Conventional wisdom says Montana’s multi-million dollar gambling industry should thrive in a down economy. Don’t bet on it.
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I spot Caroline Peters playing the Brilliant Bet keno machine along the north wall of the Joker’s Wild on Reserve Street. She taps the play button in an almost hypnotic pattern, her blue eyes moving with uncanny reflex toward the shifting LED panels. Keno—a fast-paced form of electronic bingo—requires little strategy, but some players like to adjust the bet amount from roll to roll. After a sudden surge in her credit count one turn, Peters picks her white hoodie off the back of the chair and, almost instinctively, moves to another keno machine.
Though it’s not unusual to walk into a Montana casino at 11 a.m. and see a row of folks playing the line with the diligence of Wall Street traders, Peters seems out of place. Unlike the rest of the crowd, she’s not there to socialize; Peters is there to gamble. A group of men sit in front of a large panel television watching a History Channel special on dam construction. They shove toothpicks in the play button of their Pot O’ Gold machines, then sit back to a large breakfast while the games play unattended.
“It works about the same—I’ve been doing it for three years,” one of them explains to me. “It’s the lazy man’s way of gambling.”
The reeling Pots O’ Gold release a haunting cacophony into the air as the gamblers chew the fat over local happenings. Peters, meanwhile, diligently plies her machine before examining her watch, grabbing her keys and heading for the door. I follow her outside to ask why she maintained focus—and indeed chose to switch machines—when the other patrons weren’t even paying attention to their play.
“I thought it was getting cold,” the 51-year-old eastern Washington resident responds, unfazed by my surveillance. “There’s obviously a lot of superstition attached to gambling. It might be silly to think a machine gets cold or hot, but you go along with it because it’s more fun. That’s really all it’s about.”
Superstition is the language of gambling culture, and to pick up the common myths requires relatively little time spent among players. Perhaps the most prevalent states the payout odds of a machine drop the more it’s played, until drying up like a spent dairy cow. Another—more dangerous—myth says a machine that fails to pay out for a period of time is more likely to register a jackpot if played with persistence. Still other gamblers insist machines pay out the best early in the morning when left unattended for some time—much like putting a field to fallow. There exist perhaps a dozen more perceived nuances all based on the premise that the actual odds change with conditions. They generally don’t.
“You can’t really explain luck, honey,” Peters remarks, climbing into her Mercury. “It’s all pretty harmless as long as you know your limits.
“My daughter only lets me play two days a week anyway,” she laughs. “I tell you, you’ll reach a certain age and those little ones will start telling you how to behave.”
With that, Peters heads toward the highway about $6 richer and a tad behind schedule to meet some friends in Helena. The conversation, meanwhile, leaves me wondering how many players understand the raw mechanics of the industry. What else could explain rational people interpreting the application of an algorithm in such fantastic ways? More importantly for the 24,000 Montanans employed by gaming establishments, do these beliefs keep patrons playing through rough economic climates, or is the persistence of gambling in times of recession the greatest casino myth of them all?
In this hour of chronic job loss, the gambling industry constitutes an often overlooked economic playing field, largely because conventional wisdom states that all sin industries remain insulated from hard times. Statistically, the jury remains out on whether the Montana gambling industry will take a hit, hold or grow over the coming year. Industry leaders, however, appear skeptical that they’ve got it made.
“Gaming is based on entertainment and discretionary income,” says J. Grant Lincoln, CEO of Missoula-based Century Gaming, the statewide industry’s leading employer. “Gaming was always thought to be recession-proof, and it is to a certain point. But what I’m finding is people have to have a certain amount of discretionary income, especially in the small markets.
“We’re no different than the retailers or movie theaters. I think people are cutting back at every opportunity.”
Just before he retired last month, I telephoned the longtime head of the Montana Department of Justice’s Gambling Control Division, Gene Huntington, to ask about a common advertising claim. At the time, I wanted to find out if some casinos truly offered a significantly greater chance of winning and where those establishments are. In essence, I wondered if someone could actually hunt down the loosest slots in town.
“Are you at the website?” he replied. Huntington promptly directed me to a cache of documents published by the division, including a 51-page listing of the payout percentages of programs available to each of the state’s approximately 18,000 video gaming machines. “Everyone in the industry knows about this,” he said, “but the public generally doesn’t.”
To my disappointment, the documents, despite their thoroughness, only allow someone to pull up the payout of gambling programs, such as Pot O’ Gold, but not individual games by location. In other words, if I wanted to locate the loosest slots in town, I’d have to cross-reference the Justice Department’s list with manufacturer codes and then match that game to serial numbers on the back of machines inside a casino. I managed to determine the payout of machines in some instances—but only after arousing the suspicion of those running the establishment.
While locating the loosest slots proves cumbersome, the Justice Department’s data does go a long way in describing the scope of Montana gaming. In addition to monitoring program payouts, the department also keeps tabs on game manufacturers, individual establishments with gaming licenses—which, in Missoula County, includes some churches and senior centers—and the casino management firms, known in the business as route operators. Behind the retail face of the industry, route operators take home a hearty slice of the revenue pie.
“We help get the floor laid out. We decide what equipment works best. Then we set it up, collect and maintain while the operator runs the retail aspect,” says Lincoln of Century Gaming, Montana’s largest route operator. “We provide the games.”
Route operators draw a percentage of the house’s win for the service of keeping the floor up-to-date with the most popular games. Unsurprisingly, gamblers prove incredibly fickle, so casino owners contract with these firms mainly to keep customers satisfied with the inventory.
“New games come out and you gotta have them or people that play them go down the road to people who have those games,” explains Missoula casino owner Bill Nooney. “It’s a numbers game either way. Upgrading some of that stuff might be $1,000 to $1,500 a year.”
For route operators, business remains solid. In 2005, Century made Money Magazine’s list of the 500 fastest growing companies in America, boasting of a 426 percent three-year growth rate. According to Lincoln, Century operates roughly a quarter of Montana’s automated gaming, and grossed $280 million in 2006. The statewide industry enjoyed an inflation-adjusted growth rate of roughly 2 percent each year from 2001–2007.
“The bulk of where gambling occurs is in the places where the population is concentrated—Billings is by far the biggest market,” says Neil Peterson, executive director of the Gaming Industry Association of Montana.
According to state data, Missoula County recently surpassed Cascade County as Montana’s second largest market. In 2008, the public played roughly $1.4 billion statewide, according to a Justice Department year-end report. All told, video gambling generated $63.4 million in taxes for the state in 2008 off of $423 million in revenue. Survey figures from the University of Montana place the total revenue for gambling establishments at $1.35 billion, only slightly below the food and beverage industry at $1.36 billion, and not far from the general merchandise retail market at $1.62 billion.
“It’s right in the ballpark of other types of retail establishments,” says John Baldridge of the University of Montana Bureau of Business and Economic Research.
In Missoula County, 119 establishments are licensed by the state to carry video gambling machines—1,328 registered units in all. By Montana law, no one licensee can operate more than 20 machines, which is why Lucky Lil’s, for example, has six different locations. Most of the larger and more popular rooms cluster around Brooks Street, with a handful also off Reserve and West Broadway. Some sport a regular crowd that rivals the most popular of downtown taverns with revenues as historically consistent as anyone in the economically sensitive entertainment industry could ever hope for.
“It’s kind of site specific,” says Nooney, owner of three Missoula area Diamond Jim’s and Doc Holliday’s Card Room on Brooks Street. “Out there at the crossroads (the Diamond Jim’s near the junction of Highway 200 and I-90), because the over-the-road traffic is down appreciably, we’re down. In town, we’re holding our own.”
Dispelling the myths
Many casino owners and managers don’t like talking about the nuts and bolts of the industry. Fewer still willingly engage the media, wary of indulging the preaching of anti-gambling moralists. Ross Bittner, the Vegas born owner of Flipper’s Casino on S. Higgins Avenue, says he’s skeptical of my motives until I offer all assurances of moral apathy. I tell him—truthfully—that I only want to know about how casinos run their floors. What, if anything, does he do to his machines to entice gamblers to come back, even when money is tight?
“I’ll try and answer your questions,” Bittner responds, before adding a caveat. “We don’t understand it all ourselves.”
Flipper’s Casino has experienced an interesting history since becoming one of the state’s first 24-hour lounges. Located right in the middle of Missoula’s downtown core, it briefly became the target of university district neighborhood groups and consequently lacks a liquor license (they still pour beer and wine). The joint held 30–40 machines before Montana bumped up regulation in the 1980s and capped the number of games per establishment at 20.
Bittner also owns all of the machines at Flipper’s, rather than contracting a route operator to run his floor. He seemed the ideal person in Missoula to address one of the most prevalent rumors circling the gambling industry: that casino owners and managers play marionette with the payout odds of video machines.
“The biggest myth of Montana gambling is that you can change the machine—the machine is going to do what it’s going to do,” Bittner answers. “If I have a machine in here that’s spitting out, I’m stuck with it. Whatever program it is, the payout is set by the factory. If you have the same game in one spot, it’s going to pay out the same as in another spot.”
Justice Department records also dispel this myth to a large degree. Within each machine is a program with a code-set percentage telling the program how much to pay out—ranging from the legal minimum of 80 percent of money played to 101.9 percent. The vast majority of licensed machines pay out in the mid 80s to low 90s. To alter the payout by changing to another registered program requires the casino owner or route operator to file the exchange with state regulators. Making changes costs money and the difference in payout percentages seemingly fails to justify the expense.
“It’s all based on mathematical probabilities,” says Gambling Control administrator Rick Ask. “Over time, the math all works out. By chance it may not be paying out this week or it may be paying out a lot. It’s all by chance.”
But just because something seems improbable based on the hassle of pursuing it compared to the alternatives doesn’t mean it can’t happen. Yet, regulators argue floor managers swapping out games willy-nilly would be a fairly easy trick to catch.
“They monitor performance on their machines, certainly,” Ask says. “They can go in and change the program on the machine as long as it’s approved. The law requires at least an 80 percent return on credits played to credits won. We test to make sure it meets that minimum. There’s no maximum.
“Their view of these devices isn’t always the payback percentages but the hold—how much do they keep?”
The hold is dictated by the basic laws of probability and, like all things in statistics, the results hone in to expectations over time. In other words, the more money one or any number of people pump into a machine, the more likely that the casino owner retains the factory-set payback percentage of the amount played. In a way, it makes more economic sense to keep people playing any game than fret over what any particular machine is paying out.
“The newer machines are looser—they pay out a lot better than they did 20 years ago,” Bittner says. “We’re not that much different than Vegas in that people like newer things. They keep coming out with new programs to excite people to want to play.”
The desire to draw players back to the machines has sparked a pseudo-academic debate over the years whether loose machines follow placement rules. The theory, as laid out in books by self-styled gambling experts, states floor managers strategically place the machines with the highest payout next to the buffet, near the casino’s foyer or within earshot of the ATM.
“I would never think of doing that, but somebody probably has,” Bittner says.
Playing the odds
At the Silvertip on Southwest Higgins, I encounter two mill workers on furlough playing keno late in the afternoon. Known primarily as a poker room, the Silvertip—a favorite haunt of the southeast side—also boasts of a corps of casino regulars. Because of the precarious status of their employment, Mike and Brad ask me to identify them by first name only. “I don’t need the guy writing the pink slips knowing I spent my time off in a casino,” Mike chuckles.
Both Mike and Brad discuss their own reasons for playing at the Silvertip, and the particular strategies they’ve seen employed by regulars.
“People come up with superstitions because the truth is hard to explain,” Brad explains. “I’ve seen people play a machine and win again and again and then say, ‘Well, this one’s got nothing left.’ So they move over, someone sits down where they were, and it pays out again. There’s just no real good way of knowing what’s going to happen so some people make stuff up and pretend it’s true.”
At the Claim Jumper on Brooks Street, I met a retiree who keeps a Ziploc bag full of coins in his freezer because he thinks cold coins hit better than those at room temperature. Another woman tried to convince me playing only one coin at a time increases the odds of a winning spin. Bittner jokes he used to have a regular at Flipper’s who insisted there was a button controlling the odds on her favorite machine. “I’d reach back behind the machine and she’d be happy,” he says.
Perhaps just as baseless, however, is the presupposition that the gambling industry floats or even takes flight when all other boats sink.
“The adage that gambling is recession-proof is not true,” says Peterson of the Gaming Industry Association. “You just have to look at what’s happening in Las Vegas and Nevada in general. Gaming tax revenues are down.”
Some troubling statistics are surfacing in the heart of American gaming during the first real litmus test the industry has been subjected to since the advent of regulation. In Nevada—the nation’s largest gambling market by no small margin—statewide revenue appears to be declining at a rapid rate. Though the numbers since the crisis began in earnest are just beginning to filter in, gambling revenue in the Silver State dropped 22.3 percent in October alone—the largest recorded plunge ever.
“I think we’re feeling a little bit of the effects of the economy in Montana, but nothing compared to what we’re feeling in Las Vegas and Reno,” says Lincoln, who also runs a major route operator in Nevada. “People are definitely playing a little bit less and whether that’s in frequency or dollars is always debatable. I think it’s a little of both.”
Every few years, the University of Montana Business School conducts a survey to measure industry growth beyond the raw numbers reported for taxation purposes. Survey responses collected in August and September asked 444 casino owners and operators about their recorded revenue in 2007, the last year they would have had complete tax records for. Their results show continued growth.
“That’s all well and good until what may be the largest recession since the 1930s comes around to make things a lot more interesting for all of us,” laments Baldridge, whose department began compiling the data just as the Montana economy went to hell. “That’s a huge caveat to the utility of our numbers.”
UM economists say it’s still impossible to know if the Montana markets are following the same trend as Nevada. Gambling tax revenue figures, certainly the deepest canary in the mine, fell slightly last quarter—a small heave relative to the rest of the retail market but something almost totally foreign to the industry. The local prognosis, state industry groups assert, largely depends on whom one asks.
To some degree, the Justice Department’s next quarterly report, due in March, should provide a better indication of the industry effects. The state’s revenue figures through October, collected for taxation purposes, don’t indicate a recession just yet, but the downturn could be troubling for casinos not yet established in their markets. Economists maintain this is uncharted territory, however, and it remains to be seen how players will place their discretionary income.
Most of the regulars I spoke with don’t seem willing to change their routines. Those who believe their private rituals and time-honored superstitions will eventually lead to a large payday, will keep trying. More pragmatic players don’t envision less time at the slots because gambling is their primary form of entertainment. Even when times are tight, many of them are looking to cut costs in other areas of their life—but not cut back on their gambling.
“I’ll keep playing,” says 66-year-old grandmother Cynthia Bradford. “This gives me something to do while my husband’s watching football. I’ll give up one of my book clubs or something.”