<PAGE>

                                                                   EXHIBIT 10.56
 
                             EMPLOYMENT AGREEMENT
                             --------------------


  THIS EMPLOYMENT AGREEMENT ("AGREEMENT"), is made and entered into on September
22, 1998 by and between MIKOHN GAMING CORPORATION, a Nevada corporation
("MIKOHN"), and ROBERT J. SMYTH ("Employee").


                                    W I T N E S S E T H:


  WHEREAS, MIKOHN and Employee deem it to be in their respective best interests
to enter into an agreement providing for MIKOHN's employment of Employee
pursuant to the terms herein stated.

  NOW, THEREFORE, in consideration of the premises and the mutual promises and
agreements contained herein, it is hereby agreed as follows:

   .1  Term.  MIKOHN hereby employs and Employee hereby accepts employment with
       ----                                                                    
MIKOHN for a period of three (3) years beginning on the date hereof ("Initial
Term").  Eight (8) months prior to the expiration of the Initial Term, MIKOHN
and Employee shall negotiate the terms of an extension of this Agreement.  If
the parties have not agreed to the terms of such extension prior to the
expiration of the Initial Term, this Agreement shall continue in effect from
month to month terminable by either party upon thirty (30) days' written notice.
(The Initial Term and the period during which this Agreement may remain in
effect thereafter are collectively referred to herein as the "Term".)

   .2  Duties of Employee.  Employee's position with MIKOHN will be Vice
       ------------------                                               
President, Product Development & Marketing.  Employee shall do and perform all
services, acts, or things reasonably necessary or advisable to accomplish the
objectives and complete the tasks assigned to Employee by senior management of
MIKOHN.  MIKOHN may assign Employee to another position commensurate with
Employee's training and experience so long as the compensation paid to Employee
is equal to or greater than the compensation provided in this Agreement.

   .3  Devotion of Time to MIKOHN's Business.  Employee shall be a full-time
       -------------------------------------                                
employee of MIKOHN and shall devote such substantial and sufficient amounts of
Employee's productive time, ability, and attention to the business of MIKOHN
during the Term of this Agreement as may be reasonable and necessary to
accomplish the objectives and complete the tasks assigned to Employee.  Prior
written consent of MIKOHN shall be required before Employee shall undertake to
perform any outside services of a business, commercial, or professional nature,
whether for compensation or otherwise.  Written consent shall not be required as
to Employee's reasonable participation in educational and professional
activities related to the maintenance of Employee's qualifications and stature
in Employee's profession.

   .4  Uniqueness of Services.  Employee hereby acknowledges that the services
       ----------------------                                                 
to be performed by Employee's under the terms of this Agreement are of a special
and unique value.  Accordingly, the obligations of Employee under this Agreement
are non-assignable.

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<PAGE>
 
   .5  Compensation of Employee.
       ------------------------ 

       .5.1  Base Annual Salary.  Subject to other specific provisions in this
             ------------------                                               
Agreement, as compensation for services hereunder, Employee shall receive a Base
Annual Salary at the rate of not less than $165,000.00 per annum.

       .5.2  Cash Bonus.  Annually during the term of this Agreement commencing
             ----------
the calendar year beginning January 1, 1999, Employee shall be eligible for a
cash bonus of up to 50% of his Base Annual Salary. The decision to award a cash
bonus or bonuses and the amount thereof shall be within the discretion of
MIKOHN's Executive Committee and shall be based on Employee's performance over
the preceding year and the achievement of Business Plan objectives.

       .5.3  Stock Options. MIKOHN grant's to Employee options to purchase 
             ------------- 
shares of of MIKOHN Common Stock (the "Option") under MIKOHN's Stock Option Plan
("Plan"). The Option shall be in the form of MIKOHN's standard Stock Option
Agreement and subject to the terms and conditions thereof and of the Plan, and
shall additionally provide as follows:

             .5.3.1  The number of shares subject to the Option shall be 30,000.

             .5.3.2  The purchase price per share shall be the closing price of
MIKOHN common stock on the Effective Date, to wit $_______.

             .5.3.3  The Option shall be designated as an Incentive Option.

             .5.3.4  On each of the next five (5) anniversary dates of the
Effective Date, one-fifth (1/5) of the Option Shares shall become eligible for
purchase by Employee.

             .5.3.5  The Option shall terminate on (i) the expiration date
specified in the Stock Option Agreement or (ii) such earlier date as termination
may occur according to the terms and conditions of the Plan and/or the Stock
Option Agreement. Upon termination for any reason, Employee and/or her
successors and assigns shall have only such rights as are specified in the Plan
and the Stock Option Agreement, and shall not be entitled to any compensation in
any form for the loss of any other right.

       .5.4 Additional Stock Options. During the term of this Agreement,
            ------------------------
Employee may be granted stock options in addition to salary. The decision to
grant stock options and the amount thereof shall be within the sole and absolute
discretion of MIKOHN and shall be based on various factors which include without
limitation Employee's performance, the compensation paid to similarly situated
employees of businesses similar in type and size to MIKOHN, the financial
condition of MIKOHN, and the economic and market conditions to which MIKOHN is
or may be subject.

       .5.5  Automobile.  MIKOHN shall provide Employee an automobile allowance
             ----------                                                     
in the amount of $600 per month.

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<PAGE>
 
       .5.6  Vacation.  Employee shall be eligible for four (4) weeks paid 
             -------- 
vacation each year commencing one (1) year from the Effective Date.

       .5.7  Country Club Membership.  MIKOHN shall provide Employee and his 
             -----------------------  
spouse a membership in a country club of Employee's choice the initial cost of
which shall not exceed $35,000.00. Employee shall be responsible for the payment
of all monthly dues and assessments.
 
       .5.8  Employee Benefits.  Employee shall receive such benefits, fringe
             -----------------                                               
benefits and entitlements as is usual and customary for MIKOHN to provide an
employee of like status and position and are consistent with MIKOHN's
established policies on employment, which may be revised from time to time in
the sole discretion of MIKOHN.

       .5.9  Business Expenses.  MIKOHN will reimburse Employee for reasonable
             -----------------                                                
business expenses incurred in performing Employee's duties and promoting the
business of MIKOHN.

   .6  Termination of Employment.
       ------------------------- 

       .6.1  During the first ninety (90) days of the Initial Term (the
"Probationary Period"), MIKOHN shall have right to terminate this Agreement at
any time with or without stated cause. After the Probationary Period until the
expiration of the Initial Term, MIKOHN may terminate this Agreement at any time
without stated cause upon the payment to Employee of a sum equal to one hundred
percent (100%) of Employee's Base Annual Salary as specified in this Agreement.

       .6.2 For just cause MIKOHN may terminate this Agreement immediately at
any time without further liability to Employee by giving written notice of
termination to Employee.

       .6.3 Termination for any of the reasons set forth in this Section shall
be deemed termination for just cause. For purposes of this Agreement, just cause
includes the following: [1] commission of a crime involving moral turpitude; [2]
engaging in any act of dishonesty or material insubordination; [3] material
breach of this Agreement; [4] habitual neglect of duties which Employee is
required to perform under the terms of this Agreement; [5] failure of Employee
to act in a professional manner; [6] failure of Employee to timely and
successfully complete work assigned; [7] failure of Employee to observe all
employment policies of MIKOHN; or [8] any other reason which is legally
sufficient under the laws of the State of Nevada

       .6.4  MIKOHN may terminate this Agreement if it appears in the reasonable
judgment of MIKOHN that due to Employee's employment by MIKOHN:

             .6.4.1 MIKOHN may be subjected to significant disciplinary action
or lose or become unable to obtain or reinstate any federal, state and/or
foreign registration, license or approval material to MIKOHN's business or the
business of any MIKOHN subsidiary; or

             .6.4.2  MIKOHN or any key employee, officer, director or 
shareholder of

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MIKOHN required to qualify or be found suitable under any gaming law may not so
qualify or be found suitable.

       .6.5  MIKOHN may terminate this Agreement if Employee solicits or accepts
any payment or gratuity from any existing or potential customer or supplier of
MIKOHN without the prior written consent of the President of MIKOHN.

       .6.6  MIKOHN may terminate this Agreement if Employee has made any
misrepresentation of fact or has failed to disclose any fact which might be
material to MIKOHN's decision to enter into this Agreement including, without
limitation, failure to disclose any criminal or civil fraud charges brought
against Employee at any time or failure to disclose a prior business or personal
bankruptcy action involving Employee.

       .6.7  This Agreement shall terminate automatically in the event that: (i)
Employee fails or is unable to perform Employee's duties due to injury, illness
or other incapacity for ninety (90) days in any twelve (12) month period (except
that Employee may be entitled to disability payments pursuant to MIKOHN's
disability plan, if any); or (ii) Death of Employee.

       .6.8  In the event of a termination of Employee's employment for any
reason, Employee shall be required to seek other employment in order to mitigate
any damages resulting from the breach of this Agreement.

   .7  Covenant of Confidentiality.  All documents, records, files manuals, 
       ---------------------------                                          
forms, materials, supplies, computer programs, trade secrets, customer lists,
and other information which comes into Employee's possession from time to time
during Employee's employment by MIKOHN, and/or any of MIKOHN's subsidiaries or
affiliates, shall be deemed to be confidential and proprietary to MIKOHN and
shall remain the sole and exclusive property of MIKOHN. Employee acknowledges
that all such confidential and proprietary information is confidential and
proprietary and not readily available to MIKOHN's business competitors. On the
effective date of the termination of the employment relationship or at such
other date specified by MIKOHN, Employee agrees that Employee will return to
MIKOHN all such confidential and proprietary items (including, but not limited
to, company badge and keys) in Employee's control or possession, and all copies
thereof, and that Employee will not remove any such items from the offices of
MIKOHN. It is the intention of the parties that the broadest possible protection
be given to MIKOHN's trade secrets and proprietary information and nothing in
this Section shall in any way be construed to narrow or limit the protection and
remedies afforded by the Uniform Trade Secrets Act.

   .8  Covenant of Non-Disclosure.  Without the prior written approval of
       --------------------------                                        
MIKOHN, Employee shall keep confidential and not disclose or otherwise make use
of any of the confidential or proprietary information or trade secrets referred
to in this Agreement nor reveal the same to any third party whomsoever, except
as required by law.

   .9  Covenant of Non-Solicitation.
       ---------------------------- 

       .9.1  Employees.  During the Term of this Agreement and for a period of 
             ---------   
two (2) years following the effective date of termination of the employment
relationship, Employee, either 

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on Employee's own account or for any person, firm, company or other entity,
shall not solicit, interfere with or induce, or attempt to induce, any employee
of MIKOHN, or any of its subsidiaries or affiliates to leave their employment or
to breach their employment agreement, if any, with MIKOHN.

       .9.2  Customers.  During the Term of this Agreement and for a period the
             ---------                                                         
longer of (i) one (1) year following the effective date of termination of the
employment relationship or (ii) the time the Covenant Against Competition
(defined below) remains in effect, Employee, either on Employee's own account or
for any person, firm, company or other entity, shall not solicit or induce, or
attempt to induce, any customer of MIKOHN to purchase any products or services
which compete with any products or services offered by MIKOHN at the time of the
termination of the employment relationship.

   .10  Covenant of Cooperation.  Employee agrees to cooperate with MIKOHN in
        -----------------------                                              
any litigation or administrative proceedings involving any matters with which
Employee was involved during Employee's employment by MIKOHN.  MIKOHN shall
reimburse Employee for reasonable expenses incurred in providing such
assistance.

   .11  Covenant Against Competition.
        ---------------------------- 

       .11.1  Scope and Term.  During the Term of this Agreement and for an
              --------------                                               
additional period after the expiration or termination of the employment
relationship between MIKOHN and Employee, which period shall be the shorter of
(i) the number of days Employee has been employed by MIKOHN or (ii) six (6)
months (the "Initial Non-Compete Term"), Employee shall not directly or
indirectly engage in or become a partner, officer, principal, employee,
consultant, investor, creditor or stockholder of any business, proprietorship,
association, firm, corporation or any other business entity which is engaged or
proposes to engage or hereafter engages in any business which competes with the
business of MIKOHN and/or any of MIKOHN's subsidiaries or affiliates in any
geographic area in which MIKOHN conducts business at the time of the termination
or expiration of the employment relationship.  Notwithstanding the foregoing,
nothing contained herein shall prevent Employee from engaging in a business or
accepting employment with a business which does not sell to the gaming industry.

       .11.2  Option to Extend Term.  After the expiration of the Initial Non-
              ---------------------                                          
Compete Term, in consideration of the Supplemental Payments provided in
subsection 11.3 below, MIKOHN shall have the option of extending the term of
this Covenant for an additional period ending the earlier of (i) two (2) years
following the effective date of the termination or expiration of the employment
relationship, or (ii) the date MIKOHN discontinues the supplemental payments
specified in subsection 11.3 below.  To exercise this option, MIKOHN shall
provide written notice to Employee on or before fifteen (15) days prior to the
Initial Non-Compete Term.

       .11.3  Supplemental Payments.  After the expiration of the Initial Non-
              ---------------------                                          
Compete Term, and so long as MIKOHN desires this Covenant Against Competition to
remain in full force (not to exceed a period of two (2) years from the effective
date of termination), MIKOHN shall pay to Employee:

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              .11.3.1 Upon termination without stated cause or upon expiration
of this Agreement, a sum each month equal to fifty percent (50%) of Employee's
Base Monthly Salary; or

              .11.3.2 Upon termination by Employee or for just cause, a sum each
month equal to fifteen percent (15%) of Employee's Base Monthly Salary.

       .11.4  Base Monthly Salary Defined.  For purposes of this Agreement, 
              ---------------------------     
"Base Monthly Salary" means one-twelfth (1/12) of Employee's Base Annual Salary
specified in this Agreement.  If there is no Base Annual Salary specified in
this Agreement or at the time of termination or expiration of this Agreement
Employee was not entitled to receive a Base Annual Salary, "Base Monthly Salary"
means the average monthly compensation paid to Employee by MIKOHN during the
time of his/her employment by MIKOHN.

       .11.5  Acknowledgement.  Both parties acknowledge that this Covenant only
              ---------------                                                   
restricts employee's re-employment in the gaming industry and does not affect
Employee's employment opportunities in the non-gaming industry.  Both parties
further acknowledge that the employment opportunities in the gaming industry
represent only a small fraction of employment opportunities in the non-gaming
industry.  Employee acknowledges that the scope and term of this Covenant
Against Competition are reasonable under the circumstances and the consideration
provided by this Agreement is sufficient remuneration for the limited
restriction this Covenant imposes on Employee's future employment opportunities.

   .12  Rights to Inventions.
        -------------------- 

       .12.1  Inventions Defined.  "Inventions" means discoveries, concepts, and
              ------------------                                                
ideas, whether patentable or not, relating to any present or prospective
activities of MIKOHN, including without limitation devices, processes, methods,
formulae, techniques, and any improvements to the foregoing.

       .12.2  Application.  This Section shall apply to all Inventions made or
              -----------                                                     
conceived by Employee, whether or not during the hours of Employee's employment
or with the use of MIKOHN facilities, materials, or personnel, either solely or
jointly with others, during the Term of Employee's employment by MIKOHN and for
a period of one (1) year after any termination of such employment.

       .12.3  Assignment.  Employee hereby assigns and agrees to assign to 
              ----------      
MIKOHN all of Employee's rights to Inventions and to all proprietary rights
therein, based thereon or related thereto, including without limitation
applications for United States and foreign letters patent and resulting letters
patent.
 
       .12.4  Reports.  Employee shall inform MIKOHN promptly and fully of each
              -------                                                          
Invention by a written report, setting forth in detail the structures,
procedures, and methodology employed and the results achieved ("Notice of
Invention").  A report shall also be submitted by Employee upon completion of
any study or research project undertaken on MIKOHN's behalf, whether or not in
the Employee's opinion a given study or project has resulted in an Invention.

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<PAGE>
 
       .12.5  Patents.  At MIKOHN's request and expense, Employee shall execute 
              -------  
such documents and provide such assistance as may be deemed necessary by MIKOHN
to apply for, defend or enforce any United States and foreign letters patent
based on or related to such Inventions.

   .13  Remedies.  Notwithstanding any other provision in this Agreement to the
        --------                                                               
contrary, Employee acknowledges and agrees that if Employee commits a material
breach of the Covenant of Confidentiality, Covenant of Non-Disclosure, Covenant
of Non-Solicitation, Covenant of Cooperation, Covenant Against Competition, or
Rights to Inventions, MIKOHN shall have the right to have the obligations of
Employee specifically enforced by any court having jurisdiction on the grounds
that any such breach will cause irreparable injury to MIKOHN and money damages
will not provide an adequate remedy.  Such equitable remedies shall be in
addition to any other remedies at law or equity, all of which remedies shall be
cumulative and not exclusive.  Employee further acknowledges and agrees that the
obligations contained in the foregoing referenced Sections of this Agreement are
fair, do not unreasonably restrict Employee's future employment and business
opportunities, are commensurate with the compensation arrangements set out in
this Agreement and shall survive termination of the employment relationship and
this Agreement.

   .14  General Provisions.
        ------------------ 

       .14.1  Arbitration.  Any controversy involving the construction, 
              -----------
application, enforceability or breach of any of the terms, provisions, or
conditions of this Agreement, including without limitation claims for breach of
contract, violation of public policy, breach of implied covenant, intentional
infliction of emotional distress or any other alleged claims which are not
settled by mutual agreement of the parties, shall be submitted to final and
binding arbitration in accordance with the rules of the American Arbitration
Association at Las Vegas, Nevada. The cost of arbitration shall be borne by the
losing party. In consideration of each party's agreement to submit to
arbitration any and all disputes that arise under this Agreement, each party
agrees that the arbitration provisions of this Agreement shall constitute
his/its exclusive remedy and each party expressly waives the right to pursue
redress of any kind in any other forum. The parties further agree that the
arbitrator acting hereunder shall not be empowered to add to, subtract from,
delete or in any other way modify the terms of this Agreement. Notwithstanding
the foregoing, any party shall have the limited right to seek equitable relief
in the form of a temporary restraining order or preliminary injunction in a
court of competent jurisdiction to protect itself from actual or threatened
irreparable injury resulting from an alleged breach of this Agreement pending a
final decision in arbitration.

       .14.2  Attorneys' Fees and Costs.  If any action in law, equity, 
              -------------------------
arbitration or otherwise is necessary to enforce or interpret the terms of this
Agreement, the prevailing party shall be entitled to reasonable attorneys' fees,
costs (including fees incurred for paralegals, investigators, expert witnesses,
etc.), and necessary disbursements in addition to any other relief to which
he/it may be entitled. The term "prevailing party" means the party obtaining
substantially the relief sought, whether by compromise, settlement, award or
judgment.

       .14.3  Authorization.  MIKOHN and Employee each represent and warrant 
              -------------    
to the 

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<PAGE>
 
other that he/she/it has the authority, power and right to deliver, execute and
fully perform the terms of this Agreement.

       .14.4  Entire Agreement.  Employee understands and acknowledges that this
              ----------------                                                  
document constitutes the entire agreement between Employee and MIKOHN with
regard to Employee's employment by MIKOHN and Employee's post-employment
activities concerning MIKOHN.  This Agreement supersedes any and all other
written and oral agreements between the parties with respect to the subject
matter hereof.  Any and all prior agreements, promises, negotiations, or
representations, either written or oral, relating to the subject matter of this
Agreement not expressly set forth in this Agreement are of no force and effect.
This Agreement may be altered, amended, or modified only in writing signed by
all of the parties hereto.  Any oral representations or modifications concerning
this instrument shall be of no force and effect.

       .14.5  Severability.  If any term, provision, covenant, or condition of
              ------------            
this Agreement is held by a court or other tribunal of competent jurisdiction to
be invalid, void, or unenforceable, the remainder of such provisions and all of
the remaining provisions hereof shall remain in full force and effect to the
fullest extent permitted by law and shall in no way be affected, impaired, or
invalidated as a result of such decision.

       .14.6  Governing Law.  Except to the extent that federal law may preempt
              -------------                                                    
Nevada law, this Agreement and the rights and obligations hereunder shall be
governed, construed and enforced in accordance with the laws of the State of
Nevada.

       .14.7  Taxes.  All compensation payable hereunder is gross and shall be
              -----                                                           
subject to such withholding taxes and other taxes as may be provided by law.
Employee shall be responsible for the payment of all taxes attributable to the
compensation provided by this Agreement except for those taxes required by law
to be paid or withheld by MIKOHN.

       .14.8  Assignment.  This Agreement shall be binding upon and inure to the
              ----------                                                        
benefit of the successors and assigns of MIKOHN.  Employee may not sell,
transfer, assign, or pledge any of Employee's rights or interests pursuant to
this Agreement.

       .14.9  Waiver.  Either party's failure to enforce any provision or 
              ------      
provisions of this Agreement shall not in any way be construed as a waiver of
any such provision or provisions, or prevent that party thereafter from
enforcing such provision or provisions and each and every other provision of
this Agreement.

       .14.10  Captions.  Titles and headings to sections in this Agreement are
               -------- 
for the purpose of reference only and shall in no way limit, define, or
otherwise affect any provisions contained therein.

       .14.11  Breach - Right to Cure.  A party shall be deemed in breach of 
               ----------------------
Agreement only upon the failure to perform any obligation under this Agreement
after receipt of written notice of breach and failure to cure such breach within
ten (10) days thereafter; provided, however, such notice shall not be required
where a breach or threatened breach would cause irreparable harm to the other
party and such other party may immediately seek equitable relief in a 

                                       8
<PAGE>
 
court of competent jurisdiction to enjoin such breach.

   .15  Acknowledgement.  Employee acknowledges that Employee has been give
        ---------------             
a this reasonable period of time to study this Agreement before signing it.
Employee certifies that Employee has fully read, has received an explanation of,
and completely understands the terms, nature, and effect of this Agreement.
Employee further acknowledges that Employee is executing this Agreement freely,
knowingly, and voluntarily and that Employee's execution of this Agreement is
not the result of any fraud, duress, mistake, or undue influence whatsoever. In
executing this Agreement, Employee does not rely on any inducements, promises,
or representations by MIKOHN other than the terms and conditions of this
Agreement.

   .16  Effective Only Upon Execution by Authorized Officer of MIKOHN.  This
        -------------------------------------------------------------       
Agreement shall have no force or effect and shall be unenforceable in its
entirety until (i) it is approved by the Compensation Committee and Board of
Directors of MIKOHN and (ii) it is executed by a duly authorized officer of
MIKOHN and such executed Agreement is delivered to Employee.

   .17  Agreement Subject to Satisfactory Background Investigation.  Employee
        ----------------------------------------------------------           
understands and acknowledges that Employee's employment is subject to the
satisfactory conclusion of a background investigation.  Any other provision in
this Agreement to the contrary notwithstanding, MIKOHN may terminate this
Agreement without further obligation or liability to Employee if a background
investigation of Employee reveals information which, in the reasonable judgment
of MIKOHN, (i) would materially interfere with, impede or impair the efficient
and effective performance of Employee's duties under this Agreement or (ii)
could subject MIKOHN to significant disciplinary action or cause MIKOHN to lose
or become unable to obtain or reinstate any federal, state and/or foreign
registration, license or approval material to MIKOHN's business or the business
of any MIKOHN subsidiary.

  IN WITNESS WHEREOF, the parties hereto have read, understood, and voluntarily
executed this Agreement as of the day and year first above written.


EMPLOYEE                         MIKOHN GAMING CORPORATION


-------------------------        By:                        
ROBERT J. SMYTH                         ---------------------

                                 Title:
                                        ---------------------

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