Skill-based Gaming is Coming; Now, How Do We Handle It?

Nevada Gov. Brian Sandoval signed Senate Bill 9 on May 21,  giving state gaming regulators the ability to adopt rules allowing gaming machine makers to add arcade-style elements that will give players a chance to increase their payback percentage and potentially interest new players in slots.

While the bill may have given the industry the tool it needs to attract new players, skill-based gaming also must be adequately regulated to ensure the monetary risk to casinos does not outweigh its rewards.

Initially conceived and proposed by the Association of Gaming Equipment Manufacturers (AGEM), SB9 promotes opportunities for Nevada-based casinos to incorporate skill-based games by mandating the Nevada Gaming Commission to draft regulations allowing the development of slot machines with elements of skill and other features designed to attract younger gamblers.

According to AGEM, gamblers could play a slot machine with an 88 percent payback, but the figure could jump to 98 percent if the player was particularly proficient in a video game skill element in the bonus round, such as shooting down enemy airplanes or outracing other players in a road race.

Casino Enterprise Management asked industry veterans Kevin Parker, vice president of business development for Biometrica Systems and a longtime casino slot director, and Bob Cloud, owner of Cloud & Associates, a gaming regulatory consulting firm and currently serving as the Chairman of the Mashpee Wampanoag Tribal Gaming Commission in Massachusetts and as the executive director of the Paskenta Gaming Commission in Northern California, what they think of SB9, potential risks related to skill-based game development and the preparations necessary before these games come to a casino near you.

Here’s what they had to say.

Casino Enterprise Management: Is skill-based gaming currently available in U.S. casinos or is this an entirely new development for our industry?

Parker: Skill-based gaming is not new to our industry and is currently available in virtually every casino in America. Be it blackjack or traditional video poker, skilled players or advantage players can lower the hold percentage of these games anytime they place a wager. While most operators acknowledge the risk of an advantage player on their blackjack games and guard against it, most operations seem to forget about the advantage video poker player, which can lead to large losses on their slot floor. Policies that are designed to limit a property’s exposure to these advantage players should be instituted in both the table games and slot departments. Safeguards should be put in place to identify these individuals before they can affect a casino’s bottom line.

Cloud: This form we are discussing will be an entirely new form of gaming machine.

CEM: Does the introduction of skill-based slot machines create a financial risk to casinos?

Parker: Absolutely, but the potential benefit outweighs the risk if your casino is prepared for it. Implement a procedure in conjunction with the gaming commission that allows the operation to limit the play of a patron on specific machines. Some players will have a skill set that, if left unchecked, could hurt your operation, and you need to be prepared to take action.

Cloud: I think it has the potential to do so, but gaming machines in their programing are based on certain parameters of hold percentages. I have not actually seen a PAR sheet for one of these machines, and a PAR sheet from the machine will tell you basically what the game will do. The properties and regulators can determine what the hold percentages will be.

When you introduce a variable that might allow someone to go into a bonus round with, say, hand-eye coordination, or just use their video gaming skills to get the maximum return on a game because they have developed some sort of skill to manipulate the outcome of the game, there is the potential that a property could have some exposure. It will depend on how that machine is programmed and how much a property is willing to allow a program to vary on its hold percentage.

I have not seen it come out in Native American casinos yet as this is a bill that came out recently. It’s going to happen in Nevada first and then we will have an opportunity to see how Nevada addresses this before it shows up in other jurisdictions.

CEM: What is the effect related to skill-based play as it relates to point play and casino comps?

Parker: Great question. While many operations set a separate contribution rate for participation games from the house-owned games, they forget about their skill-based offerings. A highly skilled player can easily take advantage of the comp system, as they will not need to put the same amount of money at risk as your average player to generate the same amount of points. The point contribution must be changed on any game that incorporates skill to compensate for the reduction of coin-in on the game.

Cloud: In this particular case, points and comps are typically based on coin-in and how a property views that particular player as a value to the property.

Players should be using their player’s card so they can have all their coin-in is tracked. It is going to be up to the properties to set up the parameters on what they are going to give up to this sort of player. It is so new I believe it is going to take a lot of number crunching to see how much of an impact it is going to have on players and their comps.

If a player is on a game and is taking advantage of their skill to create a better situation for themselves, but really, I don’t think it will have too much of an effect on a property because I don’t believe you are going to have too many players at that level initially. However, I think you will have a lot of players trying to get to that level.

CEM: Is there a catalog of known skill-based players available to casino regulators and operators? 

Parker: There are services available that identify known advantage players as it relates to both table games and video slot play. These services are a necessity in combating players who can reduce or eliminate the house advantage of your games. All services are not created equal; utilize providers that consistently update their databases. It is also very important to ensure the data they provide is accurate and timely.

Cloud: Not for this sort of a player. The industry has a number of subscription-based databases available—primarily for cheats, advantage players and card counters.

There is a high probability that a number of people who develop into skill-based slots elite may find their way into some of these subscription-based databases. But having skills such as good hand-eye coordination or other legal skills to take advantage of these slot machines is not illegal. It is really up to the property as to what they will want to do for and with this sort of machine player.

CEM: Is there an alert system available that allows regulators to know if there is a known skill-based player in their area? 

Parker: While there are a number of regional services that provide data on known advantage players in their geographic areas, Biometrica is the only service that I know of which operates a national private alert network. A system of this nature enables casinos to share real-time information on advantage players among other casinos and law enforcement agencies. It also allows you to track known advantage players from place to place.

Cloud: I do not think there is anything out there for this type of slot player yet. Again, there are a number of subscription-based databases for operators and regulators to use. There are also facial recognition programs to identify folks who are unwanted in casinos or who are known card counters, but there is a limited number of databases for table games folks. I do not know of any database that is currently carrying information about slot players.

CEM: How does a casino operator or regulator handle a skill-based player on their casino floor? Do rules exist that deal with these types of concerns?

Parker: I would draft a procedure that allows staff to “back-off” a player who exhibits too much skill on any particular game while allowing them to continue to frequent the facility. This is a common policy table games departments employ when they encounter a good card counter. While advantage play is not illegal, we cannot allow the entertainment element to be removed from the casino or we risk losing our regular player base. If players feel someone else has an unfair advantage they will play elsewhere.

Cloud: I think what you are going to see as these games are developed is that each property or jurisdiction is going to create a policy on how they deal with a known cheat or other patron. It is going to be based on what a property is willing to expose themselves to with this sort of game.

With the varying hold percentages that could come into play here, it is going to be on the property to be very vigilant as to what is going on with those games. This is so new, and the potential for unusual activity is so high, it will require some very careful monitoring of the players and the games themselves.

CEM: Do you believe that introducing a variety of skill-based games to casino floors will drive younger players through the doors thus creating new gamblers?

Parker: Absolutely. The current game library works well enough for the Post–World War II baby boomers, but does not widely interest the Gen X or Y demographic. It is essential for our industry to offer innovations of this nature if we hope to remain relevant. The idea of winning based on your skills and experience will attract many who are bored by traditional slot products, but are willing to bet on their own abilities.

Cloud: There is no question that is true. You have this whole generation of video gaming champs that will salivate at the prospect of turning those couch-based skills into a slot machine-based skill that actually might make them some money.

It is really about all those adults who have grown up with controllers in their hands; they don’t want to play a game, they want to dominate that game. We have seen folks who take two and three days to try and maximize these games. Those are going to be the folks that accept this challenge and come in to try to maximize their gaming skills to make some money on these slot machines.

CEM: Do you have anything else to add?

Parker: I believe the addition of skill-based slot machines will bring a new demographic of players to our casinos. This will add a great deal of excitement and rejuvenate our current customer base.

From the regulatory standpoint, I would suggest games of this nature incorporate a dynamic difficulty setting that would make the game more difficult for highly skilled players as they advance through different levels of the bonus round.

From an operator’s perspective, we must take the time to thoughtfully implement policies to compensate for customers exhibiting an abnormally strong skill set not modified or negated by the game itself. If we do this, we can ensure our property is prepared for the change while still welcoming players of all skill sets.

Cloud: Over the last number of years, for example, the online poker industry is slowing working its way in; a lot of poker players in particular leave casinos and go into poker rooms. A lot of them do not want, or need, any of the amenities the casino has. This is an opportunity to develop a whole new set of casino visitors and a huge opportunity for the reinvigoration of the casino industry.

In the bigger picture I think this will be a great benefit to the industry. Nevada’s governor hit it right on the money. They are trying to shine some light on the state, and this will certainly do it.

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