Where does the line fall between an online casino game and an internet lottery? A lot of money is riding on the answer.

Pennsylvania's casino industry is challenging the Pennsylvania Lottery's new iLottery internet gaming system, saying the state agency's digital offerings mimic slot games in violation of the state's gaming law. The law prohibits "interactive lottery games which simulate casino-style games."

Pennsylvania Revenue Secretary C. Daniel Hassell acknowledged in a June 29 letter to the casinos' attorney, Mark Stewart, that the online lottery games were inappropriately marketed as "slot-style" or "casino-style." Hassell blamed the advertising on an affiliate of the iLottery vendor, and said the practice had stopped.

Hassell did not address the allegations that the online lottery offers the look and feel of slot machines. A department spokesman said Monday that  "the games are being operated in accordance with the law."

The controversy, which seems to be heading to court, loomed behind Monday's deadline for casinos to apply for the first Pennsylvania interactive gaming licenses offered under the state's 2018 expanded gaming law. The licenses cost $10 million each, though some in the casino industry privately question the value of the certificates if the state's giant lottery system is moving into the casinos' space.

A screenshot of the Pennsylvania Lottery’s new iLottery website, showing a winner in a demonstration game of “Slingo.” Casinos say the state agency’s offerings mimic casino games and have asked the Lottery to suspend the games. (Courtesy of Pennsylvania Lottery)
(Courtesy of Pennsylvania Lottery)
A screenshot of the Pennsylvania Lottery’s new iLottery website, showing a winner in a demonstration game of “Slingo.” Casinos say the state agency’s offerings mimic casino games and have asked the Lottery to suspend the games. (Courtesy of Pennsylvania Lottery)

Despite any misgivings, three casinos applied Friday for certificates to offer interactive gaming: Parx in Bensalem, Mount Airy in the Poconos, and the yet-to-be-built Stadium Casino in South Philadelphia. The Pennsylvania Gaming Control Board has up to 90 days to approve the licenses.

Douglas Harbach, the gaming board spokesperson, declined to disclose any additional petitions that might have been received Monday.

The licenses allow the casinos to offer online gaming in three categories: peer-to-peer interactive games such as poker; non-peer-to-peer interactive table games; and interactive games that simulate slot machines.

Any of the state's 13 casino license holders that did not apply by Monday for the three licenses have another 30 days to apply for individual interactive licenses in any of the gaming categories at a cost of $4 million per license.

After Aug. 16, the gaming board could offer any remaining unsold licenses to qualified operators that do not have casino licenses.

State revenue officials are casting a hungry eye on the internet as the next frontier of gaming revenue.

In New Jersey, where online gaming was introduced in 2013, casino revenue from digital games doubled from 2014 to 2017, reaching $245.6 million.

Though digital offerings account for 9 percent of New Jersey casino revenue, internet winnings are taxed at a higher rate than casino winnings (15 percent vs. 8 percent). Last year internet betting accounted for $36.9 million, or 17 percent, of New Jersey's $211.6 million in tax revenue from gambling.

In Pennsylvania, the new state law approved last year sets the tax rate for internet poker games and online table games at 16 percent of the casino's win. The tax rate for online slots is 54 percent.

The casinos say they are operating at a disadvantage to the state-run iLottery, which they contend constitutes an "illegal incursion" into the interactive gaming domain that the Assembly assigned to casinos.

In their letter to Hassell,  whose agency oversees the state lottery, the casinos said the iLottery has the "same interactive appearance, feel and play experience that a player would expect from land-based and online slot machines."

The casino operators said the lottery also uses two "key casino tools" to retain customers — free play and a patron-loyalty program.The iLottery offers prizes up to $250,000 and plays that cost as little as a penny, similar to slot machines.

Several iLottery games also have the same names as casino slot machines: Robin Hood, Super Gems, Slingo, Big Foot, Volcano Eruption and Monster Wins.

"Overall, the games essentially have the same backbone as a slot machine; an outcome that is determined by a random number generator with animated graphics and computer operations used to provide a visual depiction of that outcome," the casinos argue.

The casinos also complained that the lottery is aimed at players 18 or older, while the casinos would be sanctioned if they allowed anyone younger than 21 to bet.

"If these same individuals tried to play the same games at our casinos … the players would be prosecuted and placed on the Pennsylvania Gaming Control Board's exclusion list, while we would face tens of thousands of dollars in PGCB-imposed fines," Stewart stated in his letter to Hassell.

More than 56,000 users have registered with iLottery since it was launched May 22, and total play was $26.2 million, Revenue Department spokesman Jeffrey A. Johnson said in an email on Monday. More than $23 million in prizes have been won during that time period.