Video poker vendors fear takeover by state
Share with others:
As one of several hundred vendors of coin-operated amusement machines in Pennsylvania, Jim has been through the ups and downs of trying to legalize video poker machines in taverns and clubs across the state.
In 1990, the Legislature passed such a measure, and businesses like his stood to make huge profits from the gambling devices. Then-Gov. Robert P. Casey vetoed it, however, citing "the historic links between illegal video poker machines and organized crime."
Nineteen years later, the machine vendors finally have a governor in favor of legalizing their type of gambling, but one who sees no role in it for them. Gov. Ed Rendell has proposed a plan in which the state would contract with a single, large national supplier to install an estimated 35,000 machines in establishments holding liquor licenses.
The machines typically combine a range of slots games and poker options on a single device. They cost about $15,000 each but under the governor's plan, the national vendor would supply them rather than sell them, in return for a share of the revenue determined by contract.
Administration officials estimate each machine could generate $30,000 annually, or more than $1 billion collectively.
The governor would keep half of the funds for tuition assistance for students attending Pennsylvania's community colleges and state-owned universities. One-fourth would go to the licensee hosting the machines and the remainder would cover costs, including the supplier's take.
The plan could be voted on in the House before the summer recess, but its passage is far from certain. Gambling expansion is always controversial, especially among Republicans, and the GOP holds a strong Senate majority.
Ironically, after decades of seeking such legalization, Jim and others in his industry contend they stand to lose more than ever if the governor's plan passes. Not only would they be denied a chance to provide the gambling devices, but they believe their profits from patrons' use of darts, pool tables and other non-gambling games they put into bars and clubs would shrink.
Many vendors would shut down once customers divert their money to gambling games, their state association suggests, and they are lobbying House Democrats to change the plan to include them as in past years' legislation.
"We're small, independent businesses that put back into the community. We hire people, we buy vehicles for servicing the machines. ... You'll be putting [lots of] people out of work," said Jim, the only one of a dozen southwestern Pennsylvania vendors who responded to messages seeking comments for this article.
The primary reason others did not want to be interviewed, and Jim did not want his full name and company disclosed, is they engage in illegal activity -- although it is widely tolerated.
Many of the vendors profit now from installing video poker machines and other illegal gambling games in many of the same taverns and clubs where Mr. Rendell wants to allow new, legal devices.
Technically, the machines themselves are permissible, and are even licensed by municipalities. But when the vendors equip them with counting devices that track each player's credits on the machine, they cross a line by providing a tally for bartenders to pay them off for winnings.
State police officials have estimated 17,000 such games are in use presently. Some are versions of poker and others are more similar to slot machines. They are cruder versions of the new equipment Mr. Rendell wants, which have many player options, minimum payout percentages and other features similar to machines in the state's casinos.
The governor justifies his proposal by noting the tavern-club gambling is already so common, though untaxed and uncontrolled, in communities across the commonwealth. He gets no dispute on that from those in the industry, though the practice is more common some places than others.
John Milliron, lobbyist for the Pennsylvania Amusement and Music Machine Industry, said video poker is probably more prevalent in southwestern Pennsylvania than anywhere else in the state. The illegal games are also common in the Philadelphia area, he said, but far less so in rural and central parts of the state.
"The bottom line is an awful large part of the state does not have machines, and vendors in those areas are hopeful of being included," Mr. Milliron said. "And those vendors that have pokers would be happy to have it legitimized, even if it's less profit [from sharing revenue with the state], because nobody likes having police looking over your shoulder."
The association has about 100 members and estimates three to four times that number of vendors operate around the state. According to Mr. Milliron and Jim, many have been family-run for successive generations, with fewer than 10 employees.
But as the late governor Casey suggested before, it is also a tainted industry. The most prominent local example has been John "Duffy" Conley, imprisoned in the mid-1990s for running an organized gambling empire of more than 1,500 video poker machines generating at least $10 million annually.
At a hearing of the House Gaming Oversight Committee in Westmoreland County this month, Pennsylvania State Police Maj. John Lutz said in response to a legislator's query: "I think we've greatly reduced organized crime involvement in this business, but in all honesty, we haven't eliminated it."
The Rendell administration has taken the approach that using a single vendor to supply and maintain games and a central computer system to monitor their use would help assure the integrity of gambling taking place at more than 8,000 different locations. It's a model the officials say has worked well for the Pennsylvania Lottery.
Chuck Ardo, the governor's spokesman, said in an interview last week, "Both history and logic lead us to conclude that there are criminal elements involved in the distribution of some of these machines. ... We have an opportunity to clean up the industry, and that's a good thing."
Industry representatives complain that the administration is using instances of "a few bad apples" to slam and bypass the entire field. They complain that up to 25 percent of the new revenue would go to some out-of-state corporations instead of into their pockets helping the local economy.
Also left out would be distributors such as Betson Pittsburgh Distributing, a West End firm that acts as a middle man between the manufacturers of such games and the local vendors. The firm does not currently handle the gambling machines but would like to, said General Manager Lou Larson.
"If legalization occurs and the state is able to operate gambling equipment in our locations, what it does is replace this other equipment we operate -- the golf machines, our pool tables and darts," Mr. Larson said. "Most of these locations can logistically have only so many machines."
He and other representatives of the state association say that of five states allowing widespread video gambling devices in bars and clubs, four use vendors like themselves and only Oregon excludes them. State officials there raised concerns about organized crime activity as well in the early 1990s as a basis for the decision.
"It wiped out about two-thirds of our industry," Jerry Johnston, president of the Oregon Amusement & Music Operators Association, said of the decision there to exclude local vendors.
Oregon uses a different system from that proposed by Mr. Rendell, in that the state purchases the machines. The Oregon Lottery Commission employs staff to service them at more than 2,300 locations. The machines brought in $895.1 million in state revenue in the last fiscal year.
West Virginia, like South Dakota, Montana and Louisiana, has a video lottery system in which licensed local vendors can sell machines to bars and clubs.
The West Virginia machine suppliers and liquor licensees make their own business deals on how to share the 50 percent of revenue not retained by government. Bars can have up to five machines in the Mountaineer State and clubs can have 10, and combined there are 1,649 locations.
West Virginia brought in $411 million from more than 8,000 such machines in the last fiscal year. West Virginia's racetrack casinos had an additional 11,000 slot machines generating $898 million.
Whether Pennsylvania joins West Virginia as a state with both neighborhood and casino slots -- and whether vendors will have a role -- depends on the outcome of the governor's legislation sponsored by Rep. Dante Santoni, D-Berks. He's the chairman of the House Gaming Oversight Committee, which will hold the last of four hearings Thursday on the proposal.
Mr. Santoni said the committee will consider all of the comments at the hearings, including those of the vendors, before voting in the weeks ahead to send the measure to the full House.
Tavern owners have raised their own concerns that the legislation would subject them to so many taxes, fees and others costs that their level of profit may not even justify them housing new gambling machines.
Critics of increased government reliance on gambling, meanwhile, focus on the entire concept as folly instead of the details. Mr. Rendell contends that increasing accessibility to higher education outweighs such concerns.
If nothing is passed, two things seem certain in the future: more illegal gambling in the same venues and additional legislative attempts to legalize the games.
"We've been pounding the pavement for almost 30 years trying to inform the government that, hey, this is what they should do," said Jim, wondering now if all those efforts will lead to passage of a plan that does him more harm than good.
First Published May 18, 2009 12:00 am