U.S. Legislative, Legal Battles Continue Over Unregulated Gaming Machines

February 23, 2023
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The dispute over whether supposedly skill-based games found in convenience stores throughout the U.S. should be made legal and taxed or simply legislated out of existence continues to play out as lawmakers in various states have been unable to resolve the issue through legislation.

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The dispute over whether supposedly skill-based games found in convenience stores throughout the U.S. should be made legal and taxed or simply legislated out of existence continues to play out as lawmakers in various states have been unable to resolve the issue through legislation.

That inability of lawmakers in several key gaming states to deal with the legality of grey-market machines has left the American Gaming Association (AGA) urging state and federal law enforcement to step in and crack down on the machines that they believe are illegal.

Pace-O-Matic and Torch Electronics, two manufacturers of the machines, have long argued that their games are legal under state laws and unlike traditional slot machines require a level of player skill, rather than chance, to win and receive a payout.

In a February 20 press release, Pace-O-Matic pointed to the AGA's announcement last week of record revenues for licensed commercial casinos in 2022 as proof that skill games do not appeal to traditional gamblers and “shows without a doubt, legal skill games have no impact on gambling.”

Tres York, the AGA’s senior director of government relations, disagreed that so-called skill games are legal.

“This is a massive problem in our view,” York told VIXIO GamblingCompliance. “Law enforcement and policymakers need to view these machines as what they are: unregulated gambling devices that pose a major threat to consumers and communities.”

The lobbying campaign launched by skill-game manufacturers to allow their games to operate in several states alongside the regulated gaming industry has frustrated lobbyists and analysts.

“The grey and black market needs to continue to be addressed,” said Brendan Bussmann, managing partner of consultancy B Global in Las Vegas. “ As the legal lines have blurred in some jurisdictions, gaming should be regulated to make sure that it is fair to everyone and those operating these forms of entertainment should be one licensed and suitable.”

Bussmann also said keeping the unregulated market alive hurts consumers and ultimately the state.

“We are looking at several different avenues of enforcement and we are going to continue to work with state and federal law enforcement agencies to impress upon them the need to take action in order to protect Americans,” York of the AGA said.

So far, the law enforcement effort has been met with only modest success.

In December, federal and state authorities seized more than $1m and numerous gaming machines from Bubba Technology Group LLC, which had been operating an illegal gambling organization throughout South Carolina by selling unlicensed machines, known as Fish Machine, to business owners.

As part of the company’s felony sentence, the company agreed to forfeit approximately $367,000 in profits and will not be able to sell unlicensed games within the state.

Agents with Homeland Security Investigations and the South Carolina Law Enforcement Division (SLED) also seized dozens of machines and an additional $670,000 from affiliates.

The SLED also arrested ten people in South Carolina between February 7 and February 10 in connection with an illegal gambling business. Federal authorities were also contacted about the illegal gambling operation, according to the Cherokee County Sheriff’s Office.

In recent years, there have also been seizures of skill game machines in Pennsylvania and Missouri, while Florida gaming regulators continue to monitor the growth of electronic games, or so-called simulated gambling devices, that have reappeared in several counties. Legislation to affirmatively ban skill-game machines in Virginia was passed in 2021 and again in 2022, but enforcement is on hold pending legal challenges.

Manufacturers of the skill-based machines have also been able to win a few court cases, most recently in Pennsylvania. Last week, a county court judge ruled the Monroe County District Attorney’s Office wrongfully seized Pace-O-Matic’s machines during a raid conducted in 2021.

Michael Barley, a Pace-O-Matic spokesman, said the ruling reaffirmed “our status as legal games of skill.”

Bluegrass State Struggles With Skill Games

Pennsylvania, South Carolina, Florida, Virginia and Missouri are not the only states struggling to handle the proliferation of so-called skill-based games.

Games such as Amigos Locos and Reapers Wild, made by Pace-O-Matic, have popped up in convenience stores and taverns throughout Kentucky over the last two years.

So far, no Kentucky court has ruled on whether the machines constitute illegal gambling or legal games of skill. Messages left with attorney general Daniel Cameron were not returned on Wednesday (February 22).

Kentucky has three legalized forms of gambling in charitable gaming, a state lottery and horseracing, including historic horseracing machines with anything outside that considered illegal.

The grey-market machines resembling slot machines were almost outlawed last year but a bill by Republican Representative Killian Timoney was killed in the House.

Timoney is expected to once again carry a bill to ban the games. As of late Wednesday, a bill had not been posted to Timoney's legislative website.

Meanwhile, House Bill 256, authored by Republican Representative Tom Smith, would regulate and tax skill games. The measure has been referred to the House Committee on Committees.

The Kentucky legislature is scheduled to adjourn on March 30.

Both sides of the debate have formed non-profit organizations to lobby lawmakers in Frankfort on their behalf.

Kentuckians Against Illegal Gaming (KAIG), which was formed by Churchill Downs and others in the state’s horseracing industry, has been lobbying for an outright ban of the machines. Mark Guilfoyle, KAIG’s executive director, claims the state has turned a blind eye to the illegal gaming market.

On the other side of the debate is the Kentucky Merchants and Amusement Coalition, which argues “skill games” create local jobs, provide employee benefits and support local communities.

According to the coalition, which includes Pace-O-Matic, the machines also have had no impact on the Kentucky Lottery, which posted total sales of $1.67bn last year, a 5.7 percent increase over fiscal year 2021.

The supporters of skill games say they are also against illegal gambling but argue any prohibition would only increase the proliferation of illegal gambling devices and ban games at state and county fairs, along with restaurants such as Dave & Busters and Chuck-E-Cheese.

Since entering the state in early 2021, industry estimates put the total number of machines at more than 3,000 located in 850 small businesses across Kentucky. Timoney dismisses those estimates and believes there were around 12,000 machines in 2022 and will be upwards to 40,000 this year.

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