(The Center Square) – Few legislators want to see games of skill regulated and taxed more than Pennsylvania Sen. Gene Yaw.
Yaw, a Republican from Lycoming County, says doing so benefits the small businesses, like veterans clubs and volunteer fire organizations, that supplement their income with the machines.
The county is also home to Pennsylvania Skill and Pace-o-Matic, the premier manufacturer of skill games in the state. Advocates have long asked for regulatory legitimacy that recognizes their court-backed distinction within the gaming industry – not a slot machine or a table game or a video gaming terminal or a lottery ticket or an online betting company, but a gambling style in which winning depends not upon chance, but a player’s skill.
And both agree that 16% would be fair because of the uncertain revenue generated from the estimated 70,000 machines in operation, which could generate between $250 million and $300 million annually in taxes.
The trouble is, casinos pay 54% and Gov. Josh Shapiro thinks it is fair that businesses with skill games pay closer to that rate, too. More specifically, 52%, with a portion going to the state’s bank account and a 5% share to the Pennsylvania Lottery.
The latter supports support programs for seniors, to the tune of $386 million in 2024, or about one-third of the lottery’s $1.2 billion in revenue. Shapiro argues that the figure would be higher if not for the spending diverted to skill games.
“Every time somebody puts a buck into one of those unregulated machines, it undermines the lottery and the critical services it funds for our seniors like prescriptions and meals,” he said during his annual budget address in Harrisburg on Tuesday. “The Pennsylvania Lottery lost an estimated $200 million over the last five years, primarily due to these unregulated skill games. Our seniors deserve better.”
Yaw minced few words after the speech, suggesting that the administration is either “too lazy” or intentionally mispresenting the difference between skill games and other forms of gambling.
“Basically, what he doesn’t understand is that skill games are very, very important to local taverns, special clubs, and most importantly, veterans organizations,” he said. “I was so angry by the time I heard that. He basically thumbed his nose at the VFWs and the American legions in the state of Pennsylvania and that’s inexcusable in my opinion.”
Jeanette Krebs, a spokeswoman for Pace-o-Matic, told The Center Square that the “disappointing” tax rate will force many businesses to get rid of the machines.
“We also take exception with the governor making any connection between legal skill games and lottery sales,” she said. “Research has shown that the only link between the two is that locations say their lottery sales go up when they also operate legal skill games.”
Shapiro anticipates the higher rate, which is 10% above his last proposal, will generate $368.9 million its first year, with more than $350.4 million going into the state’s bank account and the remaining $18.4 million to support lottery-funded programs.
That’s even with his plan to cut the number of machines allowed to 40,000, which is little more than half of the total estimated. Over five years, the administration’s math suggests the regulations will net the state nearly $8 billion.
“He’s anticipating getting a lot of money for skill games and it’s just going to be the opposite,” Yaw said. “The higher the tax rate, the less money it’s going to generate. In fact, the way he proposes it, it would generate nothing.”
For gambling competitors, that may be the entire point. In July, 12 casinos filed a lawsuit demanding that unregulated skill game operators pay the same 54% tax rate applied to slot machines, arguing that its constitutionally fair.
In the lawsuit, the casinos note, “There is no basis for requiring licensed entities to pay about half of their slot machine revenue to the Commonwealth while allowing unlicensed entities to pay no tax on such revenue.”
While game manufacturers vary, those familiar with them disagree about the distinction, often likening them to slot machines. Data published by the American Gaming Association last year found that most Americans view them as games of chance.
Critics say the machines equate to an unregulated gambling industry, housed in corner stores, bars, and non-profit clubs with no regulation and very little oversight, opening the door for potential abuse and even addiction.
Owners of these establishments must comply with age restrictions and shield customers from related crimes, though it’s difficult to do so without specific guidance around enforcement. States like Virginia and Kentucky have seen outright bans on skills games.
Shapiro’s regulatory framework doesn’t touch much on solutions that address concerns raised by law enforcement about public safety concerns. The Pennsylvania District Attorneys Association has long asked the state to step in, even going as far as sending a letter to the governor last month requesting his support.
“PDAA does not take a stand on the legality of skill game machines, which is the role of the General Assembly,” the group says in the letter. “Rather, district attorneys have concerns about the public safety risks increased by the proliferation of skill games in our communities.”