#167 © Copyright 2010, all rights reserved worldwide.  Gambling and the Law® is a registered trademark of Professor I. Nelson Rose, www.GamblingAndTheLaw.com

Video Lottery Terminals (VLTs) are often in the news.  Summer 2010 saw these developments:

1. Penn National Gaming announced it will open the first casino in Maryland, less than two years after voters approved VLTs.
2. New York reopened bidding for an operator for Aqueduct racetrack’s VLTs, will be the first legal gaming devices in New York City.
3. The “anti” group, LetOhioVote.org, threw in the towel on a November referendum, eliminating a major obstacle to Gov. Ted Strickland’s order that VLTs be installed at Ohio’s seven racetracks.
4. The Massachusetts Senate passed a bill for true casinos, which now has to be reconciled with the House version, which also approved 750 VLTs at racetracks.
5. The Illinois Gaming Board began setting up system to issue licenses for the first VLTs in that state, probably early next year.  As many as 10,000 bars, restaurants and others might apply.

But the news is not all positive:

1. VLTs are at the center of continuing fights, especially hot in Canada, on the role of government in gaming and problem gamblers.
2. The West Virginia Lottery Commission apparently plans to raise the minimum bid operators at the state’s 369 locations must pay, from the current $3,200 to $7,000 per VLT.

There are constant fights in the U.S. and abroad over the question of video lottery terminals.  State lotteries would like to put in gaming devices that play like slot machines. Anti’s and competitors obviously oppose this.  

The issue also was part of the billion-dollar class-action suit against Loto-Québec.  The case involved the claim that the Provincial Lottery should have put signs on its VLTs that warned that playing the machine might make someone a compulsive gambler.  I testified as an expert witness for Loto-Québec because the plaintiffs’ expert did not understand why some gaming devices are called slot machines and others, VLTs.  The Lottery settled by agreeing to offer medical treatment for compulsive gamblers, exactly as it has been treating them for years.

In other legal battles, tribes have asserted that they do not have to continue with revenue sharing, because a state lottery with VLTs is operating “casino games.” 

The legal disputes can be quite complex.  In 2001, Harrah’s Entertainment sued Penn National Gaming, claiming the introduction of VLTs turned the Charles Town Race Track into a casino.  Showboat Development Co., now a subsidiary of Harrah’s, had signed a contract in 1995 with the prior owner, to manage a casino, should one ever be permitted at the Track.  Showboat had no problem with Penn taking over the Track, until it got permission to put in 1,500 VLTs, which Showboat described as “coin in, coin out video games, slot and reel machines.”  Penn argued that West Virginia law still did not allow casino gaming or even permit use of the word “casino” in advertising.

So, is the Track now a casino?  There is no way to know for sure:  The case was settled the next year, with Penn paying $1 million to Showboat.  

But we do have a clue:  In 2007 the West Virginia State Legislature passed a law declaring that “…blackjack, poker, craps, roulette…” and similar games are lotteries. 

The legal problems created by VLTs are a slice of the uncertainties created by modern technology.  The law deals with categories.  For example, when state constitutions were created, usually more than 100 years ago, there were clear distinctions between lotteries and casinos.  Even when state lotteries were legalized in the 1960s and ‘70s, they were not played on machines.

Originally, lotteries required players to buy paper tickets and wait days or weeks before the winning numbers were drawn.  Prizes were created out of a pool of the bettors’ money, with the operator taking a share off the top.  In the eyes of the law, lotteries were sometimes not considered a game at all since player participation did not affect the outcome.  In Ohio, for example, they were legally a “scheme.”

Casinos, on the other hand, always required players to go to a particular place and play a game, almost always against an operator with a large fund of money.  The house cared very much who won or lost, because it played every hand, taking in all player losses and paying off all player winnings.  Casino games were not only banking games, they were also percentage games, because the operator had a built-in advantage under the rules.

When slot machines were first invented, in the 1890s, law enforcement had mixed success trying to close them down with anti-lottery laws.  The question of whether a slot machine was a lottery even arose in Nevada.  

Nevada outlawed casinos in 1910, but authorized “nickel-in-the-slot machines” for cigars and drinks in 1915.  The Nevada Supreme Court ruled that the State Legislature had the power to define what was, and was not, a lottery, and thus could legalize slot machines, even though the Nevada Constitution prohibited “lotteries.”

That constitutional prohibition still exists today, yet Nevada casinos have gone way beyond mere stand-alone slot machines, to linked progressives.  They also have bingo and keno, including keno games where players can buy tickets for a year’s worth of play in advance.

Incidentally, the federal Internal Revenue Service considers those advance keno tickets as lotteries, which are subject to different tax laws from casino gaming winnings.  There is no requirement that the I.R.S. and the state of Nevada agree on legal definition of “lottery.”

The situation in Nevada illustrates how the question of what is a VLT is answered.  First, we need to know which jurisdiction is deciding the issue.  Usually, it is a state.  But occasionally, as with tax laws and foreign nations, even federal governments can become involved.

Second, we must determine which part of government has the power to determine the definition of “lottery.”  In most states, the state’s highest court usually has the final word on the meaning of terms in its constitution.  Even the U.S. Supreme Court cannot overrule a state supreme court on issues of state law.  But, just because the word “lottery” appears in a state constitution does not necessarily mean the question will be decided by that state’s highest court.  Courts sometimes grant great deference to state legislatures, and even administrative agencies, like state lottery commissions.

So, what is a VLT?  It is any gaming device that the decision-maker with the final power to decide declares is a lottery.

There is no single standard or test that applies to all jurisdictions around the world. 

Until recently, VLTs had to have winners determined by a central computer.  But machines with their own random number generators are now becoming common.

VLTs also used to not handle actual cash.  Rhode Island was probably the first state to allow its VLTs to both take and award coins and currency.  Ironically, casinos are moving more and more to ticket-in-ticket-out for true slot machines.

The “L” in VLT used to require that the machines be owned and operated by the state lottery.  Today, the state lottery’s involvement may be as little as having legal title, while the actual operation can be entirely in the hands of private companies.

In practice, VLTs still require central reporting.  This makes no difference to players.  But manufacturers sometimes find they must work with their direct competitors to comply with a reporting system mandated by a state lottery.

And it makes no difference whether the gaming device is by itself in a bar, with a few other machines in a racino, or one among two or three thousand in what everyone would agree is a casino.

If the state legislature, state supreme court, or perhaps even state attorney general or state lottery says the gaming device is a VLT, it is a VLT, until and unless a higher authority says, “No, it’s not.”

END

© Copyright 2010.  Professor I. Nelson Rose is recognized as one of the world’s leading experts on gambling law and is a consultant and expert witness for governments and industry.  His latest books, Internet Gaming Law (1st and 2nd editions), Blackjack and the Law and Gaming Law: Cases and Materials, are available through his website, www.GamblingAndTheLaw.com.