As unregulated gaming machines proliferate across Virginia, the General Assembly’s oversight commission presented legislators with options Monday for how to respond.
The rapid spread of the machines in restaurants and convenience stores over the past two years has hurt Virginia Lottery sales, which means a reduction in profits that go toward public education. The headache over the machines comes as Virginia considers legalizing casino gambling and sports betting.
“Virginia kind of is now home to a dynamic conversation about whether and how we might choose to expand gaming opportunities for Virginians,” Lottery Executive Director Kevin Hall said in an interview earlier this month. “And we obviously have much at stake in that conversation.”
The gaming machines look like slot machines but claim to have an element of skill that could allow them to elude the state’s prohibition on gambling.
Out of concern about the effect on its sales, the Virginia Lottery began counting the machines. In January, the lottery counted 500 machines just in businesses that also sell lottery products. By Nov. 15, the lottery tallied 5,500 machines.
The lottery’s estimate doesn’t include machines scattered across businesses that don’t sell lottery products, so state officials believe there may be upwards of 9,200 machines throughout Virginia.
The state expects the number of machines to continue to grow substantially. For instance, Pennsylvania has 52,000 to 82,000 machines, and Illinois has more than 32,000 machines.
“What’s of concern to me as an immediate problem that I sense that we need to get a handle on is these ‘gray machines,’ ” said Del. Ken Plum, D-Fairfax, using the term Hall has used to describe the machines operating in what he believes to be a gray legal area.
State auditors looked to other states for potential solutions.
The Joint Legislative Audit and Review Commission report includes suggestions such as capping the number of machines at a single location, limiting where the machines can be located so as not to impinge upon other forms of authorized gaming, taxing the gaming revenue and requiring inspections of the machines.
No legislation has been filed regarding the machines yet, but current Senate Majority Leader Thomas Norment, R-James City, said he expected a bill to be filed that would ban them.
“I think it’s important that we get some guardrails around this activity, ban it or at least put some rules of the road in place,” Hall said.
In a confusing effort to try to deal with the machines, the Virginia Alcoholic Beverage Control Authority sent a letter to a gaming machine company in 2017 saying it had not determined its machines were illegal. That led to more companies setting up more machines.
Attorney General Mark Herring has left it up to local prosecutors whether the games are legal or not. Prosecutors in Charlottesville and Grayson County issued opinions that the machines were illegal and ordered their removal. The game manufacturers are challenging the Charlottesville opinion in court.
State auditors said local enforcement could lead to inconsistent and insufficient oversight.
During the last fiscal year, the Virginia Lottery had record profits of $650 million. Hall said the lottery might not even be able to hand the legislature $600 million this fiscal year for public education funding. The projected decline in lottery sales could put the legislature in a tight spot when it figures out how to replace that lost money.
“For every dollar I don’t give them, they have to find somewhere else,” Hall said. “This is shaping up to be a tight budget period.”
State auditors also examined the effect of gambling expansion on the lottery and determined it would be minimal but negative, reducing revenues 3.6%.
The report says that legalizing online betting and allowing casino resorts in Bristol, Portsmouth, Norfolk, Danville and Richmond would provide an overall yearly increase in state tax revenues by about $370 million.
The report also said the state’s horse racing industry would be hurt by the new casinos.
A few people trickled in and out of the One Stop Shop on Williamson Road in Roanoke on Monday afternoon to play games on the unregulated machines. Some of them had already been there earlier to play the games, but had returned to play again.
The store has seven machines, and typically multiple people are playing there at any given time.
Some of the people perched on stools said they also play lottery games but have shifted to betting their money on the unregulated machines. The store also sold lottery products.
None of them had any opinions on whether the government should regulate the machines. They were empathetic to the lottery’s concerns and the decline in revenue.