Pennsylvania Lawmakers, Gaming Industry At Odds Over Grey-Market Machines

May 1, 2023
Despite strong opposition from the gaming industry, two Pennsylvania legislators are seeking to implement one-time licensing fees, taxes and yearly operating fees as part of a plan to legalize and regulate thousands of grey-market machines, also known as skill-based games.


Despite strong opposition from the gaming industry, two Pennsylvania legislators are seeking to implement one-time licensing fees, taxes and yearly operating fees as part of a plan to legalize and regulate thousands of grey-market machines, also known as skill-based games.

“I don’t know of any other industry… that is volunteering and supporting regulation and taxing,” said Republican state Senator Gene Yaw, who plans to introduce a bill to regulate so-called skill video game machines in the near future.

Democratic state Representative Danilo Burgos will sponsor companion legislation in the House of Representatives. Burgos said the effort to legalize the machines was to implement fair regulations, so the state can identify the bad actors.

“The reason for this [is] skill games are very popular and in demand,” Yaw said. “So much so that people are stealing the name and they are making machines that are really not skill games. They are games of chance and in effect they are taking money from people under false pretenses.”

Yaw, who supports skill-games with Miele Manufacturing located in his district, said the lawmakers want to do this so there is a common standard for skill games. Estimates are the machines could generate $200m to $300m in annual tax revenue.

Critics, including Penn Entertainment and the American Gaming Association (AGA), say legalizing unregulated gaming machines is rewarding bad behavior. They also dismiss any arguments that the skill-game industry wants to be taxed, saying taxation does not equate to licensing.

Penn, which operates Hollywood Casino in Grantville, issued a statement on Wednesday (April 26) saying it would “adamantly oppose legislation that legalizes so-called ‘skill’ machines that are proliferating on street corners on every main street in Pennsylvania.”

“These companies should not be rewarded for operating outside the bounds of the Commonwealth’s robust regulatory system. We will continue to urge lawmakers, law enforcement and the courts to crack down on their operations that are multiplying in broad daylight next to schools and houses of worship, with no regard for the safety of the citizens of Pennsylvania.”

Boyd Gaming, operator of Valley Forge casino near Philadelphia, declined to comment Wednesday.

“There have been casinos in the back of houses ever since there have been cards and dice,” said Bill Miller, AGA’s president and chief executive officer. “I think our job should be to do everything we can to protect the legal, regulated industry and make it very difficult for these guys to do business.”

Miller said he has had conversations with casino operators who are upset about the proliferation of these machines, and say the AGA needs to do something.

Miller admitted the AGA needed to do more to get different elements of law enforcement, regulators and politicians to step up. He said the association received a proforma letter back from U.S. Attorney General Merrick Garland acknowledging the receipt of a letter last year asking the U.S. Department of Justice (DOJ) to crack down on grey-market machine operators.

Besides reaching out to the attorney general, Miller said he has conversations with the FBI, state attorneys general and law enforcement. The Congressional Gaming Caucus also wrote a letter to the DOJ urging them to prioritize these machines.

“One of the things you should expect from the government is certainty, stability and legal protection,” Miller said. “Every industry should demand that. For some reason or another our industry because of its history, somehow we have not been prioritized.”

Miller added that the regulated casino gaming industry is “going to make it as difficult as possible for someone to sprinkle pixey dust on them and tell them they are part of the legal, regulated industry.”

“I think that is the worst possible outcome we could have.”

Miller discussed his concerns about the ongoing spread of grey-market slot machines during a presentation at East Coast Gaming Congress. The two-day event was held April 20-21 at Hard Rock Casino in Atlantic City.

Yaw and Burgos plan to tax skill-based games in Pennsylvania at 16 percent, which is below slot machines that are taxed at 54 percent. Both measures would also put the machines under the regulatory authority of the state Department of Revenue instead of the Pennsylvania Gaming Control Board, which licenses and regulates casino gaming, internet gaming, video gaming terminals, fantasy sports and sports wagering.

“It seems to me a very easy decision to make,” Yaw told advocates of skill games that gathered at the Pennsylvania Capitol on Tuesday (April 25). “You have an industry that wants to be regulated, wants to be taxed, and we need income from them.”

Yaw, who initially announced his plans to introduce a bill in early April, said his proposal would limit the number of games to five per convenience store or gas station, but some places, such as the American Legion, could operate up to 10 games.

“We are not going to institute a program of mini casinos,” said Yaw.

Under the proposed legislation, all games would be required to be connected to a terminal collection and control system allowing the state to monitor all transactions and ensure that all taxes are accrued and paid.

A copy of either the forthcoming Senate or House bill is not yet publicly available. Of the 11 legislative memos posted on Yaw’s Senate website, he has only submitted three bills since January 6, 2023.

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