Penny slots rake in billions for Nevada casinos

Apr 21, 2009 5:11 PM
by David Stratton |

Nevada casinos may be struggling with the recession, but their penny slot machines are making cents – measured in the billions of dollars.

The state’s 35,842 penny slots raked in $1.7 billion last year, reflecting a 9.3 growth rate compared to 2007. It was the only denomination slot machine to increase its win amount in 2008.

The numbers should actually be higher since a good portion of the state’s 83,000 multi-denomination slots feature penny games. Multi-denomination slots generated $3.5 billion in 2008.

Overall, penny slot machines produced about one-fourth of all slot machine revenue in Nevada last year, and the same is happening in other regions of the country.

In Missouri, for instance, one of few states where gambling revenue rose in 2008, more than half of all casino revenue came from penny slots. Like Nevada, for many casinos, penny slots are producing the only kind of revenue that’s increasing.

Of course, today’s penny slots are far removed from the original penny machines that attracted low rollers to Fremont Street’s Gold Spike, El Cortez and Western Hotel in the 1970s.

Those machines literally took pennies, and often featured a progressive jackpot that hit in the tens of thousands every couple of years.

Today’s electronic marvels are far more sophisticated, and they cost as much – if not more – than their nickel and quarter cousins, because of all the additional lines and bets they offer.

In a sense, the technological changes have made the concept of denomination almost irrelevant, experts say.

Bill Eadington, director of the Institute for the Study of Gambling and Commercial Gaming at the University of Nevada-Reno, said the term "penny slots" is a misnomer because most wagers on the devices are much greater.

"There’s a touch of delusion to this whole discussion," Eadington said. "The average play per spin is obviously way above a penny – usually the 30- to 50-cent range (and more), depending on the market."

In fact, some penny machines take bets as high as $2.50 or even $10 with all of the various playing options offered.

Beyond the actual cost of playing the machine, penny slots have the worst payback percentage of any of Nevada’s slot machines. Last year, penny slots held 10.22 percent of all money played into them, nearly double the 6.2 percent held by all of the state’s 172,000 slot machines.

And the hold seems to be on the rise, which means the amount returned to players continues to plummet. In 2004, the first year Nevada tracked penny slot revenues, the state’s 12,000 penny machines held only 8.9 percent. But the hold has steadily increased every year.

Hard-core slot players say they resent how casinos "pinch the pennies" out of the amount returned to players.

"It’s the only game in which you’re penalized for playing a smaller amount," said Mel Wistocki, a long-time patron of Vegas casinos. "You don’t see them changing the odds on the craps table because of lower table stakes; you don’t see the sports book increasing its vigorish or ‘juice’ with smaller bets; in fact, I can’t think of a casino game that changes its odds or hold because of the size of the bet."

Wistocki adds that the most popular machines in Las Vegas’ locals casinos have the worst drop-off. "Take keno, for instance," he said. "The pay tables are so drastically reduced on penny denomination games, it’s hardly worth the play. You might as well wait until you can afford to play nickels or higher."

Nonetheless, there are players who say they like the machines because they can play longer for the same amount of money.

"It’s all just for recreation," said Cora Logan, 72, who was playing a penny slot machine at Isle of Capri in Kansas City on her 42nd wedding anniversary. "When you come here, don’t expect to win. If you put a lot of money in these you’re crazy."

Indeed, the notion of sitting and playing without losing the family fortune appears attractive to a segment of the slot playing public.

"Affordability is why people love them," said Frank Legato, a slot machine expert and author of gambling articles. "Casinos just love them because the average bets are the same as the quarter or dollar games, but their house edge is bigger on these games.

"People playing penny machines are not concerned about that. They just want to have fun and play a long time with little money."

Perhaps "fun" is a deciding factor for a portion of the slot-playing public, just like playing a Nintendo Pokemon or Super Mario video game.

But dedicated slot players, such as Las Vegas’ Mel Wistocki, expect more. "It’s nice to hit a jackpot every now and then," he said. "I don’t expect to get rich or make a million. I’d just like to hit a taxable jackpot once in a while."

Regardless of who plays them and why, penny slots have found a home.

Darrell Pilant, vice president and assistant general manager at Harrah’s in North Kansas City, said the number of penny machines is growing because patrons prefer them. And he thinks that growth will continue as new technology makes no-coin play even more appealing.

"I can’t say that in three years or five years every machine on the floor will be video, but certainly at some point there will be fewer and fewer traditional slot machines," he said.

Higher-denomination, mechanical three-reel slot machines will always be in demand among hard-core gamblers who play for large jackpots and not necessarily entertainment, he said. But their presence in casinos is gradually diminishing.

And penny slots, because they keep people in their seats longer, play right into that theme – especially in markets that depend on return customers.

"The difference we talk about is frequency," Pilant said. "Vegas is a low-frequency market. A Kansas City customer might go there twice a year but maybe 40 times here. The decisions are different in Kansas City than in Vegas. At the end of the day you’ve got to make sure the customer who lives in your market is loyal to you."