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Virginia lawmakers vote to lift ban on skill games, but details are uncertain

Games that allow people to bet money and win cash have popped up around the state, including in this Richmond corner store. Manufacturers say they’re games of skill, not chance. (Ned Oliver/Virginia Mercury)
Games that allow people to bet money and win cash have popped up around the state, including in this Richmond corner store. Manufacturers say they’re games of skill, not chance. (Ned Oliver/Virginia Mercury)

Proposals to legalize and regulate thousands of slots-like skill games in Virginia convenience stores, restaurants and truck stops easily cleared both chambers of the General Assembly this week.

There are major differences left to be resolved in the two bills that passed the state Senate and the House of Delegates ahead of Tuesday’s crossover deadline, the legislative session’s halfway point when the two chambers have to finish work on their own bills.

This story was reported and written by our media partner The Virginia Mercury

However, the solid, bipartisan vote tallies indicate the legislation is on track to win final passage before lawmakers leave Richmond next month. The vote was  32-8 in the Senate and  65-34 in the House.

The  House version of the bill has tougher regulations on the machines that would presumably limit their profitability. It includes a higher tax rate and a local approval requirement that would give cities and counties the ability to block skill games in their communities.

The  Senate plan, which the skill game industry prefers due to its less strict treatment, doesn’t require local approval and would allow the industry to restart the machines on July 1 without waiting for a permanent regulatory structure to be put in place.

“Today’s overwhelmingly bipartisan vote reaffirms the General Assembly’s commitment to supporting these small businesses, and we hope that Governor Youngkin follows their lead,” restaurant owner Rich Kelly said in a statement on behalf of the pro-skill game Virginia Merchants and Amusements Coalition. “It is imperative that we move this legislation forward to ensure struggling small businesses can access the additional revenue generated by skill games without delay.”

Though the votes weren’t exactly close, Virginia lawmakers have sharply differing views on the impact of skill games. 

During the Senate’s debate on the proposal Tuesday, Sen. Aaron Rouse, D-Virginia Beach, the lead sponsor of the Senate skill game bill, said it was all about helping “the most vulnerable small businesses in our commonwealth,” many of them run by first-generation immigrants.

Sen. Jennifer Boysko, D-Fairfax, said she flipped from a no on skill games to a yes after learning from some of those business owners about how revenue from the machines kept them afloat during the COVID-19 pandemic.

“I have never supported it in the past,” Boysko said.

But Sen. Adam Ebbin, D-Alexandria, a skill game opponent, suggested the heavy emphasis on helping small businesses (the Senate bill is titled the Virginia Small Business Economic Development Act) was glossing over the actual policy choice legislators are making.

“I can’t help but notice how we’re expanding gambling in a large way today,” Ebbin said.

Whether the  tic-tac-toe-style games are or aren’t functionally the same as slot machines has been a major question that Virginia and several other states have struggled to resolve with any clarity. 

Pace-O-Matic, a Georgia-based company that’s one of the nation’s leading skill game manufacturers, has argued aggressively that its machines aren’t a form of gambling because they require enough skill that the outcome isn’t entirely dependent on chance. Opponents contend the skill involved is negligible and the “skill game” label is a legal ruse to evade anti-gambling laws.

Gov. Glenn Youngkin has  tentatively supported efforts to sanction skill games in the past, but before a bill gets to his desk the legislature will have to work out opposing views on how the machines should be regulated.

Virginia lawmakers were on the verge of banning the machines in 2020, but the legislature and former Gov. Ralph Northam agreed to a plan to let them continue operating for only one year under minimal regulation by the Virginia Alcoholic Beverage Control Authority, which already grants licenses to the types of businesses that host skill games. 

That ban eventually went into effect in the summer of 2021 but was suspended later that year after skill game supporters filed a lawsuit challenging it. The ban was  reinstated late last year by the Supreme Court of Virginia after state lawyers spent nearly two years defending it. It was that court decision that prompted the latest push to tax and regulate the games instead of forcing small business owners to get rid of them or continue making money from illegal machines.

The first draft of the Senate skill game bill would have again given regulatory oversight to ABC, even though the agency has said it shouldn’t be the regulator because its expertise is in alcohol, not gambling. To get over that hurdle, the amended Senate bill would make ABC a temporary skill game regulator until the Virginia Lottery Board, which already oversees casinos and sports betting, could get a long-term regulatory structure in place. The House bill would make the Lottery the regulator and delay legalization until the start of 2025 to give the Lottery more time to prepare.

“The big thing that has to be recognized is that only one agency can regulate these machines, and that’s Lottery,” said Del. Paul Krizek, D-Alexandria, a skill game skeptic who led a significant overhaul of the House bill that created many of the discrepancies that now exist with its Senate counterpart. “ABC is not a gaming regulator. They do alcohol.”

The Senate plan would give the Lottery until the start of 2026 to prepare its skill game regulations while allowing ABC to oversee “provisional registration” of the machines until then.

How the state would gain access to data on how much money is flowing through the machines could also be a sticking point as negotiations on the bill progress.

The Senate bill would allow skill game distributors to file monthly reports showing how much money was wagered and paid back out to players at each machine. The House bill would require a “central monitoring system” giving the Lottery direct access to that financial data instead of relying on the industry to self-report its revenues.

For a  report on gambling regulation issued two years ago, the General Assembly’s research arm examined how the state could oversee skill games — also known as gray machines due to their legally murky status — and concluded that connecting the machines to a central monitoring system “would be essential for effective regulation.”

“ABC staff who regulated gray machines in FY21 noted that without a central monitoring system, they were unable to verify how much money gray machines collected and awarded in prizes,” the Joint Legislative Audit and Review Commission said in its report. “Instead, they relied on self-reported figures from gray machine manufacturers, which they suspected were not always reliable.”

That wasn’t just a hypothetical concern, the report went on to say.

“When Georgia connected the machines to a monitoring system in 2015, they found that the machine-reported revenue was nearly double that which was self-reported by machine manufacturers,” JLARC said.

In a letter to lawmakers last month, the Virginia Council on Problem Gambling — which seeks to mitigate the harms of gambling addiction — urged the General Assembly to act with “extreme caution” on machines that have spread to hundreds of different locations rather than being concentrated in a casino or horse racing facility. The organization asked lawmakers to pay particular attention to safeguards meant to address gambling addiction and block minors from playing the machines. 

Sen. John McGuire, R-Goochland, one of the eight senators who voted against skill games, said they “put gambling in every neighborhood in every locality in Virginia.”

“I had one constituent tell me that their grandmother spends all day at the skill games,” McGuire said. “And they can’t get her out of there.”

The Senate’s skill game bill would set aside some money for gambling addiction resources, require the machines to have labels saying no one under 21 can play and make it a criminal offense for any business to allow minors to play. The House bill envisions dealing with those issues through the issuance of player cards. By doing an identity check before allowing access to the machines, the player card system would create a tougher barrier for minors and gambling addicts who want to ban themselves from playing skill games.

During the initial floor votes on the two bills, there was very little back-and-forth debate over exactly how the machines should be regulated. Many lawmakers said the proposal was a work in progress and the finer points could be settled later.

In some meetings, lawmakers have portrayed the effort as a way to ensure restaurants and gas stations can keep their doors open.

“It allows these business owners to stay open longer, pay their help better, be great citizens in our communities,” said Sen. Timmy French, R-Shenandoah, a Shenandoah Valley farmer who is co-sponsoring the Senate bill. “When I get a phone call in the morning and my cattle are out somewhere and I go get those cows in at four in the morning, I like those lights on to stop and get a cup of coffee.”