Slot Machine Profit Margin
Players share their thoughts on beating the Slot machines
By John Grochowski
When penny slots emerged, the game manufacturers needed a way to make bonus wins big enough that players thought they were worth playing for. Games with higher volatility, and bigger payoffs, were necessary in order to make them seem worthwhile to penny players
Slot machines are not “strategic” games like blackjack or video poker. There are slots that require you to make decisions, but none that are going to shift the long-term odds of the game.
That doesn’t stop players from trying to think of ways to beat the slots, and many have emailed to ask if there is any validity to their strategies. Let’s check a few out:
Tim, Pennsylvania: “I know that on video slots we don’t have to bet the max anymore. I usually just cover the all paylines with one coin bets. But one day I doing well—I was up to five coins a line on a penny slot, and I got to thinking. Would I have been better off to switch to one coin a line on a nickel slot? The nickels have higher paybacks, right?”
Slot Machine Profit Margin Calculation
That’s a theory that gets a qualified “yes,” but with a whole lot of reservations. For one thing, Tim’s theory assumes that you can find the same game on both pennies and nickels in the same casino. That’s by no means a given.
Even if you do find the game at both levels, the penny and nickel version won’t always have the same number of paylines. If you’re on a penny game with 20 or more lines, will you be satisfied to find an older nickel version with nine or 15 lines? If fewer paylines won’t keep you entertained, there’s no point in putting your money in the machine.
Jun 24, 2012 Favorite Answer It varies by jurisdiction. But the slot machines in most casinos pay back just over 90% of what they take in, leaving a profit of just under 10%. Table games also have win. The luck factor in a casino game is quantified using standard deviations (SD). The standard deviation of a simple game like roulette can be calculated using the binomial distribution.In the binomial distribution. If multiple points were enough to turn no-skill games like slot machines into profit centers for players, the casino wouldn’t be making the offer. Let’s make a couple of assumptions and do a little arithmetic. First, let’s assume the games pay 87 percent, which is pretty normal for a penny slot. FireKeepers Casino has 2,680 slot machines so the average revenue per slot machine per month is $7,201 which converts to an average of $240 per slot machine per day. During the same time period. Haddrill added that Bally improved its gross margins on slot machine sales while expenses fell. The company’s average slot machine price was $14,245 in the quarter, which compared with $13,329 a.
Then there are a whole slew of “ifs” about the type of game, such as:
Is the payoff on every winning combination simply multiplied by the coins-per-line wager, or is there a disproportionate jump with bigger bets? The disproportionate jump is why three-reel slots have higher payback percentages when you bet the max. Most video slots don’t have that kind of disproportionate jackpot jump, but double-checking is prudent.
Does the game have a progressive for which you’d be ineligible if you bet only one coin per line? Progressives have enough of their overall return tied up in the jackpots that you shouldn’t play if you can’t get the full pay.
Are there symbols or bonuses that are unlocked with higher wagers? Bally has a video version of Blazing 7s that works this way, where a one-coin per line bet won’t activate the 7s. I recently played a version of the Cars game from Incredible Technology that needed at least a two-penny bet per line to unlock a bonus event. If you can’t get all that a game has to offer for a one-coin per line bet, and betting more than one per line is outside your bankroll’s comfort zone, then you need to find a different game.
If the game is a pure multiplier, and you can get all the features with one coin per line bets, then yes, the game’s payback percentage probably is higher on nickel versions than on penny machines. It’s standard operating procedure for casinos to offer games with lower payback percentages on pennies than on nickels, which pay less than quarters, and so on up the line.
Scott, Indiana: “I go to a casino that has signs on slot machines saying that some give double points every day, some give 3x points, and others give 4x points. They’re not the flashiest games. They’re not offering that deal on The Hangover or The Wizard of Oz. They’re mostly penny video free-spin kinds of games. Can those extra slot points make the games profitable?”
If multiple points were enough to turn no-skill games like slot machines into profit centers for players, the casino wouldn’t be making the offer.
Let’s make a couple of assumptions and do a little arithmetic. First, let’s assume the games pay 87 percent, which is pretty normal for a penny slot. And let’s assume the player rewards club pays 0.25 percent in free play. An example of that would be a club in which each $4 in play earns one point, and each 100 points is redeemable for $1.
At those levels, single points effectively turns an 87 percent game into an 87.25 percent payer, with the combined return going up to 87.5 percent at double points, 87.75 percent at triple points, and 88 percent at quadruple points.
Multiple slot club points can’t even begin to make up the entire house edge on penny slots. Even on dollar slots, where some generous casinos return 95 percent, 4x points raise that only to 96 percent—nowhere near profit level.
If there’s an opportunity for slot club points to turn a game profitable, it’s on video poker in casinos that offer top-notch pay tables. Full-pay Deuces Wild (100.8 percent) and 10-7-5 Double Bonus Poker (100.2 percent) are among a handful of games that return more than 100 percent to the few who play at expert level.
Those games are few and far between. Even in Las Vegas, those pay tables are becoming rare, and there are some jurisdictions in the United States where they are illegal. Illinois, for example, won’t allow any games with a theoretical payback percentage of greater than 100 percent.
In some circumstances, multiple slot club points can turn the next tier of games into profitable possibilities, provided you take the time to learn to play them well. Full-pay 9-6 Jacks or Better returns 99.5 percent with expert play. A 0.5 percent player rewards bonus turns it into a potentially profitable game.
But Scott didn’t mention video poker in the list of games drawing multiple points where he plays. So that rewards bonanza is just a nice little perk—something extra to take away if you enjoy the games that bring the added points.
Ella, Louisiana: “My strategy on the video slots is to look for games that have those bonuses where you make picks. I seem to be able to play a lot longer and have more fun on those games. My sister doesn’t agree. She likes the games with the free spins and says my games are boring, and that you can’t win anything playing them. Do you think that’s the right strategy, going for the pick games?”
There is a difference between pick-‘em and free-spin games that Ella is picking up. When video slots made their breakthrough in the United States in the late 1990s, they mostly had pick’em-type bonus events. They were low volatility games designed to keep players in their seats. Big jackpots weren’t the order of the day. It was all about small, frequent bonus wins to extend play and entertain customers.
Many fans of three-reel slot games found that style boring. To them, the thrill was in chasing the jackpots, even at the risk of fast losses.
When penny slots emerged, the game manufacturers needed a way to make bonus wins big enough that players thought they were worth playing for. Two hundred nickels thrilled some on the first video slots, but 200 credits on a penny machine is only two bucks. Games with higher volatility, and bigger payoffs, were necessary in order to make them seem worthwhile to penny players.
That’s where free spins came in. The math of the games can work so that it’s possible to win thousands or tens of thousands of credits in five or 10 or 20 free spins, but it’s also possible to win next to nothing. Artistocrat Technologies of Australia was already making free-spin games. Other manufacturers followed suit, and it became an extremely popular format.
Nowadays, with many of the most popular video slots featuring multiple bonus events, it’s a bit of an oversimplification to say free-spin games are for jackpot chasers, and pick’em games are for those who want to sit back and be entertained. But that’s where the roots are, and it remains true to some extent. In seeking out pick’em games, Ella has the right strategy for getting what she wants from a game—extended play, and lots of fun.
Gambling is good business, or at least a profitable one. According to the American Gaming Association, in 2012 the 464 commercial casinos in the U.S. served 76.1 million patrons and grossed $37.34 billion.
Each year gaming revenues in the U.S. yield more profits than the theatrical movie industry ($10.9 billion) and the recorded music industry ($7 billion) combined. Even the $22.5 billion combined revenue of the four major U.S. sports leagues is dwarfed by earnings from the commercial casinos industry.
Gambling is such good business that despite reported negative impacts — such as increased poverty and unemployment, higher crime rates, and decreased property value in nearby neighborhoods — the state of Illinois early this year passed a law to allow slot machines in all establishments that sell alcohol.
Gambling is not just common, it's also accepted. Despite the fact that for an estimated 4 percent of the population gambling represents a problematic and even pathological addiction, 85 percent of Americans feel that gambling is either perfectly acceptable for themselves or if not themselves for others in a country where more than 20 states now allow some form of commercial casino.
It's not too hard to see why casino lobbyists believe casinos make a positive contribution to the communities in which they operate.
It's far less easy to understand why so many Americans enjoy gambling even though it tends to result in the loss of money.
You lose, the casino wins
As a general rule, we tend to repeat behavior that produces desirable results and avoid behaviors that result in loss. We repeat jokes that people laughed at, choose jobs that we enjoy and that pay the most money, and avoid behaviors that produce fines. Following this logic, one would expect a gambler to only play as long as they are winning and then cut their losses when they begin to lose.
Yet gambling appears to operate differently; players play faster after losses and bet persistently regardless of the percentage of payback, magnitude of return, or the lack of winning entirely. So what encourages gambling behavior if losing occurs more frequently, and payouts do not exceed buy-ins?
One explanation is that gamblers poorly judge the actual probability of winning, even as their pile of tokens and coins dwindles before them.
Slot Machine Profit Margin Ratio
Some examples of this phenomenon can easily be seen in the language of gamblers. 'My luck is going to turn,' 'A win is coming,' or 'I am on a hot streak,' are all statements that speak to an over-confidence in one's ability to predict functionally random events.
Gamblers will often say these things after an unusual series of outcomes, for example, ten straight losses on red at roulette. The gambler may then proceed to bet more on red, in the false hope that the next spin is more likely to come up red due to the overall probability of the game (50 percent chance of red).
This flawed logic is called 'The Gambler's Fallacy.' It stems from a misunderstanding of how probabilities are assessed; in fact the outcome of the previous spin of the roulette wheel has no influence on the outcome of the next spin. The probability of red remains stubbornly fixed at 50 percent.
Missed it by that much
Another example of how gamblers misjudge losing outcomes can be seen when individuals respond to losses that are similar in appearance to a win. Receiving two out of three symbols necessary to win on a slot machine is a loss but players often respond to this 'near miss' with excitement, increased betting and more persistent play.
Winning and almost winning are such similar events to many people that they respond in the same way to both. People pause, for example, for longer after a win than a loss. This is known as a 'post-reinforcement pause.' People often pause for longer after a near-miss.
It's no accident near misses are pretty common on slot machines.Mark/Flickr, CC BY-SA
Winning and almost winning are so alike in gamblers' brains that research on the dopamine-transmitting pathways of anticipation and reward show remarkably similar activation patterns for a near-miss and a win.
Near-miss effects are not limited to outcomes that look similar to win. Outcomes that are closer to a win in a more abstract sense also cause a similar response.
For instance, the near-miss effect has been demonstrated in games where 'nearly winning' might relate to scoring a number that is close to a winning number, such as in blackjack.
Near-miss outcomes are not the only form of almost winning that contributes to the behavioral confusion faced by gamblers. Modern slot machines also present a myriad of features that are designed to confuse outcomes.
Slot confusion
One feature present in almost every modern slot machine is the partial win or 'loss disguised as a win.'
Since slot machines have gone from the traditional 3-reel 1-line slot machine to the modern 5-reel video slot, often with 25 or more winning lines, near-miss outcomes have become almost unidentifiable from other losing outcomes.
By encouraging individuals to play on more than one line, casinos have created a scenario where players are awarded a win on almost every spin.
Despite the increased frequency of winning, the proportion of money returned is often far less than the entire bet, such as winning 10 cents on a 50 cent bet. This 80 percent loss is accompanied by the same sounds on the machine as a real win and occupies the same area of the screen that wins are reported in.
Since noticing near-misses on modern slot machines is difficult, game makers have incorporated other game features such as free-spin symbols, mini-games, and progressive awards, which create new near miss situations while often not guaranteeing any increased value of a win themselves.
For example, special symbols might be placed on the reels that provide 10 free spins whenever three appear anywhere within the game screen. These symbols will often make a special sound, such as a loud thud when they land; and if two symbols land, many games will begin to play fast tempo music, display flashing lights around the remaining reels, and accelerate the rate of spin to enhance the saliency of the event.
When you win these sorts of outcomes you feel as though you have won a jackpot; after all, 10 free spins is 10 times the chances to win big money right? The reality is that those 10 free spins do not change the already small probability of winning on any given spin and are still likely to result in a loss of money. For many games, features such as this have entirely replaced standard jackpots.
These features share one important characteristic: they allow the casinos the ability to provide more outcomes that feel like a win while not increasing the actual payout. The effect of these features is so significant that in 1989 the Nevada Gaming Commission banned algorithms that purposefully increased the prevalence of near-miss outcomes. Of course, this only applied to the intentional increasing of near misses when a loss is already determined, i.e. artificially producing a near miss instead of what the reels would have normally landed on.
Unfortunately, these laws do not preclude the intentional design of reel layouts that, without additional manipulation, produce frequent near misses and losses disguised as wins. These laws also do not apply to the newer game features which either highlight the near miss, such as accelerating reels, or create entirely new topographies of outcomes, as is the case with free-spins or mini-games.
While the question of how to best manage artificial manipulations of near misses may be a topic of future regulatory discussion, the decision to play games with these illusions will ultimately fall upon the end user.
As long as you are willing to expose yourself to the game in the first place, the casino need only sit back and wait. And with increasing availability of casinos across the U.S., they won't need to wait long.
The authors do not work for, consult to, own shares in or receive funding from any company or organisation that would benefit from this article. They also have no relevant affiliations.
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