Pennsylvania Lottery Claims Unregulated Skill Gaming Led to $650M Revenue Loss

Posted on: September 1, 2022, 01:20h. 

Last updated on: September 1, 2022, 08:16h.

The Pennsylvania Lottery claims its revenue is down because of unregulated skill gaming machines. The devices proliferate across the commonwealth in restaurants, bars, gas stations, convenience stores, and retail strip malls. The lottery claims they have negatively impacted the lottery and its benefits to older Pennsylvanians.

Pennsylvania Lottery skill gaming machines Pace-O-Matic
Pennsylvania Skill gaming machines. The Pennsylvania Lottery says such skill gaming terminals are biting into lottery sales. (Image: Lehigh Valley Live)

Pennsylvania skill gaming terminals are in every county, the Pennsylvania Lottery says. The Pennsylvania State Police, Pennsylvania Gaming Control Board, and Pennsylvania Attorney General argue that the grey machines, which are unregulated and untaxed, constitute illegal gambling.

The manufacturers and route distributors behind the controversial devices contend that the machines’ element of skill — which typically involves a player needing to identify a winning payline as opposed to a casino slot machine automatically informing the gambler if the spin won — means an outcome is more dependent on aptitude than luck and therefore is not gambling.

State judges have come to various conclusions on their legality. The state legislature is expected to revisit the matter when it reconvenes later this month. But as the skill gaming machines continue operating, lottery officials say seniors are penalized.

Skill Machines Cut Into Lottery Sales

The Pennsylvania Lottery and its longtime operator, Scientific Games, recently took a deep dive into skill gaming to determine its impact on lottery operations.

The lottery said nearly 200 Lottery District Sales Representatives began monitoring skill gaming machines and collecting field data on the devices beginning in 2017. The reps routinely reported back on the number of skill machines found at the lottery’s more than 9,000 retailers.

The data, compiled through March 2022, showed that almost 30% of licensed lottery retailers in Pennsylvania have games of skill on their premises. In 2017, only 5% did. The spread has caused some would-be lottery players to play the skill machines. Instead, the lottery report summarized.

Even though scratch sales have consistently grown during this timeframe, our analysis finds that the total revenue realized by the Commonwealth has been 4.4% lower than it could have been, costing the Pennsylvania Lottery more than $650 million in top-line revenue since tracking began in late 2017,” the impact analysis said.

On $650 million in sales, the lottery said it would have expected to generate net revenue of around $200 million.

“To put it another way, the $14.9 billion in scratch products sold between October 2017 and March 2022 could have been more than 4.4% higher, which would have generated over $200 million more for older Pennsylvanians and local businesses,” the lottery explained.

The Pennsylvania Lottery benefits older Pennsylvanians with property tax and rent rebates, low-cost prescription assistance, transportation services, and free meals.

Manufacturer Maintains Benefits

Pace-O-Matic, a Georgia-based gaming company, is a leading manufacturer of skill gaming machines and is responsible for the Pennsylvania Skill terminals, the most commonly found skill gaming title in the state. Michael Barley, chief public affairs officer for the company, says the firm’s products aren’t barred under Pennsylvania law.

They’re not illegal,” Barley recently told Fox43. “Every dollar that’s made … over 92% of it is staying in the Commonwealth, staying in small business. It’s literally been a lifeline, especially through COVID.”

Skill gaming revenue is divvied between the host business, manufacturer, and route distributor. Neither the state nor the host county/township/municipality collects revenue from the machines.

While Pace-O-Matic has said for years that its machines are helping small businesses overcome pandemic revenue losses, a recent report in Virginia showed that the company has made a habit of suing its business partners when they opt to turn off the devices. Pace-O-Matic has brought almost 150 lawsuits against small businesses for violating contracts.

“Like most companies, we vigorously defend our contractual terms,” Barley said.