Commission considers next gen gaming

On Sept. 17, the Nevada Gaming Commission will consider rules paving the way for a new generation of electronic gambling machines. If adopted, the rules will allow wagering on skill games, and will be the first step toward integrating the video game experience with the slot machine. Under these rules, licensed gaming manufacturers can seek approvals from the commission to offer skill games. In these games, players’ dexterity in driving a race car, strategic ability in a military combat game, or knowledge of motion picture trivia effect the outcome of the game.

The new regulations follow the Nevada Legislature’s passage of Senate Bill 9, a bill promoted by the Association of Gaming Equipment Manufacturers, a trade association with over 145 members. The legislation mandates that the commission adopt regulations that will promote new gaming device technology for Nevada’s casinos.

Nevada’s gaming industry faces unprecedented competition. Only about 29 cents of every dollar in United States domestic consumer spending on commercial casino gaming is now spent in Nevada. Casino revenue from gaming has been in decline in Nevada. Electronic gambling machines contribute about 60 percent of gaming revenue to casinos. The Nevada Gaming Control Board reports non-gaming revenue on the Las Vegas Strip now accounts for more than 60 percent of total revenue, leading to declines in gross gaming revenue tax collections and margins for casino operators.

Demographics of the gaming public are also in transition. As Jim Murren, chairman and CEO of MGM Resorts International, has observed: “The newest generation of travelers wants myriad experiences. They want to be a part of the experience, not just ‘experiencing the experience.’” A recent profile of Las Vegas visitors indicates the number of adult visitors gambling declined, while numbers of younger visitors was on the rise.

These young adult casino visitors are a major consumer of technology, whether it be mobile devices, social media, or non-wagering video gaming. This demographic of casino customers expects electronic gaming products to evolve with the other technology they use and enjoy, incorporating the generational interest in video and social gaming. The bill confers on the commission the authority to meet these marketplace challenges by passing rules that will encourage the design and deployment of advanced casino games.

As the commission undertakes this rule-making it will need to fully embrace skill-based gambling. These skill games will challenge traditional notions about gaming devices. The rules should allow gaming companies to adapt and monetize video and social entertainment games for use inside Nevada’s casinos.

These games will present more robust themes and be more dynamic, including competitions of e-sports, military combat, or racing, and contests of knowledge or strategy. While Nevada will retain a 75 percent payback rule, it will be subject to a new calculus considering relative player skill. Game designs also will evolve, including single table-like gaming devices where several individuals collectively play either collaboratively, such as a timed building block game, or competitively, like an automobile race. Game outcomes may be determined based on points earned in a competition and incorporate leader board functionality to decide if you win the game.

SB 9 envisions the commission will establish a mechanism allowing for a range of payback percentages based on games that the operators themselves can adjust, dependent upon the game’s attributes and levels of skill and chance. For this effort to succeed, the commission must allow for player skill to improve the frequency, size, and probability of game payouts; for example, the player who first earns a certain number of points or achieves a particular skill result wins. Critically, the games must fairly communicate this information to the player at the beginning of the game experience. Moreover, the commission will need to permit games to have persistent and rollover prize pools. Another important feature is for casinos to be able to customize the gaming experience of their loyalty program members and for these members to earn rewards for their gaming activity.

The commission also must provide a clear regulatory platform and path for multi-player games that can leverage a wide variety of popular video games ranging from Call of Duty to Words with Friends. A particularly interesting challenge for these multi-player games is for the commission to fashion a methodology for casinos to offer skill contests in which players participate in pooled games from various casinos in Nevada.

New types of gaming devices developed under these rules should complement the products on casino floors today as those products also evolve. The goal is to provide a different gaming experience that will attract new customers to electronic gaming machines, and not cannibalize existing casino customer groups.

There is competition to see where these games will first debut. New Jersey regulators have taken a first step in the skill gaming arena and endorsed proposed rules like those before the commission. Similarly, Pennsylvania is reviewing legislation nearly identical to SB 9. The commission will need to act adeptly to fashion rules and standards providing enough guidance, flexibility and certainty that developers and manufacturers will invest the capital needed to bring these new skill-based games to market in a predictable regulatory environment. That task is yet another challenge for the commission in maintaining Nevada’s role as a leader in gaming technology.

Dan Reaser is the author of SB 9 and represents the Association of Gaming Equipment Manufacturers. He is a director and the chair of Fennemore Craig’s gaming and hospitality practice. Reach him at dreaser@fclaw.com. Katherine Hoffman is an associate at Fennemore Craig where her practice includes gaming, and sweepstakes and promotional contests. Reach her at khoffman@fclaw.com.