Not So Random: Skill Games & the Casino of the Future

In 2015, Nevada and New Jersey introduced skill-based casino gaming. Is this the innovation that will snare a new player demographic?

In casinos, the jackpot has always been on slots row.

Slot machines are easy to play, with enough flash and dazzle to keep players mesmerized for hours—even when they don’t win (which is most of the time). In fact, loyal casino patrons seem content to blow a predetermined amount on their favorite Wheel of Fortune, Da Vinci Diamonds or Hangover game. They may walk away empty-handed, but as long as they didn’t lose the mortgage, hey, no hard feelings.

Until now.

The post-recession economy, along with increased competition and the redistribution of gaming revenues, has led more casinos to tighten their slots. That strategy has made consumers more tight-fisted too. Adding to the crunch, as baby-booming slot players inevitably age out, they’re not being replaced by a new generation of players.

According to a February report from PricewaterhouseCoopers, slot revenues in Nevada declined from a high of $138 billion in 2006 to $105.4 billion in 2014—down 23 percent. Slot machine win is down 5 percent over 10 years in a “downward trend that will likely continue,” says PwC.

With a billion-dollar industry in the balance, how do you solve a problem like millennials?

They Got Game

That elusive Gen-Y demographic includes the estimated 87 million Americans born between the early 1980s and the early 2000s. They were weaned on ultra-high-tech games that are not only immersive and interactive, but immediately accessible and also challenging. Yes, millennials go to casinos, but they’re bored by traditional slots. And while they may enjoy a good wager—consider the surge in poker, online gaming and daily fantasy sports—they want some control over the outcome.

In short, these players—who grew up on “Grand Theft Auto” or “Resident Evil”—take pride in their gamesmanship; unlike Mom and Dad, they may never be content with passive games, much less random odds.

Enter skill games. Last year, the Nevada legislature approved a bill to bring skill-based, arcade-style slots to the state’s casinos, and the New Jersey Division of Gaming Enforcement followed suit. It was a watershed moment in the industry. Nevada Governor Brian Sandoval said that state’s legislation frees manufacturers “to meet the challenges prompted by a younger, more technologically engaged visitor.” Marcus Prater, executive director of the Association of Gaming Equipment Manufacturers, called the bill’s passage “monumental.”

“Of course, with regulations and game prototypes still in the works, it won’t happen overnight,” says Prater. “But it will enable us to capture the convergence of all the gaming entertainment in our lives at the moment, between phones, tablets and casino games. As the approvals hopefully spread to other markets, our ability as an industry to provide new kinds of games and wagering experiences will over time be a very significant event.”

This isn’t just a play for millennials, he adds. “The demographic that plays Candy Crush or Words with Friends is actually a 40-plus female—the dominant demographic for slot machines too.”

All In

The skill comes into play with a variable payback percentage that could jump from 88 percent to 98 percent for gamblers who are particularly good at shooting down enemy planes in a bonus round or outracing their friends in a road rally, according to a statement from AGEM.

The best skill-based product “treats me right,” says Eric Meyerhofer, CEO and co-founder of Gamblit Gaming. “It makes me feel that if I can perform, I can actually do pretty well on this game—I can win. There’s definitely a sense of accomplishment and a challenge to overcome, and that’s fundamental to any type of video game … It’s that careful balance of making the game engaging and challenging, but also easy to get onboard.”

A savvy shooter who plays Bally’s Space Invaders, showcased at G2E 2015, may ascend to a level where he can try his luck or test his skill. Choose luck, and he gets a couple of free spins; choose skill, and he’s back in battle, shooting down alien missiles and saving the world.

Space Invaders “appeals to people my age, who grew up playing those types of arcade games,” says Anthony Baerlocher, game designer for Scientific Games, which acquired Bally Technologies in 2014. “It’s a simple mechanic, easy to understand. There are also

eSports types of games, like ‘Call of Duty’ and ‘World of Warcraft,’ which are a little more complex to play, and more of the hand-held type of home-console games.”

That’s not all. “The new regulations will allow us to play chess, checkers, darts or board games like ‘Battleship’ and ‘Monopoly.’ Rather than just branding these as slot machines, you can actually make a Monopoly-style game now. Then there’s trivia, puzzle games, types of apps that people download and play for fun, solitaire … The list goes on and on,” says Baerlocher.

Players potentially may be challenged based on mental ability, dexterity “or any definition of skill where the player affects the outcome,” he adds. “We don’t know yet if there’s one specific formula that will work. But that’s the fun part of my job, figuring it out.”

Operators may offer higher percentages based on other identifiers, too. “For example, if it’s your birthday and you put your player’s card in, the machine will light up and say, ‘This is usually a 90 percent payback game, but because it’s your birthday we’ll make it 98 percent for the next 24 hours,’” says Prater. “It’s not just skill-based.”

Changing Horses

How will all this affect the casino floor, which is now crowded with rows of blinking, clanging slot cabinets?

Jacob Lanning, VP of strategic R&D and sales strategy for International Game Technology, says players will vote with their feet, and operators will act accordingly. “Some may initially implement a skill-based area to really focus on that aspect of gaming. Others may wish to intersperse skill-based games with other games—perhaps licensed themes, for example—to drive affinity between different types of games. It’s up to the player, who will ultimately decide which configuration is most enjoyable and entertaining.”

“You might see something like you might see at an O’Sheas, where you have beer pong alongside gaming with a band playing and whatnot, with traditional games blended in with new gaming forms,” says Meyerhofer. “Operators are mapping out plans, allocating space, and a number of them are queuing up to make real capital investments, or already have started the process. Though they don’t have the product to put in there, they’re kind of out in front in the belief that the product will come along to match.”

Expect some hits, misses, offramps and speed bumps, says Baerlocher. “This is something we’ll learn as we go. For right now, we’re talking to most of our corporate customers about creating zones within their casino floor to test the product, with a little different feel and form factor. You could have a gaming lounge with tabletops and touch screens where people can sit down and play. There will be a lot of tablets, phones and other mobile technologies as the regulations allow.”

What you won’t see is “anything that looks like their mom or dad’s slot machines.”

But it won’t spell the end of traditional slots anytime soon, or well-known game titles either. Many of the experts believe that the games you see now could still exist, but include the added element of skill.

In addition, says Prater, there will always be a segment of players “who simply don’t want to engage in something challenging or different. I don’t believe this will render existing slot product obsolete. We have a long way to go and a big world to conquer before we start threatening the existing base games.”

The New Gold Rush

In an April 2015 report, the accounting firm RubinBrown LLP announced that the U.S. gaming industry had reached record-high revenues in 2014. But the devil was in the details. The bump was attributed to iGaming and the limited-stakes market, and bricks-and-mortar properties continued to show signs of strain. “New gaming operations are taking away from the long-established gaming operations,” according to the report, reflecting “a trend we expect to continue to grow.” Behind it all is a group of “aging entertainment offerings,” including the Steve and Eydie of casino games: the classic three-reel slot machine.

But this kind of disruption isn’t new. “In essence, we’re always reinventing some aspect of the slot machine,” says Lanning. “Casino gaming is like all entertainment—it follows trends in other areas like movies and video games. Skill-based gaming builds from the already proven premise that players like an interactive experience.”

One big challenge with skill games is skilled gamers who may actually edge the house. “People are going to play a skill game because they think they can win, which creates a conflicting stance between our casino customers and our player customers—we need to provide the opportunity (to win) while ensuring our casino customers make money,” says Baerlocher. “There are lots of potential models on how it might work. The most obvious one is similar to fantasy sports or poker, where people put money in, play against each other and win a percentage of the money, so 90 percent goes back to players and 10 percent to house.”

A real win would be to stabilize the floor, and also grow the player pool. “Our goal is not to move money around the casino by taking the existing slot player and giving them something new,” says Baerlocher. “This is to bring in new money and new players and grow our base.”

With Nevada and New Jersey taking the lead, the industry is excited about the new latitude to develop these games.

“This is the fun part,” says Lanning, “working with our customers to determine how we can help them differentiate their offerings. We can help by providing extensive player research and game testing, while they can share their vision for how much skill-based gaming they envision in their properties. We have the resources to test extensively across multiple platforms, so we need not rely on guesswork as to what will attract players.” 

“In five years’ time and beyond,” says Prater, “I think we’ll look back at this as a dramatic change in our industry, with a wide variety of new wagering experience for millennials and all sectors. It’s a natural extension of what we already do.”

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