Whether and how to expand legalized gambling in Minnesota is a significant social and political issue. It is not, however, an issue of constitutional magnitude. Gambling generally is not prohibited by the Minnesota Constitution, and legislative authorization of expanded gaming at horse-racing tracks, or “racinos,” is completely consistent with the Minnesota Constitution and other forms of legalized gambling that have been in place for decades.
As a brief review of Minnesota constitutional history makes clear, there is no constitutional prohibition of racinos or slot machines in Minnesota.
When first enacted, the Minnesota Constitution provided that “(t)he legislature shall never authorize any lottery or sale of lottery tickets.” This prohibition on lotteries was a response to the Louisiana lottery of the 1850s, a notorious state-run lottery that led to bribery and corruption of public officials. But the provision was never seen as a prohibition of all gambling in Minnesota.
The term “lottery” as used in the Constitution had a clear meaning at the time the Constitution was adopted: the sale of lottery tickets to multiple individuals all competing against each other for a prize. Indeed, because the Minnesota Constitution prohibited only lotteries in this narrow sense, card games, betting on horses, bingo, pull tabs, charitable raffles and other games involving chance have long been recognized as constitutionally permissible.
In 1988, Minnesota’s Constitution was amended to allow a state lottery. But that amendment did nothing to change the basic meaning of “lottery.” Lotteries are distinct from other games of chance. The racino proposal to allow slot machines at horse-racing tracks does not fit within the constitutional definition of a “lottery” because multiple contestants do not compete for a single prize when playing a slot machine. Thus, the constitutional prohibition on lotteries does not apply to these games. The highest courts of other states including New York, Florida and Arkansas have expressly interpreted their similar constitutional provisions in just that fashion.
While no constitutional amendment is needed for the Legislature to authorize slot machines at racinos, or to regulate them and collect a portion of the revenue they generate, the Legislature could also legally choose to allow video lottery terminals (VLTs) under the constitutional lottery provision. This is a path taken by other states such as New York, Kansas, South Dakota and West Virginia, and it is how legislation authorizing racinos, introduced in the last legislative session, is structured. VLTs, which function very much like slot machines, would be operated and regulated by the state in much the same way that lottery sales are now handled. In the states that have chosen that alternative, the courts have held VLTs constitutionally appropriate so long as the state oversees their operation. The state may contract with third parties to perform the actual day-to-day functions of the lottery, but the state runs the lottery itself.
Some critics have argued that lottery-operated slot machines will not be beneficial because Minnesota’s Constitution requires that 40 percent of “net proceeds” from a state-operated lottery be credited to the state environmental and natural resources fund until the year 2025. As many other state courts have acknowledged, “net proceeds” in this context are calculated after prizes, expenses and taxes are paid. Today the state already annually receives millions of dollars in lottery-generated money before those “net proceeds” are determined through payments in lieu of sales tax and unclaimed lottery prizes, as well as the undesignated 60 percent of the net lottery proceeds. This money goes directly to the state’s general fund and other funds.
In addition, net proceeds are calculated after deducting legitimate and reasonable expenses incurred by the state lottery and the entities with whom they contract to perform the everyday tasks of selling lottery tickets and collecting lottery proceeds. These are all factors that the Legislature can consider and balance in order to ensure that VLTs generate appropriate revenue.
The bottom line is that, despite claims to the contrary, there is simply no constitutional prohibition of racinos or slot machines in Minnesota. Whether authorized by the Legislature independently or as part of the state lottery, racinos can constitutionally generate needed funds for the state of Minnesota. —Eric Magnusson (Editor’s note: Magnuson, former chief justice of the Minnesota Supreme Court, is a shareholder in the Twin Cities law firm of Briggs and Morgan. He represents Canterbury Downs and Running Aces race tracks on constitutional issues relating to those businesses. For a contrasting view, read Tuesday’s commentary, “Gambling proposals to help finance Vikings stadium fail constitutional test,” by Gene Merriam and Dennis Ozment.)