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Casinos seek to lower minimum slots payouts

Maryland casinos are proposing lowering minimum slot machine payouts required by the state, according to documents obtained in a public records request.
Maryland casinos are proposing lowering minimum slot machine payouts required by the state, according to documents obtained in a public records request. (Lloyd Fox / Baltimore Sun)

Maryland's five casinos have asked the state to let them reduce required payouts on slot machines — a move that could shift tens of millions of dollars in winnings from customers to the casinos, state records show.

The request was included among a group of recommendations the casinos recently submitted to the Maryland Lottery and Gaming Control Agency, according to documents obtained by The Baltimore Sun in a Maryland Public Information Act request.

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Under the proposal, the state would relax a requirement that each casino must pay out an average of 90 percent to 95 percent of the money bet at its machines over the course of a year. The casinos want to lower the minimum payout to 85 percent, which would increase the casinos' "hold" — the amount of wagers retained from slots play.

"The patrons would end up receiving less," said Charles LaBoy, the state's assistant director for gaming. "The flip side is that the hold would increase. So there is a potential revenue upside to the state on this."

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LaBoy declined to estimate how much more revenue — it's potentially tens of millions of dollars — the casinos and the state could reap.

The state would gain because it shares slots revenue with casinos. Although their popularity has ebbed in recent years, slot machines generated $622 million at the five casinos through the first 11 months of this fiscal year. The biggest chunk — $290 million — went to Maryland's Education Trust Fund, while casino operators took $229 million.

''Certainly there's an opportunity for us to bring in additional revenues for us and the state,'' Matthew Heiskell, general manager of Hollywood Casino Perryville, said of the proposal.

But Heiskell and gambling analysts said the casinos wouldn't drop payouts so much for competitive reasons. With five casinos and a sixth on the way, Maryland has become one of the country's most saturated gambling markets. And it is surrounded by states eager to vie for gaming action.

Currently, Maryland is "right in the ballpark" compared to neighboring states in its slots floor average, encompassing all five casinos, LaBoy said.

The state's payout average from July 2013 to June 2014 was 90.38 percent, according to the American Casino Guide. That placed Maryland behind Delaware's 92.23 percent, Ohio's 91.62 percent and New Jersey's 91.01 percent, but ahead of Pennsylvania's 90.01 percent and West Virginia's 89.86 percent.

"Like any place, we're going to have a large mixture," Heiskell said of slots payouts. "You want people to know they can win at your place."

Casinos say the proposal would give them needed flexibility to develop innovative slots offerings with widely varying payouts. The proposal "allows for more competitive customer offers," the casinos wrote in a memorandum to the agency.

They also say the plan would provide them economic parity with casinos in states offering more generous financial cushions than Maryland.

In their memorandum, the casinos also asked the state to roll back — from 87 percent to 85 percent — the lowest average amount that individual slot machines must pay out from bets over a year. They say the 87 percent requirement is high compared to nearby states.

Pennsylvania and Ohio mandate at least 85 percent payouts per machine, New Jersey requires a minimum 83 percent and West Virginia 80 percent, according to figures compiled by Maryland regulators from the American Casino Guide. Delaware's requirement is the same as Maryland's.

"It's really about flexibility and how we can change and create unique and distinct gaming opportunities at our casino," Robert Norton, president and general manager of Maryland Live, the state's largest casino, said of the recommendation to lower the floor on individual slot machine payout. "The fear that casinos would take that 85 percent — take every percentage point of it — is really nonsensical."

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Representatives of Horseshoe Casino Baltimore and Rocky Gap Casino declined to comment, and officials from the Casino at Ocean Downs did not respond to an interview request.

LaBoy said regulators won't act on the request aimed at individual slot machines because state law requires each machine to pay out no less than 87 percent.

"We don't have authority to change that in regulation," he said. "That would require statutory change."

LaBoy said regulators have "flexibility" to consider the casinos' broader proposal on the overall slots' payout. "Maybe there is a compromise in there that we can look to do," he said.

Any change would require not only the approval of state gaming regulators — who aren't expected to decide until later this summer — but of the General Assembly's Joint Committee on Administrative, Executive and Legislative Review.

"I think we would keep a close eye on it," said Del. Eric G. Luedtke, a Montgomery County Democrat and the House chairman of the Joint Committee on Gaming Oversight. "The counter argument is if people feel they're getting a bum deal, they're not going to play. I would worry that players in Maryland might consider going elsewhere if they felt payouts were higher in neighboring states."

The casinos' recommendations came as part of an annual process in which they suggest modifications or updates to gaming regulations. If the casinos disagree on an item, "then it doesn't make the list," Norton said.

Most of the other recommendations were technical, involving such things as table game procedures and replacing decks of cards.

Because slot machines are governed by random number generators, they can seem a mystery to players trying to guess which machine will "hit" and when. But the state closely monitors payouts from slots floors collectively and from individual machines. The machines are programmed to pay out a set percentage, albeit on a random basis.

The state requires casinos to regularly post their floor averages.

In this year's first quarter, Ocean Downs had the state's highest average payout — 91.79 percent, followed by Maryland Live at 90.33 percent and Horseshoe Casino Baltimore at 90.1 percent. Hollywood Casino Perryville paid 89.88 percent and Rocky Gap 89.81 percent.

Although Hollywood and Rocky Gap dipped below the 90 percent minimum, regulators said the casinos did not violate the regulations because the requirement is for a full year.

Experts say it's hard to gauge the impact that lowering the minimum payouts could have on casino revenues or attendance.

"Most players probably won't recognize if the hold percentage goes from, say, 8 percent to 10 percent," said James Karmel, a casino analyst and history professor at Harford Community College. "Let's say you're an Anne Arundel County-based based slots player who likes to go to [Maryland] Live. If you find out the slots hold went up 3 percent, does that make it worth your while to go to Delaware or West Virginia? Probably not."

Beverly Johnson, 65, plays the Horseshoe slots twice a week. The West Baltimore resident doesn't think the slots proposal would drive gamblers away, even if they're not winning as much.

"I lost tonight, but I'm not mad. I'm going home with a smile on my face," she said on a recent weeknight. "I don't think many people would pay that much attention to it."

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Victoria Gay, 62, and John Bush, 69, drive from Hyattsville to visit either Maryland Live or the Horseshoe Baltimore about once a week even though Bush said he thinks the slots at Maryland's casinos have low payouts already.

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As they settled into playing a penny slots machine at Horseshoe, Gay said she didn't like the idea of lowering the percentage. She thinks it should be increased.

"Whatever you play, she said, "they ought to at least match."

Norton said casinos can't be stingy in their slot payouts and expect to compete.

"If it were that simple, every [Maryland] casino would just set every game at 87 percent," he said. "The reality is you have to balance the experience or balance the creativity and uniqueness of the gaming environment."

Payout averages are generally lower than they were 10 years ago, said David Schwartz, director of the Center for Gaming Research at the University of Nevada, Las Vegas

He believes that's partly because of the popularity of penny slots and other low-denomination machines that have relatively low payouts and high "holds."

If the casinos' request is granted, LaBoy predicted that "the overall state floor average will remain very close to where it is."

Players might be better able to notice such a shift in smaller casinos where the universe of games is limited and payback trends are more evident.

"If you go to Rocky Gap casino, obviously you would feel it more there than at a big place like Maryland Live," said Alan Woinski, whose Gaming USA Corp. publishes industry newsletters.

"Realistically, the players find out very quickly if a casino has tight machines," he said. "The players aren't that dumb."

Baltimore Sun reporter Colin Campbell contributed to this article.

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Average Mid-Atlantic slots payouts

Delaware: 92.23 percent

Ohio: 91.62 percent

New Jersey: 91.01 percent

Maryland: 90.38 percent

Pennsylvania: 90.01 percent

West Virginia: 89.86 percent

Source: American Casino Guide

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