Pennsylvania court will decide whether skill game terminals are gambling machines

Pennsylvania’s highest court will decide whether the cash-paying electronic game terminals that have become commonplace in convenience stores, bars and elsewhere are unlicensed gambling machines and, as a result, must be shut down.

The state Supreme Court said this week that it will consider an appeal by the attorney general’s office of a lower-court decision that found that what are often called skill games are based on a player’s ability — and not solely on chance, like slot machines and other traditional gambling games.

For years, the state has maintained that the devices are unlicensed gambling machines that are operating illegally and subject to seizure by police. Machine makers, distributors and retailers contend they are legal, if unregulated, games that are not subject to state gambling control laws.

The high court’s decision to take the case is a significant development that could set rules for years to come regarding how the machines are treated under the law, said Jeffrey Rosenthal, a Blank Rome lawyer representing Parx Casino in suburban Philadelphia.

Pennsylvania’s courts and lawmakers have wrestled for years with the legality of the machines. Similar legal fights are playing out in Texas, Virginia and Kentucky.

The court is wading into the legal fight as lawmakers discuss regulating and taxing the devices as part of their closed-door negotiations to finalize an annual budget ahead of the July 1 start of the new fiscal year

The Pennsylvania Lottery and the state’s casino industry oppose skill games and say they are losing revenue to them. Casinos pay a roughly 54% tax on slot machine revenue and say that is an unfair burden when the proliferating skill games pay nothing.

A total number of the skill game terminals remains hard to pin down, although the American Gaming Association estimated there are at least 67,000 in Pennsylvania, more than any other state.

“Thousands of substantially similar devices are cropping up in corner stores and bars throughout the state,” Attorney General Michelle Henry’s office told the court in a brief.

The agency’s lawyers said courts, government and private parties are looking for “clear guidance on the application of the relevant Pennsylvania statutes. Only this court can provide it.”

The court said it will determine whether electronic slot machines are illegal games-of-chance gambling devices if they are manufactured with “a so-called ‘skill’ element that is almost entirely hidden from view and is almost impossible to complete,” and how the term slot machines should be defined.

Commonwealth Court Judge Lori Dumas wrote last year that the first stage in playing the games in question “may be analogous to the experience that a slot machine offers.” But, Dumas wrote, they also include a memory game feature that distinguishes them from the common definition of a slot machine.

The case began in Dauphin County in 2019, when investigators with the state police’s Bureau of Liquor Control Enforcement took the Pennsylvania Skill-branded machines from Champions Sports Bar in Highspire, a few miles south of Harrisburg.

No one was charged with a crime, but Champions was issued an administrative citation. The bar and Capital Vending Company Inc., which owns the machines, sued to get the machines and money back.

A county judge ruled the machines and $525 in cash had to be returned. Commonwealth Court upheld that decision.

Chris Carusone, a lawyer who represents Champions bar, said the machines are integral to the bar and restaurant business sector in Pennsylvania. “They were a lifeline for these businesses coming out of the pandemic,” Carusone said Thursday.

The games allow players to reverse losses by completing memory challenges, which the attorney general’s office has described as involving a minimal element of skill.

The office wrote that the “Follow Me” skill portion “requires quite the eagle eye even to detect this feature, let alone to understand it, let alone to win anything by playing it.”

Bills to ban or regulate skill games are pending in the Legislature, and the skill game industry is urging lawmakers to regulate the machines, at least in part to protect them from seizure.

“These bills show the future of skill games is a public policy debate for the General Assembly, and not for this Court,” the bar and vending company’s lawyers argued in a Supreme Court brief.