chapter 3
CASINOS, PART 1: AN INTRODUCTION

When most people think about gambling, they think about a casino. But what is a casino? According to Merriam Webster's dictionary, a casino is a "building or room used for social amusements, specifically gambling." This definition is much broader than what the average American would consider a casino to be. Most people would picture one of the megaresorts in Las Vegas—a massive hotel and entertainment complex, blazing with neon lights, fun, and games. While this description does fit some casinos, many others are small businesses defined more by the types of gambling they offer than by glitz and glamour.

The federal government classifies all businesses and industries operated within the United States with a six-digit code called the North American Industry Classification System (NAICS) code. The NAICS code for casinos is 713210. The official definition of code 713210 is as follows: "This industry comprises establishments primarily engaged in operating gambling facilities that offer table wagering games along with other gambling activities, such as slot machines and sports betting. These establishments often provide food and beverage services." Casino hotels fall under NAICS code 721120. These are hotels with a casino on the premises. They typically offer a variety of amenities, including dining, entertainment, swimming pools, and conference and convention rooms.

For practical purposes, casino gambling encompasses games of chance and skill played at tables and machines. Therefore, casino games take place in massive resorts, as well as in small card rooms. There are floating casinos operating on boats and barges on various waterways across the country. Casino game machines have been introduced at racetracks to create "racinos." Also, some casino game machines are allowed in truck stops, bars, grocery stores, and other small businesses. By and large, the industry is composed of land- and water-based gambling halls that offer both table games and slot machines.

Like any industry in a capitalist society, casinos are in business to make money. Successful ones rake in billions of dollars each year for the companies, corporations, investors, and Native American tribes that own and operate them. State and local governments also reap casino revenues in the form of taxes, fees, and other payments.

THE HISTORICAL AND CURRENT STATUS OF CASINOS

Gambling was illegal for most of the nation's history. This did not keep casino games from occurring, sometimes openly and with the complicity of local law enforcement, but it did keep them from developing into a legitimate industry. Even after casino gambling was legalized in Nevada in 1931, its growth outside that state was stifled for decades. It was another forty-five years before a second state, New Jersey, decided to allow casino gambling within its borders. Even that move did not open a floodgate of casino gambling.

As Atlantic City, New Jersey, began permitting casinos during the late 1970s, a groundswell of change was about to sweep the country from an unlikely source—Native American tribes. A string of legal victories allowed Native American tribes to convert the small-time bingo halls they had been operating into full-scale casinos. Suddenly, other states wanted to get in on the action. Between 1989 and 1996, another nine states authorized commercial casino gambling—South Dakota, Iowa, Illinois, Mississippi, Colorado, Louisiana, Missouri, Indiana, and Michigan.

Based on estimates from gambling industry trade groups and media reports, U.S. casinos had revenues around $45 billion in 2003. The research firm Christiansen Capital Advisors estimates that commercial casinos and racinos accounted for approximately $29 billion of this total. Tribal casino revenues are estimated by various sources as ranging from $15.9 to $16.7 billion in 2003.

Approximately eight hundred casinos were in operation nationwide in 2003. Just over half (443) were commercial operations, while the remainder were tribal operations.

In 2004 commercial casinos operated in Colorado, Illinois, Indiana, Iowa, Louisiana, Michigan, Mississippi, Missouri, New Jersey, Nevada, and South Dakota, while Native American casinos operated in twenty-eight states. Besides the full-scale casinos, there were racetrack casinos, or "racinos," in eight states—Delaware, Iowa, Louisiana, Maine, New Mexico, New York, Rhode Island, and West Virginia. These facilities are actually racetracks that also offer slot machines.

CASINO ACCEPTABILITY

The American Gaming Association (AGA) is a national trade organization that represents the commercial casino industry. Each year the AGA releases results of surveys conducted for it by Peter D. Hart Research Associates, Inc., and the Luntz Research Companies regarding gambling acceptability in the United States. The latest survey was published in 2004 State of the States: The AGA Survey of Casino Entertainment. The survey, conducted during February and March 2004, interviewed 1,200 American adults about their opinions regarding casinos. Most of the interviews (59%) were conducted in nongaming states. The results indicate that casino gambling is considered acceptable by a vast majority of Americans. In the 2004 survey 54% of respondents found casino gambling to be perfectly acceptable for anyone. Another 27 percent considered casino gambling to be acceptable for others, but not for themselves. Only 16% of respondents in 2004 felt that casino gambling was not acceptable for anyone.

Casino gambling acceptability (believing that it is acceptable for anyone) was split by gender, with more men than women feeling that casino gambling is acceptable for anyone. However, women surveyed by the AGA were more likely to see casino gambling as acceptable for others, if not themselves. Acceptability was highest among those living in the Northeast and Pacific states (87%) and lowest among those living in southern states (76%). Acceptability of casino gambling for anyone was highest among Americans in upper income brackets. Acceptability was greatest among those who attend church rarely or not at all. Weekly churchgoers were far less accepting of casino gambling with 27% saying it was unacceptable for anyone.

Despite the apparent widespread acceptability that casinos enjoy, they are not welcome everywhere. In February 2002 the New Hampshire and Hawaii legislatures voted to drop all bills that would have legalized casino gambling in their states. In November 2003 Maine voters voted down a referendum that would have allowed development of a tribal casino in the southern part of the state. The casino drive was supported by labor unions, but opposed by the state's governor and many business and civic leaders.

CASINO GAMES

Casinos offer a variety of games, including card games, dice games, domino games, slot machines, and gambling devices (such as the roulette wheel). Some games are banked games, meaning that the house has a stake in the outcome of the game and bets against the players. Banked games include blackjack, craps, keno, roulette, and traditional slot machines. A nonbanked game is one in which the payout and the house cut depend on the number of players or the amount bet, not the outcome of the game. In percentage games, the house collects a share of the amount bet.

For example, in "traditional" poker, players bank their own games. Each player puts money into the pot and competes against the other players to win the pot. A portion of the winning pot is taken by the house. In house-banked games, the players play against the house rather than each other. Another type of house-banked game is one in which there is a posted payout schedule for winning hands rather than a pot.

Gaming machines are by far the most popular type of casino activity. They are simple to operate and offer large payouts for small wagers. The first commercial gambling machines were introduced in 1896. They were called "slot machines" because the gambler inserted a coin into a slot to begin play. Each slot machine consisted of a metal box housing three reels that spun randomly when a handle was pulled. The reels were decorated all around with symbols (usually types of fruit or card markings such as spades, hearts, diamonds, and clubs). Stoppers within the machine slowed each reel to a stop after a time. If the sequence of symbols that appeared across the reels matched a posted winning sequence (usually three of a kind), the player was a winner. Because each reel featured multiple symbols, there were literally thousands of possible outcomes. Because of their ease of play, low odds of winning, and the single handle used to activate them, slot machines came to be known as "one-armed bandits."

Some casinos still offer old-fashioned slot machines, but most gaming machines today are electronic and computer controlled. They are manufactured to strict technical specifications and use a computer programming technique called random number generation. A preprogrammed computer chip inserted into the machines tracks accounting and progressive play information and determines the percentage of payout. The machines are similar to high-tech video games, offering sophisticated graphics and sound. Many electronic slot machines are designed to mimic the look and feel of reel-type machines. Patrons may have a choice of a modern push button or an oldfashioned handle to activate play.

Electronic slot machines offer many different games; poker is one of the most popular. For this reason, the machines are called by a variety of names: electronic gaming devices, video gaming terminals, video gaming devices, video poker machines, or just slots. Slot machines can be played for a variety of denominations—from a penny up to hundreds of dollars. The quarter slot machine is the most popular.

Some casinos have slot machines with progressive jackpots—in other words, the jackpot grows with continued play. Most progressive jackpot machines are connected with one another in a computerized network. Play on any one machine within the group causes the jackpot to increase. On March 21, 2003, a man playing a progressive slot machine at the Excalibur Hotel–Casino in Las Vegas won $38.7 million, the largest slot machine payout in U.S. history.

Odds against Gamblers

Since casinos are businesses, and as such must make money in order to survive, the mathematical odds are always against game players in casino games. For example, according to PBS Frontline, a person betting $100 an hour on roulette will lose an average of $5.26 an hour in the long run. The "long run" is an important concept that is often overlooked by gamblers.

For example, most roulette wheels have two colors—red and black. Many people assume that if several consecutive spins have come up red, then black is overdue and will bet on black. However, the law of probabilities says that each spin has an equal chance of being red or black. Only when averaged over the course of many spins will red and black come up equally.

The same effect holds true for slot machines. The Colorado Division of Gaming explains this concept in an undated brochure titled "Understanding How A Slot Machine Works." The brochure notes that a slot machine with a 97% payout would "theoretically" be expected to pay back 97% of all money taken in over the lifetime of the machine, typically seven years. Therefore, a gambler would have to gamble on that machine continuously for seven years to attain a 97% payout.

THE CASINO GAMBLER

In December 2003 the Gallup Organization conducted a poll on gambling activities. The results indicated that 30% of poll participants had visited a casino within the previous twelve months. (See Figure 2.1 in Chapter 2.) As shown in Figure 3.1 casino visitation rates have increased from a low of 20% reported in Gallup's 1989 poll.

Demographics

Harrah's Entertainment, Inc., is one of the major corporations operating commercial casinos in the United

FIGURE 3.1

States. In September 2003 the company presented results of a survey conducted for it by Roper ASW and NFO WorldGroup, Inc., in Harrah's Survey 2003: Profile of the American Casino Gambler. The survey was twofold: 2,000 American adults were interviewed face-to-face, and a survey questionnaire was mailed to a panel of 100,000 adults (of which 64,753 responded).

The survey results indicated that 51.2 million people gambled at a casino in 2002—about 26% of the American adult population age twenty-one and above. The typical casino gambler is a forty-seven-year-old female from a household with an above-average income. According to the 2004 edition of the Harrah's survey, 19% of casino gamblers had a college degree and an additional 8% had education beyond a four-year degree, while 28% had some college credits, and 45% had not attended college. This compares very closely with education levels on a national basis. (See Figure 3.2.)

According to Harrah's Survey '04: Profile of the American Casino Gambler, there were 310 million casino visits in 2003, with the average gambler visiting a casino six times during the year. Adults age fifty-one to sixty-five, who often have more free time and available spending money than younger adults, made up the largest group of casino gamblers in 2004—29% of the total. (See Table 3.1.)

The 2004 survey found that 32% of Americans with annual household incomes in excess of $95,000 were

FIGURE 3.2

casino gamblers. (See Table 3.2.) Participation in casino gambling dropped with decreasing income, with only 20% of Americans with incomes less than $35,000 per year participating. Casino gamblers were more likely to be residents of western states (35%) than of the north-central (27%), northeast (27%), or southern (18%) regions of the country. The states whose residents accounted for the largest shares of all casino trips in 2003 were California (19%), Nevada (6%), Illinois (5%), and New York (5%). States accounting for the smallest percentages of all gambling trips were Idaho, New Hampshire, North Dakota, Oklahoma, South Carolina, South Dakota, and West Virginia, each of which accounted for less than 1% of all gambling trips. (See Table 3.3.)

Slot machines were the most popular casino game among casino gamblers in 2004. (See Table 3.4.) A large majority, 75% of casino gamblers, indicated that they play slot machines and other electronic gaming devices. The quarter slot machine was the most popular among this category. Table games, such as blackjack/21, roulette, and craps, were less popular, drawing only 13% of casino gamblers.

In the 2004 Harrah's survey, female casino gamblers showed a marked preference for electronic gaming, with 81% of those surveyed indicating that it was their favorite type of game, compared to 66% for men. Nearly half (48%) of women preferred machines in the $.25 to $.50 per play range. Men were more likely to participate in table games (20%) than were women (8%). Game preference also varied by age, with younger gamblers showing a preference for table games and senior citizens preferring electronic games. (See Table 3.5.)

TABLE 3.1

TABLE 3.2

In March 2002 Gemini Research released a report on the gambling habits of Nevada citizens. Gambling and Problem Gambling in Nevada was prepared for the Nevada Department of Human Resources. Respondents who acknowledged participation in casino gambling at least once a month during the previous year were asked which casino games they most liked to play. The largest portion (50%) selected slot machines. Card games, such as blackjack and poker, were the favorite of 30% of respondents. All other games were far less popular. Bingo and keno were the favorite games of only 6% of the gamblers. Table games (such as roulette and craps) and gambling on sporting/racing events each garnered only 5%.

Motivation—How Do Casinos Persuade People to Gamble?

Casino gambling is different from other forms of gambling, such as lotteries and Internet gambling, because of its social aspect. Players are either directly interacting with others, as in craps or poker, or surrounded by other people as they play the slot machines. A casino floor usually contains many tables at which small groups play various games. Excited players shout out encouragement. The atmosphere is boisterous and partylike. Alcoholic drinks are easily accessible and delivered directly to gamblers by waiters and waitresses circulating throughout the casino. Nonalcoholic drinks and snacks are sometimes provided free of charge. The casino atmosphere is designed around noise, light, and excitement.

TABLE 3.3

According to a poll conducted for the American Gaming Association in 2002 by Peter D. Hart Research Associates, Inc. and the Luntz Research Companies, 92% of survey respondents go casino gambling in the company of their spouses, families, and friends or as part of organized groups. Casino gambling was considered "a fun night out" by 82% of those asked.

The casinos go to great lengths to lure gamblers into their facilities and keep them gambling as long and as happily as possible. Large companies invest millions of dollars in determining what colors, sounds, and scents are most appealing to patrons.

The legend that casinos pump in oxygen to keep their customers alert and peppy is untrue. Such a practice would be an extreme fire hazard. However, many casinos do furnish their gambling halls with bright and sometimes gaudy floor and wall coverings because these have been

shown to have a stimulating and cheering effect on people. Red is extremely popular as a decorating color in casinos for the same reason and because it is thought to make people lose track of time. There are no clocks on casino walls either. Most casinos have no windows or mirrors in order to minimize distractions and keep the focus on the gambling action.

According to "The Tech Of: A Casino," a TechTV program broadcast in June 2002, casinos use a variety of tricks to attract gamblers. Slot machines and gaming tables are arranged in a mazelike fashion so that wandering patrons are continuously enticed by more gambling options. Slot machines are designed by computers to be appealing to the senses of sight, sound, and touch. Bells, lights, whistles, and the "cling clang" noise of dropping coins during a payout are all part of the sensory experience. The machine noises are electronically tuned to the musical key of C to be pleasing to the ear and fit into the ambient noise of the rest of the casino. Humans are attracted to bright lights, so, more than 15,000 miles of neon tubing are used to light the casinos along the Las Vegas Strip.

In addition to stimulating atmospheres, casinos also focus on customer service. They provide perks designed to encourage gamblers to spend more and to reward those who do. Most casinos offer "comps," which is short for complimentaries, or free items. During the 1970s, Las Vegas casinos were famous for their deeply discounted travel packages, cheap buffets, and free show tickets. The strategy at that time was to maximize the volume of people coming and staying at the casino. Gambling revenue was driven by filling hotel rooms and the casino floor with as many people as possible.

Today, casinos are more choosy. They prefer to concentrate their investments on gamblers who spend much more than average—the so-called "high rollers" or "big spenders." Such people receive VIP treatment. They

TABLE 3.4

often gamble in special rooms, separate from the main casino floor, where the stakes (amount bet) can be in the thousands of dollars. Casinos make much of their profit from these high-stakes gamblers. Therefore, the high rollers receive comps worth a great deal of money during their visits, such as free luxury suites and lavish personal attention.

Less expensive comps are available to smaller spenders. Most casinos offer clubs that are similar to airline

TABLE 3.5

frequent-flyer programs. Gamblers who join receive a card that can be swiped electronically before they play a game. Casino computers track their usage and spending habits and tally up "points" that can be exchanged for free or discounted meals, drinks, or shows, or coupons for free slot play. The comp programs also serve as a valuable marketing tool for the casinos. They develop a patron database that can be used for mail advertising and to track trends in game preference and spending.