As reported by the Daily Herald, July 20, 2008.

Illinois Casinos Beat the Odds with Tighter Slot Machines

By Joseph Ryan

On a sunny Wednesday afternoon, gamblers crowd the endless banks of slot machines at Elgin's Grand Victoria Casino as sounds of clanking coins, bleeps and upbeat music flood the hall.

Wheelchairs and canes clog the aisles.

Toward the back, a lonely Jungle Wild 2-cent slot calls out in harmonious beeps. Images of happy monkeys, gleaming pyramids and bright orchids spin randomly.

Mary Lou Schulz saddles up and feeds in the last bit of cash the 73-year-old set aside for gambling from her Social Security check.

"I was bored," the Palatine widow says in explaining her drive to Elgin.

Schulz is unwittingly sitting in the most lucrative spot for casino owners as well as state government, which collects up to 50 cents off every dollar lost on slots or card games.

A Daily Herald analysis of statewide casino operations reveals the moored riverboats are rolling out more and more slot machines designed for a better house advantage as declining foot traffic threatens profits.

This industrywide tinkering with odds is proving even more essential as casinos struggle to maintain their high cash flow in a strapped economy.

On the flip side, as the state's take from gambling losses has grown over the last 18 years, Illinois officials have done little to increase help for problem gamblers and even less to study the impact of the gambling they legalized.

The dichotomy revealed by the Daily Herald analysis comes as gambling money has not only become an important part of running Illinois government, but its expansion is viewed by lawmakers as a way to pay the state's bills and expand programs without raising taxes.

Long forgotten is the heated debate about the wisdom and ethics of funding government through money lost on games of chance.

Instead, Gov. Rod Blagojevich and key lawmakers want to add hundreds of slot machines to racetracks, including Arlington Park, and add one casino in Chicago and potentially another in the suburbs. Plus, in the coming months the state will authorize a tenth casino likely to land in the suburbs.

Here is what the Daily Herald analysis, to be presented in a three-day series beginning today, found:

  • Illinois' nine casinos have managed to make 20 percent more cash from gamblers despite a 13 percent drop in visits between 2000 and 2007.
  • The amount of money pumped into slots has increased just 2 percent in that time, but the casinos' take has jumped 30 percent.
  • Casino operators are relying on tighter slot machines, ones programmed to keep more from every dollar bet. In 2000, 7 percent of suburban slots kept more than 10 cents of every dollar bet on average. Last year, 46 percent fell into that category.
  • Stingier slots took in $600 million last year statewide, close to the cash needed to cover the casinos' massive tax bill.
  • Illinois spends a fraction of what other Midwest states do to help gambling addicts, severely limiting inpatient treatment options.
  • Problem gamblers who elect to ban themselves from Illinois casinos are disproportionate from cities with casinos.
  • Lawmakers have never specifically researched the impact of legalized gambling in Illinois.

Casino operators say they are simply rolling out tighter slot machines to meet gamblers' demand for these newer, more exciting games. The innovative video slots offer a more entertaining and sometimes longer game, even though they are programmed to pay out less and keep more money than older slot machines.

The new slots are programmed for more losses, they say, because gamblers can play as little as a penny per spin. But they often spend more than $1 and sometimes as much as $5 on a spin every six seconds as they hope to strike it rich.

"The players are demanding more and more of these," said John Finamore, regional vice president of operations for Wyomissing, Pa.-based Penn National Gaming Inc., which owns Hollywood Casino in Aurora and Empress Casino in Joliet.

Still, gambling experts are puzzled by how these new slots, a relatively recent international phenomenon, manage to sidestep market forces that once dictated if a machine was too tight - the gambler would walk away. Now the tightest machines are drawing more gamblers.

"It is a funny psychology and it is one that has obviously been very successful," says William Eadington, director of the Institute for the Study of Gambling and Commercial Gaming at the University of Nevada in Reno. "It is still hard to explain the popularity of (these) machines."

And that has gambling addiction specialists concerned.

"The more interactive a machine, the more it might exacerbate people who are at risk for gambling problems," says Keith Whyte, executive director of the Washington, D.C.-based National Council on Problem Gambling, which does not take a position on legalizing gambling.

Meanwhile, the trend underscores the arguments of lawmakers who oppose increasing the state's reliance on casino revenues.

"For the state to rely on these types of activities seems like not a very good plan," says state Rep. Barbara Flynn Currie, a top lieutenant to House Speaker Michael Madigan.

Currie has previously supported legalizing casinos and their expansion, but the Chicago Democrat said she did so with trepidation.

Breaking the Barrier

At the center of concern are new penny, 2-cent, 3-cent and nickel machines. Many look much like video games, sometimes with interactive touch screens, TV or movie clips and attractive themes like "Wheel of Fortune," Monopoly or "The Wizard of Oz."

These aren't your average one-armed bandits.

Psychiatric studies, focus groups, surveys and other intense research goes into empowering these slots to keep gamblers playing longer and betting more - and ultimately losing more, but somehow leaving happy.

"There is a science to everything," says Scott Herrington, a senior producer for WMS Gaming Inc., a major slot machine designer and manufacturer based in Waukegan.

At WMS' trendy programming office on Chicago's North Side, he walks along rows of new, vibrant slots in a small side showroom.

Jumping from machine to machine, Herrington illustrates the alluring elements his team of researchers and programmers have created to keep gamblers entertained and spending:

Bonus round: All of these new slots offer gamblers a chance to enter a second game level where they can rack up extra cash, sometimes by selecting boxes or targets to reveal prizes.

Theme: Many slots target demographic groups via movie, TV show or iconic themes such as "Star Wars" or "Happy Days." This is enhanced with video clips and theme songs. The longer a gambler plays, the longer the video and audio tracks run.

Hits: The more gamblers bet on a spin, the more often they will "win" or hit a combination that sets off video, theme songs and other psychological rewards. But often, the "win" ends up being less than the amount bet, say $1 on a $5 bet. The machine constantly encourages the gambler to "Bet Max."

"If you don't play all the lines, you are not seeing everything the game has to offer," Herrington says.

Control: Some new machines give players the illusion of control, such as bonus rounds that require gamblers to pick boxes or targets to win prizes. The newest line from WMS offers "mechanical" reels that have video graphics displayed on top of them. Herrington says some gamblers prefer reels because they don't trust a computer. These slots, like all slots, are actually run by computer chips.

Payout: Programmers set up these slot machines to pay out at different rates. Some "dribble" out small amounts to gamblers more often. Others hold back on small payouts to give fewer, larger ones. Herrington calls this "playing with the math" of the computer chip, which is set to withhold a certain percentage of total bets over a long period of time.

The best slot machine "is the perfect stew of all of this," summarizes Herrington.

All of these new elements draw in more gamblers and more money, but none of them loosen the machine's tight payout. That is determined by the casino operators.

As long as gamblers keep flocking to more entertaining, tighter machines, there is little reason for casino operators to increase the overall payout.

"Casinos are a business and obviously their interests are in maximizing profitability," Eadington says.

Winning Combo

The new video slots have proven an efficient moneymaker for both casino owners and state government.

Generally, these slots hold an average of between 2 cents and 6 cents more on every dollar wagered than higher denomination slots and older dime or quarter slots, according to the analysis of state records.

Those pennies quickly add up into millions of dollars for casino operators.

At Chicago's four area casinos, slot machines that withheld more than 10 cents of every dollar raked in 41 percent of the casinos' revenue last year. But bets on those tight machines amounted to only 26 percent of all slot wagers.

In all, tight slots took in $483 million last year for the suburban casinos. Chicago region slot players shelled out nearly $16 billion, with $4 billion of that going to the new video games.

Across Illinois, tight slots brought in nearly $600 million, making up 85 percent of the casinos' $718 million state tax bill.

This boom in revenue comes during years of decreasing attendance and stagnant wagering.

Since 2000, foot traffic at casinos statewide has dropped 13 percent from nearly 20 million visits to 16.5 million. The amount wagered, $25 billion, has stayed roughly even.

Yet, revenue jumped from $1.65 billion in 2000 to nearly $2 billion in 2007, or 20 percent, according to casino records filed with the state.

The revenue jump came directly from tighter slots.

Nearly half of all slot machines in the Chicago area last year held more than 10 cents from every dollar gambled, on average.

That is up from 7 percent in 2000 when 289 Chicago slot machines fell into that category.

"They have to make money from somewhere," observes David Schwartz, director of the Center for Gaming Research at the University of Nevada in Las Vegas.

Again, casino operators say they are only following customer demand. If the gamblers didn't like tighter, more entertaining slots, they could bet on something else or drive to another casino.

"These people are really looking for the entertainment experience," said Philippe Khouri, vice president of operations for Harrah's Casino in Joliet.

Though even Khouri concedes it is difficult for the gambler to realize the new video slots are tighter than older ones because of all the research companies like WMS put into them.

The bigger issue may be how long gamblers get to play the machine. Because of the bonus rounds and small, frequent paybacks, the new video slots allow gamblers to play a bit longer for their money.

Before, stingy slots would eat up money so fast, gamblers would realize their bad luck quicker.

"That is one of the reasons you never had a (payout) percentage that was very low," said Schwartz.

Too Enticing?

Many gambling addiction specialists worry the same technology that lures gamblers to tight video slots may also be more addictive. Several studies and surveys have shown more than half of addicts are hooked on slots.

"The slot machine is getting more and more savvy," says psychiatry professor Nancy Petry, director of the Gambling Treatment and Research Center at the University of Connecticut Health Center. "For some people the slot machines can draw out those (addiction) propensities. If slot machines were not around would those problems be drawn out? I doubt it."

But the field of low-denomination, video slots is so new, researchers have not had much time and even less money to study it.

A Harvard University-backed report published this year reviewed 47 studies that looked at how gambling technology influences addiction. The authors said there was no conclusive evidence better gambling technology can cause problem gambling. But the authors said more research was needed to make a clear determination either way.

Researchers in Australia and Canada, where video slots are more widespread, have led the charge in this field. Lawmakers and addiction experts in those countries have been pushing for safety measures on video slots, including limits on the amount a gambler can lose and making bill acceptors take smaller denominations.

Casinos in the U.S. haven't yet dealt with such a push.

For now, the science of making slot machines better - and more lucrative - pushes forward at full throttle.

One of WMS' newest models is Top Gun. Digital speakers surround the player in a cockpit-like chair. At the bonus round, players get to shoot down incoming jets. When enemy fire strikes, the chair rumbles.

"This is only the beginning," Herrington says standing in the noisy demo room.

Coming Monday: How Illinois compares with other Midwestern states in dealing with gambling addiction treatment and research. Coming Tuesday: A disproportionate number of problem gamblers who ban themselves from casinos live in cities with riverboat gambling.