They first showed up in Kentucky in 2021. Called gray games, they looked and acted like a slot machines, but the companies that manufactured the machines made the spurious claim that they were legal because they were actually games of skill. Before long, the machines grew to be so popular that, by some estimates, there were more than 5,000 of them, taking up residence in bars, restaurants and convenience stores across the state.
“They spread like rabbits,” said Majority Floor Leader Senator Damon Thayer of the games that got their name because, when it comes to legality, they operate in a gray area. “Before you knew it they were everywhere. These were mom and pop small businesses who were basically running illegal casinos in the back rooms of their gas stations, convenience stores, bars and restaurants.”
“This was their business model,” Thayer continued. “They'd come into a state where the games were illegal but there might have been a loophole in the law of a gray area in the law that gave them enough impetus with local businesses to go in and install the machines.”
The American Gaming Association (AGA) estimated that there are 580,000 gray games machines nationwide, including 67,000 in Pennsylvania, another state where the racing industry is dependent upon revenues from legal slot machines at its racetracks. The AGA also estimated that gray machines generated $27 billion a year in revenue. In 2021, the games were banned in Virginia, another state where racing benefits from revenue generated by HHR machines.
To Thayer, a staunch supporter of horse racing, gray games were a problem that was about to get much worse as the number of the machines in the state continued to climb. Not only did he believe that the machines were illegal but he recognized the threat they posed to racing. Purses have exploded in Kentucky in recent years, in large part because of the success of Historical Horse Racing (HHR) machines. The gray games machines gave HHR players another outlet, a place to spend their gambling dollars that would be of no help to horse racing.
“On behalf of the 60,000 jobs and billions of economic activity our signature horse industry provides, I proudly vote aye,” Thayer said when casting his vote in favor of the ban.
During the 2022 fiscal year, a total of $4.5 billion was bet through HHR machines in Kentucky.
“We went through so much to get HHR legalized and the machines are very popular and have led to huge purse growth that we all predicted,” Thayer said. “And along comes this illegal threat to pari-mutuel wagering on horse racing as well as charitable gaming and the lottery. The gray games machines were viewed as an existential threat to all forms of legalized gambling in Kentucky.”
The problem was solved on March 16 when Kentucky Governor Andy Beshear signed House Bill 594, which outlawed the machines.
“They're entirely unregulated,” Beshear said after signing the bill. “I don't believe that they were legal, yet they came into Kentucky and just set up and were taking dollars from Kentuckians and taking them out of State with zero regulation, zero taxation, zero system to help those that might develop any issues from using them for gambling.”
Despite having key politicians like Beshear and Thayer in favor of a ban, nothing came easily when it came to gray games. Just two weeks before Beshear signed the bill a plurality of lawmakers voted to table the bill. That group wanted to create a state gaming commission to regulate and tax the machines. And in 2022, the Kentucky House passed a bill to ban the machines, but it got sidetracked when the Senate amended the bill and the House would not agree to the changes. Thayer said that gray games were gaining such momentum that he feared that if they weren't banned when they were their proponents were going to find a way to make them, officially, legal.
“They wanted to go another year with the machines continuing to multiply,” Thayer said. “They knew that if they made it another year with no ban there wouldn't be much the state could do to get rid of them. There was a real sense of urgency to pass a bill. The feeling was if there was another year of uncontrolled growth of these machines they'd be here for good. That's because the more businesses that installed the machines the more advocates they would have calling representatives and senators to convince them not to ban them.”
Gray games had their advocates, primarily from the businesses, many of whom were, as Thayer described them “mom and pop” operations, who said they could not stay in business if the revenue they received from the gray games disappeared. Thayer said the gray games operators and manufacturers had “an army of advocates” and spent heavily on lobbyists and campaign contributions.
“You had this big freewheeling group of gray game operators spending an incredible amount of money on lobbyists and campaign contributions” he said. “Of all things, they aligned with group of Southern Baptist legislators who voted against HHR who were arguing to keep the gray games going. They did so because they had people in their district who owned places where they had the gray games machines. It was a strange group of bedfellows, one of the weirder things I have ever seen.”
The bill banning gray games goes into effect July 1, at which time they will disappear from a state where the horse racing and breeding industries can usually count on support from the state's lawmakers.
“There were a lot of reasons to be against gray machines,” Thayer said. “Everyone who voted to ban the machines had different reasons for doing so. There certainly was a big group of legislators who thought it was an illegal form of gaming that was a big group that saw it as a threat to horse racing.”
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