Fifteen months have passed since the American Gaming Association and the Association of Gaming Equipment Manufacturers first announced a coordinated effort to battle the spread of unlicensed, unregulated gaming machines in several states around the U.S.
What the AGA and AGEM were battling was a phenomenon that has gained steam over the past few years: slot-like gaming machines masquerading as amusement games, purporting to be “skill games” but behaving mostly like slot machines. The “skill” factor is dubious at best. One of the most prominent is what is called a “pre-reveal” button. The player can press a button that will reveal the outcome of the bet he is making on a machine. If it’s a loser, the only way to continue playing is to accept it and make another bet. That’s the “skill.”
Moreover, the simple availability of the option is what many “skill-game” manufacturers say make them a skill game. The player has the option of not hitting the icon, and waiting until after the spin of the reels to see the outcome. In other words, they can be played exactly like a regular slot machine.
Photo courtesy of Pennsylvanians Against Illegal Gaming
More alarming than the nature of the games to officials of AGA, AGEM and the regulated gaming industry in general is the fact that they are placed not only in bars or clubs, but in gas stations, pizza parlors, laundromats and other locations accessible to anyone, including children.
“We’ve seen pictures of little kids sitting on their parent’s lap in front of these machines,” said Jess Feil, vice president, governmental relations and gaming policy counsel for the American Gaming Association. “It’s not that there’s any ill intent (on the part of machine operators); it’s that they don’t understand the seriousness of that.
“Clerks or bartenders or restaurant staff—it’s not their job to police these things. They don’t have training in responsible gaming. They don’t even understand that these are gambling machines, necessarily. Our industry spends over $300 million a year on responsible gaming efforts, and among that is ensuring that our most vulnerable populations, including children and people with problem gaming, are not exposed to these activities.”
Also outrageous to the regulated slot industry is the fact that the games are placed in these locations with no regulatory oversight—no testing of the games to ensure fairness; no strict licensing requirement for either their manufacturers or operators; no safeguards against money laundering, underage gambling, problem gambling or other concerns state-licensed stakeholders spend millions to guard against.
“A gaming license truly is a privilege that we invest in very heavily—not only the cost of the initial license and renewal of the license, but the cost of compliance to maintain our license,” said Feil. “And part of that, we hope in return, is the relationship with our community, and that includes the state, the regulators, law enforcement and policymakers, that will create an environment where our industry can thrive, and grow and support our communities with economic development and tax revenue.”
“We, as a regulated industry, have a tremendous amount at stake here,” said Marcus Prater, executive director of AGEM, “and our machines, our operating systems, our people, our companies have all passed rigorous standards that (skill-game manufacturers) have never even come close to.”
When the combined AGA/AGEM effort began last year, it was targeting thousands of machines that are still prevalent in Pennsylvania, Virginia, Missouri, Wyoming and other states. The effort had been gaining considerable steam in the form of machines in several of those states being seized by police, tying some manufacturers—notably, Missouri’s Torch Electronics and Georgia-based Pace-O-Matic, with games in Pennsylvania, Virginia and Wyoming—in a web of ongoing litigation.
Then, the Covid-19 pandemic intervened, along with its lockdowns of businesses, including casinos, and a consequent revenue crisis to state coffers. The governors of Virginia and Wyoming chose to address the revenue crisis by permitting the unregulated machines to continue operations. Virginia Governor Ralph Northam sent a bill specifically banning the skill games—Pace-O-Matic games branded “Queen of Virginia”—as illegal gaming machines back to the legislature with an amendment permitting the games to continue operating for one year with a state tax dedicated to pandemic relief.
Wyoming and Missouri also entertained bills banning the machines, but held back enacting them due to the pandemic. In Wyoming, a bill sponsored by state Senate Vice President Ogden Driskill was signed into law that regulated and taxed the skill games there—POM games branded “Cowboy Skill”—for 14 months. The law stipulates that POM games and others like them must be licensed and certified by a state-sponsored testing lab, and obtain a state sticker.
No action was taken in Pennsylvania, where the POM games are branded “Pennsylvania Skill.” There were widespread reports that those games, estimated to number over 24,000 across the state, remained operational for a time while casinos and other businesses were under state-ordered lockdown due to the pandemic.
As the industry emerges from the pandemic this year, officials of those states and of the gaming industry are reassessing the unregulated gaming problem. Wyoming lawmakers determined they wanted to keep the tax revenue from the skill games, and, earlier this year, Governor Mark Gordon signed a bill to make their legal status permanent.
According to Prater, the Wyoming licensing standards are not overly stringent. “As somebody told me, in Wyoming, they’re getting game and machine approvals from those who would approve a ham sandwich,” he said. “Wyoming has put some brakes on who can come in, and what kind of machines can come in, but allowing these skill games to be legal and regulated is certainly disappointing.”
In Virginia, which is on the verge of creating a new legal, regulated casino industry, Northam and lawmakers announced that the Queen of Virginia games will officially be illegal as of the termination of the 12-month pandemic-relief period in July.
Meanwhile, lawmakers in Missouri and Pennsylvania are considering bills that would specifically outlaw the unregulated machines.
In Missouri, state Senate President Pro Tem Dave Schatz is sponsoring a bill that would specifically ban skill games. The bill even spells out the specific “skill” element of Torch Electronics games, stating that the so-called “pre-reveal” feature does not constitute skill, and that those games are, in fact, illegal. One reason for singling out the Torch Electronics games in the bill was a lawsuit Torch filed against the state of Missouri in February, alleging “harassment” by the Missouri Highway Patrol when they raided retail locations and seized the machines. At the time, Schatz replied to the lawsuit by calling the games “flat illegal.”
In Pennsylvania, state Senator Robert Tomlinson is sponsoring SB 212, which would officially ban the Pennsylvania Skill games. “These devices advertised as ‘games of skill’ continue to flourish within the commonwealth and in fact, continued to allow players to gamble during the state’s Covid shutdown,” Tomlinson said in a memo accompanying the bill on the state Senate website.
“These ‘Pennsylvania Skill Game’ machines can be found in liquor establishments and clubs, convenience stores and malls. These machines use the name ‘Pennsylvania’ despite the fact that there isn’t any regulation or oversight from the commonwealth. In some locations, entire rooms are devoted to these machines, making them look like mini-casinos. A player inserts cash (in some cases these machines will accept $100 bills) to win a cash prize.
“Many people view gambling as a victimless crime; however, we must recognize these machines remain unregulated. There is no consumer protection provided through monitoring to prevent minors from gambling, assist problem gamblers, regulate payout rates or ensure collection of taxes.”
Tomlinson further noted that the machines are often strategically placed near state lottery machines. He estimates that the Pennsylvania Lottery loses approximately $2,284 per machine, per month to the Pennsylvania Skill games, and there are more than 20,000 of them. “Considering that the Pennsylvania Lottery benefits programs for our most vulnerable seniors, any diversion of funds will lead to cuts in critical programs such as prescription drugs, long-term living services, meals and transportation,” he said.
For the AGA and AGEM, an effort continues to raise awareness of the unregulated gaming program. In February, the AGA released a white paper that follows up on a white paper issued in March 2020 by testing and certification company Gaming Laboratories International. The GLI paper highlighted the extent of the problem and outlined the technology being used to circumvent the law by exploiting loopholes.
The AGA white paper stresses that the unregulated machines do not undergo the same stringent regulatory requirements the legal gaming industry meets, and noted recent raids that have linked illegal gaming operations to organized crime, money laundering and even drug dealing and gang activity.
Photo courtesy of Pennsylvanians Against Illegal Gaming
“Law enforcement and policymakers need to prioritize robust enforcement of laws to root out illegal and unregulated gaming machines,” the AGA paper states. “States and communities must not authorize these machines and continue to erode regulations and permit unnecessary consumer risk. Businesses should actively remove illegal and unregulated games on their properties.”
Both Feil and Prater describe the ongoing effort against unregulated machines as a game of “whack-a-mole.”
“You think you’ve got it under control in one place and it pops up in another,” said the AGA’s Feil. “Our new white paper is really a continuation of the industrywide effort to provide resources and tools to policymakers and law enforcement to educate them on our industry.”
“We can’t attack every single instance in every single city where these things have been popping up,” added Prater, “but from a big-picture standpoint, it’s certainly important that the AGA, AGEM and anyone who has a stake in regulated gaming to remain vigilant, because that’s the only way we’re going to beat back any momentum that these unregulated companies have.”
Prater added that the profits the unregulated companies are gathering from the skill machines give them a formidable lobbying fund. “In Missouri, Torch Electronics has a ton of lobbyists, one a former state senator with a lot of connections to the governor and other state leaders. While the bill that would expand regulated gaming and do away with unregulated gaming in Missouri did not advance, it’s good to know some of the legislative speakers there are saying we need to solve this illegal, unregulated gaming problem.”
Officials of Torch Electronics and Pace-O-Matic were offered the opportunity to comment for this article, but ultimately declined. POM officials initially agreed to address several common allegations concerning their machines via email, but did not return any comments by press time.
According to Prater, the skill-game manufacturers likely have no response to the common allegations. “The bottom line in my view is that their machines would not, in their current form, pass the muster in any way, shape or form, when it comes to even a simple GLI approval,” he said. “And so, they may say that we’re open to regulation, but they certainly would have to change the way their games work in order to comply with, for example, the Pennsylvania Gaming Control Board standards.”
Feil says the skill-game companies have not, to her knowledge, submitted their games to any established certification labs or regulatory agencies for approval as gaming devices.
Meanwhile, AGA and AGEM continue the effort to raise awareness of the unregulated gaming problem. “We are continuing our outreach among several states,” Feil said, “through allies in law enforcement and policymakers, and associations—groups where these folks gather to learn about our industry—and providing them with this (white paper) resource and helping to educate them. This is going to be the foundation of ongoing efforts, both targeted in certain hotspots and more broadly to educate legislators in situations where the law is unclear, and creates that ambiguity, where we’re hoping law enforcement takes a more active role.”
Prater says AGEM would welcome skill-game manufacturers “into the regulated world” if they would submit to the same scrutiny as traditional gaming machine manufacturers. “That includes a fair payback for players; that includes the same company individual licensee standards that apply to regulated gaming,” he said.
“If they want to get into the regulated world, then let’s see what’s behind the curtain.”
