PA Lottery Warns if Casinos Get Their Way, It Will Be the Beginning of the End for iLottery

The Pennsylvania Commonwealth Court heard a case last week that will determine the future of the Pennsylvania Lottery.

In five days of testimony and arguments made remotely due to coronavirus restrictions, lawyers for casino operators and the Commonwealth of Pennsylvania debated whether some internet instant games offered by the Pennsylvania iLottery simulate slot machines.

Closing arguments made Friday centered around the features of instant lottery games and the definitions of “slot machine” and “simulate.”

They seem like simple terms, but the arguments made in front of Judge Renee Cohn Jubelirer showed that the sides differ greatly in their interpretations.

Basis of Pennsylvania internet lottery dispute

In 2017, the Pennsylvania legislature passed Act 42. The law authorizes internet gaming and online lottery games in Pennsylvania.

Casinos and the lottery have since gone online. Casino operators feel that some of the iLottery offerings play the same way as slot machines, to which they have an exclusive right in Pennsylvania.

The casinos filed a lawsuit in August 2018 seeking an injunction to stop the PA Lottery from “providing illegal, simulated casino-style online games.” The case is titled Greenwood Gaming v. Commonwealth of Pennsylvania. Greenwood Gaming is the parent company of Parx Casino. Six more casino companies are listed in the suit.

Pennsylvania’s Lottery Law prohibits offering any “internet-based or monitor-based interactive lottery game or simulated casino-style lottery game, including video poker, video roulette, slot machines or video blackjack, through the State Lottery.”

The court denied a request to temporarily stop the lottery from offering these games while the case played out. As a result, the games remain available through the lottery website and mobile app.

Casinos make their case against PA Lottery

Following four days of testimony, Adam Shienvold gave the closing arguments for the petitioners.

Shienvold made the following contentions:

• Internet instant games feature a random number generator (RNG) that determines the outcome of play at the point of interaction.
• Every iLottery game features an adjustable bet, infinite number of plays, a nondepleting prize pool, executes the game’s function with the push of a button and features auto play.
• Act 42 defined an internet instant game as a lottery game of chance in which a player purchases a lottery play with the result being a reveal that determines whether it wins a lottery prize. “In the definition of internet instant games, the legislature used the word lottery four times. This distinction is critical.”
• The iLottery math model spreadsheet is identical to slot machine math.
• A game that appears on the PA iLottery website also is offered by an online casino in New Jersey.
• The PA iLottery offers casino-style games to 18-year-olds that the casinos can only offer to people ages 21 and up.
• By offering slot-style games, the Department of Revenue is not respecting statutory limits and is unfairly competing with the petitioners.

He stressed that, to the player, the experience of playing the iLottery internet instant games in question and a slot machine is identical. You press a button, symbols animate, an outcome is revealed and you find out if you won a prize.

“That’s a slot machine every time,” Shienvold said. “But here in this case, we’ve seen that’s an iLottery game.”

Respondents contend games based on lottery products

In her closing arguments, Chief Deputy Attorney General Karen Romano alleged that the casinos do not understand lottery products. Her key points:

• There is an overlap between the lottery and casino industries, but that does not mean there’s simulation.
• All the features of PA’s internet instant games are firmly rooted in traditional lottery products. The lottery first used an RNG to conduct a drawing in 1994, used animation to conduct midday drawings and offered a digital second-chance drawing interactive game that included a reveal-all button in 2010.
• A Monopoly jackpot second-chance game offered well before internet instant games included animation, sounds, licensed properties, a reveal-all function, progressive jackpots and bonus games that included spinning reels and awarded prizes.
• Slot manufacturers have contracted with lottery game supplier IWG to turn their existing slot intellectual property into internet instant games.
• Gaming developers leverage their intellectual property to develop different types of games on the same theme. So having the same name and theme as a slot game doesn’t mean they are identical.

Romano said of the casinos:

“All they are concerned with is eliminating any and all perceived competition in Pennsylvania. And since they can’t get rid of each other, they’re targeting the lottery program … The casinos are trying to eliminate not only the lottery’s instant games but, by extension, the lottery’s entire online program because of their unsubstantiated concern that these games will cut into their billions of dollars in online play.”

The key question: What is a slot machine?

The commonwealth argued that the individual features of a slot machine weren’t invented by the slots industry and the lottery used many of these features previously, so combining the features doesn’t simulate a slot machine.

“Simulate doesn’t mean replicate, simulate doesn’t mean violate a trademark or a patent, simulate means similar to,” Shienvold countered.

The respondents defined slot machines as having spinning reels and paylines, asserting that iLottery products have neither.

“The testimony revealed that the vast majority of slots rely on spinning reels or digital representations of them, in the evaluation of symbols aligning left to right on paylines to determine their winners,” Romano said. “This is fundamentally different and much more complicated than the Pennsylvania lottery’s internet instant games.”

The petitioners presented witnesses showing that there are slot machines that do not feature spinning reels or paylines, and that some iLottery games do have reels.

Could ruling end Pennsylvania lottery?

The Commonwealth closed its case with a warning that an adverse ruling in the case could be the beginning of the end for the PA Lottery.

Romano said:

“In just 15 months, over $7.5 billion has been wagered on petitioners’ iGaming offerings. The petitioners seek to further maximize their piece of the pie by asking this court to unravel part of the fabric of Pennsylvania by issuing an injunction that will likely render the PA Lottery obsolete and along with it eliminating over $70 million in annual funding to benefit older Pennsylvanians.”

Shienvold responded that this contention couldn’t be further from the truth. He pointed out that vendors testified to their capability to offer these games with a depleting prize pool, a finite number of plays, without a reveal-all function, without adjustable bets and with fixed price points. And a piece of software can make the changes.

“We are not asking to shut down the lottery, and we’re not asking to shut down iLottery,” Shienvold said. “We’re asking the lottery to follow the law.”

What’s next in Pennsylvania internet lottery case

Judge Cohn Jubelirer commended both sides on doing an excellent job presenting their cases.

She asked the attorneys to supplement their arguments with written findings of fact and conclusions of law. They agreed to make these filings within 30 days of receiving transcripts of the hearings, which could take a couple of weeks.

Then the judge will review the arguments and make her ruling. Industry representatives expect a decision in the first quarter of 2021.

A source familiar with the discussions said that settlement negotiations between the sides broke down prior to the hearing and that there is not likely to be a settlement.

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