The casino space is highly competitive. Gambling operators compete not only against their regulated compatriots but also against a mix of offshore black market and domestic gray market competitors.
Earlier this month, Greenwood Gaming and Entertainment – which owns Parx Casino and BetParx – filed suit against Pace O-Matic (POM) and Miele Manufacturing. It alleges that the defendants have engaged in false advertising, unfair competition, tortious interference with prospective business relations, and negligence per se.
As part of the complaint, Parx is seeking a permanent injunction on advertising by the companies in question. It also wants monetary damages because the defendants are selling what Parx claims are “illegal gambling devices” to bars, restaurants, gas stations, and convenience stores across the Keystone State.
What the Parx Lawsuit is About
The complaint alleges that Pennsylvania Skill-branded devices are illegal under the Pennsylvania Crimes Code. The law in question – Section 5513 of the Gaming Act – makes it a crime to assemble, lease, lend, or sell a slot machine unless it is expressly permitted under state laws.
Pennsylvania’s legal definition of “slot machine” under the Gaming Act is fairly detailed. According to the complaint, it covers not only traditional slots but also “skill slot machines” and “hybrid slot machines.”
The complaint further alleges that, at least when it comes to slot machines, the Gaming Act abolished any distinction between games of chance and games of skill in the state. Adding skill elements to games to skirt gambling laws is one common tactic of gray market suppliers and operators.
According to the complaint, Pennsylvania Skill machines lack the necessary licenses for use in Pennsylvania. It also claims that the games “are represented to be games of skill when they are not.”
Regulated Gaming has Been Good for Pennsylvania
The complaint contains a detailed overview of the success of regulated gaming in Pennsylvania. It notes that Pennsylvania generates more tax revenue from gaming than any other state. That’s partly due to its 54% tax rate on retail and online real money slots.
Greenwood says that, on its own, Parx contributed more than $1.1 billion in slots tax revenue to the Commonwealth’s coffers last year. That amount is in addition to contributions to local counties and municipalities.
Unregulated Competition
The complaint alleges significant growth in the number of unlicensed slot machines popping up in restaurants, bars, and convenience stores. In 2019, a member of the Pennsylvania State Police testified that one company operated more than 10,000 unlicensed slot machines in the state. The office said that this number of slot machines could generate upwards of $260 million in annual revenue.
There has been a long history of complaints about Pennsylvania’s unregulated gaming machine market. As the complaint states:
On information and belief, Pace-O-Matic and POM and other skill slot manufacturers and distributors have placed as many as 80,000 “skill” slot machines throughout Pennsylvania to date. This is the equivalent of more than three times the number of legal slot machines currently in use at casinos in Pennsylvania (internal citation removed).
Greenwood argues that this amounts to unfair competition. It claims that the existence of unregulated competitors like POM has a negative impact on regulated operators like Parx.
Questions of Legality
Naturally, the case outcome will largely depend on whether the court agrees that the defendants’ machines are illegal. The complaint lays out several specific acts that it claims amount to unlawful actions by the defendants. These include the claim that:
Pace-O-Matic, POM and Miele intentionally and knowingly make, assemble, set up, maintain, sell, loan, lease, offer for sale, and distribute unlicensed “Pennsylvania Skill” branded slot machines to unlicensed operators of unlicensed premises throughout Pennsylvania.
The complaint’s first count alleges that the defendants have engaged in false advertising under the federal Lanham Act. Parx objects to claims like: “Pennsylvania Skill Games are 100% legal;” and “Legal games of skill, such as Pennsylvania Skill, and gambling are not the same.”
Because Greenwood considers the machines to be illegal under Section 5513, it also considers those statements to be falsehoods.
The injunction Greenwood is seeking as the plaintiff is one stopping the defendants from advertising that their machines are legal under Pennsylvania law.
Licensed Operation is Expensive
The second count in the complaint is that the defendants are engaged in unfair competition with the plaintiff.
Greenwood says it has paid “hundreds of millions” in fees and taxes to operate its slot machines legally. Its complaint alleges that the defendants are at a competitive advantage due to having skirted the law.
Poaching Customers
The third count alleges “tortious interference with business relations.”
That’s the legalese way of saying that the defendants have interfered with Greenwood’s ability to maintain relationships with Parx customers. The complaint asserts that the defendants’ machines:
…take repeat and potential repeat customers away from the slot machines offered by Parx Casino.
This final count alleges that the defendants have taken away from the plaintiff’s rights to operate, causing financial harm.
Are Pennsylvania Skill Machines Actually Illegal?
Legal complaints, by their nature, only tell one side of the story.
The defendants will likely have a very different version of things when they respond. The state hasn’t yet made up its mind about the legality of the machines. POM is engaged in a lawsuit of its own against the Pennsylvania Gaming Control Board, pushing back against the latter’s crackdowns.
From a neutral point of view, however, the Parx suit does present an interesting approach for operators dealing with unregulated competition. Gray market gambling tends to be a low priority for most law enforcement agencies. Could these types of civil claims offer an alternative recourse for frustrated white market operators? It may be a while before we discover if this strategy pays off for Parx. However, it’s certainly a case worth following.
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