Are Slot Machines About to Get Smart? - WSJ

Updated: Feb 7


IT’S 11 A.M. AT THE ARCADE-LIKE OFFICES of Gamblit Gaming LLC, a startup based in Glendale, Calif., and a group of employees is gathered around a tabletop computer, searching a screen filled with hundreds of bottle caps for one from a particular (invented) brand.


“What are we looking for again?” asks Claudia Wirachman, Gamblit’s human-resources manager, as she scans the 43-inch display. She spots the right cap as the clock runs out and lets out a yell: “Ahhh! I saw it too late!”


“We get caught up in this,” says Darion Lowenstein, Gamblit’s director of marketing.


In another corner of the office, other game testers are playing “Smoothie Blast,” a simple matching game in which players line up as much virtual fruit as possible in a race against the clock. For the grand finale, a virtual monkey makes a virtual smoothie from that virtual fruit.


“Smoothie Blast” and “Brew Caps Squad” look like attempts to create the next viral gaming app, another Candy Crush–like time waster designed to distract us while we wait in line. But there’s more at stake: Both games are gambling-machine prototypes. Each round begins with a wager and ends—potentially—with a cash prize.


Slots, which have been literal cash machines for more than a century, have hit a cold streak in recent years, especially with young gamblers. More and more millennials are going to Las Vegas for its nightclubs, restaurants and nightclub-like restaurants. They wager on sports and lay the occasional bet at the tables, but steer clear of slots. These younger gamblers, many of them raised on videogames, are uninterested in pressing a button and waiting for a random number generator to determine whether they have won. Slot revenue in Nevada has fallen 17% since 2007, compared with table games’ 3% decline.


Some industry experts aren’t concerned, believing it’s best to wait until the youth grow into “core slots customers”—mostly middle-aged and elderly women. But not everyone is convinced. Bill Hornbuckle, chief marketing officer and president of casino giant MGM Resorts International, was dismayed by a recent conversation with a slot-machine executive who told him not to worry about the future, that “there will always be 51-year-old women.”


Like the youth they’re courting, however, many casino executives aren’t content to leave it up to chance and are removing traditional slot machines from their floors to make space for craft beer and third-wave coffee. In the past, strict regulations have limited the extent to which manufacturers could factor skill into the outcome of their games. But under new laws, passed in Nevada and New Jersey last year, game creators can now alter the math behind the payout structure that undergirds slot games. These changes have done something revolutionary in the casino world: They’ve legalized slots whose outcome is not just based on random luck and paved the way for the “gamblification” of videogames produced by startups like Gamblit. The casino giants MGM, Caesars Entertainment Corp. and Foxwoods Resort Casino all say they plan to roll out Gamblit games this year.


Eric Meyerhofer, an electronics engineer, founded Gamblit with a partner in 2010. They analyzed which games—such as “Call of Duty,” “Angry Birds” and “Madden Football”—could be adapted for casinos. The difficulty was creating a wagering system that rewarded skill while ensuring that the odds still favored the house. “Smoothie Blast,” for instance, can reward skilled players by increasing their odds of winning or by giving them a shot at a bigger pot than their less-skilled counterparts. Another version keeps the payouts random but allows players to rack up points, which can be turned into cash or other prizes.


But change moves at a glacial pace in the casino industry, as Meyerhofer knows well. Before Gamblit, he worked for a company that developed a ticketing system that replaced coin dispensers in slot machines. Casinos worried that customers would miss the rain of coins during a win (part of the solution was to mimic that sound) and waited more than a decade to adopt the ticketing systems—which are now used industrywide.


Skill-based gambling could face a similarly long trajectory toward adoption—if it’s adopted at all. One concern of casino executives is time: Slot players wager once every five seconds, compared with every 20 to 60 seconds for some Gamblit games, which may prove less lucrative than traditional slots even if they attract new gamblers. And some casinos worry the new games will cannibalize traditional slot-machine sales—which still account for 77% of total gambling revenue at commercial casinos nationwide—for the sake of luring youth, who aren’t known for their long-term loyalty.


Meyerhofer sees a potential upside to the longer wagering intervals: limited appeal for gambling addicts compared with traditional slots. “If you want a heavy-duty gambling experience, we don’t think our product is for that player,” he says.


Yet gambling-addiction experts express concern about skill-based slots. The misconception that a special skill or luck would improve one’s score is extremely dangerous among gambling addicts, who make up a small percentage of the general public but a disproportionate amount of casinos’ revenue base. These new games—and, potentially, the marketing behind them—could lead addicts or potential addicts to believe they can beat the house, experts say.


“Right now, the core responsible gaming message for slots is: There is nothing you can do to change the outcome of the machine,” says Keith Whyte, the executive director of the National Council on Problem Gambling. “When skill comes, that’s not the case.”


Source: Are Slot Machines About to Get Smart? - WSJ