The Fool’s Wager

There is a phenomenon taking place in Macau that reminds me of the 1980’s in Nevada casinos.  In Macau, the number of players is decreasing or remaining the same, but the average wager per player is increasing.  The wager is going up because the VIP operators are raising the minimum wager. How else to increase the profits?  Without increasing the number of players the only way to increase the profits is to raise the level of wagering.  And for the moment, they have a captive and willing audience.  Those eager Chinese gamblers want a peek at the cards, a chance to make their hearts flutter and the possibility of walking proudly out the door as winners; it is the gambler’s drama, a bit of theater played out in the hearts and minds of the gambler.  In Macau as in every other place with a casino, there is a price for that drama.  Actually, in Macau there are three prices – the mass market, the premium mass market and the VIP price and the price of the second category is growing dramatically.  Yesterday it might have cost a “mass market premium” gambler $500 for that privilege, today $1000 for the same thrill and tomorrow it may take $2000 for a look at the cards.

That forced increase in the average wager is what is reminiscent of the 1980’s for me. Up until the late 1970’s, men played craps or blackjack and women played the slot machines – nickel, dime or at most quarter slot machines.  And then along came Sy Redd with his Bally dollar slot machines.  It was not an easy sell at first, but Sy convinced a handful of casino operators to try something new, a dollar slot machine that held less than 5 percent.  The old dollar slot machines held 15 or 20 percent and had very, very few customers.  But Sy argued that if the player won more often, in fact very often that the casino would make a great deal more money from dollar slot machines than any other slot machine.

Not even Sy Redd imagined just how true that would be; within 5 years those Bally dollar slot machines not only made more money than any other slot machine, they made more money than any game in the casino.  Soon casino managers were taking penny, nickel and dime machines, the old mainstays of the slot department off the floor and replacing them with dollar machines.  And even more significantly, taking blackjack and craps tables off the floor and replacing them with slot machines.  It was that simple. Almost overnight the basic economic and social structure of casinos changed from a table game-driven business to one driven by slot machines – Sy Redd’s Bally dollar slot machines.  Men left the craps tables and joined the women pulling the handles and yelling when they hit a jackpot – which in those days was $10, $20 or $50.

It was a strategy not without risk; those dollar slot machines ate money and when they ate too much money, they ate the player as well.  From then on, however, slot manufacturers started on a quest to increase the minimum wager. At first they increased the number of coins necessary to win the big prize, which grew to $1000.  Later as the technologies changed, the slot makers added more reels and then more ways to wager. Winning combinations passed the old concept of all pays on the center line to a complex concept of pay-lines.  And then to all of those lines they added the option of adding more and more coins – as many as 250 coins – per-line; even at a penny each that is $2.50 a line – just how many lines would you like to buy?

How much is too much?  We talked a lot about that in the 80’s when we worried about two things; pricing ourselves out of business and burning our customers out.  Within the first year of the dollar slot boom we had started to see players burn out in a way we had never seen before.  People spent more than they could afford and stopped coming to the casino.  But the burn out was more complex than simply running out of money; people spent too many hours playing and neglected the rest of their lives. They spent much more money than they could afford and got into serious difficulties; marriages failed, businesses went bankrupt and people lost their houses.  We did not solve the problem, but we talked about it. I think it is time we talked about it again.

The casino industry is dependent on too few people and if we keep raising the price of participation, I think we are in danger of pricing ourselves out of business and burning our customers out.  Casinos are said to be in the business of gambling, but they are not.  Casinos are in the business of providing wagering opportunities.  There is no risk to that as long as there is a mathematical house edge built into every game; but if we continue to expect people to pay more to play, I think we are gambling.  We are betting on an endless stream of ever more affluent customers always willing to pay more for the same thing.  I think that is a fool’s wager.

Average mass-market minimum bets for live dealer baccarat in Macau’s seven biggest casinos have risen by 37 percent since June last year suggests Deutsche Bank.  A research paper from the bank’s analyst Karen Tang in Hong Kong, says the estimate is based on once-monthly, eight-hour, Friday tours of the ‘Big Seven’ resorts’ mass floors. They took place over the 12 months to June 30 this year. “To be consistent, we only counted open baccarat tables. We ignored other games, such as blackjack or sic bo, which are not consistent with baccarat play limits,” said Ms Tang.  “On average, we estimate that the average mass market minimum bet in the Big Seven casinos has risen by 37 percent from HK$1,185 [US$152.84 at current exchange rates] in June 2012 to HK$1,622 in June 2013,” added the paper. Michael Grimes, Macau Business Daily, 7-8-13

 Iowa’s state-licensed racetrack and riverboat casinos saw a slight slowdown in wagering during fiscal year 2013 …The three racetrack casinos and 15 casinos reported adjusted gross revenue of just more than $1.444 billion for the 12-month period that ended June 30…down nearly $21.76 million, or about 1.5 percent… On the attendance side, admissions were up slightly at the three tracks, with 6.1 million customers going through the turnstiles, while the casinos saw a slide of 968,233 visitors from the 16.7 million admissions in fiscal 2012 and the record 17 million admissions in fiscal 2008. The fiscal 2013 per-capita spending was $63 at the casinos and $74 at the tracks, data that compares with $31 in average per-capita spending in fiscal 1998 when the tracks saw a record 8.4 million admissions. Rod Boshart, Quad City Times, 7-12-13


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