Nearly 25 years ago, the tech magazine InfoWorld published an article describing how IBM and Apple computers, then the David and Goliath of microcomputer manufacturers, were “learning valuable techniques and strategies from each other to court the favor of independent third-party software developers.” Both IBM and Apple realized that by allowing third parties to develop new applications for their products, such development would extend the usefulness and market penetration of their products without the expenses of time and effort required to experiment with an almost limitless number of ideas.
Outside of gaming, third-party software development has affected nearly every corner of the technology world. Android and iPhone apps proliferate daily as a result of third-party development, eBay has third-party applications ranging from one that automates a seller’s listings to another that helps price new merchandise, and Google encourages software developers to “create online programs using Google applications like Google Maps to entrench its applications as a dominant standard.” 1
Despite their unique exterior, modern gaming devices share many common hardware elements and architectural elements with computers and computing devices. The same competitive pressures that caused Apple and IBM to see the importance of harnessing the resource savings and creativity of third-party software developers 25 years ago have caused slot machine manufacturers to do the same.2
Traditionally, Nevada gaming regulators recognized the usefulness of third-party developers for manufacturing licensees, while also recognizing the regulatory tension with pre-existing Nevada law that did not anticipate unlicensed third-party game development for gaming devices. Historically, there were differing opinions as to whether third-party developers were subject to mandatory licensing as manufacturers. In 2009, the Nevada legislature responded to the concerns of regulators and the gaming device manufacturing industry by making changes to NRS 463. These statutory changes have in turn resulted in significant changes to Nevada Gaming Regulation 14, creating a structure for independent contractor registration with the Nevada Gaming Control Board. This new registration process allows third-party developers to develop certain new games and game elements with licensed manufacturers without a mandatory requirement to obtain a manufacturer’s gaming license. While third-party developers could be “called forward” for licensing, just as any party with a relationship with the Nevada gaming industry may be called forward, these recent changes eliminate the ambiguity as to whether such third-party developers are subject to mandatory licensing. This article provides a summary of the registration requirements and process.
The new Regulation 14 contains a series of nested definitions that are critical to understanding the regulation. First, Nevada Gaming Regulation 14.021 requires that:
1. An independent contractor whose software, source language or executable code has been compiled into the control program of a new gaming device or a modification to a gaming device submitted for approval must register with the board. The approval of the new gaming device or the modification to a gaming device will not be completed until such registration has been reviewed by the board.3
Regulation 14.010(11) defines “independent contractor” as any person who:
(a) Is not an employee of a licensed manufacturer; and
(b) Pursuant to an agreement with a licensed manufacturer:
(1) Designs, develops, programs, produces or composes a control program on behalf of the licensed manufacturer; or
(2) Designs, develops, produces or composes software, source language or executable code intended to be compiled into a control program by the licensed manufacturer. As used in this regulation, “licensed manufacturer” includes any affiliate that is owned or controlled by or under common control with the licensee.
Central to this new regulation is the definition of “control program:”
14.010(4). “Control Program” means any software, source language or executable code that affects the result of a wager by determining win or loss. The term includes, but is not limited to, software, source language or executable code associated with the:
(a) Random number generation process;
(b) Mapping of random numbers to game elements displayed as part of game outcome;
(c) Evaluation of the randomly selected game elements to determine win or loss;
(d) Payment of winning wagers;
(e) Game recall;
(f) Game accounting including the reporting of meter and log information to online slot metering system;
(g) Monetary transactions conducted with associated equipment;
(h) Software verification and authentication functions which are specifically designed and intended for use in a gaming device;
(i) Monitoring and generation of game tilts or error conditions; and
(j) Game operating systems which are specifically designed and intended for use in a gaming device.
During a May 2010 Nevada Gaming Control workshop, Travis Foley, technology chief for the Nevada Gaming Control Board, provided examples of several of the key elements of a control program, listed in the above regulation:
Payment of winning wagers. “For example: The process in which the gaming device determines the award value of the winning wager and pays the award out to the credit meter or by any other means.”
Game recall. “For example: The process in which the gaming device records and displays previous game outcomes. This includes how much was wagered, won, outcome, money inserted, money available for wagering and credits cashed out. This also includes monetary transactions with associated equipment, i.e., vouchers and wagering accounts.”
Game accounting including the reporting of meter and log information to online slot metering system. “For example: The process in which meter information is recorded on the gaming device and subsequently reported to an on-line slot metering system.”
Monetary transactions conducted with associated equipment. “For example: the process in which a gaming device communicates with a bill acceptor, voucher printer or cashless wagering system to transfer monetary value to and from the gaming device.”
Software verification and authentication functions that are specifically designed and intended for use in a gaming device. “For example: The process in which the gaming device ensures that the control programs are valid and authentic. This only includes programs that are specifically designed for use in a gaming device.”
Monitoring and generation of game tilts or error conditions. “For example: The process in which the gaming device detects and reports tilts and error conditions to the patron, operator and the regulator.”
Game operating systems which are specifically designed and intended for use in a gaming device. “For example: The operating system is [a] set of programs which are responsible for the management and coordination of activities and the sharing of the resources of the gaming device. It also acts as a host for all programs that run on the gaming device.”
The Nevada Gaming Control Board began accepting independent contractor registration materials June 14, 2010. There is no fee for processing a packet. Under Regulation 14.021(2), a complete registration packet consists of:
1. A completed Personal History Record (PHD). Where a third-party software development company is registering, each key employee, director-level employee, and/or managing executive must submit the PHD, which requires the following information:
• General information.
• Personal information, including indentifying information.
• Residence history for the past five years.
• Employment history for the past 10 years.
• Arrest information, including specific information for felonies or crimes of moral turpitude. The board may request specific information for any event of arrest.
• List of privileged or professional licenses ever held, including any disciplinary action taken.
Each PHD must be accompanied by a completed Request to Release Information form.
2. Business Arrangement Information. Parties submitting the registration packet must submit as an attachment to the materials a true and complete copy of the executed business contract. Where the registering party is a business organization or association, it must also provide employee information, including a list of the names with associated dates and places of birth for each natural person employed by the independent contractor who was involved in the design, development, production or composition of the software triggering the registration event.
Once the Nevada Gaming Control Board determines that the registration materials are complete, it will issue a Letter of Registration to the independent contractor stating that the contractor is registered with the board. The board will also provide written notice to the registering party where the application is incomplete. It is important to note that prior to issuing the Letter of Registration, the board reserves the right to request additional information.
Pursuant to Nevada Gaming Regulation 14.021(1) and (4), approval of a gaming device or modification using independent contractor work product will not be completed until the independent contractor has completed the registration process and the Letter of Registration has been issued. Still, registration is not required until the gaming device or modification to a gaming device into which third-party software, source language or executable code is compiled is submitted to the technology division of the board. As a result, registration does not capture third parties simply developing gaming device concepts.
Independent contractors working for multiple licensed manufacturers must only register once with the board, although changes in the working relationships between the parties may require new filings. After the initial registration is filed, independent contractors are required to submit any changes in the registration materials to the board annually by Jan. 15. Failure to submit such notice to the board within 90 days of the annual deadline will result in the lapse of the registration.4
Regulation 14.021(7) states: “Upon a showing of good cause, the chairman or his designee may waive the registration requirements . . . [a]ny request for such a waiver must be in writing and submitted by the licensed manufacturer,” rather than the independent contractor. The board has also included a grandfather clause in the regulation, providing that:
Until June 30, 2011, the registration requirement of subsection 1 of this regulation will not apply to an independent contractor performing work pursuant to a statement of work entered into with a licensed manufacturer prior to July 1, 2010, so long as the statement of work is not modified on or after July 1, 2010. Beginning July 1, 2011, the registration requirement … will apply to all independent contractors regardless of the date of any statements of work.5
The registration materials submitted by independent contractors are deemed confidential under Nevada law and, upon inquiry, the board will only disclose whether or not the independent contractor is registered. As public information, the board will publish a list of those independent contractors registered with the board.
Regulation 14.023 imposes on licensed manufacturers the requirement that any agreement between them and an independent contractor provide for termination without any continuing obligation of the manufacturer in the event the independent contractor:
1. Refuses to respond to information requests from the board;
2. Fails to file an application for a finding of suitability as required by the commission; or
3. Is found unsuitable by the commission.
Under Regulation 14.024, licensed manufacturers must:
1. [C]omplete a review of any software, source language or executable code designed, developed, produced or composed by an independent contractor for compliance with all applicable regulations and technical standards of the commission and board prior to submission to the board; and
2. Maintain records of the software, source language or executable code that was designed, developed, produced or composed by an independent contractor, by contractor name.
The licensed manufacturer must retain the records for a minimum of five years, unless the chairman provides otherwise in writing. Moreover, when submitting a modification, manufacturers must provide a “listing of all independent contractors and a description of the software, source language or executable code compiled into the control program that is designed or developed by the independent contractor.” 6
The new regulations for independent game development contractors are an important step in the maturation of the Nevada gaming device industry and its regulation. The process is the result of addressing the needs of the industry to harness the broad-based talent of third-party developers with the regulators’ need to maintain regulatory oversight over the creation and manufacture of gaming devices.
As the registration process may be the foundation for further regulatory investigation or licensing, great care should be given to ensuring that all information provided through registration is true, accurate, consistent and complete. Given the importance of the registration and the potential uses of such information, third-party developers and manufacturers may want to consult with experienced gaming counsel to manage the inherent risks of registration.
As the registration process is new, manufacturers and third-party developers should also monitor communications from the Nevada Gaming Control Board on its website (gaming.nv.gov) or through its RSS feed to ensure that they are aware of any changes or refinements to the process.
1 Damon Darlin, “EBay Expected to end Fees for Third-Party Developers,” New York Times, Nov. 14, 2005, available at www.nytimes.com/2005/11/14/business/14ebay.html.
2 In Nevada, slots generated more than $7.2 billion and were responsible for more than 68 percent of total casino revenue in 2009 for licencees with total revenue greater than $1 million. (See Nevada Gaming Abstract 2009). For perspective, consider that in 1993, slots generated $3.9 billion and accounted for just under 63 percent of total casino revenue for the same group. (See Nevada Gaming Abstract 1993).
3 Emphasis added.
4 Nevada Gaming Regulation 14.021(5).
5 Nevada Gaming Regulation 14.021(6).
6 Nevada Gaming Regulation 14.110(3)(e).