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A Senate committee has held its second hearing in less than a week on the contentious issue of whether or not to regulate and tax thousands of grey-market machines, or so-called “skill games,” found in convenience stores and bars in Pennsylvania.
The Community, Economic and Recreational Development Committee heard testimony on Wednesday (October 4) from executives with Pace-O-Matic, a manufacturer of the gaming devices, as well as bar owners, retired military officers and volunteer firefighters.
Pace-O-Matic CEO and president Paul Goldean made it clear during Wednesday’s hearing that his company would file a lawsuit should the legislature pass a measure banning their branded “Pennsylvania Skill” machines.
The committee on Monday (October 2) heard testimony from executives with regulated gaming operators Parx Casino, Cordish Cos, J&J Ventures Gaming, Betson Enterprises and Venture Gaming.
For almost a decade, the issues surrounding the spread of so-called skill games have involved state court rulings, and actions by police agencies to seize games in Pennsylvania. Representatives of the casino industry also have been critical of the proliferation of the machines, preferring a ban rather than regulations.
Pace-O-Matic entered the state shortly after a 2014 Beaver County Court of Common Pleas decision that the company’s games are legal as games of predominant skill.
“Let’s end the discussion on this. We’ve been legal since 2014,” Goldean told the committee.
Goldean also expressed his support for Republican Senator Gene Yaw’s Senate Bill 706, which would regulate and tax skill games. The bill would also create a new division under the state Department of Revenue to regulate the industry, rather than the Pennsylvania Gaming Control Board (PGCB).
Currently, the PGCB regulates video gaming terminals (VGTs) in truck-stop locations, as well as slot machines and table games in casinos plus mobile sports betting and iGaming.
Goldean said Yaw’s bill would provide clarity on which gaming activities are legal and illegal, as well as leveling the playing field to let everyone compete.
“Those who oppose skill games first said our games were illegal,” he said. “When that was proven false, they pivoted to saying that our games are not regulated. I suppose on that front, we agree, our games need to be regulated, and that’s precisely what we are asking for.”
According to Pace-O-Matic, a regulated skill-game industry in Pennsylvania would create a market with 60,000 machines at 12,000 locations state-wide.
“Legal skill games are legal, but not fully regulated. Illegal slot machines are exactly that — illegal gambling devices,” Goldean said.
At the hearing on Monday, Parx Casino CEO Eric Hausler said unregulated games compete with slot machine customers and cost Pennsylvania tax revenue.
“The greatest competition we face is from within our own borders and that’s from unregulated and untaxed gaming,” he said.
Hauser said it might appear the gaming industry is generating record revenues, but in a state with a 54 percent tax rate lawmakers should be particularly concerned about the growth of slot machine revenues.
In 2018, Pennsylvania's licensed brick-and-mortar casinos generated $2.36bn in revenue from slot machines, and in 2022, they had generated $2.39bn in revenue.
“This is despite the addition of four new casinos, and more than a billion dollars invested in new brick-and-mortar casinos,” Hauser said. “That translates to a compound annual growth rate of zero. That’s right; no retail growth.”
Hauser said over the same four years the Pennsylvania gaming industry has seen table game revenues grow 3 percent annually, while in neighboring New Jersey where there are no skill games, slot machine revenues have grown 3 percent.
“Therefore, we believe if there were no skill games then slot machine revenues would have likely grown at the same rate as table games,” said Hauser, adding that the state would have made more than $200m in additional tax revenue last year.
Those opposed to regulating and taxing grey-market games do have allies in the state legislature.
Senator Amanda Cappelletti, a Democrat, confirmed that she plans to again introduce legislation to ban skill games.
Currently, attorneys representing Pace-O-Matic have filed lawsuits challenging the constitutionality of recent state laws banning their machines in Virginia and Kentucky. The company expects a hearing on a proposed injunction blocking the Kentucky law to take place in Franklin Circuit Court on October 16.
Republican Senator Frank Farry expressed his support for regulating and taxing the machines but was concerned that if lawmakers do not pass legislation that is to Pace-O-Matic’s liking the company would sue the state.
“I’m the one who said it,” Goldean said. “If the legislation was an attempt to ban Pace-O-Matic, we would fight that like we do in every other state. So, an example, if you try and give us a tax rate that the people behind me can’t operate their business, then we would sue to deter that. That’s what we do.”
“If you are going to ban us, we have no choice,” he added.
Goldean made it clear to the committee that Pace-O-Matic's business plan was to “open and maintain markets.”
Farry then asked if there was a tax rate above the 16 percent proposed under SB 706 that Pace-O-Matic would be willing to pay.
“I think that’s a fair issue,” Goldean said. “It’s a policy issue for all of you. I’m just telling you there is a point, like if you tell us you are going to tax us at 54 percent [as applied to casino slot machines and interactive slot games], well that’s not sustainable because we can’t control what happens in our terminal like a slot machine can.”
