Pennsylvania slot machines pay less than most other states
March 8, 2014 11:26 PM
A row of slot machines at The Meadows Racetrack and Casino in Washington County.
By Mark Belko / Pittsburgh Post-Gazette
If you want to get the most bang for your buck playing slot machines, you might want to try New York, New Jersey, Ohio, Nevada or even Delaware -- just about anywhere but Pennsylvania.
Based on how much they paid out last year, slot machines in Pennsylvania were downright miserly compared with those in most neighboring states as well as the biggest gambling mecca of them all, Las Vegas.
In 2013, slot machines in the Keystone State paid out, on average, 89.9 cents for every dollar wagered. Put another way, the gambler lost 10.1 cents in the exchange.
Players at local casinos didn't do any better. At Rivers Casino on the North Shore, they lost 10.2 cents for every buck wagered. At The Meadows Racetrack and Casino in Washington County, it was 10.1 cents.
On a statewide basis, the 89.9 cents returned to the gambler last year for each dollar wagered was less than that in any nearby state except West Virginia, where it was 89.8 cents, according to industry consultant Spectrum Gaming Group's East Coast Slot Report.
Gamblers in New York got back 93.4 cents for every dollar wagered (or conversely lost 6.6 cents), the report found. In Atlantic City, casinos returned 91.1 cents on the dollar. The average for the East Coast was 90.9 cents, according to the report.
In Ohio, where legalized gambling made its debut in 2012, casinos returned 91.5 cents on the dollar and racetrack casinos 91.6 cents.
The best bets were in Nevada, where players got back 93.5 cents, on average, statewide. On the Las Vegas Strip, the return was nearly a penny lower, 92.4 cents.
Pennsylvania slot payouts have been declining for the past six years. The high water mark came in January 2008 when slot machines statewide, on average, returned to the gambler 91.42 cents for every dollar wagered, based on state gaming control board statistics. They have not been that high since then.
PG graphic: Slot machines: how they pay (Click image for larger version)
Payouts began falling below 91 cents on the dollar consistently in the latter half of 2010 after the introduction of table games in Pennsylvania.
Richard McGarvey, a gaming control board spokesman, said the decline was due at least in part to gamblers switching from video poker or blackjack to actual table games. The electronic versions, which were considered slot machines, had much higher payouts, on average, than standard slot machines.
"That really affected the numbers for payout percentage overall," he said.
Payouts statewide fell below 90 cents on the dollar in February 2012 and have stayed there ever since, even after Ohio's first casinos opened in May 2012, according to gaming board statistics.
Slot machines at Rivers Casino, which opened in August 2009, have been paying out less than 90 cents on the dollar, on average, since February 2011, with the exception of a few months.
The same applies at The Meadows, which opened a temporary casino in 2007 and a permanent one in April 2009. Payouts dipped below 90 cents in January 2011 and have stayed there ever since with a few exceptions, including a recent run of four consecutive months of payouts at 90 cents.
Pennsylvania law requires slot machine payouts to be at least 85 percent, or 85 cents on the dollar.
"Regulatory wise, they are in compliance with the law," Mr. McGarvey said.
Experts say a host of factors, from the mix of games on the casino floor to tax rates to competition, affects the payout percentages at individual properties and in states as a whole.
For example, penny slot machines, which have become increasingly popular in casinos, typically have lower payout percentages -- 89 to 90 cents on the dollar -- than machines of high denominations. Chances are, casinos with a lot of penny machines will have lower payout percentages than those that don't.
Pennsylvania's tax rate, 55 percent on gross revenue from slots, also can be a factor, as operators try to maximize the revenue from their machines. The state's tax rate is one of the highest in the country and higher than that in most neighboring states, though not New York, where it's at least 60 percent.
"I think that would have an impact because the taxes on slots are so relatively high. The burden on the casino is to try to eke out as much revenue from slots as possible," said Paul Girvan, managing director of The Innovation Group, a New Orleans-based consultant to the national gambling industry. "I think taxes have a lot to do with it."
But don't discount competition -- or the lack of it.
Pennsylvania casinos, for the most part, cater to local players who don't have a lot of options in terms of competition, said Frank Legato, editor of Global Gaming Business, a leading casino industry trade journal. As a result, "The operators in Pennsylvania are going to get what they can" in terms of slots revenue.
"Combine the high tax rate with a captive audience and you have businessmen trying to squeeze their profit margin. They're trying to squeeze as much as they can, as much as the market will bear," he said.
Mr. Legato noted that slot payouts at some casinos at the eastern end of the state -- Parx and Mount Airy, most notably -- tend to be a little higher than those elsewhere. He suspects that has to do in part with the competition from New York, New Jersey, Delaware, Connecticut and other eastern jurisdictions.
While casinos like Rivers and The Meadows are facing competition from Ohio, it apparently hasn't been stiff enough to force the casinos to loosen their slots payouts, he said.
"They haven't started to struggle as a result of this. Ohio is just too new. If they are facing a situation like Delaware, where it's losing 10 to 20 percent of its business to a neighboring state, then they will think about" making changes, he said.
Mr. Legato said one reason payout percentages are so much higher in Las Vegas than Pennsylvania is the competition on the strip. "They have to give people a reason to come to their place rather than the guy across the street. You don't have a guy across the street in Pennsylvania," he said.
"Generally, payout percentages are one of the operator's competitive weapons," added Michael Pollock, Spectrum Gaming Group managing director. "You want your payout percentages to be competitive."
The Meadows' recent uptick in payouts to 90 cents and 90.2 cents on the dollar puts it more in line with its newest competitor, the Lady Luck Casino in Nemacolin Woodlands Resort in Fayette County, where payouts have fluctuated between 90.4 cents to 90.9 cents since a July opening.
But Mr. Legato said it was too early to tell whether the move was for competitive reasons.
Kevin Brogan, the Meadows marketing director, said in a statement that the casino had a higher payout percentage than Rivers or Presque Isle Downs and Casino in Erie last year. It also paid out more than $100 million in jackpots and gave customers more than $73 million in free play. Mr. Brogan believes both are higher than other casinos in Western Pennsylvania and Ohio.
"We follow our ownership's philosophy and commitment to providing our customers with the right product at the right price and the biggest rewards," he said.
In a statement, Craig Clark, general manager of Rivers Casino, said, "We're comfortably within the state-regulated guidelines for slot payouts. We're also constantly evolving our mix of games to keep the experience fresh for slot players."
What does all of this mean for the average player? Is it worth driving to Ohio to play slot machines that pay out, on average, 91.5 cents on the dollar to the Rivers' 89.8 cents? Probably not, experts said.
The percentage differences from casino to casino and state to state are so small that they're likely to have little impact on the gambler's overall experience, they said.
"These are very small margins we're talking about here. It's almost imperceptible. People are not going to react to small percentage changes," Mr. Girvan said.
"You'd have to play slots until you're almost brain dead to understand the difference of 1 percent in a payout percentage," added Joseph Weinert, Spectrum Gaming senior vice president. "It would take a very astute slots player playing through an entire cycle, which could be millions of spins, to detect that."
Mark Belko: firstname.lastname@example.org or 412-263-1262.
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