Despite long odds, players attracted to video poker and slot-like machines
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By Grace Schneider
gschneider@courier-journal.com
The Courier-Journal
By Michael Clevenger, The Courier-Journal
Gambling machines, shown here at a Laurel County, Ky., site, are prevalent at truck stops and stores in Kentucky and Indiana.
Every day throughout Kentucky and Indian, people enter bars, convenience stores, truck stops and fast-food restaurants and shove their hard-earned money into illegal gambling machines.
And they lose it to the tune of hundreds of millions of dollars a year.
With names such as "Cherry Master," "Pot O' Gold" and "Video Redemption," the games often operate in the open with little police enforcement, county prosecution or state interference.
Gary Holland, a Pennsylvania-based consultant who advises authorities on illegal electronic gambling, said the choice for states is to legalize, regulate and tax the games, or enforce the laws now on the books.
"States have got to decide what they want to do," he said. "They can't just sit back and pretend this isn't going on."
The Courier-Journal spent nine months examining illegal video gambling in Kentucky and Indiana. It reviewed hundreds of records in the two states and interviewed dozens of government and industry officials.
A single trip down the length of Interstate 75 in Kentucky revealed how the problem is both widespread and in plain view. Over two days, a reporter found 137 machines at 19 truck stops, convenience stores and fast-food restaurants located at 15 exits.
At these places, the odds are heavily stacked against players.
Slot machines at Ohio River casinos are required to have at least an 80 percent payout rate, meaning they will cough up 80 cents for every dollar wagered over the life of the machine.
But operators of illegal machines make their own rules, and Indiana Excise Police and Kentucky Alcoholic Beverage Control records indicate that the payout rates on those devices are about 55 percent to 60 percent.
"The amount of money these machines make is ungodly," said John Whiteleather, who was prosecutor for eight terms in Whitley County, Ind.
And experts say video gambling is highly addictive.
In Oregon, a state that has legalized the devices, more than 70 percent of the 1,500 people who get state-funded treatment for gambling problems each year say they are addicted to video gambling.
Because the devices are illegal in Indiana and Kentucky, state and local governments are unable to tax the profits they generate — profits that appear to be substantial.
A study by the Indiana Licensed Beverage Association, which is working to have video gambling legalized, estimated that Hoosier gamblers would spend nearly $1 billion annually if even half of the state's bars and restaurants had five of the devices.
It projected that state and local governments could reap more than $382 million in revenue a year if the amount played on those machines was taxed at a rate of 40 percent.
Oregon legalized video gambling in 1991, placing it under the control of the state lottery. Last year it generated $528 million in revenue, money that goes to education and economic development, among other things.
Kentucky officials say the General Assembly, unlike its counterpart in Indiana, never has debated legalizing such devices for retail establishments.
"You don't see much publicity about" video gambling, said Dennis Boyd, treasurer and founding board member of the Kentucky Council on Problem Gambling. "It is just something more or less accepted."
In addition to Oregon, five states have legalized, taxed and regulated video poker and other devices in retail establishments. But in another state, South Carolina, legalization caused so many regulatory problems as the machines proliferated that the state reversed itself in 2000.
"We had a big problem here," said Robert Stewart, chief of the State Law Enforcement Division.
MACHINES PREVALENT
Number of devices, players shows gambling's growth
In a September 2003 Bluegrass Poll by The Courier-Journal, nearly 5 percent of the 801 Kentucky respondents said that in the past year they had bet money on a video poker or slot machine at a retail establishment.
But neither Kentucky nor Indiana has any idea how many people are playing — or how many illegal devices there are.
Capt. Robin Poindexter, a spokesman for the Indiana Excise Police, said his agency provided a rough estimate for legislators on the number of machines: from 15,000 to 30,000 statewide.
In Kentucky there is anecdotal evidence, based on checks the state lottery has made on its 3,000 retailers during the last six years.
The Courier-Journal analyzed 437 lottery security review forms, which document on-site inspections of lottery equipment at its retail outlets. It found that the 175 retailers involved, in 62 counties, had 518 video gambling machines; 35 had five or more.
In February 2000 the agency sent out a letter to 200 licensed retail establishments where it said security officers had noted potentially illegal machines. The letter reminded them that their license could be revoked for a gambling conviction, something the lottery has done a handful of times.
But random checks by the newspaper of retailers who received letters found some had added machines after receiving the warning. Some had dropped their lottery license but kept the machines.
Arch Gleason, director of the Kentucky Lottery Corp., said it lacks the authority to order the machines removed and doesn't believe its role is that of enforcer.
He added, however, that the lottery does make clear to retailers "that if they're operating illegally, it's at their own peril."
The Hoosier Lottery, meanwhile, doesn't track retailers with gambling devices.
"It does exist in Indiana. I think it exists more in the social environments," said Jack Ross, the lottery's director.
Enforcement in both Kentucky and Indiana has been uneven at best.
Police and county prosecutors in Indiana seldom pursue gambling violations, according to Rebecca McClure, deputy director of the Indiana Prosecuting Attorneys Council.
In Indiana, anyone who distributes, operates or plays an illegal machine is violating the law. But Kentucky has no specific law making it illegal for players, according to the state attorney general's office.
Enforcement in Indiana is typically left to the state Alcohol and Tobacco Commission, which doesn't confiscate machines or revoke alcohol licenses when it finds illegal gambling.
The commission has sanctioned 12 Southern Indiana bars and fraternal clubs on multiple occasions — 56 times since the early 1990s. But for the most part the machines remain, and the fines of $500 to $2,000 are widely seen as just a cost of doing business, said Frederick T. Bauer, the commission's prosecutor.
Unseen by the commission are the many illegal gambling devices in places such as truck stops and stores that don't sell alcohol.
As in Indiana, enforcement in Kentucky often falls to alcoholic-beverage regulators. And these regulators have had a measure of success in Jefferson County.
In the past five years, confiscations of the machines, fines and threats of liquor-license revocations by the Kentucky ABC, combined with some criminal prosecutions, have halted illegal video gambling in many taverns.
Recent visits to 10 of 24 Louisville-area bars that had been sanctioned and whose owners or companies had been prosecuted showed no evidence of illegal machines.
There have been 66 criminal cases involving electronic gambling brought against establishments in the Louisville area since 1999. Eighteen individuals or businesses were convicted of at least one of the original gambling charges. Twenty-six cases were dismissed, 16 were amended to a lesser gambling charge and six were amended to disorderly conduct.
Through investigations by undercover officers, the Kentucky ABC has brought enforcement action against at least 49 bars and liquor stores, roughly half in Jefferson County, for possession of a gambling device in the past five years.
The investigations triggered administrative actions that typically resulted in warnings or fines of $1,250 or less. Cash seized during raids was forfeited, and confiscated equipment eventually was destroyed.
The actions get the attention of bar owners, said John Clay, the ABC's director, because they fear losing their liquor and beer licenses, which would cost them far more money overall than fines and court costs.
'AMUSEMENT ONLY'
Operations, participation conspicuous despite law
The law in Kentucky and Indiana says three characteristics must be present for a machine to be considered a gambling device:
Money must be spent to play.
Skill can't affect the outcome.
And winners must get cash or something else of value.
The electronic games accept bills ranging from $1 to $100 and many bear labels that read, "For Amusement Only."
To play, a person might insert a $5 bill into the machine, and the monitor will display 100 points — 5 cents each — in the lower left corner.
The player works buttons on a console to play hands of video poker or to start and stop reels of spinning symbols. Points are awarded based on various combinations.
The machines don't pay winnings directly, as many casino slot machines do. Instead, players receive tickets from a dispenser to verify the number of accumulated points. They take them to the bar or store counter, or summon a bartender to verify the points.
Points can be redeemed for cash or merchandise.
Employees then press a "knock-off" switch on the machine to set the points to zero.
In the eyes of authorities, a switch used to reset the machine is crucial, because it's an indication that the machine is being used for gambling. In fact, courts in Kentucky have said that the presence of the switch is in and of itself proof of a gambling device.
Though the odds in video gambling are relatively unfavorable, players don't seem deterred.
On a recent Wednesday afternoon, a trucker wearing a black cap eased onto a stool in front of a Cherry Master inside the Petro truck stop at the Glendale, Ky., exit along I-65.
He slid a $5 bill into the acceptor and sat pushing buttons with his left hand, talking and gesturing with his right hand as a fellow driver looked on.
As he tapped buttons on the console, the reels spun and stopped, giving and taking away points. He grew irritated.
"Shoot!" he said. "This machine's tighter than bark on a honeysuckle vine."
Over a 30-minute stretch, the trucker amassed 650 points. Then his luck went south. In went another $5 bill.
"Truckers love machines, so you're going to see these things at all the truck stops," said the trucker, who asked not to be identified to avoid problems with his employer.
A Petro manager referred questions about the truck stop's six machines to the parent company in El Paso, Texas, saying he's not authorized to comment.
David McClure, marketing director for Petro Stopping Centers, said the company has no policy on the use of video machines at its 61 travel centers. Instead, the company relies on local managers to understand what's tolerated.
He said the company also relies on its Texas coin-game contractor to divulge what's allowed in each jurisdiction.
BIG BUSINESS
Figures from Indiana case indicate abundance of play
Prosecutors in Kentucky and Indiana have rarely targeted the distributors who put the video devices in businesses and take a cut of the action.
But one Indiana case sheds light on that part of the business and its enormous profits.
The U.S. attorney for Indiana's Southern District alleged, in an indictment returned in February 1999, that former Teamsters union official John Neal of Yorktown had placed 230 illegal video gambling devices in 65 taverns, restaurants and bingo halls in the Muncie-Anderson area between 1990 and 1995.
A Muncie bar owner quoted Neal as saying that he made $3 million to $4 million a year from his overall gambling enterprise, according to U.S. District Court records.
FBI agents raided Neal's home in 1996 and found $970,176 in cash in two safes. Neal pleaded guilty in May 2000 to operating an illegal gambling business and conspiring to defraud the Internal Revenue Service. He served 42 months in federal prison.
Neal, 67, was released from a halfway house last April. Phone messages left at his Yorktown residence were not returned.
Researchers say they have little information on the people who lose their money in the illegal machines. Lia Nower, a gambling researcher and therapist at the University of Missouri-St. Louis, said she is not aware of any studies on the subject.
Nonetheless, her experience counseling two people from rural Illinois with gambling problems drove home the point that the electronic games are highly addictive, she said.
Neither client lived close to a riverboat casino, so one woman played at a gas station and the other at a bar. And despite their low socioeconomic status, "they spent huge amounts of money," Nower said.
Because the odds on such machines are set well below those of licensed casino slot machines, anyone who plays is at a big disadvantage, she said.
But Nower said the players themselves are ultimately to blame and have to take control of their lives.
"At some point," she said, "it's up to (them) to say, `No.'"
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