Legalizing and taxing video-poker gambling

Much is at stake in Gov. Rendell's proposal this week to legalize video-poker gambling at taverns and clubs across Pennsylvania.

The mere fact that Rendell said he hoped to raise a half-billion dollars a year from legalization indicates just how widespread this activity is.

The state police estimate that 17,000 illegal poker machines are currently in use - each taking in about $600 a week.

"Machines receiving heavy play can generate $800 or more per week," said Jack J. Lewis, a state police spokesman. "We estimate that a club having five machines . . . can easily generate over $31,000 per year in profits."

Before announcing his proposal Tuesday, Rendell asked the state Revenue Department to come up with its own estimate of how much gambling would take place in bars and clubs.

The department projected that about 35,000 machines eventually might be set up in 8,500 licensed liquor establishments, according to a spokeswoman, Stephanie Weyant.

If that proved true, it could mean the doubling of an activity that the state now tries to suppress as a nuisance. Just within the last year, the Gaming Control Board has awarded $3.5 million to help local police and county district attorneys do a better job of cracking down.

No bill has reached the legislature, so there's nothing specific on the table. Rendell has said he would allow five machines in each establishment.

The governor said he hoped that video poker would bring in $556 million a year. The money would go to tuition relief for students at Pennsylvania's state-owned universities and community colleges.

Rendell also was the architect of the 2004 law that brought slots casinos to Pennsylvania, partly as a means of property-tax relief.

A former gaming industry executive in Nevada said he was fascinated that the state might move so quickly to expand slots-type gambling such as video poker.

"You take one step, and now you are all the way down to putting them in taverns - boom, boom, boom," said Jack Bulavsky, former executive director of the Association of Gaming Equipment Manufacturers.

The Pennsylvania Tavern Association, which represents 12,500 bars in Pennsylvania, sees video-poker legalization as a stimulus package of sorts.

It says that licensing would offset not just the recession, but sales losses in recent years caused by a toughened drunken-driving law and a smoking ban.

"As the governor said, [tavern gambling] has been going on in Pennsylvania for many, many years," said Amy Christie, the association's executive director. "The issue right now is that it's totally unregulated."

Operators of Pennsylvania casinos - where video poker is both popular and legal - appear wary of the potential competition from bars. But like most pro- or anti-gambling forces, they are biding their time to see what sort of bill emerges.

The stance that the casinos eventually take may depend on the level of the threat to their business.

"If you're talking about regulating what's already there, that's one thing," said Kevin Feeley, spokesman for the Mount Airy Casino Resort in the Poconos and a long-time Rendell ally. "But if you're talking about a wholesale expansion of video poker, that will be a subject of concern."

Weyant said the Revenue Department's estimate that about 35,000 machines could end up being licensed was a guess. It is based on an assumption that each participating bar or club would opt for four machines on average.

"The average daily net revenue would be about $86 per machine - that's what our estimate assumes," she said. The state and tavern would split that amount - $43 each.

Those numbers are smaller than the profits from poker machines in casinos.

The gaming board said it had no breakdown on just poker machines. But casino slots machines of all types, including poker, take in an average of $280 per day.

Video poker machines were invented in the 1970s and can cost $13,000 from the manufacturer, Bulavsky said.

But clubs and bars typically don't buy them new. A bar owner arrested last year in Montgomery County told local authorities he had bought six used machines through Craigslist.

Six states - West Virginia, Louisiana, Montana, Oregon, South Dakota and Nevada - permit video poker in bars, according to IGT, a machine manufacturer.

Previous attempts to legalize it in Pennsylvania taverns have failed. In 1999, the House voted for it, 104-95. But it was halted in the Senate.

At times and in places, the illegal business of video poker has been linked to both organized crime and public corruption.

Joseph Ligambi, reputed head of organized crime in Philadelphia, was linked to a network of illegal video-poker machines in testimony at a 2001 mob trial. Authorities told The Inquirer in 2007 that the network remained a source of Ligambi's income.

In 1995, Ernie Preate, a former Pennsylvania attorney general, pleaded guilty to mail fraud in connection with illegal campaign contributions from video-poker operators.

The job of cracking down on illegal video poker generally has been left to the state police, which has a team of 140 liquor control enforcement officers.

Capt. Thomas Butler of the Bureau of Liquor Control Control Enforcement said video poker is most popular in Western Pennsylvania, especially in social clubs, which often use it for fund-raising.

When illegal activity is found, state police most often take action against the establishment's liquor license. Some district attorneys often won't press criminal charges against individuals, Butler said.

"There is not a criminal investigation unless there is an extraordinary circumstance," he said.

In some jurisdictions, district attorneys have been aggressive.

In Montgomery County, authorities in 2007 went after a vending company from Pottsville that allegedly placed illegal machines in at least nine bars. About $2 million was confiscated.