How much will slot machines pay back?

Ohio sets average return of at least 85%

5/20/2012

COLUMBUS — When players insert money into the 2,002 slot machines on the glitzy, carpeted floor of Toledo's new Hollywood Casino, state law guarantees that the flashy, computerized devices will pay out on average at least 85 percent of what they take in over the long haul.

While that 85 percent is generally on the higher side of the government-mandated industry standard, most casinos across the country pay out more than that in hopes of getting an edge on the competition.

"No casino will open with less than 90 percent," said Bill Thompson, professor emeritus at the University of Nevada, Las Vegas and an expert on casino gambling. "Some in the Midwest might be 89 percent, and some of the [tribal casinos] might do that, but 85 percent is baloney."

Hollywood Casino Toledo — Ohio's second 24-hour, Las Vegas-style casino — is set to open May 29 on the East Toledo riverfront adjacent to Rossford. Last Monday's opening of Rock Ohio Caesars Horseshoe Casino in Cleveland marked the state's first foray into casino gambling.

Ohio law allows the Ohio Casino Control Commission to raise the minimum payout of slot machines, the biggest draw to casinos.

"How to market different slots to compete with one another is really up to them," said Matt Schuler, the commission's executive director. "We make sure that they meet state law and the software is exactly what was tested and approved."

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Hollywood Casino Toledo General Manager Richard St. Jean said slot payouts are a market-driven variable. He said Toledo will be competitive with Detroit and Cleveland. Having the commission set a higher minimum would be a mistake, he said.

"It's really entertainment," he said. "It comes down like to going to a movie. You expect to be at a movie for 90 minutes or two hours. If you went and paid full price for a movie that was 30 minutes, you'd feel like you got gypped.

"It's no different on a slot machine. If it's too tight and you felt like you just put your money in and had no entertainment or no time on devices, as we call it, that's very negative and that can turn a lot of people off very quickly."

For the most part, Mr. Thompson considers the Toledo and Cleveland casinos, as well as the Columbus casino coming this fall, to be monopolies. Toledo's toughest competition would likely come from Detroit, an hour's drive away, and slots payouts would be one area where Penn National Gaming Inc.'s newest venture could set itself apart.

In Michigan

Michigan's rules require a minimum payout of 80 percent on average from its three commercial Detroit casinos — MGM Grand, Greektown, and Motor City — while the state's 22 sovereign nation tribal casinos must pay out at least 75 percent under the terms of their compacts with the National Tribal Gaming Commission.

But neither the Detroit casinos nor the tribal casinos are required to reveal what their payouts are above that.

"If I was in Toledo, I would say, ‘We're doing 94 percent. Vegas does 94.5 percent. We're giving Vegas payouts. Detroit refuses to tell you. We'll tell you,' " Mr. Thompson said.

A Michigan State University graduate, Mr. Thompson was a consultant for the President's Commission on Organized Crime under President Ronald Reagan in the 1980s and helped to write the final report as a consultant for the National Gambling Impact Study Commission under President Bill Clinton a decade later.

Michigan is watching to see what will happen as Ohio and Toledo bring their chips to the table.

"The [Detroit] casinos report to us that they expect to take a 5 to 10 percent hit initially," said Rick Kalm, executive director of the Michigan Gaming Control Board. "We don't know where we will go from there. Detroit's market is a 75-mile radius, and they've enjoyed a lot of economy in that circle," he said.

Toledo is inside that 75-mile circle.

Michigan regulators opted not to force the Detroit casinos to report their true payouts above the 80 percent minimum, primarily because the tribal casinos don't have to report.

"That's [the Detroit casinos'] proprietary information," Mr. Kalm said. "They will decide how to use it. … But a lot of people can tell you where they feel or perceive the best payout is."

And there are other ways for casinos to compete.

"They will use all kinds of marketing — free play, free rooms, comps — like in any gaming environment," Mr. Kalm said.

Across the border

Canada is also watching.

Ontario, like Ohio, has set its minimum average slots payout at 85 percent, and the Alcohol and Gaming Commission of Ontario periodically tests each machine to guarantee that it has paid out at least that much over time.

"Each machine will pay an average of 85 percent of what patrons put in," spokesman Lisa Murray said. "This doesn't mean you get 85 percent back. One guy may win a big jackpot and you may get two cherries, but the machine as a whole will pay 85 percent."

Tribal casinos

Despite growth in business at the three Detroit casinos, Michigan's 22 tribal casinos recently overtook them in terms of aggregate annual revenue — $1.43 billion to $1.40 billion. That's in part because of the expansion in the number of tribal casinos.

FireKeepers Casino, the Nottawaseppi Huron Band of Potawatomi tribal facility, opened in 2009 near Battle Creek, Mich., about two hours northwest of Toledo.

Spokesman Michael Facenda said FireKeepers draws from the northwest Ohio market and is looking at its opening of a 242-room resort-style hotel on the grounds later this year to expand its offerings.

Hollywood Casino Toledo will not have a hotel on site and has instead promised to steer lodging business to existing local hotels.

"What often happens with a [new] casino is they grow the market," Mr. Facenda said. "We do have certain levels of business that come from that area, and we intend to do what we need to keep that."

Nonsmoking facility

Another issue that could affect Hollywood Casino Toledo's competitiveness is Ohio's ban on smoking in indoor public places. Unlike its commercial and tribal counterparts in Michigan, Ohio casinos are not exempt.

"The [Detroit] casinos carved themselves out of the smoking ban, and they did it based on the tribal casinos not having to follow the law," Mr. Kalm said.

"They wanted competitively to be on an even keel. Windsor has a smoking ban, and they experienced quite a percentage decrease. It may make a difference, but the Detroit casinos do have nonsmoking rooms so that you can enjoy gaming and not have smoke."

Mr. St. Jean said Hollywood Casino Toledo might lose some smokers but could take advantage of a market of gamblers who now choose to drive to Windsor because it's smoke-free.

"Many people like it, and some people don't," he said of the smoking ban. "We think it creates a more positive because you have a very fresh environment. … We also have the advantage of being virtually monopolistic in northwest Ohio.

"We do have smoking options for guests who want to smoke on the patios," he said.

Gaming landscape

In addition to the 2,002 video, reel, and video poker slot machines, Hollywood Casino Toledo will feature 33 blackjack tables, 20 live poker tables, and 60other games on a 125,000-square-foot gaming floor.

By comparison, Hollywood Casino Columbus due this fall is expected to have 3,000 slots, 100 poker and other table games, and 30 live poker tables on a 126,000-square-foot floor.

While voluminous administrative rules that the Ohio commission raced against the clock to put in place spell out the exact specifications of dice rolled, chips played, casino-specific decks of cards shuffled, and playing table layouts, they do not attempt to dictate the odds of nonslots games.

That is largely left to the casinos, which, while licensed by the state, are still private businesses permitted to make their own decisions.

In games such as poker and blackjack, the skill of the player at the table can be a factor in the outcome, while other table games such as roulette and craps are less about skill than luck. For instance, bet just one of 38 numbers on a roulette wheel and the odds are 37-to-1 against you.

"Our job is to ensure that the game play and rules are clearly understood to everyone, that they're available and posted," Mr. Schuler said. Tutorials on Penn National's games are available at its Web site hollywoodcasinotoledo.com.

The house edge

Anyone walking into a casino should understand that, more times than not, the house wins, and players walk out of the casino with less money than they walked in with.

There's a reason that casino operators are willing to place their own bets of tens of millions of dollars to convince voters to approve a constitutional amendment, pay a $50 million state licensing fee each just for the privilege of playing the game in Ohio, and invest in the neighborhood of $300 million each in new buildings, amenities, and equipment.

"Whatever they do, they're not going to have any love in their hearts for players," Mr. Thompson said.

"They're doing it to make money. They will make calculations. They will survey how knowledgeable their players are about the competition."

Blade Staff Writer Gabrielle Russon contributed to this report.