Legislation to legalize, tax skill games in Virginia heads to governor

Virginia lawmakers passed legislation Friday that would legalize skill games, the slots-like betting machines that proliferated in businesses around the state before an on-again, off-again ban took effect.

If signed by GOP Gov. Glenn Youngkin, the bill would tax and regulate the devices, which are also known as gray machines because of the murky area of the law in which they previously operated.

The legislation was supported by a well-organized coalition that involved skill game developer Pace-O-Matic and business owners who have hosted the games and shared in their profits. Even critics said they were moved by the testimony of the business owners, many of them first-generation Americans, who said the machines had been a lifeline for their establishments, especially during the pandemic.

“For years, thousands of small businesses throughout the Commonwealth have come to rely on the supplemental, sustainable revenue provided by skill games. This victory will solidify their presence in Virginia and give thousands of small business owners peace of mind knowing they can keep their doors open, create jobs, and support their local communities," said Rich Kelly, a restaurateur and president of the Virginia Merchants and Amusement Coalition, which formed to advocate for legalization of the machines.

The arcade-style games, which other states are also grappling with, look similar to slot machines but involve an element of skill, according to their manufacturers.

Opponents of legalizing them said doing so would represent a massive expansion of gambling in Virginia, which they argued could result in harm for children, low-income people and those struggling with gambling addiction.

Legalization was also opposed by other players in the gambling industry, including casinos, which have donated generously to Virginia lawmakers in recent years, as has Pace-O-Matic.

“This is bad policy that would bring an unprecedented expansion of gambling to every corner of Virginia without even attempting to provide basic guardrails including local referendums, legitimate background checks, security or problem gambling regulatory requirements,” Virginians Against Neighborhood Slot Machines, a group formed to lobby against the legislation, said in a statement.

The legislation, which was filed after a similar effort failed last year, would cap at four the number of games allowed at each ABC-licensed retail establishment; 10 machines would be allowed at truck stops. That is closer to the 5- and 10-machine limits contained in the original industry-backed bill than some stricter versions of the legislation as it went through the process.

Receipts from the machines would be taxed at a 25% rate, higher than the original bill’s 15%.

Under the legislation, localities would not have the authority to ban the machines or hold a referendum on whether to allow them, a local control option opponents had sought.

Speaking to the bill on the House floor, Del. Barry Knight, a Republican from Virginia Beach, pointed out that localities where the General Assembly has allowed casinos were required to hold a referendum approving the projects first.

“What I like to see is a level playing field,” he said.

The bill would require that players be 21 or older, though it doesn't require a verification method like a player's card that some proponents called for. A person who allowed an underage player to gamble could be charged with a misdemeanor.

The state's ABC authority would regulate the machines initially, then the Lottery would take over.

The legislation requires that skill game machines must contain an “accounting system” operated by the state to ensure regulatory oversight of accurate receipts and tax collection.

The legislation the General Assembly acted on Friday was the product of a conference committee, a small group of legislators who met privately to work out a deal after the two chambers passed competing versions.

“It is a true compromise,” said Republican Del. Terry Kilgore, one of the lawmakers who helped craft it.

The bill, sponsored by Democratic Sen. Aaron Rouse of Virginia Beach, passed with fairly limited debate. The Senate signed off 31-9, and the House of Delegates 49-43.

Youngkin's press office, which previously told the Virginia Mercury it had “serious concerns” about earlier versions of the bill, did not immediately respond to a request for comment Friday.

The skill games debate is a rare issue that doesn’t split along partisan lines, and lawmakers have gone around and around on it for years.

A 2019 state report said Virginia, like other states, was grappling with the “rapid spread” of the machines, which at the time were not “specifically permitted or prohibited” and were not being taxed or regulated.

The General Assembly voted in 2020 to ban them as they were clearing the way for casinos for the first time.

But skill game operators got a one-year reprieve after then-Gov. Ralph Northam, a Democrat, asked lawmakers to delay the enactment of the ban and instead tax the machines and use the revenue for COVID-19 relief. The ban took effect in July 2021.

A legal challenge was filed, and in December 2021, a Virginia judge issued an injunction blocking the enforcement.

Last fall, the Virginia Supreme Court vacated the injunction, meaning the machines had to be turned off again.