On a recent afternoon in Harrisburg, Pennsylvania, state Rep. Dan Moul, sponsor of a House bill to ban unregulated slot-like machines billed as “skill games,” watched in a small bistro across the street from the Capitol as parents ate lunch while their teenage sons spun away on the reels of two of those very machines.
The problem, Moul tells GGB News, is that these games get around gambling laws to enable cash payouts for wins. Essentially, they’re unregulated slot machines that are raking in money for private owners, who don’t pay a dime in revenue taxes to the state, or do anything for the local community. Their operators claim they are “skill games,” because of the dubious reason that they show a result, and let players use their brains to decide whether to wager that the subsequent spin will be a winner.
According to Moul, a November decision from the Pennsylvania Commonwealth Court opened the floodgates for this kind of machine, ruling that video gaming machines manufactured by local company Pace-O-Matic (POM) under the title “Pennsylvania Skill,” while they did meet the state definition of a slot machine, do not fall under the state’s Gaming Act, or under the jurisdiction of the state Gaming Control Board.
POM, which had challenged the Pennsylvania State Police seizure of its machines, quickly put out a press release claiming victory, and Moul says the court decision led the state on a path to where it’s becoming the Wild West of unregulated skill slots.
“We’ve got literally tens of thousands of those games in Pennsylvania now,” Moul said. “They’re everywhere. We have convenience store/gas stations that have literally put gaming parlors into new buildings, that have nothing but these games inside of them—20 or 30 of them in a room.”
Moul’s bill, HB 1598, would require that any machines outside of a licensed casino—skill-based or not—that pay out money for prizes would require a Small Games of Chance license, issued by the state Treasury Department to clubs, charitable organizations and private taverns with a portion of proceeds going to local charities. Without the license, they would be considered illegal slot machines subject to confiscation with a fine to the owner.
“My bill basically says if you’re going to have a payoff on any machine, you must have a Small Games of Chance license,” Moul explained. “For that, you have to be nonprofit, or have a liquor license. The local laundromat or the gas station down the street would have to have a Small Games of Chance license before they could pay off on these.”
The bill was introduced last June and referred to the House Gaming Oversight Committee. A hearing was held October 30, but the bill has not moved since. “The leadership (House Majority Leader Bryan Cutler) does not want to move any gaming bills this session,” Moul said.
The proliferation of skill games in Pennsylvania is by no means isolated. It is symptomatic of a trend being battled by lawmakers and law enforcement in several states, with recent controversies concentrated in Pennsylvania, Virginia, Missouri and Illinois.
First, Education
Last week, leaders of the Association of Gaming Equipment Manufacturers (AGEM) and the American Gaming Association (AGA) launched a campaign to educate state lawmakers, law enforcement officials and regulators across the country on what they view as a threat to the health of the regulated gaming industry. The two organizations reached out to all stakeholders, distributing an “Unregulated Gaming Machine Fact Sheet” that lays out the clear distinction between the regulated casino, lottery and distributed gaming markets and the unregulated segment that has been spreading “at an alarming rate,” according to a press release from AGEM and AGA.
The fact sheet also highlights the negative consequences of this spread, including the increase in criminal activity and the lack of player protections, and potential solutions to combat the problem, including the establishment of small state and local government task forces with law enforcement representation.
“The regulated gaming industry has rarely been more united on a singular issue, and now we have a tool to address the misinformation and deception that unregulated machine companies use to confound law enforcement, the courts and local citizens,” said AGEM Executive Director Marcus Prater in the release.
“The spread of these machines represents a serious threat to the overall regulated market that has invested billions in infrastructure while also creating thousands of jobs and substantial tax benefits in the communities they serve. Moreover, unregulated machines prey on confused players who see slot machine symbols and think they’re getting a fair chance when they absolutely are not.”
“Stamping out the illegal market that threatens the safety of consumers will always be one of the gaming industry’s highest priorities,” added Bill Miller, president and CEO of the American Gaming Association. “We are proud to work with the Association of Gaming Equipment Manufacturers and our fellow industry partners to combat the spread of illegal machines.”
In an interview with GGB News, AGEM’s Prater said he first realized the gravity of the illegal-machine problem last fall. “In the mid-November time frame, there were six news reports in a matter of three days from various sources, talking about these machines popping up in Omaha, Virginia and Missouri,” he said.
In Illinois, former state Rep. Luis Arroyo was arrested after government recordings allegedly captured him paying a bribe to a state senator to advance a bill to legalize unregulated “sweepstakes” machines. In Pennsylvania, the POM decision had opened the gates. The Missouri Lottery came out and said they have lost $50 million in revenue to unregulated machines.
But Prater says the last straw was a story coming out of Virginia about competition between operators of the so-called skill games. Representatives of Queen of Virginia, the largest producer of unregulated skill games in the state, held a press conference in the parking lot of a Lava Java coffee shop that featured the skill games of a competitor. Using charts, the presenter purported to demonstrate why Queen of Virginia games were legal and the Lava Java games were not. But in the end, neither news reports nor Virginia law gave any definitive indication of what was and was not legal in this area, in a state where, in fact, no casino games are legal.
“The Virginia story was the kicker,” says Prater. “It hit me that this has got to stop; we’ve got to do something. Those of us who have been in the industry a while know that these machines are cyclical. It seems that every few years, they flair up in different spots… You can’t eliminate them all; it’s a ‘whack-a-mole’ type of situation where they pop up and you beat them back and they pop up again. But (the Virginia story) was particularly egregious, so I said, ‘Enough is enough. How do we fight this?’”
Gray Areas
Aggravating the problem of unregulated gaming machines was the confusion surrounding them on the part of the public, the mainstream press, and even local and state government. “I realized we don’t have a tool to present the facts,” Prater said. “What is a ‘nudge’ game? What is a skill game? What are the different categories of these gray machines, and how do the gray machines differ from the regulated machines?”
Prater said AGEM members worked internally to produce the Fact Sheet, which identifies the features of the types of unregulated machines out there, and how they differ from legal, regulated slot machines. The list defines all the different unregulated games in the field, including “skill,” “sweepstakes,” “nudge,” “zero chance,” “no chance,” “pachislo” and “8-liners.”
The Fact Sheet describes the characteristics of each type of gray-area machine, and provides a list of three elements common to all:
- The games have not been affirmatively approved by the state under a regulatory system administered to protect the public.
- The operators of the games are not subject to the suitability examinations and licensing for gambling operators imposed by state law.
- The sponsors, proponents and operators of the games always claim reliance on some exception or “interpretation” that the machines are not gambling games because: either consumers use their skill, knowledge or dexterity to play and therefore there is no “chance” involved in the game; or, the game is made available without the consumer paying money into the machine to play, although the consumer may have given valuable consideration for some other good or service as a pretext to gain access to use the machine.
“Unregulated gaming machines designed to look like regulated slot machines to fool players into thinking they are getting a fair chance,” the Fact Sheet reads, “rarely include any responsible gaming features and enrich only the unregulated machine companies and locations while creating a burden for law enforcement, healthcare providers and regulators. Furthermore, unregulated gaming increases social costs and criminal activity and provides questionable tax or other benefits for the states where it exists.”
To ensure the message reaches all the necessary stakeholders in government and law enforcement, AGEM initiated the partnership with the AGA. “There’s strength in numbers, so we reached out to the AGA, which signed on to the effort,” Prater said.
By the time of last week’s launch of the campaign against unregulated machines, 23 industry associations had signed on to the effort, including regional associations from around the country, tribal gaming associations, gaming testing and certification companies, problem gambling interests, major regulatory groups and the National Council of Legislators from Gaming States. “NCLGS is a key organization where legislators from gaming states are addressing the problem of these machines,” Prater said. “There are very few states that are immune to these machines.”
Enlisting Law Enforcement
In addition to the industry organizations, which will send the fact sheet to their members, AGEM and AGA are reaching out to law enforcement agencies around the country, asking them to enforce laws against unregulated gaming machines. “We’re going to hammer this home real hard for the next six months,” Prater said. “We’re trying to blanket the world with this message, to slow down the spread of these machines.”
Enlisting the AGA in the effort means the educational effort will be thorough one. “We’re aiming for lawmakers, regulators and law enforcement,” Jessica Feil, senior director of gaming policy for the AGA, told GGB News. “We want to re-emphasize to them why enforcement of laws already on the books regarding these machines should be a priority. These unregulated machines are not realizing revenues; they’re not providing consumer protections.
“In addition to the press coverage, we sent the Fact Sheet to regulators across the country. We also shared it with a number of law enforcement contacts and associations, and most groups in that field are aware of the issue and want to learn more.”
Legislative Efforts
The effort of AGEM and AGA comes at a time when local and state governments are already looking at ways to stem the tide of unregulated gaming. In Virginia, both chambers of the General Assembly passed a bill that classifies electronic skill games and other gray-area games that resemble slot machines as “illegal gambling devices,” banning their use in the state.
Virginia state Senate Bill 971 and House Bill 881 define a “skill game” as an electronic, computerized or mechanical contrivance, terminal, machine or other device that requires the insertion of a coin, currency, ticket, token or similar object to operate, activate or play a game.
“The outcome of that game is determined by any element of skill of the player and that may deliver or entitle the person playing or operating the device to receive cash; cash equivalents, gift cards, vouchers, billets, tickets, tokens, or electronic credits to be exchanged for cash; merchandise; or anything of value whether the payoff is made automatically from the device or manually.”
At press time, the skill-game ban was awaiting the signature of Virginia Governor Ralph Northam. There also are skill-game bans pending in Missouri and other states.
Pennsylvania’s effort to ban the machines is likely to wait until at least next year. According to Moul, House Majority Leader Bryan Cutler will not consent to move his bill out of committee, even though Gaming Oversight Committee Chairman Jim Marshall is ready to move the ban.
“(Cutler) doesn’t want to run any gaming bills at all, because he’s in in the middle of Amish country,” Moul said. “A very large part of his constituency are Amish. For him to bring up a gaming bill, even if it’s to correct a law, will draw attention to him.” Moul explained that even though his could be considered anti-gaming legislation, the bill would open up the state’s Small Games of Chance law to new amendments, some of which could even involve further gaming expansion. That’s why Cutler won’t touch it.
The lack of movement on the legislation, Moul added, means no action from law enforcement. “The state police are now starting to walk into places and confiscate those machines, but it’s such a gray area that a lot of district attorneys won’t even touch it,” says Moul. “Mine here in Adams County will not touch this issue. He says until they have something definitive one way or another, they’re not touching it.
“These damned things are showing up in grocery stores, laundromats, barber shops and everywhere else. It’s an issue, and I’ve tried to correct it. My bill is sitting there. If they decide to take it up, I’ll get back behind the drums and beat them real hard, to get this thing under control.”
Moul is not giving up—he said he will reintroduce the ban in the new legislative session next year, and in the meantime will also try to tuck its provisions into a separate, must-pass bill as an amendment.
Moul has increasing support in the state—last week, Pennsylvania Lottery Executive Director Drew Svitko told lawmakers the skill games could lead to a $200 million decline in scratch-off ticket sales this year, on top of what he said was a $115 million hit last year. “Those skill machines are absolutely having an effect on the lottery,” Svitko told the House Appropriations Committee.
The Big Guns
The commercial casino industry, as in other states, is another strong ally. “Those guys paid literally hundreds of millions of dollars for their license, to have machines to gamble with, and the guy down the street who has a laundromat or a pizza shop doesn’t pay a dime, and he can get them,” Moul said. “That’s not right. And that needs to be corrected. That’s all I’m trying to do.”
Late last week, more support from the industry came when the Pennsylvania Gaming Control Board filed petitions to intervene in two separate court challenges filed by POM to reverse seizures of their machines.
“The Pennsylvania Race Horse Development and Gaming Act, first enacted in July 2004 and subsequently amended in 2006, 2010 and 2017, established an intricate and all-encompassing regulatory model for a variety of gaming products in Pennsylvania,” the board’s first petition stated, “specifically providing that the intent of the General Assembly in doing so as ‘the primary objective of this part to which all other objectives and purposes are secondary is to protect the public through the regulation and policing of all activities involving gaming and practices that continue to be illegal.”
Specifically targeting POM, the skill machine manufacturer, the petition noted:
“POM of Pennsylvania, LLC does not hold a license issued by the Pennsylvania Gaming Control Board.
“No officer or director of POM of Pennsylvania, LLC holds a license issued by the Pennsylvania Gaming Control Board.
“POM of Pennsylvania, LLC does not pay a 34 percent daily tax from its gross terminal revenue from its skill machines in operation in the Commonwealth.
“POM of Pennsylvania, LLC does not pay a local share assessment from its gross terminal revenue from its skill machines in operation in the Commonwealth.
“POM of Pennsylvania, LLC does not restrict the age of persons who play its skill machines in operation in the Commonwealth to persons 21 years of age and older.
“POM of Pennsylvania, LLC does not pay a fee to the Department of
Drug and Alcohol Programs for public education, awareness and training regarding compulsive and problem gaming and the treatment and prevention of compulsive and problem gambling.”
The court granted the gaming board intervenor status in both cases.
Meanwhile, the AGEM/AGA effort is likely to gather steam quickly. “This is just the beginning,” said AGA’s Feil. “We’ve released the fact sheet, and it went to regulators and other stakeholders around the country that are interested in and have engaged with us on these issues in the past, and we are going to continue discussions, and see what other educational resources and tools we can provide, whether it’s to lawmakers or law enforcement, to help them understand why stamping out the illegal market should be a priority.
“The gaming industry is highly regulated, and a proud economic driver for the communities in which they sit, whether it’s through taxes or other, indirect benefits… That’s the problem with these machines. They don’t have any of that connection with the people around them.”
“This is something I’m passionate about,” said Prater, “because I do believe it presents one of the single greatest threats to the regulated industry in the U.S. It siphons off discretionary dollars; it presents gaming machines in a bad light; it goes against the message we send as a regulated industry.”
“The AGA is encouraged that policymakers in some states such as Virginia have begun to recognize the dangers of these machines and have taken recent legislative action towards outlawing them,” said AGA’s Miller in last week’s press statement. “Unfortunately, other jurisdictions where these machines have become pervasive may believe their only recourse is to regulate and tax them. Rewarding bad behavior is not the answer, and we hope our education efforts will make it clear that the only real solution is to stop the spread of these devices.”
