Councilors push for limits on video lottery

At one southwest Sioux Falls intersection, the combination of multiple casino storefronts offers 80 video lottery machines.

Fifty of those are within one retail center, where four side-by-side establishments illustrate what City Councilor Greg Neitzert calls a loophole that needs closing.

“I would say at the very least it’s not within the spirit of state law,” he said.

“They’re essentially creating several licensed establishments in one building, but they’re literally making each room its own licensed establishment.”

Why do it?

“I’ve talked to almost everybody in the industry, and they’re giving me two or three answers,” Neitzert said.

First, the state has released more game types – there are now a dozen – “and there’s pressure to have more and more machines because there’s Frogger and all these newer games like you see in casinos in Las Vegas, and they have old-school games too,” he said.

“From a business perspective, theoretically, what they would like to have is if you walk in, there’s always a machine open of the game you want to play, so they want two or three of every machine, and if the guy down the street has Frogger and you don’t, you’re at a competitive disadvantage.”

Putting locations next to each other also allows owners to achieve rent and construction savings, he continued. Plus, it saves on staffing.

“You could only have one employee literally running three or four businesses,” Neitzert said.

Neitzert and fellow City Councilor Rich Merkouris have spent a couple of months visiting casinos and talking to owners. This week, they brought forward two ordinances that would change how the city regulates video lottery.

“The thing that stood out the most is there’s just not clarity around the regulation for the industry,” said Merkouris, who estimates he has spent “hours upon hours” visiting casinos for the past 60 days. “And there’s not clarity around it for the general community as far as how it functions in our community.”

The first change, sponsored by Neitzert, would cap video lottery casinos with a malt beverage or wine license at 160 locations for now and then authorize one new casino per every 5,000-person increase in population.

The second, sponsored by Merkouris, would allow up to three malt beverage or wine-licensed locations to share refrigeration and employee-only openings. There would be no impact to existing licenses.

“Right now, you can go to 60, 70, 80 machines,” he said. “We don’t know where it’s going, but the trajectory is from two to three to four (storefronts), so what’s to stop it?”

From Neitzert’s perspective, video lottery is intended legally to be an accessory to a business – not the core business. In other words, the business needs to be a bar first that offers video lottery, not a casino that often gives away beer and food.

“A bar or lounge primarily sells alcohol and makes their revenue from the sale of alcohol,” he said. “If you are giving away alcohol and food and 100 percent of your revenue is video lottery … I don’t know how you call that a bar unless you render the entire definition meaningless. My major thing is that we need to follow the law, and I think everyone has been looking the other way, and it’s time for it to stop.”

The change proposed by Merkouris would cut down on customers passing through the individual casinos inside, making those employee-only openings.

“I’ve talked to customers. From the customers’ perspective, they don’t see these as separate licensed premises,” he said. “From the customers’ perspective, they’re going to one place.”

The City Council can’t change the rules for existing establishments or for businesses that have a liquor license, which has a cap of 10 machines.

“We would just cap and slow down this acceleration of having 16 video lottery casinos on the docket each week,” Neitzert said. “We used to do less than 10 a year, and we’re on pace to do 40 or 50. … If you poll the average citizen, they’re tired of it. I’m hearing so much commentary of how there’s casinos on every corner.”

The second reading on both items will be Tuesday, at which point there’s typically a vote. If approved, they would take effect Dec. 4.