A Break from COVID — Gambling

Photo Credit: Richmond Times-Dispatch

By Dick Hall-Sizemore

The Governor is in a tug-of-war with his Democratic colleagues in the General Assembly. The objects of their contention are the so-called “skill games” (also sometimes called “gray machines”).

The skill games are video games now found in numerous truck stops and convenience stores that offer a cash prize to the winners. The opponents of such games have denounced them as illegal gambling. One Commonwealth’s attorney has charged the distributor of such games for violating Virginia law. The games’ distributors contend they are games of skill.

Whatever they are, they seem to be pulling money away from the Virginia Lottery, the profits of which are funneled to K-12. The estimate of Lottery profit losses vary from $40 million annually to $125 million over two years. On the other hand, the businesses in which these games are placed say the games have been an economic godsend, both from the revenue they get from the game distributors and the business they get from customers coming in to play the games. One owner of two truck stops and 26 convenience stores in Southside Virginia estimated that the loss of the video games would cost him $600,000 annually.

To provide some perspective on the widespread presence of the video games, the largest distributor has approximately 7,500 devices in 2,500 locations in Virginia.

To make up the revenue loss for the Lottery, the Governor proposed that video games by regulated by the Lottery Department with a tax of 35% of all gross profits  levied on the distributors. Of the revenue collected, 94% would be dedicated for public education. (HB 1589) The Governor’s introduced budget included an appropriation of $125 million for the biennium for the revenues resulting from this legislation.

The legislation immediately ran into trouble in the General Assembly. The video game representatives said that the tax of 35% was too high; they would not be able to make a profit. Some members of the General Assembly did not think it was high enough. Many legislators wanted to ban the video games outright. There was furious lobbying. In the end, the games’ opponents won out. The Governor’s bill was killed unanimously in a subcommittee. Instead, the General Assembly passed legislation banning video games altogether. (HB 881).

The reason for the opposition is not clear. Senator Janet Howell, D-Fairfax, chair of the Senate Finance Committee, said only, “We have pretty much made a policy decision that we are not going to do gray machines this year. We’re not ready yet for these machines. We haven’t finished negotiating. We don’t have the regulatory structure. At this point, I think the proper [way forward] is a total ban.” That comment ignored the proposal for regulation in the Governor’s bill.

But the Governor is not willing to throw in the towel. He has returned HB 881 to the General Assembly, proposing a substitute bill that would allow video games to remain in place until July 1, 2021. During that time, each distributor of a video game (called “skill game” in the substitute bill) would be required to pay a tax of $1,200 per month for each game provided for play in Virginia. The proceeds of the tax would be distributed as follows: Two percent to a new Problem Gambling Treatment and Support Fund; 2% percent to the ABC Authority to cover administration and implementation costs; 12% to the localities in which the games were located; and 84% to a special fund for the “purposes of responding to the Commonwealth’s needs related to the Coronoavirus Disease of 2019 pandemic.”

Based on what I have heard, Democratic leaders, especially in the House, do not like this move by the Governor at all. It will be interesting to see what happens on Wednesday at the reconvened session.

My Soapbox                                                        

It is hard to understand why the General Assembly banned video games. It can’t be because legislators are against gambling. The Commonwealth has long had the Virginia Lottery. It approved pari-mutuel racing. A couple of years ago, it approved “historical horse race” games (hard to distinguish from slot machines). And this year, the legislators went on an orgy of approving gambling: casinos (subject to local referendum) (HB4, SB 35); betting on sports (HB 896, SB 834); and playing the Lottery on-line (HB 1383, SB 922).

Why not video games? There was the excuse that they take money away from the Lottery, and, by extension, from education. But the whole idea of the Lottery money going to education is a sham. The Lottery proceeds just replace general fund money that would have been otherwise used for education. Furthermore, the Governor’s original bill would have taxed video games and channeled the funds to K-12.  So, that is not a valid explanation for the ban.

Another excuse I have heard is that the video games are too prevalent, too widespread. The General Assembly wants to regulate them. (That is sort of what Sen. Howell is saying.) But, one can hardly turn around without bumping into a Lottery dispenser. And the legislature just enabled the Lottery to sell tickets on-line! How more widespread can you be?

Finally, there has been a suggestion in news reports that the casino owners who were vying for authorization to locate in Virginia were lobbying for banning the video games in order to “provide a level playing field for potential competition.”  Ah, a plausible explanation. Good, old-fashioned business lobbying. The video games folks got out-lobbied (and outspent) by the big boys.

(I am indebted to the reporting of the Richmond Times-Dispatch for many of the details in this post.  See its articles here and here and here and here and here.)

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27 responses to “A Break from COVID — Gambling

  1. Dick – where else can we get this kind of commentary and insight!

    thank you!

    All kinds of irony and hypocrisy in play here.

    Looks like every time Virginia wades into these kinds of “sin” things, it tip-toes…


    1. – is it better for the State to get into this business or leave it to the private sector?

    2. – all this talk about about people knowing better what to do with their hard earned money than the govt – NOT!

    3. – if these things are in truck stops – snagging out-of-state folks – what;s the problem! get on with it!

  2. >> the profits of which are funneled to K-12.

    Total B.S. Money is fungible, so Dick’s comment is on point.

    >>all this talk about about people knowing better what to do with their hard earned money than the govt – NOT!
    Larry, you always want to replace individual choice with the nanny state. The issue is not whether folks make a better choice (“better” according to who?), but whether they get to choose in the first place. Among other things, your post shows that you don’t understand the policy effects of a free market. Individuals in a free market make lots of different choices, some bad, some not so bad, some good, in the eyes of others; but it’s the sum of those choices which reveal the proper public policy. When inner city folks (See e.g. Washington DC) queue up for voucher or charter schools so that waiting lists are endless, the market is telling public officials something. But you would say, “Oh, they don’t know what they’re doing, so we have to keep them from making that choice”. It’s their choice, and, unlike the poor saps who put up with the crappy DC public schools, they can unmake that choice and choose something else or go back to the public schools if they want. You assume they are unable to tell the difference between what they left and what they have gone to.

  3. Crazy – no I do not want to replace individual choice – I’m pointing out what a farce it is when so much money is spent on non-essential stuff – like sit-down restaurants and video games – at the same time taxpayers are paying for Medicaid for people in nursing homes – who did NOT save their money and instead DID spend it on other stuff. So taxpayers get to pick up the tab!

    I woulda thought any self-proclaimed “conservative” would see that right away… no?

    Once more – I have zero problems with vouchers as long as those schools we use public money to pay for – have to meet the same standards.

    re: ” You assume they are unable to tell the difference between what they left and what they have gone to.”

    Nope. The track record with for-profit schools and student loans and GI bills is crystal clear. Some people actually do NOT know and they’ll waste money left and right, their own and the govt entitlement.

    That’s just a plain fact. In FACT, people will spend a TON of money on traditional 4-year colleges, far more than it should cost – and they graduate with worthless degrees…

    you know this … why not admit it?

    oh and yes, you are right – money IS fungible… the whole idea that gambling money if “for the kids” is just pure unadulterated BS for the gullible. Can’t wait for those Casinos… it’ll be so noble we can’t stand it!

  4. I’d like to see the legislative discussion of nursing homes, Medicaid and assets suggested by Larry.

    The state should legalize gambling like most other states have done, apply a reasonable tax and regulate for fraud and operators who have a criminal background.

  5. James Wyatt Whitehead V

    I remember my grandparents would go to Colonial Beach. I believe it was riverboat gambling, which was legal in the Maryland owned Potomac. This must have been some time back. Anyone remember this?

    • Remember liquor-by-the-drink? Private clubs? Oh dear, but those were the days. 3.2 beer for the 18-year olds.

      • Was out west this past summer. WalMart in Kansas or Missouri , grabbed some box wine. At the check out the clerk asked “what are you doing with that? You KNOW you can’t buy it on Sunday” .

        Yes.. liquor by the drink was going to turn Virginia into… why New Jersey!

        • About 25 years ago, I was in Salt Lake for business. Having dinner at the hotel after arriving, I ordered a glass of wine. The waiter told me that this was the only way I could get the wine – by asking. Waiters were not permitted to offer alcohol.

          Later in the trip, I went into the bar but was required to show my key to get a permit. Then I was allowed to order beer. Another guest got his beer at the bar and headed out the door to go to his room. The manager followed him and told the guest he couldn’t drink beer in his room. The man laughed and continued to the elevator.

          This was before the Winter Olympics and the changes brought about by Mitt Romney, who ran the planning for the Games.

          • Reed Fawell 3rd

            The story of Mormon hypocrisy over alcohol was etched in stone by Marriott hotel chain’s entry into the bar business. The only thing those Mormons loved more than their God’s word was other people’s money, however gotten.

          • Mormons?

            It has long been said that Catholics don’t recognize the Greek and Russian Orthodox, and that Lutherans don’t recognize the Methodists, and that Baptists don’t recognize each other in the liquor store.

          • Reed Fawell 3rd

            What’s got to do with anything?

    • Due to a colonial charter, the Virginia/Maryland border is the low mark of the Potomac on the Virginia side. Therefore piers out into the Potomac from Colonial Beach were legally in Maryland. For many years during the 1950s and 1960s and perhaps earlier, Maryland allowed slot machines in some counties, including Charles County, directly across the river from Colonial Beach. Slot machines were therefore legal on the piers jutting out from Colonial Beach and entrepreneurs took advantage of that loophole. That ended in 1968 when Charles County, Maryland, banned slot machines.

      • At one point only Nevada and four Maryland counties had legal slot machines with cash payouts. Charles County was one of those counties. As Democrats took control of county commissions in those counties the legal slot machines started to disappear. Note the word “legal”. Anybody growing up in the greater Washington area who wanted to play the slots knew where to go in Waldorf to do so. Money for lawbreakers but none for the public coffers.

        Janet Howell would be proud.

      • “Due to a colonial charter” Lots of charters.

        I thought it was war reparations for the sticky little affair in 1861 in there too that left the state line in the middle of the river but ceded the water to Maryland, or something equally grotesque.

        It has been settled by the SCOTUS in 2003

  6. Yes. Colonial Beach, Fairview Beach and Belvedare Beach. Maryland owned the Potomac all the way to the Virginia shore so piers were built!

  7. Internal v external? Where do the money go? Lottery, OTB, casinos are all-Virginia. Video?

  8. Since we have these folks who are not practicing social distancing and not staying at home, why isn’t the Gov. or General Assembly doing something on that? I guess another reason its ok to put regular folks out of work but not the gamblers?

  9. 18-wheeler truck drivers – essentially work! Have to stop, refuel, eat, take break… and do a little gaming….

    You WANT those truckers to re-stock your grocery store!

  10. To crack the code of why the General Assembly does what it does: It seeks to maximize revenue to the state which legislators are then free to redistribute to favored constituencies.

    Applying this principle to gambling: Does the gambling mode in question lead to more or less revenue for legislators to dispose of?

    It’s that simple.

    • It would have led to more revenue under Northam’s original bill–approximately $125 million over the biennium. But the legislators chose to pass up that revenue and banned the devices.

    • re: “favored constituencies” – Do you not think the GOP does the same?

      Only the Dems do that?

      Don’t both sides have their respective versions of favoring their respective constituencies?

  11. I don’t gamble. Why would I? I paid attention in Prob&Stats 101.

    But, where does the money go? I mean, these video games, do they “earn” that money in Virginia? Is it subject to income tax?

    If nothing else, they’re selling something, entertainment . Did we ever collect even a sales tax?

    What do you do with these games? Insert a quarter, or credit card? If someone empties the cash, there’s a business someplace paying a tax, but if some guy in Nigeria is being paid in bitcoin, does anyone other than the loser ever know? Can said loser write off losing against winning? Are there 1099s issued? Receipts?

    Are the machines checked for fairness?

    Geez, just get some dice and go in the alley.

    If you win big in a casino, there’s an IRS agent right there.

  12. Poor Ralphie. He finally gets one right only to be bushwhacked by Janet “Big Bird” Howell from his own party. Watching our General Assembly at work is like watching a cartoon / puppet show.

    Ralphie Wiggums knows full well that the $2B shortfall predicted by “Money Train” Layne is a work of utter fiction. So he figures he might scrounge up some money to help cover that shortfall by taxing the video games. You see, Ralphie is a good ole boy who knows about these so-called gray machines and knows that banning them will only result in the machines being moved into the back room. More “gambling”, no taxes and a financial crisis that is going to make him look very bad (once again) when the Imperial Clown Show reconvenes this Fall only to “discover” that “Money Train’s” shortfall estimate was way wrong. If he can tax the gray machines he’ll have a partial alibi.

    Enter “Big Bird” Howell fresh off a mahjong tournament at her local country club in Northern Virginia. Big Bird has lots of money which she earned the old fashioned way. She married it. As a rich and imperious Northern Virginia liberal Big Bird knows to look down her nose at the deplorables who cling to guns and religion while playing video games in truck stops for money. She’s never been to a truck stop and doesn’t really know what happen in truck stops other than the obvious matter of trucks stopping so she calls her old pal “Dominion Dick” Saslaw for advice. After all, Dominion Dick used to own a bunch of gas stations and they seem like truck stops to Big Bird. When appraised of the moral outrage occurring “downstate” over gray machines Dominion Dick turns true to form asking, “What’s our side of this?”. He then goes on to explain to Big Bird for the umpteenth time that all potential legislation needs to include a skim for state politicians.

    “What do I tell Wiggums?”, asks Big Bird.
    “Just tell him we’re too busy to deal with this.”, replies Dominion Dick.
    “So just leave these machine-y things alone and let the deplorables keep playing their games?”
    “Of course not” thunders Dominion Dick. “How will that pressure the owners of those machines into getting out their checkbooks and writing big time campaign contributions? We need to keep the ban in place.”
    “But Wiggums will look bad at the Fall clown show” chirps the Sesame Street character.
    “So what, he’ll be gone after the 2021 election anyway.”
    “Oh Dominion Dick, you’re so smart. By the way, do you think we’ll nominate the accused rapist or the son of blackface to be the next governor?”
    “Who cares? Governors are temporary. We’re both gerrymandered politicians for life!”

  13. “Big Bird has lots of money which she earned the old fashioned way. She married it.”

    I ’bout fell off my chair laughing out loud.

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