Why Slots Are So Lucrative for Operators

As hard as it may be to believe, there once was a day when casinos treated slot machine players as second-class customers. While the pit bosses heaped room and meal comps on table game players, they ignored anyone sitting in the slots area to the point that cocktail waitresses passed them by or else asked them to pay for their own drinks.

How much times have changed! Today, slot players are wooed by casinos with the clout of Madison Avenue conceived advertising campaigns and promotions that offer millions in cash and prizes. The concept of “casino loyalty programs” emerged specifically to retain the business of slots enthusiasts, who now receive rewards for play ranging from invitations to free tournaments to discounts on dining and accommodations, rebates on losses and even free cash—which all begs the question: “Why the sea change?”

Numbers Don’t Lie

Nevada has long been the barometer for gaming trends, and it was the first gambling venue in the world to recognize the massive revenue potential in slot games. In the 50-year period between 1963 and 2013, the number of “games” offered in the state rose from 1,296 to 5,739—a more than four-fold increase—with games defined as “craps, roulette, blackjack, baccarat, bingo, keno, race book, sports book and other casino games.”

By contrast, the number of installed slot machines jumped from 22,178 to 182,574, a leap of over eight-fold. What’s more, numbers have increased even more from 2013 to 2017. Not quite as big of a leap, but an increase nonetheless, and one that proves there will always be money in this industry.

The impetus to add slots at such a breakneck pace was driven by a combination of technology and economics. When slot-maker Bally’s introduced games combining electric circuitry and mechanical play in 1964, it revolutionized the industry. Then came video poker from International Game Technology (IGT) in 1982, quickly followed by video slots and then the first multi-million-dollar progressives. The public responded so enthusiastically to each new innovation that casinos were tripping all over themselves to get the latest machines.

In 1984, revenue from slot games surpassed that of table games in Nevada by $1.66 billion to $1.48 billion and never looked back. The same was also true that year in Atlantic City, New Jersey, $980 million to $971 million. Although revenues along the Las Vegas Strip still favored table games at that time, the trend was inevitable and slot income eventually took the lead there in 1992, $1.35 billion to $1.23 billion.

IGT’s acquisition of Electronic Data Technologies in 1984 also spurred growth, helping to pioneer the idea of “player tracking” by linking ID cards with magnetic strips to computer databases. This led directly to the proliferation of “slot clubs” with frequent-player rewards, giving casinos an irresistible new marketing tool. By 2002, slot revenue in Nevada had grown to double that of table games by $6.27 billion to $3.12 billion.

Getting Rich off Slots

The march of the machines has been unstoppable, from the Choctaw Indian casinos of Mississippi to the gleaming new gaming emporiums of Macau and even the grand old salons of Monte Carlo. From a personnel point of view, slots are casino management’s dream come true. They are capable of operating 24 hours a day, seven days a week. They don’t sleep, they don’t eat, and they don’t take breaks or holidays. Neither do they require such benefits as pensions or healthcare. Just a bit of maintenance and they are always good to go.

The advantages are just as great from a financial viewpoint. Slots generate revenue at a highly predictable rate, which can be pre-set at the factory long before the game is installed. Fortunately for players, the percentage “payback” is regulated by law. In Nevada, for example, the ratio of winnings to wagers cannot be less than 75%, although in reality it is almost always 90% or higher, thanks to competition between casinos. But even if the payback rate is as high as 97%, it still compares favorably to the anticipated ratios of table games like European roulette at 97.3%, Pai Gow poker at 97.7% or Craps at 98.6%.

Among the most recent trends driving slot revenues upward are so-called “penny slots” that take advantage of multi-reel, multi-payline, multi-bonus technology to induce players to wager far more than $0.01 per spin. Indeed, those who want to win big need to invest 100, 200, 300 pennies or more for a shot at the top prize. Also, themed video slots based on the latest TV shows and movies capitalize on the public’s willingness to pay substantial amounts to interact, even virtually, with celebrities.

The bottom line is, for casinos at least, slot machines always yield a jackpot.

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