A suit based on a 1798 law seeks to recover Kentuckians’ losses from “gray,” or skill machines. The nonprofit Empathy in Action filed the lawsuit to reclaim funds lost by state residents playing gray market skill game machines over the past five years.
Kentucky’s Loss Recovery Act (LRA) allows the recuperation of losses from illegal gambling. In the first six months following the alleged event, only the player can sue to recover their losses. However, if that period expires without a claim, a third party can file such a claim on the player’s behalf.
Historically, that law has been used by others impacted by the losses, such as a gambler’s family members. However, the state itself recently used the LRA to sue the online poker operator PokerStars for the collective losses of Kentucky residents between 2006 and 2011, when PokerStars had been serving US customers in defiance of the Unlawful Internet Gambling Enforcement Act. PokerStars’ new owner, Flutter, ultimately settled that case in 2021 for $300 million.
The skill machines (referred to as “gray machines” by the plaintiff) resemble slots but add choices for the player that impact the game’s outcome. The manufacturers argue that this element of skill means the machines aren’t gambling devices under the law.
In many states, the legal status of the devices is still uncertain. However, Kentucky courts recently upheld a ban on the machines, which was passed by lawmakers last year.
Proceeds From Suit Would Go to the State
Vanessa Cantley, a personal injury lawyer from Louisville, is the lead attorney in the case and also the founder of Empathy in Action. She told Louisville Public Media that she formed the non-profit to address injustices and added that illegal gambling has personal relevance for her:
My uncle passed away last year, having worked his entire adult life, owned his own business. And he died with nothing because he was a gambling addict. So it hits close to home. If I can use my nonprofit as a vehicle to affect some change, then I want to do that.
The LRA allows for damages equal to triple the losses from illegal gambling. However, determining the combined losses of Kentucky residents might be harder for skill machines than it was for PokerStars, which keeps detailed records of every hand played on its sites.
If Empathy in Action wins, it has pledged to pass on the proceeds to the state to combat gambling addiction and aid small businesses in underserved and rural communities. Such small businesses often host skill machines and other gray market gambling products, and crackdowns such as the one currently taking place in Kentucky can be a significant financial setback for their owners.
Kentucky is among the states spending the least on prevention and treatment for gambling addiction. Very little of the $300 million it collected from PokerStars has gone to change that. Kentucky only established a problem gambling fund in 2023, nearly two years after the settlement. In its first year, the state allocated only $100,000 to the fund, equating to just 0.2 cents per capita.
Often, in such cases, the plaintiff’s law firm collects a contingency fee if the suit succeeds. According to the Lexington Herald-Leader, the law firm representing the state in the PokerStars case collected a 25% contingency fee or $75 million from the settlement. Kentucky doesn’t regulate contingency fees, but the Rules of Professional Conduct for attorneys state that the fee must be “reasonable.”
Kentucky’s Battle With Skill Games
Skill games were until recently widespread across Kentucky’s gas stations, convenience stores, and other small businesses. The state took notice, and in March 2023, Kentucky banned skill games effective July 1, 2023. Small businesses and game manufacturers like Pace-O-Matic challenged the ban, but in June 2024, a county judge sided with the state and rejected the challenge. Even so, skill game proponents are not giving up and continue to evaluate their options.
Earlier this year, another manufacturer, Prominent Technologies introduced another form of gaming device, so-called “no-risk” gaming machines. These inform the player ahead of time what the result of the next spin will be. According to the manufacturer, that means there’s no chance involved and no risk to the player.
At first, authorities were divided on how to handle this new strategy. In June, Jefferson Circuit Judge Patricia Morris blocked Louisville Metro Alcohol Beverage Control from seizing machines by Skill State LLC, also known as Friendly Amusement. The judge sided with Skill State that the games (similar to Prominent’s games) are coin-operated amusement devices with no element of chance.
In September, Kentucky Attorney General Russell Coleman sought to address the ambiguity, declaring the “no-risk” machines illegal like skill machines. After his advisory, Prominent told stores with the machines to disconnect them.
Pace-O-Matic, Prominent Technologies, and Skill State are among nine defendants in the Empathy in Action lawsuit.
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