Va. lottery says it’s on track to lose $140 million this year to unregulated ‘skill games’

Virginia lawmakers appeared to take serious notice of the proliferation of gray market “skill games” for the first time Monday after the Virginia Lottery reported they could lose as much as $140 million this year to competition from the new devices.

The games look and function like slot machines, advertising jackpots and spitting out cash vouchers, but purport to incorporate an element of skill that manufacturers argue means they don’t run afoul of the state’s prohibition on gambling. In many cases, that skill is limited to pressing an additional button to complete a simple pattern.

A game from an unidentified manufacturer in a Richmond corner store. (Ned Oliver/Virginia Mercury)

“What’s alarming here, beginning in spring, is the acceleration of the deployment of these machines into the retail spaces where we conduct the overwhelming majority of our business,” Kevin Hall, the executive director of the Virginia Lottery, told members of the House of Delegates’ appropriation committee.

He said that as of August, lottery staff counted just under 4,500 of the machines at retailers that are also licensed to sell lottery products – a steep jump from just over 500 they counted at the beginning of January.

Hall said that as numbers have increased, sale of lottery products have dropped and that if the trend continues at its current rate, the lottery projects its revenues this year will drop by $140 million.

“The correlation is obvious,” Hall said.

Profits from lottery ticket sales — $650 million during the last fiscal year – go toward public education funding in Virginia.  In contrast, Hill observed that the competing skill games “are unlicensed, unregulated and untaxed.”

He said that while lottery sales are taking a hit from the skill games, they don’t believe they’ve been impacted by the casinos opened by Colonial Downs, branded as Rosie’s Gaming Emporium, which are filled with another slot-like game, Historical Horse Racing terminals. The lottery reached that conclusion after studying lottery sales near Rosie’s Vinton location and finding that sales only decreased in stores that also offered skill games.

Lawmakers, who have accepted $224,000 in donations from the most high-profile manufacturer of the games, Queen of Virginia, expressed surprise.

“How did we get to this point?” asked Appropriations Chairman Chris Jones, R-Suffolk.

The General Assembly has so far declined to get involved. Legislation that would have banned the devices was introduced but never heard earlier this year amid a larger debate over a proposal to bring full-fledged resort casinos to the state.

Meanwhile, Attorney General Mark Herring has left it to commonwealth’s attorneys around the state to pursue or not pursue charges against store owners and manufacturers.

That’s led to a hodge-podge approach. In Charlottesville, prosecutors said they would pursue charges against store owners. Queen of Virginia responded by filing a lawsuit seeking to demonstrate their product’s legality. In Danville, officials turned to zoning laws to require stores that want to host the games to secure a special-use permit.

(Hall said sales at lottery retailers “Snapped back … after the machines are turned off.”)

Del. Chris Peace, R-Hanover, said it’s going to fall on the General Assembly to address the issue.

“The state is going to have to have a uniform policy,” he said.