Attention Manufacturers of Gaming Devices: Nevada to Consider Regulatory Amendments

In Nevada, manufacturers and distributors of gaming devices and related equipment have been unwilling to enter the market because of the high cost and arduous nature of the licensing process. This can curtail innovation and development of new products, as many smaller companies are forced to limit their activity to less-regulated markets, even if their technology was on the cutting edge. In 2017, the Nevada legislature enacted Assembly Bill 75 with the intent of opening up the Nevada market to these smaller, innovative manufacturers by providing an alternative to undergoing the full licensing process.

The rigorous licensing process is intended to safeguard the integrity of Nevada’s gaming industry. AB 75 provides a common-sense framework to serve this public policy goal, while also allowing for smaller companies to enter the fold. AB 75 provides a means for Nevada-licensed manufacturers to “assume responsibility” for an unlicensed manufacturer’s products, without subjecting that unlicensed manufacturer to the large expense of the licensing process. At the end of the day, the licensed manufacturer is responsible for, and may be subject to discipline for, violations that arise from the finished product. This protects the integrity of the gaming industry while allowing for some flexibility to encourage innovation.

Although the “assumption of responsibility” language has been in the Gaming Control Act for some time, the standards and requirements have been somewhat unclear. Consequently, recent proposed amendments to the Nevada Gaming Commission Regulations aim to clarify the standard and remove prior uncertainty with the term.

NRS 463.01715 provides that “[a]ssume responsibility means to: (1) Acquire complete control over, or ownership of, the applicable gaming device, associated equipment, cashless wagering system, mobile gaming system or interactive gaming system.”  The phrase “complete control” is open to various interpretations. Therefore, the Board has proposed a regulatory amendment clarifying the term.

The proposed regulations state that “acquire complete control over, or ownership of” for the purposes of NRS 463.01715 means:

“the licensed manufacturer must obtain and thereafter maintain the unqualified ability and authority to alter, change, or make a modification to any element of the device, equipment, or system without having to obtain any form of authorization to do so from, or otherwise involve in executing such action, a third party manufacturer who performed any form of manufacture described in paragraph (a), (b), or (c) of subsection 1 of NRS 463.01715 on the device, equipment, or system. Such control or ownership must:

(a) Include, but not be limited to, the ability to alter, change, or make a modification to all hardware, software, or source code used in the device, equipment, or system; and

(b) Exist for the entire time the gaming device, associated equipment, cashless wagering system, mobile gaming system, or interactive gaming system, or component thereof, is approved for use or play in the State of Nevada.”

However, comments from industry participants thus far have expressed concerns that the above definition is impractically over-broad. Comments filed by the Association of Gaming Equipment Manufacturers (AGEM) state that the proposed regulations “demonstrates a misconception of the realities of the global technology industry” and “presuppose that Nevada Licensees could in fact economically manufacture ‘all elements’ of a gaming device in today’s global economy.” For instance, the use of “any element” not only refers to control programs and highly technical software and code—but also could include nuts, bolts, screws and any other “element” that goes into the product.

Importantly, the Board has scheduled workshops to voice industry concerns and make proposed amendments to the regulation. Through this collaborative process, the concerns of all industry participants and regulators can be aired—with the eventual goal of implementing an effective regulation. These workshops will occur over the next few months and we will provide updates as further developments come to light.