Slots have gotten looser, not that the average gambler can tell

By Liz Benston

Tuesday, March 16, 2010 | 2 a.m.

While the recession has slot players tightening their spending habits, Nevada casinos appear to be loosening up.

From 1995 through 2008, the percentage of wagers kept by Nevada slot machines crept up while the percentage paid out to players declined. Last year that trend was reversed, with slots paying back 93.9 percent of wagers versus 93.8 percent in 2008.

Such minute differences mean little to individual players — these figures indicate theoretical payback percentages over millions of spins and aren’t reflected in any single gambling session. And yet, trends can reveal how casinos do business.

Frank Streshley, chief of the Gaming Control Board’s tax and license division, couldn’t determine the reason for the increase, though it could have something to do with the fact that casinos aren’t spending money installing new penny slots like they did before the recession.

Before 2009, decreasing paybacks were tied to the spread of penny denomination slot machines, which are popular with players and have replaced higher denomination quarter and dollar games at many casinos. Penny slots allow gamblers to wager in credit increments of a penny, though most gamblers spend more than a dollar per spin. These games historically pay out less of gamblers’ wagers over time than higher-denomination slots, though gamblers like them in part because they offer more chances to win smaller jackpots.

Streshley says he receives collective slot payback information from the casinos and therefore can’t determine whether specific machines at a particular property have been proactively tightened or loosened.

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Sour earnings generated by expensive buildings that were planned before the recession have taken a massive toll on the balance sheets of Nevada’s casino companies.

Statewide, the value of casino assets fell by about $5 billion in fiscal year 2009, with most of that lost value concentrated on the Las Vegas Strip, according to the Gaming Control Board. These figures are through June 30 of last year and don’t reflect $1.3 billion in write-downs taken in October to reflect devalued earnings expectations at MGM Mirage’s CityCenter.

Companies are required to reduce the book value of their assets if those values exceed the expected value of future earnings generated by those assets over time.

These write-downs are noncash charges against income and don’t reflect actual earnings generated by the underlying business. (Even after excluding the $5 billion in write-downs, casinos statewide still would have lost money on a collective basis. Minus the write-downs, operating losses would have been about $1.8 billion for the state’s 260 largest casinos in fiscal 2009.)

Writing down the value of assets reduces a company’s equity, which can hurt its ability to borrow money in the future, said Mitchell Hochberg, principal of Madden Real Estate Ventures and a board member of Orient-Express Hotels Ltd.

Hochberg, a hotel executive who was involved in the restructuring of the Cosmopolitan resort in Las Vegas under new ownership, is helping other hotel and condominium projects in Las Vegas, New York and other cities restructure their debt in the recession.

Depressed values for casino properties won’t kill longer-term investment in the gaming industry or Las Vegas, however, Hochberg said.

“I think investors understood the inherent risks of gaming — that there were higher risks for higher rewards,” he said.

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Nevada casinos are making a lot less money on nearly all of their games except for baccarat. A surprise big loser for the casinos: blackjack.

While gaming revenue as a whole has plummeted to 2004 levels, blackjack — which generated about $1 billion last year — has fallen to levels not seen since the late 1990s. Blackjack, the biggest moneymaker among casino table games, generated $996 million in 1998.

Blackjack revenue fell 20 percent last year, on top of a 12 percent drop in 2008 from the previous year. The games also are holding less for the house than they did a few years ago, or about 11 percent versus 12 percent in 2006.

On the Strip, blackjack is down 34 percent from its peak, while slots are down about 20 percent, according to calculations by Frank Martin, a San Diego-based mathematician and gaming analyst.

Martin attributes some of the decline to backfired attempts by casinos in recent years to make blackjack games more profitable. These include the spread of 6-5 odds games and a proliferation of specialty blackjack games and side bets with worse-odds jackpots that attract novices while turning off seasoned blackjack players.

“Unlike slots, where the payback setting is a mystery, blackjack has to advertise the rule changes that increase house edge,” Martin said.

The rapid descent of casinos’ biggest moneymaker in table games is a bad sign, especially for older or smaller casinos that can’t afford other attractions like baccarat, which is attracting Asian players with money to burn and other high rollers who prefer the mystique and relatively little decision-making involved in baccarat versus blackjack, Martin added.