GGB is committed to providing updated news and analysis on our weekly news site,

Revisiting the RTP

Do higher theoretical hold percentages on slot machines risk chasing players away?

Revisiting the RTP

There was a time when the function of slot operations involved the same priorities as elsewhere in the casino: cater to gamblers by enticing them to gamble more.

For decades, it was a simple pricing formula: Those willing to gamble the most money got the best overall return-to-player percentage, aka RTP, aka payback percentage. Games with denominations of a dollar or more in two-coin and three-coin reel-spinners returned 95 percent or more to the players. Slot managers often used “loose slots” as a marketing tool—even on the Las Vegas Strip, where more than one industry veteran will recall offering upwards of 98 percent RTP on $1, $5 and higher-end games.

Those old-time slot managers knew that advertising a higher theoretical return was the same as advertising a fair gamble. And players responded, making even a 2 percent or 3 percent hold, or house edge, more than sufficient to rake in revenues. These were volatile games, after all, and the thousands of players aiming for the big win more than compensated for the few who actually hit it.

Then came the pennies, and a new kind of math. Multiple paylines and average bets in the hundreds of units enabled volatile games with lower holds, and thanks to a flood of themes drawn from popular culture, the low-denomination games would soon dominate the floor. The recession that began in 2008 made this type of game math even more popular with operators. Theoretical holds went up, RTP went down. Frequent players felt the pinch in the way of less time on device.

Post-recession, there are fewer slot machines on the floors, per-machine profits are up, but RTP, particularly on the penny games, has not budged. This has led to a lively debate among former and current operators: Are casinos gradually pricing themselves out of the slot business?

The most vocal among those who answer “yes” to that question are slot professionals who have experience with both the old and new ways of doing things—people like Charlie Lombardo, who started operating slot machines in the early 1970s and was senior vice president of slot operations for Caesars’ Strip properties and head of casino operations for Seminole Gaming before retiring to become a consultant.

Rising slot hold is one of the topics about which Lombardo has been most passionate in recent years. As a panel member at the first session of the UNLV Gaming and Hospitality Education series last year, he argued that too many of today’s slot operators are substituting profit for customer service when gouging players with high slot holds. He has appeared in the audience of most other industry panels on the subject, to challenge the notion that players don’t notice the difference between a high-hold slot program and a low-hold or “loose” game.

Lombardo says a lower payback percentage, even on a penny game, definitely impacts the player over the long term—whether or not a player can notice a lower RTP in any given single session—because the player’s money doesn’t last as long as it used to.

Lombardo has the research to back this up. He compared theoretical hold percentages from 2 percent to 15 percent, and calculated how long it would take a player to win or lose $100, placing an average bet. In one example from the chart at right, a game with an 8 percent hold yielded two hours of time on device and a total coin-in (total wagers, including those from winnings) of $1,250, while a 15 percent hold yielded one hour of play and around $667 of total coin-in.

“That’s half the time (for the same average bet),” Lombardo says. “It’s almost like saying, here’s a new movie coming out. I’m going to charge you $20 to come see it, and then another $30 for a bucket of popcorn and a couple of drinks. Here, you’ve spent $50 and go in there, and find out it’s a 10-minute movie—they’re no longer two hours long. How many movies are you going to go to? That’s what we’ve done with slot machines.”

Buddy Frank is another slot operations consultant with an operational history spanning the entire modern evolution of the slot machine, having begun as director of slot operations at Fitzgeralds in Reno in 1986 on his way to running slots at Northern Nevada’s Eldorado, Atlantis and Stateline casinos and California’s Viejas, before spending nearly nine years as VP of slot operations at California’s Pechanga Resort, retiring at the end of 2015.

Frank agrees with Lombardo that casinos are risking alienating their customers with high slot holds. “Just as it is with any retail transaction, when the price gets higher than the perceived value, sales will slip,” Frank says. “In jurisdictions where they have excessive tax loads, the players have always had high holds, and probably won’t notice much since they’ve never known anything else.  However, when holds tighten in markets like Nevada and others where they’ve traditionally been low, there is a strong negative effect.”

Frank acknowledges that a player is not likely to notice the difference of a few percentage points in hold during a given session. “However, this type of change results in casinos making millions more,” he says, “which sounds good until you realize those millions came out of the pockets of your players. For the same amount of time and enjoyment, they had to pay more.”

The epicenter of the RTP debate has been the Las Vegas Strip, where rising slot hold has been one part of a larger argument by critics who claim the large operators are pricing the mid-range gambler out of the market.

Kevin Sweet, vice president of slot operations and marketing at the Cosmopolitan of Las Vegas, has been in the thick of the Strip slot market for more than a decade, having begun at Treasure Island in 2009 before managing slots at Bellagio, Aria and Las Vegas Sands. After a brief stint with Seminole Gaming, Sweet returned to the Strip to join the Cosmopolitan in 2015.

Sweet acknowledges that operators in general have kept the hold percentages higher than in the past, and that player RTP has not recovered with the general economy. However, Sweet says the difference in slot hold is not the problem, noting that players do not notice the difference between 8 percent and 12 percent return on any given session.

“Even an old-school three-reel mechanical machine had a cycle of several hundred thousand spins,” he says. “A player just isn’t playing enough spins to feel that type of change. When you change the hold on a game, you aren’t changing the odds to the top prize; you are playing with the frequency of the very small pays. For example, instead of BAR-BAR-BAR coming up every 42 spins at 8 percent, it comes up every 45 spins at 12 percent. That’s what changes, and a player can’t tell. There could be machines running 100 percent RTP and you’re still going to have people think your floor is tight.”

Lombardo disputes this, noting that each drop in RTP affects all elements of a modern slot game. “Part of the problem is, we’ve taken the base percentage of that game and yanked it all the way down to 30-35 percent,” he says. “We’ve put money in bonusing, we’ve put money in special effects. Even though we may say it’s a 90 percent payback game, it’s not 90 percent anymore. The base percentage may be 30, 40 percent.

“It’s only 90 percent payback if you’re the lucky guy who gets all the effects of the bonuses, gets all the effects of the progressives and the special effects we put in there. Otherwise, you’re just the guy who leaves it for the guy who does get it.

“It’s not just that hold percentage is rising,” Lombardo says. “What kind of business are we in? We’re in the entertainment business. We’re not in the ‘let me take all your money, and get outta here’ business.”

Sweet counters that players are, in fact, still getting a decent overall return because of another part of the slot-ops evolution, one that has become a barrier to lowering slot hold percentages for many operators—free play.

“I personally do not have as much of an issue with slot holds increasing as I do with the increasing amount of free play we’re giving out as an industry,” Sweet says. “Free play, especially on the Strip, is used as a tactic to stay competitive. It’s no different than the mess that discounting table games has caused for the industry.

“I could run the absolute loosest floor in the city—call it a 95 percent payback on every machine—but if I reduced the free play that people receive in their direct marketing offers, I’d lose more business than I’d gain. People can see free play; they can’t see hold percent.”

Officials of the two largest Strip operators, Caesars Entertainment and MGM Resorts International, declined to comment for this article.

Off the Strip, things are better in the slot-hold department, but Lombardo notes that even Station Casinos and Boyd Gaming have cut back on RTP. The only exception among locals casinos is Michael Gaughan’s South Point, two miles south of the Strip concentration of mega-resorts.

“Forget what Gordon Gecko said; greed is not always good,” comments Cliff Paige, slot director at South Point. “Hold percent is essentially a tool, and like any other tool, it can be misused with very disappointing results on both the high and low end of the range. The philosophy we go by at our place is to always give the customer a fair shake… period! This has been Michael Gaughan’s philosophy as well as his father, Jackie Gaughan, at the El Cortez Downtown.

“Casinos that get really aggressive and crank that hold to, say, 20 percent will look good in the short term. However, eventually these numbers will begin to fade. The casinos need to be very careful when setting the hold for their particular market. Destination customers will probably not be as sensitive, as they are under a time constraint more than financial constraints. It’s all about getting repeat business. Slots are not a short-term business; we are in it for the long haul.”


Pennies from Heaven

Many in the industry blame the coming of the penny denomination for the initial rise in overall slot hold, but as Frank notes, it didn’t start out that way.

Penny-denomination games began to spread after operators and manufacturers embraced ticket-in/ticket-out payment. Before that, even nickel video slots were burdensome as far as coin-handling—for players as well as operators. Pennies removed the coin-out obstacle and allowed slot designers to experiment with offering payouts in the thousands and hundreds of thousands of coins, with no hand-pays—not to mention moving typical bets into the hundreds for every spin.

The latter development came after a few hiccups. Most prominently, many players actually considered penny games as… penny games. “Originally, their max bets were low—somewhere in the 20-cent range,” Frank recalls. “Therefore, setting the penny games a few points higher than the 6-9 percent of the nickel games made sense. Today, the average bets are well about the 80-cent range—the territory of older 25-cent games.”

It was Lombardo who played perhaps the most important role in getting that average bet up. In charge of slots at Caesars at the time, Lombardo lobbied the manufacturers to institute a minimum bet, covering all the paylines, to eliminate the drag on average bet that resulted from players betting a penny or 5 cents per spin.

“I went to each and every manufacturer and campaigned for that, and all of them started building that into their software,” Lombardo says. “After everyone saw the benefit, it became standard.”

With minimum bets closer to maximum bets on the old quarter slots, average wagers came up. “Penny games are not penny games anymore,” Lombardo says. “We’ve got to look at them as a quarter game, 50-cent game, dollar game… If you look at average bets across the country, I doubt there’s anywhere that the average bet is less than a dollar.”

The problem, notes Frank, was that operators did not scale back the holds that had been raised to compensate for low average bets. “We didn’t adjust downward,” he says. “In fact, seeing record profits from pennies, many of the big corporate guys demanded that the manufacturers produce games pushing the limits well above 12 percent.

“No manufacturer did this willingly,” he adds. “They were pressured by larger (usually corporate) customers seeking greater returns for their balance sheets. Game designers work long and hard to make sure that there is a great ratio of bonus rounds to standard play. If they do this with a 6 percent hold in mind, and then the operator sets the game at 12 percent, it can completely ruin the game dynamic.”

“The problem I think a lot of manufacturers have is that they’ve built games to be an 8-10 percent theoretical hold game,” adds Lombardo. “It’s the operators who have come back and said, ‘I don’t want that.’ The manufacturers should say, ‘This is it. This is the percentages in which we offer it. You don’t like it, don’t buy it. Go to China and see if they’ll make it for you.’

“Who’s going to make it? Who’s going to make Buffalo for you the way we make it, at 15 percent, and still have everything the same?”

But according to Paige, that’s exactly what some manufacturers are doing. “Penny games make up the largest segment of nearly all slot floors,” he says. “When a game hits the floor from a manufacturer, they want a hit right out of the gate. The way to guarantee that, at least in the beginning, is to have a higher hold. Once they get that higher win-per-unit, they expect more orders will come walking in their doors.

“What would be nice is if the manufacturers provided a larger array of game volatility options, and not just low, medium and high, but the actual data based on standard deviation and a volatility index.”

“Volatility impacts a player more than hold percent does,” says Sweet. “Right now the rage is either Asian-themed progressives or hold-and-re-spin bonuses. That’s what is working in the market, so the manufacturers are going to keep producing them until a new trend takes over.

“What we need to see is a great way to incent and reward a customer for betting a higher amount on a penny machine. I’d happily give a 20 percent reduction in hold percent if a person was betting several dollars on a penny-base denomination machine. The manufacturers just need to create it, and do a good job of explaining it to the customer.”


Future of “Loose”

Those same manufacturers, though, are fueling another option for players looking for the “loosest” slots, thanks to a resurgence of the traditional high-denomination stepper slot.

Manufacturers such as IGT and Scientific Games are re-releasing many of the most iconic reel-spinners of decades past, with modern hardware and some video-style features like free spins, but with the same low hold percentages as in the past.

Other manufacturers like Aristocrat and Everi, traditionally squarely in the video realm, are moving forward with new game groups consisting of traditional high-denomination stepper games.

“There absolutely is and will continue to be a market for high-denomination, lower-hold games,” Sweet says. “There is always going to be a segment of the gamer that likes simplicity. So many people speak like the older slot player is dying off rapidly and our industry is facing a major crisis. They need to remember that from 2012 to 2032 there are 10,000 people per day turning 65 years old. These new retirees have a long life ahead of them, and I believe spending time in a casino will be one of the ways they enjoy their golden years.”

“This is a segment that has potential and has been somewhat neglected over the years,” adds Paige, “with low denomination being the larger share of the manufacturers’ attention. Some manufacturers have begun to allocate some time and energy to this segment. They have increased the hit frequency to keep the customer engaged. They need to make sure the customer knows that this is something new and different.”

“High-limit rooms are still doing very well,” says Frank, “and most of them feature games in the 4 percent to 6 percent range. Most also have a strong selection of older reel games. And video reel penny games, upgraded to $1, are also starting to do very well, but only when they are set loose.”

Frank notes that the one sanctuary for smart players looking for high RTP remains video poker. “Anyone other than a novice can see the hold percentages on every game,” he says. “The outcomes are all the same using card math, so the only variant is the pay table, which is displayed to the public. A 9/6 Jacks or Better pays 99.54 percent, while a 6/5 variation pays 95 percent. That 4 percent variance is huge, and given a choice, every player will select the 9/6 game.

“Here’s the rub—even at the extremely tight 6/5 setting, this game is still looser than most reel-spinners or video reels anywhere. Naturally, most of the big guys tighten, or get rid of, their video poker games. They simply don’t want those ‘advantage’ players in their casino. I have the opposite view. If you don’t have the loose pokers, you won’t have a certain group of players. Some say good riddance to that group, but I think they are both loyal, and they are, importantly, opinion leaders.”

As far as running a “loose” slot floor in this day and age—and heralding it from the rooftops—opinions on its viability are mixed. For Lombardo, who ran his floor at Bally’s at a 94 percent overall RTP, it’s a no-brainer.

“I don’t care who you are, if you’re in a market where you can advertise hold percentage, why wouldn’t you put a big sign out there that says ‘98% Payback Slots,’ or ‘97% Payback,’ and put them on your floor?” he says. “You’re absolutely asinine not to do that.”

However, according to Frank, that time may be past. “I’ve researched this extensively over the years,” he says. “No one (the players) believes the claims of ‘loose slots’ unless you have provable stats—few do—or have a long-running position of loose slots. At the former Fitzgeralds Reno, we once hired a national accounting firm to ‘certify’ that our machines were set at the loosest percentages offered by game manufacturers. However, it still took years for our research to show that the public started to believe it.

“Our billboards used to say ‘Certified—97% Paybacks.’ What they didn’t say was ‘Certified—You’ll Lose 3% Of Your Money.’ That’s one major problem with promoting loose slots… most players are going to lose.”

Paige agrees. “Many a time I’ve heard a player say that this or that machine is tight, when in fact, they are playing a game with over a 99 percent theoretical RTP,” he says. “When you have a way to show the customer, such as in video poker, that the game really is ‘loose,’ then there is value in it. If, on the other hand, the RTP is not visible, most players probably won’t believe you.”

Sweet stresses that free play is still the wild card in the situation. “I’ve always thought about what loosening the floor to the extremes would do for a casino’s slot business,” he says. “Again, if free play is what got sacrificed in order to pay for looser games, I think the customer chooses free play over a looser slot.”

Frank predicts that as mergers continue and operators are run according to strict bottom-line business, slot holds will continue to rise, until they begin to see diminished returns. “Corporate takeovers with increased debt will force CFOs to demand higher holds for the next quarter, the future be damned,” he says. “The only hope is with the enlightened markets such as Oklahoma, Reno, and Las Vegas local brands.”

One of Lombardo’s favorite stories refers to the old Dunes casino, which closed in 1993. “They hung a 30-foot screwdriver over the top of that entrance, and said, ‘We’ve loosened our slots.’ Here we’ve been fighting forever that we can’t take a screwdriver and loosen and tighten machines. They hung this big screwdriver, said we’ve loosened our slots… but didn’t change a damn thing. You couldn’t get a seat in there.”

Such decisions, he says, are no longer viable in the corporate world. “Nobody’s given the ability to operate a casino. This is your room rate, this is your hold percentage, this is what you’re going to charge for a meal… Somebody else is making all those decisions for you.” In the end, Lombardo says slot marketing needs to move from the CFO back to the slot department.

Until then, he says, don’t expect to see big screwdrivers at the entrances to any casinos.

Frank Legato is editor of Global Gaming Business magazine. He has been writing on gaming topics since 1984, when he launched and served as editor of Casino Gaming magazine. Legato, a nationally recognized expert on slot machines, has served as editor and reporter for a variety of gaming publications, including Public Gaming, IGWB, Casino Journal, Casino Player, Strictly Slots and Atlantic City Insider. He has an B.A. in journalism and an M.A. in communications from Duquesne University in Pittsburgh, PA. He is the author of the books, How To Win Millions Playing Slot Machines... Or Lose Trying, and Atlantic City: In Living Color.  

    Recent Feature Articles

  • A Good Bet

    As AGS prepares to return to private ownership, stock analysts and industry experts acknowledge that the company’s future is a good bet, private or public.

  • Taxing Problem

    Wagering tax hikes could shrink markets, have unintended consequences.

  • Cashless Crescendo

    The ongoing migration to a cashless casino experience.

  • Hold for Gold, Spin to Win

    Why hold-and-spin games have come to dominate the slot industry.

  • Ronnie Johns: A Life in the Hot Seat

    Following three years as chairman of the Louisiana Gaming Control Board and close to 40 years in public service, Ronnie Johns steps down.