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Across the state of Pennsylvania, there are around 70,000 skill game machines. You’ll see them in gas stations and convenience stores, veterans’ clubs and bars, and in some restaurants. They are effectively hybrid games, fusing the randomness of slots play with an additional memory game that has long been argued as being a “skill,” thus causing some issues with the legal definition of the machines.
That changed this week, as the Pennsylvania Supreme Court ruled – after seven years of legal battles – that these machines meet the legal definition for slot machines. The court has given a 120-day non-enforcement ruling, meaning that the authorities can’t seize the machines until that period is up. More importantly, the 120-day grace period also gives PA lawmakers time to decide what to do about them.
Machines like to be subject to casino slot level taxes
The first and most likely consideration is taxation, with some believing that the machines should be brought in line with legal Pennsylvania casino online taxation for slot revenues, which comes in at 52% at the state level. The idea is said to be supported by Governor Josh Shapiro. Other lawmakers, including Republican state senators, have argued for lower thresholds, perhaps as low as 35%. The companies behind the machines, including Pace-O-Matic, obviously want to pay less.
So, how did we get here? You can empathize with companies like Pace-O-Matic to a degree. As mentioned, the machines operate on a hybrid format. The initial gameplay is broadly what you’d expect from slots, with a random outcome and no influence from the player’s side. But after a player loses, a second memory challenge game is introduced, where you can basically win your money back + an additional 5%. Operators vary in this approach, but that example is quite typical.
Cases have been rumbling through the courts for years
The memory challenge element was used as evidence when the legal battles first started in earnest in 2019, with courts initially agreeing that the skill factor could determine the ultimate outcome of the game. Operators of the machines successfully argued that the Pennsylvania Gaming Act did not apply to their machines.
Yet, this week, the Supreme Court issued a strong rebuke to the previous interpretation of the law. In fact, it effectively said that these are slot machines “several times over,” citing four key areas as differentiators: Pay money to play; receive outcomes involving an element of chance; can win money or something of value; play on an electronic machine that broadly resembles and functions like a slot.
Why is this important? Well, it obviously matters for the machine operators and locations that house them, as it will impact revenue. Yet, it is also an indicator more broadly for the casino gaming sector that “workarounds” probably don’t hold much truck with lawmakers.
There have long been legal arguments about skill games vs. luck games – blackjack is sometimes cited as the former, albeit not legally recognized as such – but regulators and, seemingly, the courts tend to lean toward the latter when definitions are blurred. It’s not only about tax, but you can appreciate how lawmakers will want to come down on the side that earns more revenues for the state.
- B.E. Delmer, Gambling911.com
