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Shrinking Payback

Yet another study shows that reducing payback percentages doesn’t hurt casinos. But what about the players?

By Frank Legato

 

The issue of shrinking payback percentages on the slot floor has been burning for more than a decade. It’s in the news once again.

After the Great Recession of 2008–2009, players began to complain that they weren’t winning as often on slot machines. Research showed that, particularly in tourist-heavy markets like the Las Vegas Strip, slot operators were increasing their overall “hold percentage” to compensate for the money they lost with fewer customers visiting to play slots.

Hold percentage is the inverse of payback percentage—it’s the percentage of all slot wagers kept by the casino.

It was easy for operators to increase the hold percentages, since arguably, the most popular game genre on casino floors is the penny video slot—typically holding as much as 12 percent, translating into an 88 percent payback percentage, compared to 95 percent or more for higher-denomination traditional reel-spinners.

Since holds first went up, researchers at the University of Nevada, Las Vegas have put out several studies purporting to show that players do not notice lower payback percentages on slot machines. They would place players in front of identical machines set at significantly different payback percentages, and in any given session, players wouldn’t notice any difference.

The latest study, by UNLV professors Anthony Lucas and A.K. Singh, is targeted at the casino operators. An extensive study revealed that a higher house advantage—identified as “par” in the study, using a longstanding industry identification of percentages—has no effect on slot revenues for the casinos.

Based on modified versions of licensed pay tables from reel slot machines, simulations of play failed to indicate a statistically significant difference in the spins per losing player (SPLP), despite a marked difference in the pars (i.e., 7.9 percent versus 12.9 percent). In other words, the higher house edge generated a statistically similar number of spins.

To reflect a volume of play consistent with frequent gambling, the simulations included results from one to four visits per week, for the equivalent of one year. The level of play was applied to multiple scenarios of buy-in amounts and stoppage-of-play criteria. Most outcomes indicated a negligible decline in SPLP, in spite of the 63 percent increase in the par, or house edge.

These results were reproduced from a second pairing of games featuring a 117 percent increase in par (i.e., 4.6 percent versus 10 percent—a 90 percent payback on one machine and a 95.94 percent on the other). The outcomes suggested that “operators may be overly mindful of the fallout from increased pars,” the study said. The authors of the study conclude that casinos “may be leaving money on the table by failing to raise the house advantage.”

So, the most recent study shows that players do not necessarily give up on the games with the lower payback percentages; they keep playing. The study’s authors suggest that this naturally translates into the fact that a casino will not lose revenue by lowering the return to players across their slot floors.

As with the other studies, I have a problem with this conclusion. First of all, this latest study is based on “simulated play.”  The authors point out that they simulated some 100 years of play to achieve their results. Am I missing something here? How can a simulation of play reflect whether or not real, human players are leaving a slot when they’re not winning?

But that’s not my main problem with what the authors are suggesting. Let’s assume that they put actual players in front of these machines, and they all kept playing even though they were losing. Whether or not players keep playing when they’re losing does not reflect how many players have abandoned the slot floor altogether because there were too many of those losing sessions.

My main problem with all of the UNLV studies is that they are geared toward the operator, and not the customer. I don’t dispute that operators make more money from lower payback percentages over the long term. I don’t dispute that players, in front of any given game in any one session, cannot tell the difference between identical games with widely different payback percentages. The games play the same, and some people still win—anything can happen in the short term.

But no one can dispute that fewer people are playing slot machines than 15 years ago. Casino floors used to be packed with rows and rows of slots—as many as they could cram into the space. Nowadays, slot floors are much more wide open, with many fewer machines spaced out in pod or carousel configurations. In Pennsylvania, casino after casino have petitioned regulators for permission to lower their count of slot machines. And this fact was prevalent before the COVID-19 pandemic and its social distancing requirements.

The reason? Fewer people are playing slot machines. The reason for that? They moved on to other games, because they were leaving the slot floor as winners much less frequently than they did in the old days.

Operators want and need to make profits, I get that. But they also need to have their players happy with the overall experience. As the studies consistently show, players can’t tell the difference in any given session, or in 100 years of sessions at the slots, if you accept simulated play as an indicator. My point is that there are fewer of those play sessions even occurring, because too many people can’t remember the last time they won at the slots.

People don’t like it when they lose at the slots a lot more frequently than they win. They’ll go play video poker or table games, where they have a much better chance at a winning session.

Operators, go ahead and make your money. But you can still make money while giving players a fair shake. It’s called customer service.

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