The Virginia Supreme Court has overturned a lower court’s decision to allow skill game machines to remain in small businesses while a lawsuit to decide the machines’ legality works its way through the justice system. Virginia banned the machines in 2020, but former Gov. Ralph Northam delayed its implementation for a year to allow revenue from the machines to help with COVID-19 relief. In 2021, truck stop owner and former NASCAR driver Hermie Sadler took the state to court to keep the ban from coming into effect.
Sadler stated the ban was illegal and infringed on his First Amendment rights as a businessman. In Dec. 2021, Greensville County Judge Louis Lerner granted Sadler a temporary win. He issued a temporary injunction that allowed existing machines to remain in place while the suit proceeded.
However, the Supreme Court panel of three judges decided to intervene, in what some are calling an “unusual” move. The panel ruled that the lawsuit is unlikely to succeed because of a change the General Assembly made this year to the legal definition of skill games. The judges were also skeptical of Sadler’s invocation of the First Amendment:
Although at times it is difficult to determine where a particular activity falls on the speech/conduct continuum, no such difficulty is present when the activity being regulated is gambling. We long have viewed gambling as conduct that may be heavily regulated and even banned by the Commonwealth as an exercise of its police powers.
With the Supreme Court decision, the ban went back into effect on Fri, Oct. 13. Meanwhile, the lawsuit is scheduled to go to trial this December and is not affected by the Supreme Court Decision.
Skill Games’ Ambiguous Interpretation Has Caused Confusion
Skill game machines look and function quite a bit like real money slots. However, manufacturers add small elements of skill under the logic that this exempts them from gambling laws whose definitions include the phrase “games of chance.”
In Virginia, the machines require players to identify and select winning lines themselves, rather than awarding the prizes automatically. Also, slots and skill games are very different in terms of regulation.
But while slot machines are taxed and subject to regulation, skill games exist in a legal gray area with little to no regulation. Opponents of the machines argue that the machines lack responsible gambling features. They say there is no way to control and protect players, and problem gamblers are an easy target for the terminals’ manufacturers.
Skill games have been a hot topic of discussion this year, alongside “pick’em” fantasy products—another legal edge case that hinges on the distinction between luck and skill. DFS operators like PrizePicks and Underdog Fantasy claim the bets fall under skill games and not a form of gambling.
Inevitably, regulators and some lawmakers see these various skill-based products as forms of illegal gambling. But laws to ban or regulate them both face political opposition from one camp or another. That means the decision is often left up to the courts.
Recently, Michigan banned DFS prop-style bets as the Michigan Gaming Control Board feels they mimic sports betting.
Meanwhile, Florida sent operators a cease and desist letter in late September, implying that DFS prop bets are a form of gambling.
Parallel Situations in Kentucky and Pennsylvania
Skill game machines are available in many states. Kentucky and Pennsylvania have likewise been struggling with the question of what to do about them this year, and South Carolina was in the midst of a crackdown coming into 2023.
Like Virginia, Kentucky banned the terminals, effective July 1. However, Pace-O-Matic (POM), one of the largest manufacturers of skill game machines, has responded with a lawsuit against the state.
POM and several other plaintiffs, including small business owners, say the Kentucky bill is unconstitutional.
The plaintiffs accuse the state of numerous violations, including due process, equal protection rights, and free speech. There haven’t been updates on the lawsuit, but now that Virginia’s Supreme Court has ruled that free speech doesn’t cover skill games, a judge in Kentucky could take that into account.
POM still has hopes for a positive result. The company already scored a legal win in Pennsylvania. In February, a judge ruled that machines manufactured by POM were illegally seized by the District Attorney’s Office in Monroe County. Judge Jennifer Harlacher Sibum said that the machines are games of skill and, therefore, legal in the state.
Keystone State lawmakers are split on how to address skill games. Republican Senator Gene Yaw’s bill looks to regulate them but hasn’t yet moved from committee. Meanwhile, some Democrats are discussing a formal ban like Kentucky and Virginia.