Soon after signing a gambling expansion law in 2017 to legalize PA online gambling, among other things, Pennsylvania Gov. Tom Wolf made a statement.
The goal, he said, “has been all along to do what’s prudent, not cannibalize existing gambling revenue coming to the state, and I think what we’re settling on will actually do that.”
Wolf said state officials faced “a lot of pressure from a lot of places” for gambling expansion, which included legalizing PA sports betting and PA online casinos. He added that the state did need some recurring revenue.
Part of the revenue push included PA Lottery expansion as well. The state introduced PA online lottery and rolled out monitor games like Keno and Xpress Sports. The previous fiscal year was the best ever for the Lottery. Though this period is well on pace to become the best in PA Lottery history.
Yet gambling expansion continues to be prevalent. Online casinos in the state should hit the market by summer, likely on the heels of PA online sports betting. And the PA Lottery faces additional concerns, particularly the effect of illegal skill-based games throughout the state.
So as the gambling world in the Keystone State widens, where does the state of PA Lottery stand?
PA Lottery revenue riding high
Speaking in front of the Pennsylvania House Appropriations Committee earlier this month, Drew Svitko noted that the PA Lottery is having a great year:
“We’re on track for an all-time sales record, an all-time profit record. We’re currently estimating about $50 million ahead of the same point last fiscal year. We’re expecting to end the year $20 million ahead of estimate.”
The PA Lottery boasts some 9,600 retailers across the state, Svitko added. Those relationships have carried the lottery to unprecedented heights. After all, during the 2017-18 fiscal year, the PA Lottery raked in $4.2 billion. That broke the previous record of $4.13 billion set two years prior.
Last year, the department debuted its selection of iLottery games, which actually drew the ire of PA casinos. The intention, Svitko said, was “for us to be convenient for a new generation of lottery players” and “relevant at delivering a different kind of entertainment experience.”
During a separate committee hearing in February, Svitko expressed his anticipation for online lottery games to generate $300 million in ticket sales within their first full year. The addition of Keno and virtual sports (also known as Xpress Sports) also went live. Together, over the first six months, they led to $9 million for Pennsylvania senior citizens. However, the Lottery expected more money.
Svitko blamed that shortcoming on illegal games of skill.
Illegal ‘games of skill’ eating into PA Lottery
Throughout the state, games of skill exist in bars, taverns and other public areas. These games, “represent competition in the exact environments in which we’re trying to get our monitors,” as Svitko said earlier this month. They also produce higher rates of return for owners than the PA Lottery pays since they do not pay any tax money to the state.
In February, Svitko noted that 70 percent of the lottery’s annual revenue stems from scratch-off tickets. Moreover, a team of economists estimated that the PA Lottery loses $95 million in scratch-off sales each year due to the presence of illegal games of skill. Those games also prevent the lottery from expanding the reach of its Keno and Xpress Sports. The illegal games take up the spaces in taverns where these monitor games would go.
Almost 18 percent of lottery retailers now feature at least one skill-based game machine, Svitko said in February. For perspective, nearly half that percentage did so the year before.
“When we looked at that less than a year ago, it was a quarter of that impact,” Svitko said. “So the impact is growing significantly and it absolutely represents a long-term risk for the Pennsylvania Lottery.”
Department of Revenue, Lottery condemn skill-based games
In early March, C. Daniel Hassell, secretary of the Pennsylvania Department of Revenue, condemned those illegal games.
“Our opinion is that those so-called games of skill are not legal under current law,” Hassell said. “That is the opinion of the state police, that they have been talking about. And we support their position on this. There are a couple of cases that are working their way through the courts to seek a ruling on that specifically.
“But we believe that the presence of those games of skill out there in an unregulated and untaxed way is having a detrimental impact on the lottery but also on the casinos.”
What about the Wire Act opinion?
Despite all the chatter surrounding illegal games of skill, the biggest threat to the health of the PA Lottery is the latest opinion on the Wire Act.
In January, the Department of Justice reversed course by determining that the scope of the Wire Act expanded to all forms of gambling, not just sports betting. It also called into question how governments and states defined intrastate gambling.
Speaking in front of the appropriations committee in February, Svitko said the opinion, “represents a huge threat to the lottery industry as well as the Pennsylvania Lottery as well as the gaming industry.”
A byproduct of enforcing this recent Wire Act opinion would be the PA Lottery closing the doors on its back-up data center in Georgia and relocating it within Pennsylvania state lines. Obviously, that comes with a lofty price tag.
PA joins legal action against the DOJ
Fortunately, Pennsylvania joined a group of states fighting against the DOJ.
In early February, PA Attorney General Josh Shapiro and New Jersey Attorney General Gurbir Grewal sent a letter to the Department of Justice to voice their “strong objections” to its opinion.
A month later, Pennsylvania tried to join a lawsuit brought forth by New Hampshire against the DOJ as a co-plaintiff. The judge denied the Commonwealth’s request, but Pennsylvania did file an amicus brief.
The fight certainly benefits all forms of online gambling. Yet Pennsylvania singled out its biggest reason why it entered the ring. And it alone says how much the state relies on and expects of the PA Lottery.
As it was written in its request to become a co-plaintiff:
“Given the use of wire transmissions for Pennsylvania Lottery games as described above, the broadest interpretation of the 2018 Opinion could result in the suspension of all state lottery sales, resulting in an immediate annual loss of over $1 billion in Lottery proceeds that benefit older Pennsylvanians.”
