Loophole allows for growth of untaxed, unregulated gaming
-GAMES OF SKILL-
By Elizabeth Perry
Recently, Cory Smoke & More, Smoke Shop and Skilled Games in Coraopolis and Jackpotz in Kennedy Township opened their doors to the gaming public.
Critics say the skill game machines proliferating in neighborhoods all over Pittsburgh are unregulated gambling and should be banned, while advocates say they are legal forms of gaming that bolster local revenue.
“The games I think people love,” said Rebecca Taylor, who runs a shop called Colorful Cupboard, which sells Fiestaware two doors down from the new Cory Smoke & More business.
Sen. Wayne Fontana is on the state’s Community, Economic and Recreational Gaming Committee so he’s familiar with the issue. He lives in Brookline, and said a skilled games parlor has opened up in his neighborhood.
“It’s been controversial because I would say it’s a loophole in the law that allowed them to come out in a different way than being in a casino,” Fontana said. “I”m trying to keep an open mind to this, but my initial reaction is they’re out of control.”
Chance versus Skill
Games of chance – such as slot machines – are highly regulated by the Pennsylvania Gaming Control Board, and a portion of their profits are given to the state. This isn’t the case with skill games. Currently, they are unregulated and untaxed.
According to the Miele Amusements website, the company which manufactures “Pennsylvania Skill Games”:
“Gambling is composed of three elements: consideration, chance, and reward. A legal game of skill, like Pennsylvania Skill, has less than three elements of gambling. Plus, skill is needed to win. Legal games of skill are composed of consideration, skill, and reward.”
Theoretically, players have the opportunity to win based on their ability to play the game, while with slots, the player’s abilities cannot impact the outcome.
Richard McGarvey, a spokesperson for the PGCB, said there was a lot going on in the legislature and the court system involving skilled gaming.
“We regulate, we do not legislate, and we’ll do whatever the legislature says," McGarvey said.
Currently, the PGCB is embroiled in three lawsuits about skill games, including one with Pace-O-Matic, which “powers” Pennsylvania Games. The company uses the term “power” to mean they provide software for gaming terminals and partnered with Miele Manufacturing, formerly Miele Amusements, a Pennsylvania-based manufacturing company that has been in business since 1935. Pennsylvania Games is the major maker of skill game terminals in the state.
McGarvey was limited in what he could say regarding the issue but did say there were certain problems with skill games.
For one thing, McGarvey said, there is currently no independent testing of the machines.
“Every slot machine in PA has to be tested by the Pennsylvania Gaming Control Board or an independent lab,” McGarvey said.
There are no measures in place for players who may have a gambling problem, and though machines are said to include an age restriction measure to exclude underaged participants, the matter is not as strictly policed as it is in casinos, McGarvey said.
“In PA, if you go into a casino you get carded. There’s a bunch of protections in place for those types of things that don’t exist for skill games when checking for age,” McGarvey said.
Mike Barley, chief public affairs officer for Pace-O-Matic, said every skill game they produce operates off of credits the company controls. Barley said they can shut down machines that are non-compliant.
Profits are divided between the establishment housing the games, which receives 40% of revenue at no cost to them, the local operator maintaining the machines also acquires 40% of revenue and Pace-O-Matic collects 20% back with each machine, Barley said.
The payout comes from the operator of the machine and sometimes the establishment depending on their arrangement, Barley said.
“It means a huge difference to them – local businesses and fraternal organizations. These have been a lifesaver for these businesses to stay open,” Barley said.
There are internal rules surrounding the skill game machines, said Barley including an age requirement and also a limit on how many are allowed to be housed in the same business.
“We have a set of self-regulations that prevent our games from being mini-casinos,” Barley said.
Pace-O-Matic’s skill games were declared legal by an opinion rendered in December 2014 at the Beaver County Court of Common Pleas. Barley said the company had initially reached out to the Pennsylvania Bureau of Liquor Control Enforcement to get approval to sell their terminals.
Barley said the officials who tested out the game agreed they believed it was legal, but said, “you need to do this in court.”
Calls to the Pennsylvania Bureau of Liquor Control Enforcement were not returned by press time.
Pace-O-Matic arranged a “friendly pick-up,” Barley said. This is also stated in a lawsuit filed by Pace-O-Matic against the Pennsylvania Gaming Control Board and the Pennsylvania Bureau of Liquor Control Enforcement. McGarvey could not comment on the statement.
On Nov. 19, 2013, the PBLCE seized a Pace-O-Matic game from the Italian-American Club in Aliquippa, Beaver County, kicking off the legal challenge, according to the opinion. Pace-O-Matic sued, arguing their game machine play was based on skill, not chance.
According to the decision, the machines were legal gambling in the eyes of the law because theoretically, a player could win every time they play, based on their ability to solve puzzles.
“The state never appealed that ruling and that’s how we started in Pennsylvania,” Barley said.
Pace-O-Matic began in Wyoming, and also “powered” terminals there under the name Cowboy Games. Its corporate headquarters are in Georgia. The games are regulated and taxed in both of those states. According to the Wyoming Gaming Commission, skilled games generated $4.8 million in revenues for the state in 2021.
In 2015, Pace-O-Matic partnered with Miele Manufacturing to develop Pennsylvania Skill, the brand name for the skill game they produce, said Lou Miele, CEO and Owner of Miele Manufacturing. Miele Manufacturing is based in Muncy, Pennsylvania, and the manufacture of these games has been a boon to the area, Miele said.
“This business has created over 140 family-sustaining jobs in the Muncy area where the Miele Group is headquartered,” said Miele.
Miele Manufacturing is paid for the creation of skilled gaming terminals, but they do not receive a portion of gaming proceeds.
Barley said the company wants to be regulated and taxed on the 18,000 Pace-O-Matic machines currently operating in the state of Pennsylvania. Miele also supports legislation and taxes on the games manufactured by his company.
“There are conversations going on. We’re much closer to regulating skill games and I don’t think there’s an appetite to get rid of them,” Barley said.
Sen. Gene Yaw, who represents Pennsylvanians in the 23rd District which serves Butler, Bradford, Tioga and Union Counties, has proposed legislation in the past to begin regulating and taxing skill games. Yaw said via email the issue was important to stamp out illegal gaming and to begin gathering tax revenue for the state.
“Along with regulation and taxation, there also would be enforcement. We will make sure games that are not legal are shut down. We should not have mini-casinos of illegal games popping up around the commonwealth. No community wants that,” Yaw said via email.
Fontana said if skill game companies partner with the state, it may not be worth it to them financially with additional tax and oversight.
Casino owners are nervous about skill games and would prefer they were outlawed, Fontana said. In Pennsylvania in 2022, legal casino gambling generated $5.2 billion dollars in revenue overall and slot machine revenue was nearly $2.4 billion dollars, according to the Pennsylvania Gaming Control Board.
Video Game Terminals
In 2017, legal gaming was expanded throughout the commonwealth specifically allowing for Video Gaming Terminals to be allowed in truck stops. The terminals are legally distinct from skill games because they are games of chance. They’re highly regulated, and a portion of the money collected by them goes back to the state.
“You have to get licensed by the Gambling Control Board,” McGarvey said.
According to McGarvey, Video Gaming Terminals are permitted five per facility at designated truck stops. Establishments also have to sell diesel fuel, have a certain number of parking spots, and limit payouts to $1,000.
“I was an advocate of VGT’s being in bars,” Fontana said.
Fontana said he would also be in favor of skill games for small businesses, but only with the proper legislation.
“It’s an expansion of gaming. That’s why there may be hearings on this,” Fontana said.