BRISTOL, Va. — Lights flash and images twirl once money goes in the slot on the electronic console. The colorful display might show the player is a winner or encourage them to try again, in a scene played out thousands of times daily from Abingdon to Yorktown.
Odds are it didn’t occur at one of 870 slot machines — games of pure chance — inside the Bristol Casino, future home of Hard Rock or 2,600 similar slot-style consoles at six Rosie’s Gaming Emporium locations — machines whose outcomes are based on historic horse racing results.
The majority of machine gambling in Virginia occurs on so-called “skills” games or “gray” machines located in convenience stores, restaurants, truck stops or clustered in gaming “parlors” or “arcades” all over Virginia.
Gray machines have no federal, state or local regulation, no government collects any taxes from their use, no one involved undergoes any background checks, there is no oversight as to their fairness and nobody appears to know just how many currently operate in Virginia.
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Operators say their games require a level of skill to complete the game and win.
The Virginia Joint Legislative Audit and Review Commission estimates play on these machines exceeds $2.2 billion annually.
The Bristol Casino, all future Virginia casinos and all Rosie’s locations will be regulated and taxed by the state. As part of that oversight, they must also restrict play to adults age 21 and over, but any such age restriction on gray machines or skills games is left to the business owner where the machines operate.
A 2019 report that investigated the potential for casino gaming in Virginia also recommended the General Assembly consider regulating gray machines to “ensure gaming integrity, protection to consumers, protection to businesses hosting the machines and to minimize adverse impacts to Virginia’s existing authorized gaming.”
In 2020 then-Gov. Ralph Northam championed legislation to allow and regulate the games, opining they would generate $300 million annually for state coffers. Instead the General Assembly outlawed the games — saying they hurt state lottery sales and would negatively impact future casinos.
Senate Bill 971 and House Bill 881, which are now law, define “illegal gambling machines” as “any machine, apparatus, implement, instrument, contrivance, board or other thing, or electronic or video versions thereof, including but not limited to those dependent upon the insertion of a coin or other object for their operation, which operates, either completely automatically or with the aid of some physical act by the player or operator, in such a manner that, depending upon elements of chance, it may eject something of value or determine the prize or other thing of value to which the player is entitled; provided, however, that the return to the user of nothing more than additional chances or the right to use such machine is not deemed something of value within the meaning of this subsection; and that machines that only sell, or entitle the user to, items of merchandise of equivalent value that may differ from each other in composition, size, shape or color, shall not be deemed gambling devices.”
The law also calls out skill games by name. “Skill games. Such devices are no less gambling devices if they indicate beforehand the definite result of one or more operations but not all the operations. Nor are they any less a gambling device because, apart from their use or adaptability as such, they may also sell or deliver something of value on a basis other than chance.”
Before the ban went into effect in July 2020, skills game operators received a one-year reprieve from former Gov. Northam and lawmakers, due to the global pandemic.
Northam directed the Virginia Alcoholic Beverage Control Authority to identify as many machines as possible in businesses where it had jurisdiction and then levied a $1,200 per month tax on distributors to generate money for a COVID relief fund. The state identified about 9,000 machines at that time.
“Ultimately, tax revenue from gray machines generated $109 million in revenue, which was used to provide $76 million in direct aid to public education, $2 million in legal aid services for Virginians facing evictions, and $25 million in Rebuild Virginia Grants to small businesses,” the October 2022 JLARC report shows.
The legal gray area
Before the ban went into effect it was challenged in court. Today skills games operate in Virginia under an injunction issued by Greensville County Circuit Court Judge Lewis Lerner.
In June 2021, former NASCAR driver, Emporia business owner and now state Senate candidate Hermie Sadler filed the lawsuit that currently has put their status in limbo. His complaint claims the law establishing the ban violated their right to free speech and was unconstitutional. Sadler sued the commonwealth, former Gov. Northam, former Attorney General Mark Herring and the Virginia Alcoholic Beverage Control Authority.
Northam appealed the injunction to the Supreme Court of Virginia, which declined to hear it.
In issuing the injunction, Lerner said the law was too vague and it violated First Amendment rights. Last month, the judge extended that injunction until March 2023 — past the conclusion of the General Assembly session. A trial is expected next spring.
Michael Barclay, spokesman for Pace-O-Matic, a company that manufactures the skills games, issued a statement in support of the November ruling.
“We are pleased that legal skill games will continue operating in Virginia and providing much-needed revenue to small business owners across the state,” Barclay said in the statement “We anticipate the final court decision will uphold the legality of skill games in the commonwealth. However, without further regulation and additional taxation, taxpayers are missing out on nearly $100 million in tax revenue that could have gone toward critical projects along with curbing illegal games that are proliferating in Virginia communities.”
Skill games vs. slot machines and HHR games
JLARC estimated those 9,000 skill games or gray electronic gaming machines likely generated $2.2 billion in play during fiscal 2020-21. If accurate, that means every machine generated an average of $244,444.
All forms of legalized gambling in Virginia generated $9.5 billion in fiscal 2021-22, according to that same 2022 JLARC study. The $2.2 billion estimate would place gray machine activity at nearly a fourth of that activity.
For comparison, since the Bristol Casino opened in July, its 870 slot machines have generated $54.7 million in adjusted gross revenue for Hard Rock during the casino’s first six months of operation. That is an average of $62,800 each. The slots also generated nearly $10 million in state tax revenues, or about $11,500 each.
Rosie’s Gaming Emporiums operates more than 2,600 HHR terminals in six locations across the state. Collectively, they generated $226.5 million in adjusted gross revenues — an average of $87,000 each — and $40.9 million in taxes — $15,700 each — primarily to support horse racing and the equine industry.
Virginia is for gamblers
State tourism officials haven’t gone so far as launching a “Virginia is for gambling lovers” campaign but the numbers don’t lie.
Legal annual gambling revenues in Virginia are forecast to rise from the current $9.5 billion to $21 billion statewide by 2025, once approved casinos in Bristol, Danville, Norfolk and Portsmouth all open. The level has tripled between 2019 and 2021 with the advent of online lottery play and legalized online sports betting.
Through the first 10 months of 2022, online sports gambling has generated nearly $3.4 billion in play and nearly $30 million in tax revenues. The first bricks-and-mortar sportsbook opened in July at the Bristol Casino and the second is expected to open in Portsmouth next month.
The temporary Bristol Casino, future home of Hard Rock — a 30,000 square foot facility less than one-third the size of the planned permanent version — is on pace to exceed revenue estimates found in a 2019 JLARC report for the full $500 million Bristol Hard Rock casino, which is now expected to open in the summer of 2024. It will feature about 1,300 slots.
The $300 million Rivers Casino Portsmouth is scheduled to open in mid-January. Temporary casinos are now planned in Norfolk, in advance of the 2024 opening of the $500 million Headwaters Casino next to Harbor Park and Danville where the $650 million Caesar’s Virginia is slated to also open in 2024.
Once all four approved casinos open, players will have about 7,000 slot machines from which to choose.
Richmond voters rejected a proposed casino project in 2021 and city leaders want to put the question before them again. But a rival effort from the nearby Petersburg is working to get that city added to the state’s casino legislation to allow its voters the first chance to voice support for a proposed casino there before Richmond gets another bite at the apple.
On Tuesday the Standish Group unveiled plans for a $1.4 billion casino development along Interstate 95 in Petersburg. Richmond officials have a $650 million project on the drawing board, to be operated by One Group — a coalition that now includes Churchill Downs Group
An October 2022 JLARC report predicts both casinos could succeed if approved, even though they would operate just 30 miles apart. However, a spokesman for the Standish group said its Petersburg project would not occur if Richmond voters approved a casino.
Rosie’s Gaming Emporiums
Rosie’s Gaming Emporiums, which are now owned by Churchill Downs, Inc., currently operate more than 2,600 HHR terminals at six locations. Colonial Downs in New Kent County has 600 games; Vinton in Roanoke County has 500, Richmond and Hampton each have 700 games, Dumfries in Prince William County has 150 and Collinsville in Henry County has 37 games.
“Wagering on all forms of Virginia horse racing grew from $124 million in 2018 to $3.4 billion in 2021, mostly due to HHR electronic gaming, which accounts for 95% of horse race wagering,” according to the JLARC report. Proceeds for Virginia’s horse industry grew fivefold during this time, growing from $8 million before HHR was introduced in 2018 to $30 million in 2021.
Churchill Downs, Inc. and Rosie’s expect to open two new facilities in the next two years including a second in Dumfries along the I-95 corridor in northern Virginia. Called, The Rose, it is being marketed as casino-style resort with 1,800 HHR terminals, luxury hotel, eight bars and restaurants, an entertainment venue with meeting and event space. The second is planned for Emporia, with 150 HHR terminals.
The ownership group is licensed for an additional 350 HHR machines.
dmcgee@bristolnews.com — Twitter: @DMcGeeBHC
