Surprising No One, Study Finds Skill Games Target Poor
by Steve Haner
A Virginia economist has turned up hard data showing which neighborhoods contained the highest concentration of the gaming devices called “skill games” by some and “neighborhood slot machines” by others, when last they were legal. The result will not surprise you.
Fletcher Mangum of Mangum Economics in Henrico County was hired by a lobbying group called Virginians Against Neighborhood Slot Machines, which released his report Thursday as part of their effort to stop bills to authorize the gaming devices. This news release accompanied the report.
Being an economist, he also reported that the money lost on those machines would have produced major economic benefits if spent on useful things.
Probably true. But that assumes the money is not simply plowed into some other form of legalized gambling in this state, which includes the Virginia Lottery, sports betting, casinos, charity bingo and betting on horses at tracks and in parimutuel betting parlors.
Mangum also cites national statistics that show the convenience store sector is booming around the U.S. and the industry might not be on life support without this extra revenue. They are the most likely venue for these machines, along with truck stops and watering holes.
A bill to allow the machines again passed the 2024 General Assembly but was vetoed by Governor Glenn Youngkin (R). The advocacy coalition formed then and includes the Thomas Jefferson Institute for Public Policy, Family Foundation, a liberal group Freedom Virginia, and a bunch of competing gambling interests. In other words, the classic strange bedfellows of legislative life.
At least two Republican-sponsored bills to revive the industry survive in the 2025 General Assembly as it approaches the midpoint. Both Senate Bill 1323 and Senate Bill 1322 include permission to place far more machines than did the vetoed 2024 legislation and place a lower tax on the owners and operators than did the earlier bill. Should all 30,000 devices that are permitted actually get installed and pay the $1,200 monthly license fee, that could be more than $400 million per year shared with the state and localities.
But the fiscal impact analysis by the state also predicts a large reduction in revenue from the Lottery and smaller reductions in the state’s take from casinos. Mangum makes the same point that the Lottery would lose sales and profits and cites Pennsylvania having measured the negative impact directly as these machines proliferated there.
Both Virginia bills are still at a stage where they can be amended. The revenue that might flow to the state could change. The main driver behind them is the firm that makes the machines, Pace-O-Matic, which is now also a major financial player in Virginia politics and is fielding its own big team of lobbyists.
These machines have come and gone in Virginia since first allowed in 2017. The 2020 General Assembly banned them but then during the Covid-19 pandemic they were allowed again to supplement the income of the businesses that usually host them. The ban was back in force after a court review approved it.
For about one year the state tracked data on thousands of the gaming machines: their locations, the number of machines, gross revenue, prize money, and how much money people lost overall. Mangum based most of his analysis on that one year of data ending in 2021. The total amount wagered for the period was $2.2 billion, with just under $507 million of that lost by the bettors and kept by the retailers or game operator.
The state data from that brief period of tracking could be sorted by zip code. The machines were more commonly located in lower income neighborhoods. Mangum identified the zip codes with the most machines in Virginia Beach (which had the highest number), Richmond (the second highest) and Fairfax (the third highest.) Uniformly they had lower or the lowest incomes for that locality, lower housing values and higher or the highest poverty rates.
In Richmond, the areas with most machines were the East End and south of the river along U.S. Route 1. In contrast, in Virginia Beach the zip code that includes the oceanfront and thus most of the tourism activity had a far lower concentration of machines, lower than five of the city’s eight zip codes.
The $507 million lost by players at tracked outlets during that one-year window of transparency also gave Mangum a number to use in calculating what an economist calls an opportunity cost. He calculated the impact if the money had instead been spent on other forms of amusement, or on restaurant meals, or fitness and sports, or right there in the same convenience store.
Our analysis shows that, had that $506.7 million in lost wagers been spent elsewhere in Virginia’s economy, it could have supported as much as 9,214 direct jobs, $208.6 million in labor income, and $506.6 million in overall economic output in Virginia.
It could have. But it is more likely the money would have been spent on some other form of wagering, which is why the casino and horse racing interests hired Mangum. They don’t want the money spent on food, clothing or invested in a retirement fund.
Most of the same locations with the “skill” devices also sell Lottery tickets and scratchers. Mangum did include a comparison of the gaming machines’ financial promises to the state under the failed 2024 bill and the impact of money spent instead on the Lottery. The gross receipts figure he cites is after the prize money is paid out. From the report:
With the Virginia Lottery, $72.60 of every $100 in gross receipts from ticket sales is dedicated to educational funding, whereas with skill games $18.75 of every $100 in gross receipts would be dedicated to educational funding.
With the Virginia Lottery, the retailers who host Lottery ticket sales receive approximately $11.50 out of every $100 in gross receipts from gaming, whereas with skill games the operators and enterprises that license and host the games would receive $75.00 out of every $100 in gross receipts.
He did not include a similar comparison for the shares of gross receipts of casinos versus the Lottery.
