Gambling is legal in Colorado, as long as casinos are located in one of three mountain towns and follow very strict guidelines. But Denver7 Investigates found casino-style gambling is happening all over Colorado as operators have found ways to get around the state’s rigid betting rules.

Now, leaders across the state are trying to better regulate these so-called “gray casinos” or adult gaming arcades.

Denver7 Investigates visited and used undercover cameras at multiple adult gaming arcades across the Denver metro area where the store fronts are often located in strip malls.

During conversations with customers and staff, Denver7 employees were told that these businesses typically pay out better than standard casinos. One cashier noted a woman winning upward of $13,000.

“You pay here, play here, and you get paid here as well,” one employee said.

Each of the adult gaming arcades Denver7 Investigates visited operate in different ways. At one location in Lakewood, a player pays cash at the register and then a machine distributes winnings in crypto currency.

“They make it legal by the crypto machine. What they give you then is crypto money and then you go to that machine, and it turns it into American money,” said an arcade customer during an undercover visit.

Another employee referred to the arcade as a “third party” in reference to the crypto machine that pays out winnings.

Other adult gaming arcades where Denver7 Investigates went undercover offered cash for cash, and an employee said they would pay out cash at the register.

Aurora looks to better regulate

Denver7 showed its undercover video to Aurora City Councilman Curtis Gardner, who is considering introducing an ordinance that would better regulate or prohibit gray casinos.

“It was pretty surprising, certainly. What it appeared in that video was gambling was taking place,” he said. “It certainly looks, feels and acts like a casino.”

Colorado voters have only approved gambling in Black Hawk, Cripple Creek and Central City. The adult gaming arcades argue their games are different.

“The tables are skill tables. They're considered arcade games,” an arcade employee said in the undercover video.

The use of crypto currency at some of these arcades could be seen as a loophole in a 2018 state law that banned gaming machines from paying out cash prizes outside of the state’s three gambling towns.

“Their facilities are using casino-type slot machines, but they’re using a different power structure to kind of work around the state law,” said Gardner.

A public safety issue in Montrose

Nearly 300 miles outside Denver, gray casinos are also popping up on Colorado’s Western Slope.

“I would describe the activity almost exactly like in the Las Vegas casinos, just on a much smaller scale and with a lot less regulation,” said Montrose Police Chief Blaine Hall.

Hall said the arcades have been linked to serious crimes in his community.

“We’re a small community. To have shootings in our community, not just once at one of these places but twice, stabbings and burglaries and serious domestics and then the drug use, it affects how we do business,” Hall said.

Those crimes are what led Montrose City Council to act. City leaders passed a temporary moratorium on any new adult gaming arcades.

“The city decided to pass the moratorium in hopes that the state legislature would take a look at this issue and perhaps pass some regulations,” Hall said.

It doesn’t appear lawmakers will take up this issue during the current legislative session, which is leaving local communities to take this on themselves.

“It is a challenge for law enforcement because there is no clearly codified definition that really helps law enforcement determine how to handle this,” Hall said.

Colorado Gaming Commission Executive Director Peggi O’Keefe said Colorado’s gaming towns are operating by the rules and following what the state’s constitution says in terms of where and how gambling games can be played.

Yet, these gray casinos do not have consumer protections or regulations.

“They’re providing games that are illegal outside the gaming towns,” O’Keefe said.

Denver7 Investigates stopped by one of the arcades operating in Lakewood and were asked to leave before being able to speak to a manager. Repeated requests to reach the owner of the arcade went unreturned.

“I would say it’s a bigger problem than I expected,” Gardner said. “They’re slot machines. They’re things that I would expect to see at a regular casino.”

The City of Lakewood said it has two complaints against one of the arcades operating in Lakewood. Denver police also confirmed its SWAT team helped the FBI raid a location earlier this year. The FBI could not confirm or deny an investigation.