In the latest Weekly Wright Report:

The Importance of Keeping Up with the Courts – Billions in Revenue Set to Evaporate

The rules surrounding the legality of gambling in Virginia are complex, archaic, and sometimes a bit nonsensical. For example, while traditional slot machines are illegal, functionally identical machines that use “historical horse racing” odds to determine outcomes, rather than pure chance, are legal in Virginia. The use of national sportsbooks is legal in Virginia, so long as the sportsbook uses geolocation technology to forbid Virginians from betting on any game involving a Virginia college sports team. Casinos were recently legalized in Virginia, but only if the jurisdiction where the casino is to be located holds a referendum approving the casino. While Virginia has clearly opened up to gambling in the past few years, the rules remain complicated and the industry is heavily regulated.

As with any industry burdened by regulation, those profiting from the industry have sought exceptions and workarounds. In Virginia, some gaming companies have found their way around regulations by using so-called “skill games.” These games, which look and feel exactly like an ordinary slot machine, require some level of skill to operate according to their proponents. I first saw one of these machines in a local convenience store in 2019. While the game allegedly required some elements of skill, I could not see any significant difference between it and an ordinary slot machine. I saw these “skill games” pop up in a few more places, but it seemed to me that everyone understood that these machines could not last long in a state where slot machines are not legal.

Indeed, the Virginia General Assembly passed a law in early 2020 banning these machines. The legislature later granted a one-year reprieve, which allowed businesses to continue to operate the machines until July 1, 2021. When the ban finally kicked in, a Virginia business filed a lawsuit seeking an injunction against the law. The business, which installed these “skill games” at its truck stops and restaurants throughout the Commonwealth, argued that the law was applied in an inconsistent and discriminatory manner, banning the types of games that they had installed in their truck stops, but allowing carnival-style games where a person pays to play, but will only reap a reward if they succeed at some game of skill. The company’s attorneys argued that the law, and its allegedly inconsistent application, violated the constitutional rights of free speech and due process.

Their argument was successful. In December of 2021, the Greensville County Circuit Court issued an injunction against enforcement of the law. While I had seen a few machines pop up during the pandemic, following the injunction I began to see them everywhere. One report estimated that there was a nearly 60% increase in the amount of these machines just from 2021 to 2022, with a total of more than 14,000 machines operating in the Commonwealth. The same report estimated that the machines could generate as much as $3.5 billion in revenue.

This explosion in “skill game” machines was readily noticeable. My local convenience store that had just one such machine in 2019 has replaced an entire wall, once containing food shelves, with six machines. A restaurant near my home has removed several tables and replaced that space with these machines. A former comedy club in Richmond closed its doors for renovation in the summer of 2023, only to reopen as a “casino bar,” with the primary addition being these allegedly skill-based machines.

All of these businesses had one problem, however. The injunction from the Greensville County Circuit Court was not final. It was subject to an appeal to the Virginia Supreme Court. On October 13, 2023, the Virginia Supreme Court reversed the circuit court’s injunction and ruled that the Commonwealth may enforce the law banning these machines. In the blink of an eye, an entire industry functionally disappeared from Virginia. The “casino bar” announced shortly after the ruling that it would need to close its doors again so that it could remove the machines. I can only assume that the hundreds of small businesses throughout Virginia that reorganized their space to accommodate these machines had no clue that their legality was hanging on by a thread the whole time.

This course of events exemplifies a business’s need to stay up-to-date on state law – not just what’s going on with the legislature, but also what’s happening in the courts. At any given time, there might be a case making its way through the courts that could drastically change a business’s revenues. The lawyers at Wright, Constable & Skeen, LLP can assist your business in keeping up to speed with the current legal landscape and help you prepare for potential sudden changes to the law.