores out of business. They maintain face-to-face lotto ticket sales help deter underage purchases, and they say the state's cash-only policy curbs gambling addicts who might otherwise be tempted to buy tickets on credit cards.

Illinois State Rep. Jim Watson (R-Jacksonville) introduced a bill Thursday that would require online lotto tickets to be bought with "stored value cards." Those would work like gift cards, whereby would-be lotto players could only add money to the cards at retail stores, in person, paying with cash. The bill would also impose a five percent floor on the commission rate store owners earn off of lotto ticket sales. The convenience store owners said they've been meeting with representatives from Northstar and the state of Illinois since the Department of Justice Ruling was released in late December. They've said they've been pushing the value card idea, and perhaps a bump in their commission rate to offset a drop in sales.

"I've been a store operator for 25 years," Rossi said. "My commission has been the same for 25 years. Same percentage it's been since day one. We're not looking for any more. ... And we know how to work within those means, but we don't know how to work with something when it's taken away from us."

But selling online lottery ticket sales could actually increase revenue at brick-and-mortar stores, said Illinois Lottery Superintendent Michael Jones. He said selling tickets online could draw in a new demographic of players who might have never otherwise bought tickets at convenience stores, and that could spur traditional ticket sales down the road.

"I would hope that the retailers, upon looking at it in their minds again, think to themselves, 'Hey, this actually is something that could help us merchandize our products more than we've ever had before," Jones said.

Jones also said requiring people to buy e-tickets with value cards could prove to be an obstacle.

"If you make it a requirement that people are completely unfamiliar with, and they have to do something to do something to do something, all you're doing is reducing potential demand," Jones said.

Jones added that online ticket sales would be carefully regulated, and would use geo-tracking and identification verification to ensure tickets are only sold to Illinois adults.