SPG Research Center
Casinos and state lotteries are the most predatory business in America and their windfall is coming at your expense.
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Las Vegas tightens its belt, and yours tooAnd you thought that just those playing the daily sports fantasy games, or the lottery’s new Keno games, or the new casinos in Massachusetts, or the casinos at the racetracks were the only ones being hurt. Not so. Las Vegas is also hurting from the ubiquitous competition in nearly every state. Las Vegas, however, is fighting back. Someone has to pay the electric bill for all those fancy lights. Las Vegas was famous for the “comps,’ the complementary meals and hotel rooms, the free drinks and even an occasional airfare for really big spenders. But now Las Vegas is scaling back the comps. Free rooms are less frequent. Free airfares to Vegas are almost unknown. While the cost of drinks is kept low the free drinks are beginning to go the way of the dinosaurs. The ultimate insult that annoys visitors by car the most is parking fees. Twenty-four hour parking is now $10 at many casinos, which while not too high, annoys because it used to be free. Remember the great room rates? Some places were $30 and $40 per night for some really nice rooms that had been fixed up after previous losers had trashed them. Now many hotels with a pool and a weight room are charging “resort” markups of $29 to $32 in addition to the cost of the room for the use of the amenities. A rational person might think this foolish, since the customers might take more time away from the slots and tables to get their monies worth from the “resort.” When you finally get to the gaming floor, you get hosed again. Nobody is advertising the “loosest slots in town” anymore, as the percentage of return has moved from the low nineties to the upper eighties. At the black jack table, black jacks pay out at a 6 to 5 ratio instead of 3 to 2 in the good old days. Aces can no longer be split, and you can’t double down on anything other than a ten or an eleven. And as the evening wears on and you are more drunk the bartenders reduce the amount of booze to the mixer. It is at least harder to get drunk later in the evening. The casinos are merely trying to maintain profitability. Isn’t that the American Way? It is almost enough to make you rethink your next visit to Vegas. The only thing that stays in Vegas these days is your money. Michael Kaplan, “Vegas is trying to cheat you out of even more money,” New York Post, August 11, 2016.
Churchill Downs continues to proper, but not with horse racing aloneOf the 64% of Americans who gambled on something this past year, only 7% gambled on horse racing. Yet Churchill Downs enjoyed a record setting second quarter with revenues of $438.5 million, up 7% over last year. By holding expenses stable, profits rose to $69.8 million which was a 26.7% increase. The Derby reported gains of $5.2 million, just a tiny fraction of the whole profit picture. So where does the big money come from? The big mover was Big Fish Games, Churchill’s PC and apps game division. This division reported a $20.7 million increase in revenue for the quarter, an increase nearly four times the revenue from the racetrack. Twin Spires, which is the advanced deposit wagering operation, also reported a $7.9 million increase in revenue. While the track is doing well on Derby Day, the real money comes from various forms of online gambling. Churchill also owns several race tracks and casinos around the country, but that revenue is relatively stable, but still sizable. So the secret to success for a horse track is to diversify into other forms of gambling and have your major competitor (the Stronach Group) go into bankruptcy. Janet Patton, “Churchill Downs earnings get 27 percent boost from Big Fish Games, Kentucky Derby,” Lexington Herald-Leader, Thursday. August 4, 2016, Page 6A.
Graphic Presentation or video: does it matter?The Franklin Circuit judge ruled that a graphic representation is as good as a video and does not affect the issue before his court which is whether the gambling is pari-mutuel. In one small concession to The Family Foundation, Judge Wingate granted the Foundation two more months for discovery on whether the machines are pari-mutuel. The defendants have been less than cooperative, hence the extension. While the case drags through the courts, the tracks continue to make money. Kentucky Downs, near Franklin, Ellis Park in Henderson and the Red Mile/Keeneland tracks have taken in $641 million in bets since the beginning of this year. While they only keep about 10%, something over $60 million is a tidy addition to the profit line. The tracks have asked for a summary judgment that the new Encore game is pari-mutuel. Stan Cave, our lawyer, is soldiering on. Pray for him. The games are not pari-mutuel, but that does not mean the court will rule that way. In Kentucky horse racing has outsize power and strong control of the Kentucky House. While we believe we are in the right, that does not mean we will win. Janet Patton, “Horse graphics OK in historical racing game, judge finds,” Lexington Herald-Leader, July 31, 2016, page 3A.
Skill Based SlotsThe next wave of slots will have an element of skill involved, which will slightly increase the player’s chance of winning. The goal is to entice younger players who largely shun regular slot machines. The difficulty is to provide for the skilled player while still having odds that favor the house. Such games are currently under development by some smaller slot manufacturers. Small sections of the casino floor will be devoted to the machines. One thing that will slow adoption is that where a regular slot machine plays every five seconds, the skill games take about 20 to 60 seconds per play. The casinos hope that capturing more young players will help make up for the roughly 17% drop in slots play since 2007, whereas table games have dropped only 3%. While some executives are content to wait for women to grow into 51 year old slots players, others are looking for different answers. It took casinos ten years to adopt tickets or credit card play at the slots, and it is expected that it will take 10 years or more to adopt smart slots. Casino owners also worry that the new machines will cannibalize older slots, and reduce the 77% average that casinos receive from slot machines. Casino owners hope that addicted players will be drawn to the skill machines and lose their money more slowly, but that is also a gamble. May the woes of casinos grow. Alexandra Berzon, “Are Slot Machines About to Get Smart?” The Wall Street Journal, June 15,2016.
New gambling for kidsNow we have a “weird” new $2.3 billion gambling game involving garish virtual assault rifles. The latest scandal involves “video game weapon skins” available to any age including kids using parents credit cards. The video gaming world based on “Counter-Strike: Global Offensive”(CS:GO) is huge and complicated. There are various levels of play and games going on around the world that include pro leagues and involve 380,000 players at any one time. Players form teams of terrorists and counter-insurgents who shoot at each other, which is a thoroughly edifying and character building activity. A tournament in early April sold out the Nationwide Arena in Columbus, Ohio and had 71 million online viewers over a four day period. The game was not particularly successful until the originator Valve introduced a new gimmick called skins. The skins were virtual decorated weapons that could be bought during the game, and then sold, hopefully at a profit, more frequently at a loss. Video gaming is not a sport, but in common with soccer, football, basketball and baseball, people like to gamble on the outcome. So you can gamble on the games or on the on-line trade in virtual weapons, a black market without the danger of being mugged. Most of the skins markets are run by operators other than Valve. There is no consumer protection. Games have been fixed, insider information has led to huge bets, seven players have been banned, and teenagers are being turned into addicted gamblers. The online games are banned in only four states. A comprehensive introduction to this new phenomena is by Joshua Brusten and Eben Novy-Williams, “Virtual Weapons are turning teen gamers into serious gamblers,” http://www.blomberg.com/features//2016-virtual-guns-counterstrike-gambling/ July15, 2016.
Electronic Gaming Machines and Domestic ViolenceFor several years the relation between various gambling venues and domestic violence has been established in several studies. This particular study investigates the relation between electronic gambling machines and domestic violence reports by postal codes in Australia. The study used police recorded domestic violence reports per 10,000 population in relation to electronic gaming machines per 10,000 by postal code. The researchers found that postal codes with no EMGs had 20% fewer family incidents per 10,000 and 30% fewer assaults. Around the world approximately 30% of women suffer domestic abuse during their lifetime. Gambling is an under-researched factor in domestic violence. For those researching domestic violence, gambling is a “hidden” factor. What it says for all of us is that the presence of a casino is as important as the presence of good schools for the well-being and social health of our families, especially if a member of the family is a gambler. Francis Markham, Bruce Doran, and Martin Young, “The relationship between electronic gaming machine accessibility and police-recorded domestic violence: A spatio-temporal analysis of 654 postcodes in Victoria, Australia, 2005-2014,” http://www.sciencedirect.com/science/article/ June 22, 2016.
Lottery RiggingU.S. Senator John Thune, a Republican from South Dakota, has sent a letter demanding a hearing to the leaders of the Multi-state Lottery Association. He claims the lottery association has done little to assure that the theft cannot occur again. Eddie Ray Tipton was convicted last year while director of security for MUSLA of rigging a multi-million dollar jackpot in the Iowa Lottery. He faces trial this month for other rigged lotteries in Kansas, Colorado, Oklahoma and Wisconsin. The MUSLA fired Tipton, discontinued use of his computer, and has cooperated with the police. Senator Thune is not sure that is enough to prevent other riggings. Chris Francescani, Senator Demands Answers on Lottery, NBC News, June 29, 2016, Available at http://www.nbcnews.com/news/us-news/
Battle of kottery game suppliersIn a display of just how competitive and nasty the lottery business can be an employee of Scientific Games in Alpharetta, Georgia downloaded thousands of computer files, which included intellectual property, trade secrets, contracts, marketing and sales plans and data files. He then accepted a position with International Game Technology. Scientific Games filed suit in Federal Court in Gainesville, Georgia. Scientific Games claimed that the files contained a “roadmap for stealing away business” by underbidding. A total of 13,800 items were downloaded to external hard drives. Scientific Games asked for a temporary restraining order to prevent the release of the files. Just how effective that will be without also accusing the former employee of theft remains to be seen. This is the most massive theft among gambling companies of which I am aware. Associated Press, “Lottery firm says its ‘most prized’ secrets have been stolen,” http://wate.com/2016/06/26/