Against the Odds
Gambling has become America's hot pastime. But today's casinos have more of an upper hand
Kristie Bazua used to drive to the dusty Cabazon Reservation 25 miles south of Palm Springs every few months to play bingo. But now that the tribe has transformed the old hall into the slick new Fantasy Springs Resort Casino with luxurious decor, flashy slot machines, and elegant card tables, the 33-year-old mother of three visits almost once a week. She likes to grab a stool in front of an American Bandstand slot machine because it rewards her every now and then with a few bars from "My Sharona." And it lets her bet as little as a penny, although she usually wagers 60 cents at a time. "The music's great," says Bazua. "It costs me maybe $20, and it gets me out of the house."
It's a story being repeated millions of times across the country. A record 73 million Americans, up nearly 20 million from just five years ago, will patronize one of the nation's more than 1,200 casinos, card rooms, or bingo parlors this year. The average gambler visits a casino nearly six times a year--almost twice as often as he did a decade ago. At least 6 million Americans will click a bet on one of 2,300 online gaming sites. Altogether, gamblers will lose more than $80 billion on everything from the Triple Crown to the flop of a card this year. There seems to be no stopping America's gambling mania. The opening last month of the lavish, $2.7 billion Wynn Las Vegas casino has already sparked a me-too construction boom. And gambling is becoming even more convenient. New cellphone programs put real-money poker games in your pocket, and soon you may be able to spin a roulette wheel on a Virgin Atlantic flight.
Casino executives say the growth is simply due to a host of innovations that make gambling more fun. And most gamblers would agree. But what Bazua and other gamblers may not realize is that behind all that glitz is an army of behavioral scientists, technowizards, and mathematicians with one goal: to finesse ever more money out of your wallet, whether in front of the slot machine, at the blackjack table, in the celebrity chef restaurant, or at the concert hall.
Their methods of improving the house odds are often covert, cleverly exploiting your naivete, foibles, and, let's be honest, lousy math skills. Brick-and-mortar casinos, which are highly regulated, use myriad subtle and legal means to manipulate bettors. They offer free drinks to reduce inhibitions, use artificial lighting to mask the passage of time, and even crowd slot machines to make it seem like there is a multitude of winners. And now, new Big Brother-like systems help many casinos keep tabs on players and figure out the most cost-effective way to cajole them into betting more money. New variations of traditional games and high-tech slot machines are designed to keep gamblers playing longer and, yes, losing more. On the Internet, it is bettor beware, as overseas casinos all too often take advantage of the lawlessness of cyberspace to hoodwink patrons.
Gold rush. Your lost dollars, of course, have been a bonanza for casino operators, game manufacturers, and Internet bookies. International Game Technology, the world's biggest slot machine manufacturer, pockets about 30 cents of every dollar of revenue, which gives it one of the healthiest profit margins in business today. Swedish-owned Pokerroom.com, the fifth-largest online poker site, reported making $20 million on revenues of $60 million last year. Investors, sensing a gold rush, have swooped in. The stock of industry giant Harrah's Entertainment climbed more than 25 percent in the past year. The December initial public offering of casino operator Las Vegas Sands was the country's most successful IPO in the past two years; its price jumped 61 percent on the first day of trading.
One of the most effective revenue boosters is standard business procedure: the casino's equivalent of a frequent-flier card. As soon as a gambler applies for a reward card, computers start compiling a personal dossier. When the gambler plugs the card into a slot machine, computers calculate the value of each bet, the number of seconds it takes the gambler to pull the lever or push the button, and the amount of the win or loss. When the gambler quits for dinner, the computers note the time, and, if the card is swiped at the casino restaurant, what the diner ate.
That information is monitored to the second at Harrah's, the industry leader in customer data mining. Research shows that a gambler's first experience at a casino is key to a return visit: Winners come back, while losers usually don't. So at a few Harrah's casinos, a manager will send a "Luck Ambassador" over to a first-time loser to offer a consolation of a free meal or show ticket.
That's just the beginning. Casinos also use the loyalty-card data to tailor offers and freebies to lure the player back. A gambler who, say, spends an hour playing The Price Is Right slot machine might get a letter dangling free credits to play a new version of the game. Or a meat-and-potatoes diner might get a coupon for a complimentary, or "comp," steak dinner. Since Harrah's turns away two callers for every one it offers a room, a quick glance at a player's profile tells the reservation agent whether the gambler deserves a room and at what price. "It isn't putting people in rooms; it is putting the right people in the room," says Gary Loveman, CEO of Harrah's.
All sorts of data are being exploited. Caesars in Las Vegas discovered, for example, that the demand for shrimp cocktails spikes between 10 p.m. and 3 a.m., so it upped the price then by 50 cents, says Carol Pride, chief information officer. The nearby Hard Rock casino is trying out radio-frequency-identification-embedded poker chips to monitor card players.
Snack prices aside, casino executives say the data mining is good for players, since it enables casinos, which typically return from 10 to 30 percent of a gambler's losses in comps, to make sure every gambler gets the discounts and freebies that he or she earned and truly likes.
They certainly had Zoe's number. The 53-year-old Pennsylvania small-business woman, who requested anonymity, said the MGM Grand in Las Vegas sent her free tickets to the Billboard Music Awards a few years ago. "They knew I had teenage daughters. I thought, 'Wow, the kids would love to see all those stars,' " says Zoe. Of course, she played blackjack aplenty while her kids were enjoying the concert. Zoe upped her bets to $200 a hand to keep the goodies coming at MGM and other casinos. "I was playing at that level so I could get the penthouse suite," says Zoe. She figures her comp chasing has cost her $60,000 over the years.
If comps don't grab you, new technologies and strategies on the casino floor just might. Take slot machines. These workhorses produce about 70 percent of a typical casino's gambling revenue. Modern machines are far easier, faster, and more appealing than the old "one-armed bandits" that would gulp nickels and spin reels of cherries and bananas. Many modern slots have no arms; players push a button instead. And reels are giving way to video screens with everything from Wheel of Fortune hostess Vanna White cheering you on to a striptease by a hunky construction worker on the Risque Business machine. To speed up betting, manufacturers are replacing coin slots with bill feeders and nickel hoppers with coupon printers.
Some ploys are less obvious. In many reel machines, the blanks just above and below the biggest jackpot symbols are keyed to appear at least twice as often as any other blank, says Michael Shackleford, an adjunct professor at the University of Nevada-Las Vegas and consultant to casinos and gaming software developers. Psychological research shows that gamblers who see such "near misses" spend more time betting because they mistakenly think they are one spin away from a jackpot. In reality, their odds are no different.
A spokesman for slot maker IGT says that such patterns "may be true in some games." But the company will not discuss its designs other than to say its games have been approved by government regulators in the United States and around the world.
The video screen games employ other psychological techniques. The most popular--and among the most profitable--machines are the penny and nickel ones. But those slots offer much better odds to those who bet as much as $3 a spin. "They think the game is inexpensive, but it is more expensive than the 25-cent game" because they end up betting and losing more, says Bob Jones, executive director of gaming operations at Fantasy Springs. Casinos also don't advertise the fact that they calibrate low-denomination slots to return only about 90 percent of wagers back to gamblers. Slots with minimum bets of $1, however, typically pay back at least 95 percent. Of course, most slot jockeys lose far more than 5 or 10 percent because they bet their winnings. As a result, casinos typically keep as much as 50 percent of a slot player's money.
The house is upping its advantage at the card tables as well. Caesars and several other casinos are trying out new camera-and-sensor-embedded card tables called "MindPlay" that record the location of every card and value of every bet. Casino managers, who MindPlay says can "watch as each bet is made and each hand is played" on a computer, say the table simply helps them identify big bettors to dole out comps. The manufacturer also touts the table's ability to spot card counters--who are not violating any law but can beat dealers--and cheaters.
But a few players say MindPlay gives the casino an unfair edge. John Allen, a Woodland Hills, Calif., attorney, says he saw dealers at MindPlay tables at two Nevada casinos last year shuffle whenever the deck started turning favorable for the players. That makes MindPlay "a cheating device," he alleges. Allen sued the maker, a casino, and the Nevada Gaming Control Board over the incidents but after an unfavorable ruling is considering an appeal.
Marcus Prater, MindPlay senior vice president of marketing, says dealers can't use the system to deceive. "Even though we know every card in the shoe, there is no way to alert the dealer that a hot run for the player is coming. And that has been proven to the Nevada Gaming Control Board," he says. Nevertheless, gamblers' suspicions worry casino executives like Harrah's Loveman, who has so far declined to install the tables. "The player has to have complete faith that the game is not manipulable by the casino," says Loveman. "You can get to a point where you are too clever for your own good."
AN ONLINE FREE-FOR-ALL
Online casinos, however, are pushing the envelope on clever. Anybody who's ever been ripped off in an eBay deal knows that Internet transactions are inherently risky. But placing online bets poses far more danger than buying Beanie Babies from strangers. First, there's the questionable legality of betting online. None of the estimated 2,300 online casinos operating today is based in the United States because many state and federal prosecutors have taken the controversial position that several laws ban Internet gambling. Prosecutors have used those laws to convict a handful of U.S. citizens who operated online casinos overseas. And they have used those laws to scare credit card companies away from processing online casino transactions and publications from accepting Internet casino advertising.
In at least one case, they've gone after a bettor, who in 2003 pleaded guilty to a misdemeanor and paid a $500 fine for violating an almost never used North Dakota provision against placing any bet of more than $500. Still, the rules governing online gambling send a mixed message. At least one U.S. court has ruled that federal law limits only sports bets, not online poker or other types of online gambling. The World Trade Organization last month raised the possibility that U.S. laws banning overseas betting may violate international trade rules. And some law enforcement agencies just don't want to bother with bettors. "You are not going to see John Q. Citizen prosecuted for placing a bet," says Tom Metz, the FBI's assistant section chief for organized crime.
Stop payment. Nowhere is the confusion more baffling than with online gambling payments. Banks, which have been told by prosecutors not to process credit card transactions for online casinos, nevertheless funnel millions of dollars every day to the very same casinos via consumers' debit cards, check cards, paper checks, and electronic fund transfers. But that, too, has become controversial, as Arizona Sen. Jon Kyl is reportedly drafting a bill that would stop banks from processing any Internet betting transaction.
A handful of governments, such as those of Antigua, Gibraltar, the Isle of Man, and the Canadian Kahnawake tribe, are trying to clean up online casinos by licensing them, checking the backgrounds of operators, and requiring them to play fair. But the vast majority of gambling sites are based in countries like Costa Rica, which has no rules whatsoever. That means anyone can open up an online casino, even if he has no money set aside to pay off bets, engages in cheating, or is part of an organized crime ring. While there are legitimate sites, there are plenty of cons. In fact, one software provider promises online casino owners its program will cause gamblers to start losing once they reach a certain win threshold. Several independent Web watchdogs, such as those on casinomeister.com and wizardofodds.com, have identified sites that appear to be, say, dealing bad cards.
That's not the only website wile. A study by Canadian psychologists published last year in the journal Computers in Human Behavior found that 45 of 117 randomly selected Internet casinos inflated the player's win ratio during the free introductory games. When the psychologists bet $100 each at five sites, they lost almost everything. One casino refused to cash out their $14 winnings unless they gambled again. They did, and lost. Another site refused to refund the $20 they had left after losing $80.
Even the online casinos that play it straight often drag their feet. It typically takes up to five days for a gambler to cash out, a temptation to a gambling addict. Sue, a 52-year-old paralegal who doesn't want her last name used, said that's one reason she lost more than $12,000 gambling online in the past two years. "I couldn't control myself during that few-day waiting period and kept chipping away until there was nothing left," she says, noting that it only took seconds for the casino to accept her money.
Online casinos insist they are not taking advantage of customers. Casino-on-net.com, one of the biggest, says it takes three to five days to process cash-outs to prevent cheating and money laundering. "It is not for our own good," says spokesman Richard Bloch, "although it can appear that way to a customer."
Something that isn't obvious to many customers is the way some online casinos set the odds. Calvin Ayre, founder of Bodog.com, one of the world's biggest sports books, says that computers at his Costa Rican site identify each bettor and then personalize the odds. Such player profiling cannot occur in the legal sports books in Las Vegas because those casinos publish their lines in newspapers. Ayre says the individual odds are nothing more than a high-tech version of the traditional bookie's practice of taking advantage of, say, a Philadelphian's emotional tendency to bet on the Eagles. "They have the choice to take our offer or the other side," or to go to another site, Ayre says.
Not foolproof. Even the best-intentioned online casinos find it difficult to enforce the most basic rules, such as age limitations. Most try to do cursory checks, by, say, requiring some players to fax copies of identification cards. But Andrew, a 17-year-old Marylander, says he began betting on poker at Goldenpalace.com by clicking on the box that asked if he was 18 years of age. Goldenpalace says that it often relies on third parties, such as offshore escrow services, to verify customer ages and identities, but it is working on improvements. "Nothing is foolproof," says spokesman Steven Baker.
Perhaps scariest of all, many experts and players say online gambling is more addictive than the traditional kind thanks to its fast pace and convenience factor. At real casinos, gamblers are often surrounded by friends who can stop them if they appear to be going overboard. But online gamblers are usually home alone. Sue, the paralegal, had never gambled much because it was too much of a hassle to drive an hour to the closest casino. But in 2003, she stumbled on video poker. "I couldn't stop," says Sue, who was soon playing all night and sneaking hands in during her workday. Sue has installed a game-blocking program on her computer, but she misses the excitement. "Gambling is fun," she says with a sigh.
That's exactly what casino operators like to hear and why industry executives prefer to say they are in the "gaming" or "entertainment" business. They don't like the word gambling. No wonder. Gamblers can lose.
MYTH Poker is the one game where gamblers can really win big.
REALITY At the least, average players should, over the long run, lose whatever the host takes out of the pot, from an Internet site's 2 percent to some casinos'20 percent. But as the poker boom draws in more pros, amateurs will most likely lose even more.
MYTH Single-deck blackjack games give players better odds.
REALITY It's easier to calculate the odds with one deck. But players benefit only if the payoff is the same as that of a standard six-deck blackjack--$6 for every $4 bet. Casinos are increasingly making up the lost edge by reducing the payout to $6 on a $5 bet.
MYTH The best slot machine odds in Las Vegas are found on its famous strip.
REALITY Nope. Somebody's got to pay for all those light shows, fancy fountains, and erupting volcanoes. The best odds are found in humbler casinos that in-the-know locals frequent, such as those just a few blocks off the strip or in nearby suburbs.
MYTH Casinos lace their air with chemicals that put you in a betting mood.
REALITY Casino executives scoff and say their ventilation systems just filter cigarette smoke. But a Chicago neurologist says he sells some casinos (which he wouldn't identify) a "pleasant odor" that his studies show boosts slot betting.
This story appears in the May 23, 2005 print edition of U.S. News & World Report.