On October 16, 1989, the South Dakota Lottery pioneered the first state video lottery in the nation. Since its launch, video lottery has proven to be a successful product, providing more than $2 billion in revenue to the State of South Dakota.
South Dakota's video lottery program began one year following the start of the Lottery, preceding lotto games in the state by a year. Initial legislation to authorize video lottery failed by one vote in 1988, but was reintroduced and passed in 1989.
In the first year of operation, 700 establishments were licensed, and revenues surpassed projections by nearly $2.5 million. The number of establishments and terminals grew quickly, leveling off by 1994, then steadily growing to near the current levels of about 8,900 terminals in more than 1,350 establishments statewide.
South Dakota's video lottery terminals offer poker, blackjack, keno, bingo and line games at multiple denominations. The maximum bet is $2 and the top prize is $1,000. The terminals print vouchers for winnings from video lottery play which must be presented by the player to claim their winnings at the establishment that same business day. Terminals pay out credits won as a percentage of credits played-between 88 and 92 percent.
The South Dakota video lottery model is unique in the degree of private sector involvement, with the Lottery serving solely as a regulator of the games. The Lottery authorizes four levels of licensees: Operators, who own the terminals and provide maintenance by technicians certified by the Lottery; Establishments, which are businesses, with on-sale alcohol beverage licenses, where the terminals are located; Manufacturers, which produce the terminals using hardware and software tested and approved by the Lottery and an independent gaming laboratory; and Distributors who provide the terminals and parts to the operators.
South Dakota law dictates the use of a central computer system to maintain critical control of the video lottery terminals. The highly sophisticated system monitors every function of every terminal, and polls every terminal every day to ensure up to date accountability of the game.
The significant level of private sector involvement requires the state to operate video lottery efficiently. Three Lottery employees - a testing specialist, a compliance manager and an accountant work solely on video lottery operations. Other staff, whose duties include video lottery operations as well as other Lottery activities, include a computer systems administrator, four computer operators, a licensing manager and a security director.
Video lottery revenues are calculated as net machine income (NMI), which is cash in minus prizes paid out. NMI is split between the state and licensed operators (who in turn split their share with establishments).
The state's share of NMI began at 22.5% in 1989, was increased five times, and became 50% in 1995. Of that 50%, 49.5 % is currently deposited in the state General Fund with the remaining 0.5% being used by the lottery for administration costs.
Revenue from video lottery has been the second largest source of income to the General Fund since 1992, surpassed only by the sales and use tax. Through the years, video lottery revenue also went to the state's Property Tax Reduction Fund (1995 - 2015) which was used to reduce local property tax levies. The fund was discontinued by the South Dakota Legislature in 2015.
The success of South Dakota's video lottery program has not been without its challenges, surviving three statewide ballot initiatives and a lawsuit that resulted in a ruling by the state Supreme Court that the game was unconstitutional with an order to shut it down. Numerous safeguards, on-going regulation and monitoring ensure its security, integrity and accountability.