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Las Vegas Strip casinos tighten slot payouts



LOS ANGELES, July 11 (Reuters) – Slot machine enthusiasts take heart: that feeling that it’s getting harder and harder to make a buck in Las Vegas is no illusion.


Over the last few years, casinos on the Las Vegas Strip have quietly lowered the overall payout rates for their slot machines, effectively paying themselves millions of dollars more in profits at the expense of the slot player.


According to data released on Wednesday, Strip casinos held onto 6.67 percent of all money they took in for slots in May, meaning they kept $6.67 for every $100 wagered. That figure was up sharply from May 2001, when they kept $6.30 for every $100 wagered, according to the Nevada Gaming Control Board.


Unlike table games such as craps and black jack, where the payout rate varies from month to month based on the luck of the dice or cards, UFA slot payout rates are programmed into the machines by casinos with little left to chance.


Thus, a large casino can effectively give itself millions of dollars in added profits by programming its payout rate at a fraction of a percentage point lower.


In more concrete terms, Las Vegas Strip casinos would have kept $2.48 billion in profits of the $39.3 billion wagered on their slot machines last year using the 6.3 percent rate. But under the newer 6.67 percent rate, their winnings would have grown by $140 million to $2.62 billion.


UBS Warburg analysts Robin Farley said Las Vegas Strip casinos are tightening up their slots to offset cheap room prices and food prices, which are often treated as loss leaders to get people gambling.


“The casinos are using their room rates to get people in the doors, to get visitors walking through the casino floors,” she said. “But if they’re going to do that by lowering room rates, they’re sure not going to be giving away as much on the casino floor.”




The trend toward lower payouts has occurred for at least six years, according to Gaming Control Board data.


In 1996, the average Strip casino kept $5.53 for every $100 wagered. That amount increased to $5.67 the following year, then $5.91 in 1998. It briefly plateaued in 2000 and 2001 at $6.02, but has been on the rise again to $6.15 for the 12 months through the end of May.


Gaming Control Board senior analyst Frank Streshley said casinos’ growing reluctance to part with their slot money may owe in part to the exploding popularity of nickel slots in recent years.


He said lower denomination machines, with nickels typically being the lowest, are often programmed to pay out less than their higher-denomination counterparts as part of a casino strategy to get people betting in higher amounts.


“Over the last five to 10 years, there have been more nickel machines moved into the mix,” he said.


Indeed, wagering on nickel slots on the Strip has more than quadrupled in recent years, from about $1.24 billion in 1996 to $5.11 billion last year, according to the Gaming Control Board.


Streshley cautioned that the growth may be exaggerated due to classification of multidenominational machines — which have taken off in recent years — by the lowest money denomination they accept, which is often nickels.


Still, the trend toward nickel play is valid and a major reason behind the overall lower payout rates, said Gary Thompson, spokesman for Harrah’s Entertainment Inc. (NYSE:HET – News), which owns two major casinos on or near the Strip.


Other major Strip operators include MGM Mirage (NYSE:MGG – News), whose resorts include Mirage and Bellagio; Park Place Entertainment Corp. (NYSE:PPE – News), owner of Bally’s and Paris Las Vegas; and Mandalay Resort Group (NYSE:MBG – News), owner of Excalibur and Mandalay Bay.


“We’re not tightening up the slots,” Thompson said. “It’s the customers who are opting to go for the nickel games. They’re the ones driving the move toward nickel slots.”


Farley of UBS Warburg said casinos may feel they can lower their payout rates on the Strip with less fallout because the area caters mostly to out-of-town travelers who are less concerned about rates and more out to have fun.


By comparison, she said, casinos would have more difficulty lowering the payout rates if they cater to local gamblers who are more sensitive to such matters.


“(The payout rate) matters more in regional or local markets,” she said. “The Strip is more tourist driven and people are not as sensitive to looking for the best slot deal. That’s not why they’re going to Las Vegas.”