In just about every business, the price of a good or service is clearly marked.
Oh sure, the price may vary based on many factors, like brand, quality, time of year, demand, marketing factors and a whole host of other variables. But you do know what you are paying for, and the price is (almost) always clearly marked.
Not so with slot machines.
Yes, slot machines will always have their denomination listed (1 cent, 5 cents, 25 cents, $1 and so on), but you never know the true expense of that “slot ride.” You may know a minimum bet or a maximum bet on a slot machine—there may even be a paytable on the slot that tells you what you have won on various lucky spins—but bettors still don’t know the cost of a slot “flutter,” as the Aussies call it. Heck, slot players don’t even know what kind of flutter they want.
The “price” of a slot experience can be affected by many factors: the speed that players play; bonus features on the game; volatility (smaller, more frequent slot winning spins vs. larger less frequent wins); progressive jackpots; cash back and comps; and player skill level (video poker machines especially). And of course, the main determinant of price—the theoretical hold percentage programmed into the random number generator of the machine upon purchase.
Boiling all of this down gives an effective hold percentage for every game, which runs in the 1-15 percent range, with the vast majority of slot machines having a 6-12 percent hold percentage. If you take all of the hold percentages of a casino’s entire inventory of slot machines and average them out, you typically will get a slot floor par of 90-95 percent, meaning of every $100 played in that casino’s slots, on average, $90-$95 will be returned to the players as “winnings.”
In the early days, casinos didn’t screw around too much with a slot machine’s hold percentage. The technology wasn’t ready, most gamblers were table game players and, frankly, most slot operators didn’t know how to execute or analyze hold percentage changes… it was just too much dang trouble.
But fast forward 50 years. With random number generators, virtual reels, and sophisticated technology and slot analytic tools, a slot director can change a 4 percent hold slot machine to an 8 percent hold slot machine in the wink of an eye, with a new computer chip and a little regulatory paperwork (well, in some jurisdictions, the paperwork may not be so little).
Which means: today’s modern casino can easily figure out, and adjust, how fast, on average, it wants to take the slot players’ bankrolls. And what makes it even more interesting, because of the vagaries of chance, “hit frequencies” of slots and other factors, a slot player may not even know a casino is taking their money.
This was first pointed out in controlled studies (both virtual and real life) by Dr. Ashok Singh and Dr. Anthony Lucas of the University of Nevada Las Vegas (UNLV). Long time slot operators also suspected this, and as competition and costs of doing business increased, slot business boomed as table game business declined, and corporations sought to squeeze more profitability from lucrative slot games, a “tightening” tendency started to develop in the casino industry. The trend was slow at first, but the pace quickened as operators saw short-term profits increase, with seemingly minimal pushback from slot players. Although the math said that casinos were taking players’ money faster at slot machines and that could be quantified as a function of “average time on device,” players continued to play the tighter games. The “tight” philosophy said “you are giving up profits if you don’t selectively and intelligently tighten your slot machines (and hey, players can’t feel the difference anyway).”
Meanwhile, a countering “loose” philosophy has taken root in the industry that insists, “unless you are at maximum capacity or have a heavy tourist slot business, frequent slot players will eventually feel you take their slot dollars faster and it will bite you in the butt over time.”
To shed light on this topic I interviewed two of the most knowledgeable experts about the “loose vs. tight” debate—Michael Meczka, president of MM/R/C who has interviewed tens of thousands of slot players in his market research career; and Buddy Frank, principal consultant of Slot Strategies, who has been a top slot marketing and operations executive at a number of premier casino properties in his decades’ long gaming career. Here are some excerpts from these interviews:
How did you first get interested in the topic of whether slot players can tell a loose slot from a tight slot?
MECZKA: When casino operators began increasing the hold to generate greater ROI. I wondered and worried if they were getting ready to fleece the golden goose.
FRANK: After 30 years in slot operations, the loose/tight question is one that I and my colleagues heard on a semi-annual basis, usually from the GM or CFO who would ask, “Why can’t we tighten the slots to make more money?” I am also a data nerd and know that computer simulations and the math indicate that a player cannot tell the relative payback on a slot game (either way) in X number of trials. However, humans do not always follow predictive analysis, and my real-world experience shows quite the opposite.
Briefly describe what research you have done on loose vs. tight slots. Also, what gaming industry information are you familiar with that may shed light on this topic?
MECZKA: Multiple side-by-side studies have been done in casinos when evaluating performance in preparation for purchasing new slot games or in adding participation games. Games with lower hold percentages were played longer. Also, Class II slot games are generally looser than Class III slots, and in markets like Oklahoma, where Class II and Class III games are often side by side, Class II more than holds its own with games that may not seem to be the most exciting to play but have better payouts.
FRANK: I have worked at casino properties with the loosest slots in the country and other properties with much tighter odds. Also, I have experienced what happens in-market when my slots were loosened or tightened. In almost every case, the short-term result of tightening was increased revenue… but the long-term result was declining coin-in, reduced time on device and, eventually, less profit.
Do you think a slot player can tell the difference in looseness between two otherwise identical slot machines, where the only distinguishing difference is that one machine is 50 percent looser than the other?
MECZKA: Not all slot players can tell the difference and many players do not care about hold percentage. But those slot players who are of greatest value to a casino property—the 20 percent who bring in 80 percent of slot revenue—certainly know and will vote with their feet. When they are not getting enough time on device, they simply go to a competitor’s property.
FRANK: On a single visit, or even multiple visits, a player could not determine these differences. However, over enough time and over enough visits, frequent players would feel a generalized overall casino “looseness” or “tightness” and expand or contract play time a significant average amount, even if they don’t know it is 50 percent.
What kinds of advice or areas of further inquiry would you suggest to senior slot managers to better understand the loose/tight debate?
MECZKA: Look beyond the “win per unit per day” number. Actually, conduct side-by-side comparisons. And pay attention to your individual property slot and performance data of your higher-value slot players, not the wide swath of data provided by slot manufacturers… we mostly operate in local or regional markets, not national markets. Every casino literally has excess capacity, so why not loosen slots and take more time to take the same amount of money, giving the slot players a better experience? Slot players want to participate in a “marathon” to get as much time as possible playing games in the casino on their predetermined, relatively fixed budget. They do not want to participate in a “sprint,” with the casino constantly taking slot player time away.
FRANK: There’s a considerable difference between actual looseness and perceived looseness. I once worked at a casino that had one of the best payback odds for slots in the country; but I still got cards and letters that said “your machines are too tight.” A good marketing and operations program that celebrates winning in a demonstrated way is the key. The “best of the best” is to have loose machines and great marketing.
Can a slot player tell a “loose slot casino” from a “tight slot casino” especially in a locals’ market with highly frequent players?
MECZKA: They do. This is evidenced by the popularity of non-Strip casinos among locals in Las Vegas. Locals much prefer places like South Point or Gold Coast over a Las Vegas Strip slot experience. Further, look at VGT games in Oklahoma, where their games have a significantly lower hold percentage than their slot manufacturer peers. VGT games enjoy far more than their fair market share.
FRANK: Not in the short term… I believe that would be impossible. However, over time, there would be a noticeable reduction in average seat time for many high-repeat players. That could result in fewer visits, more visits to competitors or giving up on casino play overall. It is not really dissimilar to what would happen if retailers raised their prices beyond the “good value ratio.”
Casino players often do what is not in their best interest including playing tighter slots when looser slots may clearly be available. Is this just an “ignorance tax” or a “superstition tax” or is there another way to think about all of this?
MECZKA: There is a significant number of slot players who are not “in it to win it,” particularly recreational players who simply want to buy entertainment for an extended period of time. You might say they seek escapism. The majority of slot players, including the top 20 percent, recognize they are playing a negative expectation game. They are willing to give you their gambling budget if in turn the casino operator is willing to give them more and acceptable time on device. Almost all slot players with players club cards are hoping to extend that playing experience.
FRANK: You have to have different marketing approaches to different marketing segments. Obviously, the high-frequency and savvy video poker players know exactly what they are doing, just as the skilled craps and blackjack players do, and to some extent the single zero roulette player as well. But other segments just like playing, and to them most of the games look the same… if you’re a tourist and may not know or care, it may not matter. To me, it is a huge difference. To each his own.
Do you play slots yourself, and if so how do you choose where to play and what games?
MECZKA: I personally do not play slots with any degree of frequency. But my wife plays enough for both of us. How she chooses her games is a mystery to me, but I know she chooses her casino by who gave her the best offer.
FRANK: I hate to tell the truth to this question. Yes, I play. My main games are blackjack, craps and loose video poker (Jacks or Better and Double Double Bonus). Here’s the sad part: when I play reel slots (other than gaffed games at the shows and showrooms), I play Megabucks. It probably has some of the worst odds of any slot machine, but their old slogan, “one pull could change your life,” hooked me. I also play the lottery with 55 percent payback. Sometimes we’re all idiots.
Any closing thoughts?
MECZKA: Yes, in the rush to find more revenue streams, remember that in our industry, “It’s (still) the gambling, stupid!”
FRANK: If you do tighten your slot games, and eventually see your volumes dip, the cost of regaining that business is unbelievably high. First, you’ll have to loosen the games (for a net loss on current levels), then spend a lot of dollars in marketing to regain your previous levels. That’s why I advise any slot executive who is considering tightening their machines, to be very, very careful.
Editor’s note: Dennis Conrad, Michael Meczka and Buddy Frank will all be participating in a Casino Marketing & Technology Conference session entitled “Can Slot Players Tell a Loose Slot from a Tight Slot?”, which will take place Wednesday, July 18 at Caesars Palace Las Vegas. Visit www.casinomarketingconf.com for more details.