Lucky Detroit casinos don’t have to disclose paybacks

(Creative Commons photo by Zieak via Flickr)

DETROIT — Unlike most other states where casino gambling is legal, the Motor City’s three casinos are not required to disclose the average payout percentage of thousands of lucrative slot machines.

Since high-stakes casino gambling came to Detroit a decade ago — housed initially in temporary buildings but since moved to glitzy permanent properties — the Michigan Gaming Control Board administrative rules only require that the three privately owned casinos pay out 80 percent or higher over the life of each slot machine.

That’s hardly a jackpot of transparency — or a recipe for healthy competition — according to Mark Pilarski, the Detroit Free Press’s Casino Q & A columnist.

In a recent column, Pilarski fielded this question from a reader named Dorothy D:

Is it my imagination, or have the casinos in Detroit tightened up their payout percentages? Before building the new casinos, my husband and I seemed to have more luck than we do in their newer ones.

Pilarski, an industry analyst and ex-Las Vegas dealer, responded by pointing out that no one really knows. While most states require detailed, average payback figures on gambling machines, he added, Michigan doesn’t.

“With competition for your entertainment greenback so fierce today, it really is a shame that Michigan doesn’t allow you to compare returns from Casino A versus Casino B,” Pilarski wrote.

Asked about Michigan’s outlier status, MGCB spokesman Eric Bush said slot payout is “proprietary” information and dates back to an agreement inked with the casinos when operations first got started in 1999. He said that average payback on gambling machines — from penny slots to video poker — is “generally way up in the 90s” but the casinos aren’t required to be specific.

He said machine payouts can range anywhere between 80 and 99 percent, and even without more disclosure, savvy gamblers know what’s going on.

“People vote with their feet,” he told Michigan Messenger. “They’re not going to go some place if no one’s winning.”

In a separate interview, Richard Kalm, MGCB executive director, said he’s confident that gamblers aren’t getting unfairly duped by the casino owners’ lack of disclosure.

“They would lose a bank of casinos in one day if they didn’t pay out,” Kalm said. “People would avoid them like the black plague.”

Detroit’s three regulated casinos — MGM Grand Detroit, Motor City and Greektown — pay out more than $280 million combined each year to the state and city of Detroit in taxes.

Part of that revenue stream goes to the state’s school aid fund, a factoid Kalm marshals to argue for industry-friendly regulation.

Last year, the state raked in $121 million from the three casinos, while the city of Detroit collected $161 million on about $1.2 billion in total revenue. Meanwhile, the state’s 20 Indian casinos — as well as two Canadian casinos that also compete for many of the same gamblers — are not subject to the same 80 percent payback minimum that the MGCB enforces on the three Detroit casinos.

“If we could make the playing field level, I would tend to agree” with additional disclosure, Kalm said. “But we can’t require the Native American casinos to disclose,” he added, citing the tribe’s sovereign nation status and the long-term compacts that govern the terms of their casinos. Ditto for Canada’s Caesar’s Palace Windsor casino just across the Detroit River and beyond Kalm’s regulatory reach.

Moreover, Kalm argues that the additional disclosure would be very hard to monitor.

“It would be a nightmare to regulate when the casinos change the machines out every 10 days,” he said.

Asked how most other gambling states apparently mange the task, Kalm conceded, “I suppose they’re figuring it out.”

Jake Miklojcik, a gambling industry consultant who’s currently a member of the Greektown casino management board, says he can see how requiring more precise slot payout disclosure might lead to a marketing bonus.

“Casinos do advertise best rates, hottest slots, which is fine,” he said. “I’m not against it.”

But neither is he clamoring for the reform. Miklojcik, who emphasized that he joined the Greektown board after the casino entered bankruptcy protection, cautioned against a change that could potentially put the Detroit casinos at a disadvantage versus Canadian or Indian casinos that couldn’t be compelled to be more transparent.

“That would be the competitive concern. We are eventually going to be competing with Toledo for the Michigan dollar, not just the Ohio dollar,” Miklojcik said, noting the approval of legalized casino gambling by Ohio voters earlier this month which will in the next few years add a casino in each of the Buckeye State’s largest cities, including nearby Toledo.

Meanwhile, David Schwartz, director of the Center for Gaming Research at the University of Nevada at Las Vegas, said he sees increased competition for the gambling dollar as the best bet for the Michigan consumer, not necessarily getting in line with other gambling states by adding more disclosure.

“Honestly, it’s not the kind of thing that customers seem to pay a lot of attention to,” he explained, pointing to his own research that appears to bear that out.

Schwartz said that his most recent research indicates that player winnings in Nevada — both in tourist and non-tourist spots — is going down even though the paybacks are all disclosed, and gamblers don’t exactly eschew the lower paying slots. They do the opposite, he explained.

“Since 1992, slot hold [for the casinos] has been rising in Nevada, while the return payback percentage is going down for the players,” he said, noting that the casinos have been raking in a full percentage point more in machine revenue over that period of time.

Casinos are raising their hold percentage on the most popular, lower-denomination machines — like penny and nickel slots — and yet more gamblers keep gravitating toward those machines, he added.

“I was shocked to see how much the [casino’s] hold percentage has gone up, and play continues to rise,” Schwartz said of his still unpublished findings.

“Players are not looking for value in that way,” he added.

Instead, the best way to drive down the casino’s take is to foster more competition, Schwartz said, something that’s already on the way courtesy of Ohio voters recent decision to add their own casinos to the regional mix.

“It’s basic supply and demand. If you’ve got more supply, and you’ve got the same demand, the price is going to fall,” Schwartz said. “This is something you see in every market, and sometimes it’s ruinous.”

Kalm, the state’s top casino regulator, wants to avoid that sort of competition. While he acknowledges that there’s a process in place to amend the MGCB’s administrative rules and require more disclosure from Detroit’s commercial casinos, he simply doesn’t see the need.

“I want them all to be successful,” he said. “But I don’t want to have the government intervene and tell the private businesses, these three casinos, that they have to disclose something that I don’t believe at this point is necessary.”

Pilarski, the Detroit Free Press’ resident casino expert and disclosure advocate, thinks Kalm should reconsider.

“It would be a smart decision. Competition is always good for the consumer,” he wrote to Michigan Messenger in an e-mail.

But, he added, “I doubt they’ll do it voluntarily.”