Virginia skill-game lawsuit pushed back again over disputed budget amendment

EMPORIA – In the hundreds of pages of legal documents filed in a Southside Virginia courthouse as part of a closely watched gambling lawsuit, an image from “Star Trek: The Next Generation” succinctly captures what the surrounding legalese is about.

It shows the android character Data standing at a craps table in a spaceship casino, using superior robotic precision to throw winning dice rolls over and over. 

Theoretically, a human could try to become so skilled they achieve similar dice mastery, a gambling consultant working with the state of Virginia wrote. But in the real world, no matter how much players want to believe they’re in control, a dice roll is fundamentally a matter of chance, not skill.

The notion that profit-seeking companies would design betting machines that the most skilled  players can beat every time is a similarly far-fetched idea, according to two gambling experts Virginia hired to help defend its ban on so-called skill games, the slots-like devices widely available in truck stops, sports bars and convenience stores despite lingering questions about their legality.

The skills required to play the games, the state’s experts contend, are either so trivial they only require a toddler-level grasp of tic-tac-toe patterns or so advanced players would need superhuman abilities to consistently win on skill alone.

“If players COULD readily beat the game in this manner, then one should expect that they WOULD be doing so regularly,” consultant Mark Nicely wrote in an algorithmic breakdown of a dragon-shooting game that he says requires players to solve complex equations in their head as rapidly as three times a second. “However, the fact that these machines are reported to generate tremendous profits for their operators speaks to their inability to be beaten by human achievable skill.”

A gambling expert hired to poke holes in the skill-game ban came to a sharply different conclusion, saying Virginia’s new laws “turn the history of the control of gambling on its head” by criminalizing far more than what lawmakers intended.

“The reach of the new law is enormous,” wrote I. Nelson Rose, a professor emeritus at California’s Whittier College. “Virtually every game, both in the real world and online, would be outlawed.” 

Over months of legal wrangling, the state government and the skill-game industry have filed reams of documents in the Greensville County Circuit Court in a case that touches on free speech, the nature of video games, legislative privileges, the origins of pinball, lobbying ethics, whether Virginia’s Indian tribes are beyond the reach of court subpoenas, the gambling norms of ancient Rome and Pac-Man.

But before the court gets to any of that, the judge has to resolve the more mundane matter of whether the General Assembly’s habit of tucking unrelated legislation into the state budget has gotten so bad it violates the Virginia Constitution.

A difficult-to-enforce ban

Since the summer of 2021, skill machines — many of which feature the same spinning reels and nine-square layout as slot machines but require players to take some action to complete a winning pattern — have officially been banned in Virginia. But that policy decision is proving stubbornly difficult for the government to execute due to strong opposition from the industry and its small-business allies.

The legal challenge pending in Greensville, brought by Southside Virginia truck stop owner and former NASCAR driver Hermie Sadler, led to a temporary court injunction late last year blocking state officials from enforcing the ban. Sadler, who is now running for the Virginia Senate as a Republican, and his attorney, state Sen. Bill Stanley, R-Franklin, say the state’s ban is an overbroad and improper attempt to crack down on smaller local establishments that pose competition for big gambling interests planning to build full-blown casinos. In their telling, the law singles out a specific type of game they say isn’t all that different from anything found in an arcade.

The clear difference from the state’s perspective is that skill machines pay out in cash or cash-equivalent credits, whereas successful play of regular arcade games might mean free plays, a plush toy or tickets redeemable for merchandise at a prize counter. According to the state, the government has a clear interest in maintaining a state-sanctioned and regulated gambling industry, and devices it sees as unregulated and illegal slot machines undercut that effort and pose risks to Virginians playing machines that have gotten little vetting to ensure they work as advertised.

The pro-skill game side insists the state is targeting certain games because of their aesthetic resemblance to slots, which they say is a free speech violation based on the “adult” vibe of the games. The state contends the games aren’t a form of expression because they lack the storylines and characters present in most other video games. And regardless of any First Amendment-protected messages the games might communicate, the state says, the law targets the wagering activity, not the games themselves.

The case was supposed to be heard in May, but it was pushed back to early November due to the correct assumption the General Assembly would try to toughen the ban through the state budget approved in June. 

The November trial date was also pushed back, leaving the machines completely unregulated for at least another month as another General Assembly session approaches. The upcoming session could complicate the case given Stanley’s status as a sitting lawmaker with privileges that let him postpone court dates when the legislature is in Richmond.

The next hearing in the case is scheduled for Dec. 5, when retired Judge Louis R. Lerner is expected to rule on the state’s latest effort to dismiss the legal challenge.

The ‘one object’ rule

Though the broader issue remains the distinction between games of skill and games of chance, the two sides are now battling over the General Assembly’s effort to pass budget language with a direct bearing on the lawsuit, according to court records reviewed by The Virginia Mercury.

Stanley, working with lawyers affiliated with leading skill-game company Queen of Virginia and one of the nation’s top free-speech attorneys, is arguing the General Assembly violated a constitutional rule requiring all bills to have “one object” stated in the legislation’s title. The pro-skill game team argues the 2022 budget provision on skill games was a rushed, opaque attempt to broaden the reach of a law that carries criminal penalties.

“The public should not be expected to read hundreds of pages of the Budget Bill over [the] Memorial Day holiday in order to determine what new crimes the General Assembly is considering,” Sadler’s attorneys wrote in a Nov. 14 filing. “Nor should the public be surprised by such new crimes becoming effective 10 days after being signed by the Governor.”

Attorneys for the state say gambling policy is relevant to the state budget because efforts to create a state-sanctioned gambling industry have a direct tie to state tax revenues. If the court were to side with the skill-game industry, state lawyers wrote in their Nov. 14 filing, it would upend 200 years of precedent in how the “one object” rule has been interpreted.

“Gambling is germane to the budget,” wrote Assistant Attorneys General Erin McNeill and Calvin Brown. “Furthermore, it is simply good public policy to allow lawmakers to cure a potential constitutional defect in a previously-passed statute, even if that good medicine is delivered in an amendment to the budget.”

The budget amendment specified that skill games are considered illegal gambling and got rid of an earlier exemption for “family entertainment centers,” which the industry had attacked as an unconstitutionally discriminatory distinction based on how businesses market themselves to the public. The idea that skill games should be OK in a bowling alley or family-friendly arcade but not in a bar or a truck stop, the plaintiffs argued, contradicted claims the crackdown would prevent minors from having access to the loosely supervised machines.

In an attempt to paint the state as hypocritical, the skill-game industry tried to pull the arcade/restaurant chain Dave & Buster’s into the litigation, filing a subpoena seeking a detailed accounting of how the ticket-based prize system works at its four Virginia locations. Attorneys for Dave & Buster’s filed a motion to quash the subpoena, saying it has nothing to do with the issues in the lawsuit.

“Dave & Buster’s does not host or allow gambling in its locations,” the company’s lawyers wrote. “It seems apparent from the face of the subpoena that Plaintiffs do not know what they are looking for but are ‘fishing’ for some as yet unknown information that they think Dave & Buster’s may or may not possess.”

Fights over subpoenas

The skill-game industry is using aggressive legal tactics to try to get the ban nullified, sending numerous subpoenas in August to state agencies, state officials and other gambling interests. The subpoenas seem aimed at substantiating theories the anti-skill game budget amendment came at the request of competing casinos.

The effort included a request for documents from Sen. Janet Howell, a high-ranking Democratic senator who plays a key role in crafting the budget as chairwoman of the Senate Finance Committee. The subpoena requested all of Howell’s communications concerning skill games with several other legislators, Gov. Glenn Youngkin’s office, Attorney General Jason Miyares and his office, the Virginia Lottery, and a dozen entities affiliated with casinos.

Responding on Howell’s behalf, the attorney general’s office said the subpoena should be quashed due to legislative privileges that prevent “exactly this type of intrusion into the legislative process.”

The plaintiffs also tried to subpoena the Pamunkey Indian Tribe, which is involved in a project to open a casino in Norfolk by 2024. In a response noting Virginia has recognized the Pamunkey since “colonial times,” lawyers said the tribe is “cloaked with sovereign immunity” that keeps its tribal government records off limits to the state government’s courts.

“Accordingly, this Court has no subject matter jurisdiction over the Tribe,”  wrote the tribe’s lawyer, Betty S. W. Graumlich of Reed Smith.

A more narrowly tailored subpoena to the Virginia Lottery raised specific questions about the role of the Eckert Seamans law firm, which previously represented both Queen of Virginia’s parent company, Georgia-based Pace-o-Matic, and a Pennsylvania casino venture with an adversarial interest in the legality of skill games. The subpoena claims a deeper conflict existed in Virginia because Eckert was also consulting for the Virginia Lottery, which had taken aim at the skill-game industry for allegedly eating into lottery ticket revenues. The Lottery subpoena sought documents that would shed light on whether any of Pace-o-Matic’s “confidential information and proprietary data” made its way to the Lottery as the state tried to get rid of skill games.

It’s unclear how much information the subpoenas turned up. In a filing last month, pro-skill game attorneys indicated the state defendants named in the suit — Youngkin, Miyares and the Virginia Alcoholic Beverage Control Authority — had “uniformly refused to produce any documents” detailing their communications on skill games.

Dueling experts

The two legal teams are also battling over what type of expert testimony should be permissible if the case advances to trial, a dispute that has led to both sides’ expert reports already being filed in court as evidence.

In a report prepared for the attorney general’s office by Spectrum Gaming Group, consultant Michael Pollock pointed to a YouTube user named “JeffTheHokie” who has published how-to videos purporting to show his system for beating Queen of Virginia’s games. 

Much of JeffTheHokie’s content focuses on ways players can improve their chances with a “Follow Me” mini-game that lets players win back their wager plus 5% if they can repeat a 20-step randomized pattern. The expert report notes that JeffTheHokie says the mini-game is “made slow and boring on purpose” and “you would have to be Rain Man” to do it by memory alone, a reference to the 1988 movie in which an autistic savant played by Dustin Hoffman helps his brother win big by counting cards in Las Vegas.

“JeffTheHokie is the exception that makes the rule,” Pollock wrote in his report. “To assume that players would endeavor to master a complex system in order to win back their bet plus five percent is absurd, and it is clearly antithetical to the business model embraced by the operators and suppliers of these machines. … Building on that theory, such players could bankrupt the house.”

In a pair of reports filed for the plaintiffs, Rose, the Whittier College professor emeritus, said Virginia is confusing a skill versus chance distinction that’s been well understood for centuries, noting that ancient Roman authorities only loosely enforced anti-gambling rules due to “Romans’ intense love of dice games.” Early pinball machines were once considered a form of illegal gambling, he said, until the addition of player-controlled flippers, which made them games of skill. Because classic arcade games like Pac-Man and Galaga award free lives, Rose wrote, they too could potentially be construed as illegal skill games in Virginia.

He suggested the defense experts were applying a “Goldilocks test”  by claiming some skill games are illegitimate for being too easy and others for being too hard.

“Different people have different levels of skill. One person may be better at golf than another,” Rose wrote. “It may be virtually impossible for some of us to play a round of golf under par, but that does not mean that golf is not a game of skill.”