Gray machines are unregulated gaming machines, sometimes referred to as “skill-based” games, that look much like their regulated counterparts, such as slot machines. The unregulated gaming machine market has grown significantly in recent years, becoming a cause for concern for policymakers as they are not subject to the same oversight and do not have the same player safeguards as regulated gaming machines.
Regulated Gaming versus Unregulated Gaming
Regulated gaming machines include casino slot machines, video poker machines, historical horse racing machines, and other electronic gaming machines that have received hardware and software approvals from authorized testing agencies and offer player protections, such as promised payback percentages.
In Kansas, electronic gaming machines must be approved by the Kansas Racing and Gaming Commission (KRGC) (KSA 74-8750). Each game prototype and the associated equipment are subject to testing and approval by KRGC and are evaluated based on overall integrity and compliance with Kansas statutes, regulations, and standards adopted by the KRGC, among other criteria (KAR 112-107-3).
According to the American Gaming Association (AGA), unregulated gaming machines are often referred to as “amusement” games and operate in a legal gray area—hence the term “gray” machine. Gray machines largely look and play much like traditional slot machines or casino games. According to Scientific Games, a lottery gaming vendor, gray machines are also called “skill-based” gaming machines because they typically offer an opportunity during the play experience to exercise a skill, such as memorizing a pattern or requiring speed and accuracy to unlock a bonus or another part of the game. Players are often given the option to engage with the skill-based portions of the game or skip them, but operators assert their inclusion in the game puts these machines in a legal gray area, outside the definition of a traditional, regulated gaming machine and the accompanying oversight.
Examples of unregulated gaming machines include:
- “Nudge” games where “a player can touch the screen to move a symbol into a winning position”;
- “Sweepstakes machines” that mimic slot machines and allow players to receive a coupon in exchange for money to redeem for merchandise online; and
- “Zero chance” or “no chance” games that attempt to circumvent prohibitions on “chance” games. Zero-chance games sometimes include a feature that can reveal the outcome of the next play in advance, allegedly making them “skill” games that force players to make a decision in order to get an outcome.
The Unregulated Gaming Market
According to the AGA report, “Sizing the Illegal and Unregulated Gaming Markets in the United States,” published in August 2025, Americans wager more than $673 billion each year with illegal and unregulated gambling operators. This estimate translates to $54 billion in annual lost revenue for the legal gaming industry and about $15 billion in lost tax receipts for state governments.
The AGA estimates that more than 625,000 unregulated gaming machines are currently in operation across the U.S., representing about 40 percent of all gaming machines in the country.
Consumer Protection and Other Concerns
Opponents of gray machines argue their unregulated nature creates increased risks for both consumers and operators. While unregulated gaming machines may operate in more concealed locations like private clubs or bars where patrons are limited by age, they are also often found in locations like convenience stores, malls, and gas stations, making them accessible to underage individuals. The AGA notes that consumers often cannot tell the difference between legal and illegal gaming machines, and this confusion can also be exploited at the consumer’s expense.
The Philadelphia Inquirer notes “the issue of access for gambling addicts, who can put themselves on self-exclusion lists at casinos, but not at their local gas station where skill games are available.”
Because they are not subject to regular oversight, gray machines cannot be ensured to have a particular payout guarantee, and customers who have an issue with their game may have no recourse to recoup their money.
Other concerns relating to the lack of regular oversight include improper security and increased likelihood of crime, including robbery and money laundering. Robberies related to gray machines have been reported in recent years in Pennsylvania and Virginia
Scientific Games notes, however, that gray machines “have been a boon to certain retailers, usually mom-and-pop operators of convenience stores and bars, who have benefited from the extra foot traffic the games bring in as well as the revenue they generate.” Spectrum News 1 in Kentucky reported in September 2025 that small business owners were pushing the state to lift the current ban on gray machines in favor of regulation as they can be a “way for independent businessmen throughout the state of Kentucky to generate extra revenue.”
The games are also popular for players looking for higher payouts. Scientific Games reports that gray machine payouts typically range from 75 percent to 93 percent, while the average instant lottery game payout is 75 percent and draw game payouts average between 50 and 58 percent.
Gray Machines in Kansas
According to the Kansas Lottery, there are an estimated 985 gray machines operating in Lottery retailers across the state as of September 2025. This estimate does not include any gray machines operating outside of Lottery retailer locations in the state.
Federal and State Regulation of Gray Machines
The Johnson Act (15 USC § 1175) generally prohibits the manufacture, possession, use, sale, or transportation of any gambling device in the United States and requires all persons manufacturing, using, selling, transporting, or providing gambling devices for the use of others to register with the U.S. Department of Justice and provide certain disclosures when such devices are shipped. However, enforcement of this federal law is inconsistent.
A few states have enacted legislation to regulate gray machines.
Nebraska
Nebraska allows “skill games” to operate as long as the operators apply for a site license and obtain a tax decal for each machine. The Nebraska Department of Revenue maintains a statewide database of games with a tax decal and reported that there were 5,413 registered skill games in July 2025, a 44 percent increase since 2022. Revenues from the gaming machines are taxed at 5 percent.
Georgia
The Georgia Lottery licenses “Coin Operated Amusement Machines,” which function similarly to slot machines. Gross revenue from the machines is taxed at 4 percent. The Georgia Lottery reported 41,119 active machines in 2025, a 4 percent increase from 2021.
Ohio
In 2015, the Ohio General Assembly expanded the authority of the Ohio Casino Control Commission (OCCC) to oversee licensing and reporting for all gray machine manufacturers, distributors, and operators. The OCCC licenses every skill game in the state, including those at family establishments, like Chuck E. Cheese. The widespread licensing has served as a strategy for the OCCC to identify bad actors and shut down illegal machines.
Pennsylvania
In Pennsylvania, legislation has been introduced during the 2025 Session to regulate gray machines. SB 756 would impose a 35 percent tax on skill games, limit terminals per establishment to 7, and delegate license oversight to the Pennsylvania Gaming Control Board. SB 626 would impose a 16 percent tax on gray machines, provide for establishments to house between 5 and 10 terminals, and delegate enforcement to the Bureau of Liquor Control Enforcement and the Pennsylvania State Police. Both bills remain in Senate Committee. In his budget, Pennsylvania Governor Josh Shapiro has proposed a 52 percent tax on skill games and limiting establishments to five terminals. Pennsylvania has a year-round Legislature and has not passed a budget for the 2025-2026 fiscal year as of September 2025. At the municipal level, the Philadelphia City Council voted unanimously in March 2024 to ban skill games from city businesses unless the business also has a casino or liquor license and an area for at least 30 patrons to eat or drink.
By Leighann Thone and Elaina Rudder
See Federal and State Affairs for more.