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  1. #1
    Senior Member Random$$Slots's Avatar
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    Debate over hold percentages between slot makers and casinos not going away

    Buck Wargo, CDC Gaming Reports March 23, 2019 at 1:25 pm

    It doesn’t sound like the tension between slot machine manufacturers and casinos over hold percentages is ending soon. That was a takeaway from an educational conference last week in Las Vegas about making peace between the sides.

    Panelists at the University of Nevada, Las Vegas-sponsored event made their points during the discussion.

    Casino operators say manufacturers build expensive games and the slot developers say operators set the payback percentages too high for players to reach bonus levels and have a better experience.

    One theory? Casinos are trying to recoup the cost of the machines.

    Kathleen McLaughlin, vice president of marketing and product management for slot maker Novomatic Americas, said the games are designed to provide certain experiences for players, but casinos want to make as much money as fast as they can because they’re focusing on quarterly earnings and year-over-year comparisons.

    Slot manufacturer can put the game at a 15 percent hold, but a performance guarantee adds to a layer of cost that can lead to a “death spiral” by constantly changing games on the floor. Performance guarantees mean the operator can keep replacing the game themes on a cabinet without incurring conversion costs.

    “It hurts to tighten those games, and if you understand the players, the best marketing you can do is allow them to walk out of the casino with $500,” McLaughlin said. “They’ll come back in two days or for six months or two years. It’s a beautiful marketing plan, and it’s so simple, but we continue to over-analyze and over-think and not allow the one thing they want and are playing for.”

    Jeff Jordan, executive director of loyalty and rewards for PlayStudios who’s worked for both slot makers and casinos, said setting the price on the slot machine floor is “best delegated to the operator” because they do the analytics and know their customers.

    Jordan said the industry needs to spend more money marketing games and have a platform to recommend games to players, much like Amazon does in recommending retail buys based on their customers’ preferences.

    “That helps the consumer decide what games they select and that they’re getting on the right game,” Jordan said. “That’s an important initiative.”
    Former Borgata Atlantic City CEO Bob Boughner, now a partner with Global Market Advisors, said hold percentage is not something to be tinkered with without an abundance of information. He said it’s not about getting along between slot makers and operators because it’s not a war. It’s commerce.
    “One of the challenges that operators face is that the decision-making process in some companies starts at a low-level as it should but it’s not low enough,” Boughner said. “The customer is often not included in that process, and they should be.”

    Jordan said there’s “a capital flow problem” in the industry and as new slot machines come online in new casinos that has a “cannibalization effect” on the whole market.

    McLaughlin said while the games are expensive, they generate revenue if managed correctly. Slot makers could be smarter and more thoughtful about pricing, but no one is pricing product “out of whack,” she said.

    Gavin Isaacs, the non-executive chairman with SBTech, said taking away a player’s experience on a slot machine is like trying to sell someone a purple car.
    “If people put $200 in a machine and get 40 minutes of play and only get $20 now, that customer isn’t going to be satisfied no matter what other perks they get during their stay at the casino,” Isaacs said. “What one casino does to the hold percentage of a game at their property can damage that game’s brand at another property.”

    History, according to Jordan, showed increasing the hold percentage of video slots didn’t impact bottom-line revenue and casinos rolled out more.
    Buddy Frank, president of BF Slot Strategies, who moderated the panel discussion, said the Great Recession in 2008 scared operators who are “still a little bit in shock mode” and their capital budgets didn’t recover as robustly as they should have.

    “They have a little bit of fear about buying products, and when they’re more expensive, there’s a little more fear,” said Frank. However, he added, “the good products today are earning well.”

    Frank said in his experience increasing hold percentages can have a positive revenue impact in the short term, but almost certainly ends up being very costly over the longer term.

    McLaughlin recalled a meeting with casino executives who were looking at how to increase the hold. The analytics side didn’t consider what would happen to their customers.

    “That meeting stays with me because they thought it was okay to lose a certain amount of business because they could drive new business and keep capturing new customers,” McLaughlin said.

    Frank said he wants to correct a popular opinion that slot revenues are declining.

    “They’re not. They’re growing faster than the economy nationwide,” Frank said. “In markets like Las Vegas with lots of competition and perhaps too many units, some operator’s shares are declining. But nationwide, slot revenues are still strong and growing.”
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  2. #2
    Senior Member Grid's Avatar
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    This was part of a general panel at G2E in Vegas last year that I sat in on.

    My takeaway from hearing everyone else talk, the Genie is out of the bottle. There is no going back to 5% holds on slot machines. The world doesnt work like that any more. I wish it did! I could gamble all night in Vegas in the last 90's on $100. But there were no $8.88 max bet penny slots back then either.

    The 5% day saw Slot makers rolling out maybe a dozen new titles a year. And most other "new" games were just reskinned versions of older designs. All IP rights were in house, Cleopatra, Texas Tea, Double Diamond and the like. You had no one to pay for the rights to use something, and most all machines sat on the same platform. So, games were cheap, and not many new ones rolled out each month. The pool of people making slots was also very small.

    Now? You have to pay for the rights to use Gene Wilder's picture, the studio wants their money for the Wonka movie. Rights go back to the estate of the person that wrote the book, and owns the characters. Even the guy that wrote that catchy music for the movie needs his cut. And you no longer have "A" Wonka game, you have a new one being rolled out every 6 months or so. And all of them sit in a different platform. Players now want to only play the newest games, so they demand new machines or else the casino is not enticing.

    Yes, machines cost more now. But they are no longer just a mechanical box. And because of that, many casinos just lease these games. That means if they were once happy with a 5% hold, they must now climb to 10% so they net their 5% after splitting revenue.

    Add in the fact that Free Play has gone sky high, to keep us coming back in spite of those horribly high holds, and how do you turn back the clock?

    As a player, I want to sit on the coolest of new machines, with all the bells and whistles. I am Ok with a 5% hold. And I want every game in the house to earn points/comps at the same rate. None of this MLife Specialty Slot BS. Buit that is all in my favor.

    If the casino wanted change, and they wanted to turn back the clock, they would own all their machines as they once did. But those would all be the same Top Dollar, Double Diamond and IGT base games that there once was. No more new inventory every couple of weeks. No big big flashy themed games. And since these are all 5% hold once more, No more $250 in Free Play to the players, they would go back to a couple nights in a room and some free buffets.

    The damage is done. Even if someone proves the math that players will sit twice as long, to lose the same amount of money on a slot if the holds were better. And that means the casino would earn the exact same revenue, and players would be happier. Someone corporate suit would point out that playing twice as long means twice as many free drinks, more wear and tear on a slot stool and the cost of electricity to run that game goes up, and they would just keep doing what they are doing.
    Last edited by Grid; 03-25-2019 at 11:25 AM.

  3. #3
    Senior Member Rich99's Avatar
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    Grid, Very well said!
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    Senior Member Rich99's Avatar
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    Quote Originally Posted by Random$$Slots View Post
    Frank said in his experience increasing hold percentages can have a positive revenue impact in the short term, but almost certainly ends up being very costly over the longer term.
    He's got that Right!
    Last edited by Rich99; 03-25-2019 at 02:43 PM.
    Here with You! since 9/29/09

  5. #5
    Senior Member Rich99's Avatar
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    Quote Originally Posted by Random$$Slots View Post
    McLaughlin recalled a meeting with casino executives who were looking at how to increase the hold. The analytics side didn’t consider what would happen to their customers.
    Dumbasses. lol! !
    Last edited by Rich99; 03-25-2019 at 02:44 PM.
    Here with You! since 9/29/09

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    I feel like we are the cow that is being milked to death. The shortsightedness is staggering. When I hit a nice jackpot, the wife and kids get to go shopping for something special. We go to a nicer dinner, maybe upgrade to a suite. When it feels like you are throwing the money away, the desire to go back fades away. The servers then do not get as many large tips, the tables are more empty, ect. Then 4 yrs later after they start to see real declines, its something to discuss. I had over 150k coin in just at MGM detroit last year. Barely made it to Gold tier because they screw detroit players on tier credits. My freeplay offers are still below 100$ each week. Do I feel valued, hell no!

  7. #7
    Senior Member Grid's Avatar
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    Quote Originally Posted by bigred1001 View Post
    I feel like we are the cow that is being milked to death. The shortsightedness is staggering. When I hit a nice jackpot, the wife and kids get to go shopping for something special. We go to a nicer dinner, maybe upgrade to a suite. When it feels like you are throwing the money away, the desire to go back fades away. The servers then do not get as many large tips, the tables are more empty, ect. Then 4 yrs later after they start to see real declines, its something to discuss. I had over 150k coin in just at MGM detroit last year. Barely made it to Gold tier because they screw detroit players on tier credits. My freeplay offers are still below 100$ each week. Do I feel valued, hell no!
    The rub is, we are addicts. Its easy to say "I'm not playing any more" when we keep playing. The holds go up, and players still play. And if you stop going, be sure a new player will take your place. Gambling is growing. US Casinos won a total of $42BIL from gamblers in the US last year.

    So why would they change anything? Look at the last 5+ years of slot playing in Nevada.
    2014 slot revenue 6,746,835
    2015 it was 7,003,484 up 3.8%
    2016 it was 7,163,156 up 2.28%
    2017 it was 7,431,841 up 3.75%
    2018 it was 7,712,891 up 3.78%

    The holds go up, and so does their revenue. Why would they change? If the trend was, the holds were too high, we didnt play as much and revenue dropped, they might listen. But that is not what is happening.

    Nationally the rake was up 3% in 2017 over 2016. 3% again in 2018 over 2017. It keeps growing. It is too hard to argue that if they loosened the holds, that we would all play more. When we are showing up in droves right now to play the current wallet sucking slots.

  8. #8
    Senior Member Rich99's Avatar
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    Quote Originally Posted by Grid View Post
    The rub is, we are addicts. Its easy to say "I'm not playing any more" when we keep playing.

    Nationally the rake was up 3% in 2017 over 2016. 3% again in 2018 over 2017. It keeps growing. It is too hard to argue that if they loosened the holds, that we would all play more. When we are showing up in droves right now to play the current wallet sucking slots.
    Grid I hear ya, and I understand the casinos logic but just speaking for myself their reasoning doesn't work with me... Back in the day about 10+ years ago I would visit my local with my wife & daughter an average of twice per week. I would hand the girls $200 each and had at least another $400 for myself and backup money if the girls needed it. Our average visit was 2 to 3 hours, Yes we had our share of loosing sessions but we Never got hurt or walked out without money. Today I would get Totally Destroyed! So now at the Most we go once per month, that is a drop from at least 8 times per month down to 1!!
    So I guess the bottom line is the casinos logic dosen't work with me and I got a feeling I'm not alone...
    Here with You! since 9/29/09

  9. #9
    Senior Member Grid's Avatar
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    Quote Originally Posted by Rich99 View Post
    Grid I hear ya, and I understand the casinos logic but just speaking for myself their reasoning doesn't work with me... Back in the day about 10+ years ago I would visit my local with my wife & daughter an average of twice per week. I would hand the girls $200 each and had at least another $400 for myself and backup money if the girls needed it. Our average visit was 2 to 3 hours, Yes we had our share of loosing sessions but we Never got hurt or walked out without money. Today I would get Totally Destroyed! So now at the Most we go once per month, that is a drop from at least 8 times per month down to 1!!
    So I guess the bottom line is the casinos logic dosen't work with me and I got a feeling I'm not alone...
    And I hear you! But the casino makes the call, not us. 10+ years ago most casinos had a completely different slot inventory on the floor. Games that you could sit on. But that wasnt as efficient for them. Its like gaining weight, if you gain a pound a month your wife might not even know it. 3 years later, running into an old High School buddy, he will notice those extra 36 pounds.

    The casino is inching forward on holds. It has been this way for roughly 20+ years. Most players either dont notice, or dont care. The amount of games you can now play at a 40 cent MIN bet today is crazy compared to the late 90's. So, the "I just want to sit and play" crowd has more options.

    To the casino, it is easier for them to take $400 off you 6 times a year, then your old habbit of going every month and dropping $200. They might not get your money, but with the National spread of gambling, there is a steady stream of players that did not exist 10+ years ago. One man goes down, and two pop up.

    I wish it wasnt so, but here we are!

  10. #10
    Senior Member Rich99's Avatar
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    Thanx for your explanation Grid! Well said...
    Here with You! since 9/29/09

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