Saturday, April 20, 2024

New Battle Over Skill Games Looms in Virginia as Industry Pushes to Reverse Ban

Skill games in a Richmond corner store. The games popped up in gas stations, convenience stores and bars around the state before they were outlawed. (Ned Oliver/Virginia Mercury)

RICHMOND — When slots-like skill games first showed up in Virginia, officials were confused about their legal status. Over four years of legislative action and court battles, the machines were made legal, then illegal, then legal again, then illegal once more. But their current illegal status might not last long.

The perennial debate over how to handle the devices that have spread throughout Virginia convenience stores, restaurants and truck stops could be one of the biggest fights of the 2024 General Assembly session. The skill-game industry is preparing a major push to try to win permission to turn its machines back on just months after a court ruling forced them to go dark.

In November, hundreds of convenience store owners sent a letter to state lawmakers urging them to tax and regulate the machines instead of banning them. Some of those owners are expected to be at the Capitol early this week to argue skill games have been a lifeline for small businesses struggling to keep their doors open.

“The revenue from skill games has kept many afloat,” the letter read. “It has allowed us to keep people employed.”

Bills to re-legalize skill games had not yet been formally introduced as of Friday afternoon, but policymakers are expecting a well-coordinated effort to convince the General Assembly to reverse the ban passed by prior legislatures. That ban was suspended for nearly two years as the skill-game industry fought it in court. But the Supreme Court of Virginia reinstated the ban last October after ruling a lower court had given too much credence to skill-game proponents’ arguments the ban infringed on their free speech rights. Because of that ruling, the industry has a new sense of urgency to get the law changed.

Also referred to as “gray machines” due to the legal gray area they inhabit. Critics have said the machines are designed to evade gambling laws. Skill-game proponents insist the games, which feature the same spinning reel grid and colorful imagery as slot machines, involve enough skill that they technically aren’t a form of gambling. On many machines, the purported skill required is the ability to connect three-in-a-row patterns. Many also feature a memory-based subgame that gives users a slight chance to keep playing if they lose their money.

Supporters have argued the machines are a way to more evenly distribute the profits of Virginia’s expansion of legalized gambling, giving smaller operators a chance to make money instead of leaving it all to the big companies that run casinos. Opponents of the games feel the industry is pushing a particularly predatory form of gambling into neighborhoods all over the state based on far-fetched claims that exceptionally skilled players can win money every time.

It’s not just small businesses leading the charge for skill games.

Pace-o-Matic, the parent company of prominent skill-game brand Queen of Virginia, has retained more than a dozen lobbyists to work on the issue, according to the Virginia Public Access Project. For years, the company and its affiliates have made sizable political donations to both Democratic and Republican politicians.

“As the 2024 General Assembly quickly approaches, Pace-O-Matic and Queen of Virginia Skill & Entertainment feel confident that we have the support, not only from legislators but from the public, to get skill games operating again in the market,” the company said in a pre-session memo circulated last week.

Sen. Aaron Rouse, D-Virginia Beach, will be the lead sponsor of a pro-skill game bill, according to the company, with Sen. Louise Lucas, D-Portsmouth and Sen.-elect Timmy French, a Republican farmer from Shenandoah County, signing on as co-patrons.

The company estimates that state-sanctioned skill games could generate up to $200 million in tax revenue, but it’s unclear what kind of tax system lawmakers might pursue and how many machines they’d be willing to allow. Because the machines have been operating without regulation since late 2021, the state has no up-to-date data on how many machines exist in Virginia, how much money is flowing through them and how much is paid back out to players.

Pace-o-Matic’s memo said the company-backed bill will propose a 15% tax rate on gross profits from the machines instead of the $1,200 monthly fee per machine used in the prior regulatory system. The bill also suggests a five-machine limit in restaurants and convenience stores and a 10-machine limit in truck stops. The proposal would put the Virginia Alcoholic Beverage and Control Authority in charge of overseeing the machines. Though ABC has little expertise in gambling, the liquor authority already oversees many of the businesses that host skill machines because they sell alcohol.

My biggest concern is that the communities that they would be going in, which is everywhere, do not get to weigh in on whether they want them.

— Del. Paul Krizek, D-Farfax and
co-chair of a legislative subcommittee
studying state gambling regulations

Much of the upcoming legislative debate could focus on who should regulate skill games and how strict those regulations should be.

Lawmakers have struggled to come up with a workable regulatory scheme as Virginia expanded legalized gambling over the last several years. In addition to promoting its own games, the Virginia Lottery now regulates casinos and sports betting platforms. The horse racing industry and its affiliated Rosie’s slots parlors are overseen by the Virginia Racing Commission. Bingo halls and other charitable gaming operations are regulated by the Virginia Department of Agriculture and Consumer Services. And ABC was previously responsible for ensuring all skill games had an official sticker indicating they were government-sanctioned and subject to the $1,200 per month flat fee

The legislature has considered the idea of putting one regulator in charge of all forms of gambling, but has yet to pass legislation streamlining the fractured system.

If ABC were again given oversight of skill games, Virginia would have four different government entities responsible for regulating slot machines and their lookalikes.

Because skill games are scattered across hundreds of different businesses in communities all over the state, they pose unique logistical challenges lawmakers will have to grapple with. For example, other types of regulated gambling have age verification and problem gambling rules meant to restrict access for minors and gambling addicts. It’s unclear how those safeguards might be enforced in convenience stores and sports bars, which don’t have the same levels of supervision and security that casinos do.

Another sticking point could be the long-running competition between various gambling interests to secure their turf.

Lucas recently sent a letter to gambling-focused policymakers indicating that, if it appears skill games are going to be legalized again, she’ll insist on an equivalent expansion of gambling privileges for charitable gaming operators like VFW halls and Moose lodges.

“Further, if for-profit skill game operators, like Queen of Virginia, are ultimately allowed to operate in restaurants, gas stations and other areas, then charitable gaming should have equal access,” Lucas said in a letter addressed to members of the Virginia Charitable Gaming Council.

Though the legislature has recently stood by the ban on skill games, the influx of new General Assembly members has cast a new level of uncertainty over where the body might land on the issue.

Del. Paul Krizek, D-Fairfax, who co-chairs a legislative subcommittee studying state gambling regulations, said in an interview that he opposes immediate re-legalization of the games. Casinos and horse racing-affiliated gambling facilities both require the passage of a local ballot referendum, and Krizek has floated the idea of also giving local voters a say in whether skill games should be allowed in their neighborhoods.

“My biggest concern is that the communities that they would be going in, which is everywhere, do not get to weigh in on whether they want them,” Krizek said, who predicted the skill game issue will be “huge” this year.

The General Assembly session begins Wednesday and is scheduled to end March 9.

Virginia Mercury is part of States Newsroom, a network of news bureaus supported by grants and a coalition of donors as a 501c(3) public charity. Virginia Mercury maintains editorial independence. Contact Editor Sarah Vogelsong for questions: info@virginiamercury.com. Follow Virginia Mercury on Facebook and Twitter.

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