Virginia Government & Politics
Shad Plank: Will Virginia take a gamble on gambling machines?
By Dave Ress
Daily Press |
One of the Queen of Virginia Skill and Entertainment games being played on June 18, 2018, at Mike's Break Room in Virginia Beach. (L. Todd Spencer)
Here's some unsettling news for the many Virginians hoping to get school funding back towards pre-recession levels: A major source of state funds for K-12 education, the Lottery, is seeing its sales slump.
Since its profits after paying out prizes is, by law, supposed to go to schools, that's a problem.
The slump happened pretty much at the same time as an explosive growth in the number of slot-machine like "games of skill" popping up in convenience stores across the state.
Sales of scratch games (which account for about half the Lottery's business) and daily games like Pick-3, Pick-4 and Cash-5 started dropping from year-ago levels in June. That month just happened to see a doubling in the number of such games showing up in the stores that sell Lottery tickets.
At that point, Lottery officials counted about 3,000 machines. By September, they'd counted another 1,500 — a 50% increase in three months. This month, Lottery executive director Kevin Hall said, they'd counted 5,300. That's an increase of 18% in about a month.
During July, August and September, as machines of skill saw that 50% increase, lottery sales dropped by nearly 6%. Profits — the money that goes to schools — dropped nearly 4%.
Lottery officials fear that the trend is pointing to a decline of some $40 million in the money it can generate for schools this fiscal year.
"This is keeping me awake at night, wondering how I can live up to my Constitutional mandate to generate money for K-12 education," Hall said.
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The gamble is different when buying a Lottery ticket than when trying to react quickly to what's flashing on the screens of a game of skill — that reaction is the "skill" that supposedly keeps the machines from being illegal gambling devices under Virginia law.
But because the machines are found in many of the same places where Lottery tickets are sold, they're eating into the Lottery's business, Hall said.
And what bugs him is his belief that the machines have an edge. Actually several.
First, they aren't taxed. Lottery winnings of more than $600 are paid net of taxes.
Winnings, unlike the Lottery, aren't subject to set-asides for such obligations as overdue child support, or court fees and fines or unpaid taxes.
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The mechanisms that generate images on the screens aren't subject to public scrutiny — as, for instance, is the numbered ping-pong-ball and popcorn popper system that generates the winning numbers for the daily games. The system that prints out the hidden numbers on a scratch ticket is reviewed by the lottery's board — and for every Lottery game, the odds of winning and rules of the game are fully disclosed.
But there's no regulation and no taxation of the games of skill. There's none of the money for schools or the funding of gambling addiction hotlines that the Lottery does.
All of which is very much on the minds of legislators these days.
And, to be sure, almost certainly on the minds of the growing number of enterprises interested in gaming, whether that'll include the Colonial Downs horse-racing (and historical horse racing machine operations at Rosie's stores), or the promoters hoping to build casinos in Norfolk, Bristol and a handful of other hard-pressed cities.
It's even, it seems, concerning one game of skills operator, Queen of Virginia Skill and Entertainment. The company started doing business in Virginia after the state Alcoholic Beverage Control Authority reviewed its machines and determined that they were not the kind of illegal gaming devices that can subject a bar or restaurant to ABC fines or other penalties.
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"We are asking the General Assembly for complete regulation of this industry, including taxation and enforcement, with full funding to clean up the current illegal gaming market in Virginia. We need a clear regulatory structure, with strict financial transparency and accounting along with methods to clearly identify illegal versus legal games. Additionally, we will also be proposing strict standards to protect children and eliminate mini-casinos that are operating across the Commonwealth in today's current environment," Queen of Virginia spokesman Michael Barley said.
As Hall notes, there are many operators in the business. And, it seems, some don't always operate on the up-and-up.
Georgia, which has regulated the machines for several years, launched about 600 enforcement actions in the last fiscal year, Hall said. Georgia law says 10% of the machines' income should go to the lottery -- that amounted to about $90 million last year, and after paying for the cost of a 50-person-strong enforcement team, generated a net $66 million for the Georgia Lottery, which uses its profit to fund college scholarships and preschool programs.
Pennsylvania opted for a different approach — legislators there are considering an outright ban on the machines.
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"I think 'games of skill' is a euphemism, and it is a semantical gateway to another form of gambling," said Senate Majority Leader Thomas K. Norment Jr., R-James City, adding that the machines are totally unregulated and "there is no public benefit I can discern."
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In his role as co-chairman of the budget-writing Senate Finance Committee, he's concerned that the machines are diluting lottery revenues.
"They need to regulated and licensed by Lottery; they need to be taxed; the number of machines needs to be capped; The machines should not be within a certain, undetermined as of today, distance of a Lottery retail outlet; or they should be unlawful in Virginia," Norment said.
With the General Assembly set to wrestle with a gambling issue next year — whether to greenlight casinos — and with so many interested parties with financial stakes in what the state does, Hall thinks it's a safe bet to expect a lot of attention to games of skill.
Shad Plank is the Daily Press blog that tracks Virginia politics. It takes its name from the traditional Shad Planking political get-together, though hopefully it is tastier than the roasted fish featured at that Sussex County event. To contact Dave Ress with tips or questions, call 757-247-4535 or email dress@dailypress.com.