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VLTs: A Primer

Article Author
John Wilson
Publish Date
August 1, 2010
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Author: 
John Wilson

Editor’s Note: For the next several months we will be presenting a series on VLTs. This series will include interviews with manufacturers, operators and regulators. Much of this introductory segment will discuss VLTs in Canada. In future installments, we will expand to the U.S. and provide a comprehensive global look at the VLT segment.

VLTs, or video lottery terminals, are very similar to electronic gaming machines found in typical Class III casinos. The VLT slot machines, poker games, keno and video lottery terminals offer many of the same features and entertainment functions. However, there are numerous differences in both the games and the game locations.

It Looks Like a VLT and Plays Like a VLT ...

The VLT games, just like the Class III gaming slots, have a game-based random number generator. The games determine the outcome and play much like a Class III game. The only exception is New York State, which has a requirement for central determination. In this case, all of the VLT games must be developed specifically for, and approved by, that jurisdiction.

VLTs typically offer smaller payouts and a smaller maximum wager. You will not find a multi-million dollar top award on a VLT. Instead, individual jurisdictions place limits on the wagering and payout parameters. The state of Oregon, for example, limits the payouts to a maximum amount of $600 and a maximum wager of $2.50. With the current trend of small-denomination, large-credit wagering in the Class III video market (e.g., penny games with 1,000-credit top wager), the VLT math model is considerably different. This does, however, offer opportunity to manufacturers. While they may have to develop a new subset of games, perhaps specifically only for the VLT market, the games can be developed to maximize their entertainment value given these restrictions. They may, for example, feature a higher hit frequency due to the lower top-award possible. There could be numerous top awards per cycle rather than one large one. They may also have a frequent mid-range payout. In Canada, the average machine payout is between 90 and 95 percent. Given these parameters, VLTs could offer significant entertainment value to the player. While they will not win life-changing jackpots, their potential to win could be made significantly higher. Introducing secondary bonus payouts, random awards or any other range of bonuses could certainly offset any potential dissatisfaction from having a lower single payout amount.

Government Control and Social Responsibility 

VLTs are installed in government-sponsored, regulated jurisdictions. The regulations change from jurisdiction to jurisdiction just as you would find in Class III gaming areas. With VLTs, however, the government involvement will typically see more emphasis on the social impact of VLTs and include initiatives for problem gambling. They are expected to include social responsibility in their operational plans as much as they are to include revenue generation. Canada, however, tends to be a different model when it comes to gaming in general. While Ontario, for example, does not have any VLT facilities, it does have casinos and racinos that would be considered a Class III gaming environment. All of the gaming operations, however, are government owned and operated. In cases of the “commercial casinos,” where a commercial entity is responsible for the day-to-day operations of the facility, it does so under contract to the government. This varies considerably from jurisdictions in the U.S. where a commercial casino is a commercial entity. In this regard, all of the Canadian gaming operations could arguably be said to resemble VLTs more than typical Class III gaming.

Canadian provinces, according to a 2006 report, spend $75 million annually in funding for problem and responsible gaming programs. This is more than any other jurisdiction in the world. VLTs are well regulated and operated with a considerable emphasis on public accountability. They raise a considerable amount of non-tax revenue to fund government programs and initiatives, including contributions to the hosting communities. Lotto Quebec, whose VLT network consists of approximately 12,000 terminals distributed throughout 2,000 establishments, including the Trois-Rivières and Québec gaming halls, invested nearly $190 million from 2003-2010, with $31.2 million spent in 2009-2010 alone.

VLTs in Canada typically include several requirements to attempt to minimize problem gambling. All must display a clock on-screen and display credits as actual dollar amounts, rather than credit-values. Many have pop-up reminders to inform the player how long they have been on the machine. Some have a mandatory cashout after a preset time period. In Quebec, the player will indicate the amount of time they wish to spend on the machine prior to their first wager. All of these are further supported with mandatory posters, messages and brochures displayed at the VLT site.

Where They Are Dictates Who They Are
VLTs are typically installed in facilities requiring an “age of majority” admittance. These would include pubs, taverns, bingo halls, racinos or casinos. Many VLT facilities are not operated 24 hours a day and most have a limited number of machines available—all dictated through government regulations.

These establishments typically attract a different clientele than a traditional Class III casino environment. While casino patrons will visit to play the games there, VLT patrons are not necessarily visiting primarily for the games. Marketing VLTs requires a vastly different strategy. It can also make market research and strategic planning more difficult.

As the primary purpose of the establishment is not for VLT operation, space can be at a premium. The games must have a small footprint and offer maximum flexibility. Multi-game capability is a typical requirement for a VLT installation. The “look and feel” of the game box is also significant. There may not be several banks of games filling a large area for players to leisurely stroll through and window shop, looking for a game that catches their eye.

Even within the VLT segment, however, there are no constants. A small corner pub will have a handful of machines available. A racino-based facility may have several thousand, and more typically represent a casino environment. It is also noteworthy to indicate how the Canadian Provincial governments assist the VLT program overall. The government pays for all capital expenses and the majority of all operating expenses. As a result they retain the majority of the revenue, from 70 percent to 85 percent of win. This allows smaller venues to operate VLTs where the costs would otherwise be prohibitive and it allows them to generate supplemental revenue for their establishment without having to make a sizeable capital investment. The revenues received by the governments are direct to general funds or specific areas such as health care and education. The Atlantic Lottery Corp. advertises that 100 percent of its revenue is given back to its communities.

Technology and Challenges

The VLT segment faces significant challenges due to the nature of the facilities, many of which are located in remote areas. Staff in the facilities are not trained as slot machine technicians and may be unable to diagnose and mitigate problems with the equipment. The machines have to be robust. Patrons may also be rougher on the equipment, further necessitating the requirement for a strong design.

With the remote locations comes another problem. All VLTs are required to communicate with a central control hub. In some cases, this communication will take place over a dial-up line. The amount of data that can be transmitted is a key consideration. If machines are communicating S2S protocol information, for example, the available bandwidth is a factor.

The central hub, operated by the government or an appointed agency, can monitor machine status, including cash levels, payouts, activity and status such as door-open conditions. It will also receive diagnostic messages and error conditions and can allow for verification of the machine’s integrity.

Systems developed by manufacturers have a challenge in order to work with these limitations. Their systems must be flexible yet scalable, working with one machine or several thousand. Given the potential problems that can occur, systems that are intelligent and predictive can assist the operator. Having to send a technician to reset a machine that is located five hours away is an astronomic expense. SPIELO’s INTELLIGEN™ system, for example, has a proactive diagnostic module using predictive analysis to sense faults in real-time, analyze fault conditions with a built-in knowledge base, predicts when faults will occur, and automatically alert technicians when they are required. Even remote updating of machines becomes a tremendous, costly burden. SPIELO’s system allows for remote game changes and updates.

The remote capability leads us to another consideration: standards and protocols. GSA is actively involved in standards for the VLT industry. S2S and G2S protocols have VLT-specific extensions. SPIELO is the only manufacturer to work with GSA on G2S extensions that will enable open-standard capability. The open standards will offer tremendous benefit to the VLT market, in the same way it will to the Class III market. It can allow interoperability between various systems and compliant devices, regardless of the manufacturer. Perhaps it is even more important in the VLT market, due to its many difficulties and challenges of location. Remote configuration, updating, client/server-based games and myriad benefits from open networking and the G2S protocol will continue to evolve the VLT market.

Good systems, supported by good networking and approved (and open) standards, allow the VLT market to grow along with the Class III market. Surely the VLT operators will want to be able to run a comprehensive set of CRM/BI tools against their games. An analysis of hot sites—and underperforming sites—will allow them to maximize their investment and recoup a reasonable return on investment. The VLT market has historically been dynamic—subject to constant analysis and revision. Improved tools based upon modern technology will aid that process, allowing for adjustments to the market, machine placement and product offerings to offer the maximum benefit.

Players demand more entertainment value, and the availability of games, themes, bonus rounds and new technology in a Class III casino are demanded by the VLT patrons. They do not necessarily understand the difference between various segments, nor do they care. They want to be able to play the same games, with the same features, wherever electronic gaming machines are available. With new technology and support for open networking, the VLT market can provide these solutions for their customers.

Next Time
This series will continue every other month, alternating with the Class II market article series. Stay tuned for an in-depth look at the market globally and thoughts and insight from leaders in regulation, government, manufacturing and operations.


John Wilson is the Technology Editor for Casino Enterprise Management and Owner of ICS Gaming, providing slot consulting services and game design. He has designed several slot games in both Class II and Class III markets.  He can be reached at jwilson[at]icsgaming.com.

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