The rise of skill-based games in Pennsylvania has caused considerable disruption within the state’s gambling industry, particularly in traditional brick-and-mortar casinos. Executives from major gaming corporations, such as PENN Entertainment—the parent company of Hollywood properties—have not hesitated to voice their dissatisfaction with the growing presence of skill games. These electronic gaming machines (SGMs), while similar to slot machines, incorporate skill-based elements instead of purely relying on chance, creating a major shift in the casino landscape.
Skill-based gaming machines (SGMs) have emerged as a popular alternative to traditional slot machines, but their introduction comes with concerns. While some view them as a natural evolution of gaming, offering more engaging and interactive experiences, others argue that they can exploit common gambling fallacies like the illusion of control. This concept gives players a false sense of influence over the outcome, leading to potentially harmful behavior. Additionally, critics assert that the rise of SGMs could lead to negative social consequences, including an increase in crime within communities where they are prevalent.
The financial impact on casinos, particularly slot machine revenue, has been notable. For instance, Hollywood Casino at Penn National Race Course (PNRC) recently sought approval from the Pennsylvania Gaming Control Board (PGCB) to reduce the number of slot machines on its gaming floor by 169 units. Citing the rise of skill games as a primary reason, the casino presented data demonstrating that the demand for traditional slots has declined, with average machine occupancy as low as 8%. Notably, even during peak periods on weekends, the casino’s gaming floor operates well below full capacity, leaving a significant number of slot machines idle.
This trend is not unique to Hollywood Casino. Rivers Casino Pittsburgh also recently removed 302 slot machines for similar reasons. The industry-wide reduction in slot machines across Pennsylvania points to a broader concern that skill games are gradually eroding the market for traditional slots, which have long been a cornerstone of casino revenue.
PENN Entertainment’s leadership has been vocal about their displeasure with skill games, expressing concerns that these machines are not only a threat to their business but also undermine the established gaming framework in the state. During a recent earnings call, PENN Entertainment’s CEO, Jay Snowden, highlighted the company’s ongoing legal battle to curb the expansion of skill games, both in Pennsylvania and nationwide. He emphasized the collective stance of the gaming industry against skill-based games, citing their negative impact on the overall business environment for regulated casinos.
The Hollywood Casino’s data provides a compelling case. The company conducted its own research, identifying over 325 skill games within a 10-mile radius of the property, spread across 77 locations. Some of these establishments house more than 10 skill games each, creating direct competition for traditional casinos. The Hollywood Casino’s Vice President and General Manager, Tony Frabbiele, pointed to this competition as the driving force behind their decision to remove machines, arguing that the availability of skill games is pulling customers away from their slots.
While the removal of 169 slot machines brings Hollywood Casino’s total down to 1,532, dangerously close to the state-mandated minimum of 1,500 for Category 1 casinos, the casino is taking measures to ensure it doesn’t fall below this threshold. Still, the proximity to the minimum highlights the extent to which skill games are reshaping the traditional casino model in Pennsylvania.
The financial implications of this shift are profound, especially when considering Pennsylvania’s tax structure. Traditional slot machines, video gaming terminals (VGTs), and other slot-like devices in the state are taxed at a uniform rate of 52%. This high tax rate has been a key contributor to Pennsylvania’s substantial gaming revenue. However, proposals to tax skill-based games at significantly lower rates—between 16% and 34%—have raised concerns about fiscal irresponsibility. Many argue that skill games should be taxed at the same rate as traditional slot machines to ensure fairness and maintain the state’s robust gaming tax revenue.
The growing presence of skill games represents a pivotal moment for Pennsylvania’s gaming industry. While they offer a new form of entertainment, their impact on traditional slot machines and the broader gaming ecosystem cannot be ignored. The ongoing legal battles and regulatory debates will shape the future of gaming in the state, determining whether skill-based machines will coexist with traditional slots or continue to erode their dominance. For now, major gaming corporations like PENN Entertainment are fighting to preserve their market share in an increasingly competitive environment.
