Businesses howl over new rules on game machines

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Jerry Greenspan has been running the Fun City arcade in Ocean City for 40 years, long enough to see children who played games there grow up and bring their children to continue the summer boardwalk tradition. Now he wonders how long it can go on.

"We barely made it last year," said Greenspan, who owns Fun City and is a partner in Sportland, two of the three largest boardwalk arcades. "If the landscape continues the way it's going, I don't see how we can stay in business much longer. I never thought I'd be regulated out of business."


Arcade owners and manufacturers of video games, claw machines and other amusements say their business is being threatened by proposed state regulations. The Maryland State Lottery and Gaming Control Commission, which is drafting the regulations, is seeking public comment and has until next June to make the rules final.

Industry representatives say the proposed rules burden them with too much paperwork and fees on the most popular games that dispense high-value prizes such as iPod Nanos. They also object to being labeled as gambling operations, which they say could hamper their ability to obtain loans, and they note that their businesses have already been hit hard by competition from online games and casinos.


Their protests have been joined by Ocean City Mayor Richard W. Meehan and other officials, who fear that the regulations pose a threat to the arcades that have been a boardwalk mainstay for generations.

"We're becoming such an over-regulated state," said Susan L. Jones, executive director of the Ocean City Hotel, Motel, Restaurant Association, who wrote to lottery director Stephen Martino last month protesting the proposed rules. "The arcades are a very integral part of the boardwalk. … To have a boardwalk without an arcade would be very empty. It's like a boardwalk without Thrasher's french fries, Dolle's popcorn, Fisher's popcorn."

Martino said his agency had its instructions.

"The legislature passed a law, they asked us to regulate these machines," said Martino, adding that his staff has worked closely with industry representatives over the past two years in drafting the new rules. "We're trying to do that in a good-faith way."

Larry Bershtein, president of the Maryland Amusement and Music Operators Association, representing about 24 game manufacturers, distributors and operators, disagreed, saying agency officials have met with industry representatives only three times in two years, and have declined several overtures from the industry to provide advice.

People in the game machine business "truly believe that their livelihoods are at stake," said Kevin O'Keeffe, a lawyer and lobbyist for the association.

Lottery officials began work on the regulations after the Maryland General Assembly in 2012 adopted a bill dealing with several aspects of electronic games and gambling, including illegal sweepstakes game rooms that had opened under the guise of "Internet cafes."

The bill expanded the authority of the lottery commission, a seven-member advisory board to the lottery agency. The commission now has the last word on what machines are legal and illegal.


The new law is expected to bring more scrutiny and more coordinated enforcement, making it tougher for illegal slot machines to operate, said Jaclyn L. Vincent, the lottery agency's director of research and chief of staff.

Senate President Thomas V. Mike Miller said the legislation was meant to establish one state legal standard for game machines not covered in state law. As it is, he said, a patchwork of local regulations cover machines that are constantly changing — sometimes as manufacturers and operators try to evade the law.

"The technology changes on a week-by-week basis," Miller said. "What covers these machines one week won't cover them six months later. … It needs to be regulated, it needs one set of rules."

The new regulations are meant to create categories broad enough to cover an array of different machines, everything from old-fashioned skeeball to a high-tech flight simulator games, games of skill and chance.

There's no official count of how many amusement machines are operating in Maryland, but Bershtein guessed up to 14,000. They can be found in restaurants, bars, shopping malls, gas stations, stores, amusement parks and arcades.

The proposed rules do not apply to gambling devices already covered in the law, such as instant bingo machines or paper pull tab games, or to slot machines in state-licensed casinos or other locations allowed by law.


The regulations say that all other game machines must be registered and carry a lottery agency sticker, and that operators have to file quarterly reports on when the games are moved from one location to another.

The rules also levy fees on certain machines that are considered "electronic gaming devices." They are defined as skill-based games, such as claw machines, that offer the chance to win a prize on one play with a wholesale value of $30 or more.

For those machines, manufacturers or distributors would have to pay a $150 license fee when each machine is sold, and every year after if the machine is leased or if the distributor has a maintenance agreement with the operator who bought the machine. The operators would have to seek permission to keep the machines and pay a $50 annual license fee for each one, plus an application fee.

The fees would not apply to games that dispense tickets that can be redeemed for prizes.

At Sportland and Fun City, for instance, out of 363 machines, only 24 offer prizes worth more than $30 on one play, Greenspan said. Those 24 are among the most popular games in the two arcades, though, accounting for 10 percent to 15 percent of revenue, he said. They would make far less if they were not offering such attractive prizes as Beats headphones and GoPro cameras that cost about $300 retail, he said.

Greenspan would pay $1,200 a year for those 24 machines, an amount that could be offset, as the state fees would supersede Worcester County license fees.


State fees would supplant local fees everywhere but in Baltimore City and Baltimore County, lottery officials said. Operators in those jurisdictions would work under a hybrid system: governed by state rules and paying local fees.

Greenspan said if he had to, he would pay to keep the high-value prize machines. But he objects to amusement games being regulated as gambling, and he worries what other regulations may be coming next.

Chris Trimper, whose family owns Marty's Playland, one of the three largest arcades on the Ocean City boardwalk, with just under 200 games, said seven high-value prize machines account for about 10 percent of his revenue. "It's important to have bright piece of flash that people can get excited about," he said.

Stephanie Meehan, who owns Funcade on the boardwalk, which has 97 machines, said she's not worried about the financial implications but about opening the door to more regulation. "My point is I don't want the regulation," she said.

Nick Sarioglou, a vice president for Betson Baltimore, a distributor of coin-operated games and vending machines, said manufacturers would likely add the cost of the new fees to the price of their machines, raising the operators' costs. He said the new fees could dissuade some manufacturers from doing business in Maryland.

Some distributors also wondered if their ability to get loans to buy equipment would be compromised if the machines are classified by the state as "gaming devices," and therefore associated with gambling.


"What we do is amusement, we're not electronic gaming," said Gregg Simon, of the National Entertainment Network, a game and rides distributor. "If you see a little kid playing a claw machine, do you honestly think he's gambling?"

The legislature's joint Senate and House Committee on Administrative, Executive and Legislative Review has until late July to decide whether to hold up the regulations or schedule hearings.

Del. Eric M. Bromwell, a Baltimore County Democrat and member of the committee, spoke at a hearing last month before the lottery commission, expressing his concern not only for the burden of new fees imposed on small businesses, but for a tradition of Ocean City arcade games cast suddenly in a less wholesome light as gambling.

"These are amusement devices," he said. "Now as I read these regulations, they are going to be considered gaming devices. I don't think anyone in Maryland considers that gambling. … It's going to send the wrong kind of message."