Published: June 12, 2018

Unregulated gambling finds a corner in the corner store (and bar, and lots of other places, too)

Unregulated gambling finds a corner in the corner store (and bar, and lots of other places, too) Skill Games in Pa. They're called "games of skill." 

That's a complicated call, however, as the skill may be as basic as figuring out where to complete a tic-tac-toe line.

Pretty basic, right? Except in this case, the machine - unlike when you were dueling wits with Grandpa - first sets the entire game up for your single move. And you're trying to match "lucky fruit," as opposed to Xs and Os.

What's more certain is these games are becoming the very street-corner catnip to bettors that some lawmakers spent months trying to stave off in Pennsylvania's controversial 2017 gambling expansion package.

They are, quite literally, popping up like dandelions now at convenience stores, gas stations and sub shops on the main streets in Pennsylvania's towns, or the secondary roads that corporate chains long ago abandoned for the busiest corners in the area.

(Side note: The state's major convenience store chains have eschewed the skill games to this point. They are, as an industry, looking at the 2017 law change to see what opportunities it has created for them.)

In a handful of cases, whole rooms of the machines have been opened as de facto mini-casinos, like the "Route 21 Jackpots" room in Fayette County that opened in 2015.

Marketed under the flag of a 2014 court decision in Beaver County, these games are played outside the auspices of any state regulatory agency and they aren't subject to the state's 34 percent slots tax.

Critics say that creates an unregulated "Wild West" situation for bettors who don't have strict state rules to guide their play. It also undercuts the public purposes of state-sanctioned games like the Lottery or non-profits' small games of chance.

"We have heard from our sales team that some businesses have declined selling monitor games (like Keno) because they have "skill" machines," Pennsylvania Lottery spokesman Gary Miller said Monday.

Though no formal analysis has been completed to date, there is also a concern, Miller continued, that at the roughly 1,000 lottery retailers' who have installed the "skill" games, there may be some erosion of sales.

"Customers do confuse these illegal, unregulated machines with legitimate Lottery machines," he said.

One doesn't have to prod very hard to get an argument, the court rulings notwithstanding, over the machines' legality.

"We still feel that the machines are illegal," Major Scott Miller, director of the Pennsylvania State Police Bureau of Liquor Enforcement, said in a recent interview with PennLive.

LCE agents are monitoring the machines, he says, in the bars and clubs where they have liquor code jurisdiction, and occasionally launch new cases in the hopes of getting more legal clarity about their place in Pennsylvania's ever-expanding gambling spectrum.

The state's 2017 gambling expansion law contained a broadened definition of slot machines that included the games of skill, which some state officials interpret as making them legal only in licensed casinos.

But to date, Pennsylvania Gaming Control Board spokesman Doug Harbach says his agency has not dealt with these machines because no casino has sought to have them approved for play.

That leaves gray area.

And in the interim, skill games producers are working hard to fill the void.

The most public-facing of them is Georgia-based Pace-O-Matic, which developed the "Pennsylvania Skill" game approved in the Beaver County case.

(A second case out of Bucks County also led to a 2-1 Superior Court decision for a different skill game, called "Red, White and Blue."

In that case, state Judges Paula Francisco Ott and Mary Jane Bowes cited testimony from the owner of the machines who said that, with practice, a player could push buttons at just the right moment to stop the reels of a slots-like machine to win the games.)

Because of that skill component, these judges have found, these specific machines can not be deemed gambling devices per se.

That makes them different from, for example, the video poker games or slots machines in the back rooms of some private clubs and bars that police have battled for years. 

Pace-O-Matic notes none of its machines have been targeted in a police raid since that December 2014 decision, and - while not subject to the gaming taxes - it did pay $2.3 million in corporate taxes last year.

"We do pay taxes on everything we do," Director of Compliance and Government Affairs Jeff McGinness said.

Secondly, while the company tries to self-regulate now - it encourages its hosts to check players' ages, just like they would for the sale of cigarettes, and it refuses to lease more than five machines to a room - it is open to additional state regulation going forward, McGinness said.

Because Pace-O-Matic does not consider its product a gaming device, McGinness added, he believes that regulation should come through the state Department of Agriculture, which regulates carnival and fair games, or Revenue, which handles small games of chance.

Until that time, Pace-O-Matic believes it is filling an important need in "helping clubs, taverns and other locations get more people in the door, and helping their businesses to grow," McGinness said.

Despite the early legal wins, on the streets there's a palpable level of nervousness about these games.

A reporter approached a woman playing "Pennsylvania Skill" in a Carlisle convenience store on a recent Thursday, about 8 p.m., and asked if she'd like to give a player's perspective on why she likes to play the games.

She declined, indicating she didn't have the time.

On a return trip to the same store about midnight, the same customer was seated at the same machine, playing away. She again declined an interview.

One Harrisburg-area business owner gave us his take on the machines, but only if his name and the name of his business was left out of the story because of his own uncertainty about their legality.

He currently has two games, he said, both of which draw regular play from customers at 40 cents a play.

Under the deal he has with his distributor, the owner said, he agrees to host the machines and cover any related electricity costs.

Winning bettors bring payout slips to a cashier for redemption. At each collection period, the business is reimbursed for prizes paid, and the rest of the "winnings" from the machine are split.

In his case, the owner said, the split is 40 percent to the bar, 40 percent to the distributor and 20 percent to game's manufacturer.

Payout rates can't be set like a slot machines, the business owner explained, but because the puzzles the machines set are of varying degrees of difficulty, he's been told the average win for the house is about 10 percent.

Profits are kept in a segregated account, in part to innoculate the business from any potential legal problems over the skill games. The owner reports his split as separate income for tax purposes.

Generally, he said, the machines make more than the typical video game or pinball machine, except for one case where a player hit the maximum jackpot of $5,000. That created a couple of months where he was actually forfeited his share to the distributor, who had covered the extraordinary prize.

He's liked having the games in, the owner said, because the return for the space is higher than other machines, and when someone wins it can translate into nice tips for his employees.

The only thing that bothers him, he said, is the legal uncertainty.

That same uncertainty has already caused some other sites to walk away.

New Holland American Legion installed the "Pennsylvania Skill" game in 2016, and found player interest so high that they soon ordered a second. The club was taking in, in good weeks, as much as $2,500, according to Steward Karen Bowers.

So far, so good.

But then the Lancaster County post's leaders came back from a seminar in Harrisburg with warnings from state legion leaders that the machines' legality was still in question, and they could face liquor license enforcement actions.

That, Bowers said, caused the post's leaders to do some re-evaluation and they decided to pull the skill games.

There were two major reasons:

First, the licensing concerns. "Liquor is my business," Bowers said. "Therefore, we were very concerned about that."

Second, the books were showing dollars fed into the skill games were dollars lost from the club's existing small games of chance, 60 percent of the proceeds of which are required by law to go to community charities.

At New Holland, Bowers recalled this week, small games of chance sales had dipped by as much as 50 percent.

The machines were taken out last summer, and the small games business came back.

"We decided that is was better to have our people gamble with the small games of chance where we make the money and we can give that money where we want to in the community," Bowers said.

It's hard to get a read on how many of the skill games are out there now, in part because of the lack of regulation or enforcement.

They're not real hard to find, however.

In Harrisburg, a convenience store a block away from the Capitol had the games even as lawmakers were battling over, and decided against, video gaming terminal in bars and taverns.

In Carlisle, a town that just refused a push by Greenwood Gaming & Entertainment to develop one of the new Category IV casinos, there are at least eight machines at three different convenience store locations.

PSP'S Miller, for one, worries the market is reaching a tipping point where liquor licensees feel they have to install the machines because everybody else - even gas stations - has them.

Bowers, at the New Holland Legion post, can relate.

"We feel better not having them here," she told PennLive. "But then I have all these people who are just popping up around me, and they can do whatever they want."

She points to a gas station in nearby Narvon where she claims there are at least five of the machines in play. "What kind of a fine is he going to get?" Bowers wonders. "He doesn't have a liquor license.

"Now, we have, basically, slot machines everywhere."

The gamble within the game here is, how long can this go on?

The Beaver County decision Pace-O-Matic won and many of its competitors have relied on found, in the specific case of "Pennsylvania Skill," "the player exercises control over the game, and is not at the mercy of getting a lucky hand."

But state police and other law enforcement don't consider that settled law just yet, and are pushing for other court tests.

A check of Liquor Control Enforcement actions from the past six months found two cases in which bars or private clubs with versions of the "skill games" were cited for gambling violations.

In both of those, involving "PA Games of Skill" and "Superior Skill Games" brands, respectively, bar operators essentially pleaded guilty to a licensing violation and agreed to pay fines of $550 and $750.

Lawmakers banking on taxes from the new mini-casinos to igames on smart phones and laptops to, now, legal sports betting, aren't real happy about the growth of this untaxed market either.

Sen. Mario Scavello, a Monroe County Republican who chairs the Senate's Community, Economic and Recreational Development Committee, says he's bothered by the payouts.

After all, in the 1980s, Scavello noted, there were players of first-generation video games like Pac-Man, Defender or Asteroids who were more skilled than others - but they didn't get a payout.

He's considering legislation that would bar cash or prize pay-outs, unless the machines are within the confines of a state-licensed casino.

Skill game manufacturers, who see themselves more like the "quarter-pusher" games that pop up at summer fairs and carnivals, say if the legislature goes that far, it risks destroying many more games in the process.

Place your bets, now, if you want.

It looks like the action on "skill games" is only starting to heat up.

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