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Video Poker The Devolution of Gaming - Why Casinos Are In Trouble

Discussion in 'Video Poker Forum' started by Mark V, Nov 5, 2015.

  1. Mark V

    Mark V Active Member Lineage to Founders

    Feb 16, 2015
    Gambler, bikini contest judge, and lounge rat
    Las Vegas
    --- reposed with permission ---

    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

    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

    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

    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 [email protected]
  2. Luke

    Luke New Member

    Sep 14, 2016
    Fort Worth
    very interesting read.
  3. gizmotron

    gizmotron Well-Known Member Founding Member

    Jan 1, 2015
    The West Coast of USA, RV'ing
    Fascinating. What an amazing example of human nature. It's a total "bite the hand that feeds you" industry mistake. I guess they never saw that movie A Beautiful Mind, a 2001 American biographical drama film based on the life of John Nash, a Nobel Laureate in Economics.

    His concepts of cooperation between competition and the bigger market valuations have become the bedrock of marketing. The casino industry didn't get the memo.

    This was a great article.

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