Wednesday, September 16, 2009

Slotonomics 101

In a bet there is a fool, and a thief.

In the late 1800's a California mechanic invents the first slot machine. It comes equipped with three wheels, decorated with five symbols each and is intended to entertain the wives and girlfriends of the men at the gaming tables. But it quickly finds a larger audience. The chance of a hitting the jackpot? 1 in 1,000. The payout: 50 cents – paid out in nickels.

Over the years, the symbols on each reel increase, decreasing the odds of someone hitting the jackpot, while increasing the amount of the jackpot itself.

By 1970 the standard slot machine has a reel with 22 symbols - half of which are winning symbols and the other half blanks. The chance of hitting the jackpot is now 1 in 10,648.

But gamblers are interested in even bigger payoffs, so slot machine makers add bigger reels to hold even more symbols, then added more reels.

But these improvements prove unpopular with machine gamblers who know the odds of hitting the jackpot are better on the older machines.

Then, in 1984, Inge Telnaes invents a slot machine powered by a micro chip. The chip, not the reels themselves, now determine the outcome of every spin and it becomes possible to decrease the odds of hitting a jackpot while still having the machine appear to offer much better odds. Essentially, working on the same principle as a pair of loaded dice.

The president of Bally Gaming, among other players in the industry, objects to these new machines, writing to the Nevada State Gaming Board that "It would appear to us that if a mechanical reel on a slot machine possesses four sevens and it is electronically playing as if there were one seven, the player is being visually misled." Nevertheless, in a decision that would change the entire gambling industry, the Board approved the Telnaes machines - and 'virtual' reels become the new industry standard.

Over time, slot machines are adapted to encourage players to play faster, longer, and for larger wagers than ever. Ergonomics, visuals, sounds, buttons instead of levers, credit cards and slot club cards instead of coins, bonus rounds, rapid-fire pay outs, deceptively programmed near-wins, machines engineered to allow the player to play more intensively – and to lose faster. Addiction experts begin to refer to slots as the “crack cocaine” of the gambling industry.

The modern slot machine has now become the industry's cash cow, with 70 - 80% of all casino revenue originating from slot machines - and 60% of that revenue coming from problem and pathological gamblers – making this demographic the industry's best customer.

States without gambling decide to get in on the action – by "recapturing" gambling dollars going out of State.

But costs associated with gambling are difficult to quantify and therefore often not factored into, or are underestimated in cost/benefit studies.

Gambling legislation is passed, in no small part due to ignorance of the product, budgeting and political pressures, influence from lobbyists, improper or inadequate review of the data, artificial urgency, and overstatements of benefits.

While in-state gambling does recapture some revenue and create mostly low-paying jobs, it also creates more addicts. It brings increased crime and social problems which will require State and local intervention. Property values decrease, local businesses, lotteries and charities suffer from limited discretionary dollars. The industry must be regulated. Cost per pathological gambler per year is $11,300. The cost per U.S. household, even for those that do not gamble is $460.

New slot revenue is quickly spent, but now impacts like crime and social problems have become more apparent and costly, as does regulation, requiring a new State bureaucracy with State employees with pensions and health care.

Revenue is somehow not paying for everything it was supposed to.

Then, neighboring states decide to legalize gambling in their own effort to recapture revenue.

Gambling revenue is no longer enough, but by now the State has become dependent on it.

Competition from other States, along with normal dips in the economy assures drop in gambling revenue, but the State has now become both regulator and stakeholder in gambling industry.

So... State sells more casino/slot licenses, repeals smoking ban, lowers the gambling age, allows 24/7 drinks, relaxes previous regulations, gives concessions to investors, opens more gambling venues - all in order to create more problem gamblers – that all-important demographic - which in turn creates more impacts, resulting in less money for the State.

Now State has casinos, slots, another growing bureaucracy, multiple financial and social impacts, not to mention lives ruined, children neglected, businesses hurt, people dead – and STILL NOT ENOUGH REVENUE.

Meanwhile... billionaire casino investors (and the policy analysts who love them) continue to smirk all the way to the bank.


Smoking Owl said...


pat said...

Brilliant post! (as always!)
I understand they can buy new machine that reduce the odds and they don't have to declare it or post it. Even the lottery posts the odds. That sounds like cheating consumers even more.

Anonymous said...

Great information.

Anonymous said...

Gladys - how come no one else can see this?

The Unions are blind and corrupt.

Raymond Tolosko said...

Excellent job Gladys!

You just said it all....


just concerned said...

In Massachusetts, you can buy a lottery ticket if you're 16, cigarettes if you're 18, but you can't drink until you're 21.
There's something wrong with our priorities.

Gladys Kravitz said...

Dear concerned,

For the record, (from the MA lottery site)

"The Lottery would like to remind players that it is UNLAWFUL for anyone under the age of 18 to play."

But, Gladys Kravitz would like to remind everyone that a lottery ticket cannot get behind the wheel of a car, if it's had too much too drink and kill someone.

But, a lot of lottery tickets can stress or bankrupt a family on the brink - especially when a parent believes their lucky break is right around the corner.

Casinos are for the age 21 and above crowd only - until States need the revenue or you have a fake ID.

Thanks for your concern,

carverchick said...

excellent post Gladys. As always, you say it like it is. Slots are a fools bet - now lets just hope our State isn't run by a bunch of fools betting on our futures.