Virginia General Assembly gives local governments power to go after illegal gaming

Virginia Politics

RICHMOND, Va. (WAVY) — Virginia lawmakers have doubled down on their efforts to hold illegal gaming operators accountable.

A pair of bills that passed the General Assembly this month will work to close what some see as “loopholes” in current gaming law, as well as make it easier for local governments to go after operations that have been skirting laws currently on the books.

This all comes as the state prepares for its expansion into casino gaming and prepares to say goodbye to ban skill games — also known as gray machines.

State Sen. Bryce Reeves (R-Fredericksburg), who along with Del. Don Scott, (D-Portsmouth) pushed the new legislation, said he hopes it helps put everyone on a “level playing field.”

Aside from the state-run lottery, there are four different forms of gambling currently allowed under Virginia law: casino gaming and sports betting; horse racing and historical horse racing; skill gaming; and charitable gaming.

Each type is overseen by different state department.

“What we’re trying to do is just make sure that we’re not letting people do some things that are unscrupulous or illegal,” Reeves said.

The problem

Gray games appear to be on their way out, with a bill looking to extend their existence past June 30 never receiving a hearing in a state House committee.

Often found in bars, convenience stores, gas stations, and restaurants across the state, the games operate much like a slot machine. But after the initial spin, players on gray machines can adjust the symbols to create a winning pattern.

The General Assembly voted to ban them last year, but in the early days of the COVID-19 pandemic,

Gov. Ralph Northam, (D-Va.) came up with a proposal to tax and regulate the devices for one year, in order to help struggling businesses and establish a COVID-19 fund.

Since July 2020, the state has collected an estimated $70 million in new revenue from the more than 10,000 machines registered with the Virginia Alcoholic Beverage Control Authority (Virginia ABC).

Twelve percent of that has gone back to the local government where the the machines were located.

However, local commissioners of the revenue say there are plenty more operators who haven’t registered that are making big money.

“In our office, we’ve seen soup to nuts in regards to this,” said Commissioner of the Revenue Frankie Edmondson (D-Portsmouth).

Registered skill machines are legally only allowed to be in ABC-licensed establishments and must have a yellow certificate from Virginia ABC on the side of the machine, proving it is taxed $1,200 monthly. ABC also imposed an eight-game-per-location limit.

Edmondson said he knows of at least 10 businesses in Portsmouth that have more than that amount of games per store, with no yellow stickers in sight. He said while some have come into compliance after they are notified of the rules, many others have no interest.

“There’s individuals who come in and say ‘Well I’m doing this and try to stop me’,” Edmondson said. “This old seaport city … really needs those funds to survive.”

The label on the registered skill machine located at “The High on High Street” in Olde Towne Portsmouth (WAVY photo/Cortez Grayson)

Similar problems have plagued neighboring Norfolk.

On June 23, 2020, Norfolk City Council voted to deny three conditional use permits for businesses wanting to operate as commercial recreation centers with skill games.

The businesses were Dragon Vapes at 846 East Little Creek Road, Colley Shop at 4800 Colley Avenue and an, at the time, unnamed business at 5686 Tidewater Drive.

As of Feb. 1, 10 On Your Side witnessed all three were open for business. All three could not be found on the state’s skill machine database.

Both Colley Shop and Dragon Vapes have either curtains or dark tinted windows that prevent a person from seeing inside, however, at 5686 Tidewater Drive, a business carrying the name Blue Diamond Giftshop looks like a casino from the road.

“I win cash here all the time,” a woman who didn’t wish to give her name told 10 On Your Side reporters.

Neither the listed owner of Dragon Vapes — Jeremey Jones — or Blue Diamond Giftshop — Hadi Makhoul –returned requests for comment from 10 On Your Side.

Derek Donham, listed as the owner of the Colley Shop, told 10 On Your Side that he has since shut down his operation, as he wasn’t making any money. While Donham never received a conditional use permit, he did have valid Virginia ABC license.

When asked why the businesses were still allowed to operate, a spokesperson for the city put much of the onus on Virginia ABC.

“The registration of gray machines falls under the jurisdiction of the ABC and you should direct any questions about whether a particular location has registered their machines to them,” said Norfolk city spokeswoman Lori Crouch. “Whether the machines constitute illegal gambling or not is a question for the Commonwealth’s Attorney.  The City does not want confirm or deny that any of the locations you have mentioned are under active investigation for possible violations of City ordinance.”

A spokeswoman for Virginia ABC also confirmed that it is up to them to partner with local law enforcement partners and local commonwealth’s attorneys when complaints arise about alleged illegal games. State code states that any distributor found by the authority to be in violation of the rules could face a civil penalty of not less than $25,000 and not more than $50,000 per incident. 

Representatives from both Norfolk and Portsmouth’s commonwealth’s attorney offices said they have not prosecuted anyone for illegal gray games.

Through a Freedom of Information Act Request, 10 On Your Side requested the number of complaints Virginia ABC has received regarding unregistered gray games and the locations they’ve received complaints about.

Virginia ABC wouldn’t release location information, citing investigative materials. However complaints regarding games at roughly 60 different locations have been reported statewide since last July, 22 of them in the Hampton Roads region.

“Virginia ABC is saying ‘We can’t, they’ve proliferated so much, we don’t have the resources and the ability to go after all of them,'” Reeves said. “These [gaming] manufacturers shove these things out there. They go to a mom-and-pop store and say ‘Hey put this in. At the end of the month. You don’t have to do anything but give us power and internet.'”

The solution

It’s why Reeves, along with Scott, proposed not only allowing prosecutors to handle illegal gaming issues, but also city, county and town attorneys.

If signed by Northam, any person who “conducts, finances, manages, supervises, directs, or owns a gambling device” that is located in a location not overseen by any state agency charged with regulation gamin, could face a civil penalty of up to $25,000 per each gambling device found at the unregulated location.

“Hopefully that will take care of a lot of the bad players,” Reeves said.

Another bill he sponsored would deny game manufacturers permits to provide to charities if they are found in violation of the state gaming law.

Edmondson praised the legislation.

“That could be a windfall for Portsmouth,” Edmondson said, referring to the revenue the city could receive at $25,000 a machine currently. “Would generate a lot of revenue, for schoolteachers and for buses and for police officers and firefighters.”

He said until he has the new tool, he’ll continue to “fight the good” fight, to achieve compliance.

Queen of Virginia Skill & Entertainment, using games manufactured by Pace-O-Matic, is the largest supplier of skill games in the state. They also back the legislation and released the following statement:

QVS is greatly concerned about restaurants and bars in the Commonwealth that depend on regulated skill games to help them stay open during the pandemic. This is critical revenue to them that cannot be replaced.

We also have sounded the alarm for the last year with the Alcoholic Beverage Control Authority as well as state and local authorities about illegal games that operate around the Commonwealth. These games do not provide even one dime of tax revenue to the state.

In comparison, regulated skill games will pour $140 million into the state COVID-19 relief fund by the end of June.

If regulated games are banned, the state will be left with illegal skill games that are not leaving Virginia and provide no benefit to the state or businesses. Most restaurants and bars will not break the law by placing illegal games in their businesses. Instead, they will simply suffer financially.

-Queen of Virginia Skill & Entertainment

Copyright 2021 Nexstar Media Inc. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

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