gaming operations
THE REAL COST OF
T he widespread implementation of free slot play awarded on
the basis of a player’s theoretical or actual gambling loss has created
two camps regarding the cost of awarding free slot play to a casino
player—a payback camp and a free camp. The payback camp argues
that the cost is the payback percentage of the slot machine that the
player chooses to redeem the promotional credits on. For example, if
the game is a 95 percent payback game and the player is given $10,
the cost is $9.50. The free camp argues that the longer the customer
plays, the less the cost of the promotion and assumes that if a player
plays for a very long time, the cost to the casino is nothing. This
argument finds a base in the fundamental theorem of gambling: The
longer a slot player gambles, the greater the chance that the casino
will win all of the money available to the player.
This view is best expressed by Robert De Niro, who plays a casino
boss in the movie Casino. The cardinal rule of gaming, according to
De Niro’s character,“… is to keep them playing, keep them coming
back. The longer they play, the more they lose. In the end, we get it
all.”
No player, however, can or will play forever. Play may end when
she runs out of time or when she runs out of money. Play may also
end when her win reaches a certain threshold. In these cases, a
player may leave with some or all of the free play she was awarded
in addition to any win or unspent amount from her money budget.
This study quantifies the cost of free slot play by simulating
different types of players awarded different amounts of free play
while playing machines with different characteristics. In our
simulations, players with equal money budgets are distinguished by
their time budgets, free play awards and jackpot win quitting
thresholds. Machines are distinguished by their hold percentages
and volatilities. The simulator runs each player type through 50,000
sessions on four types of slot machines, a volatile and a non-volatile
machine with a high and a low hold percentage. A random number
generator that is commonly used in the gaming industry for slot
machines determines the outcome of each game within each
session.
Our simulations confirm that free slot play costs the casino
nothing when players play without limit, accomplished by
simulating 50,000 players without time budgets or jackpot win
thresholds. If a player plays forever, the cost of free slot play is zero.
Scenario Criteria
We simulate outcomes for a player with a money budget of 500
88 Casino Enterprise Management
slots
FREE PLAY
By Dr. Bernard Malamud and R. Jeff Jordan
tokens, where each token affords her a single pull on a popular 3-
reel slot playing maximum bet. Play is simulated for 50,000 sessions
for each of 48 scenarios, unique combinations of machine
characteristics and player characteristics: machine volatility (low or
high); machine hold (5 or 15 percent); the player’s free play award (15
or 30 tokens); the player’s win threshold (2,500 or 5,000 tokens, i.e.,
five to 10 times the player’s money budget); and the player’s time
budget (240, 480, or 720 minutes, i.e., 2,400 pulls, 4,800 pulls or 7,200
pulls, assuming 10 pulls per minute). The free play amounts of 15 and
30 tokens reflect 10 and 20 percent rebates on expected theoretical
win on a 5 percent hold slot machine for a player with a 300 minute
time budget and 500 token money budget. A player’s session ends
when her money budget plus free play award runs out, when she
runs out of time, or when she hits a jackpot or wins an amount that
carries her bankroll, including the tokens she started with and the
free play award she received, over her threshold to walk. When these
events occur, the simulator totals the player statistics and sums them
for the entire scenario.
Findings
Cost of Free Play
We found that neither the payback camp nor the free camp is
right. The cost of free slot play declines the longer a slot customer is
willing and able to play on her visit to a casino. The long-run cost, in
theory, is zero—in the end, the casino gets it all back. In practice,
however, the expected cost depends on complicated interactions
between the amount of the bonus relative to the customer’s
gambling budget, the customer’s quit behavior upon winning a
sizable amount of money, and the hold and volatility characteristics
of the game the customer plays. Computer simulations of 48
scenarios reveal the following dynamics associated with the cost of
free slot play:
• The cost decreases when the hold percentage increases
• The cost increases when the volatility of the game increases
• The cost decreases with the length of time a customer is willing
to play
• The cost decreases with the customer’s win threshold, i.e., the
amount of winnings at which the customer quits playing
• The cost increases with the amount of bonus relative to the
player’s own budget
JANUARY 2011 www.CasinoEnterpriseManagement.com
 gaming operations slots
The costs of free play in terms of numbers of tokens is Table 2
summarized in Table 1. In later tables, the costs are shown as
percentages of the 15 and 30 token bonuses given. Hold %

Impact of Hold Percentage Token Award 5% 15% Average

Table 1 15 75% 40% 58%

Volatility High Low All Games

30 76% 43% 60%
Free Slot Play Award 15 30 Avg 15 30 Avg Avg
(Tokens)
Average 76% 41% 59%
Session Win Hold %
Lenght Threshold
The simulations revealed that an increased hold percentage
substantially reduces the cost of awarding free play. Games with a
240 2,500 5% 13 24 18 12 25 18 18 200 percent increase in hold percentage, from 5 percent to 15
percent, reduce the cost of free slot play by 46 percent (41 percent
480 2,500 5% 11 24 17 10 23 17 17 vs. 76 percent). The trend is similar at both the 15 and 30 token
720 2,500 5% 11 25 18 9 21 15 17
award levels. For a 15 token award, a 200 percent increase in hold
percentage decreases the cost of free slot play by 46 percent (40
Average 12 24 18 11 23 17 17 percent vs. 76 percent), and at the 30 token award the decrease is 43
percent (43 percent vs. 76 percent).
240 5,000 5% 14 25 20 12 25 18 19 Hold percentage impact on the cost of free slot play is due to
several factors. All other things being equal, a higher hold
480 5,000 5% 13 23 18 10 21 15 17
percentage reduces the amount of games a player can play for a
720 5,000 5% 11 21 16 9 20 14 15 given budget, thus lowering the odds that a player will hit the
threshold that will cause her to leave with his winnings.
Average 13 23 18 10 22 16 17
Table 3
Average 12 24 18 10 22 16 17
of all Game Volatility
240 2,500 15% 8 17 12 6 13 10 11
Token Award High Low Average
480 2,500 15% 7 17 12 5 8 6 9
15 65% 50% 58%
720 2,500 15% 8 19 13 5 6 5 9

Average 7 18 12 5 9 7 10 30 67% 52% 60%

240 5,000 15% 9 16 13 6 13 9 11 Average 66% 51% 59%

480 5,000 15% 6 16 11 4 8 6 8

720 5,000 15% 6 15 11 3 6 5 8 Impact of Game Volatility

In general, as machine volatility increases, so does the cost of
Average 7 16 12 4 9 7 9 awarding a player free slot play. The less volatile game in our
simulations reduced the cost of free slot play by 29 percent
Average 7 17 12 5 9 7 9 compared with the cost of the more volatile game (66 percent vs. 52
of all
percent). In simulations where players were awarded 15 tokens, the
240 2,500 All 11 20 15 9 19 14 15 cost of the bonus was 30 percent greater on the volatile machine
Hold %
than on the non-volatile machine (65 percent vs. 50 percent). This
480 2,500 All 9 20 15 7 15 11 13
Hold % remained true when players were given a 30-token bonus, where the
720 2,500 All 9 22 16 7 13 10 13 average cost on the volatile machine was 29 percent greater than on
Hold % the non-volatile machine (67 percent vs. 52 percent). The higher the
Average 10 21 15 8 16 12 14 volatility index, the larger the top pay values in a pay table and the
greater their associated probabilities of occurrence. Hit frequency
240 5,000 All 11 21 16 9 19 14 15
was reduced, however, so the machine’s hold percentage remained
Hold %
constant. High volatility increases the cost of free slot play because a
480 5,000 All 10 20 15 7 14 11 13 player is more likely to hit a jackpot and quit. Pay table distribution
Hold % plays a role in the cost of free slot play based upon how it impacts
720 5,000 All 9 18 13 6 13 10 11 the length of player sessions. The longer sessions on non-volatile
Hold % machines reduce the cost of free slot play and conversely, the shorter
Average 10 19 15 7 15 11 13
sessions on volatile machines increase the cost of free slot play.
Average 10 20 15 8 16 12 13
of all

www.CasinoEnterpriseManagement.com JANUARY 2011 Casino Enterprise Management 89

gaming operations slots
Impact of Game Volatility and Hold Percentage Win Threshold
We next compared the cost of free slot play on a high
volatility, low hold percentage machine with the cost on a low Game Volatility 2,500 5,000 Average
volatility, high hold percentage machine. The results were
High 67% 65% 66%
dramatic. The low volatility, high hold percentage game cost of
awarding free slot play is 61 percent less expensive than the high Low 53% 50% 51%
volatility, low hold percentage game (31 percent vs. 80 percent).
In addition, the cost on a high volatility, high hold percentage Average 60% 58% 59%
game is 28 percent less expensive than the cost on a low
volatility, low hold percentage game (52 percent vs. 72 percent).
We found the percentage cost of an award was roughly the
same for both the 2,500 and 5,000 token win thresholds. We also
Table 4 found that a higher win threshold has little effect on the
Game Volatility percentage cost of an award, whether on a volatile or non-volatile
machine. Our simulation results again highlight the impact of
Hold % High Low Average volatility on the cost of an award: The volatile game is 26 percent
more expensive at the 2,500 token threshold (53 percent vs. 67
5% 80% 72% 76% percent) and 30 percent more expensive at the 5,000 token
threshold (50 percent vs. 65 percent). The increasing cost at the
15% 52% 31% 41%
5,000 token threshold results from the paytable distribution
inherent in the volatile game. Simply put, a player is more likely to
Average 66% 51% 59%
hit that threshold and quit on a volatile game than a non-volatile
game.
We also found that on a 5 percent hold machine, a low volatility
game reduces the cost of free slot play by 15 percent compared
with a highly volatile game (72 percent vs. 80 percent); and on a Our simulation results thus
15 percent hold machine, the low volatile game reduces cost by suggest that a large difference in
40 percent compared with the high volatile game (31 percent vs.
52 percent). For a high volatility game, 15 percent hold reduces hold percentage has a greater
the cost of free slot play by 35 percent compared with the cost of impact on the cost of free play
a 5 percent hold game (52 percent vs. 80 percent), while for a low
volatility game, 15 percent hold reduces the cost by 56 percent than volatility.
compared with a 5 percent hold game (31 percent vs. 72 percent).
Our simulation results thus suggest that a large difference in
Conclusion
hold percentage has a greater impact on the cost of free play
A casino can expect to win back more of a free slot play award
than volatility. Tighter machines are more effective in reducing
than the hold percentage of the machine being played. It cannot,
the cost of free play on non-volatile machines than on volatile
however, expect to win it all back. Thus, neither the payback nor
machines, because big jackpots that cause the player to quit are
the free camp is right. Our simulation results establish that the
less frequent. The longer she plays, the better the chance a casino
cost of free slot play to a casino depends on player behavior and
will recoup any free slot play a player is given.
machine characteristics. Too-generous awards can be
unprofitable when other costs of servicing a guest are
Impact of Player Win Threshold
considered. Care should be taken when determining the
percentage of player bankroll or expected player loss awarded as
Table 5 free play. Our simulation results suggest that awards can be most
Win Threshold generous to players who prefer non-volatile to volatile machines
and, quite obviously, to players drawn to high hold rather than
Token Award 2,500 5,000 Average low hold games, as well as to players willing to play a reasonably
long time. Our results also suggest that the cost of free slot play
15 58% 57% 58%
to a player who shoots for a very large win before she quits, and
30 61% 58% 60% hence plays a long time, is not much less than the cost of the
same award to a player with a lower win threshold.
Average 60% 58% 59%

90 Casino Enterprise Management JANUARY 2011 www.CasinoEnterpriseManagement.com

 gaming operations slots
Table 6 - Summary of the 48 Simulation
Scenarios
Identifier Player Game Type Hold % Bonus Player Win Time Expected Expected Win Bonus Cost
Bucket Award Threshold (min) Win (A) w/ Bonus (B) (C)
1 500 Non-Volatile 5.00% 30 2,500 240 124.3 99.6 24.70
2 500 Non-Volatile 5.00% 15 2,500 240 124.3 112.3 12.00
3 500 Non-Volatile 5.00% 30 5,000 240 125.3 100.7 24.60
4 500 Non-Volatile 5.00% 15 5,000 240 125.3 113.5 11.80
5 500 Non-Volatile 5.00% 30 2,500 480 173.7 150.9 22.80
6 500 Non-Volatile 5.00% 15 2,500 480 173.7 163.5 10.20
7 500 Non-Volatile 5.00% 30 5,000 480 179.1 158.1 21.00
8 500 Non-Volatile 5.00% 15 5,000 480 179.1 169.4 9.70
9 500 Non-Volatile 5.00% 30 2,500 720 187.1 166.5 20.60
10 500 Non-Volatile 5.00% 15 2,500 720 187.1 177.8 9.30
11 500 Non-Volatile 5.00% 30 5,000 720 200.2 180.3 19.90
12 500 Non-Volatile 5.00% 15 5,000 720 200.2 191.3 8.90
13 500 Non-Volatile 15.00% 30 2,500 240 335.9 322.5 13.40
14 500 Non-Volatile 15.00% 15 2,500 240 335.9 330.2 5.70
15 500 Non-Volatile 15.00% 30 5,000 240 336.4 323.8 12.60
16 500 Non-Volatile 15.00% 15 5,000 240 336.4 330.5 5.90
17 500 Non-Volatile 15.00% 30 2,500 480 375.8 367.9 7.90
18 500 Non-Volatile 15.00% 15 2,500 480 375.8 371.1 4.70
19 500 Non-Volatile 15.00% 30 5,000 480 394.9 387.1 7.80
20 500 Non-Volatile 15.00% 15 5,000 480 394.9 391.2 3.70
21 500 Non-Volatile 15.00% 30 2,500 720 382 375.7 6.30
22 500 Non-Volatile 15.00% 15 2,500 720 382 377.3 4.70
23 500 Non-Volatile 15.00% 30 5,000 720 399.8 393.9 5.90
24 500 Non-Volatile 15.00% 15 5,000 720 399.8 396.3 3.50
25 500 Volatile 5.00% 30 2,500 240 88.7 64.8 23.90
26 500 Volatile 5.00% 15 2,500 240 88.7 75.8 12.90
27 500 Volatile 5.00% 30 5,000 240 98.5 73.6 24.90
28 500 Volatile 5.00% 15 5,000 240 98.5 84.3 14.20
29 500 Volatile 5.00% 30 2,500 480 100.8 77.2 23.60
30 500 Volatile 5.00% 15 2,500 480 100.8 89.6 11.20
31 500 Volatile 5.00% 30 5,000 480 136 113.1 22.90
32 500 Volatile 5.00% 15 5,000 480 136 122.8 13.20
33 500 Volatile 5.00% 30 2,500 720 109.7 84.5 25.20
34 500 Volatile 5.00% 15 2,500 720 109.7 98.6 11.10
35 500 Volatile 5.00% 30 5,000 720 111.9 91.3 20.60
36 500 Volatile 5.00% 15 5,000 720 111.9 100.9 11.00
37 500 Volatile 15.00% 30 2,500 240 232.7 216.1 16.60
38 500 Volatile 15.00% 15 2,500 240 232.7 224.6 8.10
39 500 Volatile 15.00% 30 5,000 240 244.5 228.2 16.30
40 500 Volatile 15.00% 15 5,000 240 244.5 235.7 8.80
41 500 Volatile 15.00% 30 2,500 480 262.5 245.3 17.20
42 500 Volatile 15.00% 15 2,500 480 262.5 255.8 6.70
43 500 Volatile 15.00% 30 5,000 480 306.4 289.9 16.50
44 500 Volatile 15.00% 15 5,000 480 306.4 300.5 5.90
45 500 Volatile 15.00% 30 2,500 720 246.5 227.8 18.70
46 500 Volatile 15.00% 15 2,500 720 246.5 238.9 7.60
47 500 Volatile 15.00% 30 5,000 720 389.9 374.7 15.20
48 500 Volatile 15.00% 15 5,000 720 389.9 383.4 6.50
Average 230.9 217.7 13.26

DR. BERNARD MALAMUD

Professor Malamud,a graduate of Polytechnic
University,Carnegie-Mellon University and New
School University,has taught a wide variety of courses
since joining the UNLV faculty in 1968.He recently
served on the Clark County Planning Commission
and consults to the legal profession and the gaming
industry.

R. JEFF JORDAN
Jeff Jordan has worked for 16 years in a variety of
roles in the gaming industry,most recently as IGT’s
Director of Product Strategy and Marketing Research.
He also served IGT as Director of Corporate Strategic
Planning and Strategic Business Development.He
also was an executive at Acres Gaming where he
served as a Corporate Development and Operational
responsibilities.

www.CasinoEnterpriseManagement.com JANUARY 2011