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The slow and steady race to avoid common sense

Pennsylvania’s skill game deadline has turned out to be the closest thing we have to a natural experiment in forcing a gray market to choose between regulation and shutdown.

In Pennsylvania, the skill game industry is now experiencing a dark period — the result of a June 15, 2026 ruling by the Pennsylvania Supreme Court that skill games are slot machines under the state’s Gaming Act, and therefore illegal outside licensed facilities. The Court stayed its decision for 120 days to give the General Assembly time to build a legal framework for the machines.

These machines look, feel and play like the regulated slots you see in casinos and regulated route markets, but their makers have long argued they are something different: games of skill, not chance. The question of what constitutes “skill” and what constitutes “chance” continues to confound policymakers, regulators and courts across the United States and abroad, though in Pennsylvania the highest court has now answered it.

In PA, the machines and their legitimacy run up against the highly influential and revenue-salient casino industry, which has been pushing for the state to do away with these unlicensed and unregulated machines. The state’s largest skill game supplier, Pace-O-Matic, has spent years pushing for a bill to regulate and tax the machines, and Sen. Gene Yaw (R-Lycoming) has been the legislation’s leading Senate champion. With no bill passed, Yaw, Sen. Anthony Williams (D-Philadelphia) and Rep. Jonathan Fritz (R-Wayne) asked the Supreme Court on October 6 to extend the stay to February 10, 2027. They withdrew the petition the next morning, refiled it a day later, and on October 9 the Court denied it in a one-sentence order, along with a parallel request from VFW and American Legion posts, fraternal clubs and volunteer fire companies. Which brings us to the present moment.

The state is set to leave anywhere from roughly $300 million a year (under a flat $500-per-machine monthly fee) to more than $2 billion a year (under Gov. Josh Shapiro’s proposed 52% tax) on the table by not regulating these machines. Currently, VGTs exist legally only at Pennsylvania’s licensed truck stops, capped at five per location, and provided $21.6 million in tax revenue to the state in FY 2025/26 on $41.6 million in gross terminal revenue across 75 facilities. Skill games are virtually a parity product to VGTs. With an estimated 70,000 of them in play versus a few hundred truck-stop VGTs, the cost of not licensing and taxing them means less money for Pennsylvania’s General Fund and for the commitments a skill game tax would have carried, including local share payments to host municipalities and counties and funding for compulsive and problem gambling programs.

What happens next is anyone’s guess. But the readers of this Substack aren’t just anyone. They’re people who believe and trust in the process, who look for the edge in every play and who want to know what is going to happen before it happens. So let’s first look at some other states’ paths to determine what ultimately will happen here.

Let’s jump aboard the Patchwork!

An exercise of comparative inaction

Shifting gears to the “Show Me” State, where political heavyweights like Torch Electronics, its lobbyist (and former House Speaker) Steve Tilley, and convenience-store chain Warrenton Oil have had little to “show” for their efforts under Attorney General Catherine Hanaway. In April, after a federal judge ruled Torch’s machines illegal gambling devices, Hanaway pressed the company into suspending its Missouri operations.

The effort to finally regulate the slot-like machines in bars, restaurants and convenience stores has been long and arduous in Missouri with many fits and starts. The latest setback came this past session: HB 2989, sponsored by Rep. Bill Hardwick (R-Dixon), narrowly passed the House for the second straight year, only to be killed without discussion by a unanimous vote of the Senate Select Committee on Gaming on May 6.

The familiar pattern of inaction occurring in Pennsylvania has long been a feature in Missouri, too, due to a muddled understanding of the public impact and a focus on protecting the regulated casino industry’s revenue. Those are the main elements that continue to stymie route gaming legitimization and slow its advancement. Not to mention that Missouri only launched legal sports wagering in December 2025, and asking a rank-and-file member to take a second vote on gambling expansion in short order, in an election year, is a tall order.

Perhaps most importantly, the political money has been flowing in both states. Just four days after Missouri’s session adjourned in May, Illinois route operator J&J Ventures sent $100,000 to a PAC tied to Sen. Jason Bean (R-Holcomb) and $50,000 to one backing Rep. Bill Hardwick, the VLT bill’s House sponsor, in his state Senate primary (he won in August). On the other side of the ledger, casino companies and the Missouri Gaming Association gave $75,000 to the leadership PAC of Senate President Pro Tem Cindy O’Laughlin, who chaired the committee that killed the bill.

With O’Laughlin term-limited out this year and with a new Senate leader waiting in the wings, 2027 could finally be the year Missouri’s gray market is converted into a meaningful source of revenue for public education, veterans’ services and other obligations.

House Speaker Jon Patterson won his Senate primary and is moving to the Senate.

Time will tell whether these arguments rule the day in either state. Fortunately for route gaming supporters in both, they have a clear success story to refer to in the great state of Illinois.

The exception to the rule

Regulated video gaming was authorized in the Land of Lincoln in 2009, and the first terminals went live in the fall of 2012. Before that, the market was underground, with much of it controlled by organized crime.

With the 2009 Video Gaming Act, the state set out to clean all that up, identifying the regulation and taxation of gaming in bars and restaurants as a key source of revenue to fund the state’s burgeoning capital needs. (The Act was part of the Illinois Jobs Now! capital package, and VGT tax revenue still flows to the state’s Capital Projects Fund today.)

Between 2013 and 2018, the state’s distributed gaming industry grew by leaps and bounds. It expanded further in 2019, when lawmakers raised the maximum bet from $2 to $4 and the per-location machine cap from five to six. The COVID-19 pandemic slowed growth for a time, but it quickly rebounded.

Along with the retail growth came very real and tangible taxation growth, which has become clear and unavoidable to acknowledge for both the state and local government partners who share in the revenue.

In 2022, the Illinois Municipal Policy Journal, published by the University of Illinois Springfield with the Illinois Municipal League (the state’s largest association of municipalities and local elected officials), ran a study by UIS researcher Allen Adomite which found that for every $1 lost in a gaming machine, a municipality sees nearly $6 in additional taxable retail sales — a positive relationship between retail sales and gaming revenue. The study tested for a substitution effect, with gaming dollars cannibalizing local retail. It found the opposite.

Key findings included:

· A positive, statistically significant covariance between the municipal net wager and sales tax.

· Video gaming within local communities not only does not harm retail sales economies but the gambling activity increases retail sales within the municipal jurisdictions.

· The hypothesis of a negative relationship between net wagering and local retail sales was rejected and, in fact, the opposite effect (retail economic growth) is validated.

https://iml.org/file.cfm?key=25386 - DRAIN OR DRAW? A PANEL STUDY OF THE IMPACT OF ILLINOIS VIDEO GAMING ON LOCAL TAXABLE RETAIL SALES – Page 145

In 2025, the IL Department of Human Services published a report on gambling in Illinois and found that the IL Video Gaming Industry is the least problematic form of gambling — when compared to the various forms of available gaming including the lottery, sports wagering and brick and mortar casinos, of which there are now 17 authorized throughout the state, with several of the newer casinos still operating out of temporary facilities while they build permanent ones.

This is due in large part to both the public nature of the activity in question and its public benefit.

Fast forward to 2026: Illinois video gaming terminals generated $3.31 billion in net terminal income (NTI) in FY 2026, the highest total the State has ever recorded. That figure comes from the Commission on Government Forecasting and Accountability’s (COGFA) annual Wagering in Illinois report. COGFA is the General Assembly’s nonpartisan fiscal office, and legislators, mayors and every corner of the gaming industry read it closely.

For the second year in a row, video gaming sent more money to State coffers than any other form of gambling. In FY 2026 it provided $1.013 billion, or 38% of all State gaming revenue. That is ahead of the Lottery ($788 million), sports wagering ($593 million) and casinos ($262 million).

Including local governments, video gaming generated $1.158 billion in tax last year. Video gaming also accounts for about 41% of all money Illinoisans spend on gambling after winnings are paid out. That is more than casinos and sports betting combined. Video gaming is the largest gaming industry in Illinois, and the State’s budget depends on it.

However, this rapid expansion, growth and prosperity is not without its obstacles. Taking them into account alongside the successes provides a map to the Patchwork that exists for this industry across the nation.

An honest look at the obstacles

Casino Cannibalization. If we are using Illinois as the model, we can say two definitive things:

a) Regulated route/distributed gaming causes temporary, not sustained, revenue disruption to traditional and legacy brick and mortar casinos.

b) Regulated route/distributed gaming does not discourage large casino operators from investing in states with said market inclusions.

Casinos and their trade associations deliver real, valuable fiscal impact to the states and localities they operate in. But in Illinois they no longer deliver as much as regulated route gaming does, and that is the whole reason for the opposition. It’s not so much that casino revenue gets cannibalized; it’s that casinos’ political influence with states and local governments does.

Consider Rockford, one of the largest VGT regions in Illinois and home to a relatively new Hard Rock casino. The data bears this out.

According to a 2022 analysis by Spectrum Gaming Group, Illinois provides the clearest example of how video gaming terminals (VGTs) actually affect casinos:

As shown, rolling 12-month Illinois casino gross gaming revenue declined by nearly $200 million from 2013 through 2019, while VGT revenue grew from about $300 million to roughly $1.7 billion over the same period. The proliferation of distributed gaming grew overall revenue while casino revenue declined.

Until the temporary Rockford Casino – A Hard Rock Opening Act opened in November 2021 in northern Illinois, there had not been a good example of a new casino entering an established VGT market. That raises the question: how does a casino affect the VGT market? By analyzing VGT results for Rockford, Machesney Park, Loves Park and the unincorporated areas of Winnebago County for the 12 months before and after the opening of Rockford Casino, Spectrum found that VGT revenue did not fall after the casino opened. It edged up, from $83.2 million to $83.9 million. The number of VGTs and host locations also increased, by 4%, after the casino opened.

Conclusions: The same person who plays VGTs at a local bar or restaurant may also enjoy all that a casino environment offers. The Rockford results suggest that VGT route operators should not fear the addition of casinos to new markets, and that casino developers should not shy away from markets with a large VGT presence. The biggest winner in this case was government: Combined state gaming-tax receipts increased 33%, and local gaming-tax receipts increased by 75%.

As the data bears out, when casinos are considering new markets, the inclusion or current operation of regulated route gaming is not ideal from their perspective, but it doesn’t meaningfully dent casino revenue either. This single study may be the most important data point in this discussion.

Break-ins. With huge success and big money on the table, bad actors take notice.

Through a recent Freedom of Information Act request to the Illinois Gaming Board, the IL Video Gaming and Machine Operators Association obtained records documenting reported break-ins and related incidents at licensed video gaming establishments throughout the state. The IGB’s full response contained 2,270 reported incidents. Of those, 479 were reported in 2026 as of the records’ date, already more than the 473 reported in all of 2025 and more than 50% above the 306 reported in 2021. (By June 22, the IGB put the 2026 count at 502.) These figures underscore the widespread and growing nature of this problem.

The industry estimates the loss associated with each incident, including damaged property and equipment as well as stolen cash, at approximately $125,000 to $150,000, and its overall losses to date at more than $200 million. Cash actually taken is a far smaller piece: per IGB records reported by the Chicago Sun-Times, about $2.7 million was stolen in 2025.

This is a growing problem for the booming regulated VGT industry in Illinois and cannot be overlooked. However, IL has a clear antidote to this growing concern — as we will highlight in the next section.

Further gray operators. Although Illinois enjoys a massively successful licensed and regulated video gaming market, there is still a gray element in the Land of Lincoln that is hard to shake. It exists primarily within the Windy City and is not contributing to the revenue needs of the state or city.

In Chicago, the gray market is alive and well. With the City Council’s 33-15 vote in June rejecting a ban on sweepstakes machines, coupled with the authorization, and subsequent slow-walking, of legal VGTs in the city, an estimated 7,000 of these machines continue to operate in bars, restaurants, gas stations and convenience stores throughout the city without any of the consumer protections that licensed VGTs must adhere to and without generating any tax revenue.

The IGB has maintained that these machines are illegal gaming devices. However, the Board lacks the regulatory teeth needed to enforce such a position and the city council has thus far sided with the operators and the businesses they represent.

However, times are changing. As just mentioned, the City Council authorized licensed video gaming in its 2026 budget last December, over Mayor Brandon Johnson’s objections, ending an opt-out from a state program Chicago had sat out since its creation in 2009. Like Pennsylvania and Missouri, that absence left millions on the table. The rollout has been slow-walked: as of September, the IGB had approved 63 Chicago locations, but the City had yet to issue a single local license. Bally’s, whose temporary casino has badly underperformed its revenue projections, argues VGTs breach its host community agreement, has paused construction on the hotel and concert venue at its permanent River West casino, and appears headed to court. Still, legal machines appear to finally be moving forward in Chicago.

With a projected $882 million budget gap for 2027, and the Mayor and all 50 aldermen on the ballot in February, regulated VGTs are set to play an influential role in the years ahead in the untapped market of Chicago.

On the lookout

Midterm results on state budgets. With the November 3 midterms right around the corner, blue states are already expecting a cascade of retribution from an executive branch that is likely going to be backed into a corner without the provided cover from Congress. Therefore, the logical result of such an action will be an exercise in belt-tightening and new revenue searching for Democratic-led states like Illinois, Pennsylvania and California. This could even extend to purple and light-red states if Democrats pick up congressional seats and governorships this fall (cough, Ohio; cough, Texas).

Therefore, we can expect to see the importance of additional revenue from gaming expansion grow more and more. In states where distributed gaming expansion has already been on the table, like Pennsylvania and Missouri, the next two years may be the best chance they have at regulation and taxation.

Responsible Gambling. As prediction markets have made a big impact on the nation over the last year or two, so has the national framework of responsible gambling. We will explore that part of the story in a coming issue. However, just looking in the here and now, states are already re-configuring their responsible gambling initiatives and policies to align to their current gaming industry makeup.

Take Illinois as an example. Last month, the IGB approved proposed rules to modernize its self-exclusion program (the “SEP”). Self-exclusion, which Illinois launched in 2002 as one of the first such programs in the country, allows people who think they may have a problem with gambling to self-exclude from further engagement, interaction or marketing materials with gambling activity.

The new proposal would create tiered enrollment durations (from six months up to indefinite), offer expanded channels through which to enroll, as well as a 12-month marketing exclusion list after leaving the SEP.

At the same September meeting, the IGB adopted a resolution declaring its intent to bring video gaming into the SEP. The plan runs through the redemption terminal: players would verify their identity there and buy a ticket-in, ticket-out (TITO) voucher with cash or a player account, and the VGTs themselves would no longer accept cash directly. Players would redeem any winnings at the same terminal. Importantly for the video gaming industry, this plan will isolate cash in the redemption terminals, which should help to prevent VGTs from being damaged or destroyed in future robbery attempts.

On October 22, the IGB took the next step by approving proposed rules, now headed to the legislature’s Joint Committee on Administrative Rules, that include cashless wagering provisions that allow Terminal Operators the ability to offer cashless play and player rewards through individual patron video gaming accounts. Those accounts would be funded through approved payment methods and be subject to age and identity verifications, privacy and security controls and Know-Your-Customer and anti-money laundering requirements. Further, each player account must allow the patron to establish individual responsible gaming limits.

The bottom line is: as more and more states come online with regulated gaming (both in the land-based and interactive spaces), look for these provisions to be included and championed as part of their implementation. Indeed, this very development and increased focus on RG may be the boost that Pennsylvania and Missouri need to get these packages to the finish line.

Patchwork 50 is written by a 15-year government affairs and political professional. Reply to this email or write to hello@readpatchwork.com — I read everything.

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This publication and its authors are not licensed investment professionals, attorneys, or registered advisors of any kind to the readers of the Patchwork 50. Nothing published under the Patchwork 50 brand should be construed as investment, legal, or professional advice. Do your own research.