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As the gaming industry waits for the Pennsylvania Supreme Court to rule on the legality of unregulated skill-game devices, some lawmakers and casino executives believe it may be too late to implement a total ban on the machines, forcing the industry to find an alternative solution.
Currently, estimates on the number of slots-like skill games in Pennsylvania range from 40,000 to 80,000 machines in bars, taverns, convenience stores and gas stations across the state. The American Gaming Association (AGA) estimates the number of illegal machines in the U.S. to total 580,651, generating $26.9bn annually in gross revenue.
“This is a major problem,” said Jeff Morris, vice president of public affairs at Penn Entertainment, which operates three casinos in Pennsylvania. “What these illegal operators do is flood the market. They multiple like locusts and then they try to force themselves into being regulated.”
Morris estimated the number of skill games in Pennsylvania to be around 100,000, but tackling the problem is like “trying to put the toothpaste back in the tube”.
“The casino industry has aligned here and recognizes that it is next to impossible to get rid of these altogether unless the [state] Supreme Court makes the right decision,” Morris told attendees Thursday (July 18) at the summer meeting of the National Council of Legislators from Gaming States (NCLGS) in Pittsburgh.
Morris said the casino industry has come to the table with legislators looking to put up some guardrails in the state to protect children, problem gamblers and a regulated gaming industry that has made a massive investment in the state.
Morris and state Senator Jay Costa, a Democrat, both made it clear Thursday that the gaming industry perceives these machines as a significant threat.
“I know that has been a topic of discussion for a lot of people over the course of the last several years,” Costa said. “But quite frankly, my view is that the status quo is not acceptable, and we have to find a way to reconcile all the parties interests as we move forward.”
“It’s all frankly very concerning,” said Costa. “My view is that something needs to be done.”
Costa confirmed there are ongoing discussions in Harrisburg over regulating and taxing skill-game machines, but any agreement would need to include the ability to connect the machines to a central system for tax and monitoring purposes.
“The tax rate needs to be the same as slot machines and zones around casinos are all things being discussed right now,” Costa said. “We are looking at skill games to fund transportation.”
Revenue from slot machines at Pennsylvania land-based casinos is taxed at 54 percent. Democratic Governor Josh Shapiro had proposed a 42 percent tax on skill games in his initial budget proposal in February, but the proposal was removed before final passage of the fiscal year 2025 budget last month.
Executives from Pace-O-Matic, the most prominent supplier of skill-game machines in the U.S., is opposed to that 54 percent tax rate, arguing that the company's products are not gambling.
Pace-O-Matic has instead come out in support of a bill proposed by Republican Senator Gene Yaw that would apply a 16 percent tax rate, with the state's Department of Taxation as the regulator of skill games, rather than the Pennsylvania Gaming Control Board (PGCB).
Costa admitted that being able to reach an agreement on regulation of skill games would create a viable revenue stream to fund transportation systems and other programs in Pennsylvania.
Michael Pollock, senior policy advisor with Spectrum Gaming Group, acknowledged that policy decisions around regulating gaming are not easy but he warned that legalizing unregulated skill games would have a discernable impact on future capital investment decisions by gaming operators in the Keystone State.
“More important but far less obvious is that a system in which unregulated operators can become regulated, licensed gaming participants undermines the proven principle that gaming license is a privilege granted to those who have affirmatively earned the privilege,” Pollock said.
“That principle is the foundation of public trust in gaming,” he added.
PGCB executive director Kevin O’Toole said the underlying issue in Pennsylvania is as state law has been interpreted, skill games are not illegal pursuant to the crimes code.
That allowed the state's Supreme Court to initially decline an appeal in March of a lower court ruling that found the controversial machines are not illegal gambling.
The decision allowed Banilla Game terminals to remain in operation in Pennsylvania. In 2019 and 2020, the state's Bureau of Liquor Control Enforcement (BCLE) raided several licensed stores and seized 11 electronic skill games, ten of which were owned by Pinnacle Amusement and manufactured by Banilla Games.
Pinnacle Amusement filed motions for the return of its skill-game machines in the Luzerne County Court of Common Pleas and in other local courts where its machines had been seized. In 2022, the county court ruled that the skill-game machines did not constitute gambling devices and ordered the return of all of Pinnacle Amusement's machines.
Now, however, Pennsylvania’s highest court will decide whether the terminals are unlicensed gambling machines after announcing in June that it would take another case involving skill games, this time seized in Dolphin County. Attorney general Michelle Henry appealed a lower-court decision that found the games are based on a player’s ability, not solely chance.
Pennsylvania is just one of several states struggling to handle the rapid growth of skill-games machines, which have also proliferated in Michigan, Virginia, Missouri, Kentucky and Texas, among other states.
Matt Hortenstine, general counsel with video gaming terminal operator J&J Ventures, said he understood the gaming industry’s frustration with the proliferation of skill-game machines but said that regulation of gaming machines in convenience locations beyond casinos was the only viable option to deal with the problem.
“The only way we are going to solve this problem is to create a regulated distributed gaming market,” Hortenstine told NCLGS delegates. “The attempt to shut these down through a criminal prosecution methodology just turns into a game of whack-a-mole.”
