Regulators, gaming industry wrestle with cashless slot issues

Friday, March 7, 2003 | 11:10 a.m.

The casinos of the future will have many more "cashless" slot machines that can dispense paper vouchers instead of coins -- but that's just the beginning.

Future slots will feature software allowing gamblers to use ATM or debit cards to transfer money from their bank accounts directly to a machine. Some machines may even allow players to avoid vouchers altogether by transferring cash from the casino cage to a machine using a pin number, or by transferring credits from machines back into a personalized casino account.

Advances in slot machine technology -- while theoretically possible under existing gaming law -- will soon be easier for companies to develop and implement after Nevada gaming regulators approve new regulations governing cashless slot transactions this year.

Thursday, the state Gaming Control Board unveiled the final draft of proposed slot machine regulations that will affect all of the state's major casinos and some mid-sized operators as well.

The rules are the result of nearly two years' worth of negotiations between regulators, casinos, machine manufacturers and other vendors over how to regulate cashless slot systems.

The board expects to hold a hearing in Carson City next month to further discuss the draft regulations, which are expected to receive final approval by the Nevada Gaming Commission in April.

In the old days of slot machines, casinos manually recorded all cash transactions or slot coin fills and payouts. Cashless transactions, on the other hand, are more difficult to track and trigger a host of security and tax concerns, regulators say.

As an example, many advanced machines have multiple pay tables -- in essence, multiple games that make it difficult to monitor the total payout percentages of the machines. Also, casinos receive tax deductions for jackpots paid, an action that must also apply to paper vouchers and electronic transfers of cash winnings. Offering electronic bonuses to gamblers in the form of gambling credits on slot machines also must be accounted for.

Such developments are the way of the future because they appeal to customers and offer another avenue to increase the state's casino tax base, said Gregory Gale, chief of the Gaming Control Board's audit division.

"Slot machines today contain hundreds of games," he said. Also, while only one or two Nevada casinos were using voucher technology two years ago, about 70 do so today.

In January, the Gaming Control Board pressed a legislative budget committee to spend an additional $1.4 million to hire more agents to examine cashless slot machines. Such machines carry more risk because their systems are complex and have control over pay commands, Board Chairman Dennis Neilander said. Such machines also are vulnerable to cheating that would be difficult to detect without adequate testing and monitoring, he said.

Machines that used to take about 30 days to examine and approve are now taking 50 days -- delays that are hurting casinos waiting on the machines, he said.

Under the new regulations, casinos that generate revenue of $10 million or more per year will have two years to install online slot metering systems that can electronically track transactions. They will then have another six months to connect the slot machines to the system. About 120 casinos in Nevada fall into that category. Most already have some form of online metering system that allows them to remotely track player data. Others, like Harrah's Entertainment Inc., have more sophisticated systems that can monitor gambling behavior and tailor promotions to specific customers.

Those 120 or so casinos represent a fraction of Nevada's roughly 400-plus properties. Still, an estimated 93 percent of the state's slot revenue will come from those large casinos' slot metering systems in the future, Gale said.

For big casinos that already have such systems, the cost of upgrading them to conform to the new regulations may run a few hundred thousand dollars, Gale said.

"It's a cost of doing business," he said. "You need to have these systems to control what most (casinos) are already using. Most probably want to upgrade eventually anyway."

For others, the transition may not be as easy.

Representatives for Barton's Club 93 casino in Jackpot, a small gambling market on the Idaho border, appeared before the board Thursday to request a grandfather clause to avoid adopting the online system, which would likely cost the property about $1.3 million.

Club 93 generates just above $10 million a year -- placing it among the state's largest casinos that also must comply with the new rules. However, the casino's slot floor primarily contains older machines with mechanical reels that can't conform to an online metering system, Chief Financial Officer Westley Barton said.

Under the new rules, about 75 percent of the casino's machines would probably have to be replaced with newer models, though the casino's customers generally prefer the old-fashioned machines, Barton said.

Only a few big casinos are in a similar situation in that they may not jump at the chance to upgrade their machines to newer technology, Gale said.

That's why the regulations allow Neilander, the board chairman, to waive the rules for certain casinos so as not to force properties to replace older systems and machines, he said.

Some casinos may choose to keep older machines on their floors for depreciation costs or because the games remain popular, he said.

While the regulations won't take effect for more than two years, companies already are working on the kinds of advanced systems possible under the new rules.

Among them is Quik Play, a company that aims to receive Nevada approvals for a system that would allow gamblers to swipe a card to transfer cash directly from a bank account to a slot machine -- similar to getting cash with a debit card at a grocery store.

Like many other gaming entrepreneurs, Quik Play President Morry Goldstein has been awaiting the regulations.

"It's a technological leap -- it's pretty far-reaching," said Goldstein, former chief executive of slot maker Alliance Gaming Corp. "I think it's only going to improve the industry."