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Lawmakers Say Lottery Revenue Drop Due to ‘Skill’ Games Needs Urgent Fix

The front window of the Virginia Lottery with the green Virginia Lottery logo and the text 'we're game.'

Over the last year, Virginia’s lottery has been losing money that would otherwise help fund public schools. Lottery analysts attribute much of that loss to unregulated games known to proponents as “games of skill” and to critics as “gray games” popping up in convenience stores and gas stations across the state.

Last week, Erica Taylor sat down to play Living Large and another unregulated game at a machine in the back of a gas station off of Jefferson Davis Highway. Even though the company that owns the games is called Queen of Virginia Skill and Entertainment, Taylor says they’re all about chance, not skill. Still, she plays occasionally.

“Sometimes you might not have much money so you say, okay, I'm gonna go try $2, $3,” Taylor said. “I've stuck $2, $3 in and left the store with $80 or $100, so it'll keep you going.”

Other games in the gas station convenience store included: Lucky Fruit, Graveyard and Bombs and Bombshells. But these games are controversial in Virginia at the moment. While residents like Taylor may win money sometimes, the state has been losing money ever since they came to town.

“It's an industry with a colorful history of exploiting loopholes and other openings in gambling laws,” said Kevin Hall, executive director for the Virginia Lottery.

Hall says his staff has counted about 6,000 unlicensed, unregulated and untaxed gaming machines - primarily located in convenience stores across the state - just in the past year. They estimate there are at least another 6,000 machines out there that haven’t been counted.

“Gray machines are cannibalizing lottery sales,” Hall said. “They're undermining other forms of sanctioned and regulated gaming.”

One of the biggest losers of all? Public schools. Under Virginia law, all lottery profits go to K-12 schools. Over the past 30 years, Hall says the Virginia lottery has sent close to 10 billion dollars to public schools across the state. Last year, a record 650 million went to schools.

“I mean, frankly, [teacher] salaries have been included in some of those lottery proceeds,” said Kathy Burcher, government relations director for the Virginia Education Association. “Not only has it been a consistent pot of money for K-12, we can kind of count on it.”

Burcher says schools have been able to count on it because of accurate forecasting done by the Virginia Lottery. But their current forecast doesn’t look that good. Lottery officials estimate schools will lose about 40 million dollars this year, in part because of these so-called “games of skill.”

The Pennsylvania-based company Queen of Virginia Skill and Entertainment says they’ve brought about 7,000 of these gaming machines into Virginia within the past couple of years.

“We have a role to play in Virginia, and we believe we can bring significant revenue,” said Mike Barley, a spokesperson for the Queen of Virginia Skill and Entertainment.

Barley says the company wants to be regulated and taxed at a “fair rate.” However, he wouldn’t elaborate on what he’d consider a fair rate.

Lawmakers on both sides of the aisle agree that they have to do something about this new gaming industry immediately. But they don’t agree on what exactly to do about it.

“It's something that just has sprung up on Virginia,” said Democratic Delegate Mark Sickles. Sickles prefers regulation and taxation, as opposed to just booting companies out. Democratic Senator Louise Lucas disagrees.

“I think it's better now just to get rid of them altogether,” Lucas said.

Lucas is carrying legislation along with Democratic Delegate David Bulova that would outlaw most so-called “games of skill.”

“This was kind of the uninvited guest to the party, quite frankly,” Bulova said. “What is the message that it sends to other groups? Come in and set up operation and say, hey, we’re here now. We want to be taxed and regulated. I think our policies need to be much more thoughtful than that.”

Meanwhile, Republican Senator Tommy Norment is sponsoring bills to tax, regulate and outlaw the companies. But when pressed about how he feels, he said he’s trying to determine what the consensus is among other lawmakers, if there is one yet. But if Norment had his way, he’d prefer the games to just go away.

“I like things that are easy and simple, because I'm a very simple-minded guy,” Norment said. “And if we just ban them, that’s simple.”

Lawmakers say other relevant proposals could still come into play. Virginia Governor Ralph Northam has proposed taxing the companies at 35 percent and send nearly all proceeds to public schools. Democratic Delegate Lamont Bagby is carrying that legislation on behalf of the Northam administration, according to a spokesperson for Northam.

Megan Pauly reports on early childhood and higher education news in Virginia
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