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If you are in a Vegas casino right now, you might well spot a new Price is Right Slot machine with Drew Carey. These are usually made up of a bank of four slots in a row and they feature community gaming features. The community gaming bit on the price is right slots is great fun and a great way to interact and enjoy playing with other players.
The gaming industry is big business in the US, contributing an estimated $240 billion to the economy each year while generating $38 billion in tax revenues and supporting 17 million jobs.
What people may not realize is that slot machines, video poker machines, and other electronic gaming devices make up the bulk of all that economic activity. At casinos in Iowa and South Dakota, for example, such devices have contributed up to 89 percent of annual gaming revenue.
Spinning-reel slots, in particular, are profit juggernauts for most casinos, outperforming table games like blackjack, video poker machines, and other forms of gambling.
What about slot machines makes them such reliable money makers? In part, it has something to do with casinos’ ability to hide their true price from even the savviest of gamblers.
The Price of a Slot
An important economic theory holds that when the price of something goes up, demand for it tends to fall.
But that depends on price transparency, which exists for most of the day-to-day purchases we make. That is, other than visits to the doctor’s office and possibly the auto mechanic, we know the price of most products and services before we decide to pay for them.
Slots may be even worse than the doctor’s office, in that most of us will never know the true price of our wagers. Which means the law of supply and demand breaks down.
Casino operators usually think of price in terms of what is known as the average or expected house advantage on each bet placed by players. Basically, it’s the long-term edge that is built into the game. For an individual player, his or her limited interaction with the game will result in a “price” that looks a lot different.
For example, consider a game with a 10-percent house advantage — which is fairly typical. This means that over the long run, the game will return 10 percent of all wagers it accepts to the casino that owns it. So if it accepts $1 million in wagers over 2 million spins, it would be expected to pay out $900,000, resulting in a casino gain of $100,000. Thus, from the management’s perspective, the “price” it charges is the 10 percent it expects to collect from gamblers over time.
Individual players, however, will likely define price as the cost of the spin. For example, if a player bets $1, spins the reels, and receives no payout, that’ll be the price — not 10 cents.
So who is correct? Both, in a way. While the game has certainly collected $1 from the player, management knows that eventually 90 cents of that will be dispensed to other players.
A player could never know this, however, given he will only be playing for an hour or two, during which he may hope a large payout will make up for his many losses and then some. And at this rate of play, it could take years of playing a single slot machine for the casino’s long-term advantage to become evident.
Short-Term vs. Long-Term
This difference in price perspective is rooted in the gap between the short-term view of the players and the long-term view of management. This is one of the lessons I’ve learned in my more than three decades in the gambling industry analyzing the performance of casino games and as a researcher studying them.
Let’s consider George, who just got his paycheck and heads to the casino with $80 to spend over an hour on a Tuesday night. There are basically three outcomes: He loses everything, hits a considerable jackpot and wins big, or makes or loses a little but manages to walk away before the odds turn decidedly against him.
Of course, the first outcome is far more common than the other two — it has to be for the casino to maintain its house advantage. The funds to pay big jackpots come from frequent losers (who get wiped out). Without all these losers, there can be no big winners — which is why so many people play in the first place.
Specifically, the sum of all the individual losses is used to fund the big jackpots. Therefore, to provide enticing jackpots, many players must lose all of their Tuesday night bankroll.
What is less obvious to many is that the long-term experience rarely occurs at the player level. That is, players rarely lose their $80 in a uniform manner (that is, a rate of 10 percent per spin). If this were the typical slot experience, it would be predictably disappointing. But it would make it very easy for a player to identify the price he’s paying.
Raising the Price
Ultimately, the casino is selling excitement, which is comprised of hope and variance. Even though a slot may have a modest house advantage from management’s perspective, such as four percent, it can and often does win all of George’s Tuesday night bankroll in short order.
This is primarily due to the variance in the slot machine’s pay table — which lists all the winning symbol combinations and the number of credits awarded for each one. While the pay table is visible to the player, the probability of producing each winning symbol combination remains hidden. Of course, these probabilities are a critical determinant of the house advantage — that is, the long-term price of the wager.
This rare ability to hide the price of a good or service offers an opportunity for casino management to raise the price without notifying the players — if they can get away with it.
Casino managers are under tremendous pressure to maximize their all-important slot revenue, but they do not want to kill the golden goose by raising the “price” too much. If players are able to detect these concealed price increases simply by playing the games, then they may choose to play at another casino.
This terrifies casino operators, as it is difficult and expensive to recover from perceptions of a high-priced slot product.
Getting Away With It
Consequently, many operators resist increasing the house advantages of their slot machines, believing that players can detect these price shocks.
Our new research, however, has found that increases in the casino advantage have produced significant gains in revenue with no signs of detection even by savvy players. In multiple comparisons of two otherwise identical reel games, the high-priced games produced significantly greater revenue for the casino. These findings were confirmed in a second study.
Further analysis revealed no evidence of play migration from the high-priced games, despite the fact their low-priced counterparts were located a mere three feet away.
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Importantly, these results occurred in spite of the egregious economic disincentive to play the high-priced games. That is, the visible pay tables were identical on both the high- and low-priced games, within each of the two-game pairings. The only difference was the concealed probabilities of each payout.
Armed with this knowledge, management may be more willing to increase prices. And for price-sensitive gamblers, reel slot machines may become something to avoid.
This article was originally published on The Conversation by Anthony Frederick Lucas. Read the original article here.
Mike: Hi, I'm Mike Shackleford with the wizardofodds.com website. And I'm here with Angela Wyman. And Angela, I believe you have some questions about slot machines for me.
Angela: I do, I have several questions about slot machines for you.
Mike: I'm all yours.
Question 1 - [00:18]
Angela: All right. So as a newcomer to the slot machines, what is the first thing you can tell me about, how I go about finding a good machine, where would I go? Do I look on the strip, do I look downtown? Where are the best slot machines to start with?
Mike: As a rule of thumb, the nicer the casino, the stingier the slots. So, I'm sure you want to play in a nice casino. But you have to recognize that there's a price for that. And generally, they set their slot machines tighter. If you want the better odds, as a rule of thumb, the further away you get from the strip, the better your chances get. I also want to say that while you can't look at the slot machine and tell if it's stingy or loose, I believe that – if a casino sets their video poker loose, they're probably going to have loose slots as well. And video poker is quantifiable, you can look at the pay tables and see if what they expected return is, if you use a website like mine for example, 9/6 Jacks or Better is 99.54%. Show me a casino that has lots of 9/6 Jacks and I'll show you a casino that has lots of, of loose slots as well.
Question 2 - [01:43]
Angela: Wow. Are you allowed to name names and give me any suggestions of what casinos are generally doing that have looser slots?
Mike: Well, in 2001, I surveyed the whole city of Las Vegas for who had the loosest slots. And I use PAR sheets to do this. And by looking for certain patterns in the machine, I was able to identify what return the machines were set to. And the loosest casino in Las Vegas at the time was the Palms. And there we have a casino that's off the strip. And they had great video poker as well. Now this was ten years old, I've never repeated the survey, the casinos under new management. So, I make no promises about what they're doing now.
But now you asked about downtown earlier, downtown, it used to be a great place for odds, not so much anymore. I think that if you go to any casino off of the strip and off of downtown, you're probably going to get pretty loose slots. Namely all the Coast Casinos, Station Casinos, Fiesta Casinos, the South Point, the M. These casinos are all very competitive for the locals’ market. And they know the locals are picky about the odds and returns. So, they tend to set their machines looser than the strip where they don't get such a loyal clientele.
Question 3 - [03:18]
Angela: Okay. Well, once I've identified the casino I want to play and definitely off strip and getting to a local clientele, how do I go about picking a machine?
Mike: That's a good question. I would say, you should stay away from a machine that has big fancy signage, like enormous screens, a lot of fancy sounds and chairs that move, all that stuff, ultimately cost money and it ultimately- they get it by tightening the odds. But sometimes when I play that, say that, people say, “But Mike, those games are so much more fun.” That's a good point. If you're willing to pay more for the additional experience, go ahead, it's supposed to be for entertainment anyway. But if you don't really care what particular machine you're playing, you just want the best odds play just a simple machine with no fancy sign or graphics, just keep it simple.
Question 4 - [04:23]
Angela: So, if I picked a nice simple machine to go play, no bells and whistles, at a casino that's friendly to me, should I sign up for that casino's Players Rewards Card, is that help me or hurt me?
Mike: Absolutely, it helps you. No ifs, ands or buts. If you're going to play anything in the casino, including the table games, definitely go to the player club, sign up for a card and use it. When you put it into that machine, it's going to track all your play, it's going to give you points. And every casino in town as far as I know, you can use those points for free play, for casino purchases, some places will give you cash directly. And not only that, they will send you offers. And casinos love slot players, that the best, they are treated like royalty compared to all other players. A $1 slot player will get treated better than a $100 blackjack player.
So, if the more money you run through it, the better your offers will be. And I'm not saying to play the machines hard for that reason. I'm just saying that if you're going to play anyway, you may as well get rewarded for it. So always use your player card. And always when you sit down, it should be a habit. Make sure you put it in, there have been times where I forgot to put my card in and played for five minutes without being tracked. And I just wanted to kick myself because it was just like wasted play because the casinos, they will reward you so well for a slot machine play.
Angela: Getting those biggest rewards is a huge part of the Vegas experience, people want the free buffets and the free show tickets and a cost that come with it.
Mike: Absolutely.
Question 5 - [06:06]
Angela: So now you're saying the money you run through with it, is directly tied to that. How does that comping work? How do you know what to expect and where do you go to find out what the casino is going to give you? Is there someone you ask, is there a desk?
Mike: Absolutely, you can ask any question you want at the player club desk and every casino has one. It doesn't mean that they're going to answer your question correctly or at all. If you ask them a tough question like, how do you earn points playing bingo. Maybe they're not going to know. And some casinos have very complicated programs like, there is Total Reward Program is extremely complicated. But it never hurts to ask whatever question you may have.
Question 6 - [06:53]
Angela: All right. Well, I want to go back, more specifically to the slot machines. And a few more things that I've heard about them that maybe you can clarify for me. So, I'm trying to earn all these points and get my comps, I've heard and tell me, if this is urban myth or not. But that the casinos can actually tighten or loosen slot machines remotely. One is that true, and if so, can they do while I'm actually playing?
Mike: That's a good question. What you were referring to is a technology called Server Side Gaming. And it used to be and the way it still is right now 99% of the time in Vegas, that if the casino manager wants to be the loosen or tighten the game, he has to open it up and change what's called an EPROM Card. That stands for Erasable Programmable Read Only Memory.
So, take out the loose card, put in the tight one. He has to actually- basically unlock the machine and make a change. And he also has to fax in a form to the Gaming Control Board because the gaming police here in Nevada, have a right to know what every single machine in town is set to. And they do spot inspection random, inspections to make sure that the casinos are giving them the right information.
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Now there is a new technology that saves the casino time. No longer do they have to actually find the key, open up the machine and change the return manually, now it can be done remotely, say at the computer of the Slot Director's desk. Now you may wonder, maybe he doesn't like me, maybe I'm wearing a polka dotted hat and he hates it and he's going to changed- tighten the odds while I'm sitting there playing. Is he allowed to do that? No.
I don't know the exact specifics but I believe that the machine has to have been unplayed for a certain period of time like 15 minutes before they're allowed to change it. So, if it's actively being played, the casino is not able to change the return of that game.
Question 7 - [09:06]
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Angela: Well, can the machines change it themselves, so that's about someone from the casino, the human element changing it. But I've heard a lot of the machines, they start out very loose to suck you in and then they tighten up and that will be something actually in the program, is that true?
Mike: That is basically an urban myth. The way it usually goes, is that the machine goes through loosen, tighten modes to play on your psychology. Usually people believe, that when you first sit down, the machine is going to be loose for a few minutes to give you a good experience and then tighten up once you're already comfortable and like the game. It's not true.
If a slot machine is set to say, pay 94%, that's what it's going to theoretically pay all the time. Now of course that doesn't mean that every single hour or day, it pays back 94% of all money bet, it's just a theoretical long-term average. There is no loose and tight modes to a game to it, it's the odds are always the same, unless, they physically change or not physically. But they either change the EPROM Card or change the return from a computer. It's not preprogrammed to go through these cycles.
Question 8 - [10:29]
Angela: So, you're telling me there's no truth to the myth that the machines run hot or run cold or it's been running cold for so long, it's due to hit, that's not true either?
Mike: That's exactly what I'm saying. A machine is never over due to hit. It's commonly believed that I've been feeding money into this game all day long and it's taken all my money but it's due to hit. No. I'm sorry, slot machine is never over due to hit, your odds of hitting a high pay are just as good, if it has- if you haven't hit anything all day long, as if the jackpot was just hit the last min.
Angela: Well, that's kind of disappointing, [chuckles] I was hoping I could go find that cold machine out when someone walked away from it. [laughs]
Mike: No. And what you say is true, is you see these vultures roaming around the casino, looking to take over a machine that where somebody has been playing and ran out of money, thinking that, oh, it's overdue to pay off. Sorry, it's not true. And another thing that you often see happening is a player will play at a particular machine all day long, ask a slot attendant or lean the chair against the machine to try to save it because they need to eat lunch, go to the bathroom or something. And then somebody else plays it and hits the jackpot and then they sue the casino. Saying, that jackpot should have been mine and it's their fault that they let somebody else play it. Sorry, it wasn't overdue that player just happened to play it at just the right moment and they got it. It's not like the jackpot was sitting there waiting to happen. Not that you asked but the way a slot machine determines what happens, is that the moment you press that spin button, the game chooses random numbers, it assigns those random numbers to positions on the reels and then stops the reels on, according to those random numbers and then pays you according to how according to the symbols on the reels. So, what determines what you win is exactly that moment that you press the button.
Question 9 - [13:02]
Angela: I want to go back to something you mentioned in that answer. And you brought up slot attendance. And I know more and more of the casinos now you see, the automatic machines but in places where they still have actual human beings walking around taking care of that. What's the proper tipping etiquette?
Mike: That is a good and a very controversial question. Now, this town runs on tips. Practically anybody you're supposed to tip. Now with slot machines, it's the law that any jackpot of $1200 or more requires a-- it's a necessity that somebody come out, pay you on cash, ask for your Social Security number and they're going to give you what's called a W-2G Form, so you can declare the win on your taxes. So as long as somebody is coming and paying you the money, they'll sit there and counting out the bills. And let's say that you won $2000, I can almost guarantee that they're going to give you 1900 in hundreds and the last hundred is going to be 20s and maybe 10s. And of course, they're doing that to shake you down for a tip. And you should tip.
Every time this comes up in the forums, there's always a big debate about it but in my opinion, 1% is a good number. And if you hit something really big, like say a 100,000, where 1% would be a 1000, then even less than 1%, maybe half a percent.
Angela: Okay. That all seems to make sense. [giggles] Now I feel I have a better understanding of how to go about playing the slots and not totally getting taken. [laughs]
Mike: Well, I really appreciate your questions.
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Angela: Well, thank you very much, Mike.