Is this a slot machine or a game of skill?

A legal battle is heating up over the way Iowa defines casino-style “amusement devices” found in taverns across the state.

Electronic games that look like slot machines are strictly regulated in Iowa, with restrictions on prizes and player age limits. But the difference between those devices and the less-regulated games of skill commonly found at county fairs and at carnivals isn’t always clear.

Red Line Vending, a New Hampton, Iowa, company that supplies bars and nightclubs with pool tables, dart boards, jukeboxes and gaming devices, is now suing the Iowa Department of Inspections and Appeals over the agency’s refusal to approve two of its video games, Lightning Skill and Gold Skill I, as “amusement concessions.”

In court filings, Red Line officials say the two games “are simply modern-day, digital versions of conventional carnival games.” The company calls DIA’s stance “the poster child for administrative-agency overreach.” DIA claims otherwise and in a court brief says “Red Line’s games are unquestionably de facto slot machines.”

Although amusement concessions are allowed in Iowa, they are less regulated than the casino-style “amusement devices” that DIA says best describes Red Line’s games.

The difference between the concessions and devices is largely based on how winners are determined. The ring-toss games and balloon-dart games found in carnivals are considered games of skill, so they’re classified as amusement concessions. But gambling devices in which winners are determined largely by chance are considered amusement devices, and Iowa allows only a set number of such games as a way to restrict the proliferation of gambling.

Red Line says the state is wrong to conclude that Lightning Skill and Gold Skill I are slot machines that must be regulated as amusement devices. Last year, the company appealed the agency’s decision to an administrative law judge, who sided with the state in April. Now the company wants a judge to review and overturn that decision.

DIA’s position is that Red Line is free to distribute the games since the state can accommodate an additional 1,000 amusement devices before the statutory cap is reached. The agency argues that the dispute springs from Red Line’s efforts to “evade the location, age and prize restrictions” that apply to amusement devices by having their games treated as amusement concessions.

Are the winners determined by chance or skill?

The critical issue in the case is whether winners of the games are determined by chance – playing the right game at the right time – or by actual skill. (It’s probably not a coincidence that Red Line Vending has incorporated the word “skill” into the names of both games.)

In Lightning Skill, players insert money into the videogame terminal and the screen displays three spinning reels of different icons. As with a traditional slot machine, the goal is to line up the same icon across all three reels. In this case, however, players can “nudge” a reel up or down in an effort to change the icon that’s displayed. If they win, they are awarded credits for more games, but they can “cash out” at any time by redeeming their credits for a gift certificate for food or merchandise at the establishment where they’re playing.

The state argues that the spinning reels stop on icons in a “perceived random manner,” and that the reality is each game can be programmed to return in prizes a predetermined percentage of the total credits purchased by the player. The state says this programmed payout ensures that, overall, players will always pay for more games than they could possibly redeem as prizes, regardless of how skilled they are. That, the state claims, is what makes these games of chance, not games of skill.

Red Line counters that argument by pointing to a second “phase” of the games that are based on a player’s ability to memorize, and then replicate, the order in which a set of flashing icons light up on the screen. The state argues that this second phase isn’t linked at all to the first phase of the game and can be bypassed entirely by the players.

DIA: State’s ability to restrict growth of gambling is at stake

Although the case may be decided based on the nuances of how the games are programmed, the outcome could have major implications for the state. In court briefs, DIA argues that the Iowa Legislature deliberately crafted the law to distinguish between carnival-style games of skill and casino-style games of chance so that it could “restrict the unfettered growth of these types of gambling devices in Iowa.”

The state goes on to say that this effort to strictly regulate games that award prizes through chance would be “absurdly contravened” if the amusement devices that are subject to $50 prize limitations and location and player-age restrictions “could magically be placed anywhere, and played by anyone of any age, and award up to $950 in prizes simply by relabeling it an amusement concession.”

Red Line executives could not be reached for comment Wednesday. A 30-minute hearing on the matter is scheduled for Jan. 31 in Polk County District Court.

Red Line Vending was a player in the TouchPlay controversy that dates back to 2004 when the Iowa Lottery Authority encouraged companies to purchase casino-style TouchPlay devices that enabled users to play the Lottery.

 An estimated 6,700 TouchPlay machines were installed in more than 3,000 taverns, supermarkets and convenience stores throughout the state, but they immediately sparked protests from citizens concerned about the resemblance of the devices to slot machines.

That prompted the Iowa Legislature to ban the devices in 2006, which resulted in the state being sued by various operators, distributors and manufacturers. Those claims were eventually settled for $18.4 million.

 Red Line Vending operated 200 of the TouchPlay machines. At the time of the settlement, company president William Wohlers told the Des Moines Register his share of the settlement would compensate him for less than 20 percent of his losses.