Casinos hurt themselves with tight slots, consultants say

Mark Gruetze
Sunday, April 13, 2014 9:00 p.m. | Sunday, April 13, 2014 9:00 p.m.

Money trail

Statewide slot players' loss for week ended April 6: $50.24 million, down from $52.91 million in comparable week last year.

Statewide slot payout rate since July 1: 89.9 percent; for every $100 bet, machines return an average of $89.90

High and low payout rates: 90.73 percent at Lady Luck Nemacolin; 89.19 percent at Penn National near Harrisburg

Rivers: 89.69 percent payout; weekly slot revenue $5.87 million, down from $6.35 million last year

Meadows: 89.94 percent; weekly revenue $4.65 million, down from $4.97 million

Presque Isle: 89.5 percent; weekly revenue $2.75 million, down from $3.07 million

Lady Luck Nemacolin: 90.73 percent payout; weekly revenue $536,114; not open last year

Source: Pennsylvania Gaming Control Board

Possible buyer for Sands Bethlehem emerges

Tropicana Entertainment is a potential buyer of Sands Bethlehem Resort Casino in eastern Pennsylvania, the Allentown Morning Call reports.

The Sands has 200 table games and more than 3,000 slot machines, along with a 302-room hotel, 10 restaurants, a shopping center and an events center. The current owner, Las Vegas Sands Inc., also owns The Venetian and Palazzo casinos in Las Vegas and five mega-resorts in Macau and Singapore. Tropicana owns nine casinos in Nevada, New Jersey, four other states and Aruba. It announced the $260 million purchase of Lumiere Place casino and associated hotels in St. Louis on April 1.

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Casinos chase away customers with a combination of tight slot machines and too much free play for the wrong bettors, two gambling consultants say.

“The fundamental gaming experience is starting to change,” says Andrew Klebanow, a partner with Global Market Advisors, a Las Vegas company that offers independent analysis of all facets of the gambling industry. “We think we're hitting a tipping point now.”

Slot payout rates are falling at casinos throughout the country, he says, and that leads players to visit less often.

Steve Gallaway, another partner in Global Market Advisors, is more blunt:

“Casinos are issuing too much free play,” he says from the company's Denver office. “My theory is that it's getting harder and harder for casinos to attract new customers. You go to the casino, you lose your money much more quickly than you would have traditionally pre-free play, you have a lousy experience, and you don't return.”

Two years ago, Klebanow declared players and casinos were in the “golden age of free play.” Casinos entice customers to return month after month by loading slot machine credits onto player's club cards. Gamblers can't cash out the free play itself. They run it through a machine and have the option of taking or playing their winnings.

Free play offers advantages for players and casinos alike. For players, it's almost the same as free money. Casinos are not taxed on free play in Pennsylvania and some other states, making it an attractive marketing tool.

Multiple factors combined to tarnish the golden age, according to Klebanow and Gallaway:

â¢ Slot payout rates are falling nationwide as casinos and players flock to “penny machines” that use one-cent credits but encourage spending multiple credits per spin.

â¢ To make slot machines more entertaining, manufacturers have added bonus rounds, videos, musical tracks and other attractions. That increases the amount of time to learn the result of each spin, leading casinos to increase the house edge.

â¢ Manufacturers design machines that reward players frequently with small payoffs. If you bet 100 credits per spin and win 60, then 20, then 80, the payoffs give the illusion of winning even though you've lost overall.

â¢ Players sense the reduced payout rate, and casinos find themselves needing to offer an incentive for them to return. “They do so with free play,” Klebanow says.

The problem, the consultants say, is that most casinos base free-play offers on “theoretical win” — how much the casino expects to win based on a player's total wagers and the house edge. The wagers include how much money the player puts into the machine and winnings played. In Pennsylvania, the casino's overall “theo” for slots is about 10 percent of wagers; it could be higher for some machines.

Gallaway says that approach ignores people who lose their stake quickly. For example, a player who loses his $100 budget in less than an hour is down the whole $100, but the casino's theoretical win for the time he played is closer to $10 or $15. That's too low to qualify for free play, and he's less likely to return.

“It's very easy to under-reward your most valuable players,” Gallaway says.

Gallaway says that despite player superstitions, slot machines can't tell the difference between a free-play credit and a cash credit. Players have an equal chance of winning with either.

Mike Shackleford, the brains behind the gambling strategy website www.WizardOfOdds.com, says the optimum way to spend free play is at a video-poker machine with the best pay schedule available. Video poker, with proper strategy, offers payout rates of 97 percent or better in Pennsylvania, compared with 90 percent or less on traditional slots.

Mark Gruetze is administrative editor for Trib Total Media. He can be reached at 412-320-7838 or players@tribweb.com.

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