Battle for skill games in Kentucky heats up, and the opposition is murky

A group, Kentuckians Against Illegal Gambling (KAIG), has popped up to “protect Kentucky communities and families from the dangers of illegal, unregulated and untaxed gaming machines popping up across” the state.

Another, the Kentucky Merchants and Amusement Coalition (KY MAC), also launched a campaign to stop illegal gambling.

At first glance, it would seem the groups are seeking the same outcome. They’re not. 

While both purport to want to put a stop to illegal gaming, KAIG is opposing efforts to regulate and tax skill games, arcade-like machines where users can win payouts on games. KY MAC, meanwhile, is supporting new legislation to regulate such skill games, implement a taxation structure and provide for additional enforcement to crack down on illegal gambling. 

And with any competing interests, the arguments can get murky.

KAIG has launched a video warning of “a predator lurking in Kentucky,” that “destroys families and put kids at risk.”

The reference is to skill games, which their organization calls “gray machine gambling,” a reference to the “gray area” they purport such machines are operating under. 

The ad, chock full of scary rhetoric — it claims the games are “spreading like wildfire” and bringing “dangerous side effects” such as “violence, organized crime, money laundering” — leads viewers to believe skill games are, indeed, illegal. But that’s not necessarily the case. 

A legal opinion from Laura Holoubek, a business law expert largely viewed as the state’s preeminent gaming expert, finds that skill games are legal.

“Kentucky’s Constitution and Penal Code, case law, and Attorney General advisory opinions establish that, in order to be considered unlawful gaming, the element of chance must permeate a game. Stated otherwise, chance, rather than skill, must determine the outcome. If the exercise of skill is outcome-determinative, then the activity or device is not unlawful,” Holoubek wrote in her analysis.

She found the skill games indeed rely on skill, not chance, to determine whether a user wins. 

“Only with the exercise of skill may a player succeed while playing the Game,” Holoubek wrote, noting that even prior to game play, and before any purchased credits are committed, users are able to preview the puzzle and determine whether to proceed or move onto another puzzle deemed more likely to yield a winning outcome.

“Therefore, the initial decision to play the Game at all is the first of several skillful decisions that a player must make,” Holoubek adds. 

Yet KAIG nonetheless pitches the machines as not only unregulated, which is currently true, but illegal.

“These predatory machines are not located in established gaming facilities. They are not run by gaming professionals. And they are not monitored by state regulators like legally authorized gaming venues. Instead, they’re taking up shop in our corner convenience stores just down the street from our kids’ schools,” KAIG writes on its website, with a call to action to “help stop them.”

Additionally, in the last 24 hours, KAIG has scrubbed images of Pace-O-Matic’s Burning Barrel skill games from its website that, prior to the deletion, appeared to conflate skill games with illegal gambling machines. The scrubbing follows a January 19 cease and desist letter on behalf of Pace-O-Matic.

The letter claims inclusion of Pace-O-Matic-branded games wrongly tie the company and its skill games to claims of encouraging underage gambling, that machines are operated by the mafia and that they are “predatory” and “illegal.”

“This deletion is a very clear admission from KAIG that they knowingly lied about the legality of skill games in an attempt to mislead the people of Kentucky with false, negative scare tactics,” Pace-O-Matic spokesman Mike Barley told Southeast Politics in a statement.

While one could easily argue, as Holoubek has, that skill games are not illegal in Kentucky — as games of chance like slot machines are — KAIG’s claims that the games are unregulated are true. And there, both groups are seeking a similar outcome — to crack down on illegal games of chance.

KY MAC is pushing for legislation to implement regulations, impose taxation on the machines, and enhance enforcement on illegal games. 

“KY MAC is working closely with Kentucky lawmakers to pass legislation that would not only eliminate unregulated gaming operations, but also generate additional tax revenue for the state from legal skill games, KY MAC President Wes Jackson said in a press release when the group launched.

“As an organization, our goal is to support legitimate sources of entertainment, such as billiards and skill games, that inject money into the commonwealth. We are small business owners, we are community stewards, and we are Kentuckians against illegal gambling.”

The last part of Jackson’s statement an obvious dig on KAIG, his group contends the opposing group is “waging an outright war on small business by spreading misinformation in an effort to cut out any perceived competition,” according to an op-ed Jackson penned for the Courier-Journal. 

In the op-ed, Jackson claims the group is “putting all of their energy into running gambling operations full of historical horse racing machines,” seemingly attributing KAIG to “big-time gaming giant” Churchill Downs. 

Historical horse racing machines, or HHR machines, allow players to gamble on replays of horse races that have happened sometime in the past. According to the Courier-Journal, “some machines allow users to look at the horses’ odds and place specific types of wagers, while others are virtually indistinguishable from slot machines, allowing users to simply push a button every few seconds for each play.” 

Churchill Downs announced in September 2021 it was opening a casino-style HHR betting facility to downtown Louisville, a 43,000 square-foot facility called Derby City Gaming Downtown.

It’s worth noting that KAIG’s website makes no reference to HHR machines or Churchill Downs. 

Still, Jackson takes issue with the group’s assertions that skill games are rife for crime. 

“Let’s make a few things clear,” he wrote in the op-ed. “We are extremely diligent in making sure that only adults over the age of 21 play the games and have never had any problems related to enforcing age restrictions.”

“But the reality is that it is not about kids or illegal gambling — it’s about corporate greed. These big gaming entities want to squash any perceived competition, and they don’t care how many Kentucky businesses close as a result,” Jackson added. 

He said KY MAC has a membership of more than 250 Kentucky businesses across the state who are “committed to protecting Main Street Kentucky, even if it means taking on Goliath.”

The op-ed claims the presence of skill games at entertainment venues, bars and restaurants keeps “patrons entertained while producing passive revenue” and that “when people are playing the games, they are more likely to stay and buy food and beverages.”

KY MAC is working with lawmakers, who are currently on break from this year’s Legislative Session, on a draft bill to create a regulatory framework along with a 6% tax on the skill game machines, consistent with other types of entertainment taxes in the state. The bill will define what skill games are in statute and require easily identifiable stickers indicating approved games, which would allow easy enforcement by quickly identifying any devices that don’t contain the stickers. 

Under the draft bill, 10% of revenue from the taxation would be distributed to a Skill Act Enforcement Fund for use by Kentucky State Police and other law enforcement to enhance illegal gambling enforcement. 

Many of the state’s skill games are operated by the company Pace-O-Matic, which operates their Burning Barrel skill games in Kentucky. Pace-O-Matic also operates skill games in Virginia, where a similar battle is underway. 

There, Virginia House Majority Leader Terry Kilgore is working to re-implement regulations that were in place temporarily for skill games, including a taxation structure. 

The state has a complicated history with skill games (read more on that here), including a lawsuit allowing the games to continue operating in the state, prompting Pace-O-Matic to issue a statement pointing to revenue the state collected to support COVID-19 recovery during the temporary regulation period from July 2020 to July 2021.

“Without further regulation and additional taxation, taxpayers are missing out on nearly $100 million in tax revenue that could have gone toward critical projects along with curbing illegal games that are proliferating in Virginia communities,” Pace-O-Matic spokesman Barley said in a December statement. 

Virginia Gov. Ralph Northam estimates the taxes on skill games brought in upwards of $90-$100 million in revenue to support schools and small business grants during the pandemic, according WRIC ABC 8 News.

Efforts in Kentucky largely mirror those in Virginia. Kentucky lawmakers will reconvene in February when, KY MAC hopes, the draft bill will be introduced and be referred to committee. 

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