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Although regulated skill game machines in Virginia and Pennsylvania could generate significant tax revenues, gaming companies remain opposed to any efforts to legitimize what they see as a threat to their industry.

Pennsylvania Governor Josh Shapiro, a Democrat, on Tuesday (February 6) released his 2024-25 budget proposal that included provisions to tax and regulate so-called skill games that have proliferated across the Commonwealth.

But the proposal was immediately opposed by the American Gaming Association (AGA) and the state’s casino industry, which instead seeks to ban the more than 80,000 unregulated machines in the state, as well as by Georgia-based Pace-O-Matic, a major distributor of the machines, which is seeking a lighter regulatory touch.

Shapiro’s budget book includes a 42 percent tax on the daily gross gaming revenue “from electronic gaming machines that involve and element of skill.” Currently, revenue from slot machines in casinos is taxed at a rate of 54 percent.

“The AGA strongly opposes rewarding and legitimizing companies that flood jurisdictions with unregulated gambling machines through light touch regulation and taxation,” said Chris Cylke, the AGA's senior vice president, government relations.

"Any efforts to do so places consumers at significant risk, undermines the integrity of the regulated gaming industry, and threatens our economic impact within the communities in which we operate.”

Shapiro's proposal would have the Pennsylvania Gaming Control Board (PGCB) regulate the machines. Pace-O-Matic executives are opposed to the PGCB regulating its operations, saying its machines are based on skill, not chance, and are therefore not akin to slots.

Shapiro's proposed budget assumes $150.4m being transferred to the Pennsylvania General Fund, assuming the tax becomes effective on July 1, which is the start of the new fiscal year. The following year that revenue estimate increases to $313.4m and then $317.m in the 2028-29 fiscal year.

Overall, the PGCB would see its proposed budget increase by $12m from $55.98m to $66.96m to oversee the machines in locations across the state. Shapiro's budget plan offered no details on the number of machines that would be permitted or how skill games would be regulated. 

Republican Senator Gene Yaw has introduced legislation supported by Pace-O-Matic that would require skill games to be licensed and regulated by the Pennsylvania Department of Revenue, and taxed at 16 percent of gross revenue. 

Senator Amanda Cappelletti, a Democrat, has introduced an alternative bill in the Senate to ban skill games outright.

Pace-O-Matic CEO and president Paul Goldean made it clear during legislative hearings in October that the company would file a lawsuit should the legislature pass a measure banning its branded “Pennsylvania Skill” games.

During that hearing, Goldean was asked if there was a tax rate above 16 percent that Pace-O-Matic would be willing to pay.

“I think that’s a fair issue,” Goldean said. “It’s a policy issue for all of you. I’m just telling you there is a point, like if you tell us you are going to tax us at 54 percent [as applied to casino slot machines and interactive slot games], well that’s not sustainable because we can’t control what happens in our terminal like a slot machine can.”

Skill Games On Virginia Legislature’s Agenda

While Shapiro’s administration supports taxing and regulating skill games, it remains to be seen if Republican Governor Glenn Youngkin would sign either of the measures that have been filed in the Virginia General Assembly to regulate skill-game machines.

Currently, there are two bills that are being considered in committee. On Tuesday, the Senate Finance and Appropriations Committee “passed by” , meaning that it will come back before the committee again at another meeting.

The Senate bill proposes lighter-touch oversight by Virginia's liquor regulator and a 15 percent tax rate preferred by the industry. On Friday (February 2), however, the House Committee on General Laws subcommittee approved a substitute to that takes a stricter regulatory stance than the Senate bill.

HB 590 would require local city councils to pass an ordinance or voters approve a local referendum before any machines could be operational in convenience stores or taverns. The amended bill, crafted by Democratic Delegate Paul Krizek, would limit truck stops to five machines and convenience stores to two.

Additionally, Krizek’s bill limits wagers to no more than $1 and a $500 maximum payout for each play. He also proposed to set a 30 percent tax rate on the machines.

The Senate bill would grant regulatory oversight to the Virginia Alcoholic Beverage Control Authority (ABC), which oversaw the games during the year they were regulated to generate coronavirus relief funds. Krizek’s bill would give oversight to the Virginia Lottery, which regulates casinos and sports betting.

Brian Moran, a lobbyist with the Skill Games Coalition, said the coalition supported “reasonable regulations, taxation and enforcement” but described Krizek’s bill as unworkable. He told lawmakers Friday that providers support a 15 percent tax rate, with five machines per store and ten per truck stop.

“We look forward to working together to ensure the survival of small businesses,” Moran said. “They are very desperate to get these skill games back online on July 1.”

Krizek’s proposal would delay that start date to January 1, 2025, to allow the Virginia Lottery to establish a new regulatory scheme.

“As to the number of machines in the substitute, when you do the math there are roughly 18,000 ABC retail outlets,” said Scott Johnson, a lobbyist and partner with Hancock Daniel that represents Hard Rock Casino in Bristol.

“If each can have two, you are looking at [36,000] new machines, plus a number of machines for the truck stops,” Johnson said. “We have about 6,000 machines today between the casinos and Rosie’s historic horseracing locations.”

Johnson also asked for a Joint Legislative Audit & Review Commission study of skill games, similar to the 2019 review of casino legislation, before any legislation is passed by the General Assembly.

“Each casino committed $300m to come into Virginia,” Johnson said. “That is a significant investment and if you have skill games come in and dilute that, you’ve hurt your future economic growth.”