U.S. Regulators, Gaming Industry Struggle To Eliminate Grey-Market Machines

April 24, 2023
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Grey-market gaming machines continue their expansion across the country, leaving regulators and executives concerned the machines not only threaten the legal industry but also are a serious threat to gaming policy in their respective states.

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Grey-market gaming machines continue their expansion across the country, leaving regulators and executives concerned the machines not only threaten the legal industry but also are a serious threat to gaming policy in their respective states.

Jeffrey Morris, vice president of public affairs and government relations with Penn Entertainment, said unregulated gaming machines are saturating communities across the country and little has changed over the past year.

Morris noted that machine providers Torch Electronics, Pace-O-Matic and Miele Manufacturing are all involved in legal proceedings over these devices that purport to offer games of skill without triggering state gambling prohibitions.

During a presentation on Wednesday (April 19) at the East Coast Gaming Congress in Atlantic City, Morris showed photos of underage teenagers playing the machines and shared a video of the owner of a mini-casino in Central Pennsylvania giving a tour of his facility and its so-called skill games.

“Without action by the courts and law enforcement, these operators are getting more brazen,” he said.

Morris was joined on the panel by: Denise Smyler, chair of the Pennsylvania Gaming Control Board (PGCB); Louis Trombetta, executive director of the Florida Gaming Control Commission; Robert Willenborg, CEO of J&J Ventures Gaming; and Matt Roob, senior vice president of Spectrum Gaming Group.

“Even in a perfect world I would love skill games to go away tomorrow,” Willenborg said. “I don’t think there is the intestinal fortitude of legislators and courts to do that. Let’s all get on the same playing field. What state … is not looking for more revenue.”

Willenborg, whose company operates legal and regulated video gaming terminals (VGTs) in Illinois, Indiana, Missouri and Pennsylvania, said J&J Ventures would not be able to out-compete unregulated skill games.

“We are kind of at the level of insanity right now,” he said. “We keep trying to apply the same [standards] against the skill games and they are very clever; they have really good lawyers.”

Willenborg said he believed skill games could be eliminated if gaming agencies such as the PGCB or Illinois Gaming Board were put in charge of the machines and possession of them made a felony.

Estimates put the number of grey-market machines as high as 80,000 operating in Pennsylvania.

Smyler, chair of the PGCB, noted Pennsylvania has both unregulated and regulated VGTs, with the licensed machines limited to five per-truck stop. Currently, there are 66 truck stops with 330 VGTs state-wide.

So-called skill games do not currently fall under the purview of the PGCB due to a 2019 court ruling that found certain games are not included in the Gaming Act. Six casino operators, including Penn, have appealed that decision to the state's Supreme Court.

The Pennsylvania Supreme Court has not announced whether it will consider the matter.

Smyler said the impact from these games is clear, especially when casino operators come before the board for license renewal and are requesting a reduction in the number of slot machines they offer.

“There is an impact on the casinos from the revenue side as well as consumer protection,” she said. “There are no age restrictions, anyone can play these games.”

“We have 20,000 on our self-exclusion list,” Smyler added. “Anyone of those 20,000 can go to one of these gaming establishments and spend as much time and as much money, which goes against trying to fight their addiction.”

Smyler added that the control board has denied several licenses to potential VGT locations after they admitted to having illegal skill games. She said those locations are appealing the decision, claiming they were found unsuitable because the board was being influenced by the casino industry.

“We do what we can,” Smyler said. “Our position, as the board, is that we think they are illegal because they are operating outside of the [Gaming Act]. It’s up to the legislature to decide whether we regulate them.”

She noted that Republican state Senator Gene Yaw plans to introduce a bill this session legalizing skill-game terminals to generate tax revenue. As of late Wednesday, the control board had not seen the details, but a similar measure last year put regulation of the machines under the Department of Revenue not the PGCB.

“I’m speculating that it will be something similar,” Smyler said. “They are not comfortable putting them with VGTs and casinos.”

Willenborg added that J&J Ventures has also lost VGTs to skill games, because there are no regulations and no taxes for the latter.

He said the real crux of this issue is the reluctance of law enforcement to pursue Veterans of Foreign Wars (VFW) locations or local bars that have installed these grey-market machines.

“No district attorney or state attorney wants to do that, and the grey games folks have exploited that one for us. We don’t want to see our customers incarcerated.”

Willenborg said the PGCB should be left to say what is regulated in the state.

Morris agreed but cautioned that it is going to take some “awful situation happening where somebody is murdered” over unregulated skill games to get action in the state capital.

“The tragedies have already happened in Pennsylvania,” Smyler said in response to Morris’ comment.

“There have been shop owners getting killed because people have gone in and tried to break into these games. There are all kinds of tragedies. They have not moved the needle with the General Assembly at all.”

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