What are Skill Games?

Following a seizure of devices and subsequent litigation, the Nebraska Supreme Court ruled in 2011 that the machines were not awarding players by chance, and thus they were predominantly games of skill and did not constitute gambling, pursuant to Nebraska law (Am. Amusements Co. v. Neb. Dep’t of Revenue, 282 Neb. 908). Today in Nebraska, cash devices are controlled by the Mechanical Amusement Device Tax (MADT) Act, and the games are approved and regulated by the Nebraska Lottery and Charitable Gaming Division of the NDOR.

Games of skill, by definition, are those which produce an outcome predominately caused by skill – not chance. In statute, video games of skill and skill-based devices are mechanical amusement devices, but machines which dispense cash, items redeemable for cash, or gift cards are defined as “cash devices“ (§ 77-3001). Excluded from the over-arching definition of amusement devices are pickle card machines (§ 9-345.03) and gaming machines defined under the Nebraska Racetrack Gaming Act, such as historical horse racing games (§§ 9-1101 to 9-1118).

Section 77-3003.01 of the MADT Act describes several scenarios wherein a cash device would not be considered a game of skill. For example, if success at the game is impacted by the number or ratio of prior wins to prior losses, or by a predetermined win-loss percentage, the game is considered to be chance-based. Moreover, a cash device will not be approved if there is no possibility for the player to win every game played on the device (or if there are unwinnable games or game modes on the device) or if success requires an amount of skill that no reasonable player could exercise. A reasonable player is described in statute as someone who has, “an average level of intelligence, physical and mental skills, reaction time, and dexterity.”

Various cash device games require different levels of skill in order to succeed, but to be considered skill-based the game task must entail more than simply moving or replacing a symbol (§ 77-3003.01 (6)(d)). When the NDOR (or any court) is considering whether a device is based on skill or chance, it may utilize results from analyses on the reaction time, or other factors, required to win the game.

Where are Cash Devices Located?

After preliminary third-party testing in 2007, approximately 430 skill games were deployed in 143 cities in Nebraska. By 2016, the NDOR began requiring licensees to differentiate the type of mechanical amusement devices that they offered in their establishments. At this point, the count of cash devices in the field in 2016 (as opposed to pool, shuffleboard, and pinball games) stood at 1,600. 

The total number of cash devices in Nebraska has grown substantially over the past seven years. As of September 2023, nearly 4,700 cash devices had been installed in 286 cities and villages in Nebraska. Today, there are more establishments in the state where skill-based cash devices can be played (1,578) than locations featuring prominent games that are based on chance like the lottery (1,180), keno (538), and pickle cards (477).

Any owner or operator of a retail establishment may only place four cash devices in their business – if the facility is 4,000 square feet or less. However, for every additional 1,000 square feet, another cash device may be deployed up to a maximum of 15 cash devices (§ 77-3001.01 (8)(b)). The language in current Nebraska law has led to the formation of straw businesses, such that a small portion of a large facility is dedicated to one function (e.g., retail), while the remaining area houses numerous cash devices. 

Consequently, several establishments have appeared in Nebraska that market themselves as “skill game casinos.” Among cash device locations, 70 percent are under 4,000 square feet, but 43 locations in the state are 15,000 square feet or larger and feature the maximum number of allowable cash devices.

Cities and Villages in Nebraska with Cash Devices

Proportion of Problem Gambling Program Clients by Type of Gambling

Cash Device Regulation and Enforcement in Nebraska

Numerous regulatory issues related to cash devices in Nebraska were presented by the NDOR during the interim study hearing for LR98, including: consumer protection, tax collection, and the lack of accurate reporting and appropriate enforcement mechanisms.

Normally, players’ cash prizes are awarded by operators, but the processes for payouts vary from location to location. In some cases, operators may charge players a fee for large payouts, such as a 10% fee on winnings over $100 dollars. Inevitably, occasions arise when retailers don’t have enough cash on hand to promptly award players their winnings. In these cases, the distributer must supply the payout, but no maximum time limit has been imposed for when the prize must be paid. From the prospective of protecting businesses, operators have reported instances of counterfeit prize tickets, but the NDOR currently has no authority to investigate such events.

The lack of verifiable reporting from cash device machines themselves has led to issues with appropriate tax collection. Cash devices are subject to several taxes, including a tax on the income earned by players or businesses and a sales tax on any associated leases. Preliminary audit results from the NDOR indicate that several million dollars in tax is owed from distributors on the value of leases since 2022.

Once a cash device game has been approved, a decal must be purchased and displayed on the device prior to its placement and activation. At $250 dollars per decal, more than $1.24 million dollars was collected in fiscal year 2022-2023 for the sale of nearly 5,000 cash device decals. For comparison, a 2 percent tax on the gross proceeds of keno netted the state over $7.1 million dollars in the same time frame. Additionally, municipalities are allowed to levy an occupation tax upon the business of operating mechanical amusement devices. Operators must pay an annual occupation tax for each machine - $35 or $20 dollars depending on date of installation – and the taxes collected are remitted to the General Fund (§ 77-3004).

Consequences for violations of the Mechanical Amusement Device Tax Act include an administrative penalty for improper display of a machine decal or for the lack of a license ($75 dollars for each violation) and a Class II misdemeanor for any violation of the act itself (§ 77-3009). The MADT Act prohibits the operation of a cash device using a credit card, charge card, or debit card, and prohibits anyone under age 19 from playing a cash device (§ 77-3003.02). Concerns have been raised in testimony about the lack of formal security procedures at cash device locations and about the ease with which those under age 19 could access the games, but no associated penalty exists in statute.

The Tax Commissioner and their agents may seize, without a warrant, any mechanical amusement device if there is cause to believe it is not compliant with the MADT Act or any rules or regulations promulgated under the act (or if it bears an expired license decal). Additionally, any operator of a cash device which constitutes a game of chance is subject to a $1,000 fine for each day of illegal operation (§ 77-3001.01 (1)(a)). However, several months may pass between when a suspected illegal cash machine is first observed and when an investigation is finalized, resulting in an enormous monetary penalty.

Possession of an unlawful gambling device is a Class II misdemeanor, but the owner of a retail establishment shall have an affirmative defense if the device bears an unexpired decal, unless they had prior knowledge that it was an illegal device (§ 28-1107).

Through nine months in 2023, the NDOR had conducted 3,120 inspections on cash devices. During 2022 and 2023, 10 enforcement activities were executed due to various violations of the MADT Act and other laws related to cash devices. In one such case, the owners of a skill game casino in North Platte were charged in February 2023 with tax evasion, and shortly afterward the same first class city saw a rash of skill game robberies ultimately ending with a woman receiving a three year prison sentence in August for the crimes.