In the face of a call to ban skill games, Pa.’s biggest player is pushing back hard

By Peter Hall – Capital-Star

HARRISBURG, PA – For nearly a decade, Georgia-based Pace-O-Matic has been fighting to cement the legitimacy of a billion dollar gambling business that has flourished in the back rooms of bars and social clubs across Pennsylvania.

Pace-O-Matic is the state’s leading distributor of skill games – slot machine-like devices that allow users to pay to play a game for a chance to win a jackpot.

The company says the machines provide vital income for small businesses and nonprofit fraternal organizations such as American Legion posts. It says the machines are distinct from slot machines because players must use skills such as hand-eye coordination and can theoretically win every game.

Opponents contend that skill games are illegal gambling machines siphoning revenue from the Pennsylvania Lottery, the state-regulated casino industry and the programs they support, while the lack of safeguards against problem gambling the state requires of the casino industry promotes gambling addiction.

They also say skill games contribute to crime, pointing to instances in which skill game players have been robbed of winnings and the murder of a Hazleton convenience store clerk by a player who knew the store had large amounts of cash to pay winners.

As a call to ban skill games in the General Assembly has become stronger, Pace-O-Matic has pushed back aggressively, suing the law firm and lobbyists the company alleges influenced state lawmakers and officials to take positions against the company’s business.

And while Pace-O-Matic has allies in the General Assembly, its biggest supporter may be too closely entwined with the company and its interests, a legal ethics expert and a lawmaker said.

Sen. Gene Yaw, R-Lycoming, introduced legislation this spring that would give the Pennsylvania Department of Revenue responsibility for licensing, regulating and taxing skill games.

Yaw, whose district includes Miele Manufacturing, the company that builds Pace-O-Matic’s Pennsylvania Skill games, is an attorney at the McCormick Law Firm in Williamsport, where Yaw’s wife Ann S. Pepperman also practices law.

Yaw lists the firm as a source of income on his statement of financial interests to the State Ethics Commission.

Pace-O-Matic has used the McCormick firm for legal representation, including in three lawsuits against lobbyists the company accuses of intentionally spreading false information to damage its business.

Samuel C. Stretton, a West Chester attorney who represents lawyers and judges in ethics cases, said Yaw’s relationships with the McCormick firm and Pace-O-Matic give the appearance of a conflict of interest in Yaw’s sponsorship of the skill games bill.

“You can’t use your state position to benefit your private clients,” Stretton said.

State Sen. Amanda Cappelletti, D-Montgomery, who has proposed legislation to ban skill games outright, said Yaw’s ties to Pace-O-Matic raise serious questions.

Yaw told the Capital-Star that he was unaware the McCormick firm had filed lawsuits against the lobbyists although he knew that the firm had been involved in some of the cases that determined the legality of skill games.

“I don’t consult with anyone at the law firm about Pace-O-Matic,” Yaw said, adding that his work with the firm is limited to serving as a solicitor at school board meetings, because his work as a lawmaker takes precedence.

Pace-O-Matic spokesman Michael Barley said it is his understanding that Yaw does not share in any of the revenue the firm receives from Pace-O-Matic.

Yaw’s campaign committee has also received $31,000 in contributions from Pace-O-Matic’s political action committee, Operators for Skill, since 2019.

Operators for Skill has doled out more than $1.4 million in contributions since 2017, with the largest amounts going to the House and Senate Republican campaign committees and Republican lawmakers.

Recipients include state Sen. Greg Rothman, R-Cumberland, House Republican Leader Bryan Cutler, R-Lancaster, Senate Majority Leader Joe Pittman, R-Indiana, and Sen. Chris Gebhard, R-Lebanon, who is chair of the Senate Community, Economic & Recreational Development Committee, which oversees gaming issues.

Michael Pace of Duluth, Georgia, is the chairman and sole owner of Pace-O-Matic, which he founded in 2000.

Pace also founded and eventually sold a series of companies that developed technology for coin-operated video games and electronic gambling machines.

The company doesn’t publish revenue figures except in the District of Columbia and Wyoming, where skill games are regulated. According to the Wyoming Gaming Commission’s annual report, distributors of Pace-O-Matic’s game Cowboy Skill reported a combined $74.5 million in revenue in 2022.

Wyoming taxes skill-based games at 20% and received about $5.2 million in taxes.

In a hearing last month on skill games, Pennsylvania Gaming Control Board executive director Kevin O’Toole estimated that Pennsylvania would receive about $250 million if skill games in Pennsylvania were taxed.

Yaw’s bill would tax skill games at 16% and place restrictions on the location and number of games in a single establishment. They would be permitted only in places where age restricted items, such alcohol and tobacco, are sold. Bars and restaurants would be limited to five machines and private clubs could have up to 10.
Barley said Pace-O-Matic supports the regulation of skill games. “We’ve been leading the effort for a number of years to get regulated,” he said.

“It’s not normal but as a company we’ve raised our hands and said we’d like to pay an additional tax,” Barley said, adding that the tax rate should reflect that most of the revenue the company’s machines generate stays in the state with small businesses and organizations.

But regulating the machines would also help rein in what he described as a Wild West environment in which some operators place dozens of machines in a single location and call it a mini casino. Barley said there are illegal slot machines all over the state masquerading as skill games.

“We’re against those too, We don’t think that’s the right path,” Barley said, adding that the revenue from skill games should be supplemental to an establishment’s primary business.

In order to protect its business, Pace-O-Matic employs former state trooper Rick Goodling, who is a former supervisor of the state police Compliance, Auditing and Gambling Enforcement Unit, which investigates large scale illegal gambling operations.

Goodling testified in a 2019 House Gaming Oversight Committee hearing that he leads a team of former troopers and liquor enforcement officers who visit skill game customers and weed out illegal machines that shouldn’t be in the marketplace by reporting them to state police.

While questions of the machines’ legality under the crimes code and the Gaming Control Act are still being considered by state courts, Pace-O-Matic stands behind a Commonwealth Court holding that the gaming act was intended to regulate large-scale slot machine operations and not devices in taverns and social clubs.

And in addition to defending the legality of the machines, Pace-O-Matic has gone on offensive, suing its former law firm Eckert Seamans Cherin and Mellott alleging that it had an undisclosed conflict of interest when it represented both Pace-O-Matic and Parx Casino in Bucks County.

In preliminary victories for Pace-O-Matic, the suit uncovered emails showing that lobbyists working for casino interests had drafted legislation introduced by former Sen. Tommy Tomlinson, to ban skill games and met privately with top Gaming Control Board officials just weeks before the agency took its stance against skill games.

In an interview, Cappelletti said skill games are prolific in her district, which includes Norristown and other low-income areas.

“You can go in and find people at all hours of the day putting their money into these machines,” Cappelletti said, adding that she questions whether the economic benefits touted by Pace-O-Matic outweigh the societal costs.

“The small businesses are succeeding at the expense of the family struggling to make ends meet and putting hope in hitting it big on one of these machines,” she said.

Sen. Jay Costa, D-Allegheny, told the Capital-Star when the General Assembly passed the Gaming Control Act in 2004, it was with the intent that legal gambling be subject to a rigorous code of conduct and casino operators have followed the law. For that, they have the right to protect their investment.

“Skill games in my view diminish that investment,” he said.