In a March 2022 article, I praised Nintendo for going against current trends in video games by prioritizing physical media. That post came in response to an article which opined that Nintendo had a problem in that it lags behind rivals Sony and Microsoft in the digital games space and specifically in generating revenue from microtransactions, which are, bluntly described, in-game purchases. However, while I find there is much to praise about Nintendo today, it is far from perfect. Moreover, its imperfection is not new. While reading about a 1990s effort by Sega to turn the Sega Genesis into an answering machine, I discovered that Nintendo once aspired to take video game consoles to a dark place. Below, I present the story of the time when Nintendo teamed up with the Minnesota State Lottery in an aborted attempt to turn the Nintendo Entertainment System into a home lottery machine.
Mario and gambling?
On September 27, 1991, Mr. Eben Shapiro of The New York Times published a report titled Nintendo and Minnesota Set A Living-Room Lottery Test (archived). From the title, you can tell that this is going to be stupid. The content does not disappoint. Let us jump right into the insanity.
[Minnesota] plans to test a system that will allow people to use Nintendo equipment to play the state lottery in the comfort of their living rooms.
What could go wrong? Aside – note that “Nintendo” here refers to the Nintendo Entertainment System, Nintendo’s first home console (in the United States).
It is easy (albeit concerning) to see why the Minnesota Lottery thought this was a good idea. Mr. Shapiro quoted Ms. Connie Scovin, an executive at the company that hatched the plot:
The lottery industry is looking for ways to expand its horizons.
As of September 1991, the Nintendo Entertainment System had already been superseded by the release of the Super Nintendo Entertainment System, which would remain Nintendo’s flagship console until 1996. Moreover, Nintendo’s first console had already been subjected to a growing challenge from the Sega Genesis. While the Nintendo Entertainment System was becoming outdated, however, it was still a popular machine – and most likely still had the largest market share by a significant margin in 1991. Mr. Shapiro noted that “[n]early a third of the nation’s homes have Nintendo sets,” before ominously suggesting that “if the Minnesota test is successful, Control Data plans to make the system available to other states.”
Mr. Shapiro reported that the plan was to test the Nintendo gambling system in 10,000 Minnesota homes. Minnesota was so enthusiastic about the idea that it was prepared to provide free Nintendo Entertainment Systems and modems to households to partake in the trial. Here, we should note that Minnesota would have been providing special consoles with built in modems. People who already had consoles could participate, but they “would have to retrofit them with a modem to take advantage of on-line services.” Nintendo-gambling trial participants would also have had to pay a monthly $10 service charge, just over $21 in 2022 terms, to gamble against huge odds from the comfort of their video game consoles.
After signing up for the brilliant program, Nintendo gamblers would have been able to select lottery numbers using their internet-connected consoles. In the event that the gamblers won small prizes, the prizes would be credited to their account. However, gamblers would have to collect larger prizes in person.
The plan unsurprisingly generated opposition. Mr. Shapiro noted that some people in the video game industry had questioned the wisdom of associating a family-oriented video game brand with less family-oriented gaming. Mr. Bob Heitman of the Sierra Network described the plan as inviting Jimmy the Greek to your child’s bedroom (good line) and stated that as someone who ran, Sierra On-Line Inc., a family game company, he would not associate his property with gambling.
Minnesota and Control Data (primarily Control Data) insisted that there was nothing to worry about. The two entities explained that there would be safeguards to prevent children from partaking in the lottery. These supposed safeguards included a $50 daily limit on spending along with a feature which would disable the unit upon entry of an incorrect password (I am sure that passwords in 1991 were typically fool-proof), requiring participants to mail copies of their official ID to participate.
Before we cover the predictable demise of the Nintendo-gambling plan, we must address why Nintendo would have ever possibly concluded that this was a good idea. Minnesota wanted gambling revenue. Control Data, the company behind the idea, wanted more business. What did Nintendo want?
Firstly, Mr. Shapiro suggested that Nintendo saw the lottery plan as a way to “prolong the life of its older model,” here referring to the Nintendo Entertainment System, which was being phased out in support of the Super Nintendo (however, it is worth noting that the last original Nintendo game was released in 1995 – and one of its finest games, Kirby’s Adventure, was released in 1993). Mr. Shapiro added that “the introduction of gambling could help combat the general decline in interest in video games,” but he did not cite any sources for there being a “general decline in interest in video games” in 1991, and the benefit of hindsight reveals that the video game industry had a bright future without home lottery functionality.
Secondly, Mr. Shapiro quoted a statement from Nintendo itself:
This test could provide us with some insights into the potential for further network applications; however, our main focus is to find the kind of entertainment software that will truly take advantage of that potential.
Surely, there were better ways to undertake such a test.
The article noted that “[i]n Japan, Nintendo customers use their machines for banking and for buying and selling stocks,” but I am fairly confident that the vast majority of owners of the Japanese version of the Nintendo Entertainment System (the Famicom) just used it for playing games.
(It is somewhat ironic in hindsight that despite Nintendo’s early efforts to implement online functionality for its console, it ultimately lagged behind its rivals when online functionality for home consoles took off in the 2000s (although both Sega and Nintendo implemented some online functionality in the 90s, I would argue that the Sega Dreamcast was the first console with broadly accessible online functionality outside of Japan).
Having read the foregoing section, you may wonder how it is that the Nintendo Entertainment System plan did not sweep the nation like Pokémon would seven years after The New York Times report. In the end, the plan was too beautiful for our imperfect world. An October 27, 1991 report (archived) by Mr. Rogers Worthington of the Chicago Tribube revealed that the scheme was no more:
Minnesota lottery officials had hoped to launch a pilot project that would have let people purchase lottery tickets through Nintendo units in their homes.
Note the past perfect tense.
[T]he idea was abandoned after vocal protests from powerful state legislators.
In addition to the fact that this idea was doomed from the start, I will note that the cultural status of video games in 1991 was less than what it is today. Games were also much more closely associated with children at that time.
‘Intruding into people’s homes and converting a game which is immensely popular with young children into a gambling tool is not only unethical, but insidiously destructive to society,’ state Senate Majority Leader Roger Moe told reporters in St. Paul when the idea was floated in September.
“Intruding into people’s homes” is not the most apt description when the proposal would have involved avid gamblers inviting the service into their homes and paying a substantial monthly fee for it before accounting for lottery ticket purchases, but the point is otherwise well-taken. I do, however, dare suggest that the good State Senator should have opined on the fact that the State, like most other states, saw fit to run a gambling operation at all.
Thus, just one month after The New York Times reported on the Minnesota-Nintendo gambling plan, the plan was no more.
Nintendo is an easy punchline in the Minnesota gambling story. Its enthusiastically joining a plan to turn its video game consoles into gambling devices was always doomed to die as a result of harsh criticism that the plan predictably triggered. Moreover, Nintendo decided to try this doomed plan at a time when video games were far more closely associated with young children than they are today. While the mockery of Nintendo of America executives in 1991 is well-deserved, the story is more valuable as a commentary on the problem with state-sponsored lottery systems generally. The problem exists regardless of whether one ultimately supports these lottery systems.
While I understand that the lottery folks are simply trying to maximize revenue…
When the State gets into the gambling business and uses the gambling business to raise money, it is perversely incentivized to encourage and promote gambling. Minnesota State Lottery bureaucrats were responsible for ensuring that people gambled with the Minnesota lottery (including those who might never before done so). To achieve that goal, they paid Control Data to develop solutions that would encourage more Minnesota residents to gamble. The purpose of the Nintendo scheme from their perspective was to facilitate gambling. Furthermore, Minnesota’s incentives were such that they would have been well-served if children seeing their parents use video game consoles to gamble were encouraged to gamble when they reached the age of 18.
My home state, New York, is currently planning to build a number of casinos, ostensibly for the purpose of generating revenue. States across the company are rushing to take a slice of sports gambling revenue. Beyond gambling, states across the country are working to monetize the sale and use of Federally controlled substances by staking out their official positions in the marijuana market.
The moment the government seeks to generate revenue from anti-social activities, it becomes at least partially incentivized to promote such activities. Minnesota reportedly came up with the Nintendo-lottery plan in the wake of its lottery system not generating expected revenues. A lottery system under-performing is a good thing – that means that people are not wasting their money on buying lottery tickets when the odds against their winning are microscopic. However, from the perspective of a government agency whose performance is judged based on how much revenue it raises from selling lottery tickets, people not buying lottery tickets is a bad thing while more people buying lottery tickets and losing is a good thing. This is how you end up with a plan to turn Nintendo consoles into home lottery machines.
The Minnesota-Nintendo lottery principle will extend elsewhere. If the government promises that casinos will generate a certain amount of revenue for schools but casinos fail to generate that amount of revenue, the government is incentivized to encourage more people to gamble and lose at casinos. If not enough people spend their weekdays getting high off officially licensed marijuana, agencies dedicated to regulating government-sponsored marijuana will be incentivized to encourage more people to buy and use marijuana. While the cigarette taxes reflect that the government disfavors regular smoking, I would advise against promoting the idea that the government should expect certain revenues from taxes, lest you want to see the effect of perverse incentives there as well.
There are arguments in support of of state lottery systems, casinos, sports betting, and officially-condoned drug use, and proponents may argue that their battle for revenue is a battle for revenue at the expense of non-officially-condoned methods of gambling and distribution. But even those arguments must confront the question of the perverse incentives that come with governments raising revenue off vice.
The Nintendo lottery story seems quaint in an age now where not only are homes connected to the internet, but so too are mobile phones, but it remains an interesting case study on the effect of the incentives created for State governments by State lottery systems more than 30 years after its premature demise.