By Graham Moomaw

(VM) – Gov. Glenn Youngkin’s administration is tentatively backing a top Republican lawmaker’s proposal to reauthorize so-called skill machines in Virginia and use some of the money they generate to crack down on illegal gambling, according to multiple Capitol Square sources.

That stance could potentially mean another reprieve for the slots-like games the state has spent years trying to ban from convenience stores, sports bars and truck stops, only to face sustained lobbying and legal pushback from the industry and its promoters. The state is currently locked in a prolonged court battle with the industry, and officials are unable to enforce the ban on skill machines as that lawsuit proceeds. But a reversal of the state’s official position on skill games could make the lawsuit moot.

House Majority Leader Terry Kilgore, R-Scott, said he’s been told he has “possible” administration support for his proposal to let thousands of the machines continue operating and restore an old system of regulation in place before the General Assembly voted to outlaw the games in 2021. That would be a shift from the position of Youngkin’s predecessor, Democratic Gov. Ralph Northam, who allowed the machines to be briefly regulated and taxed to raise money for COVID-19 relief but ultimately followed through on banning them.

Asked if the governor is supporting the bill, Youngkin spokeswoman Macaulay Porter didn’t give a direct response.

“The governor has asked stakeholders to come to the table and work on legislation that would crack down on illegal gaming,” Porter said.

Kilgore’s proposal would essentially restore the legal status of a type of video game the General Assembly has tried repeatedly to classify as illegal gambling. But the Youngkin administration appears to view Kilgore’s bill, which has not been heard in the House of Delegates, as the only viable mechanism for raising new funds to go after illegal gambling.

Supporters of skill machines, also known as gray machines due to the legal gray area they occupy, argue they give smaller businesses a chance to profit from Virginia’s newly relaxed approach to gambling. Business owners hoping to continue hosting skill machines have characterized the push to ban them as the legislature doing the bidding of big casino interests that want to clear away competitors.

Opponents say they cannibalize revenue from more tightly regulated forms of gambling, and some legislative critics have warned against the moral hazard of granting legal status to an industry that rushed into Virginia under legally murky circumstances.

Under Kilgore’s bill, the Northam-era regulations would be reinstated until at least the summer of 2024. In that time, according to the legislation, the state would come up with new oversight rules. Just as they did under the prior regulatory system, skill-machine distributors would have to pay a flat monthly tax of $1,200 per machine. Convenience stores could have up to five machines under Kilgore’s proposal. Truck stops could have up to 10 machines.

Kilgore’s bill calls for some of the revenue generated from legalized skill machines to go toward law enforcement efforts to combat illegal gambling, an issue the state has struggled with recently after policymakers gave a greenlight to horse racing-themed slots parlors, casinos and sports betting. That money would be spread among police, local prosecutor’s offices and the Virginia attorney general’s office, all of which play a role in enforcing the state’s gambling laws.

In an interview, Kilgore indicated the specifics of his legislation are up for discussion. His goal, he said, is to allow Virginia to get some tax benefit from machines that are currently operating with no oversight whatsoever while getting tougher on illicit gambling enterprises that have thrived in the state’s atmosphere of legal and regulatory confusion.

“The main thing that I’m wanting to do is put these mini-casinos out of business,” Kilgore said, referring to pop-up businesses that offer skill machines and not much else. “There’s a lot of these game room-type deals that have sprung up all over the commonwealth.”

Skill machines — which mimic the spinning reels and tic-tac-toe patterns of slots but have a small element of skill that has allowed promoters to argue they technically aren’t a form of illegal gambling — are often placed in businesses already licensed by the Virginia Alcoholic Beverage Control Authority. The first draft of Kilgore’s bill envisions restoring ABC’s responsibility to regulate skill machines and ensure the presence of official state stickers that mark the difference between legal and illegal games.

2021 ban

The 2021 ban could be short-lived, as a well-connected industry continues to fight for survival. A few months after the new ban took effect, a judge prohibited the state from enforcing the new law in response to a lawsuit claiming the ban is unconstitutional because it targets a particular type of video game.

That lawsuit is progressing slowly in court, partly because Sen. Bill Stanley, R-Franklin, is a member of the legal team fighting the ban. General Assembly members who work as attorneys have special privileges to postpone court proceedings while the legislature is in session, a prerogative that’s been cited in court as a factor in multiple decisions to delay the case.

Because of the pending litigation and court order suspending the ban, thousands of skill machines are still operating in Virginia with virtually no regulation or oversight from the state.

The lead plaintiff in the lawsuit challenging the ban is Hermie Sadler, a former NASCAR driver whose family owns several truck stops in Southside Virginia. Sadler is currently running for the Virginia Senate as a Republican.

Attorneys for Pace-O-Matic — the Georgia-based parent company of Queen of Virginia, one of the leading skill-game operators in Virginia — are also involved in the lawsuit fighting the ban.

Pace-O-Matic has contributed more than $850,000 to Virginia politicians in both parties, including a $30,000 donation to Youngkin’s inaugural committee, according to the Virginia Public Access Project. In the 2020 gubernatorial race, the company made six-figure contributions to both Youngkin and his Democratic opponent, former Gov. Terry McAuliffe. The company has also sponsored the Democratic Party of Virginia’s main fundraising gala.

In a statement, Pace-O-Matic echoed Kilgore’s assertion the bill is a way to reduce illegal gambling.

“Legislators have the opportunity this session to not only regulate skill games, generating $130 million or more in tax revenue to put towards strengthening our infrastructure, growing our education system and supporting law enforcement, but they also have the ability to tackle the illegal gambling that is proliferating throughout our Commonwealth,” the company said in a written statement. “We support efforts to regulate skill games and look forward to working with all those dedicated to eliminating illegal gaming and leading Virginia forward through this legislation.”

The revived push for skill machines is already drawing the ire of other gambling interests.

In a statement, the local owners of Bristol’s Hard Rock Hotel & Casino said they were “disappointed” to see skill machines back on policymakers’ agenda after “the General Assembly has repeatedly prohibited their operation in the Commonwealth.”

“The Commonwealth instead should be focused on supporting those development projects that actually are having a meaningful impact on bringing jobs and tax revenue to localities and regions in need,” the Bristol casino group said. The more tightly controlled and location-specific casino industry, the statement suggested, better serves “the safety and welfare of the general public.”

A hearing date for the bill has not yet been set.