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Capitol reporter Katie Meyer covers Pennsylvania politics and issues at the Pennsylvania state capitol.
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Treasurer: potential Lottery expansion still may not be legal

Written by Mary Wilson, Former Capitol Bureau Chief | Jan 9, 2013 3:32 PM

The state Treasurer says he’s not satisfied the planned expansion of the Pennsylvania Lottery under a potential privatization deal would be legal.

Last month, Treasurer Rob McCord said he might not authorize payments to Camelot Global Services PA LLC, which has a bid on the operations of the Lottery. Camelot has said it could increase the Lottery’s profitability over a 20 year period, provided it is able to add things like online gaming and keno drawings to the Lottery. McCord has said such an expansion may not be legal without the General Assembly’s approval.

The Department of Revenue, which oversees the Lottery, has said the Corbett administration has the authority under state law to expand gaming – in particular, to include “video gaming devices.”

Today, McCord said in a statement that he still hasn’t received enough detail from the Corbett administration about the potential expansion of the Lottery if its operations are leased to Camelot. In a letter he wrote to state Revenue Secretary Dan Meuser, McCord acknowledged it “may be worthwhile” to change the Lottery.

“I suggest, however, such a significant expansion of gambling is more appropriately considered by the General Assembly, not a state agency’s public procurement contracting process,” McCord wrote.

State lawmakers have balked at their own lack of involvement in the plan. A state Senate committee hearing is scheduled on January 14.

Here’s the entire letter Treasurer McCord sent to the state Department of Revenue:

Dear Secretary Meuser:

I am in receipt of your December 28, 2012, letter concerning the Pennsylvania Lottery’s draft Private Management Agreement (PMA) with Camelot Global Services, Inc. Though I appreciate your attempt to address several of the legal concerns raised in my letter, the limited amount of public information concerning future lottery expansion plans leaves me unconvinced the intended deployment of “monitor-based games” throughout the Commonwealth is already authorized by the Lottery Law.[1] As a consequence, I once again write to provide notice – prior to the final execution of the PMA -- there is substantial risk Treasury will be required to reject payments associated with the business plan because it involves the deployment of monitor- or video-based gaming beyond that authorized by current statutory law.

Though your letter explicitly states the Lottery intends to introduce video gaming monitors (also known as video lottery terminals, or VLTs) in neighborhood bars and taverns this year, it stops conspicuously short of providing a clear description of those types of monitor/terminal games. 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. Accordingly, there is currently no basis upon which to determine if the “monitor-based games” envisioned in the PMA fall within the existing statutory retail lottery ticket agent system.

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 . . . .”[2] As a consequence, 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.

The fact the element of chance associated with a “monitor-based game” (e.g., a random number generator) is operated through a central computer system does not remove the device from the Gaming Act’s definition of a slot machine. In fact, from a player’s perspective, the device would be indistinguishable from a traditional casino-located slot machine. Though your letter uses the phrase “monitor-based game,” the more appropriate term is “Video Lottery Terminal or VLT” – a standalone device that allows gamblers to bet on the outcome of a video game (e.g., virtual scratch-off lottery tickets) with the outcome based on a random number generator controlled by a central computer. The traditional features that distinguish a typical VLT from Pennsylvania’s existing statutory retail lottery ticket agent system are: (1) greater frequency of play or drawings, often measured in seconds; (2) the absence of a paper lottery ticket (using only virtual or computer images of a scratch-off ticket or other game theme image); and (3) the elimination of a clerk to activate either the wager or payout (direct payments from the terminal in cash or vouchers).

I acknowledge it may be worthwhile to consider transforming the Commonwealth’s existing retail lottery ticket sales system to one of centrally controlled slot machines / VLTs in an effort to increase revenue. I suggest, however, such a significant expansion of gambling is more appropriately considered by the General Assembly, not a state agency’s public procurement contracting process.

Please be assured it is my intention to reserve final judgment as to any particular disbursement request until after the request is submitted and Lottery is provided an opportunity to submit any supporting documentation. The execution of the PMA, however, should not be based on an assumption that the payment of public funds will be authorized by my office to expand lottery gaming beyond the existing statutorily prescribed lottery sales agent system.

Thank you for your communication.


Robert M. McCord


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