The debate regarding skill games has been ongoing for several years. It appears that we have more clarity than ever. Skill games will not get banned, but rather legally implemented as a taxed form of gambling.

There is nothing final as of yet, as this is a proposed budget created by Shapiro. The news is much to the dismay of retail and PA online casinos, which attempted to ban skill games altogether.

Pennsylvania skill games tax featured in Governor’s FY budget

The state is getting closer and closer to finalizing the skill games debate. If it’s up to Gov. Shapiro, the games don’t appear to be operating in a gray area for much longer.

Just two months after the Commonwealth Court ruled the games as legal, Gov. Shapiro included skill machines into the FY 2024/2025 budget with a proposed tax structure. Here is the following explanation regarding skill games regulation, according to the budget: 

“A tax of 42 percent on the daily gross gaming revenue from electronic gaming machines that involve an element of skill and are regulated by the Pennsylvania Gaming Control Board (PGCB). This budget assumes the board collects the tax and deposits the money into a restricted account, which is then transferred to the General Fund. Estimates assume an effective date of July 1, 2024, with initial revenue collections realized in 2024-25.”

It could still take months before the budget is finalized. However, there’s more momentum for skill games to be regulated within the state sooner rather than later.

Pennsylvania skill games would be under the jurisdiction of the PGCB, which requested the responsibility of regulating the machines during a policy hearing last August.

What this means for the Pennsylvania gambling market

The inclusion of regulating skill games creates a new vertical of gambling. Skill games are now slated to co-exist with retail and online casinos.

It’s exactly what the doctor ordered for Pace-O-Matic (POM), a Georgia-based skill games manufacturer. After the legal industry broke another annual record, POM’s Chief Public Affairs Officer, Mike Barley, pleaded for skill games regulation and wished for Pennsylvania to stand out of the way. He said last month: “It’s time for casinos to stop lobbing attacks against skill games. These revenue numbers are the latest proof that skill games have no impact on casinos’ bottom line. … How often do industries come to the legislature asking to be regulated? We want lawmakers to look past this harmful narrative spun by the casinos – that is not backed by facts – and support small businesses by passing commonsense regulation of skill games.”

Should the games be regulated, Shapiro estimates the games will generate more than $150 million in tax revenue next fiscal year. By FY 2025-2026, skill machines could produce more than $313 million in tax earnings.

The retail industry and online casino industries would likely not be affected all that much. The games exist as it is, and retail casinos posted $2.5 billion in 2023 slot revenue, the most since the PGCB started tracking results in 2013. Pennsylvania online casinos also set a yearly record, posting $2.1 billion last year.

The tax dollars raised from skill games are going to benefit Pennsylvanians the most. All verticals of gambling appear to be successful in the Keystone State.

Shapiro’s proposal also wades into a complicated battle between competing factions of Pennsylvania’s gaming industry. The governor wants to regulate and tax skill games, which resemble slot machines and can be found in bars, restaurants, and convenience stores across the commonwealth.

These terminals exist in a regulatory vacuum. Commonwealth Court ruled last year that skill games are not currently subject to regulation or taxation under Pennsylvania’s Gaming Act, as gameplay involves some level of skill, rather than pure chance.

Shapiro is proposing a 42% tax on daily gross revenue from these skill games, which he estimates would yield about $150.4 million for the state in the next fiscal year. As with cannabis, this number would likely grow over time.

The third significant source of new revenue in the budget is a perennial Democratic priority: increasing Pennsylvania’s minimum wage from the federal floor of $7.25 an hour to $15 an hour.

Shapiro estimates that this increase would result in over $56 million in new tax revenue from the higher wage in the next fiscal year.. That estimate assumes the $15 minimum wage is implemented in January 2025, so projected revenue would be higher in subsequent years. But this proposal also faces political headwinds.

State Senate Majority Leader Joe Pittman (R., Indiana) said this summer he is open to raising the minimum wage, but that $15 an hour is “not a practical number. Altogether, the administration predicts that a new skill games tax, a tax on recreational marijuana, and additional sales and income tax dollars from an increased minimum wage would bring in about $222 million in the upcoming fiscal year.

Within about five years, the administration expects the total for those three proposed revenue sources to grow as salaries increase, the marijuana industry expands, and regulation of skill games solidifies. However, Shapiro administration officials acknowledged at a briefing with reporters before the address that current spending outstrips even those mature projected revenues.

During a news conference following the address, Pittman said members of his caucus are interested in regulating skill games and that “it’s probably time that we bring that issue to the table.” He said support for legalizing marijuana would be dependent on how the legislature enacted the change.

He went on to call the overall budget plan “absolutely fiscally irresponsible and unsustainable.” “If [the governor] wants to get rid of our surplus and rainy day fund, we should then return it to the people who gave it to us in the first place,” Pittman said.

In his address, Shapiro argued that it would do a disservice to Pennsylvania if he didn’t spend some of that money. “Look, it is not a badge of honor, nor is it something to be politically proud of for some lawmakers out there to say: I took more money from the good people of Pennsylvania than I needed and then bragged about how I just kept it in some bank account here in the Capitol,” Shapiro said.

Legislative Democrats also backed Shapiro’s proposals, from free period products for students to a minimum wage hike, calling them a bold attempt to invest in the commonwealth.

Looking at the Republican-controlled upper chamber, state House Majority Leader Matt Bradford (D., Montgomery) said that “doing nothing and obstructing is not a response to what the governor has laid out today.”