When Matt Widing was contemplating getting into the electronic skill-game business as a distributor 2½ years ago, the first question he sought to answer was whether what he would be doing was legal.
“I looked at the definition of gambling by Kentucky law and the answer was yes,” he said.
Not anymore. After years of nearly outlawing so-called “gray games” that can be found at taverns, convenience stores, and fraternal organizations statewide, the Kentucky Legislature finally pulled the plug, with Gov. Andy Beshear signing the ban into law on March 16 after one of the more expensive two-way lobbying efforts in recent memory. With the stroke of Beshear’s pen, Kentucky became one of the first states to explicitly ban such gaming terminals, which, while permitted and regulated in a handful of jurisdictions, have largely operated in a legal fog throughout the rest of the country.
The legislation that Beshear signed redefines skill games as a competition featuring two or more participants where the outcome is determined solely by skill, which does not encompass the single-player games that Widing and manufacturers like Pace-O-Matic and Prominent Games (known locally as Wildcat Skill Games) operate in small businesses throughout Kentucky. If and when the law takes effect this summer, parties responsible for furnishing and hosting these video terminals — which, at their root, are based on games like Simon Says and Tic-Tac-Toe — will be subject to a $25,000 fine and confiscation of the machinery.
The gray-game ban and the subsequent legalization of sports betting in the Bluegrass State represent major victories for Churchill Downs Inc. and Kentucky’s formidable horse racing industry. The state has no Class III casino gambling, which means that the lucrative historical horse racing (HHR) machines operated by its nine tracks are the closest Kentuckians can get to feeling like they’re playing slots in Las Vegas. And while, in one sense, the legalization of sports betting could be viewed as potentially cutting into horse betting, the Kentucky Horse Racing Commission will regulate sports betting, and all sportsbooks, retail or mobile, will have to be tethered to one of the state’s nine tracks in some way, shape, or form.
“It makes our racing product even better,” Jim Goodman, Keeneland’s director of wagering development, told BloodHorse. “Our racing fans who like to bet on sports won’t have to drive across the river anymore. They’ll be able to come out to Kentucky tracks and bet on racing and sports. We’re happy that our legislators supported this.”
But if Pace-O-Matic and some of its partners get their way, it will be the courts, not the legislature, that will have the last word.
Shades of gray
Widing concedes that he knew some of the risks involved in getting into the skill-game — or, as opponents refer to it, the gray-game — space.
“I was aware that companies like Churchill Downs were not excited by us and were trying to put us in a gray-game category,” he said. “But this isn’t a gray game. It’s made completely different than slot machines. I knew that eventually we were going to have to do what we’re doing now.”
What the skill-game industry is doing now is suing to keep their machines in operation across Kentucky, just as it’s done in states like Pennsylvania. In a complaint filed last week against State Attorney General Daniel Cameron in Franklin County Circuit Court, Pace-O-Matic (identified as POM of Kentucky in the complaint) and its co-plaintiffs contend that the gray-game ban is unlawful. Along with other forms of relief, they’re seeking an injunction to prevent the law from taking effect.
Among the plaintiffs’ central arguments is that the legislation unfairly classifies certain types of skill games as gambling while exempting others, such as esports. Furthermore, the complaint claims that the state is violating prohibitions against “impairing” existing contracts and seizing property without just compensation.
Perhaps most creatively, the complaint asserts that “electronic video-style skill-based games … are a form of expression and expressive activity which communicate ideas and messaging through literary devices and through features distinctive to the medium and are, therefore, protected speech under the Kentucky Constitution.”
“Legislation banning skill games is unconstitutional and we are prepared to defend the legality of our games in court,” Michael Barley, Pace-O-Matic’s chief public affairs officer, told US Bets in an emailed statement. “Our priority is, and always has been, protecting the rights of Kentucky small businesses and fraternal organizations who rely on legal games of skill for income.”
Should Pace-O-Matic’s legal gambit fail, Widing said, “I singlehandedly won’t have a company. I’ll have to look for another job. Overnight, my income will get shut down if this goes through.”
Outrun by the horses
Groups that generally support legal gambling have long made the skill-game industry their whipping boy. After Beshear signed the Kentucky legislation into law, American Gaming Association President and CEO Bill Miller released a statement calling it “a milestone victory … in the fight against illegal gambling.”
Miller then added, “Kentucky is the first state to pass standalone legislation banning unregulated gambling machines and joins Virginia in taking proactive government action to eliminate these bad actors. This win is a testament to what we can accomplish when we unite as an industry behind a common cause — and the American Gaming Association will use it as a springboard to pursue similar success in states throughout the country.”
One of the most vocal opponents of skill or gray games in Kentucky has been Mark Guilfoyle, executive director of Kentuckians Against Illegal Gambling, who warned, “We’re going to see mini casinos popping up on every street corner across Kentucky. These things are going to be woven into the fabric of everyday life.”
In a separate report, Guilfoyle said, “Thousands of gray machines are already proliferating in communities across Kentucky. They are not confined to regulated gaming facilities, not run by vetted gaming professionals, and are not monitored by state regulators like legally authorized gaming venues.”
Interestingly, skill-game advocates attempted to pass legislation that would have voluntarily subjected the industry to state regulation this past session, but the effort never received a hearing.
“How many companies have come here and said, ‘Please tax us, please regulate us, please license us?’” Bob Heleringer, a lobbyist for Prominent Games, told the Associated Press. “We’re willing to do that. We want to work with state government.”
As the compliance officer for Prominent Games, Howard Greer takes exception with the lumping in of the games his company manufactures with terminals that directly mimic slot machines and can be purchased off the internet or from less scrupulous salespeople. The latter, looser type of terminals “have really been blowing up” in Kentucky, Greer lamented.
“Our machines, we make them put them right in the front, right out in the open,” he added. “Our machines are purple in Kentucky. They’re called Wildcat Skill Games. Illegal games are just putting a ‘skill game’ sticker on them even though they’re not games of skill. We come in with structure and rules for these locations. The locations get 50 percent of the profit. The machines are self-sufficient. They can’t put any other machines in there with ours. We can be the only game in that location.
“We don’t want illegal games in there tarnishing our brand. If we were to get regulated in Kentucky, we’d probably bring in the same revenue as sports betting. We’d grow if they got rid of the illegal machines.”
In explaining why he feels the Kentucky Legislature ultimately sided against his industry, Greer said, “The horse industry in Kentucky is really coming at us hard. I talked to a fellow from the Kentucky Horse Council a few days ago. They’re definitely one of the bigger lobbies interested in the outcome of this ban. I asked him, ‘What is the problem with us coexisting?’ He said there’s a reason why there are only so many horse tracks operating in the state. It’s territory. They’ve divided up the state so they each got a certain area.
“They view us as competition because we’re taking away from players who would have to drive two hours to their facilities. I’ve heard them say they’re concerned we’re going to put 40,000 to 50,000 machines across the street. But if you get into the industry and how we operate (they top out at five machines per location and one machine for every 900 square feet), you would see that’s not feasible. The locations don’t want 20 machines sitting in their small convenience store.”
‘A sustaining force’
Steve Larson is the commander of American Legion Post 313 in Lexington, Kentucky, where the Bourbon Trail runs alongside some of the country’s most regal thoroughbred breeding operations.
Prior to Larson’s ascent to leadership, Post 313 held a charitable gaming license issued by the state, which allowed it to offer pull tabs, Bingo, and a few other regulated games to patrons. But the leadership in place at the time didn’t stay on top of certain licensing requirements, which led to a fine of over $8,000.
Reminiscent of a lot of august fraternal organizations with dwindling memberships, Post 313 did not have enough cash on hand to pay the fine and get its license reinstated. Instead, it entered into a contract to host five Pace-O-Matic gaming terminals on its premises.
“They have been our sustaining force to keep us operating — and I don’t mean at optimum tempo. Without these machines, we wouldn’t be living at all,” said Larson, who added that he would have “turned off the lights and closed the doors” of the post without the games.
Larson says his post makes about $4,000 a month in “straight profit” from the terminals. If he’s forced to remove them, he will, at which point he said he’d seek to get his gaming license reinstated if the state was willing to forgive the post’s fine.
As it stands, Post 313 is a co-plaintiff in the Franklin County complaint.
“I signed the acknowledgement to take the Commonwealth of Kentucky to task for hazarding our livelihood,” said Larson in explaining his post’s participation in the lawsuit.
Located in tiny Uniontown, Kentucky, VFW Post 5488 found itself in similar straits after “mismanagement and malfeasance” halted a long period of prosperity, said longtime member Butch Girten.
The post currently has 76 members, most of whom, like Girten, are Vietnam veterans.
“Our average age is 73,” he said, which is exactly how old Girten is.
This past summer, Post 5488 was flat broke when Widing showed up, donated some money, and equipped the location with four skill-game terminals, which Girten said account for some $700 in profit for the post per month.
“With the help of these donations from our members and the games Matt has given us, we’ll be able to pay our insurance. That’s been our goal, which is whatever we get from gaming goes to our insurance. It put us back into position to do what we are chartered to do, which is to help veterans, do charitable works. The only ones making money here are the people winning on the machines.”
When asked if he’s considered obtaining a license from the state to run legal charitable gaming, Girten said he didn’t think the post had ever held such a license but would consider one if the new law stands and they’re forced to fork over the existing terminals.
“We don’t have any grief with buying a gaming license,” he said. “It’s just it’s a lot simpler having these skill games in there, which weren’t illegal.”
Photo: David Becker/AFP via Getty Images