Ollie RingThe Kentucky legislative session is in full swing, and the first bill relating to gambling has been signed into law today. House Bill 594, banning dubbed ‘gray machines’ was signed into law by Gov. Andy Beshear this afternoon. He also indicated to Lexington Herald-Leader reporter John Cheves (see below Tweet) that he supports gambling and “will sign a sports betting bill.”
Gov Beshear: I signed the "gray machine" ban this morning. I support gambling generally as a governor and I'll sign a sports betting bill, but these machines just showed up, unregulated, and moved in. "The law is the law." ^JC pic.twitter.com/WpECtoHGCA
— Bluegrass Politics (@BGPolitics) March 16, 2023
The debate in Kentucky is a familiar one in the United States of America. It centers around a ‘game of chance’ or a ‘game of skill’. Those who supply the ‘gray machines’ such as Pace-O-Matic argue that the machines are in fact ‘games of skill’. Previously, the most famous example is that of Daily Fantasy Sports and FanDuel and DraftKings arguing DFS to be a product of skill, not chance, and thus outside of gambling legislation.
The House has heard that there are approximately 2,400 ‘gray machines’ in the state, from Pace-O-Matic, a leading entertainment company that develops and produces these machines for commercial use. The machines in their nature are similar to slot machines, but developers argue that they are ‘more of a game of skill’ and ‘not chance, like slot machines’.
The bill’s opponents have seemingly been small business, who have installed ‘gray machines’ in their premises and it allows them access to an alternative revenue stream while also providing its customers with an entertainment vehicle. Michael Barley, Chief Public Affairs Officer for Pace-O-Matic said “there’s a lot of backroom dealing. There’s a lot of folks who have interests in horse racing making decisions directly for horse racing”.
He added his vehement argument for small business, outlining that the potential $15,000 – $25,000 additional revenue for three or four ‘gray machines’ in a location was substantial for ‘small business’. He commented “That is a big deal to a small business. Not a big deal to a company like Churchill, but it’s a big deal to a small business in Kentucky. You’re gonna have businesses closed as a result of this. they’re dealing with record inflation. At the end of the day, the reality is you’re going to see a black market again, redevelop, and they can blame the small businesses, but they’re just trying to survive.”
On the opposite side, charitable gaming and horse racing venues are ecstatic with the decision to ban, what they see, as purely predatory slot machines that are not paying sufficient tax or falling under adequate gambling legislation. Malcolm Cherry, Commander of American Legion Post 23 commented “We finally got things going our way”, suggesting gray machines had a hugely negative impact on charitable gaming profits.
“During the tornado, all the veterans got together, and we unloaded 28 tractor-trailer loads of materials with FEMA”, he explained. “That money would be going into private businesses and, and the owners of the machines and the owners of the facilities they’re in would have all the money, make all the profit. They projected there would be 40,000 machines before they were done filling up the state” he suggested.
“When I started my small business, and applied for a loan, nowhere in my business plan that I have that I would depend on gaming ,illegal gaming machines to make my business run” concluded Cherry.
The Kentucky Merchants and Amusement Coalition (KY MAC) released the following statement on the signing of HB594: “The General Assembly let Kentuckians down today and that’s just the simple truth. House Bill 594 is anti-free market, anti-small business, and anti-Kentuckian. Those who backed this ban love to say they passed it because skill games need to be regulated, yet at the same time wouldn’t even give our regulation bill a hearing. We are committed to supporting our small businesses and fraternal organizations and are currently reviewing our options.”
As one door closes with ‘gray machines’, another opens with sports wagering. The venues for legalized sports betting are not going to be the same as small businesses where these machines are installed, and thus the controversy will rumble on. Sports betting in Kentucky is unlikely to be anywhere near as seismic as say, legal sports betting in California, or online gaming in Texas, but the decision to ban ‘gray machines’ coupled with potential legalization of sports betting (for the accused ‘large business’) will cause debate for weeks to come.
This article was written for Business 2 Community by Ollie Ring.
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