A Primer On The History, Regulation, And Future Of Distributed Gaming

Abstract: This research primer explores the historical roots, regulatory landscape, and technological evolution of distributed gaming—an increasingly influential segment of the gambling industry that operates outside traditional casino settings. From charitable bingo and pull tabs to modern route operations and skill-based machines in bars, truck stops, and convenience stores, the primer outlines how distributed gaming has grown into a scalable, revenue-generating model. It examines the legal complexities across jurisdictions, highlights the role of technology in blurring the lines between gambling and entertainment, and details its intersection with regulated markets, including tribal gaming and online platforms. Through case studies, enforcement actions, and emerging trends, this primer provides a comprehensive understanding of how distributed gaming is shaping the future of the global gaming ecosystem.

Length: ~ 7,231 words

Read Time: ~ 18 minutes

The Core Categories of Distributed Gaming (Excerpt)

Distributed gaming is not a monolith—it encompasses a diverse range of formats that differ in terms of legality, regulatory oversight, player experience, and intended beneficiaries. This section presents a comprehensive breakdown of the major distributed gaming formats, framed with greater depth and contextual analysis, supported by real-world examples and policy dynamics.

Skill-Based Machines

Skill-based gaming machines are designed to incorporate elements of player skill into the gaming outcome, contrasting with traditional slot machines governed by pure chance via Random Number Generators (RNGs). In these machines, the outcome may be partially or fully dependent on factors like reaction time, memory recall, or precision.

In practical application, notable examples include Pace-O-Matic’s skill games in Pennsylvania, which incorporate a post-spin tic-tac-toe component that purports to determine whether a prize is won. Similarly, GameCo developed Video Game Gambling Machines (VGMs) that simulate video games—such as shooting or racing challenges—found in casinos like Caesars Atlantic City, although many were removed after limited traction.

The regulatory classification of skill-based machines varies widely. In Georgia, such devices are considered Class B COAMs (Coin Operated Amusement Machines) and regulated under the Georgia Lottery Corporation. These machines must be connected to a central monitoring system and adhere to a revenue-sharing model with the state. In contrast, Pennsylvania courts have ruled in favor of skill game legality, though comprehensive regulation remains pending. Kentucky has taken an oppositional stance, banning these machines outright and sparking ongoing litigation.

Critics of skill-based games raise concerns that the “skill” element is often superficial, and that the devices are functionally similar to slot machines, allowing them to skirt regulatory and tax obligations. Additionally, their placement in gas stations, convenience stores, and other non-casino venues has heightened scrutiny around accessibility to underage players and the proliferation of gambling environments in everyday spaces.

Pull Tabs & Electronic Pull Tabs (E-Tabs)

Pull tabs—paper-based games similar to scratch tickets—have long been a staple of charitable gaming in the United States. In recent years, however, these have undergone digital transformation through the development of electronic pull tabs (e-tabs), offering touchscreen interfaces and animated reel displays that resemble slot machines.

Minnesota has been a leader in this space, reporting over $2 billion in handle from e-tabs during FY2022, with revenues primarily benefiting charitable organizations such as veterans’ groups and community centers. These e-tabs are typically offered through licensed bars and restaurants, using a networked system that allows for ticket distribution, prize validation, and revenue tracking.

However, their resemblance to slot machines has sparked regulatory challenges. Minnesota enacted reforms to restrict slot-like features such as “open all” buttons and cascading reels to maintain a clear distinction from commercial casino gaming. Some critics argue that the gamification of charity fundraising risks diverting organizations from their original missions—a concern referred to as “mission drift.”

Despite these concerns, e-tabs remain popular, particularly in states like North Dakota and Minnesota. Their success underscores both the fundraising potential and regulatory challenges posed by the digitization of traditional paper-based games.

4.3 Charitable Gaming

Charitable gaming refers to gambling activities conducted by or for the benefit of nonprofit organizations. Formats include bingo, raffles, paper pull tabs, paddle wheels, and more recently, e-tabs. These games serve as a revenue source for community organizations, fraternal clubs, religious institutions, and educational foundations.

The regulatory framework for charitable gaming varies significantly by state. In Minnesota, for instance, charitable gaming is overseen by a dedicated Gambling Control Board that enforces compliance in licensing, financial reporting, and use-of-proceeds declarations. Regulations typically require licensees to report gross income, net profit, and the percentage allocated to charitable activities.

While charitable gaming is generally considered a low-risk form of gambling, it is not without controversy. In some jurisdictions, large-scale bingo halls or e-tab operations have raised concerns about competition with tribal or commercial casinos. Additionally, limited regulatory capacity may result in inadequate oversight, leading to potential misuse of funds or underreporting of revenues.

Nonetheless, charitable gaming remains a culturally accepted and socially beneficial format in many regions, offering a means of fundraising that aligns with local values and civic engagement.

Historical Horse Racing (HHR)

Historical Horse Racing (HHR) machines offer a unique approach to wagering by allowing players to bet on anonymized replays of past horse races. These systems rely on pari-mutuel wagering models, where players review race data—such as jockey statistics, track conditions, and odds—to make informed betting decisions. The results are then revealed through slot-like video terminals.

Kentucky has become the U.S. leader in HHR, with over $5.5 billion in handle in 2023. The format has also gained traction in Virginia, Wyoming, and Louisiana, often housed within racetracks or affiliated facilities. Companies like Exacta Systems and AmTote provide the underlying technology for these machines, enabling game selection, result generation, and compliance with pari-mutuel wagering statutes.

The HHR format is considered a financial lifeline for the horse racing industry, particularly as traditional racing revenues decline. By maintaining a connection to historical racing data, HHR machines are legally distinguished from traditional slots in many states. However, critics argue that the gameplay is indistinguishable from slot machines, creating tension around constitutional gambling definitions and calls for tighter legislative scrutiny.

Sweepstakes Gaming

Sweepstakes gaming operates under a legal construct that attempts to sidestep gambling prohibitions by embedding chance-based games within promotional sales of unrelated products, such as internet access or phone cards. In these setups, a customer purchases a product and receives sweepstakes entries for slot-style games that offer cash prizes.

This format has proliferated in states with unclear gambling laws, particularly in the South. Internet cafés and gas stations often host these terminals under brand names like Pot-O-Gold, offering a casino-like experience in unregulated environments.

However, sweepstakes gaming has come under fire. Florida’s 2013 crackdown followed a high-profile scandal involving a veterans charity allegedly used as a front for illegal gaming. In Texas, appellate courts have ruled that such sweepstakes terminals constitute illegal lotteries, leading to aggressive enforcement actions.

Operators maintain that their platforms are legal under federal and state sweepstakes laws, citing precedents used by consumer brands. Nevertheless, the legal gray area, frequent shutdowns, and rebranding efforts illustrate the unstable nature of this format.

Social casino games replicate the mechanics of traditional gambling—such as slots, blackjack, or roulette—but without offering cash payouts. Players instead purchase virtual coins or credits to continue gameplay, often via mobile apps or desktop platforms.

Popular games like Slotomania (by Playtika) and myVEGAS (by PLAYSTUDIOS) dominate this space. The latter provides users with loyalty rewards redeemable for hotel stays, meals, and entertainment in Las Vegas, effectively linking virtual engagement with real-world incentives.

Globally, the social casino market is projected to exceed $13 billion in annual revenue by 2030. While these games are largely unregulated in the United States, legal issues persist. In the landmark Dickerson v. Big Fish Games decision, the Ninth Circuit ruled that virtual chips qualified as “things of value” under Washington state law, setting a precedent that could apply to other platforms.

Consumer advocates and psychologists also warn of addictive behaviors facilitated by loot box mechanics and predatory monetization models. As these games grow in popularity, pressure mounts on regulators to consider their impact on consumers—especially minors and high-spending users with no opportunity to recoup losses.

Arcade and Redemption Gaming

Arcade and redemption games blur the line between entertainment and gambling. These machines, commonly found in arcades, family entertainment centers, and increasingly bars, award players points or tickets based on performance, which can then be redeemed for prizes. Examples include claw machines, basketball shootouts, and digital “videmption” games like Connect 4 Hoops.

While generally viewed as harmless fun, some states have scrutinized high-value prize redemption schemes. In Arizona and Ohio, regulators have taken action against establishments offering arcade-style machines that functionally mirror gambling devices—especially when the reward includes electronics, gift cards, or cash-equivalent items. Texas has also targeted venues with “skill redemption rooms,” arguing that the chance component violates state gambling laws.

Emerging trends include the gamification of prize lockers with escalating values, esports-style arcade tournaments, and networked redemption systems with shared jackpots across locations. As arcade-style experiences become more digital and competitive, regulators are increasingly monitoring the boundaries between entertainment, skill gaming, and unlicensed gambling.

What is a COAM?

A Coin Operated Amusement Machine (COAM) is a regulated gambling or amusement device that operates via coin or token inputs. In Georgia, COAMs are categorized and overseen by the Georgia Lottery Corporation under one of the most structured distributed gaming frameworks in the United States.

Class A COAMs are purely for entertainment and do not offer any redeemable prizes. Examples include jukeboxes, kiddie rides, arcade video games, pool tables, or any other amusement device not designed for payout. These machines are exempt from many of the stringent oversight mechanisms applied to gambling devices.

Class B COAMs, by contrast, are skill-based devices that do offer non-cash redemption prizes. Players may redeem their winnings for store merchandise, fuel discounts, lottery tickets, or other tangible items—but never direct cash. These machines are tightly regulated: they must be registered with the state, connected to a centralized monitoring system, and operated by licensed vendors. Class B COAM operators share a portion of revenues with the state, providing a model that seeks to balance commercial opportunity with public oversight.

Georgia’s COAM framework has become a case study for other jurisdictions exploring ways to legalize and regulate the widespread presence of grey-market skill games. It offers insight into how a state can formalize distributed gaming within a controlled structure, ensuring tax compliance, responsible gaming, and stakeholder alignment.