Skill Sets by Frank Legato, CDC Gaming Reports Suppliers and operators navigate the new sea of game styles in creating the slot floor of the future For decades, Nevada regulations on the nature and mathematics of slot machines were unchanged. Slot reel results had to meet a standard of randomness, and a game’s top prize was required to be at least theoretically available on each of a slot machine’s spins. Essentially, aside from games that mimicked table games like video poker and blackjack, luck had to be the prevailing requirement to win. And everything worked fine for pretty much the entire age that slot machines dominated the industry revenue picture. Then, of course, the Great Recession happened. Slot revenues, like all other industry revenues, dipped. Operators responded in a very traditional manner: They extended the life cycles of games on the floor. They removed non-earning games from the floor, which had a side benefit of giving a new, spacious look to slot floors that traditionally had a cramped, almost factory-like appearance. The slow replacement cycle made the big slot suppliers feel the recession pinch as much as any operator—perhaps more. At the time, though, it was viewed as very much a temporary setback, with players expected to re-flood the slot floors just as soon as the economy recovered and customers once again had disposable income in their pockets. But a curious thing happened in the years that followed: The U.S. economy recovered, but the industry’s slot revenues did not. Operators and suppliers began to put their heads together to figure out why fewer people were playing slot machines. Initial arguments from the suppliers, led in the U.S. by their major trade group, the Association of Gaming Equipment Manufacturers (AGEM), focused partly on the consequences of what had been a prevalence in the market of high-volatility, low-denomination games—which happened to have the highest hold percentage on the floor. Part of the problem surely was a perception among players that their gaming dollar did not go as far as it once did on the slot floor. Independent studies of time-on-device seemed to confirm those player suspicions. But another problem, perhaps more significant in the long term, was the lack of appeal traditional slots offered to what operators hope is the next generation of casino customers—those players born in the 1980s and later, a.k.a. the millennials. Younger players simply do not go for traditional slots. Their preferred games are on their smartphones, offering what they consider a more interesting experience, with the ability to employ skill to achieve a better result. Millennials also like social interaction, which is why they gravitate to ultra lounges, and why many prefer poker and banked table games to the slot floor. The importance of pleasing millennials may have been overblown at the height of the recession a decade ago, but as time passes, operators feel the pinch more and more to come up with games that will bring them into the casino. Those millennials who didn’t have disposable income a decade ago are now in their mid-to-late 30s. They’re paying off student loans, they have more money, and they are sought-after additions to casino customer databases. All of these factors came into play as AGEM members, operators and Nevada lawmakers conferred to open the door to new styles of games on the slot floor. In New Jersey, the state Division of Gaming Enforcement was involved in similar discussions with industry representatives. Games that would bring new players to the floor, they decided, should not be constrained by the restrictions of random number generators, the laws of randomness, or theoretical return to players over the life of a slot machine. “The origin of this (effort) was the clear convergence of different gaming from all sides—phones, tablets, consoles, the rise of some of the social casinos online and on your phones,” recalls Marcus Prater, executive director of AGEM. “It was basically, ‘How can we as an industry capture some of the things that are going on outside our industry?’ And the only way to do that was to allow variable payback, which in turn is meant to address the millennial issue, as well as a flat malaise when it came to slot revenues. “The goal is to inject new life into the segment, which in turn will draw in more players, different players, and increased revenues.” In 2015, the studies, conferences and legislative hearings ended up with new regulations in New Jersey allowing for skill-based games, and in the Nevada legislature’s passage of the bill commonly referred to by its state Senate designation, SB 9. New-Look Slot Gaming SB 9, signed into law by Governor Brian Sandoval in May 2015, codified the concept of variable-playback gaming machines. Instead of having a return-to-player (RTP) percentage that could be verified over actual spins over the life of a machine, games under this designation could have an RTP range identified, with the actual number rising or falling according to the skill of the individual player. New Jersey’s new regulations had essentially the same effect, and the industry saw the first skill-based games within the subsequent year. Since then, industry stalwarts like Caesars Entertainment and MGM Resorts International have been working with a group of suppliers that includes both startups like GameCo and Gamblit and major slot suppliers from Scientific Games to IGT to Konami, experimenting with new skill-based game styles, and new types of game areas that will appeal to younger customers. Caesars experimented with first-person shooter games at its properties in Atlantic City. Customers at Resorts Atlantic City were treated to an iGaming Lounge, where they could relax and play slots or live-stream table games on their smartphones, while enjoying the lounge setting to which they were already attracted. The MGM Grand on the Strip launched the millennial-friendly Level Up lounge, with skill-game consoles, attractions like a giant Pac-Man machine and beer pong, and a sports bar. This being Nevada, customers could use their smartphones to bet with the property’s sports book. While early skill games have yielded mixed results, the operators are still experimenting, and the suppliers are putting forth a steady stream of new offerings—shooter-style and mobile-style games from Gamblit and GameCo, mobile-style puzzle games like Lucky’s Quest from IGT and Fruit Ninja from Everi, and casino versions of classic arcade skill games like Frogger from Konami, Space Invaders from Scientific Games and Texas Tea Pinball from IGT. As Prater says, this new generation of game styles is still in its infancy. “In my view, it is still the very early days (of the variable payback concept),” he says. “I know that people are anxious and impatient to get some of these games out and get some hit games, but I will stick with what I said roughly all of the year and a half after SB 9 passed. It took that long to write the regulations in Nevada, and I will stick with what I said then—that it’s a five-year rollout. “So, we’re a year and a half into what I call the five-year rollout, and ultimately, there are better days and better results ahead.” Moreover, skill games are only part of the equation in bringing new and younger players into the casinos. A parallel movement has developed in the area of electronic table games, or ETGs. From Interblock’s Pulse Arena—which places live-action and automated ETGs in a club setting, complete with DJs and bottle service—to other stadium-style ETG attractions that allow players to multitask by playing several table games at once (while charging their smartphones, as a bonus), the ETG segment is one of the fastest-growing offerings on casino floors. “ETGs, and the whole table experience at a machine, has clearly been a growing segment,” Prater says. “I applaud the manufacturers that specialize in that area for pushing the concept, and the operators for embracing it. It’s clearly driven by increased play and a different audience. I don’t see the 65-year-old lady player—the classic-demographic slot player—giving up their Blazing 7s games for electronic tables, and therefore, I do see those tables as a draw for a different kind of player.” Add to that games like Konami’s Fortune Cup, an electro-mechanical horse-race game with digital elements added, placed recently at the D in Downtown Las Vegas alongside its granddaddy, the legendary Sigma Derby mechanical horse race, and the alternatives to spinning reels on the gaming floor continue to multiply. “I agree 100 percent that we are seeing an injection of new entertainment in some of the games,” Prater says. “We certainly saw it at G2E. Obviously, the trick is to get it to the casino floor, and in Konami’s case, the horse-racing game has in fact succeeded. Between that and some of the initiatives that Caesars has, and the Level Up lounge at MGM, these types of introductions are certainly helping to slowly change the floor—and attract new players. It’s not going to happen overnight, but I think it’s under way.” Prater says sports betting may be the next big thing to broaden the casino audience. “Look at the sports betting handle in Nevada,” he says. “Those people are all on mobile devices. Californians are coming in to open up accounts. There’s no question that sports betting has attracted a younger, mostly male audience that is that millennial sweet spot. It doesn’t automatically mean it’s going to transfer over to slot machines or skill games. But certainly, the operators are happy to have that new player and that new energy sports betting has brought. “They’re multitasking. They’re betting on games with their phone, they’re playing electronic tables, they may do a little social casino gaming in their California homes.” While the hold for casinos is a known commodity in sports betting, ETGs and even those classic mechanical horse-racing games, the big puzzle that remains is how to monetize completely new game styles like mobile-type games, console-style video games and other skill games. It is a challenge the major suppliers—supported by pioneering operators—are currently working on. “All of the traditional slot-manufacturing players are investing and spending energy and R&D dollars on variable-payback or skill-based games,” Prater says. “I do expect that there will be games hopefully in the near future that produce traditional slot-like returns. “These slot companies have staffed up their R&D and development groups with new blood from outside traditional gaming. I think the way these companies work, they’re going to task a couple of the development studios with this specific challenge—solve the skill-based gaming or variable-playback gaming riddle that so far has not been solved.” As the manufacturers continue to beef up their staffs with skilled mathematicians and pros from the video-game industry, experts in the two disciplines will likely find the right formula of skill, luck and math to make the newest of the new play experiences profitable for casinos. In the meantime, the ETG revolution will continue, and pioneering operators will provide the stages on which all the new entertainment will play out. Whatever happens, it’s sure to be an interesting ride.