a touch of controversy

A growing profit center for c-stores, Iowa’s TouchPlay machines have triggered a statewide clash that might mean the program’s removal.

The controversial TouchPlay machine, which has sparked a lottery vs. casino debate throughout Iowa, is smacking the convenience store owner where it hurts most—the pocketbook.

Consider Larry Bentler, president of Houghton, Iowa-based Jet Gas Corp., an eight-store chain in the rural southeast region of the state, near the Illinois and Missouri borders. It’s been nearly eight months since Bentler first installed TouchPlay in seven Jet Stop stores. The results, he says, have been unexpected and invaluable.

“We have some stores making an extra $1,000 a month,” Bentler says. “And my stores are in very, very small rural towns of 500 to 1,000 people. With Wal-Mart’s impact, it might be the difference between keeping us open and closing down.”

Unfortunately for owners of Iowa c-stores and gas stations, which operate morethan one-third of the state’s 5,000-plus TouchPlay machines, a group of statelawmakers has called for ripping the profit centers from businesses and hasurged the state lottery to halt the program altogether. What’s more, Iowa Gov.Tom Vilsack has imposed a moratorium on the installation of any new or additionalmachines until March 9, and a coalition of mayors and council members from nearly20 Iowa cities has declared the game as “unacceptable and inappropriate,” inan effort to remove TouchPlay—a lottery staple since April 2005—fromtheir towns.

Lottery or slot
TouchPlay was developed in 2001, after lawmakers directed lottery CEO EdStanek to find a means to boost revenues during tough budget times. Lotteryofficials estimate that the program, now in its second full year of implementation,will generate $30 million for the state in fiscal 2006, which began last July,and about $45 million in revenue in fiscal 2007. The state receives 24% of thenet revenue from the machines—a sum expected to increase to 34% in thenext five years.

According to Mary Neubauer, the lottery’s vice president for external relations, some Iowa business owners say TouchPlay has meant they could give employees raises, while others say it helped pay for winter utility bills. And then there are retailers like Bentler, who contend it’s helped them stay afloat during times of deteriorating gas margins.

Critics of TouchPlay argue that the machines are simply glorified casino slots that ultimately will lead consumers down the path of gambling addiction, bankruptcy and potential depression. The push to pull the machines from stores has reached Des Moines, the state capital, where elected officials have expressed several concerns, including the potential for minors to be seduced by the electronic game and the assertion that larger retailers will have difficulty keeping underage customers from playing.

Lottery officials and c-store owners, however, say the convenience industry is ideal for TouchPlay because stores already provide an age-restricted environment, checking personal identification for the purchase of beer, cigarettes and lottery tickets.

And, Neubauer says, the machines aren’t much different from the traditional paper-ticket lottery. TouchPlay simply converts a stack of lottery tickets to an electronic format and gives players the next ticket off the top of the stack.

“It’s the same concept,” Neubauer says.

Small town play
Bentler estimates that 25% to 30% of his net marginsin recent months have come from TouchPlay machines. And while he admits themachines strongly resemble casino slots, he doesn’t believe they pose a threatto the community.

“We’ve been on lottery forever, and all of the sudden this is an issue,” Bentler says. “People have to come to the counter [to collect their winnings], so even if some kid did jump on the darn thing, he couldn’t collect the money.”

Al Nicks, owner of All Stop Inc., echoes that sentiment and is reluctant towave goodbye to the income stream that’s helped offset what he says are “zero”gas margins in Iowa.

“To me, it’s a natural,” says Nicks, whose company operates four All Stop stores in Waterloo and Cedar Falls, Iowa. “We ID the people that want to play those games. It doesn’t make sense to worry about putting [the machines] in a retail outlet that’s already an age-sensitive business.”

Nicks charges the state’s 16 casinos both Indian and riverboat—for the sudden push to eliminate TouchPlay from retailers. The casinos, he and other c-store operators say, simply don’t want to compete for gambling dollars.

“It’s apparently cutting into casino revenue, and they’re taking their complaints to the capitol building,” Nicks says.

Bentler is a bit more candid with his assessment of the casinoindustry’s impact on the TouchPlay market.

“With Wal-Mart’s impact, it might be the difference betweenkeeping us open and closing down.”
Larry Bentler, president of Houghton,Iowa-based
Jet Gas Corp.

“There’s no question what the casinos are doing,” he says. “They’re outlobbying us.”

Political impact
The debate over TouchPlay is having a rippling effectstatewide. Republican gubernatorial candidate Jim Nussle, who’s spoken out againstthe machines, risks losing one of the Iowa Republican party’s biggest activistsand donors—Bill Krause, owner of Krause Gentle, which operates about 200Kum N Go stores in Iowa. Krause and his son Kyle, the chain’s CEO, have withdrawntheir financial support for Nussle, after contributing more than $25,000 tohis campaign, according to the Des Moines Register, which acquired Nussle’slatest financial disclosure reports.

Krause Gentle isn’t the only retailer fighting back. A group of business leadershas formed the Iowa TouchPlay Coalition, arguing that by dropping the programthe state would forfeit a $100 million up-front investment in TouchPlay in additionto tens of millions in potential profits.

For Steve Nordstrom, vice president of marketing for Cedar Rapids, Iowa-based Nordstrom Oil, the loss of TouchPlay would impact 30 of the chain’s 34 stores spread throughout the state. Nordstrom wouldn’t disclose how much his margins have risen since installing the machines about five months ago, but says the program has been profitable and that the chain, if it expanded, wouldn’t hesitate to include TouchPlay in the mix.

“We will survive if they take it out, but I really hope they leave it in. It’s been very successful, very positive,” he says. “We’ve been very happy with the program and feel like we can control it.

“(Casinos) say they were bamboozled by the Iowa Lottery and the TouchPlay machine,” Nordstrom adds. “But, to us, it’s just another version of a lottery game.”

C-store chains like Nordstrom Oil have to wait until March 9—the deadline imposed by Vilsack for a task force to examine the legality of the machines—to learn the fate of TouchPlay. Machines already ordered—said to be in the thousands—can still be delivered and installed, regardless of whether there is a temporary suspension of business.

Some owners remain optimistic that lawmakers will reach a compromise. And, according to a poll conducted in late January by the Des Moines Register, most Iowans favor keeping the TouchPlay machines. About 26% of respondents favor making more of the machines available as long as stores strictly enforce identification checks, while another 27% say they would permit the continued use of TouchPlay games already in place, but are against the installation of more machines. About 40% want to abolish the program.

“I think they will probably allow the machines to stay in retail locations that already have some sort of age-sensitive responsibilities,” says Nicks. “And I think they’re going to draw the line at other plac
es that don’t.”

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