PA’s Skill Games Saga Ends With Outlawed Gambling Machines Removed … For Now

By Peter Hall | Pennsylvania Capital-Star

Pennsylvania’s skill game industry grew for more than a decade in a legal gray area where courts said the commonwealth’s gambling laws couldn’t touch them. 

That changed earlier this year, when the state Supreme Court said the estimated 70,000 skill game machines in small businesses and private clubs across the state were, in fact, unlicensed slot machines and therefore illegal.

Now, those machines sit unplugged and dark, awaiting transfer to storage and an uncertain fate, after state lawmakers were unable to reach a compromise to tax and regulate the industry before the high court’s ruling took effect Oct. 14.

The General Assembly’s inaction, with only five days left in the current session, means a multi-billion dollar revenue stream for thousands of businesses and organizations, such as volunteer fire companies, will disappear, at least temporarily.

While some lawmakers and members of the public held negative sentiments about skill games, citing the expansion of gambling and the associated societal ills, most people favored legalization, according to the Franklin and Marshall College Poll in June. 

More than seven out of 10 people who responded said they were in favor of regulating and taxing skill games, up from 60 percent in February 2024.

“There was generally public support for this idea of fixing this problem,” Berwood A. Yost, director of the Center for Opinion Research at F&M, said. 

He added that even if the notion of legalizing skill games had been unpopular, lawmakers had cover from the Supreme Court. In its opinion, the justices noted the General Assembly “has spoken clearly,” by amending the state Gaming Act in 2017 to make clear that skill games are legally indistinguishable from slot machines.

“If interested parties find the application of the General Assembly’s laws to be undesirable, the proper remedy lies with the same legislative body that wrote those laws,” Justice David Wecht wrote for the court.

Those interested parties showed up at the Capitol by thousands, loudly stating what was at stake for skill game operators and their communities. 

At an Oct. 6 rally on the Capitol steps, Delaware County tavern owner Joe McGee said the skill games in his bars have helped him improve his business and support the local volunteer fire companies and youth baseball programs while keeping the price of a Miller Lite at $3 or $4.

“All we want is sensible regulation, and we need it now. We can’t wait. We can’t wait till next year,” McGee said, flanked by hundreds of fellow business owners and lawmakers.

So why hasn’t the legislature been able to pass legislation on skill games?

“I don’t think anyone can explain why certain things get done and others don’t in the legislature,” Yost said, adding that the seemingly straightforward task masked layers of ideological complexity even within the same caucus.

He noted Republicans, who control the Senate, are generally loath to increase the size of government by creating new revenue streams, but at the same time are pro-small business and might balk at anything that would harm them.

“Our divided government has kind of led to policy moderation and that means some things that have a lot of support don’t happen because it runs up against something that one of the parties is opposed to,” Yost said. He noted broadly popular initiatives such as privatizing liquor sales and school choice have failed because of partisan ideology. 

State Sen. Camera Bartolotta (R-Washington) said that while she sees the value of skill games to businesses and community organizations, she opposed Gov. Josh Shapiro’s plan to direct much of the revenue from a proposed tax to mass transit, which more heavily benefits large urban areas than her rural district. 

“I’m not going to look my constituents in the eye when they don’t have public transportation and say, ‘We’re going to ship it all to this place where it doesn’t help you,’” said Bartolotta, who was one of the Republican incumbents targeted by skill game interests in this year’s primary.

Spokespeople for Senate Majority Leader Joe Pittman (R-Indiana) and House Majority Leader Matt Bradford (D-Montgomery) did not return messages from the Capital-Star requesting interviews. 

Yost added that the skill game issue is unique because of the way the industry grew upon shaky legal footings.

“I can’t remember anything analogous to this,” he said. 

The history of skill games in Pennsylvania

The company that would become the predominant force behind skill gaming sought to legitimize gambling in spaces where illicit video poker operations had lurked for decades.  

In 2013, Georgia-based Pace-O-Matic (POM) arranged for Pennsylvania State Police to seize one of the earliest skill game machines at the American Italian Club in Aliquippa, Beaver County, according to the company’s website.

After examining the machine, Beaver County Common Pleas Judge Harry Knafelc ruled in 2014 that winning a series of puzzles and memory games was based predominantly on skill. For that reason, the judge ruled, the machine was distinct from a slot machine and “a gambling device per se.”

Neither county prosecutors nor the state attorney general’s office, then led by Attorney General Kathleen Kane, challenged the ruling, and a legal path for skill games was blazed.

Since the 2014 ruling, POM has won five rulings in favor of the machines’ legality, including the 2023 Commonwealth Court ruling that the Supreme Court overturned this year.

Pennsylvania’s casinos launched following the 2004 passage of the Horse Racing Development and Gaming Act. State lawmakers spent years debating how to regulate and tax it to support horse racing and tax relief.

While one owner surrendered his license after being charged with lying to regulators about his ties to a Scranton organized crime family, the casino business grew over two decades into a $7 billion industry with nearly every flavor of gambling in 17 casinos, truck stops and online.

Skill gaming grew too, and while there are no official numbers on its size, Gov. Josh Shapiro’s proposal to tax the industry put the potential new revenue at $2 billion with a 52% levy on gross revenue, allowing an inference that the industry generates in excess of $4 billion annually.

As skill games became increasingly popular with players and business owners, who shared in the revenue, others in the legal gaming business took notice and pushed back. In addition to casinos, which lobbied heavily against plans to legalize skill games, the Pennsylvania Lottery claimed in 2019 that skill games cost it $138 million in sales. 

Lawmakers were divided over the situation. Former state Sen. Tommy Tomlinson introduced a bill that year that would make “a criminal offense for anyone to knowingly make, assemble, maintain, lease or sell Games of Skill.” It was the first of several bills to simply outlaw the devices.

Sen. Gene Yaw (R-Lycoming) introduced his first legislation to regulate and tax skill games in 2023, with a proposal to require annual licensing fees of $1 million for distributors, $25,000 for operators and $250 for individual establishments. It was estimated to bring in about $300 million in tax revenue.

Yaw’s district includes Miele Manufacturing, which makes the physical machines. He did not respond to a request for comment.

Yaw and other lawmakers have since floated legislation to tax skill games at different rates. 

Senate leaders endorsed a plan to tax skill games at 35%. Sen. Gene Yaw (R-Lycoming), whose district includes skill game maker Miele Manufacturing, sponsored competing legislation to tax the machines at 16%. Yaw and Sen. Anthony Williams (D-Philadelphia) also introduced a bill to impose a monthly fee of $500 per machine.

Casino slot machines and video gaming terminals are taxed between 34% and 54% depending on the category of casino. While lawmakers broadly agreed that they needed to act before the Oct 14 deadline, no action was taken. 

Four lawmakers, Yaw and Sen. Anthony Williams (D-Philadelphia) and Reps. Danilo Burgos (D-Philadelphia) and Jonathan Fritz (R-Wayne) filed an emergency petition asking the court to extend the deadline to give the legislature more time to work

The petition was later withdrawn and subsequently refiled without Burgos’ name. That was a result of pressure from Bradford, who said support for Burgos’ legislative proposal by rank and file lawmakers undermined the leadership, SpotlightPA reported.

Ultimately, the court rejected the request without comment and the deadline passed without action.

Jonathan Caulkins, professor of operations research and public policy at Carnegie Mellon University, said he wouldn’t view the inaction as a failure on the part of the legislature.

He noted in a commentary for The Conversation that was published by the Capital-Star earlier this month that the focus on taxing skill games overlooks the bigger picture of whether gambling should be freely and widely available.

“One could argue that the error was in the earlier legislation that left it ambiguous as to whether skill games were actually gambling devices, or that the courts took so long to clarify that they are,” Caulkins said in an email.  

Even if the legislature’s inaction resulting in skill games being removed from their places around the commonwealth represents a policy decision, Lehigh University political science professor Chris Borick said, simply letting the deadline pass is neither orderly nor decisive.

“I guess if you don’t want these things in the state, I guess you won, but they can come back,” he said. “There’s a lot of opportunity cost for the state and there’s a lot of things that could have been resolved in a more efficient way and that to me suggests that a different policy could have been more productive.”

While the situation appears complex, Borick said the question before the legislature is simple. 

“This is one of those situations that I view as the pursuit of the perfect at the expense of the good,” he said. “A good spot for most Pennsylvanians is a compromise on regulation and taxation that lets businesses keep some of the revenue. That shouldn’t be an unattainable goal.”

Pennsylvania Capital-Star is part of States Newsroom, a nonprofit news network supported by grants and a coalition of donors as a 501c(3) public charity. Pennsylvania Capital-Star maintains editorial independence. Contact Editor Tim Lambert for questions: info@penncapital-star.com.