Abstract
After nearly three years of litigation in the Pennsylvania courts, it appeared for a moment on May 25, 2021, that a hard-fought case between the Pennsylvania Department of Revenue and a coalition of seven Pennsylvania casinos (the “Casino Group”) was finally over—until an appeal was filed by the Casino Group to keep the case alive. In its late-May opinion and subsequent dismissal in Greenwood Gaming and Entertainment, Inc. et. al. v. Commonwealth of Pennsylvania, Department of Revenue et. al., 1 the Commonwealth Court of Pennsylvania (the Court) determined that amendments to the state lottery law and expanded gaming laws, as discussed below, did not prevent the Pennsylvania Lottery from offering lottery games online, i.e., iLottery games, even though they closely resemble games that are offered by the Casino Group through internet-based casinos, also known as i-gaming. What on its surface seems like a simple issue has turned out to be a hotly debated topic in Pennsylvania, as the gaming industry continues to expand within the Commonwealth, and millions of dollars of gaming revenue hang in the balance. Therefore, it is important to understand both sides of the case, the decision of the court, its implications, and where the upcoming appeal will likely take this critically important case.
At the center of this case lies Act 42 of 2017 (Act 42) and the State Lottery Law (Act of August 26, 1971, P.L. 351, No. 91, as amended). Act 42 was a multi-faceted gaming expansion law in Pennsylvania which allowed for the expansion of pre-established land-based gambling activities, in addition to authorizing the operation of online fantasy contests, internet gaming websites, and online lottery games. Importantly, Act 42 allowed both the Pennsylvania Lottery and casinos operating as slot machine licensees to have an online presence. As originally created, the State Lottery Law prohibited the Pennsylvania Lottery from hosting 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.” 2 However, Act 42 amended the State Lottery Law and allowed the Pennsylvania Lottery to offer iLottery instant games, with the significant caveat that the Pennsylvania Lottery not be allowed to offer games that simulate casino-style slot machines. Thereafter, the Pennsylvania Lottery began offering iLottery games in 2018 and has since added millions of dollars in revenue to support Pennsylvanians 65 and older. The Pennsylvania Lottery is currently on track to surpass over $900 million in sales in 2021. 3 This strong emergence onto the internet gaming scene, and the claim that the Pennsylvania Lottery was offering games that simulated casino-style slot machines, prompted the Casino Group to file a complaint against the Pennsylvania Lottery in August of 2018. 4 The Casino Group brought this legal challenge to defend their significant financial investment in Pennsylvania through land-based casinos, interactive gaming platforms, and costly licensure fees.
The Casino Group stated that the Pennsylvania Lottery having an iLottery was a “direct incursion by the state into the exclusive market of the licensed gaming operators” and that the iLottery games offered had “the same user interface as a slot machine, and have the same interactive appearance, feel and play experience that a player would expect from land-based and online slot machines.” 5 In addition, the Pennsylvania Lottery only requires that iLottery players be 18 years old, while the gaming law mandates that all users of the casino interactive games be 21 years old—thus allowing the Pennsylvania Lottery to have an apparent monopoly on a carved-out section of the population inaccessible to outside competition. 6 Moreover, the complaint provided a list of grievances with the Pennsylvania Lottery mimicking aspects of a slot machine licensee's interactive games, including: the use of an adjustable bet, infinite number of plays, reveal-all functions, and a nondepleting prize pool; and the use of a random number generator, which the Casino Group claims is typically a core mechanism in a slot machine licensee's game. 7
The Pennsylvania Lottery countered the assertions of the Casino Group by stating that “the games as defined in the [Act 42] are generally accepted in the industry to be lottery games and do not simulate casino-style games” and that by including both the casinos and the Pennsylvania Lottery in the language of Act 42, the legislature clearly intended for them both to coexist in the interactive sphere. 8 Inherent in the Pennsylvania Lottery's arguments before the court was its assertion that overlaps between the Pennsylvania iLottery games and those of the casinos did not mean that the Pennsylvania Lottery was simulating casino-style slot machines. To bolster its argument against its perceived simulation, the Pennsylvania Lottery chose to wind back the clock and reference the history of Pennsylvania's internet instant games, games in which it had been utilizing a random number generator since 1994, and games that existed through the Pennsylvania Lottery that included progressive jackpots and reveal-all functions well before internet instant games were offered through casinos. Furthermore, Chief Deputy Attorney General Karen Romano, arguing for the Pennsylvania Lottery, stated that the true intent of the Casino Group in coming after the Pennsylvania Lottery was to eliminate “any and all perceived competition in Pennsylvania” and to eliminate “not only the lottery's instant games but, by extension, the lottery's entire online program” in order to satiate their desire for an increased cut of the gaming revenues in Pennsylvania. 9 The Pennsylvania Lottery's preliminary arguments swayed the court more than those of the Casino Group, as the Casino Group's request for an injunction while the suit continued was denied in July 2019.
The competing views of the Casino Group and Pennsylvania Lottery were synthesized by the court in a memorandum opinion that was released by Judge Renee Cohn Jubelirer in May of 2021. The court was tasked with determining whether the Pennsylvania Lottery and the casinos of Pennsylvania were coexisting as envisioned by the Pennsylvania legislature when it enacted Act 42 and correspondingly amended the State Lottery Law to authorize iLottery games but prohibit those same iLottery games from simulating casino-style lottery games. The standard for granting the Casino Group's relief was a high bar, with the Court stating that, in order to find in favor of the Casino Group, the rights and equity of the group would need to be “clear and free from doubt.” 10
Specifically, the court was confronted with two issues: (1) whether the Pennsylvania legislature intended iLottery games to merely be online versions of an instant lottery tickets; and (2) what restrictions the General Assembly intended when it stated that the simulation of “casino-style” iLottery games should be prohibited. 11
On the first issue, following a detailed analysis of Act 42 and the State Lottery Law, including the recent amendments to permit online sales, the court concluded that the legislature did not intend to limit the Pennsylvania Lottery internet instant games to only digital representations of instant lottery tickets. 12 Rather, the court determined that the legislature specifically authorized iLottery games to incorporate other forms of play and prizes beyond that associated with an instant ticket. 13 The court drew attention to the subtle difference in the State Lottery Law's language stating that it allows for a player to “remove the covering” of numbers and letters to reveal a lottery prize, while Act 42 has the results of an internet instant game “reveal[ed]” through numbers, letters, and symbols that show that a lottery prize has been won. 14 The court took these subtle changes as consistent with the Pennsylvania legislature's intent on “expanding the type of lottery product that was authorized to be offered online as an internet instant game beyond the instant ticket.” 15
With regard to the second issue, the court concluded that “the legislature's decision to prohibit the Lottery from simulating ‘casino-style’ slot machines does not reflect an intention to preclude the Lottery from using features or characteristics that are not particular to a casino slot machines.” 16 The court went on to again disagree with the Casino Group's argument that the iLottery games simulated the casino interactive games by stating that “the features of iLottery games challenged … are not signature, iconic, or key features particular to casino slot machines.” 17 The court believed that any challenge to the Pennsylvania Lottery's use of the technology it utilizes in its iLottery games would be paramount to the court seeking to bar active slot machine licensees “from taking advantage of technological advances, changes in gaming and entertainment, or features that are found in existing popular entertainment” in their own businesses—a determination which would fly in the face of the intent of the Pennsylvania legislature. 18 Despite the court's conclusion on the commonality between iLottery and i-gaming features, the Casino Group has decided to appeal the dismissal.
On appeal, the Casino Group will need to more clearly establish that the iLottery games simulate casino-style games and that the court misinterpreted the amendments to Act 42. While there are certainly similarities and crossover between iLottery games and casino i-gaming, the Casino Group will likely need to point the appellate court in the direction of game features that are uniquely particular to a casino-style slot machine. While the court chose to address each disputed characteristic of the iLottery games in their individual capacities, such as the reveal all feature, auto play, adjustable bets, and infinite play and non-depleting prize pools, it may be interesting to see whether a subsequent appellate court decision chooses to take a look at iLottery games that incorporate several of these features in one game—thus bolstering that particular game's casino-style appearance.
While it is without question that the Pennsylvania legislature intended for both the Pennsylvania Lottery and the casinos to coexist in this ever-expanding marketplace, the degree to which these entities share overlap will continue to be a heavily debated issue. While the courts are currently tasked with interpreting how these entities were intended to coexist, ultimately this issue may need to come before the Pennsylvania legislature for further clarification. The stakes are high.