Jan. 5, 2021 – Video gaming machines that allow players to preview the outcome of particular games are illegal gambling machines, the Wisconsin Court of Appeals District I has ruled.

In JD Prime Games Kiosk, LLC v. Wisconsin Department of Revenue, 2020AP1935 (Dec. 21, 2021), the court held that even though the preview allows players to not proceed with the game, the outcome of the game was determined by chance and the machines were therefore gambling machines.

Bars, Cherries and Sevens

In June 2017, the Department of Revenue (DOR) issued removal orders to convenience stores that contained video gaming machines distributed by JD Prime Games Kiosk, LLC.

The machines operate as follows. Players insert money and receive credits used to play games. The games feature themes with displays reminiscent of slot machines – bars, cherries, the number seven.

Players wager credits on each game. A win adds credits, a loss subtracts them. Players may redeem the credits for cash.

The machines allow players to preview the outcome of each game – and learn whether they will win or lose – and decide whether to proceed.

Players may play the game without using the preview. Some players who do use the preview, however, proceed with play even if they know they are going to lose because they want to keep playing their credits beyond the losing game.

Revenues from the machines are split 70/30 between the owners of the convenience store and J.D. Prime.

Of Pac-Man and Pinball

DOR contended that the machines constituted gambling machines under Wis. Stat. section 945.01(3) and were contraband subject to seizure.

JD Prime and several of the convenience store owners filed for a declaratory judgment that the machines were not gambling machines.

In February of 2020, a Racine County Circuit Court ruled that the machines were not gambling machines under section 945.01(3).

In its ruling, the court cited the machines’ preview feature. The court also analogized the machines to pinball machines and Pac-Man (a video game popular in the 1980s) and said that under a strict reading of the statute those games too were arguably gambling machines.

No Preview Means Chance

Section 945.01(3) defines “gambling machine” as “a contrivance which for consideration affords the player an opportunity to obtain something of value, the award of which is determined by chance, even though accompanied by some skill and whether or not the prize is automatically paid by the machine.”

On appeal, JD Prime argued that the machines entail no element of chance because they allow players to preview the outcome of each game and see whether they will win or lose before proceeding.

In an opinion written for a three-judge panel, Chief Judge William Brash identified three flaws in JD Prime’s argument.

The first was that JD Prime did not dispute that players are able to play games without using the preview feature, and that when players do not use the preview the outcome of the game is decided by chance.

Additionally, JD Prime admitted that players who used the preview and learned that they would lose the game might go ahead with the game anyway, so that they could continue playing.

And JD Prime acknowledged that it split the revenue from the machines with the convenience store owners, which meant that overall players must be losing money despite the preview feature.

Supreme Court Precedent

DOR argued that the preview feature was optional, meaning that the machines met the statutory definition of a gambling machine.

The court of appeals agreed, citing recent Wisconsin Supreme Court precedent.

In Quick Charge Kiosk LLC v. Kaul, 2020 WI 54, 392 Wis. 2d. 35, 944 N.W.2d 598, the supreme court reasoned that a video gaming machine was a gambling machine as defined in section 945.01(3) even though it had a free play option.

That section’s definition, the supreme court held, “says . . . that a ‘gambling machine’ is a contrivance for which a consideration affords the player an opportunity to obtain something of value . . . [s]imply because a [gaming] machine has uses other than illegal gambling does not negate that reality.”

The same a logic applied to JC Prime’s machines, Brash explained.

“The fact that players may use the preview feature does not negate the fact that when they do not use it, the results of the game are determined completely by chance.”

“In fact, even when the preview feature is used, any award that might be paid out is still determined by ‘chance,’ in that it is randomly generated by the machines; utilizing the preview feature and then choosing not to play if it indicates an impending loss simply eliminates the risk of losing money not the element of chance for winning.”

Reversal and Remand

The trial’s court analogy between JD Prime’s machines and pinball and Pac-Man was misplaced, the court of appeals held.

“In fact,” Brash wrote, “arcade games are specifically excluded from the definition of a gambling machine in Wis. Stat. section 945.01(3)(b)2.”

JD Prime’s machines fall squarely within the plain language of section 945.01(3), Brash wrote. The court of appeals reversed the circuit court’s decision and remanded the case for an entry of judgment in DOR’s favor.