A Missed Chance: Nevada's Rejection of Adaptive Play for Skill‐based Games

Introduction

Many commentators have rightfully applauded the Nevada Gaming Commission's adoption, on September 17, 2015, of regulations facilitating the development and deployment of skill‐based slot machine play. ¹ The rules foster convergence of video games designed for entertainment purposes existing outside the gaming floor with the electronic gaming machine (EGM) used inside casinos on a monetized basis. These games can attract players with more robust themes and be more interactive, including with competitions of esports, military combat, or racing, and contests of knowledge or strategy.

Allowing EGMs to offer skill‐based games, however, challenges traditional notions about EGMs. That was the very reason Nevada lawmakers passed Senate Bill 9 (SB 9) in 2015. The state legislature sought to change a long‐held Commission policy, incorporated in a regulation, that Nevada EGMs must have uniformity in payback percentages based on mathematical randomness tests. ² If a randomly generated computer algorithm is the only method to determine win or loss on an EGM, then there is no room for a player's physical or mental prowess to materially influence game outcomes. Likewise, if EGM payouts cannot be differentiated aside from a mathematical formula, then no player experience can be made distinguishable. This mandate practically limited development of games based on skill of the player, the relative skill of players, or game outcomes tied to other factors like patron brand affiliation or loyalty. ³

For the most part, the Commission's rulemaking achieved the goals of SB 9. The rulemaking did so by incorporating six new concepts governing technologies allowed when approving an EGM for use or play in Nevada. First, the new rules authorized games of skill, those where game outcomes are predominately determined by a player's knowledge, dexterity, or any other ability or expertise, and hybrid games incorporating both some skill but mostly influenced by chance. ⁴ Second, amendments eliminated the requirement that no EGM could be approved unless game outcome was determined exclusively through random selection processes. ⁵ Third, the revised regulations authorized the use of “identifiers,” but limited such use to determining which games may be offered to players. ⁶ Fourth, the concept of “game session” was accepted, allowing for a series of games during which, with disclosure, the rules of play could be modified. ⁷ Fifth, the Commission removed the mandates that an EGM may not automatically alter pay tables or any function based on an internal computation of the hold percentage or employ selection processes with detectable patterns or dependency on prior game outcomes, wagered amounts, or method of play. ⁸ Finally, the technical standards adopted in response to these Regulation 14 amendments provided for the skill‐based game attributes of “in‐session features” (e.g., customizing your avatar or selecting a particular venue such as race‐course in the mountains versus a beach) and “player interaction technology” (e.g., use of game equipment facilitating play like a steering wheel or joystick). ⁹

Among the innovations the Commission did not embrace in this new generation of gaming technology for Nevada's casinos was adaptive play for skill‐based EGM games. At a very basic level, adaptive play is technology programmed into a skill‐based game that measures and mitigates for a player's relative lack of necessary physical dexterity, mental acuity, or sensory capability compared to a predetermined peer group standard. In instances where the player possesses the requisite skills within the level of the peer group, the functionality of adaptive play does not operate. When the adaptive play technology is inoperable, there is no programmed restriction on the influence of a player's skill except as might exist based on approved game design. Applied in this way, adaptive play levels the playing field for the unskilled player while he or she becomes skilled, and has no adverse impact on the game experience of the skilled player.

The stated reason for the Commission's disallowance of adaptive play was that this technology “may upend [Nevada's] basic premise that each game is an independent event and that each person has the exact same chance as the next to win an award based on chance and the skill of the player.” ¹⁰ On this basis, Nevada's regulators concluded that whatever benefits might be associated with allowing developers to include adaptive play functionality in skill‐based games was outweighed by strict adherence to the identified policy. Whether this might undermine the objectives of SB 9 or impair the efficacy of skill‐based games as a product was not an apparent consideration articulated in the very cursory policy statement by the regulators.

This was a missed chance for the state's gaming industry and should be revisited. The regulator's rationale is logically inconsistent with other innovations that are embodied in the regulations that likewise depart from this stated premise, and is irreconcilable with the objectives of the Nevada Legislature. Declining use of adaptive play also deprives developers of skill‐based games an important tool that, were it deployed, enhances the entertainment experience by reducing player frustration while learning a game's play attributes. Importantly, while Nevada's efforts were quickly replicated in other jurisdictions, these states do not share the Commission's reticence about adaptive play, placing Nevada casinos at a potential competitive disadvantage in earning a share of a market estimated at $9 billion. ¹¹

What is “Adaptive Play”

There are undoubtedly a number of equally valid conceptual approaches to determining when and to what extent adaptive play is allowed to influence a game and many ways to execute adaptive play. In any such exercise, however, defining “adaptive play” must be the initial effort.

The definition selected should be informed by a controlling rationale. That rationale must be to describe “adaptive play” in a way that provides adequate guidance for the game designer while reducing a complex technical concept to simple language for a rule that regulators can administer.

For the purpose of this article, this guiding rationale can be achieved by defining the term “adaptive play” to mean:

The period of play where a regulatorily sanctioned adaptation is in active operation based on the occurrence of a predetermined incident, during which the game's theoretical return to player (RTP) will be increased by an approved factor above the game's programmed baseline to compensate for any reduction resulting from the influence of skill.

An Analytical Framework

This definition of “adaptive play” allows for a description in an administrative regulation of two interrelated operational attributes as a framework for implementing a regulatory system. The first is an “incident,” which is a programmed event that determines when an “adaptation” will be allowed to operate and when its operation must cease. The second is the “adaptation” itself, which is a method of achieving a specified outcome affecting RTP. Using these two concepts, the control program for a skill‐based game could incorporate “adaptive play” through the combination of any “adaptation” that is initiated and terminated during the influence of any “incident” based on the approved game design. ¹²

A simplistic, not necessarily mathematically accurate, illustration may be helpful at this point. Consider a hypothetical target shooting game. In this game the player wagers for the opportunity to take ten shots at a bullseye configured target. When this game was approved by regulators, the game developer satisfactorily demonstrated that in 80 percent of the tested events, players hit the target six out of ten shots and at least twice in the first five shots. Were adaptive play operable for this game, and a player missed the first four shots, an “incident” would be recorded indicating the particular player is not as skillful as the typical 80 percent of players. At that point, the control program of the game would switch on an “adaptation” which enlarges the size of the bullseye. If the player then hit the bullseye each of the next three shots, the incident would be considered resolved, and the adaptation would end, thereby reducing the bullseye to its original and normal size for the player's last three shots. Although an imperfect example from a game designer's perspective, this description should explain the adaptive play concept as applied.

Senate Bill 9 Contemplated Adaptive Play

Both the text of SB 9 and the history of this legislation establish that adaptive play is within the types of technological innovations lawmakers contemplated the Commission would authorize for EGMs. At inception, the statute was recommended by the Nevada Legislature's Committee to Conduct an Interim Study Concerning the Impact of Technology upon Gaming (the “Committee”). ¹³ During the Committee's proceedings, proponents of a statutory expansion advocated “the gaming public is not injured and the integrity of Nevada's gaming industry is not compromised by allowing flexibility in payout percentages or game outcomes based on skill or other nondiscriminatory identifiers if accompanied by consumer disclosures.” ¹⁴

Consistent with the Committee's record, SB 9 provides that the regulations of the Commission should “[a]llow flexibility in payout percentages or the outcome of a game as determined on the basis of nondiscriminatory identifiers.” ¹⁵ The legislation defines these identifiers as:

[A]ny specific and verifiable fact concerning a player or group of players … based upon objective criteria relating to the player or group of players, including, without limitation … [t]he skill of the player; [t]he skill of the player relative to the skill of any other player participating in the same game; [or t]he degree of skill required by the game. ¹⁶

During hearings on SB 9, the proponents of the legislation explained to lawmakers that the concept of an identifier was intended to allow for different game outcomes based on “players' absolute or relative skill, [and] degree of skill in a particular game.” ¹⁷

The state legislature, therefore, adopted the new statute with the understanding that the Commission was empowered to authorize games in which players would not have “the exact same chance as the next to win an award based on chance and the skill of the player.” Lawmakers allowed for players not to have exactly the same chance in a skill game by authorizing game outcomes to be differentiated based on both absolute and relative degrees of skill. Nevada's legislature fully investigated the justifications for this change in law and made a conscious decision to depart from the Commission's policy choice then embodied in regulation. This legislative judgment prevails even though there may be different game outcomes among players and despite any disagreement by regulators. ¹⁸

Adaptive play is nothing more than permitting game outcomes to be varied based on the “objective criteria” of relative player skill based on the “specific and verifiable fact” of a regulatorily sanctioned adaptation operating on the occurrence of a predetermined incident. This is accomplished by adjusting game attributes to match a particular player's skill relative to the norm of expected players as quantified in the regulatorily approved RTP.

Adaptive Play Offends Neither the Statute Nor Policy

Nevada's stated basis of concern with adaptive play is already “upended” by the regulations adopted by the Commission. Those regulations allow for “prize awards for games … based on identifiers” including the relative skill of the players and degree of skill required. ¹⁹ Thus, the interpretation that the statute limits use of identifiers to determining which game or paytable is presented to a player is not accurate. ²⁰

Further, an interpretation that identifiers only describe certain characteristics or classifications of a player and not others is unsupported by the law and legislative policy. The Commission's reticence to allow a different player outcome as a result of the player's skillfulness relative to a predetermined skill norm for the game does not square with accepting that players can have varying game opportunities with dissimilar outcomes based on their membership status in a player loyalty program.

Additionally, permitting adaptive play does not offend Nevada's rule that:

Senate Bill 9 contemplated that skill‐based games may need more fulsome patron disclosures. ²² An adaptive play function can be described in game rules in plain language that players can reasonably understand. ²³ Game rules can include a disclosure that the game selected for play is a “skill‐based game that incorporates adaptive play characteristics.” This disclosure can explain that “adaptive play characteristics will affect game outcome by adjusting the amount that may be won, or resources available to the player in the game or both, based on a comparison of the actual skill displayed by players playing the game to the skill expected of players.” Such a disclosure achieves compliance with Regulation 14.040(2).

With equal force, incorporating adaptive play is not antagonistic to the regulation mandating “[a]ll possible game outcomes must be available upon the initiation of each play of a game upon which a player commits a wager on a gaming device.” ²⁴ Adaptive play as discussed here adjusts game outcomes to level the playing field between the skilled player and the inexperienced player by equalizing the RTP for the latter. Both the “incident” and the “adaptation” articulated are programed game attributes available depending on relative skill to influence outcomes for any player when they commit a wager and initiate the game.

Commission rules likewise already recognize that each game is not always an independent event with the same chance of win or loss. Subsection 2 of Regulation 14.020, allows, with appropriate player notice, for “game sessions” in which the “probability and award of a game outcome” can be decided based on a series of games and not on each independent game. ²⁵

Sanctioning adaptive play addresses two prevalent marketplace acceptance concerns for skill‐based games in EGMs. First, by leveling the playing field for the inexpert patrons, adaptive play deals with the concern that skill‐based games disproportionately disadvantage a vulnerable or inexperienced player demographic. ²⁶ Second, adaptive play supports introduction and acceptance of skill games by the uninitiated player by compensating for their frustration or annoyance while they become acquainted with the game.

Embracing a regulation authorizing adaptive play is in harmony with other important precepts of Nevada gaming law. As elaborated above, ²⁷ an adaptive play function operates independent of the amount wagered by an individual patron during a game or game session. ²⁸ To the extent the adaptive play function incorporates the use of free play, it would do so through free‐play options played with credits or game awards received through a wagering transaction. ²⁹

Similarly, an adaptive play function preserves the relationship between the player and the licensee as parties to a wagering contract in which both the player and the licensee have a risk of loss and a risk of gain. ³⁰ As explained elsewhere in this article, ³¹ adaptive play occurs within a wagering transaction between a player and the licensee, whether in a stand‐alone conventional EGM, a system‐based game, or a system‐supported game. The adaptive play function operates as part of the game and not as a contest for a prize among players that might jeopardize any taxation or fee system. ³²

Conclusion

The Nevada Commission's rules on skill‐based games for EGMs have undoubtedly influenced the environment for the development of new games. Other jurisdictions have and will follow this effort to encourage innovation in EGM products.

Rejection of adaptive play, however, places the state's industry at a potential competitive disadvantage, impeding skill‐based game development, deployment, and player acceptance. This result is not compelled by any public policy rationale or state law.

Nevada's gaming regulatory agencies should revisit adaptive play as part of fulfilling the goal of lawmakers to make sure the state “leads the nation as the home state for companies that design, develop and bring to market the technology which supports the global gaming industry, including gaming devices, associated equipment and various gaming support systems.” ³³