Virginia Supreme Court Reinstates Ban On Grey-Market Machines

October 17, 2023
The American Gaming Association has applauded the Supreme Court of Virginia’s decision to overrule a lower court injunction and reinstate the state’s ban on skill-game machines, but acknowledged the issue is not settled.

The American Gaming Association (AGA) has applauded the Supreme Court of Virginia’s decision to overrule a lower court injunction and reinstate the state’s ban on skill-game machines, but acknowledged the issue is not settled.

“Enforcing the law is key to ridding our communities of predatory and pervasive ‘skill’ machines,” said Chris Cylke, AGA senior vice president for government relations, in an email on Monday (October 16). 

“While the issue is not settled, the Virginia Supreme Court’s ruling sends a strong message that it’s up to Commonwealth policymakers to regulate all forms of gambling, including ‘skill’ machines,” Cylke said.

The ruling by a panel of three justices comes amid a lawsuit between the state, manufacturers and business owners, which is led by truck-stop owner and former NASCAR driver Hermie Sadler, over Virginia’s 2020 ban.

Republican state Senator Bill Stanley, an attorney who represents Sadler Brothers Oil Company, filed the lawsuit alleging the ban violated small businesses’ constitutional right to free speech.

The Virginia General Assembly voted to ban so-called skill games, but lawmakers agreed to a temporary delay in enforcement at the request of then Democratic Governor Ralph Northam so that tax revenue from the machines could be used to fund state needs during the coronavirus pandemic.

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.

Lerner’s temporary injunction was in effect for more than two years until the Supreme Court issued its order on Friday (October 13). As of Monday, it was unclear if a lawsuit scheduled to go to trial on December 18 will proceed.

Estimates put the number of machines, commonly known as “Queen of Virginia” skill games, between 9,000 and 14,000.  

In its order, the high court ruled that the lower court had “abused its discretion” and the lawsuit challenging the ban on free-speech grounds was unlikely to succeed.

“Although at times it is difficult to determine where a particular activity falls on the speech/conduct continuum, no such difficulty is present when the activity being regulated is gambling,” the Supreme Court said in its 12-page order.

“We long have viewed gambling as conduct that may be heavily regulated and even banned by the Commonwealth as an exercise of its police powers,” added the order from Justices Stephen R. McCullough, Teresa M. Chafin and Wesley G. Russell Jr.

Barry Jonas, managing director with Truist Securities, said the reinstatement of the ban is of “meaningful benefit” to Churchill Downs. The Louisville-based gaming company owns Colonial Downs Racetrack and operates seven Rosie’s Gaming Emporium parlors that feature historic horseracing (HHR) machines.

“While it's not clear exactly when the ban would be implemented, we think it could occur quickly, and have a relatively immediate benefit to Churchill Downs’ Virginia properties,” Jonas wrote in a research note.

Jonas added that the grey-market machines “could be negatively impacting revenues as Churchill Downs bolsters its HHR footprint in the state.”

The company currently operates 2,750 HHR machines and is on a path to operating a total of 5,000 in Virginia.

“We see the state Supreme Court decision as a big win for the company just months following the Exacta transaction closing,” wrote Jonas, referring to Churchill Downs' acquisition of the primary systems provider for HHR operations.

“This ruling comes four months after Kentucky issued a similar ban and speaks to [Churchill Downs] management’s political savvy.”

The lawsuit, also brought by skill-game company Pace-O-Matic, was scheduled to go to trial on December 18. By lifting the injunction, the Supreme Court’s decision puts the ban back in effect, and the Office of Attorney General Jason Miyares said state attorneys “are free to enforce it.”

"We are very pleased with the Supreme Court’s decision upholding the constitutionality of the skill games law,” said Victoria LaCivita, a spokeswoman for Miyares. The attorney general had asked the Supreme Court to review the case.

“The Commonwealth of Virginia has regulated gambling for centuries, and the skill games law is an ordinary exercise of the General Assembly’s authority to protect the public from dangerous gambling devices,” LaCivita said. 

Michael Barley, chief public affairs officer with Pace-O-Matic, said the company's attorneys believe there is a “significant and successful” argument that can be made to win the case in Virginia.

“We are prepared to seek all avenues to reinstate our legal product in that market but, of course, we will follow the law in the meantime,” Barley said in an email on Monday.

Attorneys representing Pace-O-Matic have also filed a lawsuit in Kentucky’s Franklin Circuit Court challenging the constitutionality of a similar state law banning skill-game machines.

Prominent Technologies, a Pennsylvania-based manufacturer and operator of the games, filed a separate lawsuit seeking to block the ban.

“As far as Kentucky is concerned, we do not see any impact,” Barley said. “We are as confident in our case in Kentucky as we are our case in Virginia.”

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