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Skill-Based Gaming in the U.S.

Over the past two years, gaming regulators across the U.S. have been studying skill-based gaming and the potential need for legislative and regulatory changes to accommodate a new breed of slots games determined by player skill, as well as chance. 

Traditionally, slots wagers must be determined entirely by a machine’s random number generator. By contrast, skill-based slots would allow players to increase their chances of winning depending on how well they perform a video game-like task. 

The development of regulations to accommodate skill-based slots comes amid signs that once-core slots games are losing their luster in many established casino markets.

In 2016, U.S. gaming states that report both slot and table game revenue saw slot machine revenue increase 0.1 percent from 2015. By contrast, table game revenue, a gaming segment seen as more popular among younger casino patrons, increased 4.7 percent. With the introduction of skill-based gaming, casinos hope to attract millennials to the gaming floor and add a new generation of players to the ageing slot machine clientele. 

To accommodate skill-based gaming, some state legislatures may need to make changes to current laws before rulemaking can take place by state regulators, while some others may only require a regulatory change. 

This report provides a comparative summary of the skill-based gaming regulations proposed in three states so far. An analysis of key factors that are likely to determine whether skill-based games may also be offered by Native American casinos is also included. The report will be updated as other states promulgate regulations or consider formal legislation.

Summary of Developments

In May 2015, the Nevada legislature paved the way for the introduction of skill-based gaming in the state with the passage of Senate Bill 9. SB 9 directed the Nevada Gaming Commission to adopt new slots regulations for games based on chance, skill and combinations of the two. The regulations and technical standards took effect in February 2016 and will be discussed in further detail below. 

In February 2016, the Massachusetts Gaming Commission issued a request for public comment on draft regulations pertaining to skill-based gaming. As of this writing, a final version of those regulations had yet to be adopted. 

Also in February 2016, New Jersey’s Division of Gaming Enforcement promulgated temporary regulations for skill-based gaming. The regulations, which took effect immediately, are similar to Nevada’s and Massachusetts’ rules in many respects, although they differ in others, including minimum payout rates.

In particular, the New Jersey rules allow slot machine games to include an “adaptive feature,” allowing the machine to respond to the performance of an unskilled player and offer him or her extra opportunities to win if the player is consistently losing.

In November 2016, skill-based gaming machines made their debut in New Jersey Casinos when GameCo launched the machines at all three Caesars Entertainment properties in Atlantic City. Notably, in February 2017, GameCo's skill-based video gaming machines received certification for compliance under Gaming Laboratories International's GLI-11: Gaming Devices technical standards, according to a press release issued by the company. The GLI-11 standards were updated in September 2016 to include additional specifications for skill-based games. GameCo cited the approval as "a significant component in the process that allows the company to deploy VGMs in most gaming jurisdictions that currently allow slot machines and electronic table games." 

Other state legislatures have begun drafting legislation that would clarify the legality of skill-based gaming and definitively allow the state’s gaming facilities to offer the new gaming machines.  

In Pennsylvania, several omnibus gambling bills that would allow for the installation of skill and hybrid slot machines on casinos' gaming floors have been introduced during the 2017 legislative session. Details of the bills as they relate to skill and hybrid slot machines will be discussed in further detail below. 

Nevada

In September 2015, the Nevada Gaming Commission approved regulations to implement SB 9. The accompanying technical standards, drafted in December 2015, became effective February 15, 2016.  

The new regulations allow a game’s outcome to be determined by the application of chance, the skill of the player, or a combination of skill and chance. 

The regulations also introduce the concept of an “identifier,” allowing a gaming device to set the payout rate of a game according to the identity, or relative skill, of the player.

Nevada Regulations

 

Definitions

“Game of skill” is defined as “a game in which the skill of the player, rather than chance, is the dominant factor in affecting the outcome of the game as determined over a period of continuous play.” Regulation 14.010(10).

“Hybrid game” is defined as “a game in which a combination of the skill of the player and chance affects the outcome of the game as determined over a period of continuous play.” Regulation 14.010(14).

“Identifier” is defined as:

"[A]ny specific and verifiable fact concerning a player or group of players which is based upon objective criteria relating to the player or group of players, including, without limitation:

  • The frequency, value or extent of predefined commercial activity;
  • The subscription to or enrollment in particular services;
  • The use of a particular technology concurrent with the play of a gaming device;
  • The skill of the player;
  • The skill of the player relative to the skill of any other player participating in the same game;
  • The degree of skill required by the game; or
  • Any combination of the above."

Regulation 14.010(15).

Game Requirements

Once a game is initiated by a player on a gaming device, the rules of play for that game, including the probability and award of a game outcome, cannot be changed. In the event the rules of play for the game, including probably and award of a game outcome, change between games during a gaming session, notice of the change must be prominently displayed to the player. Regulation 14.040(2).

All possible game outcomes must be available upon the initiation of each play of a game upon which a player commits a wager on a gaming device. Regulation 14.040(4).

Display Requirements

Gaming devices that offer games of skill or hybrid games must indicate prominently on the device that the outcome of the game is affected by player skill. Regulation 14.040(6).

The rules of play for a game of skill or hybrid game must describe or display information adequate for a reasonable person to understand the method of game play prior to the player committing a wager. Technical Standard 1.300(4).

Identifiers

Gaming devices may use an identifier to determine which games are presented to or available for selection by a player. Regulation 14.040(8).

Testing Requirements

A gaming device that incorporates skill and makes use of player interaction technology must monitor the player interaction technology for proper operation before the initiation of each game. Upon detection of improper operation, the gaming device must enter into a malfunction mode that causes game play to pause, otherwise known as a “tilt” condition. Technical Standard 1.300(1).

The gaming device must perform tests to ensure the payout percentage meets the standard set forth in the regulations. Technical Standard 1.300(3).

A manufacturer or distributor who becomes aware that a gaming device or associated equipment approved by the Nevada Gaming Commission and Nevada Gaming Control Board no longer complies with the regulation or the technical standards must notify the board in writing within three business days. Regulation 14.100(4).

Linked Skill/Hybrid Games

The Nevada regulations allow players to compete against other gamblers either located within the gaming facility or at another gaming facility using an inter-casino linked system. Regulation 14.030.

Operators of an inter-casino linked system of games of skill or hybrid games must ensure the progressive payoff schedules are accurately described for players and comply with the payout structure outlined in the regulations. Regulation 14.045.

Payout Percentages

Machines are required to have a minimum payout rate of 75 percent.

Responsible Gaming Requirements

A gaming device must not use a theme that is derived from or based on a product that is primarily intended or marketed for use by persons under 21 years of age, or depicts a subject or material that is obscene. Regulation 14.025(1).

Massachusetts

Massachusetts’ Expanded Gaming Act was signed into law in November 2011. The Expanded Gaming Act allows for up to three casino-resorts and a single slots facility in the state. The slots facility, Plainridge Park Casino, opened on June 24, 2015. The three remaining casinos authorized by the Expanded Gaming Act are scheduled to open in 2018. 

Under the Expanded Gaming Act, slot machines are defined as “a mechanical, electrical, or other device which, upon insertion of a coin … is available to play or operate, the play or operation of which, whether by reason of the skill of the operator or application of the element of chance, or both, may deliver or entitle the individual playing or operating the machine to receive cash …”[emphasis added]. The inclusion of operator skill in the broad definition gives the state gaming commission the authority to implement skill-based gaming regulations without any amendments to the Expanded Gaming Act. 

Massachusetts has adopted the GLI-11: Gaming Devices in Casinos standards for its slot machine regulations, and made changes where necessary. The draft regulations for skill-based gaming expand upon the GLI-11 standard further. 

Similar to Nevada, the Massachusetts regulations introduce the concept of an “identifier,” allowing a gaming device to set the payout rate of a game according to the identity, or relative skill, of the player.

Massachusetts Regulations

 

Definitions

“Game of skill” means “a game in which the skill of the player, rather than chance, is the dominant factor in affecting the outcome of the game as determined over a period of continuous play.” 205 CMR 102.02.  

“Hybrid game” means “a game in which a combination of the skill of the player and chance affects the outcome of the game as determined over a period of continuous play.” 205 CMR 102.02.

“Identifier” means:

"[A]ny specific and verifiable fact concerning a player or group of players which is based upon objective criteria relating to the player or group of players, including, without limitation:

  • The frequency, value or extent of predefined commercial activity;
  • The subscription to or enrollment in particular services;
  • The use of a particular technology concurrent with the play of a gaming device;
  • The skill of the player;
  • The sill of the player relative to the skill of any other player participating in the same game;
  • The degree of skill required by the game; or
  • Any combination of the above."

205 CMR 102.02.

Game Requirements

Once a game containing a skill-based feature is initiated, no aspect of function of the gaming device may be altered during the play of the game based on the skill of the patron to make an event more or less likely to occur. 205 CMR 143.01(5)

All possible game outcomes must be available upon the initiation of each play of a game upon which a player commits a wager on a gaming device. 205 CMR 143.01(6)(a).

Display Requirements

Gaming devices that offer games of skill or hybrid games must indicate prominently on the game device that the outcome of the game is affected by player skill. 205 CMR 143.01(1)(a).

The rules of play for a game of skill or hybrid game must “describe or display information adequate for a reasonable person to understand the method of game play prior to the player committing a wager.” 205 CMR 143.01(1)(f).

Identifiers

Gaming devices may use an identifier to determine which games are presented to or available for selection by a player. 205 CMR 143.01(1)(d).

Testing Requirements

A gaming device that incorporates skill and makes use of player interaction technology must monitor the player interaction technology for proper operation before the initiation of each game. Upon detection of improper operation, the gaming device must enter into a malfunction mode that causes game play to pause, otherwise known as a “tilt” condition. 205 CMR 143.01(e).

The gaming device must perform tests to ensure the payout percentage meets the standard set forth in the regulations. 205 CMR 143.01(g)(1).

Payout Percentages

The technical standards require machines to have a minimum payout rate of 80 percent. 205 CMR 143.01(1)(g).

New Jersey

In February 2016, New Jersey’s Division of Gaming Enforcement promulgated temporary regulations for skill-based gaming. The regulations, which took effect immediately, are similar to Nevada’s and Massachusetts’ rules in many respects. However, they also include several additional provisions that aim to encourage even greater innovation on the slots floors in Atlantic City. 

The New Jersey rules permit skill-based games to include “an adaptive feature,” essentially allowing the game to respond when players are continually losing by offering the player extra opportunities to win and increase the game’s payout rate above a minimum level. 

Elsewhere, the regulations recognize the possibility of players competing in a skill game directly against a slot machine’s “computerized opponent.”

The rules also allow slot players to buy or earn “enhancements” just as they might in an online video game, boosting a player’s ability to win and handing them an advantage over fellow casino patrons.

Notably, under the “New Jersey First” initiative, which was designed to give a boost to the state’s gaming and tourism industries, gaming products are eligible to be available for play on the casino floor within 14 days of testing by the New Jersey Division of Gaming Enforcement, provided they are submitted for approval in New Jersey before any other state.

New Jersey Regulations

 

Definitions

“Skill-based gaming” means “any division approved casino game where game outcome is dependent in whole or in part upon the player’s physical dexterity and/or mental ability.” Temporary Regulations 13:69E-1.28Y(b).

“Identifier” means:

"[A]ny specific and verifiable fact, used by a slot machine or skill based game, concerning a player or group of players which is based upon objective criteria relating to the player or group of players, including without limitation:

  • The frequency, value or extent of predefined commercial activity;
  • The subscription to or enrollment in particular services; the use of a particular technology concurrent with the play;
  • The skill of the player;
  • The skill of the player relative to the skill of any other player participating in the same game; or
  • Any combination of the above."

Temporary Regulations 13:69E-1.28Y(a).

Game Requirements

Except as otherwise disclosed to the player, once a skill-based game is initiated, no aspect of the gaming device may be altered during the play of the game based on the skill of the patron to make an event more or less likely to occur. Temporary Regulations 13:69E-1.28Y(e).

All possible game outcomes must be available upon the initiation of each play of a game upon which a player commits a wager on a gaming device. Temporary Regulations 13:69E.1.28Y(h).

A skill-based game or slot machine with a skill-based component may provide an adaptive feature to increase the payout percentage to improve the actual return to player. Temporary Regulations 13:69E-1.28Y(m).

Display Requirements

Gaming devices that offer games of skill or hybrid games must indicate prominently on the gaming device that the outcome of the game is affected by player skill. Temporary Regulations 13:69E.1.28Y(i).

All skill-based games must display in a readily available, accurate, and non-misleading manner:

  • The rules of play.
  • The amount required to wager on the game.
  • The amount to be paid on winning wagers.
  • Any rake or fee charges to play the game.
  • The total amount wagered by the player.
  • That the outcome of the game is affected by player skill.
  • Any additional information sufficient for the player to reasonable understand the game.

Temporary Regulations 13:69E.1.28Y(d).

Identifiers

Skill-based games may use an identifier to determine which games are presented to or available for selection by a player. Temporary Regulations 13:69E.1.28Y(j).

Game Enhancements/Computerized Opponents​

Skill-based games may offer a feature that allows patrons to gain an advantage over other patrons provided that all patrons are advised of the feature. Temporary Regulations 13:69E.1.28Y(f).

Skill-based games offering a feature that allows patrons to gain an advantage over other patrons must clearly describe to all patrons that the feature is available and the benefit it gives to patrons; disclose the method for obtaining the feature; and provide patrons with sufficient information to make an informed decision, prior to game play, as to whether or not compete against a patron. Temporary Regulations 13:69E.1.28Y(g).

Skill-based games may offer patrons the opportunity to compete against a computerized or skilled house sponsored opponent provided that the game clearly and conspicuously disclose when a computerized or skilled house sponsored opponent is participating. In addition, the game must provide the patron with the ability to elect whether or not to play against a computerized or house sponsored opponent. Temporary Regulations 13:69E.1.28Y(k).

Random Number Generator

Games which rely entirely on skill or do not utilize a random number generator (RNG) are not required to achieve a minimum theoretical hold percentage. Temporary Regulations 13:69E.1.28Y(c)(2).

Payout Percentages

Slot machine games with a skill-based component must pay out no less than 83 percent for each wager available for play on the device. Temporary Regulations 13:69E.1.28Y(c)(1).

AML Requirements

Peer-to-peer skill-based gaming must be monitored for collusion and money laundering activity using an automated feature or in accordance with the internal controls of the casino licensee. Temporary Regulations 13:69E.1.28Y(l).

Pennsylvania

In Pennsylvania, several omnibus gambling bills have been introduced during the 2017 legislative session. House Bill 392, Senate Bill 477, and Senate Bill 524, all include a provision that would allow for the installation of skill and hybrid slot machines on gaming floors.  

Key terms are defined in the bill as follows: 

  • Each of the bills would amend Pennsylvania’s definition of a “Slot machine” to include “a skill slot machine, hybrid slot machine and the devices or associated equipment necessary to conduct the operation of a skill slot machine or hybrid slot machine.”
  • “Skill slot machine” is defined as “a slot machine in which the skill of the player, rather than the elements of chance, is the predominant factor in affecting the outcome of the game.” 
  • “Hybrid slot machine” is defined as “a slot machine in which a combination of the skill of the player and elements of chance affects the outcome of the game.”

The bills, if passed, would task the Pennsylvania Gaming Control Board with adopting and promulgating regulations to govern the operation and placement of skill and hybrid slot machines at licensed facilities.

Tribal Gaming

Approval processes for new types of gaming machines in Indian casinos are typically addressed in the formal agreements, or compacts, that are signed by state and tribal governments and govern the regulation of casino-style gambling on sovereign Indian lands.

Although compacts differ from state to state and tribe to tribe, legal experts note that definitions of a “gaming device” or “slot machine” in many tribal-state compacts already appear to contemplate games based on combinations of skill and chance.

For example:

  • In Oklahoma, tribal-state gaming compacts define an “electronic amusement game” as one “in which a player’s performance and opportunity for success can be improved by skill.”
  • The definition of a “gaming machine” under tribal-state gaming compacts in New Mexico refers to “a game of chance in which the outcome depends to a material degree on an element of chance, notwithstanding that some skill may be a factor.” (emphasis added)
  • A 2010 compact between the state of Florida and the Seminole Tribe of Florida acknowledges that slot machines include games determined “by reason of skill or application of the element of chance or both.”

In addition to establishing definitions on permitted forms of tribal gaming, many compacts establish criteria for the testing and certification of new gaming devices, either by independent or state-run testing labs. Tribal gaming regulatory agencies may also be required to issue licenses to gaming suppliers, and verify the outcome of testing procedures.

Of note, games developers and tribal gaming attorneys believe that skill-based games could be configured as a form of Class II bingo gaming, which is generally not subject to tribal-state compacts, as well as Class III casino gaming.