Casino Enterprise Management

One of the highlights of G2E 2006 was live demonstrations of downloadable game technology. In nearly a blink of an eye, one game was replaced by another, even down to the line and denomination information on the button panel.

The days of cumbersome, labor intensive change outs are on the cusp of a permanent fade to black, much like the horse and buggy of yore. The new GSA protocols will hasten the transformation of slots from standalone devices to “thin” clients of a central system.

One of the more exciting aspects of the new technology is the ability to interact more directly with patrons, not only by delivering a favorite game or theme, but by offering customized and individualized information and incentives.

With dynamic game configuration, casinos can enable or disable pre-loaded game themes, or change any number of parameters directly from the server. Integration with player tracking systems allows display of alerts regarding bonuses and promotions, as well as individual player club information.

One capability of the new server-based technology that created a stir—and raised, at least, our eyebrows—is the ability of the casino to change the payback percentage (“par”), or hold, on any particular device based on who is playing the game. When a patron inserts his player’s card, the system will instantly recognize both the person and his player’s club level.

The system would then “reward” premium players with better odds during their play on the machine. Presumably, this feature would have been communicated to the player in some fashion as a loyalty incentive for a particular brand or property.

We would have thought this feature would be greeted by at least a modicum of apprehension by regulators. After all, the egalitarian nature of gaming odds is a historic characteristic of casino gambling. Anyone sitting down at a machine has exactly the same chance of hitting a jackpot with the same wager on any given handle pull. Yet, to our surprise—and more than a little chagrin—the regulators that we heard discuss this feature appeared to write it off as little more than a marketing decision that had no regulatory implications.

Our perception of the consensus was that changing the hold in this fashion is functionally equivalent to a “comp”—in essence, no different than giving a good patron a free buffet or a room discount. Though this analogy has a certain seductive appeal, it is fatally flawed in our humble opinion.

In the broadest sense, a comp is anything of value given at no—or at least reduced—cost to players in recognition of their level of wagering or the degree of loyalty. Traditional comps, though based on gaming activity, involve something tangible and quantifiable. Whether it’s a meal, room, cash or game credit, the operator, the regulator, and player receiving the comp knows exactly what they are getting.

Rewarding a player with a change in payback percentage is neither tangible nor quantifiable. Slot machines are volatile devices. A small percentage change to the payback for a single patron may or may not result in more winnings (or smaller losses) for that person during the relatively brief time on a machine. In this circumstance, the reward or comp is nothing more than an uncertain expectation.

The other significant difference between changes in payback percentage versus a comp is that the payback modification directly affects the operation of the gaming device. It is comparable to giving a craps player slightly loaded dice because they’ve been a good customer. This changes not only the relationship between the house and a particular player, but also the relationship between that player and other players.

But even accepting that a payback percentage change is “comp-like,” we have a more fundamental objection. As noted, modern slot machines with their typically large top rewards and various bonus levels are highly volatile. As any slot manager knows, a temporary change in par percentage is unlikely to impact the machine win in any significant fashion. Any single wagering event is random and independent of any previous or subsequent event.

Generally speaking, minor variances in par are not statistically significant unless the device has had at least 200,000 or more plays. Thus, adjusting the payback a few percentage points for a couple of hours of play, perhaps a few hundred handle pulls, will not give the player any greater advantage.

The real analogy here is to the “near miss” feature that Nevada regulators identified and prohibited in the early 1990s. The near miss on a three-reel slot involved programming losing combinations to display the jackpot symbols either just above or below the payline. This suggested to the player that they had almost won, or just missed, a big jackpot. As an enticement to keep playing, the regulators concluded that it was illusionary and therefore misleading.

Similarly, informing a player that their club status has entitled them to a higher payback on a machine than the ordinary player is also an illusion. The suggestion that they thus have a better chance at winning in the short term is simply not true.

It could be argued that telling an individual player that they are being “comped” a better par percentage is no more illusory then casinos that market their property as having the “loosest slots” available on the local market.

Internally, in-house signage also advertises 98 percent payback above certain banks of machines. However, the real distinction between this “marketing strategy” and individually designated par is that any player can play these machines, and all players will have the same payback percentage. This is significantly different than players playing exactly the same machine, but having a different “par” merely because one player has the ability (or bad judgment) to wager more than the average player.

In any event, a player incentive of this nature has minimal advantages compared to the potentially devastating side effects. Consider the 98 percent carousel of slots in the example above. It has never ceased to amaze us that players will walk right past these machines to play their favorites on the next bank.

We have, on occasion, informally polled these players, asking why they didn’t play the advertised 98 percent machines. What they have told us is that they had tried these machines and felt that they did not “pay off” any better than other machines they actually liked to play. What they have discovered, in effect, is that the supposed 98 percent par will not significantly affect the return on an individual level. When the diamond level player arrives at this same perception, we submit that it is likely that they will feel “taken” rather then rewarded.

One of the most common complaints all regulators receive is that casinos frequently “tighten the machines,” especially those that are popular or appear to have good payoffs. Ironically, one of the concerns with downloadable server technology is that the ability to manage par “on the fly” will fuel this type of paranoia.

Employment of players’ clubs rewards that actually does change par selectively will do little to allay these fears. It is also likely to create a new variation on this theme for the high roller whose expectations for better payouts are disappointed by actual performance.

Our suggestion is that the manufacturers, the regulators, and ultimately the operators look carefully at the efficacy and costs of this marketing tool before rushing to adopt it.

Pat Leen, co-owner of Gaming Regulatory Consultants, was a founding member of the Michigan Gaming Control Board. He can be reached at (517) 256-8619 or pleen@grcgaming.com.

Tom Nelson, co-owner of Gaming Regulatory Consultants, was the first Director of Licensing and Enforcement for the MGCB and served for 22 years as Michigan’s Assistant Attorney General. He can be reached at (719) 440-6611 or tnelson@grcgaming.com.