Bob Cooney on Skill-Based Gaming – February 2016

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Can Amusement Games Save Gaming?

Recent Changes to Nevada Gaming Laws Will Lead to Opportunity, Confusion and Potentially Disaster for Some in the Amusement Industry

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Bob Cooney

by Bob Cooney

Coin-op has struggled to hold onto relevance since the heddy days of the video game boom, while the market for home video games has exploded into a multi-billion-dollar industry. As a result, the number of successful coin-op releases, and the production volume of each, have been in decline. With the recent passing of legislation permitting skill-based gambling devices in casinos in Nevada, some members of the amusement industry are presented with unprecedented opportunity, while others could be facing a nightmare scenario.

Is this an invitation to the amusement industry?

Is this an invitation to the amusement industry?

The Fun Spectrum

Over the decades, amusement game manufacturers have honed their ability to deliver an entertainment experience that was worth the price of admission, whether it be for a quarter, dollar, or even $10. Amusement games only get purchased by operators when they deliver repeat playability, which means a sufficient fun quotient for the players’ money.

Manufacturers perfected this in video games over the years with long story arcs that gave players incentives to “continue” by purchasing more time. But if the game wasn’t fun, all the story in the world couldn’t coerce those quarters out of a player’s pocket. These games exist on one end of the fun spectrum.

Redemption games cover the entire fun spectrum, from tons to almost none. Some classic games are so fun that people would play even if there were no tickets to be won. Skee-Ball immediately comes to mind. In recent years however, some redemption games have moved down the spectrum towards gambling games, skimping on the fun quotient, but offering compelling ticket wins, or actual prizes, to make up for it. Operators place these games because they earn, but in my opinion, these earnings have little to do with fun. While some would argue that winning tickets IS fun for a certain audience, that’s not the kind of fun to which I refer. When I talk “amusement,” I mean the visceral fun that comes from playing a game.

In contrast, most gambling games only offer the most minimal fun quotient to the extent that hardly anyone would pay to play if not for a jackpot dangling in front of them. While slot machine manufacturers have continued to add themes, licenses and even bonus mini-games in recent years, none of these games could possibly stand alone and earn in an arcade.

AGEM_Casino_Floor_of_the_Future

The casino of the future, as envisioned by the Association of Gaming Equipment Manufacturers, includes familiar gambling attractions, but also a “Skill Zone Midway.”

This has caused a major problem in the casino industry. The Millennial Generation, generally accepted as those born between the early 1980s and the early 2000s, has grown up playing video games. These games are challenging, immersive, interactive, competitive, and above all, FUN! Millennials have shown little to no interest in the nearly 200,000 slot machines in Nevada. They are still travelling to Las Vegas in droves, but they’re focused on pool parties, high-end nightclubs with internationally acclaimed DJs, and bottle service. They’re willing and able to drop a grand in a club, but that business isn’t quite as scalable and sustainable as gambling. So the casinos are worried.

Amusement Games to the Rescue?

The casino industry lobbied the Nevada state legislature to approve gambling games based upon skill instead of chance, betting that (pun intended) this would usher in a new era of game development, attracting the new audience they need to sustain their business in the decades ahead. Today there are more than 80-million Millennials in the United States, and even the youngest of them is rapidly approaching legal gambling age.

The legislature delivered for the casino industry last year with the passing of State Bill 9 (SB9), which gave the Nevada State Gaming Commission the mandate to create new rules legalizing and governing games of skill for casinos. The gaming commission has now delivered Regulation 14, which contains the definitions, rules and policies around games of skill.

The definitions are surprisingly broad. According to Reg. 14, a “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. “Skill” means the knowledge, dexterity or any other ability or expertise of a natural person. They also define a hybrid as a game combining skill and chance.

Now a trivia game, a basketball game, or an alley roller, could be installed as a legal gambling device. This isn’t practical, because for the casinos to deploy a game, there needs to be a sufficient “hold” (the amount the machine takes in that the house keeps) to return their investment in equipment and floor space. There’s a fear that pure games of skill will attract players that can routinely beat the house. So conventional wisdom dictates that games combining skill with chance, or “hybrid”, will become the new norm.

Slot machines routinely pay out more than 90% of their revenue in prizes. That’s what’s needed to attract and retain the old school gamblers, whose sole purpose of playing games with low fun quotient was to hit the jackpot.

Even the most aggressive amusement redemption center will only have to pay out 30% of its revenue in prizes because the games are inherently fun. If the amusement industry were to leverage its experience in designing high fun quotient games that met the new skill-based gambling regulations, could casinos reduce their payout to 80%, or even 75%? If players are getting 75 cents back for every dollar wagered for a game that’s so much fun they would be willing to play without a payout, doesn’t everybody win?

What Does It All Mean?

Amusement industry game designers and manufacturers have a window of opportunity to leverage their expertise into a very large and profitable sector. It will not be easy nor without risk, but the rewards could be massive. Existing casino manufacturers are already working on skill-based games, but several industry insiders I’ve interviewed are confident these early games will fail. The entrenched competitors have no skill when it comes to skill-based games (ironic, isn’t it?) But skill-based games are going to be developed, and they are going to be deployed. The casino industry has too much at stake.

2015 BEEB Brewskeeball championships.

2015 BEEB Brewskeeball championships.

The burgeoning “Bar Arcade” business seems to point to the willingness of Millennials to play classic arcade games. Brewskee-Ball has shown a market with Millennials for their bar-based cash prize leagues and tournaments. We know that Millen­nials love competition: They’ve grown up playing online games, competing against their friends. What if the key to the casino industry was lying around gathering dust in the storage rooms of amusement operators and distributors? Four-player Ninja Turtles, I am talking to you!

So what does this mean to the operators and locations? Currently, even a barnyard animal can generally tell the difference between a slot or poker machine that is intended for gambling and an amusement game designed for fun. And while there are some notable exceptions, like cranes and self-merchandisers that walk the line between the two, nobody is going to confuse a Pac-Man video game with a Pac-Man slot machine.

Excuse me, Ms. Pac-Man, which way is the buffet?

Excuse me, Ms. Pac-Man, which way is the buffet?

But what happens when the lines between skill-based amusement-only games and skill-based gambling machines begin to blur? What if the Pac-Man gambling game is the original video game with a chance component built into the software? How are the relatively uninformed enforcement authorities, who today sometimes struggle to interpret poorly constructed state regulations, going to determine what’s legal and what’s not? We have all heard the nightmare stories of over-zealous sheriffs and DAs making the lives of operators miserable.

The AMOA and AAMA should consider getting ahead of this issue. They could start by creating some guidelines for manufacturers, and begin working on an educational platform for the enforcement authorities. Even if the scenario I propose never comes to fruition, there’s already a need for better enforcement education. A network trivia game company recently had a dispute with a local enforcement agent who misinterpreted the state law and determined their tablets were gambling devices. There was no payout, no tournament, no prizes, just a game for fun. But this put a chill into the location as they were threatened with the loss of their liquor license. This scenario is already playing out in numerous jurisdictions around the country and it’s likely to get worse as the lines between amusement and gambling become blurry.

The amusement industry has been dazzled before by gambling. The recent stampede to the riches of legalized video poker in Illinois is a great example. It often works out very well for a select few, while most are left behind to wonder what happened. As Nevada and New Jersey, and soon the Indian casinos, start to get creative with the new legislation, there’s an unprecedented opportunity for some brave and talented companies to pivot to a much more lucrative market. I look forward to seeing what develops.

If you have thoughts or questions on how this will impact your company, reach out to continue the conversation at www.bluelaserconsulting.com/sb9 or contact me directly at hirebob@ bobcooney.com or at 949-439-8643.

[Editor’s note: Be sure to read more on this subject as RePlay’s legal columnist Tom Fricke’s weighs in on these changes in Nevada. ]


Electronic gaming and location-based entertainment veteran Bob Cooney has 25-years of experience designing, manufacturing and marketing out-of-home entertainment to consumers, operators and venues –– first as founder and chief executive of NASDAQ- and Inc. 500-listed Laser Storm, and later as an initial member of the Global VR executive team which he boasts introduced the first commercially viable virtual reality arcade game. Cooney went on to become VP of marketing and business development of Ecast, the digital content provider for jukeboxes, and COO of NTN Buzztime, the networked trivia game company. Cooney has been a driving force behind the development of numerous top-earning licensed games, including products based on EA Sports PGA Tour, X-MEN and Stargate, and has been a long-time vocal proponent of leveraging new technology to keep the out-of-home amusement industry relevant at a time when in-home entertainment continues to offer serious competition. Bob has been studying the skill-based gaming legislation and is interested in helping amusement companies seize the opportunity. He can be reached at hirebob@bobcooney.com.

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