Skill-based casino games expand the definition of gambling

Gambling, from a legal and policy perspective, has been consistently defined in the U.S. as an activity that contains the elements of prize, consideration and chance. Although states vary in their definitions, the consensus has been that a game or scheme that requires players to stake something of value for a prize that is awarded due to the outcome of an uncertain event is considered "gambling."

This long-standing concept of gambling, however, is rapidly changing with the authorization and expansion of skill-based gaming in places like Nevada and New Jersey.

Skill-based gaming redefines gambling by either removing or dramatically reducing the amount of chance involved in a game. While games of skill have traditionally been beyond the jurisdiction of gaming regulators, recent changes in state law and policy have broadened the scope of gaming laws so that such games may be authorized, approved and regulated on casino floors.

These changes offer casinos an unprecedented opportunity to innovate beyond what has been permitted since gaming was first legalized in Nevada in the early 1900s.

New gaming regulations allow skill gaming at Atlantic City casinos. (photo by Wikimedia Commons)

Changing the game
In April and May of 2015, the Nevada Legislature unanimously approved changes to the state's gaming laws that allowed the Nevada Gaming Commission to adopt regulations governing games of skill, defined as games "in which the skill of the player, rather than chance, is the dominant factor in affecting the outcome of the games as determined over a period of continuous play." Hybrid games, combining skill and chance elements, were also authorized.

The amendments, originally proposed in Senate Bill 9, were strongly supported by industry representatives as a new opportunity for innovation.

The Association of Gaming Equipment Manufacturers (AGEM), a key advocate for the legislation, and others acknowledge the wealth of new opportunities the expansion offers.

"I believe we will look back on the passage of SB9 as a monumental moment for the gaming industry and its overall evolution," said Marcus Prater, executive director of AGEM, at the time of the bill's enactment. "The slot floor will not transform overnight, but this will allow our industry to capitalize on radical new gaming concepts and technologies and give AGEM members the ability to unleash a new level of creativity for their casino customers."

The American Gaming Association also praised Nevada's efforts, noting that skill-based games would help the industry attract younger customers.

New Jersey has also changed to its gaming regulations to allow skill gaming at Atlantic City casinos. Although state gaming regulators had the authority to authorize skill games as early as October 2014, in February 2016 they adopted specific regulations that coincided with Nevada's.

Regulatory consistency between the two states, which allows for streamlined product development, compliance practices and game approval processes, was encouraged by industry members as a way to aid quicker development and adoption of the new technologies by companies across jurisdictions.

Because Nevada and New Jersey are two of the leading developers of gaming policy in the U.S., the new regulatory models for skill games are likely to become templates for additional jurisdictions that choose to authorize them. However, such expansion could be impeded by differing state statutes, regulations and case law that determine exactly how the state defines "gambling," specifically the element of chance.

An unprecedented opportunity
The authorization of skill-based games for gambling purposes presents arguably the greatest opportunity for innovation in the U.S. casino industry since its establishment.

Other milestones, such as the nationwide expansion of gaming jurisdictions, the digitalization of slots and gaming machines, and the development of online and mobile gaming, have merely allowed operators to present similar versions of existing games to new audiences.

The new regulations in Nevada and New Jersey, however, allow game developers and operators to unleash their full creative potential to develop games entirely new to the industry. New head-to-head and multiplayer games are likely to draw in younger and more dynamic crowds that are unenthusiastic about traditional gambling games, as seen by the new eSports Lounge that was unveiled at the Downtown Grand Las Vegas earlier this year. These opportunities may also bring in new creators from other industries, such as video games, board games and sports.

Skill-based games must be legalized and regulated carefully as the industry shifts to new gaming models. Again, "gambling" has been defined as requiring the element of chance to be present in the gameplay. Though the level of chance necessary to distinguish between skill- and chance-based games has been defined largely through case law and varies between states, pure skill games have traditionally been excluded from the realm of gambling activity. Under the new Nevada and New Jersey regulations, however, entirely skill-based activities may now be considered gambling games.

Despite being incredibly well-crafted, detailed and thorough, these new authorizations may raise larger questions about the broad definition of "gambling" as they expand to jurisdictions with more restrictive views of gaming.

The eSports lounge at the Downtown Grand Las Vegas

New enforcement questions
Traditional gaming legislation authorizing licensed gambling activity typically allows a state gaming board to oversee gambling games, or those otherwise involving the elements of prize, consideration and chance. Gaming authorities, in conjunction with state law enforcement agencies, are also generally authorized to prevent such games from being conducted outside a casino or other licensed gaming establishment. The laws and regulations are fairly clear — games permitted in a casino cannot be played outside of a casino for money (excluding special cases like licensed charity games).

But skill games can be played outside of a casino for money without a gaming license. For example, a basketball tournament where players pay an entry fee and compete for a prize would be considered a gambling game but for the fact that the winner is determined by skill. Professional athletes competing in golf, motorsports and other tournament-style competitions where there is an entry fee fall within this category as well.

The new regulations in Nevada and New Jersey potentially allow these activities to be considered "gambling games" if they occur within a casino and have been approved by the gaming authorities. Thus, whether an activity is considered "gambling" is not determined by the attributes of the underlying game, but instead by the approval of the game as such by the gaming authorities.

In Nevada, for example, the definition of "gambling game" under the jurisdiction of the gaming commission includes "any . . . game or device approved by the Commission," which, under the new legislation and regulations, include pure skill games. Nevada law also states that "gaming" and "gambling" are defined as operating gaming commission–approved games.

This change blurs the line of traditional gaming enforcement models, as casinos may now be permitted to operate games for money on a wide scale that are also permitted to be played for money outside a casino.

If a gaming law, as in in Nevada, defines "gambling" as the playing or operation of any game approved for play in a casino, arguments may be made that the play of that specific pure skill game outside of a licensed casino environment is considered unauthorized gambling. This raises other questions as well. If a casino operates a pure skill game outside its gaming complex without the approval of the gaming authorities, may they argue that the game is not a "gambling game" and is beyond the jurisdiction of the gaming commission? Does approval of a specific skill game for play in a casino as a "gambling game" prohibit its play for money outside of a licensed environment?

Despite these questions, the clear legislative intent of Nevada's SB 9 and similar legislation is that casinos should be allowed to operate skill games within their establishments as approved by gaming regulators. Similar activities involving skill games outside a casino environment are likely beyond the purview of gaming regulators. Casinos may no longer have a monopoly on all their games — only traditional, chance-based gaming is relegated to licensed establishments, while the new skill games may be operated inside (as approved by authorities) or outside a casino.

New jurisdictions seeking to expand gaming opportunities beyond traditional gambling games should be aware of potential language conflicts with standard gaming enforcement laws and policies. Although the intent may be clear, legal or regulatory issues may arise due to the wording of future skill-based legislation or regulations as they are incorporated into existing laws and policies.

The opportunities for skill-based gaming innovation are boundless and should not be unintentionally hindered by the minutia of outdated gaming legalese.