Budget discussions, a Supreme Court case, and a fall in lottery sales have complicated Pennsylvania’s efforts to regulate slot-like skill games that flood the state. Legislators hope to lock in annual revenue from the currently untaxed games to fund transit programs. The state Supreme Court last month agreed to review whether the machines should be subject to gambling-control laws applied to casino slot machines. Meanwhile, state officials estimate the machines have cut lottery profits by about $300 million since 2017.

“We have the situation where (skill machines) are everywhere and they’re unregulated,” state Sen. Jay Costa told members of the National Council of Legislators from Gaming States on Thursday. “The status quo is not acceptable. We need to regulate them.”

Costa, a Democrat from Pittsburgh and among the lawmakers who authorized casino gaming in 2004, spoke at a panel discussion titled “Welcome to Pennsylvania!” at the NCLGS summer meeting at Rivers Casino Pittsburgh. Kevin O’Toole, executive director of the Pennsylvania Gaming Control Board, and Matt Moyer, chief of staff in the state Revenue Department, were also on the panel. West Virginia delegate and NCLGS President Shawn Fluharty moderated.

More than 580,000 unregulated gambling machines are available throughout the United States and account for 40 percent of all gambling machines nationwide, according to a 2023 report by the American Gaming Association. Costa said “tens and tens of thousands” are in Pennsylvania; at another NCLGS discussion, Jeff Morris of Penn Entertainment estimated the number at 100,000. While casino slots keep an average of 7.7 cents of every dollar bet, the AGA report said, unregulated games across the country keep about 25 cents.

O’Toole said the Gaming Control Board is looking forward to a state Supreme Court decision on a skill-game case that it agreed last month to consider. The state attorney general’s office appealed a lower-court ruling that skill games are not subject to GCB rules. O’Toole said the 2017 gaming-expansion law included a provision that the Gaming Control Board thought would make skill-based games illegal and has made that argument in a brief in support of the attorney general’s office. The Supreme Court hasn’t indicated when it might rule.

Costa said many legislators had hoped to use tax revenue from regulation of skill machines to fund transit programs for Philadelphia and Pittsburgh, the state’s largest cities, and free up money for more transportation improvements in other parts of the state. That regulation was not part of the budget signed last week.

Skill machines often are found in service stations, corner stores, and bars. Moyer said their growth has made it difficult to find lottery retailers, because the untaxed machines generate more money for retailers than the lottery does. He said regulation would reduce the number of skill games overall, but the number would depend on how the rules are written. Regulated operators push for skill-game providers to pay the same tax rate as casinos, generally 54 percent of GGR in Pennsylvania, and be prohibited from locating games near established casinos. Costa said another variable is the initial licensing fee.

Pennsylvania has 17 land-based casinos, 23 online casinos, sports betting, regulated distributed gaming, and fantasy sports betting.

Recalling talk of the possibility of riverboat gambling in Pennsylvania, Costa said the state has been part of regulated gaming for more than three decades. Horse racing was a major factor in the 2004 push to legalize slot machines and table games were launched in 2010. In 2017, the state approved online gaming. The timeline shows a commitment to thoughtful and sustainable gaming, he said. “We see the casino industry as a partner.”

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