The ongoing battle between Pennsylvania casinos and skill games continues to escalate, this time on a worldwide stage.
Earlier this month, Penn Entertainment CEO Jay Snowden spoke at the Global Gaming Expo (G2E) in Las Vegas about tens of thousands of illegal, unlicensed gambling machines throughout the state.
American Gaming Association CEO Bill Miller said that the organization would be doubling its efforts to curb unregulated skill games as well as offshore sportsbooks and casinos.
He cited the broader impact these games have on the industry, adding that illegal gambling costs communities an annual $4 billion in taxes.
‘An existential issue for the industry’
Earlier in October, Parx Casino filed a lawsuit against Pace-O-Matic, claiming that its machines are, in fact, slot machines. Its allegations include unfair competition, wrongful interference with prospective business relations, and negligence per se.
These are ongoing arguments that PA casinos have put forward for some time. Other regulated forms of gambling in PA like the PA Lottery and video gaming terminals (VGTs) have also complained of cannibalization from unregulated devices cutting into profits and tax revenue.
Another concern that Snowden brought up in the G2E executive keynote session is the lack of consumer protections.
“We have photos of children playing these games and families engaging on these games,” said Snowden.
“In several states where we operate, this is a catastrophe in the making. This is an existential issue for the industry. It’s a reputational issue for our industry.”
On the other hand, Pace-O-Matic maintains that their machines are legal and argues that many illegal machines exist throughout the state, claiming to be skill games. Its parent company, Pennsylvania Skill, has publicly expressed its support for the crackdown on these illegal machines and said its licensed machines should be unaffected by such actions.
Broader implications of unregulated gaming
The legal gray area by which skills games operate in PA enables them to facilitate underage gambling and be potential crime magnets. Parents are commonly seen with their kids at skill game machines, some adults even letting them play.
Miller expressed such concerns, too:
“They prey on customers, especially the vulnerable and the underage. They don’t provide any consumer protections or invest a dime in responsible gaming. Illegal and unregulated websites and machines pose a direct threat to our industry’s hard-earned social and regulatory license to operate.”
The fight against unregulated gambling is gaining steam among regulators and politicians on a national scale. A recent bipartisan Congressional letter to U.S. District Attorney Merrick Garland urged the DOJ to take action against illegal offshore sportsbooks.
Regulated gambling, complete with safeguards for customers, has proven beneficial for Pennsylvania. The current challenge posed by unregulated gambling proliferation gives PA a chance to lead by example for other states encountering similar black-market gambling issues.
States without regulated online gambling may be fueling offshore markets the most, especially as online casinos and sportsbooks advertise to national TV audiences.
Legislation and regulation can be the solution, suggests Snowden and Miller.
A possible explanation for decreasing gaming revenue?
Though still the primary driver of Pennsylvania’s casino industry, slot machine revenue has been down in recent months. Lottery revenue is also not what it could be.
Is it possible that we have a culprit?
Skill games have grown like wildfire throughout the state, especially since Attorney General and Democratic gubernatorial candidate Josh Shapiro quietly stopped enforcing laws around seizing unlicensed machines in 2020. They now outnumber the amount of licensed and regulated machines in PA casinos by more than two-to-one.
Decreased revenue hurts more than just the casinos’ bottom lines, though. Slots are taxed at 54%, whereas skill games are untaxed.
Pennsylvania’s casino industry brought in over $5 billion last year, nearly half of which came from retail slots. How much more is the state missing out on because of unregulated skill games?
Yes, online casino revenue continues to grow and is likely taking some of the casinos’ retail profits. But establishments throughout the state are poaching casinos’ patrons for various reasons, including convenience and the lack of a regulated environment.
PA skill games landscape is changing
Philadelphia City Council appears to have noticed the uncertain climate around skill games and is considering an ordinance to ban them throughout the city. Councilmember Curtis Jones (D-4th District of Philadelphia) cited increased crime in neighborhoods with skill game machines.
Of course, Pace-O-Matic, the state’s only licensed skill game manufacturer, has everything to lose would skill games be banned statewide. It won’t go down without a fight and is even taking an active approach that recently included flying a handful of state legislators to Wyoming for the Cheyenne Frontier Days.
If the casinos have their way, all non-casino “skill games” would be banned nationwide, as would the people behind their operations.
“We need help putting these people behind bars if that’s what it takes. It’s a real issue,” said Snowden.
Miller echoed these sentiments at G2E, promoting an aggressive stance towards illegal gambling (including skill games):
“They’ve responded by harassing and attempting to intimidate us. Our answer? Bring it on. They can’t stand up to scrutiny in the court of public opinion, and they won’t stand up to scrutiny in a court of law.”
On the other side of the coin, a current proposal looks to legalize tax skill games at 16%. Regardless of the outcome, someone will be unhappy.