Terry Kilgore introduces bill to crack down on illegal game rooms, re-implement skill game regulation

Virginia House Majority Leader Terry Kilgore wants to crack down on illegal gambling in the state by re-implementing regulations that regulated and taxed skill games.

Unlike some gambling games that rely on chance, skill games can be won every time by utilizing, in most cases, memory retention, pattern recognition and hand-eye dexterity. Think of the old 90s game Simon, where a device plays a pattern on colored keys and the player must recreate the pattern.

Virginia has a storied recent history with skill games. Gov. Ralph Northam signed a law in 2020 allowing skill games in the state along with a series of regulations and a $1,200 monthly tax per machine, per month. But that temporary law expired in July 2021, leaving the games again banned in the state.

Skill game makers say that ban has led to an uptick in illegal gaming, most games of chance like slot machines. 

Kilgore is seeking to bring back regulations making skill games again legal in the state.

His bill (HB 2295), introduced on Wednesday, would tap the Virginia Alcoholic Beverage Control Authority (ABC) as the regulatory body. It would limit the location and number of games, including five at ABC-licensed locations and 10 at truck stops. Additionally, the bill would require players to be 21 years of age or older, monthly reporting of income, and a distributor-paid $1 million bond to ensure tax payments. 

The bill would re-implement the $1,200 per-terminal monthly tax, with 2% directed to a problem gaming treatment and support fund, 4% to the ABC for regulation oversight; 15% to local governments where games are located; 7% each to the Virginia Compensation Board to hire and train new assistant attorneys and for law enforcement; 4% to the Department of State Police for the creation of an illegal gaming enforcement unit; and 1% to the Virginia Attorney General for the creation of an illegal gaming crimes unit. The remaining 60% would go to the state’s general fund.

The bill also includes penalties and enforcement. That includes an up to $50,000 civil penalty for each gambling device located in an unregulated location and a provision allowing the Attorney General or a commonwealth attorney to seize games or money within devices to recover the civil penalty. Additionally, violators could face $25,000-$50,000 fines for violations related to placing more than the maximum allowable number of skill games in a regulated location or for placing games in unauthorized locations.

The bill would also require a skill game study looking at all electronic gaming by a joint committee of the Senate Committee on General Laws and Technology and the House Committee on General Laws. The joint committee would consist of 10 members, five each from the House and Senate committees. 

The study would include an overview of current games operating legally and illegally; current enforcement efforts; types of organizations and electronic games that should be regulated; regulatory framework and oversight needs to eliminate illegal gambling; licensing fees needed for legal operations; and regulatory and funding needs for strict enforcement. The bill calls for the joint committee meetings to conclude by Nov. 1, with a final report due by the first day of the 2024 Regular Session of the General Assembly.

Complicating gaming issues in the state currently, and prompting Kilgore’s bill, is a lawsuit filed following the expiration of the temporary regulations that had allowed skill games to operate legally in Virginia. 

Former NASCAR driver and small business owner Hermie Sadler won an injunction in December 2021 allowing games to continue operating in Virginia pending the outcome of his appeal to the ban. Last month, Greensville County Justice Louis R. Lerner extended the injunction, with a new trial date planned for this spring. During the injunction, however, the state has not been collecting tax revenue on legal skill games.

The skill game industry supports regulation and taxation.

Following the December ruling extending the gaming injunction, skill game industry leader Pace-O-Matic issued a statement pointing to revenue the state collected to support COVID-19 recovery during the temporary regulation period from July 2020 to July 2021.

Northam estimated 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. 

“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 Michael Barley said in the December statement.

He added, “if these games were important enough to support small businesses during COVID, they certainly are important now with the economic slowdown and should be allowed to continue operating in a regulated market today and in the future.”

It’s not clear whether Kilgore’s bill will find success in the General Assembly. As of the bill’s filing Wednesday, committee assignments are still pending. And the measure may receive pushback from casino operators who have argued skill games are unregulated and don’t pay a state-specific tax.

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