Skill game gambling machines: Are they illegal in Kentucky? | Lexington Herald Leader

A wave of unregulated gaming machines is pouring into Kentucky, showing up in gas stations in small towns as well as convenience stores and bars in Lexington, Frankfort and Louisville.

There already are more than 1,100 machines across the state, according to the Kentucky Lottery. And, in many cases, law enforcement groups are getting a cut of the proceeds.

Although slots are illegal in the Commonwealth, the makers of these “gray slot machines” exploit a loophole: They say they are “games of skill” that require the player to do more than push a button.

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And unlike Kentucky’s forms of legal gambling, the gray slots have not been approved by lawmakers or any court. No state agency vets them, tracks them or collects taxes. There are no state regulations on how the “skill games” must operate, what they must pay out or who can play, regardless of age.

At least one game company, Pace-o-Matic, says the games aren’t gambling at all, and that with enough patience and skill a player can win back all their money and then some each time.

However some lawmakers seem skeptical of that argument. Senate Majority Floor Leader Damon Thayer, R-Georgetown, sees no gray area in Kentucky law that would allow for these games.

“These machines are illegal,” Thayer said at a November legislative hearing. “I do not want to tax them. I don’t want to regulate them. I do not want to make them legal. I believe we need a bill that makes it quite clear that they are illegal and we need to make sure that there is an appropriate enforcement mechanism included.”

Thayer, who advocated for gambling machines for tracks, distinguished Kentucky’s other kinds of gambling from the unregulated slots.

“These other forms of gambling that are legal — parimutuel, lottery and charitable (gaming) — all serve a higher purpose in supporting various activities throughout the commonwealth,” he said. “These illegal ‘coin machines’ are not games of skill.”

Legislation is expected to be filed in Frankfort in February to stop the machines at least for now but game makers are prepared: They have hired lobbyists and lawyers and appear eager for a legal fight.

FOP getting money from ‘skill’ games

Some machines appear already to have the stamp of approval from law enforcement: They have stickers that say “KY State FOP Fraternal Order of Police,” telling potential players that “a portion of the proceeds from this machine” will be donated to the organization. “If you want this machine in your location to help raise money for the KY State FOP please call 859-208-6251.”

And places across the state from convenience stores to bars have taken the FOP up on the pitch. Goodies Pawn and Firearms in Hebron posted on its Facebook page in December 2021 that the store added a machine, “Come play our new Burning Barrels skill games. Machine proceeds to the Ky FOP!”

The Kentucky State Fraternal Order of Police is a non-profit organization that describes itself as “the voice of Kentucky Law Enforcement,” lobbying on behalf of officers. State and local lodges also raise money for charitable and educational activities such as Shop With a Cop and other events.

And the state FOP has encouraged local lodges to sign up.

“Looking for addition revenue and a new source of entertainment? Look no further than Burning Barrel skill games, powered by Pace-O-Matic,” the Kentucky FOP told its members last spring. “Our new skill game is legal, exciting and will keep your members staying longer and spending more on food and drinks.”

To help convince them, the company set up machines at a hotel where the FOP board was meeting last year so they could try them out.

But the games with the stickers aren’t only in FOP lodges. They’ve been spotted at gas stations and convenience stores the public visits. And a Kentucky lawmaker who is an FOP member said the company asks members to help solicit more locations.

“They were actually recruiting members to go with them to help sell these machines ... this creates horrible confusion with the retailers and the public,” said State Sen. John Schickel, R-Union, co-chairman of the Interim Joint Committee on Licensing and Occupations that held a hearing in November on the games. “I in no uncertain terms informed our lodge president that this was illegal and that it reflected very negatively on the law enforcement community.”

How much money does the FOP get?

How much is the fraternal law enforcement organization getting? It’s unclear because nobody outside of the company is tracking how many of the Burning Barrel “gray machines” are in Kentucky. Or how many apparently “opt in” to contribute up to 5 percent to the FOP.

Mike Barley, a spokesperson for Pace-O-Matic, said that the company has made several charitable donations, including turkeys at Thanksgiving, since launching in Kentucky last year.

“We are still relatively new to the market and have contributed approximately $6,300 to the FOP in Kentucky so far,” Barley said. “We look forward to making continued contributions across the Commonwealth for years to come and are planning to launch an expanded donation program in Kentucky later this year.”

The FOP newsletter to local chapters outlined the 5 percent commission:

“For each game that the lodge locates in a local business East Coast will pay $250 to the lodge. Each lodge will retain 4 percent of the total profits of each game and the state FOP will retain 1 percent,” vice president Mike Sweeney, former president of the Bluegrass Lodge No. 4 of the Fraternal Order of Police in Lexington, wrote.

Last spring, the machines were only in three counties in Kentucky, including Scott County, where the FOP lodge had just signed a contract for several games, he wrote.

“And as there is no game of chance involved, it is not considered gambling, thus is considered legal where gambling is illegal. This is a great opportunity for local lodges to supplement their fundraising with great gains and very little to no effort on the local lodge except to secure locations for the games and local stores, gas stations, restaurants, etc.,” Sweeney wrote.

Are the slots-like gambling machines legal?

Earlier this month, Sweeney, the former Lexington FOP lodge president, said in an interview that more lodges have since signed up and he is “very confident” the games and the relationship are legal. “I have no issues with it,” Sweeney said.

Sweeney referred all questions to Kentucky State FOP president Berl Perdue Jr., who is Clark County Sheriff. Perdue did not respond to repeated requests for comment.

In an interview, Tommy Cooper, president of the Scott County FOP lodge that started the program, said that based on his research he believes the Burning Barrel games that Pace-o-Matic operates are a legal way for the FOP to raise money for its charitable efforts.

Pace-o-Matic national compliance director Rick Goodling said in an interview that the company has more than 500 machines in 34 counties and rising. And all of them generate money for the FOP, he confirmed.

Asked what the FOP sticker on a machine says to customers, FOP lodge vice president Daryl Blevins said it indicates “the machine has been vetted by the Fraternal Order of Police. We’re all police officers and we don’t want to go to jail or anything ... and that there’s a comfort level there. ... Yes, that sends a powerful message..”

But not all law enforcement officials appear as certain.

Hardin County Sheriff John Ward, president of the Kentucky Sheriffs Association, told lawmakers at a legislative committee hearing on the issue in November that they need “clarity in the law regarding this issue.”

Shawn Butler, executive director of the Kentucky Association of Chiefs of Police, echoed that request in an interview.

“Our position it needs to be clarified by General Assembly whether it is legal or not. There’s a lot of disinformation,” Butler said. “I don’t know how they started. They popped up, and this suddenly has become an issue. Nobody really knows how to enforce the law on this. Depending on what county you’re in you’re getting conflicting opinions. This needs to be clarified by the courts or the General Assembly.”

In Lexington, Fayette County Attorney Larry Roberts said that after meeting with representatives of game makers, his personal opinion is that they are not legal.

“But it’s not my decision. Is this legal or not is up to city and the state,” Roberts said. “I’m not comfortable saying they are legal. There isn’t anything to say these things are legal.”

The Lexington-Fayette County Urban County government has been issuing “coin-operated amusement” licenses for the machines but said Jan. 19 that the city is halting after the Herald-Leader inquired about the policy.

“Our employees were confused about exactly what these are, and whether they fit under our existing ordinance. We have issued a small number of licenses. We are reviewing our policy. No more licenses will be issued until we finish our review,” spokeswoman Susan Straub said in an email.

Several months ago, a group including the Kentucky Lottery Corp., Kentucky Department of Charitable Gaming and racetracks with historical horse racing machines requested an advisory opinion on the games, which are sometimes called “nudge” games.

But before Kentucky Attorney General Daniel Cameron’s office could act, a lawsuit was filed in Frankfort by a game company so now he can’t issue an opinion, according to spokeswoman Elizabeth Kuhn.

Under Kentucky regulations, his office said, “the Attorney General may not render an opinion in response to questions involving matters being litigated or questions submitted in contemplation of litigation.”

Game company files suit: ‘legal games of skill.’

On Dec. 1, game company Prominent Games sued Franklin County Sheriff Chris Quire and the county itself asking the court for a declaratory judgment that their games — called Wildcat Skill with a cat logo similar to the University of Kentucky’s — “are legal games of skill.”

The lawsuit was filed by State Rep. Jason Nemes, R-Louisville, along with former State Rep. Bob Heleringer.

Heleringer said the company sued because Franklin County’s tax administrator stopped issuing licenses to operate the games. The licenses have been issued and Franklin County Attorney Rick Sparks said the county has filed a motion to have the case dismissed because there is no controversy to decide.

But Sparks said that doesn’t necessarily mean the county says the games are legal. “Are they legal? I can’t tell you that or not. ... That’s not my role,” he said. “It is a gray area, but no criminal charges have been filed, and we don’t anticipate doing so.”

How the ‘skill games’ are played

Heleringer and other proponents argue the machines meet the standard for skill-based games. According to Kentucky statute, games where “the ultimate winner is determined by skill shall not be considered to be gambling.”

Although the games are often called “coin-operated machines” in fact they take bills. Players must put in money to play and can win real cash prizes if they complete a task.

The “skill” in these games comes in when players have to line up (or nudge) an icon to create three in a row like tic-tac-toe or Candy Crush, tap the screen on specific images for “bonus” points or successfully repeat a pattern, like the classic electronic game Simon.

Except for that last step, according to the American Gaming Association, the “gray” machines are exactly like regular slot machines, relying on random number generators to set up the potential win.

And that’s where opponents say the games fail the legal standard.

Skill game gambling machines: Impact on Kentucky

Jonathan Goldberg, an attorney for the Kentucky Lottery, told lawmakers that games with any element of chance don’t meet the skill standard.

“These games are an existential threat to the Kentucky Lottery,” Goldberg said.

The Kentucky Lottery, which began tracking the machines at lottery retailers last year, told lawmakers they have already documented more than 1,100 in 60-plus counties, alongside lottery machines in at least 240 locations, with more showing up every time lottery representatives go out.

“Our estimate, based on the rate we’re seeing is that within a year we’ll probably have several thousand in our state,” Mary Harville, Kentucky Lottery president and CEO, told lawmakers in November.

At the moment, Wildcat Skill representatives say, they have about 300 machines in operation, while Burning Barrel representatives say they have at least 500 machines.

An afternoon drive through a swath of Clay, Laurel and McCreary counties, where lottery representatives have seen high concentrations in stores that also sell lottery tickets, turned up scores of gambling machines, some “gray” and some old-fashioned illegal slots.

In some convenience stores, owners have replaced store shelves with the new machines; others stores have ditched lottery scratch-off vending machines in favor of the new games, which can be much more lucrative for stores.

If unchecked, the “gray” terminals will “deliver a massive body blow to the Kentucky Lottery,” which provides millions of dollars of scholarships, Harville said. Despite record demand for lottery tickets, sales at stores with the new machines are already down about 5 percent compared to stores overall, she said.

Charitable gaming and horse racing, which relies on historical horse racing machines, also could be impacted by the proliferation of the new machines, she said.

“All legal gaming including the Kentucky Lottery, faces a tremendous threat from these machines,” Harville said.

Lexington’s racetracks, Keeneland and the Red Mile who jointly operate a historical horse racing gambling parlor, agree.

“We feel that these gray machines are not only illegal, but fly in the face of highly regulated, pari-mutuel wagering products. Their existence and proliferation lead to reduced state revenues and undermine the intent of the legislature to support our signature industry through highly-regulated, lawful wagering products,” said Vince Gabbert, vice president of Strategic Initiatives, Keeneland, in a statement.

Skill game gambling machines: Impact on stores, bars

Game companies Prominent Technologies and Pace-o-Matic, the two operating now in Kentucky, offer bars, convenience stores and other potential outlets big profits.

A sales pitch from vendor offering Pace-o-Matic’s Burning Barrel said “each machine can make profit of average $20,000 or more yearly,” with the store owner keeping 40 percent.

Although stores and bars could lose their lottery or liquor licenses if they have an illegal gambling conviction, the risk appears to be worth it to many.

Typically, stores get to keep 6 percent from lottery sales.

Mickey Singh, owner of Bluegrass Mart on Squires Road in Lexington, put in two Wildcat Skill machines at the beginning of 2022.

“They’re something new in Fayette County. We’re trying them to see if they will bring more business to us. A lot of customers play the games. I think it’s pretty fun to do it,” Singh said. “People will sit over here, buy food, buy drinks so it’s a big attraction to bring in more money.”

Customers are surprised they can win real cash, he said. So far he hasn’t had a big winner but said the machines in his store can pay out “$700, $1,000.”

At least one store owner found the games to be less lucrative than anticipated. Rose Merritt, owner of Deter and Daughters Liquors in Fort Wright in Northern Kentucky, said the family’s 60-year-old store added two Burning Barrel machines last spring because competitors had them.

But she had them removed after about six months.

“I wasn’t real pleased with how they worked,” Merritt said. “To me, the store owner is the casino. So if the games are paying out more than customers are playing, you’re putting that money out. ... I can understand why legally they can call it a game of skill but in reality we all know what it is. Most people don’t consider these games of skill. They consider it slot machines.”

Steve McClain, director of communications and public affairs for the Kentucky Grocers & Convenience Store Association, said his trade group is neutral on the games but would like the legal question answered.

“There is that question, are they legal or are they illegal,” he said. “We’re just looking for some clarity on this. Nobody wants to blatantly break the law.”

There is an interest among customers in having them, which creates an interest in stores in meeting that, he said. The pandemic created challenges for convenience stores because people weren’t driving as much. So stores have adapted, offering milk and essentials, prepared food and in some cases, skill games.

“It’s all part of trying to grab that share of the market,” McClain said.

Game makers appear eager for a court fight. Burning Barrel’s sales pitch promises “We are 100 percent Legal. We will 100 percent legally back you on our Skill Game if any legal cost claims in State of Kentucky.”

In other states, the legal battle has been going on for years. Virginia’s attempt to ban skill games is on hold after that state’s Supreme Court declined to hear an appeal. In Pennsylvania and Georgia there have been efforts to legalize and tax the games.

Paul Golding, president and COO of Pace-o-Matic, said told Kentucky lawmakers that game makers would “embrace” regulation.

“We provide benefits to small businesses, across the board,” Golding said. “We only enter counties to which we have approval from (sheriffs and police.) ... Ultimately, we look to be legislated.”

Golding admitted that his company pays no taxes to Kentucky, other than income tax paid by operators, but argued that is a reason to regulate the “skill games” rather than ban them outright.

But efforts in other states have had mixed success.

“The illegal gambling machines that are marketed as so-called ‘skill machines’ continue to cause significant harm to the Pennsylvania Lottery and the older Pennsylvanians who rely upon the critical programs the lottery funds,” Drew Svitko, Pennsylvania Lottery Executive Director, said in a statement.

“Since the fall of 2017, we estimate these machines have cost the lottery more than $500 million in lost sales,” Svitko said. “As of today, these illegal machines are in more than 30 percent of the lottery’s network of roughly 9,900 retailers. For context, at this time three years ago, that number was approximately 8 percent.”

Bill to be filed: Legislation on skill games coming

Kentucky Rep. Killian Timoney, R-Lexington, said he is preparing to file a bill that will stop the machines for now. But Timoney, who is not opposed to gambling, is leaving the door open for discussion on regulating the games.

“In my opinion we need to prohibit them. It’s a very multilayer issue,” Timoney said. “It’s a pretty hot topic across the country, and a lot of people in Kentucky really don’t know what’s going on with them.”

As a former educator, Timoney said he is concerned about the impact that the skill games could have on lottery sales, which by law fund college scholarships for Kentucky students. If the games can generate tax revenue for education or other needs, Timoney said, they could be worth considering.

“Do the people of Kentucky want them here? I think the public needs to weigh in on this topic. It is not cut and dried,” he said. “These gray machines are on every corner and in every convenience store ... and no permission was asked. ... It’s a big jump in gaming to go from lottery at stores to these machines. I don’t know if the values in the commonwealth go along with that.”

This story was originally published January 30, 2022 5:00 AM.