Dodging a tobacco bullet

Wednesday, Oct. 5, 2005 | 7:27 a.m.

The gaming industry won a significant victory recently when a federal judge in Las Vegas dismissed a lawsuit that claimed slot machines were deceptive and misleading.

Saying that there was no evidence the machines were deceptive, U.S. District Judge Roger Hunt last month threw out the long-running lawsuit that -- if it had succeeded -- could have threatened the gaming industry with the financial nightmare of tobacco-industry-style lawsuits filed by losing gamblers.

The 1994 lawsuit, filed by gambler William Poulos in Orlando, Fla., alleged video poker and electronic slot machines are inherently deceptive and that casinos and slot makers, through ads and other promotions, conspired to mislead people into thinking the odds of winning were more favorable than they actually were.

"The court finds there's no evidence of a causal connection between any gambling losses suffered by the plaintiffs and any fraud, misrepresentation, or any racketeering activity by any defendant, or all of them," Hunt said in a September hearing.

As a class action lawsuit, it could have become a large and expensive case against the gaming industry with potential damages in the billions of dollars, according to legal experts. While little publicized, the case has been closely watched by attorneys and compared with class action suits filed by smokers against tobacco companies.

Hunt originally denied the suit's class action status in June 2002, blocking the addition of millions of potential gamblers as plaintiffs, who lost money playing slots over the past several years. The 9th U.S. Circuit Court of Appeals in San Francisco upheld the decision, but rejected a motion by the casino industry to dismiss the suit, allowing the individual gamblers to pursue their case in federal court.

The suit continued in federal court with Poulos and another gambler, Brenda McElmore, as individual plaintiffs. Two other gamblers who had agreed to join the class action suit dropped out, declining to pursue the case further.

More than a dozen casino, hotel and cruise-line operators also were dropped from the list of defendants after the gamblers couldn't prove they had played at any of those companies' properties. More than 60 defendants, including the biggest Las Vegas casino operators, were named in the original complaint.

Dennis Kennedy, the co-lead attorney representing the gaming companies, said he believes the outcome of the case will dampen future efforts by gamblers to sue casinos for fraud.

"But you never know," he said. "Plaintiffs' lawyers are a creative bunch."

Kennedy also called the ideas raised in the complaint "ridiculous."

"Those of us who live here and who know how carefully and closely the gaming industry is regulated ... the idea that something was going on that was alleged in the lawsuit we thought was pretty far-fetched," he said.

The gamblers were represented by the firm of Boies, Schiller & Flexner. Partner David Boies is known for pursuing the Justice Department's antitrust case against Microsoft Corp. and representing 2000 Democratric presidential nominee Al Gore in the controversial recounting of ballots in Florida.

The lead attorneys in the Poulos case could not be reached for comment on whether they will appeal the decision.

The gamblers claimed that outcome of a slot machine isn't determined completely by chance but instead is subject to an internal computer known as a random number generator.

Random number generators are an essential component of slot machines and are required by regulators to program a random outcome for each "pull" of the machine.

The suit claimed that random number generators can be manipulated by casinos and that the on-screen display of the games is deceptive.

Specifically, the gamblers said that the odds of getting certain winning hands of cards from a video poker machine are different, and in some cases worse, than the odds of getting the same hands in a live game of poker with a dealer and a 52-card deck.

Regarding electronic slot machines, the gamblers said that the spinning wheels are merely a visual representation of a predetermined outcome and that the number of spaces or symbols on a reel don't correspond to the actual odds of getting a prize or lining up the jackpot symbols, which are less than the number of physical "stops" on each reel would suggest.

The gamblers sued under a federal anti-racketeering law designed to combat organized crime. They alleged that the gaming companies conspired to misinform gamblers about the true odds of winning.

Hunt tossed the entire suit, including expert testimony that would have been introduced at a jury trial, saying that the gamblers lacked enough evidence to implicate a particular machine or casino.

Neither Poulos nor McElmore, who each lost an estimated $500, could pinpoint which slot machines they played. They also couldn't show that they wouldn't have played the machines had they known the slots didn't perform like live poker games or mechanical slots.

McElmore, in particular, continued to play slots even after filing suit, he said.

"No one compels anyone to play an electronic gaming machine of any sort. In fact, no one compels anyone to gamble," Hunt said in a final hearing on the case Sept. 7. "The mere fact that plaintiffs lost money does not establish that the reason they lost money was because they were deceived. They lost money because they were gambling."

Gambling companies are in competition with one another, not conspiring with one another, he said. The machines in question also are sanctioned and approved by state regulators.

"How can engaging in a legal activity, using a legal and approved machine, constitute a racketeering activity or a conspiracy to defraud?" Hunt said.

In affidavits filed with the court, problem gambling and software experts said the probabilities for various hands of video poker can be manipulated in such a way that there are more frequent wins for less valuable hands and less frequent wins for high-value hands.

The paid experts also said that electronic slot machines use reels that are manipulated so that jackpot symbols can appear on each reel more frequently than they normally would on a mechanical reel.

Slots have used technology called "virtual reel mapping" since at least the mid-1980s to weight the appearance of jackpot symbols so that these symbols can appear to gamblers more frequently than the actual likelihood that they will stop on a pay line, the experts said.

Such technology can influence some players, especially compulsive gamblers, to gamble more than they would playing traditional games, they said.

A well-known slots expert hired by the gaming companies, James Maida, disputed some of those conclusions.

Video poker games are required by law to work so that all cards and combinations of cards are in play and that the random number generator must correlate with the outcomes available in a live game, Maida said in a separate affidavit. He is chief executive of Gaming Laboratories International, the world's largest independent testing lab for slot machines.

Video poker machines also are required to disclose the number of "decks" used in play and may not reshuffle the deck or "throw away" certain cards to manipulate the odds, he said.

Maida acknowledged that electronic slots use virtual reel mapping, which has been allowed by gaming regulators worldwide.

But he disputed the gamblers' contention that they had somehow been duped by the technology, adding that such inner workings of slot machines have been "highly publicized" in articles and books.

"Consumers and regulators understand that all gaming equipment utilizes random number generators," Maida said in his affidavit.

Liz Benston is a gaming writer for the Sun and its sister newspaper, In Business Las Vegas. She can be reached at (702) 259-4077 or by e-mail at benston@lasvegassun.com.