As customers rush in and out of Quick N Easy on a chilly January afternoon, one man lingers. Past the West Broad Street convenience store’s stocked shelves, he sits at a stool and peers into a touch-screen game terminal at the shop’s rear corner, his face illuminated by the flashing images.
The 52-year-old identifies himself as Chris, but he declines to share his last name. “I’m playing these, but somebody doesn’t need to know that I’m playing them,” he says while scrolling through themed games with names such as “Living Large,” “Lucky Fruit” and “Bombs and Bombshells.” Each brings its own colorful spin on a nine-tile puzzle board at the center of the screen.
Ever since he discovered one of the devices at a local convenience store, Chris says he’s made it a daily ritual to spend an hour or two trying his luck and proudly notes that he once left Roy’s Express Mart on Staples Mill Road $800 richer after winning big on one of the machines there.
“You sort of feel like you’re in Vegas a little bit. I’ve always liked gambling,” he says. “I just sort of happened by them one day. I didn’t even know they were in the state of Virginia. They’re very addictive.”
And when his luck isn’t so hot? “I’ve easily lost $1,200 or $1,300,” he says.
The terminals are commonly known as skill machines or gray machines because they’ve operated in the uncertain area between legal and illegal gambling. For the average player, they’re strikingly similar to slot machines. Despite their tenuous status, the games have quickly become staples in Virginia’s convenience stores, restaurants, bars and truck stops — though their days may be numbered.
The proliferation of so-called skill machines during the past two years — coinciding with the advent of historical horse race betting at Colonial Downs and satellite locations of Rosie’s Gaming Emporium on terminals that also resemble slot machines — prompted a flurry of bills at the start of this year’s General Assembly session. Legislators filed measures to ban the skill machines or allow them to remain with imposed regulations and state taxes. House Bill 881 and Senate Bill 971 — both would ban skill machines outright — have passed in their respective legislative chambers, but lawmakers will need to settle differences between the two measures before they can be sent to Gov. Ralph Northam’s desk for final consideration.
Virginia isn’t alone — the machines’ legality and how they should be regulated are also being questioned by Pennsylvania lawmakers and the Washington, D.C., City Council.
In the event that skill machines aren’t banned outright, Richmond City Council would favor allocating a portion of the gaming profits to the localities in which they’re collected. Regardless of what happens with the skill machines, pending legislation to allow casinos, sports betting and online lottery ticket sales means the floodgates may be opening to new forms of gambling in the commonwealth.
Kevin Anderson, director of compliance for Queen of Virginia, with one of the company’s terminals at Capital Ale House on East Main Street (Photo by Jay Paul)
‘They’ve Kind of Exploded’
Virginia Lottery Executive Director Kevin Hall says the prevalence of skill machines in convenience stores has “cannibalized” lottery sales. If the machines continue operating in the state without regulation, he estimates nearly $140 million in decreased revenue during the fiscal year ending in June, or a net loss of $40 million in profits that would otherwise fund K-12 programs. Since 1999, Virginia Lottery profits have been appropriated to K-12 education by the state legislature, generating nearly $10 billion for various public school programs.
Hall says his staff counted 6,200 skill machines at lottery-licensed convenience stores around the state as of late January. By including businesses that don’t sell lottery tickets, however, he says the total could be closer to 12,000.
“They’ve kind of exploded, and again, we’re just counting retail locations where we conduct our business. I’m not counting restaurants, bars, arcades and vape shops,” Hall says of the 6,200 tally. “I am told that there are an equal number in those locations.”
Though other companies operate skill machines around the state, Richmond-based Queen of Virginia Skill & Entertainment has emerged as a front-runner in that field. Since entering the state in fall 2017, the company has placed more than 500 of its cash-only machines at Virginia ABC-licensed businesses in the Richmond area and over 7,000 across the state, says Kevin Anderson, Queen of Virginia’s compliance director.
The company lobbied state lawmakers to regulate the skill machines rather than force their removal, but it appears Queen of Virginia’s luck may have run out — for now. As of early February, the House of Delegates had passed House Bill 881, a measure introduced by Del. David Bulova (D-Fairfax) to outlaw the games.
Mike Barley, the company’s director of communications, expressed disappointment about the Senate committee’s decision in a released statement that indicated Queen of Virginia will continue to work with the legislature and Gov. Ralph Northam’s administration to regulate and tax the skill game industry. In response to a follow-up question, Queen of Virginia lobbyist Tom Lisk says that if a ban is enacted, the company will review all of its options, including possible legal challenges.
According to a study commissioned by the company, skill machines would generate over $300 million in recurring revenue to the state each year if taxed, Barley says.
“Make no mistake about it, a ban on skill games will result in significant job loss in the restaurant, bar and convenience store industry and puts countless small businesses in jeopardy of closing,” he says in the statement. “The skill game industry impacts thousands of Virginia small businesses, and a ban will hurt many in the commonwealth.”
Businesses that host Queen of Virginia’s games get a 40% cut of the revenue they bring in, while the remaining profits are split between its parent company, Pace-O-Matic, and third-party operators that are responsible for installing and servicing the machines, Anderson says.
Before the General Assembly took up the issue, the legality of skill games was left up to local commonwealth’s attorneys’ offices around the state, but Charlottesville Commonwealth’s Attorney Joseph Platania was the only one to bar them. Queen of Virginia voluntarily removed its machines from the city and sued Platania in Charlottesville Circuit Court.
In Danville, local authorities require that businesses seeking to install the machines secure a special-use permit from the city, according to city spokesman Arnold Hendrix.
A Question of Skill
Proponents say the key legal distinction between the so-called skill games and slot machines is whether the programming requires players to employ skill rather than determining payouts purely by chance.
How demanding is the skill element that has allowed the machines to skirt Virginia’s gambling laws? Queen of Virginia uses proprietary software developed by Georgia-based Pace-O-Matic, featuring a tic-tac-toe-style game on a three-by-three grid of tiles. If two matching symbols line up, the player just needs to tap on a third adjoining blank space to complete the row and win. Players can wager between 40 cents and $4 at Queen of Virginia games — the higher the bet, the bigger the potential jackpot.
Players can preview the next tile set to check whether it’s a potential winner before playing, and if it isn’t, they can increase their bet to try a new tile set. They also can choose to play a secondary “Simon Says” game on the machines that asks players to remember and replicate simple patterns.
Anderson claims that users who opt to play the secondary game can guarantee a 105% return on their bet with every spin. He also argues that the machines can be a shot in the arm for otherwise struggling businesses.
Maria Sanzone, a manager at Carini Italian Restaurant in eastern Henrico County, agrees. She says she’s seen customers using the Queen of Virginia machines regularly since they were installed in the restaurant last summer, making it more likely they’ll buy food and drinks once they’re done playing.
“Even if the profit isn’t a lot, these people are still coming in,” she says. “They might be spending money here and [at the machines], which is a good thing. But at the end of the day, people are happy with it, and we’ve kept it.”
Carolyn Hawley, president of the Virginia Council on Problem Gambling, cautions that the careful branding of the machines as being “skill-based” can be a dangerous lure for those with tendencies toward gambling addiction.
“The actual level of skill involved in these games is pretty minimal, and [that] can lead to some erroneous beliefs in regard to illusion of control that players have over a game,” she says. “They may be developing sensations and behaviors leading to a gambling problem, but we’re saying it’s not gambling. So then, instead of our being able to intervene early … people can’t get resources.”
A rendering of the $350 million casino and resort proposed by the Pamunkey Indian Tribe on Richmond’s South Side (Image courtesy Pamunkey Indian Tribe)
Virginia Is for Gamblers
As lawmakers moved toward banning the skill games operated by Queen of Virginia, proposals to allow casinos in the state gained traction.
In January, the Pamunkey Indian Tribe announced plans to open a $350 million casino and resort on Richmond’s South Side that would include a four-diamond, 275-room hotel tower, a high-end steak and seafood restaurant, and a 1,000-space parking garage. The tribe expects the casino to attract 4 million visitors annually and create more than 1,000 construction jobs and 1,500 ongoing full-time jobs.
The Richmond casino project is unique, in that it could happen with or without the General Assembly’s approval. The Pamunkeys’ federal recognition allows them to pursue a casino in the city under the Indian Gaming Regulatory Act because Richmond is included in the territory where the tribe historically traded, hunted and lived.
The Pamunkey tribe also aims to open a casino in Norfolk, though that project is contingent upon the General Assembly’s approval of casino legislation because of an agreement with Norfolk’s City Council, tribe spokesman Jay Smith says.
“This is a way for them to do economic development [so] they can use that money for things like better health care, workforce training, educational opportunities, housing for their seniors,” Smith says. “The tribe has all these different needs … and a casino would allow them to have the resources to do those things.”
The General Assembly passed a bill in 2019 to allow casinos in Richmond, Bristol, Danville, Norfolk and Portsmouth, but the bill had a reenactment clause, meaning it would need to be passed again this year before taking effect. Bills allowing casinos in those cities have been adopted by the House and Senate, but committees will need to consolidate the measures before they can be considered by the governor.
A report on gaming from the state’s Joint Legislative Audit and Review Commission (JLARC) found that casinos in those localities would annually generate approximately $970 million in net gaming revenue, resulting in about $260 million in state gaming taxes each year, and said the state could impose a 27% tax rate on the casino earnings.
The JLARC study, commissioned by the General Assembly, also recommended a competitive selection process for casino operators. In February, Richmond City Council also endorsed a selection process by which the city would be able to choose its casino operator to ensure that it can get the most advantageous local revenue and licensing agreement.
The Pamunkey tribe will decide whether to pursue its Richmond casino project through the federal route or a pathway created by the state pending the outcome of the legislative session, Smith says.
Del. Lamont Bagby (D-Henrico) talks at a House subcommittee meeting about legislation he introduced to regulate and tax skill machines, as Queen of Virginia supporters watch. (Photo by Jay Paul)
Not So Fast, Some Say
Despite its revenue-generating potential, casino gaming in Virginia has raised concerns within the state’s horse racing industry.
Debbie Easter, president of the Virginia Equine Alliance and executive director of the Virginia Thoroughbred Association, says the racing industry surged back to life last year with the revival of Colonial Downs racetrack in New Kent County. The return of Colonial Downs was aided by the General Assembly’s decision in 2018 to legalize historical horse racing (HHR) machines, which allow players to place bets on past horse races. Colonial Downs’ parent company, Peninsula Pacific Entertainment, has since opened four Rosie’s gaming parlors in Virginia, including one in Richmond’s South Side, and it currently has 2,150 machines in operation.
Easter points to the JLARC study, which found that profits from historical horse racing could take a 45% nosedive if casinos are approved.
“Obviously, casinos and other forms of gambling are probably inevitable in Virginia, but what we hope is that legislators … can take a look at the best way to add these other forms of gaming into Virginia without hurting something that’s already there,” she says. “All the great things that the 2018 legislature did for the horse industry [could] go backwards.”
If the state approves casinos, Colonial Downs Chief Operating Officer Aaron Gomes says in an emailed statement, he supports a competitive bid process “that gives consideration for partners with proven track records and a material investment in Virginia.” Gomes adds, “Peninsula Pacific Entertainment has demonstrated our capabilities and commitment in Virginia over the past year by opening four extremely successful gaming operations, including one in the city of Richmond, that already provide millions of dollars in tax revenues while creating over 1,000 new jobs.”
In its first six months, Colonial Downs says it generated $5.9 million in state tax revenue across its Rosie’s locations and the New Kent racetrack. A study by George Mason University public policy professor Terry Clower shows that Colonial Downs and Rosie’s will account for 4,232 new jobs in 2020 and generate $26.1 million in annual state tax revenue, as well as $17.9 million in new revenues for the host localities.
While Queen of Virginia fights to keep its terminals in place, a coalition of slot machine operators is eyeing the commonwealth with hopes to put its machines in restaurants and bars. Represented by Richmond lawyer Stephen Baril, the five slot companies have backed legislation introduced by Sen. Jeremy McPike (D-Prince William) that would have legalized both games of skill and chance. Though that bill was tabled, Baril says the companies hope to reintroduce similar legislation next year
With Virginia seemingly poised to welcome new forms of gambling, some lawmakers questioned the repercussions.
“I am concerned about the convergence of casino gaming, gray machines, pari-mutuel betting, Rosie’s — all of this coming together at one time in a convergence in a very short period of time — and what the impact is going to be,” Sen. Tommy Norment (R-James City) said at a February meeting of the Senate Finance and Appropriations Committee. “I cannot believe that all of these are going to be harmonious in the marketplace.”
A Numbers Game
- A study commissioned by the General Assembly found that casinos in Richmond, Norfolk, Danville, Bristol and Portsmouth would yield about $260 million in annual state gaming taxes.
- Virginia casinos would likely open about four years after legislation authorizing them passes.
- If casinos are made legal, competition would cause revenues from historical horse racing machines to drop by 45%, the study estimates.
- The study also found that sports betting could generate up to $55 million in annual state gaming tax revenue, and online casino gaming could generate about $84 million each year.
Source: Joint Legislative Audit and Review Commission report
