Missouri Attorney General Catherine Hanaway said Thursday her office and federal agencies are investigating slot machine-like games operating in Missouri convenience stores talks. She is shown speaking Aug. 19 after being announced as the state's next attorney general (Jason Hancock/Missouri Independent).
A state and federal investigation of “illegal” slot machines is looking at how “billions” flow from Missourians to the companies that own the games, Attorney General Catherine Hanaway told a legislative committee Thursday.
The state, at the request of federal investigators, joined the probe that has its roots in a federal civil court case where a jury found the games offered by Wildwood-based Torch Electronics are illegal gambling devices, Hanaway said.
“We are investigating what the operators of (of the games) are doing, how their money is flowing, where they have locations, how many machines, so then we can go in with some enforcement action,” Hanaway said to the Missouri House Budget Committee.
Hanaway’s comments come as the House prepares to debate a bill to authorize the Missouri Lottery to license and tax similar machines known as video lottery terminals, or VLTs. The bill, with support and opposition that crosses party lines, survived a 6-5 vote Wednesday in the House Rules-Legislative Committee in part because one opponent was absent.
“Whatever you all do as a legislature to regulate them, then we’ll enforce that law,” Hanaway told the committee. “But right now it’s illegal, so I’m going to be going after them.”
Video lottery bill would allow 2 years to remove Missouri’s ‘gray market’ slot machines
The cooperative investigation began on an initiative from federal agencies, Hanaway said in response to questioning from state Rep. Betsy Fogle of Springfield, the ranking Democrat on the committee.
“They came in and said, ‘here’s what we’re doing. Are you doing anything?’,” Hanaway said. “We said ‘yes we are and we would love to work together.’ So now we’re working together.”
There is no accurate count of the number of games owned by Torch or other similar vendors in the state. Some estimates have ranged up to 25,000 machines.
Torch spokesman Gregg Keller said in a text that the company has not been contacted by state or federal investigators.
“But if we ever are, we will continue to do what we have always done: cooperate fully with law-enforcement and the Legislature to pass and enforce fair regulation for everyone in the industry,” Keller said. “Right now, we are focused on helping pass Rep. Hardwick and Sen. Bean’s VLT bill currently before the Legislature.”
The U.S. Attorney’s office for the Eastern District of Missouri did not respond to an email about the investigation.
Games provided to retailers by Torch and its competitors are unregulated by the state, and no reports exist showing how much money is being spent on the games by consumers.
The state’s 13 casinos, which must report monthly totals for taxation, reported about $17 billion in bets at slot machines in each of the past three fiscal years, with just over 90% returned to players.
By law, slot machines in casinos must return at least 80% of the money bet as prizes. Casino profits are taxed at 21%, bringing in $364 million for public schools in the most recent fiscal year.
Financial records obtained for the federal trial showed that Torch games pulled in $32 million from 2017 to 2023 at 20 locations, with about 100 machines. Torch split $11 million with retailers, leaving about 65% for prizes.
Hanaway said she does not have a moral objection to the games.
“My concern is that they are all going on in the state, unregulated, bringing in billions of dollars, and that we are going to, if we continue to allow them to just openly ignore the law and just sort of flagrantly believe that they can operate in these illegal circumstances, that we’re going to get real organized crime in the state,” Hanaway said.
For nearly 10 years, games the owners claim are legal have been installed in retail locations including bars, convenience stores and fraternal halls. Efforts to prosecute the companies that own the game have largely failed because local prosecutors refuse to file charges in most cases investigated by the Missouri State Highway Patrol
Hanaway said the FBI, the IRS and other federal agencies with jurisdiction over financial matters are part of the investigation because of “money laundering and banking” questions.
Torch has used high-profile lobbyists, large political donations, contacts with prosecutors and lawsuits against enforcement agencies to protect its market. In 2023, Hanaway’s predecessor, Andrew Bailey, pulled out of defending the patrol in a lawsuit filed by Torch after accepting $14,000 in contributions for his campaign and another $12,000 for his PAC from committees funded by Torch.
Last year, the company contributed just under $600,000 to seven political action committees controlled by its chief lobbyist, former Missouri House Speaker Steve Tilley. It contributed another $60,000 directly, with $25,000 to House Speaker Jon Patterson’s PAC supporting his bid for a seat in the state Senate, Missouri Alliance PAC, and $10,000 to State Treasurer Vivek Malek’s PAC, American Promise.
Committee members on Thursday wanted to know why local prosecutors have not been more active in fighting the machines.
“The owners of the (games) just came in with overwhelming force,” Hanaway said. “They brought in the best lawyers in the world and just put more resources on it than a local prosecutor could respond with.”
Only one felony prosecution has resulted in a conviction. There has been a misdemeanor possession of a gambling device case pending in Franklin County against James McNutt, owner of the convenience store chain Midwest Petroleum, since November 2020.
In an interview with The Independent, Hanaway said her office has concurrent jurisdiction with county prosecutors on gambling laws, and can better withstand being “overwhelmed” by “very expensive lawyering.”
The delays are evidence of the lopsided fight, she said.
“If we have some combined resources in the (attorney general’s) office with the county prosecutors and maybe even the feds, it’s going to be a fairer fight,” Hanaway said.
In an interview, Fogle noted that her hometown, Springfield, has banned Torch’s machines and similar games as a public nuisance.
“There was a lot of information that I wouldn’t expect her to be able to share publicly if there are ongoing investigations, but I was pleased to see that she was in coordination with the federal government to crack down on these illegal machines,” Fogle said.
Video lottery
The games targeted by Hanaway are labeled as “no chance gaming” by the operators and have successfully eluded a definitive prosecution. The only felony conviction, in Platte County, was not appealed.
After years of being stymied by casino lobbyists and Torch’s political strength, video lottery proponents think this is the year for passage. The state will need billions in revenue if Republicans want to keep Gov. Mike Kehoe’s promise to eliminate the state income tax.
Replacing the untaxed and unregulated games with machines licensed by the state, with mandatory 80% payouts, would bring in about $350 million in revenue within two years, according to official estimates.
The bill sponsored by state Rep. Bill Hardwick, a Republican from Dixon, passed the last stop on the way to a floor debate, the Rules committee, only because the vice chairman, state Rep. Don Mayhew, a Republican from Crocker, was absent.
In an interview, Mayhew said his presence would not have mattered because there were other members, who he would not name, willing to change their vote to get the bill through.
Mayhew and Hardwick are opponents in the GOP primary in the 16th Senate District in August.
“I hate the bill,” Mayhew said. “I hate everything about the bill. Now, in the past, I have supported VLTs, but it was always under the idea that the current things were going to go away.”
The two-year allowance before existing games could not operate is too long, he said.
A bill authorizing video lottery narrowly passed the House last year. Fogle, who said she will oppose the bill when it is up for debate, said the lobbying effort is intense and the divisions don’t follow party lines.
“There was a lot of strong arming going on (last year), and I would anticipate that to happen again this year,” Fogle said.
Last year’s bill died in the state Senate. If the House does pass it, Senate President Pro Tem Cindy O’Laughlin said Thursday, it will get a chilly reception in the upper chamber.
The discussion about making illegal activities legal too often focuses on the financial benefits of taxation, O’Laughlin said.
“In the short time that I’ve been here, it just seems like we have talked about so many marijuana and gambling bills, and we’re going to tax those, and they’re going to pay for veterans and education and do all of these great things,” O’Laughlin said. “But no one talks about the societal cost of it and what it does to people and their families, and that’s kind of my concern.”
Note: Gregg Keller is not related to the author of this article.