Published: February 3, 2023

'Gray machines' push limits of gambling in Kentucky

LOUISVILLE, Ky. (WDRB) — Linda Shore saddled up to one of the three Burning Barrel machines in the back of Bud’s Tavern, a bar advertising “good food, good times, good people” in a Jeffersontown strip mall that also includes a karate studio and a Mexican restaurant called The Yellow Cactus.

Setting her koozie-encased beer bottle in the cup holder, Shore put $40 in the Burning Barrel terminal — which resembles a slot machine — and started tapping the “play button.”

Made by a Georgia company called Pace-O-Matic, thousands of Burning Barrel and similar machines have proliferated across Kentucky at bars, restaurants, truck stops, convenience stores and veterans halls.

Sometimes called “gray games” because of their murky legal status, the machines are likely to be the subject of an expensive lobbying battle for the second consecutive year when Kentucky lawmakers return to work on Feb. 7.

Each time Shore pushed the ‘play’ button, a flurry of colorful shapes zoomed across the screen until landing in a tic-tac-toe style grid of nine. She then had to scan and recognize whether there was a square that, if she tapped it, would make for three stars or three diamonds in a row. A successful tap might repay the dollar Shore spent on the play, or perhaps more, depending on the shape.

But for Shore, Burning Barrel was slightly different than other “skill games” she’s played. Sometimes, it gives a strong hint as to the right answer because the correct square will vibrate.

“This one's kind of wiggling. So you know you need to push that one,” she said. Shore joked, “Skill for idiots.”

Within a few minutes, her $40 balance had dwindled to less than $20. Too many turns without a match. But then, she happened upon a square that made three in a row two ways, unlocking a “Gem Master Bonus Game.”

During the bonus game, which was basically electronic pinball, Shore furiously mashed the button to send a rainbow of shapes cascading across the screen. The result was $50, bringing her balance up to $66.53.

Shore said she doesn’t expect to walk away from these games with hefty winnings, or with any positive balance.

“Playing it just gives you something to do, keep your mind busy,” she said.

‘Gray’ games or ‘skill’ games?

Games like Burning Barrel and another called Wildcat — made by Pace-O-Matic competitor Prominent Technologies — have popped up across the state in recent years.

But no Kentucky court has weighed in on whether games like Burning Barrel and Wildcat constitute illegal gambling or legal games of skill. Nor has Attorney General Daniel Cameron.

Kentucky permits gambling only in the forms of charitable gaming (like bingo), the state lottery and horse racing, including the slots-like variation called historical horse racing.

As for the disputed gray machines, the legislature nearly outlawed them last year, but the effort fell just short when the House and Senate didn’t agree on a bill.

The lack of action allowed Pace-O-Matic and Prominent Technologies to continue rolling out the machines — which they first brought to Kentucky in 2021 — and to build constituencies among hundreds of small businesses that benefit from the revenue and among lawmakers on whom they have showered campaign contributions and spent heavily to lobby.

Pace-O-Matic was the tenth-biggest lobbying spender in Kentucky in 2022, outpacing Louisville-based Churchill Downs Inc., the state’s biggest operator of slots-mimicking historical horse racing games, according to data from Kentucky Legislative Ethics Commission.

Gray machines have no federal, state or local regulation, no government collects any taxes from their use, no one involved undergoes any background checks, there is no oversight

Churchill Downs and the broader horse racing industry are not content to allow the gray games to keep proliferating. They’ve formed the group Kentuckians Against Illegal Gambling, which is lobbying the legislature for an outright ban of the machines.

Mark Guilfoyle is executive director of Kentuckians Against Illegal Gambling. Jan. 25, 2023 (WDRB photo)

“These machines are illegal, criminal enterprises,” said Mark Guilfoyle, a Northern Kentucky lawyer and the racing industry-backed group’s executive director.

On the other side is the newly formed Kentucky Merchants and Amusement Coalition, funded by Pace-O-Matic. The group also includes Prominent Technologies and hundreds of mom-and-pop businesses like Bud’s Tavern. KY MAC is expected to push its own bill to impose regulation and taxes on the skill machines.

The proponents of skill games say they’re also against “illegal gambling,” and that their solution would crack down on games that actually violate the rules.

The crux of their legal argument is that skill — not chance — predominantly determines the outcome of their games.

“In our games, you can win every single time. It just depends on how you play it and if you’re a skillful, patient player,” said Michael Barley, chief public affairs office for Pace-O-Matic. “There are folks that play the game through the whole thing, and they win every single time. There are players that don't, and that’s their choice.”

Pace-O-Matic’s business model relies on less skillful players casually playing for entertainment. If all players were skillful enough to win, Barley said, “Certainly, we would not be in business.”

‘Small businesses depend on these’

Bud's Tavern in Jeffersontown features three Burning Barrel machines that proprietor Rebecca Henry says customers love. Called "skill games" by their manufacturers and "gray games" by opponents, the machines are at the center of an expensive lobbying fight in Kentucky. Some want to regulate and tax them, while others say they are illegal gambling and should be explicitly banned. Jan. 24, 2023 (WDRB photo) 

Already the owners of Bud’s Tavern across town in Shively, Rebecca Henry and her father, Andrew Ernspiker, had terrible timing when they decided — in February 2020 — to open a second location in the Jeffersontown strip mall.

But one thing that helped the tavern recover from the coronavirus pandemic was the arrival of the three Burning Barrel machines about a year ago.

Henry, the managing partner of Bud’s Tavern, learned about Burning Barrel from the vendor who provides the bar’s ATM machine, jukebox and Golden Tee golf game.

Burning Barrel isn’t such a hard sell for places like Bud’s: The vendor or “operator” installs and services the machines at no cost to the venue. The profit from the machines is split between the location (40%), the operator (35%) and Pace-O-Matic (25%).

For Bud’s Tavern, this means “a few thousand” dollars a month, Henry said. She estimated the machines boost the bar’s revenue by a little less than 20%.

They also bring customers who might never have visited and give people a reason to hang around and order more food and drinks, she said.

“Aside from the fact that they do bring extra income in, for us, they bring the people in,” she said. “We have met so many new faces just because of the Burning Barrels.”

Customers often crowd the area around the machines as they wait to pounce on one that comes free, she said.

“Once they get on those machines, they don’t go… They’ll take their meals there, they’ll eat or drink or talk and play,” she said.

Henry has spent money on one aspect of the Burning Barrel process: an ATM-like redemption machine that dispenses cash to players who want to withdraw their balances. Locations that lack the cash redemption machines must pay out players from their own cash at the register.

The machines only deal in cash, and a Pace-O-Matic executive told lawmakers at a hearing in November that the maximum any single player can win is $4,000.

The machines also say they’re only for people over 21, which Pace-O-Matic said is a “policy choice” rather than a legal requirement. It’s up to establishments like Bud’s to be enforce the voluntary age restriction.

Henry said she’s mystified by the controversy surrounding the machines. To her, they provide harmless fun for her customers and revenue to supplement her business. In the year she’s had them, they’ve never caused a problem, she said.

“I do think they should be regulated so that we can keep them because, I mean, small businesses like myself depend on these at this point,” she said.

Any day now, Henry is expecting two more Burning Barrel machines to be delivered to her bar, giving her the maximum five that Pace-O-Matic will allow a bar to have. The company doesn’t want any single location to morph into a gaming hall, and its bill would place limits on the number of machines in each establishment.

Other states grapple with games

Kentucky is not the only state confronted with how to handle the so-called skill games.

Pace-O-Matic’s machines have proliferated in Pennsylvania “in a legal and regulatory gray area” that puts them at odds with the state’s heavily regulated casinos, Spotlight PA reported last year.

Pace-O-Matic filed a lawsuit last year accusing the state’s casinos and gambling regulators of acting in cahoots to unfairly target their skill games.

The nonprofit news outlet also reported that the company funded a summer trip for Pennsylvania lawmakers to Wyoming, a state that has explicitly recognized its games as legal. The District of Columbia has also recognized and regulated the games, Barley said.

In Virginia, the games continue to operate because a judge in December paused enforcement of a state law banning them.

Meanwhile, Pace-O-Matic and Prominent Technologies seem eager to have their business model tested in Kentucky courts.

Pace-O-Matic last year sued the sheriff of Rowan County over a misdemeanor gambling charge leveled against one of the company’s operators. The company attempted to rope in Attorney General Cameron to the lawsuit by naming his office as a defendant.

Cameron, a leading candidate for the Republican nomination for governor, won an appellate court ruling allowing his office to be excused from the lawsuit. A spokeswoman for Cameron’s office didn’t reply to a request for comment.

Prominent Technologies, meanwhile, sued Franklin County over the county’s alleged denial of an occupational license for a business that wanted to operate Wildcat games. But the county granted the license, which stopped the lawsuit.

One of the attorneys for Prominent Technologies in the Franklin County lawsuit happens to be a member of the Republican leadership of the state House: Rep. Jason Nemes of Louisville, the House majority whip, according to court records. Nemes didn’t immediately return a call for comment.

‘You’re never going to undo it’

During last year’s legislative battle in Kentucky, it took significant “arm-twisting” just to advance a bill banning the machines from the House’s licensing and occupations committee, said former state Rep. Adam Koenig, who was chairman of the committee.

Koenig, who is no longer in office after losing his Republican primary, said the politics of addressing the gray machines only get thornier the more entrenched they become in Kentucky.

“The longer you let it go, you're never going to undo it at some point. We've seen that in other states,” Koenig told WDRB News. “… This is their M.O. They show up, start doing business, claim to everybody they’re legal and ask for forgiveness rather than permission.”

Some say the horse racing industry used the same playbook when, in 2011, it introduced machines that are nearly identical to slots, but in fact offer players the chance to bet on old horse races invisible to them.

Historical horse racing, now a multi-billion-dollar industry in Kentucky, was finally legalized in 2020 after a court ruling forced lawmakers to act on an issue that divides Republicans, the legislature’s controlling party.

But allies of the horse racing industry reject the comparison to gray games. They say the slot-like machines at facilities like Louisville’s Derby City Gaming always rested a firmer legal footing than the unregulated games Pace-O-Matic and Prominent Technologies are hawking now.

“I will oppose any effort to legalize this unique business model that is illegal,” Sen. Damon Thayer, the majority floor leader, said during a November hearing about the issue. “If you're operating a handful of these machines in the back room of your convenience store, you're operating an illegal casino. We do not need to be in the business of rewarding bad behavior.”

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