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Casinos need to learn that 'payback' from players can hurt

Jun 10, 2008 7:05 PM

Winning Strategies by Elliot Frome | Primary season is over, so I guess it is now safe to discuss politics.

Since my column is about casino gaming, Im not going to delve into the presidential candidates. With the exception of internet gambling, the president doesnt have a lot of say over what happens in the casinos. This is left to each state to decide what the rules of those casinos will be.

And, this is where the trouble begins.

There is a reason my father called Las Vegas, "Video Poker Heaven." Many casinos offer many types of games, all with paybacks near, or in some cases, over 100 percent. While there is obviously a great deal of regulation in Las Vegas, they allow the casinos to decide what games will be offered with what paybacks.

In the end, this means that the market decides what will be on the floor. There is little doubt that the competition forces casinos to offer competitive games.

The rest of the country is not necessarily as fortunate. I remember leafing through Winning Strategies for Video Poker when it first came out, and was a bit confused. My father advocated playing machines with the highest possible paybacks and there were numerous pages dedicated to machines with 93-95 percent returns!

It was explained to me that these were the best paybacks in those areas. Id really hate to see the worst!

While in one sense, I can understand why a casino would offer the lowest paybacks that they can get away with, it still doesnt make sense why a little price war didnt break out between competing casinos.

Surely, if one casino were offering 95, another could offer 96 and still make some good money on a 4 percent house advantage, taking virtually all of the players. Of course, the first casino might raise their paybacks to 97 and sooner or later they would be much more respectable.

If it isnt collusion, what could be going on?

As it turns out, it was just a case of typical politics. On one side, we had politicians who wanted to bring casino gaming into their states. Most of these politicians probably envisioned something a little less than Las Vegas sprouting up in their states, but theyd probably be pretty happy with Atlantic City type tax revenue.

 On the other side of the aisle, there were the politicians who felt casino gaming was a horrible idea that would turn everyone in their states into addicted gamblers, bankrupting hardworking families.

The end result was the typical political compromise, where the politicians make sure that no one is made happy. With states looking for new income, those that opposed casino gambling finally gave in. However, if they were going to allow gambling, they wanted to make absolutely sure that the state got its fair share (at least).

So, many states instituted payback limits. In some cases, they put lower limits on games, making sure that no game or machine could pay less than perhaps 70 percent (which really wasnt an issue). At the same time, these states put caps on paybacks as well.

However, it was not as if they said 99 percent is the top. These states decided that 93 or 95 would be as high as they could go. Somehow this would be in the best interests of their state.

What they failed to take into account is that the next state over might approve casinos without these limits, which would attract people across the border. Not only would they get better paybacks, but in some cases, the opportunity to play games that they couldnt even play in their home state.

Can you imagine trying to play a version of Roulette with a 93 percent payback cap? Every payout would have to be altered.

In the end, many of the states with these caps never received the tax revenue they were counting on because people simply chose to play somewhere else. The irony is that some of these politicians claimed to be concerned that gambling would put families into financial ruin.

Their solution was apparently to take as much money from the players as fast as possible so as to not allow people to become addicted. If states want to generate considerable tax revenue and be fair to everyone, theyd let the markets dictate paybacks of the games.