By Cole Boehler
Is any business or industry immune to the effects of advancing technology, and the evolution of the fundamental economics associated with it?
Video gaming continues to morph in Montana, but some with a fatalistic view may contend even as it changes and evolves, it isn't doing so fast enough; that it is falling behind the rest of the national and world gaming jurisdictions and will soon become a one-off market of little interest to equipment manufacturers, destined to fade away into a gaming backwater of no import unless the latest technology is unleashed.
Others hold that the pace of change threatens to leave small, independent operators at the bottom of the barrel, not through finding themselves in a hopelessly underdog position, but because contrived technological change is forcing obsolescence of otherwise completely viable, popular and profitable gaming equipment.
A recent conference comprised of the "best and brightest" people in the Montana market was designed to put these heads together to compare notes, share perspectives and outline options. It took place at the MSU-B campus in Billings June 25.
Several things seemed apparent: there were no extremists present; everyone in the room wanted everyone in the business to prosper and succeed; that what is called for is win/win solutions to our modern technologically driven dilemmas.
It also seemed apparent that even as our state's video gaming machine fleet by necessity will be modernized, so too should the governing body of laws and rules, since much of it is as old as the machines now sometimes characterized as "hopelessly obsolete."
Organizing and moderating the panels was a GAC committee compromised of Garfield County Attorney Nick Murnion of Jordan, Billings investment advisor Mark Kennedy and District 10 Rep. Mark Blaisdel, (R) Somers.
It consisted of three panels: manufacturer's--Blaine Bowman of Spielo out of Billings, Dave Kraft with U-1 from Bozeman and Terry Geurin of IGT, also out of Billings; route operators--Steve Arntzen of Century from Billings, Clint Lohman of Lohman Games out of Glendive and Charlie Mears of Mears Music from Malta; and location operators-- Tom Heisler of Big John's in Great Falls, Cal McOmber from the Corvallis Bar in Corvallis and Mark Staples, Government Affairs Counsel for the Montana Tavern Association out of Helena.
As anticipated, no solutions were adopted but some potential ones were identified and the problems were fully fleshed out from all perspectives.
Manufacturer's went first.
Bowman, who first broached the topic of impact printers with the Gaming Advisory Council last year, led off, noting the Montana-required impact printers result in a larger machine "footprint" due to its larger size relative to thermal printers.
"Floor space is critical," Bowman said. "The smaller the box, the more machines can be installed (up to Montana's maximum of 20). The cabinets are getting smaller. Cash handling--hoppers--has gone away and cashless gaming has come to most jurisdictions. Even the old (space consuming) CRT (cathode ray tube) monitors are gone, replaced by smaller, flat LCD (liquid crystal display) screens resulting in slimmer cabinets."
Impact printers result in door designs incorporating unique ticket chutes which are unique to the Montana market, he told the crowd of almost 50 industry operators and government regulators. Since the door is the most expensive part of the cabinet, Montana's unique requirements add substantial cost to manufacturing which makes profitable production for Montana a questionable proposition.
Besides, Bowman said, it makes it difficult, if not impossible, to bring lower-cost used equipment into Montana from other jurisdictions.
Bowman said with nearly 80 percent of Montana machines now reporting electronically, new data storage methods should be devised which could allow dispensing with years-long storage of cumbersome impact-printed audit rolls. He suggested machine event data could be downloaded to a $10 "thumb drive" device--"a simple way to skin this cat."
Geurin then weighed in, noting the issues facing Montana are being constructively dealt with in other jurisdictions. "We can provide the solutions," he said. But modern systems "are very expensive" and could preclude smaller operations from gaining the advantages of new equipment.
"Just two jurisdictions are using impact printers--Montana and South Dakota," Geurin said, and machine sales are virtually nonexistent in South Dakota and slowing in Montana. "And bill acceptors are resulting in obsolescence" in Montana "and we need to be looking down that road," he said.
U-1' Kraft agreed, then noted thermal printers "are faster, less expensive and produce a better quality printed cash ticket." Besides, a "brick of paper for a thermal printer is $2, whereas a roll of (carbonless duplicate) paper is $4," he said.
Bowman said impact printers add $800-$900 to the cost of a Montana-specific machine, but Kraft was quick to point out the actual cost is significantly more than the incremental one. He also suggested a collaboration between manufacturers and regulators could work out a solution. Geurin said ultimately if no changes are made Montana could lose machine manufacturers which would be detrimental to the long term health and viability of the Montana gaming market.
Staples then spoke from the audience. "Do we sweep everything away and go in a new direction? Or do we evolve? How do you move forward without leaving the foundation of this business--the small, local operator--in the dust? You can't just leave them on their own."
This is where many of the loose ends were seen to be tied together.
Tim Carson of Billings' Amusement Service spoke from the audience. He said, "We've always talked about a stand-alone solution, done within the machine. But it all comes back to the starting point: what do you have to retain for data? We need to find a device that accomplishes that requirement."
Bowman said, "Yes; what do we need to print?"
Heisler said the current printers do have advantages, especially in stopping fraudulent win tickets. "We can check win tickets against (internal machine) audit rolls. Thermal tickets are easier to duplicate. We would need instant ticket verification (and validation)."
Bowman pointed out that "cash ticket validation (bar-code scanners) would require linked machines" that all download data to an on-site central computer to which would be hooked a ticket validation device.
It was then noted that some of the state's oldest machines could never be linked to any such device since they don't even use the modern and now industry-standard SAS communications protocol.
He added that the cost of developing such a system for Montana could approach $1 million without any reasonably assured expectation of selling any systems.
Arntzen said, "The cost depends on how far you take the system sophistication and how many machines you hook up." (Arntzen is also involved with a route company that services primarily small locations in Nevada.) The full-blown IGT "Tito" system, Arntzen said, "would cost about $108,000 for a 35-machine bar (in Nevada), and that doesn't include the cost of necessary machine modifications."
On the other hand, he said, a much more modest system called "Easy Route" might cost $12-$20,000 per location to purchase, but can also be leased for $1,000 to $1,600 per year.
It all comes back to record retention requirements, as Carson noted earlier.
John Tooke, a location operator from Miles City and chairman of the Gaming Advisory Council, asked the Gambling Control Division's Al Arvish, electronic reporting project chief, what kind of record history will be required once the new reporting system's integrity is proven?
Arvish responded that no data is ever purged from the GCD "historical archive" database.
GCD Administrator Gene Huntington said the Division is just starting the process of validating the system's integrity which could eventually "lead to a record retention reduction."
Mike Kenneally of Town Pumps asked how data downloaded to a thumb drive might be secured.
Geurin responded that it can be installed and locked behind the machine logic door and, further, could be made accessible only with a special coded "chipped key."
But Geurin returned to his earlier theme, "The more unique Montana becomes, the harder it is for a manufacturer to do business here. We should be looking at the Nevada bar and tavern market and model ourselves after that.
"From a manufacturers standpoint," he continued, "we should be developing games that can be used in multiple jurisdictions."
Kraft echoed that then, noting even Montana's poker rules differ from most other jurisdictions, meaning Montana poker games can't be played elsewhere and neither can poker games from elsewhere be played here.
Tooke suggested manufacturers collaborate on assembling a "wish list--a road map" that would make the Montana market more compatible "with the rest of the world and the manufacturers; we need to be a viable market."
With that, a break was taken, but the discussion resumed shortly after with, this time, the route operators taking seats at the head table. Arntzen, head of the state's largest VGM route business, opened the discussion.
He said obsolescence issues "go beyond bill acceptors" and spill into the legal and regulatory arenas. For upgraded components to be used, manufacturers must submit the changes to the state for testing and approval, he said.
"When (manufacturers) are through supporting a machine (officially an obsolete device), there are no more components. We need to know if other manufacturers can supply components. In Nevada," he said, "the state looks at software as proprietary and hardware as something else."
In addition, Arntzen wondered if a site controller system could be devised that would eliminate the need for all printers.
It's not that simple, Bowman responded. "There would be (proprietary) software modifications (and the concurrent costs to write new code and install new chips) to eliminate printers. These modifications can only be (practically) done when new games come out. And bill acceptor and printer changes would require software changes, whereas modification from a CRT monitor to an LCD would not."
Geurin said, "If it is a different type of touch-screen, a monitor change would also require a software change," illustrating how complex and convoluted the whole issue of componentry and software integration, and proprietary code, becomes.
Arntzen told the conference, "We have modified our Nevada (central) communications system to work in Montana, then looked at the benefits. Every benefit has an economic offset (cost). We estimated it would take $9,000-$10,000 (to install a communications) system in a location, but we couldn't find an (economically beneficial) offset.
"What would help," he said, "is to use a site controller for more than one purpose, such as player tracking. That would be nice, but the industry isn't that interested. We've already developed alternatives (players clubs) that work okay.
"Another benefit would be to get away from the required printers and paper in every machine. That's an advantage. It would definitely have some reduction in maintenance and cost."
Along with such a system, Arntzen said operators could integrate the "Easy Safe" automatic cash dispensing safes which rely on a site system to prompt the safe to release specific minimal amounts of cash to pay winners, enhancing security while diminishing a location's attractiveness as a target for robbery.
Finally, such a system could also integrate a win ticket verification component, he said.
"This may not be easy to do under Montana statute and rules," Arntzen said, "but a lot of the technology is not new."
But Lohman added the caveat, "We need some way to upgrade without having to buy new devices and cabinets."
As far as the printer issue goes, Lohman said he thought the thumb drives could be a solution but so could internal or external hard-drives.
He said his route company had looked at a so-called "Tier I" status where all machines at a location are linked and data is continuously and automatically downloaded to a site controller, then dumped into the state's database. However, "there wasn't enough economic feasibility given the Montana market. We looked at ticket-in/ticket-out (or cashless gaming) too, and couldn't see a favorable cost/benefit ratio either."
Mears noted he ran a relatively small VGM route out of Malta. He said his machines were being reported as Tier II, meaning individual VGM play data is downloaded from a machine and entered into business computers using state approved software, then the data is uploaded to the GCD computers every week or two.
"We keep the data for two weeks," Mears said. "If Gambling Control has that data, why do we need backup audit rolls? I don't know why we need any more."
Huntington responded, "There needs to be some way to verify the validity of the data people are sending us."
"But why, if everything is backed up," Mears persisted, "do we need the paper trail?"
Mears then veered toward the bill acceptor issue.
"In our shop, we made (an upgraded) Mars bill acceptor (that would recognize the latest currency) work with an old VLC" gaming machine. "We can convert them. Is it (economically) feasible, though?
"It's tough for small guys to pay $13,000 for a machine. We're hoping to be able to upgrade (older gear) if it's not too costly."
Lohman concluded the route panel discussion by noting, "Obsolescence here is driven by the smallness of the Montana market; the (relative lack of) profitability."
Then Heisler, McOmber and Staples took head table seats.
In his opening remarks, Staples summed up the perspective of the location operators.
"Location operators, as well as route operators, are concerned with this issue: forced obsolescence versus keeping up; a delicate balance. If change is market-driven, so be it. On the other hand, if it's driven by piecemeal technological change, such as with bill acceptors, we're pressured to get new machines.
"Maybe obsolescence isn't forced, but it is hurried.
"If a manufacturer creates a machine, he has proprietary rights. However, when (manufacturer) support is stopped, the relationship changes. We need some understanding--by rule, statute or agreement-- that when a manufacturer quits supporting a machine, the private market should be able to step in to provide upgraded components. There doesn't seem to be a problem with public or player security.
"It seems wrong to keep a proprietary lock on a machine after it's been abandoned by the manufacturer, even when it has a lot of life left," Staples said.
He reminded the conference that "it has been the small operators--70 percent of them all--who have risen up and defended the current tax rate. If you lop them off with obsolescence, they may not be there to rise up to defend everyone in the business again. We can't leave them out of the machine upgrades.
"The system works; there has been a steady increase in tax revenue. It's a very stable system. So let the system evolve by itself, not by force. We need the means to extend the life of the machines. Other private vendors could provide bill acceptors for (obsolete) IGT machines. We can't let the desire to keep up with other jurisdictions lop off the base of the industry.
"We're looking for a breakthrough with the least impact to allow retro-fitting" the older machines. "If a manufacturer stops supporting a machine, they should relinquish the right to proprietary protections."
Heisler added, "The bigger operators account for perhaps 30 percent of the locations, the smallest maybe 20 percent. The rest are in the 50 percent that lie in between. We need to keep both the middle 50 percent and the bottom 20 percent alive. You cannot squash these people, the small- and middle-sized location and route operators.
"Let's let the player decide when a machine is obsolete," Heisler continued. "When they quit playing them, we'll get rid of them and upgrade. It shouldn't be forced. We need upgrades.
"We also need to be sure we keep adequate controls in place" to assure the integrity of the devices, Heisler said. "And upgrades need to be affordable."
McOmber said the Tier II automated reporting system he is employing is working well for him.
Amusement Services' Carson observed, "Route operators have locations where they're not renewing equipment. The revenue continues to grow (for the industry as a whole) because the industry keeps reinventing itself." But the October 1, 2009 smoking ban may stymie those gains, Carson said.
Geurin said, "Obsolescence is a dicey situation. IGT would support a rule or change in statute that would allow other (manufacturer's) components in our machines that are no longer supported, but not current, supported devices." (Editor's note: in a subsequent discussion with Geurin, he pointed out some currently supported IGT models cannot accept the updated bill validators.)
Ben Kamerzal of the GCD's technology services department, asked Geurin, "What is the standard between what is supported and what is not?"
"That is the crux of it," said Staples.
Huntington said, "That is a legal issue; will the manufacturer surrender proprietary rights and protections? The legal line is unclear."
Geurin said, "When we obsolete a device, we target a date (usually a year out), then alert everyone who owns an affected machine. It's not a murky issue from our perspective. We've been in Montana 20 years and we have only obsolesced two models; one is 11 years old."
Mears added, "We estimate it would cost $1,500 to upgrade a VLC for a new bill acceptor. Do you want to put that much money into that old a machine?"
Staples said, "All we're saying is if there is a private market out there, let it work. Let the owner take the risk" of investing in older equipment upgrades.
Kamerzal offered, "You'd have to change the game software, too" for some unsupported IGT machines to get them to communicate with upgraded bill validators.
Route operator Paul Geis asked from the audience, "Why would a manufacturer build into their proprietary software the means to communicate with bill acceptors?"
Kamerzal said he thought it was a security issue.
Geurin confirmed that thinking, stating, "It is a security issue. We wanted extra security on the bill acceptor because of counterfeiting. The modern IGT machines do have bill acceptor migratory upgrade paths. The 20-year-old machines don't ; it wasn't foreseen."
Whether follow-up technology conferences are to be scheduled is unclear.
What seemed clear is that the industry sectors--manufacturers, route vendors and location operators --believe the solutions to problems created by advancing technology and increasing equipment obsolescence are within reach, but that there are regulatory and statutory impediments which can, nevertheless, be corrected.
Thus the GCD subcommittee directed the Gambling Control Division to begin work on draft legislation or rules to allow for the emerged consensus: if manufacturers declare they no longer support machines but private manufacturers think they can, let that notion be facilitated rather than impeded.
Source: The Montana Tavern Times, August, 2008, published monthly by Continental Communications, 125 W. Granite St., Suite 102, Butte, MT 59701.