Lawsuit Seeks To Block Enforcement Of Kentucky's Grey-Market Ban

April 3, 2023
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As state legislatures crack down on the rapid expansion of unregulated “grey-market” games that play like slot machines, companies that manufacture or distribute the games are responding to any bans or seizures of their machines by filing lawsuits in state courts.

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As state legislatures crack down on the rapid expansion of unregulated “grey-market” games that play like slot machines, companies that manufacture or distribute the games are responding to any bans or seizures of their machines by filing lawsuits in state courts.

Pace-O-Matic, one of the most prominent manufacturers of the games, is at the center of the situation in several states.

The company has successfully sued law enforcement and state regulatory agencies in Pennsylvania to have machines seized in raids on local businesses returned, and has temporarily blocked a 2021 ban of skill-game machines in Virginia from taking effect until a judge rules on its legality.

The fate of skill-game machines operating in Illinois is also facing uncertainty after the state's Senate recently passed Senate Bill 1504, amending the definition of a gambling device under state law to cover games involving any element of chance and awards credits to a player. Currently, Pace-O-Matic distributes 19 skill-games, including Graveyard Gold and Big Cheese, in Illinois.

Now, the Georgia-based company is asking a Franklin Circuit Court to halt enforcement of recently enacted legislation, which was signed by Democratic Governor Andy Beshear, banning so-called skill games in Kentucky.

Michael Barley, a Pace-O-Matic spokesman, said he believes Kentucky’s ban is unconstitutional.

The lawsuit seeks to overturn the law by claiming it violates free-speech rights, due process, and equal protection under the law by taking property without compensating the affected parties. Plaintiffs also seek a temporary and permanent injunction against the state’s attorney general and law enforcement agencies from enforcing the law.

“We are prepared to defend the legality of our games in court,” Barley said.

The American Gaming Association (AGA), which represents the U.S. gaming industry, including licensed slot machine manufacturers, described the lawsuit filed in Kentucky as shameful and simply a delaying tactic.

“Manufacturers of unregulated machines will stop at nothing in their attempts to infiltrate communities and this lawsuit is the latest page out of their insidious playbook,” Chris Cylke, AGA’s senior vice president of government affairs, told VIXIO GamblingCompliance.

“These companies move into jurisdictions without permission and hope to frustrate law enforcement action and legislative efforts for long enough that authorities will overlook what they truly are: unregulated gambling operations,” Cylke said.

Pace-O-Matic was one of 11 individuals, retail locations and companies that filed the civil lawsuit in Franklin Circuit Court against state attorney general Daniel Cameron over House Bill 594.

Krista Buckel, a spokeswoman with the attorney general’s office, told VIXIO the office was prepared to defend the law in court.

“Our office is responsible for upholding the laws passed by the General Assembly and we look forward to defending this legislation,” Buckel said.

A hearing in the Kentucky case has not been scheduled. None of the machines that would be prohibited by the new law in Kentucky are taxed.

The complaint argues that skill-based games “have been legal for centuries” in Kentucky and virtually every other jurisdiction in the United States because the outcome is based on a player’s skill rather than chance or other factors outside their control.

Plaintiffs also claim the machines that can be found in convenience stores, bars, truck stops and other locations are being targeted by “certain horseracing interests” within the state.

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

Pace-O-Matic acknowledged that it owns and operates “numerous electronic skill-based game devices that have been banned and made illegal” by the passage of the measure.

Beshear signed HB 594 into law on March 16. If upheld, businesses that host the machines and game manufacturers face fines payable to the local county government of up to $25,000 per machine if the devices are not removed.

“These delay tactics are shameful and demonstrate that these companies have no respect for the prerogative of legislatures and governors to regulate gambling in their states,” Cylke said.

Beshear’s office did not respond to an email seeking comment. Beshear has made it clear he is pro-gambling, but said he signed the bill because grey-market machines are entirely unregulated.

The bill sponsored by state Republican Representative Killian Timoney is set to take effect 90 days after the General Assembly concluded its 2023 session on Thursday (March 30).

Timoney also separated grey-market games from esports and coin-operated redemption games such as those found at county fairs and arcades.

The Pace-O-Matic complaint argues there was no “articulable compelling government interest … for discriminatorily singling out and banning certain types of electronic video-style skill-based game devices.”

Attorneys for the plaintiffs wrote that the legislation gave “preferred status and treatment” to esports competitions and coin-operated amusement machines, which are no different in substance and form from the banned skill-based games and game devices.

Opponents of skill-games argue their business tactics are similar to some other technology companies, including daily fantasy sports (DFS), which began operations in various states believing they were doing so legally, only to end up having lawmakers facing the choice of whether to legalize or ban their activities.

“While we understand that some people may try to draw parallels between this issue and other industries, the fact is that unregulated gambling machines represent a distinct and immediate threat to communities across the country,” Cylke said.

“They offer no consumer protections and siphon tax revenue from state coffers while acting as a direct competitor to our legal, regulated businesses.”

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