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Penny Dropped

Macau’s gaming regulator advises casinos to drop ultra-low denomination slot games

Friday, 01 July 2011 17:52
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Macau’s gaming regulator would like casino operators to drop the use of very low-denomination slot games, Inside Asian Gaming has learned.

Several of Macau’s six gaming concessionaires have been advised by the Gaming Inspection and Coordination Bureau (DICJ) that games with denominations of less than ten Hong Kong cents per line are ‘non-compliant’. But two-cent and five-cent games are currently common in Macau and have been for a long time. IAG understands that the regulator has not gone as far as to issue a formal directive to ban the two-cent and five-cent games, but is currently issuing informal guidance that it would like to see their use discontinued.

Some sources suggest the DICJ’s thinking on the move is essentially administrative—that because the lowest denomination of coin in Macau is ten cents, any slot machine using a denomination lower than 10 cents will have payouts that include a fraction of 10 cents. From IAG’s own experience, one of Macau’s casino operators has a policy of rounding down slot payouts that involve a fraction of ten cents, while the others offering low denomination play round up. For example, with a pay out of HK$10.05, one operator will only pay HK$10, while the others will pay HK$10.10. The loss of a notional five cents in the first example might not seem too unfair for players, but when rounding down is performed across many thousands of slot transactions across a whole year, the amount involved adds up.

Other sources wonder why—if the rounding issue is the reason for the informal DICJ advice on denominations below ten cents—the DICJ is only acting now after many years of allowing the practice to continue. Those sources suggest the key reason for seeking to phase out low-denomination play is that the DICJ—in consultation with the Macau government—is concerned that low denomination games may encourage low-income and pathological gamblers to play. The headline low denomination draws in the players as good value, but the cost soon stacks up because of the number of lines that can be played at any one time. Most modern slot games typically have the option of many tens of lines per game. Thus, a five-cent per line game played with a maximum bet of 20 credits over 50 lines actually costs HK$50 (US$6.42) to play every spin when maximum betting strategy is used. Given the favourable house edge in slot play (in Macau sometimes as little as 85% of stake money goes back to the players in prizes), the slot player’s rate of loss per hour when employing maximum betting strategy on even low denomination games is very much higher than on live table baccarat. Live baccarat has a much higher entry price than slots (typically a minimum on mass tables of at least HK$100), but much lower house advantage, therefore the rate of stake attrition for those players economically eligible to play baccarat is much slower.

Australia’s Productivity Commission looked at the issue of low denomination play in slots and made precisely the point that it’s the velocity of play that matters. Australian jurisdictions have a maximum bet limit, and a number do not allow notes to be used in slot machines—only coins.

“EGMs have the potential for high intensity play, at a very high cost per hour, which may not be well understood by players (a broad consumer issue),” said the Commission in its June 2010 report.

Tackling problem gambling in Macau both among local players and low-income visitors from China is currently a focus of Macau government policy, according to sources spoken to by IAG. A plan has been mooted to shut down some of the locals-focused slot clubs with machines denominated in the local currency—patacas.

Were very low denominations to be eliminated in slot clubs and casinos alike in Macau, there would be some cost implications for the industry in terms of retooling and re-equipping the slot floors. On newer machines, denominations are often configurable by the operator either remotely via a server, or via a firmware upgrade or adjustment done at the machine. On older machines, the lowest credit buttons can be disabled and masked, effectively bumping up the denom. Several industry sources say that currently in Macau a small number of slot players using high denomination machines are providing the majority of the revenue—mirroring the VIP-focused nature of the live table market. That suggests the revenue implications of banning ultra-low denomination machines may be minimal.

The debate does, though, raise another important issue in relation to the Macau gaming industry—the lack of written regulations for slot and electronic table play, as highlighted in IAG’s story in May about DICJ changes to electronic sic bo game payouts. The lack of a contractual relationship between the DICJ and equipment suppliers and the accompanying lack of clear rules on permissible products has sales revenue and development cost implications for casino equipment suppliers. They can typically face either very long waits to get new products approved in Macau—even if the equipment has been passed as compliant for other major gaming jurisdictions—or have to change the configuration of equipment at short notice, as with the recent case of sic bo payouts.

To put the Macau slot denomination question into a global perspective, two Hong Kong cents was 0.00257 of a US dollar as IAG went to press. In the Singapore integrated resorts (IRs), the lowest slot denominations are typically S$0.05 to S$0.10. That’s equivalent to HK$0.28 to HK$0.56 per bet, or US$0.04 to US$0.08.

However, when purchasing power parity (PPP) of the US dollar to the Chinese yuan is considered, using The Economist newspaper’s famous ‘Big Mac Index’ (how much it costs in real and PPP terms to buy a McDonalds Big Mac hamburger in key cities around the world), then two Hong Kong cents is a market appropriate (in pure marketing terms) entry price point for slot gambling in the Macau economy.

Nevertheless, there are other issues specific to slot play in Macau that the DICJ might like to look at before it thinks about coming down hard on low-denomination machines. The first is that there is no jurisdictional minimum ‘return to player’ level (the percentage of total slot wagers the machines must give back to consumers as a whole). Ask many industry professionals what the Macau slot RTP is, and they will tell you “85%”. But that’s not written down as a regulation anywhere—it’s at best merely an understanding between the industry and the regulator and is not technically enforceable. Singapore, by contrast, has a statutory minimum 90% RTP on its casino slots.

Some observers argue that consumers’ interests are currently protected by the mechanism of market competition. As one industry source told us: “Personally, I think too much is made of the relevance of RTP to players. In the 40-plus years STDM operated its monopoly here, there was no mandated RTP, and there was no competition to ensure that returns were reasonable. Macau now has competition, and I expect the operators are running many of their machines ‘loose’; i.e. with relatively high RTP. RTP can be disguised effectively, anyway, by the volatility built into games.”

If the DICJ really wants to protect consumers—and the majority of gamblers in Macau are not defined as behaving pathologically as far as IAG is aware—then it might be better to focus on creating an ‘at risk’ register for problem gamblers and publishing slot regulations, rather than worrying about trying to exert price point pressure by banning low-denomination play.

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