Why two councilors are looking to tighten the reins on casinos

Megan Raposa -

Simplified: Two Sioux Falls city councilors are looking at ways the city can have more say in how many video lottery licenses are approved.

Why it matters

  • The city has seen a marked increase in requests for video lottery licenses in the last few years. In 2018, only five licenses were requested, compared to this year, where there've been nearly 30 licenses requested through October.
  • These licenses are often issued to businesses whose sole business is as a casino, something Councilor Greg Neitzert said goes against state law.
  • Other South Dakota cities have placed caps on the number of video lottery placements (i.e. how many different businesses can have the per-state-law maximum of 10 machines). Rapid City, for example, is capped at 75 placements. Right now, Sioux Falls has 216 active licensed video lottery establishments.
  • Councilors Neitzert and Rich Merkouris in recent weeks have been visiting casinos across the city. Neitzert told Sioux Falls Simplified they've seen several violations of state law, as well as some unintended consequences of a 2019 city ordinance change related to video lottery.
"This has gone on so long, everyone knows the state is looking the other way (regarding violations)," Neitzert said. "It's our city, and it's time to act. We can't look the other way."

OK, give me a little background here

Video lottery became legal in South Dakota in 1989, and it's since made the state more than $2 billion.

Per state law, video lottery licenses are intended to go to businesses defined as a "bar or lounge." The idea is video lottery should be an add-on for these places to attract customers and make money – not that video lottery is the main or only draw to the business.

  • So, essentially, businesses whose sole offering is video lottery shouldn't be allowed, Neitzert said.
  • It doesn't take much looking to find a casino in town where video lottery is the primary or sole offering – something he added is probably in violation of state law, but not a problem the city can solve.
"The thing is that the state makes a couple hundred million dollars on this," Neitzert said. "They don't want to enforce this – that's the problem. It's like the third rail of state politics."

Now, it's worth noting here that City Council has no authority over state law. Any concerns there have to come from the state lottery commission.

  • However, a municipality can do some things to slow the number of video lottery establishments from opening in town.

So, what can the city do?

Well, here's where it gets a little complicated.

If a business has already received approval for a video lottery license, the city can't really do anything about it.

And, if a business has a full liquor license (not just wine and/or beer), the city can't really do anything to stop them from also offering video lottery. That's because of a 2011 S.D. Supreme Court case – Law vs. Sioux Falls – that I will spare you the details of here.

But, there are some areas where the city can have a say.

  • The city could set a cap on the number of licenses the city will issue. This is an approach already taken in Rapid City, Yankton, Aberdeen and Watertown, Neitzert said.
  • The City Council could start saying "no" more often when businesses (with either a wine or beer license) apply for video lottery
  • The council could also set stricter criteria for what applicants need to bring to the table when asking for a video lottery license.

Oh, and we have to talk a little bit about this 2019 ordinance change

In 2019, the City Council approved an ordinance change that essentially loosened the rules about how separated two adjacent casinos (separate businesses, separate licenses) had to be.

  • It's unclear if that ordinance change directly caused more video lottery establishments to pop up around town. But there is a correlation between that passing and an increase in licenses getting approved in subsequent years.

Neitzert said he's seeing casinos operating outside the council's intent on that ordinance.

  • The original goal was, in part, to make it easier for the two establishments to share an employee and keep the employee safe by not requiring them to go outside all the time.
  • But instead, businesses are putting four or more separate video lottery businesses under the same roof, separated only by hallways and different address numbers, Neitzert said.
"This is not what we intended," he said. "We were either lied to or we were deceived, and what we've now done inadvertently is we've made it easier to scale (casinos)."

What happens next?

Neitzert and Merkouris will present their findings on video lottery during an informational meeting on Oct. 25.

They've also already got an ordinance drafted to address these issues, but they're waiting to present it until they've had a chance to catch the full council up on what they know so far.

And, it's worth noting, again, that the city can't really do anything about licenses already approved. But, Neitzert wants to see changes moving forward.

"We can't just go on approving them," he said.