National Council of Legislators from Gaming States (NCLGS) Winter Meeting Update on Variable-Payback / Skill-Based / Hybrid Electronic Gaming Machines (EGMs) January 6, 2017 Marcus Prater, Executive Director Association of Gaming Equipment Manufacturers (AGEM)

About AGEM AGEM is a non-profit international trade association representing manufacturers and suppliers of electronic gaming devices, systems, lotteries, table games, online technology, key components and associated products and services for the regulated gaming industry. Through political action, trade show partnerships, educational alliances, information dissemination and good corporate citizenship, the members of AGEM collaborate to benefit the industry and the organization’s membership of 157 companies in 23 countries. AGEM’s resources assist regulatory agencies and legislative bodies in developing solutions that support sound regulatory policies while fostering business environments where State budgets can grow and AGEM’s members can prosper. AGEM enjoys a record of strong commitment for industry education and responsible gaming initiatives. For more information, please visit www.AGEM.org.

Introduction

Marketplace Dynamics The U.S. gaming industry faces unprecedented domestic and global competition. State Legislatures and gaming regulatory bodies are urged to support industry innovation to meet competition and protect state revenues. The demographics of the gaming public are in transition. Technology is pervasive in our lives, including most forms of entertainment and leisure activity. Electronic gaming products need to be able to incorporate the generational interest in handheld entertainment (the smart phone revolution), social and console gaming (the Xbox phenomena) and in social networking (the Facebook transformation).

One Solution: Variable-Payback Slots Allowing for different paybacks to players based on skill, player loyalty or other identifiers will create innovation on the casino floor. Gaming machines remain the most profitable segment in gaming, but legislative and regulatory limitations are currently capping technological advancement and general innovation. Growing demographic of “millennials” attracted to the wagering experience and competitive gaming, but show limited attraction to current gaming machines. Allowing for skill-based or hybrid games that bring arcade and handheld video gaming elements to the casino floor will create a flood of new creativity. New game concepts will be accretive to current slot offerings and will initially be a slow rollout in each state.

National Rollout AGEM initiated research project through the UNLV School of Law and the Fennemore Craig law firm to produce the Building Better Business report that extends the overall conversation and assesses what gaming states need to do to introduce the variable-payback model. The research team reviewed language in enabling gaming legislation, as well as existing regulations and technical standards, among other sources. Four jurisdictions – California, Nevada, New Jersey and Delaware – have an existing legal structure that allows either or both skill or hybrid EGMs. Seven jurisdictions – Delaware, Illinois, Iowa, Kansas, Maryland, New Mexico and West Virginia – may need both legislative and regulatory updates. Thirteen jurisdictions – Colorado, Florida, Indiana, Louisiana, Massachusetts, Michigan, Mississippi, Missouri, New York, Ohio, Pennsylvania, Rhode Island and South Dakota – may need only regulatory modifications.

National Rollout Independent test labs and other industry observers may advocate that no changes in law may be needed to allow skill-based games for play on EGMs in certain jurisdictions. Stakeholders in each State will need to evaluate whether existing EGM approval processes used by the jurisdiction’s gambling control agencies already incorporate the flexibility required to permit hybrid EGMs and skill EGMs to be developed and deployed. AGEM presents this information to stimulate additional discussions throughout the industry and among State legislatures and regulatory agencies.

Outcomes Embracing this direction will also have broader implications for individual States: Present individual States as the gambling technology leaders Improve an individual State’s competitive edge in the marketplace Boost overall State revenues Ensure casino floors remain technologically and creatively competitive Display industry cooperation among States, operators and suppliers

Outcomes

AGEM THANK YOU