It's STILL a thing actually. Here's an article about Super Arcade, the keystone of the Fighting Game Community in Southern California for the past few years, and their struggles relocating. http://www.pastemagazine.com/articles/2015/08/kings-of-poverty-super-arcade-the-city-of-azusa-an.html Some relevant quotes from the article because it's somewhat TL;DR:

Many of the local residents who shot down the arcade had made assumptions about the kind of place Watson’s arcade was— a den for the kinds of troublemakers you’d see in 80s movies, the kind with the over-the-top hairstyles and studded leather jackets to match their sociopathic tendencies. It’s a powerful image to draw from, especially when it allows you to profile the kind of people who’d go to an arcade as the same kind of people who’d urinate on shopping centers after midnight.

Second, seeing that the permit was for a “coin-operated arcade,” the kind they figured would attract even more delinquency, they likely sprang into action in a way they wouldn’t have for another kind of business. When these two things coincided, voicing their disapproval may have been a no-brainer.

But for the commissioners who had never set foot in arcade, the image of smoke-filled arcades filled with young criminals stuck, and it would have taken more than a few people speaking against this perception to sway them.