Skill game manufacturers and businesses that host the machines say they're holding out hope that state lawmakers can agree — before Oct. 13 — on a framework to regulate the devices that can be found in social clubs, convenience stores and small shops. If that deadline is not met, law enforcement can begin seizing skill game kiosks next month.
For more than a decade, small businesses have relied on the revenue generated by the machines, said Jeff Millay, a leader at Miele Group, a skill game manufacturer based 80 miles north of Harrisburg.
"And you're gonna take away that line item and tell those clubs … 'Guess what? It's gone. Go operate like you did 10, 12 years ago.' I'd love to see the state operate on the budget from 10, 12 years ago," he said.
The state Supreme Court deemed skill games illegal gambling devices in June but gave state lawmakers a four-month window to legalize and tax the revenue. But there has been little progress, and lawmakers have just six voting days scheduled between Sept. 28 and Oct. 7.
Millay's company Miele builds skill game cabinets for Pace-O-Matic, maker of the popular Pennsylvania Skill band of machines. He said state police hand-delivered a reminder to locations that stock the games last week.
"They went to some of our corporate locations in uniform and delivered these letters… Why don't they put anything in there that said, 'But the legislators have an opportunity to fix this'?" Millay wondered.
Industry's unlucky break
The looming uncertainty for business owners has roots that date back more than a decade.
In 2014, a Beaver County Court of Common Pleas judge ruled that the machines were legal non-gambling devices, because they featured elements that went beyond mere luck, which made them something other than slot machines. The judge found that mastering a skill — in this case, an optional memory game that players can select after losing a spin — was enough to distinguish the devices from slot machines.
That distinction allowed the machines to proliferate for years to come. But the state Supreme Court upended that reasoning this past June, ruling that a skill game is, like a traditional slot, "a coin-operated gambling machine that pays off according to the matching of symbols on wheels spun by a handle." The court ruled that state law did not permit the machines, but gave legislators until mid-October to change that, in recognition of the fact that tens of thousands of machines had been installed in good faith.
The industry hoped state lawmakers would regulate the devices as part of the state budget passed in July. But by that time, interest groups with ties to skill-games makers had spent large sums unsuccessfully seeking to topple some of their critics in the legislature, and their cause gained little traction in Harrisburg.
Jeannette Krebs, a spokesperson for Pace-O-Matic, said the company will follow the court-ordered deadline to remove machines if the legislature fails to act.
"Our operators and the locations that have our skill games know this is our stance and are prepared to turn off their skill games if needed," she said in a statement.
Still, she said the industry was "optimistic lawmakers will pass a fair and commonsense skill game regulation bill before October 13."
"A disruption of skill game revenue will harm American Legions, VFWs, volunteer firefighters, fraternal groups and small businesses," the statement continued, citing a number of community institutions that have made use of skill games proceeds. "Some will lay off staff, others will close their doors. Community programs will also be in a crisis when these organizations and businesses can no longer donate to them."
Tax rates debated
At the center of the dispute is the question of how much to tax revenue from the machines.
When the state legalized casinos in 2004, it decided that just over half the revenue generated by slot machines, 52%, should end up in state coffers. (In comparison, the state taxes table games, such as blackjack and roulette, at 14%.) Gov. Josh Shapiro and other officials say slots should be taxed at the same rate. Some Senate Republicans and other regulation supporters said 36% was a fairer deal.
There's also the debate over how to use the tax revenue the machines could create, with some legislators saying it should be devoted to property-tax relief.
But the skill games industry is seeking a rate of 16%, or a per-machine monthly fee. That tax discount has drawn protest from casinos, but Millay says the business models are different. While a casino can keep the 48% of money left over after taxes, "We as [skill game] operators, we split the money with the location."
With time running out before the deadline, Republican House member Brad Roae filed a proposal Monday to temporarily legalize the machines without a tax, effectively extending the unregulated status quo to April.
"That is essentially what the court is doing" already, Roae (R-Erie/Crawford) argued in a memo to colleagues. The court, he noted, argued that skill games "must pay the taxes and be regulated, but for a few months they don't have to comply and can continue operating as usual."
But he added that he hoped "a permanent solution would be reached" before April, "and this law with the sunset date would be repealed."
Asking for guidance
So far, Milay said there'd been no direct conversations with state agencies, including state police, about the situation.
"We have been asking for guidance about how to handle [the deadline] because … it's going to take some time to remove all of the equipment," he said.
"The machines can be disabled, they will not accept currency and they will not print a ticket. Basically, the machine is a non-functioning what we would call a cabinet," he said, adding he believes the cabinets themselves may be able to remain in bars and social clubs.
A Pennsylvania State Police spokesperson didn't exactly endorse that approach. Echoing a press release from last week, the spokesperson said "disabling" machines by deactivating the gaming software won't be enough to satisfy the court's ruling.
"Simply powering off an otherwise operable machine or unplugging them (in other words, machines that could be simply turned back on or plugged back in at any time and be played) is not sufficient to comply with the law" as things stand now, said PSP deputy communications director Chris Caracino.
Members of the skill game industry, along with hundreds of shopkeepers and owners of amusement companies, rallied at the state Capitol this summer urging the legislature to regulate the devices with a per-machine per-month fee of $500. They say it could generate $300 million for the state each year, based on an estimate that 50,000 machines exist statewide.
But some critics of the slot-like devices worry that more than 70,000 unregulated machines have cropped up in Pennsylvania since 2014.
Manufacturers "have been trying desperately to cram as many of their gambling machines into every square inch of every laundromat, vape shop, convenience store, every inch of Pennsylvania that they could," said state Sen. Camera Bartolotta (R-Washington) in an interview just after the state Supreme Court ruling.
She's in favor of regulating the devices, not outlawing them. But she wants to keep them in adult social clubs, away from all-ages businesses that children frequent.
" I think we can absolutely do that," she said in June.
Senate Democratic leader Jay Costa said this summer that skill game regulation should mirror the rules for video-gaming terminals, devices allowed at several gas stations and truck stops across the state. They're effectively slot machines outside of casinos that were legalized in 2017.
" I've always been one [to say] that if we went down this path, it would need to be in parity with what we do with our slot machines and what we do with the VGTs at truck stops," Costa said. "They have a successful model, and whatever we do needs to be replicated along those lines as best we can."
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