Wednesday, October 29, 2008

The Tribe In The Media: R.I. Slot Parlor Payout Controversy

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This installment of The Tribe In The Media is a Pawtucket Times article that reports on the controversy surrounding the state of Rhode Island's reporting of VLT slot machine results at its two racetracks.

Sasse disputes Barrow's casino payout report
By Jim Baron
Pawtucket Times
October 28, 2008

PROVIDENCE — It may be easier for a bettor to figure out a way to beat the house at Twin River or Newport Grand than to calculate what the average payout to winners is at the two slot parlors.

It is not arcane statistical permutations that present the difficulty, experts say, but the way Rhode Island’s gambling halls report their income and pay out, something Department of Revenue Director Gary Sasse acknowledges and says may change as soon as this week.

Professor Clyde Barrow of the Center for Policy Analysis (CFPA) at UMass Dartmouth caused a furor late last week when he issued a hotly disputed report — titled “Rhode Island Gaming a Bad Bet for Players” — which claimed that while virtually all slot machines and VLTs across the country pay out at a rate of about 92 percent of what they take in, Twin River and Newport Grand pay out only about 72 or 73 percent.

“Completely inaccurate” is the way Sasse, whose department oversees the lottery, describes Barrow’s report.

“It is clear he does not understand the payout structure at Rhode Island’s video slot machine venues,” Sasse said. “Rhode Island’s slot machine payouts average 92 percent, in line with other gaming venues Barrow studies, and is considered the industry standard.”

He says Barrow makes an “apples and oranges” comparison between the raw cash taken in and winnings awarded at Rhode Island’s facilities and the individual machine payouts at other gambling venues. But even he allows that it might not be all Barrow’s fault.

Barrow says he measured the “cash in/cash out” overall at each facility, which is the way Rhode Island reports its gambling results, but Sasse says that figure, which he acknowledges is in the 70 percent range, distorts the chances of a player winning at any individual machine, which he says is in the lower 90 percent range “completely consistent with industry standards.”

Joseph Wienert of the Gaming Industry Observer, a New Jersey-based online subscription information service that tracks casinos and other gambling operations across the country and keeps score on what they are taking in and paying out, said,
“Every gaming jurisdiction in the country reports their slot hold the same way except Rhode Island.” The hold is the amount the house keeps after winners have been paid.

“Rhode Island, for reasons they have not explained to us despite our attempts to find out, does not report this,” Weinert said. “This is unfortunate because the two Rhode Island racinos (a combination racetrack and slot parlor, like Twin River and Newport Grand, which offers simulcast racing from around the country) are unnecessarily penalized when comparing public slot reports.”

He noted that management of the facilities tell him their payout percentages “are very competitive and right in line with Mohegan Sun and Foxwoods. They couldn’t afford not to be competitive with Mohegan Sun and Foxwoods.

“I do not doubt for a second,” Weinert said, “that Twin River and Newport Grand do pay out somewhere between 90 and 92 percent. Casinos rely on repeat customers for the bulk of their business. If these two racinos paid out what Rhode Island’s (reports) show them to be paying out, they would have lost most of their customers long ago. They would be out of business because it’s a bad deal.”

So where is the discrepancy between the 70-some percent that is reported and the 90-some percent Sasse says is actually paid out?

“Good question,” Weinert responds. With the East Coast Slot Report his company puts out quarterly, he said, “We have tried to provide an apples-to-apples comparison and we have attempted in the past to have the RI Lottery explain exactly what they are calculating, but we have been unsuccessful in getting that information. We have encouraged them to report it the same as other jurisdictions, but it is yet to happen.”

Each edition of The East Coast Slot Report comes with a disclaimer that says “The Rhode Island Lottery does not report handle or calculate hold percentage according to industry norms. The Lottery says its video lottery terminals pay out at about 92 percent, but we must use the lower, official payout figures supplied by the Lottery.”

“There are two ways of measuring this,” Sasse explained, “one is payouts. On average, the payouts on our machines are 92 percent. The second thing that’s measured, and this is where the confusion comes in, is ‘cash in/cash out.’ We have cash in/cash out as shown on our website at about 70 percent.”

Cash in/cash out is the overall activity at the entire facility for a given period of time. Payout general refers to the performance of individual slot machines.
“What Mr. Barrow apparently did was compare our cash in/cash out to (individual) machine payouts, painting Rhode Island in a bad light,” Sasse said.

Rhode Island is required by law to report cash in/cash out, Sasse added, but he will work with Department of Revenue staff this week to start reporting individual machine payouts as well.

“When you measure payouts on machines, which are what people are most interested in because that indicates the odds of their winning, the odds of their winning is just as great in Rhode Island as they are at Foxwoods or Mohegan Sun or any other casino.”

So, Sasse explained, if 100 people went into Twin River and dumped $100 each into various machines, they would walk back out with about 70 percent of what they came in with, but each individual machine will have paid out about 92 percent of whatever amount of money is put into it.

“By statute, and the direction of the auditor general, our website shows cash in/cash out, but after this episode one of the things I will be talking to the lottery director about” supplementing that with reports of the individual machine payouts.

Barrow wasn’t backing down on Monday. “We have all the raw data, going back to 1993, on which these calculations are based, which is the cash in/cash out, so we’ll stand by our numbers,” he said in a telephone interview. “I don’t know how they arrived at the numbers they put in their press release” which showed payouts as low as 88 percent but as high as 99 percent at various machines.