Guitar Hero for Cash! New Jersey Issues Temporary Regulations for Skill-Based Gaming

By: Michelle Cohen

Just last month at the National Council of Legislators from Gaming States (“NCLGS”) winter meeting in Orlando, I discussed the strong interest in skill-based games by casino owners, regulators, legislators, and the public. In an effort to appeal to millennials, fill empty slot seats, and expand the demographic at Atlantic City casinos, New Jersey’s Division of Gaming Enforcement (“DGE”) just announced new temporary regulations for “skill-based gaming.”  Although the DGE already has authority to permit skill-based games – and last year allowed a $10,000 free throw basketball tournament at the Borgata – the agency issued these regulations to provide additional guidance to industry. DGE hopes to encourage companies with skill-based games to bring their products to Atlantic City before other jurisdictions.

Key Consumer Protection Disclosures

The temporary regulations define “skill based gaming” as “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.” This definition is broad enough to cover a wide variety of skill-based games – from basketball and golf to “Trivia Crack” and various brain teasers. The DGE mandates certain consumer protections, including that skill-based games clearly display:

• Rules of play
• Amount required to wager on the game
• Amount to be paid on winning wagers
• Any rake or fee charged to play the game
• Total amount wagered by the player
• Statement that the outcome of the game is affected by player skill (applies to skill and “hybrid” games), and
• Other information sufficient for the player to reasonably understand the game

In addition, “unless otherwise disclosed to the player,” once a player begins a skill-based game, the gaming device cannot be altered during play based on a player’s skill.

Special Advantages/Identifiers Allowed with Conditions

DGE’s regulations allow player-purchased enhancements, randomly awarded enhancements, or other advantages, provided all players are advised of these features. The DGE put certain protections in place for these features.  Specifically, players must be advised both, that the feature is available, and of the benefit it offers. A skill-based game offering these advantages is required to explain how to obtain the feature and to provide players “with sufficient information to make an informed decision, prior to game play, as to whether or not to compete against a patron” who has this advantage.

Skill-based games may use an “identifier” (such as the skill of the player) to determine which games are available to a player.  The regulations also allow players to compete against a computerized or skilled house-sponsored opponent, provided the game discloses when the opponent is participating and allows a player to opt-in or opt-out of a computerized or house-sponsored opponent.  To establish fairness, the computerized or house-sponsored opponent must be prevented from having access to information that is otherwise unavailable to a player (for instance, knowledge of upcoming events).

Peer-to-Peer Skill Gaming

All peer-to-peer skill-based games are to be monitored for collusion and money laundering activity using an automated feature (following the internal controls of the casino licensee).

Payout

The temporary regulations require that slot machines with a skill-based component have a payout of at least 83 percent for each wager available for play on the device. However, games, which rely “entirely” on skill or do not use a random number generator (“RNG”) are not required to achieve a minimum hold percentage.

Approvals

Skill-based games will continue to require DGE approval.  A special “New Jersey First” process allows companies that bring their skill-based products to New Jersey before or simultaneously with submission to any other jurisdiction or testing lab, a 14-day approval process from testing to placement on the casino floor.

The temporary regulations mirror Nevada regulations on skill-based gaming adopted in September 2015. Therefore, any skill games approved in New Jersey would be permissible in Las Vegas and vice versa.

Massachusetts, Pennsylvania Close Behind/Trends

Other states are exploring permitting skill-based games at casinos. Just last week, Massachusetts issued draft regulations  – comments are due by March 7. Pennsylvania is also reviewing allowing skill games at casinos.

Empty chairs at traditional slots mean zero revenues. Casinos are, understandably, looking to attract new patrons and recognize that millennials are used to interactive gaming experiences, having grown up with Xboxes, Wii games, and popular online games such as Candy Crush.  Caesars Entertainment’s CEO recently reportedly advised slot makers to speed the development of new products, such as skill-based gaming machines. We expect to see the roll-out of a variety of skill-based games and other contests, including many that may appeal to millennial and Generation “X” and “Y” nostalgia, such as Guitar Hero, Pac Man, and other popular arcade games.

Regulators and casino operators will likely continue to develop rules and procedures during the approval processes and following reviews on the initial roll-out.  We see several issues that will need to be addressed depending on the type of game. For instance, when playing head to head, what happens if there is an unanticipated stop of play due to a player issue, a tech issue or some other act?  Who ultimately decides the winner in the event of a dispute/tie?  Can professionals (for instance e-Sport-sponsored players) play skill-based video games?  What about college athletes playing “their” sport in a skill-based athletic game? How will wagers work? Who will host the games? Will there be exclusivity?

The key to answering many of the operational questions will be for the manufacturers and casino operators to develop clear “rules of the game” that address the varied situations – similar to current rules for skills contests run online or in brick and mortar locations.  Detailed rules and disclosures can help the games run smoothly and prevent later disputes and litigation.

We applaud New Jersey’s DGE for encouraging innovation through these new regulations and the New Jersey First program. The DGE recognizes the need for games that appeal to expanded demographics.  The DGE’s speedy implementation of skill-based gaming regulations, as well as  its outreach and willingness to engage with industry demonstrate the agency’s commitment to economic growth while ensuring consumer protections are in place.