Kentucky Bans Skill-Game Devices, As Legal And Lobbying Battles Continue

March 17, 2023
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Devices offering supposedly skill-based games with names such as Lucky Fruit and Living Large but which play like slot machines will now be illegal in Kentucky after Governor Andy Beshear signed a bill on Thursday prohibiting the machines.

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Devices offering supposedly skill-based games with names such as Lucky Fruit and Living Large but which play like slot machines will now be illegal in Kentucky after Governor Andy Beshear signed a bill on Thursday (March 16) prohibiting the machines.

House Bill 594 explicitly states that machines that involve any element of chance, as well as an automatic payout, will now be considered illegal gambling devices under state law.

Estimates place the number of so-called grey-market machines in Kentucky gas stations, convenience stores, and bars at upwards of 40,000, an increase from around 12,000 in 2022.

Violators who manage or operate the gambling machines could face a $25,000 fine for each device, payable to the local county government.

“I am a pro-gaming governor,” Beshear told reporters Thursday. “I think it is fine we have full blown casino gaming in Kentucky. But it is an industry that absolutely has to be regulated and it needs to be legal.”

Beshear said he signed HB 594 because grey-market machines are entirely unregulated.

“I don’t believe they were legal yet they came into Kentucky and just set up and were taking dollars from Kentuckians and taking them out of state with zero regulations, zero taxation, zero system to help those that might develop any issues from using them,” the Democratic governor said.

Beshear stressed that he wanted to look for ways the state could have more and better regulated gaming, but “the law is the law.”

He said he was sympathetic to business owners that received additional revenue from the machines and that his hope was in the future they could offer additional lottery products that could replace some of the revenue.

The bill also separates the games found in thousands of convenience stores and gas stations from esports and coin-operated redemption games such as those found at county fairs or arcades that might provide players with tokens or prizes.

“Banning grey machines sends a clear message that in Kentucky, we follow the law and do no reward illegal behaviour,” Mark Guilfoyle, executive director of Kentuckians Against Illegal Gambling, said in a statement.

Wes Jackson, president of the Kentucky Merchants and Amusement Coalition, which has lobbied in favor of the machines, said the group was currently reviewing its options.

“Those who backed this ban love to say they passed it because skill games need to be regulated, yet at the same time wouldn’t give our regulation bill a hearing,” Jackson said in a statement.

House Bill 256, authored by Republican Representative Tom Smith, would have regulated and taxed skill games. The measure was referred to the House Appropriations and Revenue Committee where it never received a hearing.

Pace-O-Matic, which supported opponents of the commonwealth’s ban, is a manufacturer and distributor of popular skill-based gaming devices in various states such as Kentucky, Virginia, Wyoming, Georgia and Pennsylvania. The games are regulated and taxed in Wyoming and Georgia, while a pending lawsuit seeking to overturn a similar ban in Virginia is headed for trial before summer.

“The ban in Kentucky is a sign of tangible progress in this fight and helps the legal gaming industry’s overall effort to hold these bad actors accountable and eradicate them from the market,” said Chris Cylke, senior vice president of government relations with the American Gaming Association (AGA).

“Kentucky proves the point that it can be done,” Cylke said. “It’s a powerful example to point to in other states. The conventional wisdom of unregulated manufacturers has been, we’re so widespread that you can’t get rid of us. But the Kentucky bill proves otherwise.”

An attempt by the Virginia General Assembly and former Democratic Governor Ralph Northam to ban the machines in the 2021 legislative session resulted in a legal challenge brought by Republican Senator Bill Stanley, who represents Sadler Brothers Oil Co., as well as lawyers for Queen of Virginia, that has delayed the ban for more than a year.

Queen of Virginia is a subsidiary of Pace-O-Matic. In December, Pace-O-Matic spokesperson Michael Barley said he expected the final court decision would uphold the legality of skill games in Virginia.

Greensville County Circuit Court Judge Louis Lerner is expected to oversee a trial in April or May on Stanley’s lawsuit that argues Virginia’s ban on the machines violates constitutionally protected free speech.

Until Lerner rules on the merits of the lawsuit, thousands of Pace-O-Matic games remain unregulated and untaxed in Virginia. As of Thursday, Lerner had not set a trial date.

Several other states, including Missouri, have tried lobbying lawmakers to support legislation banning the games only to face opposition from those wanting to regulate and tax them, as well as from companies willing to support lawsuits to block any legislative or enforcement action.

“These companies have adopted a business model that they are going to move into communities without asking permission and then ask for forgiveness after the fact,” Cylke told VIXIO GamblingCompliance on Thursday.

“We don’t have any room for that in the legal gaming industry, where operators are highly regulated and spend millions of dollars to acquire and maintain a gaming license.”

The inability of Missouri lawmakers to deal with the issue has led to seven consumers, who claim to be injured through their use of one or more of the thousands of illegal slot machines operated throughout the state, to file a lawsuit.

The class action complaint was filed March 3 in U.S. District Court in Kansas City.

Torch Electronics, a distributor of so-called skill games, has been accused of corruption and violating federal racketeering laws. The company began its expansion into Missouri in 2018.

The 42-page lawsuit also names two convenience store companies, Mally Inc. and Warrenton Oil Company, and three individuals as defendants. The individuals are Steven Miltenberger, founder of Torch, and brothers Mohammed and Rami Almuttan, who were sentenced in 2022 to federal prison for smuggling cigarettes.

The lawsuit accuses Torch of importing the machines over state lines into Missouri and placing the devices in hundreds of locations. The machines are manufactured by Banilla Games in North Carolina, which sells them to Torch.

Cylke said the AGA is not involved in the Missouri case, but the association is watching it very closely. He noted the unregulated games have a higher percentage hold than traditional slot machines, and distributors have been moving them across state lines into Missouri.

According to the lawsuit, the machines do not disclose what percentage of money wagered is returned to players as winnings. In Missouri’s casinos, state law requires slot machines to pay out at least 80 percent of the money wagered over the course of a month, with most casinos regularly returning about 90 percent every month for the past five years.

“Clearly they’ve tried to flood these communities with machines. They’ve done everything they can to frustrate efforts to remove them from gas stations and convenience stores.”

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