Race Tracks, Once Lottery Foes, Seek Piece of the Action

SACRAMENTO —  California’s horse racing industry, recently one of the most formidable opponents of setting up a state lottery, made a pitch Thursday for a piece of the action, seeking permission to sell lottery tickets at race tracks.

Neil Papiano, attorney for the Federation of California Race Tracks, asked the state Lottery Commission to consider “eliminating what could possibly be competition between two state agencies”--the Lottery Commission and the Horse Racing Board--by allowing race tracks to install computerized lottery numbers equipment when the so-called “on-line” games go into operation sometime next year.

“There is only so much wagering money in California,” Papiano told reporters, indicating that the racing industry hoped to prevent customers from being siphoned away from the tracks by offering them the chance to gamble on the lottery, as well as on the horses.

Contributed Heavily

The horse racing industry contributed heavily to the campaign against Proposition 37, the lottery initiative adopted by voters last November. It also unsuccessfully challenged the initiative’s constitutionality in court.

Papiano’s proposal, which was not on Thursday’s agenda, was taken under consideration for possible future commission action.

Turning to the main item of business, the commission approved on a 3-0 vote a lengthy set of criteria to be used to draw up contracts to retain an estimated 20,000 retailers of instant “scratch-off” lottery tickets, expected to go on sale in September. Commissioner Laverta Montgomery abstained, explaining that she was not prepared to vote on the entire package of guidelines.

Prospective ticket retailers will be able to apply to the Lottery Commission by the end of May, said Howard E. Varner, interim director. The applicants will then be subject to criminal background checks and to site inspections of their businesses, according to the criteria adopted Thursday.

In other business, the commission scheduled a special meeting next Thursday in Sacramento to adopt a draft of a “request for proposals” for instant games--a document to be used by potential suppliers of scratch-off lottery tickets to apply for the state contract.

Negotiating Contract

Varner announced that he is negotiating a contract with SRI Inc. to act as a consultant in preparing the requests for proposals. The contract with the Menlo Park firm, which acts as a consultant to other state lotteries, will be for less than $60,000, Varner said.

After the draft of the request for proposals is adopted, Varner said, the next step in the long process to set up the lottery is to schedule a “bidders’ conference” to give potential suppliers a chance to comment on the document. After that, the suppliers may submit bids, and the commission will pick a contractor, perhaps by mid-June, Varner said. The ticket supplier could be expected to produce as many as 1.9 billion tickets in the first year, and the contract could be worth an estimated $50 million, Varner said.

Before approving the retailer licensing criteria Thursday, commission members listened to about two dozen speakers representing businesses ranging from bowling alleys to giant grocery chains to a little independent variety store in Calexico.

Giant chain stores such as 7-Eleven, Safeway, Long’s, Thrifty and others have expressed interest in selling instant lottery tickets.

The role of the 7-Eleven stores in the state lottery may be somewhat clouded by a New York criminal case in which a then vice president of the chain’s parent company, Southland Corp., pleaded guilty to conspiracy to bribe a tax official.

In Oregon, which is scheduled to begin its lottery next Thursday, holders of 7-Eleven franchises are allowed to sell lottery tickets, but company-run stores are prohibited from selling tickets.

Felony Conviction

“It’s because of a felony conviction, pure and simple,” said T. L. Fuller, Oregon lottery assistant director for information.

Jerry A. Hook, Western Pacific operations manager for the convenience store chain, told the California Lottery Commission that all but 100 of the approximately 1,200 7-Eleven stores in California are operated by franchisees.

Representatives of some retailers warned the commission that instant cash prizes payable at stores should be limited to $25 as a security measure, but Varner indicated that such an amount would be too low to attract consumer interest.

He conceded, however, that the $600 maximum instant payoff called for by the lottery initiative might cause hardships for some retailers.

Don Beaver, representing 7,000 members of the California Grocers Assn., caused eyebrows to go up on the commission and in the audience by maintaining that retailers will lose money if they receive only 5% of gross ticket sales, the minimum payment suggested by the lottery initiative.

“At 5%,” he said, “it’s one of the loss leaders that they have to deal with in the store.”

Strong Disagreement

However, Alex O. Campillo, owner of the I. V. Sportsman Mart in Calexico--gas, Mexican auto insurance, liquor, beer, ice, delicatessen--strongly disagreed.

“We all know it’s not a loss leader,” Campillo told the commission. “I didn’t take off from Calexico last night . . . and wait here all morning for a loss leader.

“I’m not part of a chain,” Campillo said. “I don’t belong to an association . . . . I’m not a mom-and-pop store. I’m an independent individual fighting like hell against these chain stores, trying to make a living.”