Manufacturers say they’re skill games. To regulators, law enforcement and the regulated casino industry, they’re a crime.
As unregulated slot-like “skill games” continue to appear in pizza shops, laundromats, convenience stores and other locations in states like Pennsylvania, Illinois and Missouri—and as operators and manufacturers of these games become more brazen in their efforts to expand—enforcement actions are needed that impose real sanctions on businesses that operate them if the tide against unregulated gaming is to turn, according to operators and regulators who addressed the problem during a panel at the recent East Coast Gaming Congress.
The issue of unlicensed, unregulated games spreading in retail locations in several states, in fact, was addressed in sessions throughout the East Coast conference, with speakers and panelists calling the games—which manufacturers say are legal because of a dubious “skill” factor that helps players win—one of the biggest threats to legal, regulated gaming in the U.S.
The threat was laid out during a panel that examined distributed gaming, and the difference between regulated machines in the VLT/VGT markets and the unregulated games that continue to operate outside of law, regulation and taxation.
“These games threaten the legal industry economically, but they also pose a threat to gaming policies in their respective states, challenging the basic principles of licensure,” commented Michael Pollock, managing director of Spectrum Gaming Group, moderator of the panel, “most notably, that central policy that a gaming license is a revocable privilege granted to those who affirmatively demonstrate their good character, honesty and integrity.”
The panel included stakeholders from one of the states at the epicenter of the controversial games, Pennsylvania, where tens of thousands of the unlicensed games have spread to businesses across the commonwealth, and have been battled by the legal casino industry as well as regulators.
“Skill machines are, in my opinion, illegal slot machines that are saturating our communities around the country,” said Jeff Morris, vice president, public affairs and governmental relations for Penn Entertainment. “Our CEO Jay Snowden addressed this topic last year at the CEO Roundtable. He highlighted these skill machines and called them an ‘unregulated, unmitigated disaster.’
“Unfortunately, I must report that not much has changed since. These machines remain an unregulated, unmitigated disaster. Numerous companies continue to push these machines onto street corners and main streets across the country, next to schools and houses of worship and day care centers.”
Opponents of the skill games note that they not only are void of player protections, but the games themselves are not vetted for fairness, nor are their operators, who pay no taxes or portions of revenue to the state, a big contrast to games licensed and regulated by gaming commissions.
Moreover, panelists noted that the unregulated games are produced by manufacturers that themselves have not been properly vetted in the kinds of background checks that are a prerequisite to a license to supply slot machines.
“As everybody knows, the legal casino gaming industry takes responsible gaming and consumer protection very seriously,” Morris said. “Conversely, these operators and their illegal machines provide zero protections for anyone. There are no RG protocols, no KYC protocols, no self-exclusion programs or compulsive gaming policies, and clearly, no underage protections.”
To drive the latter point home, Morris showed a group of alarming photos from locations featuring the unregulated games, including a few that Snowden displayed last year showing children playing the slot-like devices. He added a new group of photos from Missouri, another state battling the illegal devices.
“Here are two kids in Missouri playing a Torch Electronics game, trying to turn their lunch money into gold,” he said as he displayed a photo of two children playing machines that look much like Class III slots. “And here’s another child trying his luck at the Stratford Sports Center in Missouri. This complex is for elementary and high school basketball and volleyball games. It includes bounce houses, arcade games, and a wall of illegal slot machines for kids to use their allowances to try to win big.
“Now that, in an of itself, continues to be the biggest problem with the gray market. Without action by legislatures, law enforcement and the courts, operators are getting more brazen in their efforts to expand.”
As an example, Morris showed a video from Facebook in which an operator plugged an entire room of the unlicensed games, advertising what he called his “mini-casino.”
Pollock pointed out that the unregulated games are trying to break into the distributed gaming market, but there are “two flavors” of distributed gaming. The other is the legal market of VGTs and VLTs. Panelists pointed to markets in which legal distributed games coexist with licensed casino games, without any detriment to casino licensees.
Matt Roob, the senior vice president of Spectrum Gaming who has studied the Illinois market closely, noted that 30,000 video gaming terminals in Illinois have not impacted the traditional casinos in the state. “Clearly, there was a market for the VGT product that wasn’t being met by the casinos, and the big winners were state and local government,” Roob said.
He also cited West Virginia, which offers three types of gaming—in casinos, video lottery terminals and online gaming. “The distributed gaming market can peacefully coexist (with casinos) in a regulated environment where the bad actors are not playing, where you’ve got people who are legitimately offering this business that’s licensed, regulated and taxed,” said Roob.
Pennsylvania is another market where casinos and VGTs have both thrived, noted Denise J. Smyler, chair of the Pennsylvania Gaming Control Board. She said this was because the VGTs are limited to truck stops, which the law specifically defined with requirements for physical size, business practices and other requirements.
However, she noted, the so-called skill games operate with no restrictions on location, and with no assurances on who is providing the games or where the revenues go.
In Pennsylvania, efforts to curb the skill-game business have been hampered by a lack of legislative support—bills to ban the games have stalled, as the skill-game manufacturers continue to contribute to lawmaker campaigns and use their substantial tax-free revenues to lobby the legislature to support bills to legalize the games.
Meanwhile, the courts have thus far not provided any help. Skill-game manufacturers Torch Electronics, Pace-O-Matic, Miele Manufacturing and Banilla Games are all involved in court battles involving unregulated games.
Georgia-based Pace-O-Matic, the main supplier of the unregulated games in Pennsylvania, has seized upon a few court decisions they say prove the games are legal—in particular, a 2019 district court decision that held that because the games are not in physical casinos, the Gaming Control Board does not have jurisdiction over them.
“The decision said that these ‘skill games’ would be slot machines if they were housed within the four walls of a casino,” said Smyler, who noted that the board is appealing that decision based on an amendment to the state’s gaming law that includes the definition of a slot machine as a skill machine or a chance machine. That provision of the law provides that the games do, in fact, come under the board’s jurisdiction.
In some states, the skill-game manufacturers enjoy substantial support from fraternal and charitable organizations that depend on revenue from the games. However, the charitable organizations would be able to legally place regulated slot machines in most of those instances, and as was seen two years ago in Virginia, dependence on revenue alone does not make the devices legal.
In Virginia, an outright ban on the unregulated machines was originally to go into effect in July 2020. Then-Governor Ralph Northam granted operators of the games a one-year delay of the ban to recover revenue and business taxes lost to the Covid-19 pandemic.
The ban took effect July 1, 2021, but manufacturers of the games continue to push for legislation to legalize them. One such bill died in committee this year. Pace-O-Matic, which distributes the unregulated games in the state under the brand “Queen of Virginia,” has donated nearly $1 million to Virginia political candidates, according to the Virginia Public Access Project.
Opponents of the unregulated games are looking to lawmakers in other states to pass laws to ban them, as Virginia and Kentucky have successfully done.
Robert Willenborg, CEO of VGT distributor J&J Ventures Gaming, which is involved in legal distributed gaming in four states, noted at the East Coast panel that even those laws will be ineffective without enforcement measures in place. “In a perfect world, I would love for the skill games to go away tomorrow,” he said, “but I don’t think there’s intestinal fortitude in the state legislatures and the courts to do that.”
He noted that laws making possession of the games a felony would cause the problem to be “cleaned up in very short order.” The problem with doing that, though, is that they make money for organizations like the VFW and American Legion. “If I’m going to go after the leader of the VFW or American Legion, or Joe’s Bar down the road, no DA or state’s attorney really wants to throw them in jail, and the gray game folks have really exploited that,” noted Roob.
However, Roob said there are other alternatives in enforcing a ban on the games. “Whether that’s through law or regulation, we can talk about $10,000 or $25,000 fines to bad actors, but put a liquor license at risk, put a tobacco license at risk, if you are housing these machines. There’s a variety of ways that can be done.”