One of the hottest public policy topics in the gaming industry today is how to regulate “new” emerging skill and hybrid game technologies. As the world’s largest independent testing laboratory, serving more than 475 jurisdictions globally, Gaming Laboratories International, LLC (GLI) has been working with new game concepts for decades. New technology and features that require adjustments to the risk control methods regulators use to ensure the integrity of gaming are continually being deployed. However, the basic legal framework for evaluating these games has changed very little and has an excellent record of serving the public interest.
Nevertheless, whenever the word “new” and “innovative” is the tagline for latest generation of games, the discussion inevitably turns to how rules need to be created or statutes amended. This article is intended to demonstrate that while aspects of these games are innovative, the fundamental concepts are not new. Our goal is to put these game concepts into proper perspective and consider how proven game approval techniques can be used to ensure their proper regulation. It will also address issues to consider when it is determined that new technical standards and/or internal controls are necessary. Finally, in the very rare instances where statutory or compact changes are needed, we will discuss how to craft laws that allow regulators the flexibility to do their job of mitigating risk and protecting the public while providing the industry the ability to offer customers more entertaining and interactive games.
Success of Game Approval Processes
GLI’s experience reveals that while these new games employing varying levels of skill do present additional issues for regulators to work through, the proven risk analysis processes they use to evaluate these games are well suited to craft effective technical standards, game rules, internal controls and audit procedures to control them. Some pertinent examples of how these proven techniques have been used for decades to approve new game concepts incorporating new technology include:
- Alternative storage media in slot machines, such as hard drives, CD-ROM and flash ROM (remember when we only allowed EPROMS?)
- Countless variations of poker, blackjack and other table games, often involving new pay tables requiring complex math analysis
- Bonus features in slot games that rely on skill (Pong was released in 2006 and Breakout in 2007, with others following)
- Community bonus features where patrons interact to collectively work toward a common prize
- Client-server games where program logic is migrated from the gaming device to a server environment, requiring important network configurations and modified internal controls/audits
- Mystery bonus games where jackpot and progressive reconciliation processes and controls are required
- Mobile gaming systems which are played over a wireless connection via casino-owned or player-owned devices that require significant updates to technical standards, network security configurations and controls
This experience clearly demonstrates that we already have games of chance, games involving varying degrees of skill and hybrid games. Furthermore, regulators have successfully developed techniques to assure the integrity of a variety of evolving technologies used to deliver them. Regulators have approved procedures to control more exotic wagers, jackpot pools and marketing structures to incentivize players. Therefore, when you look at the basic building blocks of these new games types, it isn’t really new at all, just another evolution of something we are already regulating.
Using a Tiered Approach to New Game Approval Policy
Legislators are busy people, faced with a myriad of serious problems relating to public safety, health care, education, energy and job creation. It is important to be prudent in demanding legislative action, particularly when proven administrative practices are available that have the benefit of legislative oversight. In most jurisdictions, legislators have already established a robust regulatory structure for licensed gaming and have criminal laws for illegal gaming. Both have served state and tribal jurisdictions well. Thus, we suggest three tiers of solutions that require progressively more legislative intervention.
1. The Game Approval Process
As previously referenced, gaming regulators have developed very sophisticated methods of evaluating and approving new games. The evaluation typically begins with the manufacturer or game developer required to submit a written request for approval accompanied by a standard list of documentation that may include, but not be limited to:
- Complete game rules
- Equipment specifications
- Payouts, jackpot limits, bet limits, paytables and game math
- Detailed computer hardware and software specifications
- Procedures for operation, control and maintenance of the game
- Plan for game security
- Description of needed surveillance coverage
- Additional training needs for security or surveillance
- Consumer protection aspects
- How game rules will be presented to patrons
- Patron dispute resolution process
- Proposed MICS
- Job descriptions for any required casino personnel or regulatory personnel
- Training program needed to implement the game (for regulators and casino personnel)
- Proposed physical location of the game and any location requirements
Anyone familiar with how much casino games have evolved over a relatively short period of time can appreciate that this tool has been used hundreds of times in dozens of jurisdictions to successfully control an ever-increasing variety of new game concepts and technologies. The fact that we are now using different words like “hybrid,” “skill-based” and “variable payout” does not necessarily mean that we need changes in rules or statutes.
A substantial majority of the modern skill games that have emerged in recent years have been hybrid. That is, there is a skillful element, such as a trivia bonus, first person shooter, or car race in addition to a randomized element, such as the difficulty of the question, difficulty of the opponent, length of the course or a randomized trigger like a reel outcome. With most skill games being hybrid, and also most jurisdictions actively operating hybrid games, such as poker, it may not be appropriate to consider that core regulatory changes are needed for hybrid games.
Regulators have approved countless varieties of table games that involve varying degrees of chance and skill resulting in different returns for players with greater or lesser skill. These same concepts have been applied to electronic games both in the slot and video poker categories.
The tendency to call for additional rulemaking and legislative changes has partly been driven by a perception created by game developers wanting to create buzz around their game concepts. While this is understandable, policy makers aren’t buying anything. There is no need to sell the concept to them by calling it “new,” “ground-breaking,” “unprecedented” or any of the plethora of adjectives used to describe the recent wave of game concepts. While they are certainly new titles using different technology, most of the games are neither new outside of the gaming industry nor do they utilize technology that hasn’t been used in other entertainment sectors. One of the features of this game genre is that they are familiar to consumers, and the only new aspect of them is that they are now designed for monetized gaming rather than pure entertainment gaming.
Regulators have shown time and again that they possess the experience, skill, independence and judgment to fairly analyze new game types and technologies and only approve those that they can scientifically demonstrate meet the criteria for integrity established as applicable to all gaming experiences. We believe these processes can accommodate the overwhelming majority of new game concepts currently being discussed. It is also important to note that many jurisdictions have some level of legislative oversight over gaming regulators. Thus, public hearings of the appropriate legislative oversight committee are a viable option when a jurisdiction finds the need to provide guidance to the regulator.
To be sure, there will be some jurisdictions where the existing rules or statutes will require adjustment. However, in most cases, we believe that proven processes are in place to protect the public while providing the industry with the opportunity to compete with other entertainment options that are not subject to such rigorous consumer protection.
2. Rulemaking
Our experience has shown that in many instances the only needed amendments to existing rules are updates to the technical standards of the jurisdiction. Technical standards, by nature, are designed to evolve as important technological innovations emerge. It is typical for regulators to adopt and incorporate additional updates to their technical standards as they begin to actively regulate new items. GLI has played a leading role in supplying the industry with a foundation of modern technical standards that are often used as a model for regulators globally. These standards are offered to the industry as robust yet efficient methods for evaluating emerging technology and are easily incorporated into a jurisdiction’s regulatory structure so the that they are tuned to the latest innovations occurring within the industry.
If it is determined that rule changes are needed in addition to the technical standards update(s), renewed attention should be paid to the details of the process for new game approval. Experience has shown that strong analytical processes are the best tools for evaluating risk in a changing environment where new, unforeseen variables can sometimes emerge. Evaluation performed by a qualified gaming laboratory is a fundamental resource that supports these processes in that they provide transparency to the underlying function and operation of the games so that these variables can be managed and controlled.
3. Statutory and Compact Considerations
Some legislators have been presented with complex legal arguments regarding how the latest generation of games stand in relation to the jurisdiction’s “Material Element” or “Predominance” test. However, in the context of licensed, regulated gaming, these arguments are seldom relevant. The question of whether an entity that is already licensed by the regulatory agency may add a new type of game is different than whether a non-licensed operator has committed a crime. As such, a test used to determine whether a game contains enough of a gambling element to implicate non-licensed operators should not be the same test used to determine if regulated gaming products can be further innovated by offering games that contain additional non-traditional gaming elements. It is important to put these issues in proper context when deciding whether statutory are needed versus relying on existing regulatory processes for game approval.
In most cases, tribal compact amendments will not be necessary since skill and hybrid games are already allowed (e.g. video poker). However, where a particular game concept does not align with existing technical standards, the parties may need to use the existing process for technical amendments to rectify the situation.
However, there will be certain game types that go beyond the scope of definitions in existing statutes or compacts. In those rare cases, it is important to consider past instances of overly restrictive statutory or compact language that required legislative action or negations between the parties to achieve rather benign advances in technology, innovation or consumer preferences. For example, many jurisdictions were forced to revisit their gaming laws or compacts to allow for ticket-in-ticket-out (TITO) technology because the laws or compacts referenced “tokens” or some other overly restrictive definition of the instruments of value that may be used in gaming transactions.
Gaming regulatory structures have worked well when regulators are given the tools to implement the broader policy direction given to them by the legislature. In the states, legislative oversight over the rulemaking process and, in many jurisdictions, general oversight over the gaming regulator has provided sufficient ongoing policy direction to maintain fidelity to the intended policies. This experience should be considered when making changes to statutes.
Summary
Our analysis of new game concepts that are being discussed reveals that the basic concepts are frequently not new and proven processes are already in place to evaluate whether they can be overseen in a manner that ensures their integrity. In many instances, the industry’s desire to create general consumer excitement about the new games it is developing has had the unintended consequence of inciting policy makers and some regulators into thinking they need to redesign existing rules, processes and laws to accommodate “new” games. While in some instances this may be true, we believe that the vast majority of the games are capable of being evaluated and controlled using tools regulators already possess and have demonstrated an excellent proficiency in deploying. We believe this process provides the best opportunity for thorough game analysis and evaluation, which, in turn, provides the best protection for consumers and the preservation of the public interest.
