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The legality of supposedly skill-based gaming machines in Virginia could be settled by the end of the year, but no matter the outcome of the trial, a newly-formed coalition will take its case for regulating and taxing the machines to lawmakers in Richmond to assure that the revenue these terminals provide businesses can continue.
The Virginia Merchants and Amusement Coalition (VAMAC) said its mission is to support small businesses by protecting legal skill games and aiding law enforcement in combating illegal gambling.
"Our Commonwealth is at a crossroads. Until skill games are regulated, Virginia will continue to miss out on an estimated $130m in tax revenue per year, and potentially much more," VAMAC president Rich Kelly said.
Skill-game devices provide location partners with 40 percent of profits with no hidden fees or additional costs, according to the coalition.
Another 35 percent goes to a local operator. Virginia-based distributors also make a percentage of the profit, ensuring that more than 75 percent of the revenue generated by skill games stays within the local community, the association said.
“Our purpose is really simple, the small business owners who have skill games would like to keep them,” Kelly told WRIC Channel 8 in Richmond. “Casinos are totally different from a couple of skill games located in a [convenience store].”
Despite opposition from the state lottery, historic horseracing (HHR) machine facilities and casino operators, Kelly said the coalition’s purpose is to protect small businesses who “count on skill games to create local jobs and generate revenue.”
The games, also known as grey-market machines, can be found in convenience stores and gas stations throughout Virginia and differ from slot machines found in casinos because a player must identify a winning payline instead of the machine telling the player whether a spin has won or lost.
Opponents of the machines, including the American Gaming Association (AGA) and Churchill Downs Inc., believe they are illegal and do not follow responsible gaming protocols, as well as a host of federal and state laws designed to protect consumers and the community.
“So-called ‘skill’ machines offer zero consumer protections and actively undo the good work of the regulated gaming industry, which has played by the rules and brought great benefit to the Commonwealth in a short period of time,” said Chris Cylke, AGA’s senior vice president, government relations.
Cylke told VIXIO GamblingCompliance on Friday (August 18) that regulated gaming deserves the same protections as any other legal industry, including in a fledgling market like Virginia where land-based casino-resorts have only recently opened.
“While proponents of these unregulated gambling devices claim to support small businesses, the risks these machines bring to communities far outweigh any marginal revenue they produce,” he said.
Cylke said Virginians should reject any attempt to give special treatment to these machines that “take advantage of communities and vulnerable populations, employ legal delay tactics, and then ask for forgiveness and regulation at a much lower level than legal gaming.”
Churchill Downs has expanded its HHR business in Virginia, where Pace-O-Matic, the parent company of Queen of Virginia, has also been part of an ongoing effort to overturn a state ban on skill-based games.
“Grey games are essentially slot machines,” CEO Bill Carstanjen said during a quarterly earnings call last month.
Currently, Churchill Downs operates six of its allotted ten HHR facilities in Virginia, with two other properties under development.
A legal saga over whether a 2020 law to prohibit skill games is constitutional has already lasted more than two years and will finally be decided in a three-day trial that has been scheduled for December 18–20.
Although the 2020 legislation was approved by lawmakers, then-Democratic Governor Ralph Northam delayed the ban to help the state raise revenue for a coronavirus pandemic relief fund. During that period, small businesses could pay the state $1,200 per month per skill-game machine.
Lawmakers made them illegal on July 1, 2021, but Greenville County Court Judge Louis Lerner issued a temporary order blocking the state from enforcing the ban through an injunction issued in December 2021.
Republican state Senator Bill Stanley, an attorney who represents Sadler Brothers Oil that offers grey-market machines at many of its 13 trucks stop, filed a lawsuit alleging the ban violated small businesses’ constitutional rights to free speech.
That injunction remains in effect, allowing an estimated 14,000 machines to operate without paying taxes or licensing fees and are free from interference from state or local law enforcement.
During this year’s legislative session, Republican House Majority Leader Terry Kilgore introduced House Bill 2295, a measure that would have legalized and regulated the machines. The measure died in the House General Law Committee.
Kelly said regardless of the lawsuit’s outcome, lawmakers must take action to regulate the games so the state can bring in the revenue.
