They’re all over the place.

Convenience stores, restaurants, Fraternal Order of Police lodges – so-called gray machines or skill games have wedged their way into small businesses across the state without asking for permission first.

Although slots are illegal in the Commonwealth, the makers of these “gray slot machines” exploit a loophole: They say they are “games of skill” that require the player to do more than push a button.

Last year, both chambers passed a bill to ban them, but a late-game Senate amendment made the legislation unworkable, according to House leadership at the time. Now it seems the Kentucky GOP, which largely controls the flow of legislation in Frankfort, doesn’t quite know how to handle them.

“As far as I know we have members who are very interested in banning them and members who are very interested in regulating them,” House Majority Floor Leader Steven Rudy, R-Paducah, said.

Strong backers of the horse industry, like Rep. Killian Timoney, R-Lexington, and Senate Majority Leader Damon Thayer – both represent Keeneland race track – want the games banned.

But many Northern Kentucky Republicans, along with a number of rural Republicans, have suggested that banning the practice outright would mean unfairly picking winners and losers in a battle where the horse industry has continually come out on top.

Timoney, who sponsored last year’s effort to ban gray machines, told the Herald-Leader that the machines and the small businesses that make a chunk of change off of them have grown even more entrenched in the state since the legislation to ban them ran out of time. Still, he’s optimistic that he can get it passed this time.

“I was pretty disappointed when the clock struck sine die last year and we didn’t kill the gray machines. I spent two months researching how to regulate gray machines after session. By the end I was just like ‘we can’t do this.’ We’re trading revenue going to charities for untaxed money going to small business owners and gaming companies,” Timoney said.

Timoney’s new bill has not yet been released, but one major difference is this: while the last bill spelled out all the legal forms of gaming and stated that anything outside of those parameters would be illegal, this bill doesn’t. Instead of attempting to describe everything that’s legal, the new bill is going to simply single out gray machines as illegal.

Though a bill to legalize and regulate these machines – which could include a taxation element, meaning it would need more votes in the House and Senate since its an off-year session – is largely expected, it’s yet to be introduced. Rep. Kim Banta, R-Ft. Mitchell, filed a committee substitute last session to make gray machines legal.

The Senate gave the bill banning the gray machines relatively easy passage last year, but the House only passed it with 50 votes. Timoney expects the House to be where the conflict occurs.

New House Licensing & Occupations Committee Rep. Matthew Koch, R-Paris, a horse farmer himself, said he would talk about the issue with his committee members as the session starts again. He said recently he didn’t have anything to share regarding which way the legislature would go, outlaw or regulate.

A changing landscape

The company responsible for most of the existing gray machines in Kentucky has made its pitch on these machines several times over. The crux of it is that there is a skill element to the games and that the revenue benefits local communities and the state of Kentucky more than casino gambling.

They made their pitch most recently at a November meeting of the Interim Joint Committee on Licensing and Occupations. Frank Fina, Pace-O-Matic’s chief administrative officer, argued that the machines were much better for local communities than casino alternatives.

“Well over 80%” of the profits and revenue from the games stay in the states where they operate, Fina said.

“We also challenge, as a business model, the thinking of casino gambling. They have, largely, monopolies in the states where they operate. The profits flow to out of state corporations and to Las Vegas, Nevada corporations. Our skill games, the funding flows to state and local communities… Our revenue stays on the main streets of Kentucky,” Fina added.

Pace-O-Matic has also established itself as a big spender in Frankfort – in more ways than one.

The company asserted itself as a lobbying force during last year’s session, dropping more than $100,000 in an attempt to get Timoney’s bill defeated. In all last year, it spent $136,416 on Frankfort lobbying.

A PAC almost entirely funded by Pace-O-Matic executives and those who share the same home addresses as them was also recently formed. The Kentucky Skill Game Coalition PAC raised $24,000, spending most of it on high-priority Republican as well as Democratic contests.

The Kentucky Merchants and Amusement Coalition (KYMAC), which has been airing commercials on Lexington television in support of the games, has scheduled a rally in Frankfort this Wednesday on that score.

But the horse industry has held strong sway over the Kentucky legislature for some time, and its companies and proprietors frequently contribute to Kentucky Republicans and Democrats.

Based on the number of commercials and ads against gray machines, it’s apparent that big money is behind the effort to stop the machines from proliferating. Kentuckians Against Illegal Gambling has been flooding Central Kentucky airwaves with ominous commercials.

The group, according to WDRB, is largely funded by Churchill Downs and other big names in Kentucky horse racing. The group says that more than 3,000 machines in 850 different locations in Kentucky are operating, and that the number is growing every day.

“These illegal games are spreading like wildfire and could bring dangerous side-effects to your neighborhood next – violence, organized crime, money laundering, robberies,” the group’s main television ad says.

Some also see the pushback against making these machines illegal coming from rural Republicans as ironic. Former House Licensing and Occupations Committee chair and newly-minted Kentucky Quarter Horse Racing Association (KQHRA) leader Adam Koenig said as much.

“The unmitigated hypocrisy of people to get up and rail against HHR (historical horse racing) machines and sports betting, but turn a blind eye to unregulated machines on every freakin’ street corner is beyond my capability of understanding,” Koenig.

Democrats in play?

Could the split among Republicans create an opening for Democrats – slim as their minorities are – to get something out of throwing their support one way or the other?

“Maybe,” said Minority Caucus Chair Cherlynn Stevenson, D-Lexington.

“Most of my caucus is staying pretty reserved about what they intend to do or want to do until they see language. We haven’t talked about it as a caucus yet and we’re all reserving judgment until we actually have a bill in our hands.”

A majority of Democrats in the House, including Stevenson and new House Minority Leader Derrick Graham, D-Frankfort, supported Timoney’s bill last time.

Rudy said that it’s “certainly possible” the caucus would engage with Democrats on this issue – something they’re not used to doing in recent sessions where they’ve held dominant majorities.

In this calculus, it’d be important to consider that a bill proposing taxation of the machines would need 60 votes. Rudy pointed out, though, that the regulations and rules around the gray machines could be established in an initial, separate bill from a potential taxation effort.