Treasurer Rob McCord is using a clever legal argument to combat Governor Tom Corbett’s midnight privatization raid of the Pennsylvania Lottery, and it is worth looking at in detail.
After the 4:45 Friday announcement was made by the Corbett administration that they had accepted the bid of a foreign company, Camelot Gaming, Treasurer McCord immediately threatened to “reject payments associated with the business plan.”
Essentially, McCord is saying to Governor Corbett that “you bought it, but I ain’t paying for it.”
In a letter to the Secretary of the Pennsylvania Department of Revenue, McCord argues that the privatization scheme “involves the deployment of monitor- or video-based gaming beyond that authorized by current statutory law.”
McCord is using the language of Camelot Gaming’s own proposal against them.
Specifically, McCord is asserting it is the Pennsylvania Gaming Control Board that has regulatory oversight over anything broadly defined as a slot machine, NOT the PA Lottery.
Here is the relevant language from McCord’s letter:
The Lottery’s business plan for market expansion and revenue enhancement has been ambiguously characterized as the introduction of — “monitor-based games,” “terminal-based games,” “Internet products,” and “Internet gaming.” Absent is a detailed explanation of the particular monitor-, Internet-, or terminal-based game Camelot intends to introduce into the marketplace.
In fact, there is substantial doubt the use or operation of “monitor-based games” and “Internet gaming,” as identified in your letter, are authorized by state law. The legislature’s definition of “slot machine” within the Pennsylvania Race Horse Development and Gaming Act is broadly written to include “any mechanical or electrical contrivance, terminal, machine or other device . . . .”
Therefore, McCord argues that
… a “monitor-based game” that, upon the payment of any consideration and by the element of chance, entitles the operator to receive anything of value would fall within this broad definition of a slot machine, thus subjecting the device to the regulatory oversight of the Pennsylvania Gaming Control Board – not the Lottery.
McCord is relying on both statutory law and a Commonwealth Court decision as support for his argument, and he seems to have a pretty strong case.
Let’s look at the arguments along with the language.
First, McCord asserts that the statutory definition of “slot machine” parallels the Crimes Code definition of illegal gambling devices.
18 Pa. Cons. Stat. Ann. § 5513 states the following:
(a.1) Electronic video monitor.–A person commits a misdemeanor of the first degree if he owns, operates, maintains, places into operation or has a financial interest in an electronic video monitor or business that owns, operates, maintains or places into operation or has a financial interest in an electronic video monitor:
(1) which is offered or made available to persons to play or participate in a simulated gambling program for direct or indirect consideration, including consideration associated with a related product, service or activity; and
(2) for which the person playing the simulated gambling program may become eligible for a cash or cash-equivalent prize, whether or not the eligibility for or value of the cash or cash-equivalent prize is determined by or has any relationship to the outcome of or play of the simulated gambling program.
McCord argues that the description of the new products that Camelot will be offering includes electronic video monitors, which are considered slot machines and therefore must be approved by the Gaming Control Board.
Here is the definition of “slot machines” under the definitions section of the Pennsylvania Race Horse Development and Gaming Act (emphasis added in bold):
Any mechanical, electrical or computerized contrivance, terminal, machine or other device approved by the Pennsylvania Gaming Control Board which, upon insertion of a coin, bill, ticket, token or similar object therein or upon payment of any consideration whatsoever, including the use of any electronic payment system except a credit card or debit card, is available to play or operate, the play or operation of which, whether by reason of skill or application of the element of chance or both, may deliver or entitle the person or persons playing or operating the contrivance, terminal, machine or other device to receive cash, billets, tickets, tokens or electronic credits to be exchanged for cash or to receive merchandise or anything of value whatsoever, whether the payoff is made automatically from the machine or manually.
Again, McCord’s argument is that the description of the new products that Camelot will be offering must be approved by the Gaming Control Board.
Next, McCord’s statutory law argument is supplemented by a 2003 Commonwealth Court case, Commonwealth v. Wintel, Inc., which explains the preceding provision of the Crimes Code.
Here’s the relevant portion of Judge Leavitt’s opinion, with footnotes and citations removed:
18 Pa. Cons. Stat. Ann. § 5513 has been construed to mean that a machine is a gambling device per se, if it can be used for no purpose other than gambling. This determination is made by comparing the characteristics of the machine against the elements necessary to gambling: (1) consideration; (2) a result determined by chance rather than skill; and (3) reward. If these three elements are present, then the machine will be considered so intrinsically connected with gambling as to constitute a gambling device per se.
Thus, McCord asserts that the procurement contract with Camelot Gaming significantly expands the definition of gambling, and that any expansion is most “appropriately considered by the General Assembly,” not a state procurement agency.
Finally, McCord argues it is likely that the proposed “monitor-based games” are more appropriately categorized as a “Video Lottery Terminal or VLT.”
This constitutes a further expansion of the definition of gambling, because although VLT games “may operate on the same premise of random number generation as scratch-off lottery tickets, they eliminate the use of a physical ticket and bypass a person who must activate the wager and/or deliver the payout.”
Therefore, McCord argues that “those differences alter the nature of the lottery gaming experience and allow for much greater frequency of play in a manner that could constitute a substantial expansion of gaming beyond the limits of existing law.”
Again, the point of McCord’s argument is that these expansions are most “appropriately considered by the General Assembly,” not a state procurement agency.
You may be wondering, why does McCord insist that the General Assembly consider the proposal?
This is where the politics comes in.
McCord wants to force Governor Corbett’s hand and make him put PA Lottery privatization to a vote by the PA House and Senate, a vote that it is not likely to pass.
Democrats will largely oppose the measure on ideological grounds, and many Republicans will find it politically difficult to outsource the Pennsylvania Lottery to a foreign corporation that will send Pennsylvania jobs overseas.