Chapter 3
An Introduction to Casinos

THE HISTORICAL AND CURRENT STATUS OF CASINOS
CASINO ACCEPTABILITY
CASINO GAMES
THE CASINO GAMBLER
HOW DO CASINOS PERSUADE PEOPLE TO GAMBLE?

When most people picture a casino, they will probably imagine one of the megaresorts in Las Vegas—a massive hotel and entertainment complex, blazing with neon lights, games, and fun—however, casinos come in all sizes. Some casinos are huge, whereas 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 code. According to the U.S. Census Bureau, in 2002 NAICS Definitions: 713 Amusement, Gambling, and Recreation Industries (May 6, 2003, http://www.census.gov/epcd/naics02/def/NDEF713.HTM), the code for casinos, 713210, is defined 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. Included in this industry are floating casinos (i.e., gambling cruises, riverboat casinos).” Casino hotels—that is, hotels with a casino on the premises—fall under code 721120. 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 also floating casinos operating on boats and barges on waterways across the country. Casino game machines have been introduced at racetracks to create racinos. In some states, casino-type game machines are also allowed in truck stops, bars, grocery stores, and other small businesses.

Successful casinos take 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 took forty-seven years before a second state, New Jersey, decided to allow casino gambling within its borders.

As Atlantic City, New Jersey, opened casinos during the late 1970s, a shift occurred in the legality of gambling elsewhere in the country, much of it due to the efforts of some Native American tribes. A string of legal victories allowed the tribes to convert the small-time bingo halls they had been operating into full-scale casinos. Other states also wanted to profit from casino gambling. Between 1989 and 1996 nine states authorized commercial casino gambling: Colorado, Illinois, Indiana, Iowa, Louisiana, Michigan, Mississippi, Missouri, and South Dakota.

The American Gaming Association (AGA) estimates in 2008 State of the States: The AGA Survey of Casino Entertainment (2008, http://www.americangaming.org/assets/files/aga_2008_sos.pdf) that commercial casinos had revenues of $34.1 billion in 2007, up from $32.4 billion in 2006, and the National Indian Gaming Commission reports in National Indian Gaming Commission Newsletter (Summer 2008, http://www.nigc.gov/LinkClick.aspx?link¼NIGC+Uploads%2fNewsletters%2f Summer.2008.pdf&tabid¼140&mid 760) that tribal casino revenue totaled $26 billion in¼2007. According to the AGA, 467 commercial casinos, 424 tribal casinos, and 41 racetrack casinos operated nationwide in 2007.

Another 707 card rooms operated in 5 states. (See Figure 3.1 and Table 3.1.)

By the end of 2007, commercial casinos operated in Colorado, Illinois, Indiana, Iowa, Louisiana, Michigan, Mississippi, Missouri, Nevada, New Jersey, Pennsylvania, and South Dakota, and Native American casinos operated in twenty-nine states. Besides the full-scale casinos, racetrack casinos existed in eleven states: Delaware, Florida, Iowa, Louisiana, Maine, New Mexico, New York, Oklahoma, Pennsylvania, Rhode Island, and West Virginia. These facilities are racetracks that also offer slot machines.

CASINO ACCEPTABILITY

Each year the AGA releases results of a survey on the attitudes of Americans toward casino gambling. Most people

surveyed in 2008 considered casino gambling acceptable: 49% of respondents found casino gambling to be acceptable for anyone, and 35% considered it acceptable for others, but not for themselves. (See Figure 3.2.) Only 14% of respondents thought casino gambling was not acceptable for anyone. Since 2003, the percentage of those who believed casino gambling was acceptable for anyone had dropped from 57%, whereas the percent of those who said it was acceptable for others but not themselves had risen from 28%. In other words, even though the percent of those who thought gambling was acceptable for others

had not changed, a slight shift had occurred in views of the personal acceptability of gambling.

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's cut depend on the number of players or the amount that is bet, not the outcome of the game. In percentage games, the house collects a share of the amount wagered.

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 pot is taken by the house. In house-banked games the players compete 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 can offer large payouts for small wagers. The first commercial gambling machines, introduced in 1896, 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, each of which was decorated all around with symbols (usually types of fruit or spades, hearts, diamonds, and clubs). When the player moved the handle on the machine, the reels spun randomly until they were slowed by stoppers within the machine. If a matching sequence of symbols appeared when the reels stopped, the player won. Each reel had many symbols, so literally thousands of outcomes were possible. Because of their construction, ease of play, and low odds, slot machines came to be known as “one-armed bandits.”

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

Electronic slot machines offer many different games (poker is one of the most popular) and are called by a variety of names: electronic gaming devices, video gaming terminals, video gaming devices, video poker machines, or just slots. Harrah's Entertainment explains in Profile of the American Casino Gambler: Harrah's Survey 2006 (June 2006 http://www.harrahs.com/images/PDFs/Profile_Survey_2006.pdf) that slot machines can be played for a variety of denominations—from a penny up to more than $5. The quarter and fifty-cent slot machines are 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 to others 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 and Casino in Las Vegas won $38.7 million, the largest slot machine payout in U.S. history (as of October 2008).

Odds against Gamblers

Because casinos are businesses and must make money to survive, the mathematical odds are always against players in casino games. For example, in “Easy Money!” (June 10, 1997,http://www.pbs.org/wgbh/pages/frontline/shows/gamble/), Frontline explains that a person betting $100 an hour on roulette will lose an average of $5.26 per hour in the long run. The “long run” is a concept often overlooked by gamblers. This is especially true of gamblers who play games of chance such as roulette.

Most roulette wheels have two colors: red and black. On each spin of the wheel, the odds of red or black coming up are fifty-fifty. Many people believe this means the number of black results will equal the number of red results over the course of time they are playing the game. Thus, when several consecutive spins have come up red, they feel that black is overdue, so they bet on that color.

This belief is false, and is known as the gambler's fallacy. Each spin of the roulette wheel is independent of the spins that came before and has the same fifty-fifty chance of being red or black. The fact that four or five results in a row have been red does not change the odds for the next spin. Therefore, even though it is true that over the long run the number of red and black results will be roughly equal, during that long run there may be many periods in which large numbers of spins come up red or black.

The same holds true for slot machines. Many gamblers believe that if they have bet on a slot machine many times in a row and lost, this increases the odds of the next bet being a winner. This is not the case. The Colorado Division of Gaming explains slot machines in the brochure Understanding How a Slot Machine Works (January 11, 2005, http://www.revenue.state.co.us/Gaming/Documents/slotbrochure.pdf). 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, which is typically seven years. Therefore, a gambler who gambled on that machine continuously for seven years could expect to attain a 97% payout. However, during those seven years there will likely be periods in which he wins frequently, and periods in which he loses frequently, with no way to predict when they will occur.

THE CASINO GAMBLER

In 2008, 24% of Americans had visited a casino in the past year. (See Table 2.5 in Chapter 2.) This rate was up substantially from 20% in 1989.

Demographics

According to the AGA, in 2008 State of the States, casino customers are slightly older and have a higher income than the U.S. population as a whole. In 2007 U.S. casino customers had a median age of forty-seven years, whereas the U.S. population had a median age of forty-six years. (See Figure 3.3.) The median household income of casino gamblers in 2007 was $59,735, 16% higher than the median household income of the U.S. population as a whole, which was $51,653. (See Figure 3.4.) About 18% of casino gamblers in 2007 had college degrees and 9% had

a graduate degree. (See Figure 3.5.) About 28% had some college credits or an associate's degree. Nearly half (44%) had not attended college. This compares roughly with education levels on a national basis.

Harrah's Entertainment explains that Profile of the American Casino Gambler is based on two studies:

the National Profile Study by Roper Reports GfK NOP and the U.S. Gaming Panel by TNS. The National Profile Study included face-to-face interviews with 2,000 American adults, and the U.S. Gaming Panel had a questionnaire mailed to 100,000 adults (57,205 responded). Harrah's Entertainment finds that in 2005 the typical casino gambler was a forty-six-year-old female from a household with an above-average income. Older parents over the age of forty-five, who often have more vacation time and available spending money than younger adults, made up the largest group—23%—of casino gamblers in 2005. Harrah's Entertainment also finds that participation in casino gambling dropped with decreasing income— 31% of Americans with annual household incomes more than $95,000 were casino gamblers, whereas only 20% of Americans with incomes of less than $35,000 per year participated.

Slot machines were the most popular casino game among casino gamblers in 2008. (See Figure 3.6.) Over half (56%) of casino gamblers indicated they preferred to play slot machines and other electronic gaming devices. Nearly a quarter (24%) of survey respondents preferred blackjack, 8% preferred poker, 6% preferred craps, and 4% preferred roulette.

Harrah's Entertainment finds that in 2005 female casino gamblers showed a marked preference for electronic gaming, with 79% of those surveyed indicating that it was their favorite type of game, compared to 63% for men. Forty-one percent of women preferred machines in the $0.25- to $0.50-per-play range. Men (21%) were more likely to participate in table games than were women (9%). Game preference also varied by age; younger gamblers were more likely to prefer table games than were older gamblers.

The Popularity of Poker

With the advent of computer-simulated card games and Internet card rooms, poker surged in popularity in the early 2000s. Gamblers were no longer required to play experienced poker players to gain experience themselves. By 2003 a particular type of poker known as Texas Hold 'Em emerged as the game of choice. In Texas Hold 'Em players attempt to make a winning hand from a combination of cards dealt to them face down and community cards revealed to all players. Individuals who had never visited a commercial poker table began spending their weekends at local casinos or in online poker rooms, trying to wrest money from each other. Cable networks such as ESPN and the Travel Channel broadcast games from the World Series of Poker and the World Poker Tour—once obscure competitions reserved primarily for hard-core poker players.

The AGA includes in 2008 State of the States a special report on poker. Poker revenue in Nevada decreased slightly from $60.9 million in 1997 to $57.5 million in 2002. (See Figure 3.7.) However, between 2003 and 2007 poker revenue more than tripled, totaling $168 million in 2007. In New Jersey revenue rose from $32.5 million in 2002 to $84.2 million in 2007. The biggest increases occurred between 2003 and 2005. In 2006 State of the States: The AGA Survey of Casino Entertainment (2006, http://www.americangaming.org/assets/files/2006_Survey_for_Web.pdf), the AGA reveals that young to middle-aged men visited poker rooms more than any other demographic group. Some 25% of males and 13% of females reported playing poker in 2005, which was up from 15% of males and 10% of females in 2003. Poker playing increased across all age groups.

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. Players often shout out encouragement. Alcoholic drinks are easily accessible and delivered directly to gamblers by waiters circulating throughout the casino. Nonalcoholic drinks and snacks are sometimes provided free of charge. The casino atmosphere is designed around noise, light, and excitement.

According to the AGA, in 2002 State of the States: The AGA Survey of Casino Entertainment (2002, http://www.americangaming.org/assets/files/AGA_survey_2002.pdf), 92% of survey respondents went to casinos in the company of their spouses, families, and friends or as part of organized groups in 2002. The AGA notes in 2007 State of the States: The AGA Survey of Casino Entertainment (2007, http://www.americangaming.org/assets/files/aga_2007_sos.pdf) that survey respondents were asked in 2007 to rate which was more fun for them: the gambling itself or the food, shows, and entertainment offered at casinos. Nearly half (49%) said it was the food, shows, and entertainment, and a quarter (23%) said it was the gambling itself.

Casinos use sophisticated marketing and design to get gamblers into their facilities and keep them gambling as long and as happily as possible. Most of them invest millions of dollars to determine which colors, sounds, and scents are most appealing to patrons. The legend that oxygen is pumped into casinos to keep customers alert is

not true—it would be an extreme fire hazard. However, casinos do use bright and sometimes gaudy floor and wall coverings that have a stimulating and cheering effect. Red is a popular decorating color because it is thought to make people lose track of time. Also, there are no clocks on casino walls.

According to The Tech of a Casino (TechTV, June 2002), casinos use a variety of tricks to attract gamblers. Slot machines and gaming tables are arranged in a maze-like fashion so that wandering patrons are continuously enticed by more gambling options. Slot machines are designed to be appealing to the senses of sight, touch, and sound—the noises of the machines are electronically tuned to the musical key of C to be pleasing to the ear. Bells, lights, whistles, and the clang of dropping coins are constant. Humans are attracted to bright lights, so more than 15,000 miles (24,100 km) of neon tubing are used to light the casinos along the Las Vegas Strip.

Casinos also focus on customer service. For example, 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” (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 going to Las Vegas. Gambling revenue was driven by filling hotel rooms and the casino floor with as many people as possible.

In the twenty-first century, casinos are choosier. They concentrate their investments on the “high rollers” (gamblers who spend much more than average). Such people often gamble in special rooms, separate from the main casino floor, where the stakes (i.e., the amount bet) can be in the tens of 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, such as free luxury suites, as well as lavish personal attention.

Less expensive comps are available to smaller spenders. Most casinos offer clubs that are similar to airline 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 coupons for free slot play or for free or discounted meals, drinks, or shows. The comp programs serve as a valuable marketing tool for the casinos, as well: they develop a patron database that can be used for advertising and to track trends in game preference and spending.