What is the definition of “effective gaming regulation”? That core question will be asked in 2023. In fact, it already is being asked, albeit in sotto voce. We are simply waiting for the volume to be turned up in coming months.
Those of us who have been living in the world of gaming regulation find that not-so-new query to be more than a little dismaying. We thought it had been answered decades ago. But, nonetheless, here we are in the new year defending the already defended, thanks in large measure to one of the central issues facing legalized gaming in the United States: the proliferation in multiple states of slot machines that have been termed “gray,” “unregulated,” “skill games” or even downright “illegal.”
Pace-O-Matic, a Georgia-based company founded in 2000, is at the heart of this debate, as its installed base of machines is growing across the landscape in convenience stores, bars, taverns and other locations.
The Wall Street Journal recently reported that: “Matt Haverstick, an attorney representing Pace-O-Matic, said the company has advocated for increased regulations over skill-based games, including setting standards that can be applied to the company and its competitors, to remove bad actors. But the games aren’t gambling, he said.”
As someone who has worked on litigation regarding these machines in multiple states, I can agree to respectfully disagree with Mr. Haverstick: These machines are in the gambling business. Full stop.
At the same time, we can agree with Pace-O-Matic as to the need for “increased regulation.” We just need to be clear on what that means, and on how you achieve that goal.
To understand the principles that underscore those words, be prepared to don that long-neglected leisure suit and to start “Sweating to the Oldies.” We are going back to the 1970s.
From 1931 to 1976, casino games—including slot machines—were illegal in 49 states, with Nevada being the sole exception. In the same election that made Jimmy Carter our 39th president, New Jersey ended that monopoly and began the process of engendering public trust in legal gaming by establishing standards that have since led to the authorization of legal gaming in nearly every state, and the installation of more than 200,000 slot machines in licensed, regulated locations.
New Jersey’s secret sauce was simple: A gaming license is a revokable privilege granted to those applicants who have affirmatively demonstrated their good character, honesty and integrity.
As state after state has adopted the New Jersey model, they have established various limiting factors, such as the number of licenses, as well as on the location of casinos.
Neither I nor any other individual can—or should—endeavor to pass judgment on whether any potential applicant meets a state’s standards for licensure. Such decisions are left to state-appointed regulators who would first review the results of exhaustive background investigations. Even then, decision-makers can reach divergent conclusions, which is why licensing decisions often come down to 3-2, 4-1 or 2-1 votes. Such decisions sometimes require super-majorities, which means that a 3-2 vote to license may not be sufficient.
Unanimity may not be mandatory in licensing decisions, but one hard-and-fast principle that existed in 1976 should never be eliminated or even diluted: Licensing must precede installation.
The principles of integrity—the bedrock of public trust in legal gaming—demand that states pay serious attention to the number and location of licenses, the types of licenses to be issued, as well as to the establishment and review of serious internal control procedures that govern everything from responsible-gaming practices to the counting of revenue to the prevention of under-age gambling, among other issues.
States from New Jersey in 1976 to Virginia in 2023 did not anticipate scenarios in which some gaming operators abide by the rules, and apply for licensure and then adhere to all the limitations of licensure, while others can expect to come in from the cold with an existing base of installed machines, and be grandfathered in to the licensing process.
That ordering of the licensing process was New Jersey’s position in 1976, and must be the position of every state that seeks public trust in its gaming industry. That is the black-and-white answer to the question of gray gaming: Licensure must come first.
