Is it time to raise the $5 limit?

Oct 2, 2006 3:29 AM

The daughter of a well-heeled family lost her job. The mid-20s career woman was understandably extremely upset. The mother assured her that as long as she and her father were around, that she would not starve. The daughter replied, "not starve ”¦ as in eating hamburger instead of steak?"

Some of the limited stakes casinos in Colorado want to upgrade to steak. According to published reports, an initiative to raise the limited stakes wagering cap from $5 is being floated for the 2008 election. In short, the casinos want to change the deal — the terms of which were approved by Colorado voters in 1991.

To paraphrase the incredibly callous Rumsfeld on the far more serious topic of troop safety, you don’t go into the casino business with what you want, but what you have. Casinos decided to own and operate facilities knowing limited stakes gaming’s regulations.

Yes, Iowa eliminated their initial $5 maximum wager and $200 loss limit well over a decade ago; at the start of the new millennium South Dakota raised their maximum wager from $5 to $100; and numerous states have eliminated "cruising" requirements.

But good old stubborn as a mule Missouri has not raised its $500 per two hour phantom cruise loss limit. Of course the agreement as per the citizenry vote to only allow games of skill (e.g., where decisions need to be made such as poker or black jack) to the permitting of all Class III games (i.e., including games of luck such as slots and roulette) was pretty well bulldozed and about having to actually sail”¦it’s damn difficult to move a boat in a moat.

Slots provide the overwhelming majority of gaming revenue for Colorado casinos. At 96.2% of contributed adjusted gross proceeds (AGP) for fiscal year 2006, slot machines are the workhorse of limited stakes gaming here.

With pennies contributing to 30.86% to AGP at an 8.68% hold, dollars with 21% at 4.67% hold and quarters with 19.6% at 4.98% hold, the big bet of $5 denomination contributes only 2.87% at 4.07% hold.

The penny machines in terms of units comprise 28.5% of all machines and have an average daily AGP (ADAGP- the equivalent of average win per device per day) of $132.73, dollars comprise 16.49% with ADAGP of $156, quarters comprise 21.79% with ADAGP of $107.81, and $5 comprise 1.73% with ADAGP of $203.61.

Taking this information one step further it can be seen that penny machines while comprising 28.5% of the number of machines, the AGP contribution is 30.86% - (108% of assumed share), dollars 16.49% of machines, the AGP contribution 21% - (127% of assumed share), quarters 21.79% of machines, the AGP contribution 19.6% - (90% of assumed share), $5 1.73% of machines, the AGP contribution 2.87% - (166% of assumed share).

Sorry for the facts and figures, but without understanding the numbers, the argument of casino owners in favor of raising limits is difficult to comprehend. It is understood that in any given gaming position decision (i.e., per spin) no more than $5 can be wagered; thus a penny player may bet up to 500 credits on a multi-line, but no more.

The salient question to pose is what is the average wager per decision (i.e., how much is bet per spin) on the different machines.

According to a researcher at a major slot manufacturer, the amount wagered per decision (on average) is as follows:

With multi-line video slots, penny games have an average of $0.47 on non-side bet machines, with side bet machines at $0.70.

For nickels, the average wager is $0.90 (e.g., on a 9 line machine, two credits are bet on each line).

Quarters come in at an average wager per decision of $2.75. The source goes on to express that the trend is that over 75% of the machines placed (new) in a casino are pennies or multi-denomination including pennies. As a general rule, the average wager for multi-lines is consistently below 30% of the maximum possible wager.

With traditional stepper reels (e.g., Double Diamond, Blazing 7s), the average wager on a dollar denomination, $2 max is $1.80 and on a $3 max, $2.50.

For the $5 machine, the average wager is closer to $6 than the $10 wager allowed. With games that bonus incremental wagers and progressives such as Megabucks or Money for Life (where the maximum wager has to be played to win the big prize), the average wager per decision rises very close to the maximum wager allowed.

Again, in a limited stakes market, the highest wager allowable is $5, so all machines must be set by the manufacturers not to accept any combined wagers (e.g., nickel bet on 100 lines) over $5.

Thus, one can see that raising the average wager per decision amount allowed for slots would not substantially change revenue streams.

The table games are a different matter. Presently Colorado shows a $295.42 ADAGP at a 19.89% hold and Deadwood (another limited stakes market — at $100 maximum wager per gaming position) yields $227 ADAGP at 17.22% hold.

The substantial money is made on blackjack and other table games in non-limited markets such as Biloxi at $2048 or Illinois at $2837. It is evident that with any type of cap/betting limitation (including the fore mentioned loss limits per phantom cruise in Missouri) that table games do not fare as well.

Further, it should be noted that in Colorado there are associated grumblings of, like Missouri, extending the definition of allowable games to include roulette, craps, and progressives.

Unfortunately, due to the size restrictions of most casinos in Central City and Cripple Creek, the only beneficiaries of a limitless wager pit would be the larger casinos in Black Hawk who have the gaming floor to include more table gaming positions. This is the primary reason why all but the biggest players are not necessarily for the relinquishing of limited stakes.

(Founded in 1996, Yarborough Planning, LLC partners with select clientele to better understand and address business process issues. Core competencies include providing reliable and valid research, strategic / analytic marketing, and accountable Customer Relationship Management (CRM) development and implementation. David Paster is accepting new clients and may be reached at (702) 813-5062 or [email protected])