Royal Ascot

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"Would denomination make a difference in Ascot's payout?"
Introduction

The gaming machine market is not a single homogenous mass where one set of rules or criteria may be universally applied to determine what "makes" a machine appealing or how it should be positioned within the Casino environs.

What works in one location may not work somewhere else and vice-versa. Many Americans are surprised by the lack in Australia of three reel slots such as "Liberty Sevens" or "Red, White and Blue" and the proliferation of multi-line, multiplier games with seemingly unintelligible paytables.

A look at the different markets may to some extent explain these differences.

In the United States, particularly in the Las Vegas strip market,the market consists of infrequent visitors or tourists who stay for a few days and who will make a return visit in the following year or the year after.

These people prefer gaming machines that are easy to understand and less inhibiting to trial. Thus, their game preference may be likened to the "Space Invaders" or "Pacman" games of several years ago. Easy to learn, simple to use and not overly challenging.

In Australia generally over recent years and typified by the New South Wales Leagues Clubs, the market is quite different. These "local" clubs have been in existence for many years and have had access to gaming machines since 1956. They cater to frequent repeat visitors who quickly tire of any one product and who "demand" continual change. With the increased computing power in todays gaming machines that has led to nine line games with special bonus features, animated graphics and sound blasters. Todays Australian gaming machine player quite simply would be as bored with a three reel stepper as would todays Nintendo child be bored with "Space Invaders".

This is in some ways akin to the fact that most "local's Casinos" in Las Vegas only offer 20% to 25% of their gaming machines as spinning reel slots with the balance being video pokers.

Video Pokers include a greater element of "skill" and with favourable paytables offer exceptional return to player percentages. Thus these games are more complex and less like the three reel simple Spinning Reel game found in Las Vegas strip tourist Casinos.

In Australia the same did not occur with Video Poker for a variety of reasons including the fact that "card games" were prohibited from New South Wales Poker machine clubs and that Poker in itself does not have the same history or tradition as it does in the United States.

Thus, the first basic fact with regards to gaming machine placement is apparent. In a sophisticated local environment where the market does not continually change, it is necessary to continually update and enhance the product offering. Las Vegas strip Casinos merely continually change their clientele rather than needing to change the gaming machine product. Emerging "locals" orientated Casinos and gaming machine venues need to be mindful of this and not be driven by the gaming machine manufacturers who may want to supply machines based on their own requirements, but should rather heed the wants of their customer base.

The second issue is that of the "optimal" gaming machine return to player percentages. Dollar games should be "loose" or the hold on "nickels" (5 cent machines) should be "x" (y or z).
Utility of Games

Lets explore this and bring a bit of mathematics into the argument.

It is a combination of many factors which serve to make one gaming machine more appealing than another, however from an economic rationalist perspective, price is a key factor in the choice of a gaming machine or any game of chance. Price is not simply the game hold or return to player level but incorporates a range of other factors. For example in a traditional gaming environment, comparisons are often made between Casino games using purely the house advantage as an indicator. Thus games such as "live" Keno with a hold of 25% to 30% are categorised as "bad bets" in comparison to games such as Craps which have a house advantage of 1.4% or lower. On a pure pricing basis such comparatives are clearly erroneous just as they are when referring to gaming machines.

This is because we have forgotten to include in our calculations factors such as decision rates in a comparable time frame, minimum bet requirements and the variance of a player's result.

Comparing the games of Craps and Keno.

GAME CRAPS KENO
House Advantage 1.40% (Pass Line) 25% (Single Number Bet)
Min. Bet Requirement $5 $1
Decisions/ Hour 50 12
Theo. Loss Rate/ Hour $3.50 $3.00

Taking into account the variance of a single game for each specific game type, it would be anticipated that 95% of the players actual results in a one hour time frame would fall in the following approximate range.

GAME CRAPS KENO
95% Confidence Interval + $67 to - $74 +$6 to - $12

Thus in the purely economic rationalist terms of maximising profit or minimising loss, a player's utility is maximised by playing Keno as opposed to Craps, even though a perfunctory comparison would indicate that Keno was a much worse bet.

Of course the decision of whether or not to gamble and which game to choose is generally not governed purely by economic rationalist views , and may also include such factors as an entertainment and excitement value "rating" which would push, for many players, Craps to the forefront.

I have used here an example from the non-gaming machine area because it aptly demonstrates a point which needs to be made. A comparison of gaming machine hold percentages alone is not a true indicator of "price".

Factors which also need to be included are:-

i) minimum denomination
ii) hold percentage
iii) game speed
iv) hit frequency
v) game variance
vi) income

as well as many other subjective factors which determine appeal.
Price Sensitivity

To explore this further on a gaming machine basis it may be of interest to consider a hypothetical $1 spinning reel slot machine with a high hold percentage. The characteristics of this hypothetical game are:-

Denomination : $1
Hold Percentage : 15.0%
Game Speed : 400 to 600 decisions per hour

For the moment we will exclude hit frequency and game variance and just concentrate upon theoretical loss rates.

Theoretical player loss = $1 x 400 x 15.0% = $60

Theoretical player loss = $1 x 600 x 15.0% = $90

Thus we have a theoretical loss of between $60 to $90 per hour played with only one "coin" bet per game. If our hypothetical game has a hit frequency of 15% and a variance for a single play of 35 then 95% of a player's results would fall within the following approximate range after one hours play at 400 decisions.

95% confidence interval : + $180 to -$300

Quite clearly the level of expected loss and the players likely actual experience at this hypothetical game is not overly appealing and it would be unlikely to stimulate much play.

However, it is important not to over-generalise and make a broad statement that a $1 gaming machine with a 15% hold would never work. Certain gaming machines like Sega's "Royal Ascot" may produce reasonable returns at high hold percentages due to the fact that game speeds are much lower (30 decisions per hour).

Another factor which is important to realise is that the gaming machine player market is reasonably well segmented. This allows our look at pricing to be extended (firstly holding the game hold % as a constant).

Game Type S.R.M (Spinning Reel Slot Machine)

Table One

Min.Denom. $0.02 $0.05 $0.1 $0.2 $1.0
Hold % 15% 15% 15% 15% 15%
Decision/ hour 400 400 400 400 400
Theo. Loss Rate/ hour $1.20 $3 $6 $12 $60

Note:
Min. Denom. = Minimum Denomination
Theo = Theoretical

If the average coins (credits) played per game is increased and the number of lines is increased then the theoretical loss rates will increase proportionately. If for example a player were to play two credits per line and three lines on average then their expected loss rate would increase by a factor of six.

Thus we would have:-

Table Two

Min.Denom. $0.02 $0.05 $0.1 $0.2 $1.0
Factor 6 6 6 6 6
Theo. Loss Rate/ hour $7.20 $18 $36 $72 $360

Clearly unless the relative value of a $1 wager was very low it would be difficult to stimulate play at much more than a 10 cent unit under the conditions cited. Yet generally not everyone wants to play a five cent machine (for ego reasons, return, gambling to win or perception) thus several factors may be altered on higher denomination machines to improve appeal.

Firstly, the game speed on these machines may be reduced. Secondly, the number of lines played may be restricted (often $1 plus Spinning Reel Machines are single line multiplier games). Thirdly and often used in conjunction with point two, the hold percentage for a $1 game may be significantly reduced in order to improve player return.

For Spinning Reel Machines in Australia the following breakdown of hold and denomination provides a general approximation of the market and produces the following loss rates at 400 decisions per hour.

Table Three

Min.Denom. $0.02 $0.05 $0.1 $0.2 $1.0
Hold % * 15% 12% 10% 8% 5%
Factor 9 7 5 4 2
Theo. Loss Rate/ hour $10.80 $16.80 $20.00 $25.60 $40.00

* +/- 3%

The use of a factor, which essentially is at the control of the player, has merely been used to demonstrate a "likely" actual rate of loss. In this case, the factor used has been based upon the average number of credits wagered per game. Eliminating this we have:-

Table Four

Min.Denom. $0.02 $0.05 $0.1 $0.2 $1.0
Hold % 15% 12% 10% 8% 5%
Theo. Loss Rate/ hour $1.20 $2.40 $4.00 $6.40 $20.00

This illustrates the fact that much of the success of "tokenised" one cent, two cent and five cent machines to Australia can be traced not only to their low price but also to the ability the player has to either increase or decrease the number of lines and credits played per game when winning or losing. Also having a large number of credits for a small stake massages the player's ego and provides good value for money. Often these lower denomination games are designed for the player seeking to "buy time" and thus also incorporate interesting and novel feature games to amuse the player (on certain winning games free spins are awarded, or second screens appear with treasure chests to be picked etc).

On higher denomination games the same may not be true as these players are more likely to be gamblers who prefer double-up options, jackpots or increased standard prizes.

Another point of difference between low and high denomination machines may be hit frequency and variance. For lower denomination machines where players are "buying" time the average machine configuration appears to consist of a hit frequency of around 5% to 15% and variance of around 30 to 150 may be used. Higher denomination games may be configured with a hit frequency of around 12% to 20% and variance of 10 to 50.

Thus a chart looking at these factors for each game denomination may look something like this.

Table Five

Min.Denom. $0.05 $0.01 $0.2 $1.0 +
Hold % * 12% 10% 8% 5%
Hit Frequency ** 5-15% 15% 15% 12-20%
Variance *** 30-150 50-160 10-50 10-50
Other Multiline
Multiplier
Features
Multiline
Multiplier
Features Multiplier
D/Up Jackpots Multiplier
D/Up Jackpots

Note D/Up = Double Up

* +/- 3%
** +/- 5%
** approximate only

Does this provide a "magic formula" for game design? Probably not, but it does provide some guidelines as to game choice by denomination.
Denomination and Placement

Denomination choice can only be achieved by market segmentation and analysis. Based upon price alone and with products being virtually identical the market will sensibly gravitate to the lower priced option.

It is important then to differentiate products and analyse, what the market will bear, competitive activity, price/return perceptions and the overall strategic goals of the operation. Thus in a monopolistic situation with high demand levels it would not necessarily be appropriate to offer one cent and two cent games. However in a competitive market, an operator is less able to direct demand and must be willing to provide what the market requires.

On a highly simplistic basis the machine player market is pyramidal. A large number of people at the "bottom" are prepared to pay a low "price" for gambling as entertainment. Moving up the pyramid the number of players is fewer and their propensity to gamble higher. These players are the machine "gamblers" with profiles closer to table game players in many ways than to the bulk of the machine market.

Sub-segments clearly exist in all areas, with frequency of visitation not necessarily linked to the above. Thus while $1 players are important, frequently visiting five cent players may be as well. The Pareto effect is also quite evident within the machine market where roughly 20% of the players generate 80% of the revenue.

Thus in terms of determining the optimal denomination mix for an establishment, whilst there is no simple answer of "x" percent five cent machines; "y" percent ten cent machines, there is the sound business principle of considering the market you are in and adopting a minimum "price" which suits; and then structuring from that base according to market size. Thus in a highly competitive, local market, 60% to 80% of machines may be "low (base) denomination" with the balance being "high denomination".

Placement and layout of gaming machines within a facility is also a critical issue and is much like the product placement of items within a supermarket. Impulse purchase items are placed near entry/exit points with essential items or consumables as far away as possible to encourage and direct users past other items. The analogy of the supermarket is "milk at the back and sweets and tabloid magazines at the checkouts".

For the gaming machine venue this may mean "low" denomination machines at the rear with higher denomination jackpot games or novelties like oversized machines (Big Berthas) in high traffic areas. Provided activity can still be created as a first impression of the facility. As machines on ends of rows often perform well due to higher comfort it may be that these machines could have higher hold percentages at the same denomination. Smaller carousels whilst space inefficient in comparison to long rows or banks of machines offer greater comfort and opportunity for social contact. Thus players may gravitate to these and consequently revenue may be higher.

Facilities for players such as Cafes, restaurants, bars, toilets, change outlets and lounges should also be positioned to maximise revenue generating opportunities.

High denomination machines should be situated to maximise player comforts (close to coin outlets and toilets) or if these are $1 novelty games in areas with high traffic flows.

Other factors which should be considered when designing a gaming machine layout are: machine height, signage and machine numbers in distinct areas. Gaming machines are often available in three heights in Australia. "Low Boys", (0.9m), "Casino Box" (1.17 m) or "Club Box" (1.51m) above their bases.

"Club Box" machines are ideal for walls whereas "Low Boys" or "Casino Box" machines may be used more centrally as these afford clearer views across the gaming floor (particularly of other gaming machine product). I am not suggesting here that all machines should be low, however for visual reasons it is desirable to break up an area while at the same time allowing clients to see other machines behind banks or carousels.

Signage within machine areas should be designed to create atmosphere, attract and inform the machine player. Ideally players should easily be able to identify the games minimum denomination and if a progressive or mystery jackpot is included the amount and type of jackpot as well as what they need to do to win.

Signage should where-ever possible (subject to Heritage constraints) be "electric" adding to the vibrance and atmosphere of the area.

If discrete areas of machines exist it is also useful to remember that creating a "winning" atmosphere requires a critical mass in terms of play and thus machine numbers. It appears that approximately 40 machines is the minimum necessary to stimulate this.

Other subjective factors which need to be assessed when considering an individual gaming machine are; Top Box and belly panel artwork; game graphics and sound.

These are entirely subjective, however, it is important to recognise that trial will be stimulated if a player is initially attracted to the game and this is where artwork and the use of sound comes in. Distinctive colours and imagery will catch the eye while game sounds will also attract interest. The game itself and its graphics will however ultimately determine a games success. The graphics need to be easy to recognise and allow for comfortable viewing for periods of up to two to three hours without creating headaches. In some cases brand is also an important aspect from a players perspective.

Difficult to recognise symbols or characters combined with glaring colours are all things which should be avoided.
Conclusion

In conclusion the following generalisations may be made (and please remember they are just that).

i) An unsophisticated tourist market requires simple to play uncomplicated machines.

ii) A sophisticated local market or one which has continued access to machines needs continual new product introductions in line with product life cycles.

iii) Denomination, game speed, game type, hold percentages, hit frequency and game variance are all intricately intertwined with "low" denomination games having certain characteristics and "high" denomination games quite different characteristics.

Table Five (as previously displayed)

Min.Denom. $0.05 $0.01 $0.2 $1.0 +
Hold % * 12% 10% 8% 5% (or lower)
Hit Frequency ** 5-15% 15% 15% 12-20%
Variance *** 30-150 50-160 10-50 10-50
Other Multiline
Features
Multiline
Features Multiplier
D/Up Jackpots Multiplier
D/Up Jackpots

Note D/Up = Double Up
* +/- 3%
** +/- 5%
*** approximate only

iv) Base denomination levels should be judged on market characteristics, competitive activity and "strategic" objectives. A 60% to 80% proportion of "low" denomination machines in a competitive market may be appropriate given Pareto considerations.

v) Placement and layout of machines within the individual venue should seek to maximise traffic flow around higher denomination games as well as ensuring player comfort and convenience. Very low denomination machines and essential facilities should be located in areas that drives traffic past other machines and outlets.

vi) Carousels may increase performance. Similarly, the activity on poor performing machines may be improved by locating them at the end of banks.

vii) Varying machine heights throughout the venue allows the use of higher machines against walls and breaks up the view within an area.

viii) Signage should create atmosphere and attract and inform players.

ix) Machine artwork, graphics and sounds should be designed to attract and hold the players attention.

The above, whilst in no way comprehensive, does attempt to provide the reader with a very basic insight into the decision making process involved in gaming machine selection and placement. It is of course essential to analyse your own market first and remember that business is about the profitable provision of customer satisfaction. So, satisfy the customer first and forget any rules or criteria if they do not match your strategic objectives or your particular client base.