The Devolution of Gaming - Why Casinos Are In Trouble
A recent Bloomberg article laments the decline of slot machine sales
as one aspect of the overall decline of the gaming/casino industry,
and others talk about declines in machine play and gaming revenue
despite increases in machine "hold". Though many have addressed the
various aspects of problems of that industry, none seem to see the
whole picture, just as none of the blind men could picture the
elephant when describing its aspects.
What happened?
Forty years ago casinos were exciting venues where patrons came to
"gamble" their money in hopes of increasing their fortunes. It was a
cooperative venture, with casinos providing the means of wealth
redistribution through fair games of chance for a fee. Winners were
celebrated and welcomed as essential to the success of the venture.
There was never a mention of a casino's "win", only talk of its
"handle", "hold" and "drop".
Benny Binion once said "I'd rather have a half percent of $100
million than 2% of $10 million", recognizing that his share was a fee
for services rather than a "win", and the greater the action the
greater the rewards. Such was the foundation upon which the industry
was built.
Somewhere along the line the idea of a casino "win" came into play,
and the shift started. Rather than a collaborative, cooperative
venture, gaming became adversarial, an "us vs them", a war between
casinos and patrons, and the decline began.
Einstein said that a problem cannot be solved at the level of the
problem, recognizing that the parameters of the problem restrict the
thinking required to solve it. The "problem" constrains the thought
system so that any possible solution must contain the root of the
problem, preventing any real solution from appearing. A symphony
cannot be written in words, a poem with colors or a painting
described only with numbers. Each entails thinking at a different
level, and each thus limits its expression.
Once the idea of a casino "win" came into play it colored EVERYTHING
related to the gaming industry, causing its downfall and thwarting
every effort to correct the problem. In essence the industry forgot
that it was a means of wealth redistribution and instead became an
enemy in the "war". If, for example, we think of gaming as a big pot
where patrons throw in their money hoping to scoop out a share,
identifying "winners" and "losers" (easily done with modern player
tracking systems) would lead a casino to keep the largest
contributors from participating in an attempt to increase casino
"wins" while actually reducing its fees as operators of the pot.
They would succeed in the goal of increasing the percentage win, but
the logical ultimate result would eliminate the"enemy" to win 100% of
nothing.
Even more profound is the concept that thinking in terms of "win"
actually prevents us from seeing the solutions already inherent in
the misidentified "problem". For example, card counting posed a real
"threat" when practiced by organized teams, with counters spotting
opportunities and well financed bettors jumping onto them. This was
easily eliminated by barring mid-deck entry and utilizing shoes
rather than single decks. Yet the public got the idea that
individuals could "beat the odds", which encouraged many thousands to
play blackjack without the necessary skill and discipline to eke out
even a tiny profit from the perceived "advantage". For each
"successful" card counter there were hundreds more contributing to
the pot to the benefit of the casino. Rather than welcoming these
unpaid "shills", casinos tried to eliminate all "counters",
essentially throwing out the baby with the bath water. This also
gave public notice that winners were not welcome, solidifying the
"us vs them" mentality.
Video Poker
The introduction of video poker machines in the early 1980's led to
the biggest, most profound changes in the gaming industry. For the
first time, players could utilize knowledge and skill rather than
passively pull a lever or push a button. That attracted large
numbers of more intelligent (and therefore wealthier) players, and
spawned a proliferation of casino chains in Las Vegas and
elsewhere. More, hundreds of new locations such as bars, grocery
stores and even neighborhood 7-11s offered the same machines, all
competing for the newly discovered "locals" market. That, in turn,
led to competition between casinos to attract those players through
slot club benefits, promotions and "bounce back" mailers. These
intelligent players quickly realized that the addition of these
benefits to the machine return increased the total to more than 100%,
putting them in the same advantage position that started casinos in
the first place.
As time passed, more and more people analyzed these new games,
developing perfect strategies to achieve perfect play for maximum
returns according to game design. The first games offered paid back
more than 99.5%, keeping a mere half percent for the casino. Shades
of Benny Binion, that half percent was enough to fuel even greater
expansion of the "locals" market, and soon they were competing for
the patronage of the many thousands of video poker players, a number
that kept increasing due to online forums, instructional programs,
strategy cards, word of mouth and even classes offered by the casinos.
Competition between casinos led to ever greater benefits for slot
club members, with the total value of points, free play and comps
often exceeding 2% or even 3% of the amount played, and the heyday of
the "advantage player" began. As the benefits were in addition to
the 99% or higher machine payback, even a 25 cent player, easily
playing 1,000 hands per hour, could expect to earn a steady $25 per
hour over the long term, and a $1 player more than $100 per hour.
This sparked a further increase in the number of "advantage" players,
many even giving up their full-time jobs to play video poker for a
living. Somehow nobody realized that they were giving more out the
back door to attract players than they brought in the front door by
those players. Of course, when it was realized, it had to be the
players' fault.
Further, the linking of machines to "progressive" jackpots, where a
small percentage of each bet is added to the royal flush payout,
added a further advantage for the person hitting the royal. Due to
the infrequency of royal flushes (around once in every 43,000 hands)
the advantage became significant (increasing by about 1% for every
$1,600 bet on $1 machines). Now the advantage player would see a
potential 105%, 110% or even greater return. As the royal jackpot
only went to one winner, this led to the formation of player "teams"
in an attempt to insure that a team member (often financed by one
wealthy "backer") collected the advantage, offsetting the losses
incurred when everyone altered their strategy to increase the chances
of hitting the royal flush.
Inherent in the strategy changes for progressives was a casino
advantage that could not even be recognized by minds thinking in
terms of "win" and "us vs them". As a progressive rises, astute
players adjust strategy to increase the chances for a royal flush,
throwing away paying pairs, straight and flush draws to hold 3 cards
to a royal, and even correctly discarding the 9 from a dealt King
high straight flush when the royal amount justified it. These
strategy changes steadily lowered the expected non-royal return for
all players, so that the return on a game that started at 98% or 99%
decreased to 97%, 96% or even 95%, correspondingly increasing the
casino's share. A long held rule of thumb for casinos is to aim for
a return of $100 per machine per day. A 10 machine bank of machines
on a $1 progressive, with expert players adjusting strategy by 2%,
would give each machine an additional $100 PER HOUR to the casino.
Yet the casino, seeing only one "advantage player" winning a big
jackpot, couldn't even recognize their own windfall. Worse, they
forgot that it wasn't even their money paying the jackpot, but
players' money held in trust (under Nevada law) feeding the progressive.
Game manufacturers keep improving their product and introducing more
variations to improve casino profit, yet the casinos seemed to find
ever more creative ways to turn the advantage against themselves.
For example, as electronics improved, video poker machines became
faster. As faster play increases the frequency of the elusive royal
flushes, casinos intentionally slowed them down to reduce the number
of royals. Never mind that faster play increases player errors
(increasing casino profits), or that the machine hold increases based
on hourly coin-in, the mentality of discouraging advantage players
and reducing royal flushes created a war within the casino between
the marketing department trying to attract players and the slot
department encouraging players to go to other casinos offering faster
games.
Another "shoot yourself in the foot" opportunity was quickly seized
on another type of progressive, the triple play and five play variety
in which the progressive meter increases on each hand AND for a dealt
royal flush on all hands. The frequency of a dealt royal is far
lower, in the neighborhood of once every 650,000 hands, so the
progressive might build for weeks or even months before becoming
attractive to advantage players, and then remain for weeks or months
before being hit. These machines typically offered a lower base
return to players, 97% or 98% (meaning a casino hold of 2% or 3%),
but even for quarters could return $50 or $60 per hour to the
casino. Once a progressive was high enough to attract advantage
players a 10 machine bank might be fully occupied 24 hours every day,
returning $12,000 or more per day to the casino, more than 12 times
the target of $100 per machine per day. Yet stupidity (should that be
spelled with to o's?) prevailed, and when the progressive of $37,000,
$55,000 or even a whopping $167,000 was hit someone said "we can't
have that" and the machines were removed or lowered to pay tables too
low to attract any players at all. Never mind that it was players'
money in trust, or that the casino made $500,000 before it hit, it
was "too much" and had to go. Worse, it was the "enemy", an
advantage player that did the dirty deed, so they all had to go, too.
So now a new competition arose between casinos. A few months earlier
they were competing for the "locals" market that spawned their
creation years earlier, now were competing to identify and eliminate
these same players because they won too much playing the games the
casinos offered. Even before slot clubs and player tracking systems
made identifying them easy, some casinos simply adopted a policy of
barring any player who hit more than one royal flush in a year, and a
few even barred anyone thought to be an advantage player who sat down
to play a progressive. One casino offered an attractive promotion
starting at midnight, and unceremoniously barred and marched out a
dozen players as soon as the promotion started. Other casinos were
less militant and more subtle, first removing advantage players from
their mailing lists and curtailing free offers, then restricting slot
club points and benefits (some tried to remove past benefits and bar
players from collecting them, but were overturned by lawsuits), but
the overall message was "winners are not welcome".
And so we arrive at the situation today, with casinos vying for
patrons yet excluding those who play the most. More than 11,000
advantage players belong to one online forum, and that number swells
when adding spouses and friends who aren't members. If 15,000 people
play quarters 4 hours per day at 1,000 hands per hour (typical) that
amounts to $2.25 BILLION per month. Benny Binion sure would have
been happy with a half percent of that. The negative impact of these
foolish actions was far, far greater than that, however, as it sent a
clear message to ALL casino patrons. Like the hundredth monkey
society as a whole no knew that the gloves were off, and WINNERS
WOULD NOT BE TOLERATED!!!
Unlike the barred card counters, whose actions could arguably be
called cheating, now patrons were barred merely for playing machines
properly but too well for the casinos' taste. The pretense of a "fair
game" was gone, and the status of casinos lowered accordingly. Even
the integrity of the gaming industry is now in question, and every
promotion or attempt to lure gamblers is viewed with a skeptic eye.
Even one Las Vegas casino chain's attempts to overcome the negative
image with a multimillion dollar advertising campaign touting their
love for locals is viewed as ludicrous and laughable by the locals,
another vain attempt to solve a problem of their own creation that
isn't even recognized by its creators.
About the author:
Dennis Krum is a retired management consultant/trouble shooter with
more than 35 teas experience in the casino industry.
Phone (702)870-1458
email is@is1.org
....
Love, IS!!!
See IS - Spiritual Insights, a FREE book with no ads at http://
www.is1.org/
[Non-text portions of this message have been removed]
Posted by: Dennis Krum <is@is1.org>
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