What in the World is a COAM?

written by I. Nelson Rose
2021

I first looked into COAMs a couple of years ago, when a very large investor wanted to know if he should put a few tens of millions of dollars into a company involved in the business in Georgia.  Before I could advise him, I had to first figure out what in the world is a COAM.

 

My interest was renewed this year when I was asked by another big money firm about the proposal by the largest COAM operator, Lucky Bucks, to borrow $500 million.  Lucky Bucks will use $290 million to pay off existing debt, which makes sense because interest rates are now so low.  But it also will use $191 million to pay a dividend to its shareholders.  The remaining $19 million will go to fees and expenses.  

 

What type of company makes so much cash that it can borrow half a billion dollars and give themselves $191 million, while not using any of it to grow the business?

 

What is a COAM?  The letters stand for Coin Operated Amusement Machines, but the only ones of interest to gamblers, operators and investors are the Class B COAMs in Georgia.

 

OK, so what are Class B COAMs?  The short answer is they are VLTs, with a few weird twists.

 

VTL stands for Video Lottery Terminal, which has no common definition.  There are probably dozens of different types of VLTs.  Most are owned and operated by state lotteries, though some are just owned by a lottery but operated by privately owned bars or casinos or owned by small retailers and linked with a state lottery.  Most are connected to a central computer which determines the winner; although some have their own internal random number generators (“RNGs”) but report results continuously to the lottery’s central computer.  Some states and tribes require that the VLT only dispense paper tickets; other VLTs pay out in coins and cash.

 

Broadly, a VLT is any gaming device that the state’s legal authority declares is a lottery.  In practice, a VLT is a slot machine that is configured in whatever way is necessary to make it a lottery and therefore legal under the jurisdiction’s lottery laws.

 

Polls and elections show that most people do not want slot machines in their neighborhoods.  To get around this NIMBY (“Not In My Back Yard”) thinking, operators and entrepreneurs lobby state lawmakers and regulators to legalize VLTs, so that they can assert that they are not loosening the long-standing prohibitions against slot machines.

 

But sometimes even the term VLT is a step too far.  This is what happened in Georgia.

 

The conservative Republicans who control Georgia’s state government pretend the state is anti-gambling.  The state has no casinos, privately owned or tribal, no horse or dog tracks, no internet gaming, and no sports betting.  It has only a state lottery; bingo, with operators limited to fairly small prizes; and occasional charity raffles.

 

There are, of course, no legal slot machines.  The right-wing politicians and religious leaders would not even allow anything called a VLT.

 

Pretending people are against gambling does not make it so and limiting gambling options does not prevent players from making bets.  The Georgia State Lottery, for example, is one of the largest and most successful in the U.S.

 

Every state has true coin-operated amusement machines, like pinball games which only award a replay or two.  Nearly every state also has near-gambling COAMs, usually in the form of redemption games:  The devices spit out paper tickets to winners, which can be redeemed for plush (stuffed animals), plastic toys, and cheap electronics.  Occasionally these come close to being the real thing:  I saw a player win more than $100 in cigarettes, which he sold in the parking lot, at a truck-stop in Texas, on a traditional 8-way slot machine.

 

The Georgia Legislature made this leap in 1991 when it legalized what it called “skilled-based games,” including video poker, with prizes limited to non-cash merchandise.  Traditional amusement machines were called Class A; the new skill games became Class B.  

 

The Class B COAMs, technically under the Department of Revenue, were basically unregulated.  The most obvious problem was that you can’t put thousands of video poker machines in convenience stores and gas stations all over a state and expect that players and operators would abide by a rule that says players can only win plush.

 

In 2013 state lawmakers transferred responsibility for COAMs to the Georgia Lottery Corporation (“GLC”), which put in a comprehensive program of licensing and regulation.  To make it clear whose interests are being protected, legislators created a “Bona Fide Coin Operated Amusement Machine Operator Advisory Board,” composed of ten members, “at least seven” of whom must be in the COAM business.

 

With the State Lottery in charge and an advisory Board craving slot machines, Class B COAMs became VLTs, with a twist.  Republican legislators, still pretending these are kiddy redemption games, refused to change the statute requiring COAM winners can only be paid off in merchandise from the store where the gaming device is located.

 

Like all pseudo-slot machines, Georgia’s COAMs are in the process of becoming true gambling devices.  The GLC is experimenting with allowing winners to be paid off in lottery tickets.  Players like this a lot; better to get a pile of lottery tickets you can play yourself or easily sell than cases of Coke®.  Pretty soon, the Legislature will allow every COAM operator to pay off in lottery tickets, then in gift cards and other near-cash prizes.

 

Slot machine route operators understand the potential, and have been buying up Georgia COAM suppliers and operators.  Lucky Bucks was bought by a Canadian gaming company, Seven Aces Ltd., which was itself then bought by billion dollar private equity fund, Trive Capital.  United Gaming, LLC, has purchased 20 COAM operators.  Accel Entertainment, an Illinois slot route operator, bought Tom’s Amusement Company, which had 11 COAM locations.

 

The GLC is speeding the transition of Georgia’s COAM’s industry from smalltime redemption machines to major slot machine players in the world of legal gambling mergers and acquisitions.  Spotting a loophole in the COAM statute, the GLC has approved large out-of-state, even foreign, gaming companies becoming directly involved in the business. 

 

In the next few years, if not sooner, we are going to see Georgia’s COAM companies explode onto the national scene as buyers or targets of much larger gaming companies.

 

Thousands of pseudo slot machines throughout the state also make it much easier for other gambling proponents.  A bill to amend the State Constitution to legalize sports betting passed the State Senate this year, and 16 of the largest gaming companies have joined forces to lobby for true casinos in the Peach State.

 

Watch for some interesting gambling bills being introduced in January of next year.

 

© Copyright 2021, all rights reserved worldwide.  Gambling and the Law® is a registered trademark of Professor I. Nelson Rose, www.GamblingAndTheLaw.com. 

I. Nelson Rose

Prof. Rose is recognized as one of the world’s leading experts on gambling law, and is a consultant and expert witness for governments and industry. His latest books, INTERNET GAMING LAW (1st and 2nd editions), BLACKJACK AND THE LAW and GAMING LAW: CASES AND MATERIALS, are available through his website, www.GAMBLINGANDTHELAW.com.

Related Posts

Comments

0 Comments