Virginia’s Supreme Court Speaks: No Joy(stick) for Real Money Gamers

Virginia’s Supreme Court Speaks: No Joy(stick) for Real Money Gamers

Virginia’s Supreme Court Speaks: No Joy(stick) for Real Money Gamers

1000 648 Amy Sanderson

Just before Thanksgiving 2023, the Virginia Supreme Court overturned a lower court decision and reinstated the state’s ban on slot machine-like skill gaming machines. Until that point, the lower court had prevented the state from enforcing the ban that passed the General Assembly in 2020. The Supreme Court ruled that it had jurisdiction to intervene, even though the lawsuit challenging the ban is yet to go to trial in Greensville Circuit Court.

The lawsuit, initiated by Hermie Sadler, a Southside Virginia truck stop owner, in collaboration with major skill-game company Pace-O-Matic, is still proceeding. The case revolves around the classification of so-called “skill machines,” which involve an element of skill and are challenging to categorize under the state’s gambling rules. The machines, which resemble slots but claim to be skill-based, have operated without regulatory oversight since the lower court issued the injunction in late 2021.

Skill games, once popular in local Virginia establishments, were determined by the legislature in 2021 to pose a potential challenge to the Commonwealth’s new gaming policies. Responding to industry pressures, the legislature enacted SB971, a perceived new law banning skill-based games to be effective July 1, 2021. In June 2021, the Sadler Brother Oil Company and other plaintiffs filed suit against the enforcement of the law, receiving a temporary injunction against its enforcement. The state Supreme Court reversed an earlier circuit court ruling, allowing the enforcement of the ban. But what does this ban mean for the gaming community in Virginia, and other gamers around the country who are on the cusp of legal changes for gaming in their jurisdictions?

About Virginia’s Skill Games Ban

Skill-based games present a contentious issue addressed in the General Assembly, in courts around the country, and now in the Virginia Supreme Court. In 2020, amid a significant expansion of gaming in Virginia, the state Legislature passed SB971, a state law that bans skill games, which have been historically legal in Virginia and many U.S. jurisdictions. However, the enforcement of the ban was temporarily delayed due to the pandemic and the crucial revenue the games provided for small businesses.

Skill games are distinguished from gambling games on the basis of player skill affecting outcomes, but in many situations, skill games seem practically identical to non-skill-based slot games. Opposition to skill games often revolves around concerns related to safety, lack of regulation, and absence of taxation. Despite the ban, some business owners are determined to continue operating skill games until authorities intervene, highlighting the significant impact these games have on attracting customers to businesses.

Free Speech Implications:

The reinstatement of the ban on slots-like skill-based games in Virginia by the Supreme Court has raised questions over freedom of speech rights, particularly in the context of the games’ classification as a form of expression. The court’s decision sheds light on the ongoing legal battle surrounding these machines:

  • The Supreme Court’s rationale for overruling the lower court’s injunction and reinstating the ban centered on the assertion that the lawsuit challenging the ban on free speech grounds is unlikely to succeed. The court argued that the lower court had “abused its discretion” by suggesting that the skill game industry was likely to succeed in claiming that its games are a protected form of free speech.
  • However, the court’s perspective on the matter emphasized that, while determining where an activity falls on the speech/conduct continuum can be challenging, such difficulty is absent when the activity being regulated is gambling. The court seemed to make no distinction between skill games and gambling in expressing its long-standing view that gambling is an activity that may be heavily regulated and even banned by the state as an exercise of its police powers.

The Supreme Court’s order puts the state ban back in effect, but the immediate enforcement remains uncertain pending the outcome of the lawsuit. Notably, the court clarified that the state is not seeking to restrict the visuals or messages of the games but is concerned with the “promise (and the ultimate execution) of a payout if the game ends in a particular fashion.”

The practical and legal consequences of the ban on skill-based game machines in Virginia, which has criminalized the possession, operation, or playing of such games, are complex and varied. The ban covers slot-like machines commonly found in convenience stores, restaurants, and bars across the state. 

Penalties for violating the ban can be substantial. Operating a skill game device may result in a civil penalty of $25,000 per gambling device, along with device seizure and associated investigation costs. Criminal charges for possessing gambling devices could lead to a class 1 misdemeanor punishment, including up to a year in jail, a fine of up to $2,500, or both.

For those involved in operating an illegal gambling operation, criminal charges may result in a class 6 felony punishment, with penalties of up to five years in prison, a fine of up to $2,500, or both. Even playing the skill games is not exempt, as it could lead to a class 3 misdemeanor criminal charge with a fine of up to $500.

Activism andEnforcement of Virginia’s Skills-Based Games Ban:
Takeovers

The wide-sweeping reach of Virginia’s skills-based games ban begs the question: exactly how will Virginia police and prosecutors enforce the ban on electronic skill games?  Electronic skill games are now illegal in Virginia, but police are allowing for grace periods to allow the public to understand the new law before enforcement begins. Once the grace period expires, violators could face civil and criminal penalties, including fines, property seizure, and potential jail time. Local police departments, such as Richmond and Chesterfield County, plan to focus on messaging, education, and a grace period before enforcement starts. Richmond, Virginia Beach, and other major Police Departments plan to wait until Nov. 26 before enforcing the ban. The initial law enforcement focus will be on locations with a history of violent incidents, and voluntary compliance is encouraged.

Despite the unfavorable ruling, convenience store owners hope for legislative support during the 2024 General Assembly session. Nearly 500 small business owners have signed an open letter urging state lawmakers to consider a bill to regulate and tax skill games in the upcoming legislative session.

Enforcement of Virginia’s Skills-Based Games Ban:

The wide-sweeping reach of Virginia’s skills-based games ban begs the question: exactly how will Virginia police and prosecutors enforce the ban on electronic skill games?  Electronic skill games are now illegal in Virginia, but police are allowing for grace periods to allow the public to understand the new law before enforcement begins. Once the grace period expires, violators could face civil and criminal penalties, including fines, property seizure, and potential jail time. Local police departments, such as Richmond and Chesterfield County, plan to focus on messaging, education, and a grace period before enforcement starts. Richmond, Virginia Beach, and other major Police Departments plan to wait until Nov. 26 before enforcing the ban. The initial law enforcement focus will be on locations with a history of violent incidents, and voluntary compliance is encouraged.

Despite the unfavorable ruling, convenience store owners hope for legislative support during the 2024 General Assembly session. Nearly 500 small business owners have signed an open letter urging state lawmakers to consider a bill to regulate and tax skill games in the upcoming legislative session.

Peering Into the Future of Gaming Law in Virginia

Ever since the Virginia Supreme Court judges overturned the lower court ruling resulting in the prohibition of electronic skill games in Virginia, many local small business owners have expressed concern about the sudden loss in revenue due to the court-mandated change. For some convenience store owners, a significant portion of their revenue once came from skill games, and the ban could lead to the closure of independently owned stores. At least 9,000 such machines were estimated to be operating in Virginia as of 2021.

Despite the current ban, there is anticipation that state lawmakers will address the issue during the 2024 Virginia General Assembly. Lawmakers may consider passing legislation to create a reasonable taxation and regulatory framework for skill games to return to Virginia. This is largely due to concern about large corporations benefiting from gambling expansion while smaller businesses, like convenience stores, might not reap the same benefits. If big businesses can benefit from new rules, smaller businesses should also have the opportunity to benefit from the expansion of gambling efforts in Virginia as well. 

The Case Continues to Unfold 

Hermie Sadler, a former NASCAR driver and small business owner, achieved a major victory in the Greensville Circuit Court against the Virginia skill game ban early in December 2023. The court overruled the Virginia Attorney General’s Demurrer and extended Sadler’s injunction against the skill game ban. In short, this means that the future of the ban remains to be seen.

 The ban, enacted through Senate Bill 971 and later modified in the state’s budget, was challenged by Sadler on constitutional grounds, asserting violations of free speech and due process rights. The court upheld that skill-based games are protected free speech and expression, continuing the injunction and scheduling a final trial for spring 2023. What happens as the trial unfolds will foretell the future of skills-based gaming and define the intersection of gaming and free speech in Virginia and across the United States. 


Gamma Law is a San Francisco-based Web3 firm supporting select clients in complex and cutting-edge business sectors. We provide our clients with the legal counsel and representation they need to succeed in dynamic business environments, push the boundaries of innovation, and achieve their business objectives, both in the U.S. and internationally. Contact us today to discuss your business needs.

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Amy Sanderson

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