Pennsylvania Skill-Based Games Battle Continues With New Lawsuit

November 28, 2022
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As 2022 comes to a close, the U.S. gaming industry continues to struggles to contain the expansion of unregulated slot machines, also known as grey-market or skill games, and nowhere more so than in Pennsylvania where casino operators are taking new legal action to counter the thousands of games in bars and convenience stores.

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As 2022 comes to a close, the U.S. gaming industry continues to struggle to contain the expansion of unregulated slot machines, also known as grey-market or skill games, and nowhere more so than in Pennsylvania where casino operators are taking new legal action to counter the thousands of games in bars and convenience stores.

In an effort to slow the expansion of these machines, Greenwood Gaming and Entertainment, which operates Parx Casino in Bensalem, Pennsylvania, has filed an amended complaint in federal court in Philadelphia against three manufacturers of skill-based machines.

The 43-page complaint accuses Pace-O-Matic, POM of Pennsylvania and Miele Manufacturing for violation of the Racketeer Influenced and Corruption Organizations (RICO) Act, false advertising, unfair competition, and tortious interference with prospective business relations.

Parx Casino is seeking preliminary and permanent injunctive relief, as well as monetary damages.

Messages left with Pace-O-Matic on Friday (November 25) were not returned.

“Combating the illegal and unregulated gambling market is a top priority of the AGA and the legal, regulated gaming industry,” Chris Cylke, American Gaming Association’s (AGA) senior vice president for government relations, told VIXIO GamblingCompliance in an email.

“This is a complex problem that requires a multi-prong approach that includes educating the public about the risks of illegal and unregulated gambling, urging law enforcement action to hold those who violate the law accountable, and working with policymakers to close loopholes exploited by bad actors.”

Currently, casino operators believe there are as many as 80,000 so-called skill games in Pennsylvania, a rapid increase from the estimated 10,000 in 2019.

That expansion has resulted in a 24 percent decrease in slot machines on casino floors state-wide, said Gary Samms, an attorney with Obermayer, Rebmann, Maxwell & Hippel in Philadelphia who is representing Greenwood.

In the complaint, Samms wrote the case concerns a “long-running and ongoing scheme to evade the Pennsylvania Race Horse Development and Gaming Act, violates the Pennsylvania Crimes Code, and undermines the regulated gaming industry.”

Samms said unregulated machine providers are violating state law through the manufacture, sale and distribution of illegal slot machines.

“The enterprise is composed of the [three companies], along with so-called ‘operators’ as well as various clubs, taverns, restaurants, convenience stores, gas stations and other unlicensed establishments,” according to the amended complaint filed on November 21 in U.S. District Court for the Eastern District of Pennsylvania.

Samms described the companies’ business as a “criminal enterprise” whose purpose is to “evade the taxes and regulations imposed on slot machine operators” by state gaming law.

The complaint also accused the companies of trying “to undermine the legal businesses of regulated and licensed casinos and slot machine manufacturers who comply” with the law and defraud the state government and Pennsylvania citizens.

Samms noted that licensed slot machines are subject to regulations and overseen by the Pennsylvania Gaming Control Board (PGCB), while regulations do not protect consumers who play unlicensed machines, including the “illegal slot machines at issue in this case.”

“If unlicensed illegal slot machine operations were halted in Pennsylvania, the revenue currently generated by unlicensed machines would be in whole or part realized by licensed, tax-paying slot machine operators, including Parx Casino.”

The issue of unregulated skill-based games was also on the agenda at the control board’s November 16 meeting as regulators approved a request by Rivers Pittsburgh to remove 97 slot machines from its gaming floor, leaving 2,324 machines in use.

John Crohe of the board's Office of Enforcement Council admitted that the proliferation of these games was not a reason for the reduction but told gaming regulators that the issue of skill games has been raised as a concern by each casino that comes before the board for approval to reduce the scope of its a slot inventory.

“It appears to be a problem that is having a material effect on the operation of our facilities,” he said.

When asked if he believes that skill-based games are affecting slot revenue, assistant general manager Andrew Barnabei said he had no data to prove it, adding: “I believe there would be an impact."

John Donnelly, a lawyer for Rivers Casinos, said there was no doubt that these skill-based games are slot machines.

“To say these are skill games is completely wrong. These are gambling machines, these are slot machines,” Donnelly said. “I think it may be impossible to get specific statistics because I don’t think anyone can calculate what type of revenues are going to these non-regulated places.”

Donnelly reminded the control board that the economics of the gaming industry does not change.

“There is a pie and by having more of those slot machines out there that’s not increasing the pie,” he said. “That’s cutting into the pie. And that pie is a pie that creates jobs, supports the horseracing industry … and local communities.”

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