Maryland’s five casinos have asked the state to allow them to reduce the payouts required on slot machines — a move that could shift tens of millions of dollars in profits from patrons to casinos, state records show.
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The request was included in a set 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 money wagered on its machines over the course of a year. Casinos want to lower the minimum payout to 85 percent, which would increase casinos’ “hold” — the amount of bets kept from slot games.
“Patrons would end up getting less,” said Charles LaBoy, the state’s assistant director of gaming. “The flip side is that retention will go up. So there’s a potential revenue upside for the state from that.”
LaBoy declined to estimate how much more revenue — potentially tens of millions of dollars — the casinos and the state could reap.
The state would win because it shares the electronic gaming revenue with the casinos. Although their popularity has declined in recent years, slot machines generated $622 million at the five casinos during the first 11 months of this fiscal year. The bulk — $290 million — went to the Maryland Education Trust Fund, while casino operators got $229 million.
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“There’s certainly an opportunity for us to bring in additional revenue for us and the state,” Matthew Heiskell, general manager of Hollywood Casino Perryville, said of the proposal.
But Heiskell and gambling analysts said casinos wouldn’t cut payouts that much for competitive reasons. With five casinos and a sixth on the way, Maryland has become one of the most saturated gambling markets in the country. And it’s surrounded by states eager to compete for gaming action.
Currently, Maryland is “right in the ballpark” compared to neighboring states in its floor average, including all five casinos, LaBoy said.
The state average from July 2013 to June 2014 was 90.38 percent, according to the American Casino Guide. That put 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.
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“Like any country, we’re going to have a big mix,” Heiskell said of slot payments. “You want people to know they can win at your place.”
Casinos say the proposal would give them the flexibility needed to develop innovative slot offers with widely varying payouts. The proposal “allows for more competitive offers for customers,” the casinos wrote in a memo to the agency.
They also say the plan would give them economic parity with casinos in states that offer more generous financial cushions than Maryland.
In their memo, the casinos also asked the state to roll back — from 87 percent to 85 percent — the lowest average amount individual slots must pay out from bets over the course of a year. They say the demand of 87 percent is high compared to nearby states.
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Pennsylvania and Ohio mandate at least 85 percent payouts per machine, New Jersey requires a minimum of 83 percent and West Virginia 80 percent, according to figures compiled by Maryland regulators from 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 in our casino,” said Robert Norton, president and general manager of Maryland Live, the state’s largest casino. for the recommendation to lower the floor on the individual slot machine. Pay. “The fear that the casinos would take that 85 percent — take every percentage point of it — is really nonsense.”
Representatives for Horseshoe Casino Baltimore and Rocky Gap Casino declined to comment, and officials from Ocean Downs Casino did not respond to an interview request.
LaBoy said regulators will not act on the request targeting individual slot machines because state law requires each machine to pay no less than 87 percent.
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LaBoy said regulators have “flexibility” to consider the casinos’ broader proposal for the overall payment of electronic games. “Maybe there’s a compromise there that we can look at making,” he said.
Any changes would require the approval not only of state gaming regulators — who are not expected to decide until later this summer — but also of the General Assembly’s Joint Committee on Administrative, Executive and Legislative Review.
“I think we’d keep a close eye on it,” Del said. Eric G. Luedtke, a Montgomery County Democrat and chairman of the House Joint Committee on Gaming Oversight. “The counter argument is if people think they’re getting a bad deal, they won’t play. I would worry that players in Maryland might consider going elsewhere if they felt the 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 don’t agree on an item, “then it doesn’t go on the list,” Norton said.
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Most of the other recommendations were technical, including things like table game procedures and replacing the deck of cards.
Because slot machines are driven 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 gaming floors collectively and from individual machines. The machines are programmed to pay a certain percentage, albeit randomly.
In the first quarter of this year, Ocean Downs had the state’s highest average pay at 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 fell below the 90 percent minimum, regulators said the casinos did not violate regulations because the requirement is for a full year.
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Experts say it is difficult to estimate the impact that lowering minimum payouts could have on casino revenue or attendance.
“Most players probably won’t understand 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 a slot player based in Anne Arundel County who likes to go to [Maryland] Live. If you find that slot retention is up 3 percent, is it worth going to Delaware or West Virginia? Probably not.”
Beverly Johnson, 65, plays Horseshoe twice a week. The West Baltimore resident doesn’t think the slot proposal would drive away gamblers, even if they aren’t winning as much.
“I lost tonight, but I’m not mad. I’m going home with a smile on my face,” she said one night last week. “I don’t think many people would pay that much attention.”
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Victoria Gay, 62, and John Bush, 69, drive from Hyattsville to visit Maryland Live or Horseshoe Baltimore about once a week even though Bush said he thinks slots in Maryland casinos already have low payouts.
As they settled on playing a penny slot at the Horseshoe, Gay said he didn’t like the idea of a percentage cut. She thinks she needs to grow up.
“If it were that simple, every [Maryland] casino would put 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.”
The average payout is generally lower than it was 10 years ago, said David Schwartz, director of the Center for Gaming Research at the University of Nevada, Las Vegas.
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He believes this is partly due to the popularity of penny slots and other low-stakes machines that have relatively low payouts and high “holds”.
If the casinos’ request is granted, LaBoy predicted that “the overall state average will remain very close to where it is.”
Players may be better able to notice such a difference in smaller casinos where the gaming universe is limited and the return trends are more obvious.
“If you go to Rocky Gap Casino, you’re definitely going to feel it more there than at a big venue like Maryland Live,” said Alan Woinski, Gaming USA Corp. of which publishes industry newsletters.
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“Realistically, players find out very quickly if a casino has tight machines,” he said. “Players aren’t that stupid.”
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