Gaming Law

Third Circuit Ruling Alters Future of Sweepstakes Promotions in Pa.

, The Legal Intelligencer

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Steven J. Silver
Steven J. Silver

Gamblers often spend their lifetimes chasing jackpots. In the process of seeking that golden payday, states that permit and regulate lotteries, casinos or Internet gaming cash in via license fees and taxes. Every dollar spent gambling is a win for the government.

Yet when Lady Luck recently presented Pennsylvania with a prime opportunity to double down on a burgeoning multibillion-dollar Internet sweepstakes cafe industry, the legislature folded. Instead of embracing a new revenue source, the Pennsylvania General Assembly bet the house on the brick-and-mortar casino industry by enacting 18 Pa. C.S. § 5513(a), or Act 81, on June 30, 2012, to outlaw Internet sweepstakes cafes. On Oct. 7, 2013, the U.S. Court of Appeals for the Third Circuit upheld the constitutionality of Act 81.

Internet sweepstakes cafes, also known as convenience casinos, are Internet cafes that sell phone or Internet time cards preloaded with a set number of sweepstakes entries for cash prizes. The customer can simply ask the cashier if his or her time card is a winner. Alternatively, once the customer swipes the time card at a computer terminal to begin surfing the Internet, he or she has the option of viewing the sweepstakes results in a game display similar to the animations of video poker or digital slot machines.

However, unlike slot machines in casinos, the computer terminals in Internet sweepstakes cafes do not utilize a random number generator. Much like the code underneath the cap of a bottle of Coca-Cola, a pull-tab game played at the local VFW or a scratch-off lottery ticket, the odds of winning are predetermined. Therefore, even if the customer chooses to view the sweepstakes results through a video poker game, his or her actions in playing the hand dealt have no impact on the outcome—it is merely an illusion of gambling.

Illusion or not, by 2011, Bloomberg Businessweek estimated that there were approximately 5,000 sweepstakes cafes in the United States raking in $10 billion to 15 billion annually. Hundreds of the cafes soon began popping up throughout Pennsylvania without any government oversight. Unsurprisingly, the legislature viewed Internet sweepstakes cafes not as cash cows but as outlets for unlawful gambling.

Accordingly, rather than tax and regulate the sweepstakes cafes, and perhaps bring the promotions under the watch of the Gaming Control Board, the legislature cleverly crafted Act 81 to criminalize all forms of electronic sweepstakes by redefining "consideration."

At its most basic level, gambling has three elements: (1) consideration; (2) a result determined by chance rather than skill; and (3) a reward, as in Commonwealth v. Two Electronic Poker Game Machines, 465 A.2d 973, 977 (Pa. 1983). Consideration is the risk of something of value for the chance at receiving a prize, as in Commonwealth v. Lund, 15 A.2d 839, 844 (Pa. Super. 1940).

The lack of consideration in traditional sweepstakes is what makes sweepstakes a legitimate business promotion and not unlawful gambling. For example, the consideration in the Coca-Cola promotions goes toward the bottle of soda, not the actual chance of winning a prize. Additionally, no purchase is necessary to play because the sweepstakes does not require consideration.

On its face, the element of consideration is missing from Internet sweepstakes. The customer is paying for the Internet time card, not the actual chance at winning a prize. The chance of the prize is simply a marketing tool to spur the purchase of the time card.

To maneuver around this potential sticking point, Section 5513(f) of Act 81 defines "consideration associated with a related product, service or activity" as "money or other value collected for a product, service or activity which is offered in any direct or indirect relationship to playing or participating in the simulated gambling program. The term includes consideration paid for computer time, Internet time, telephone calling cards and a sweepstakes entry." Under this definition, consideration can be direct and indirect, essentially sweeping any conceivable exchange of value for the chance of winning a prize under the umbrella of Act 81.

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