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Oregon Lottery Video Poker Specific Numbers

Executive Summary:

– I examine one Oregon Lottery video poker machine's reports over a circa three-year period.

– The “loss rate” for a brisk player at most games is $27 per hour, nearly four times the minimum wage.

– The “house edge” on most games is over five times worse than that with e.g. craps or blackjack.

– Players do react rationally though imperfectly to varying hold
percentages (house edge), and preferentially play games with a smaller
hold (smaller house edge).

– A bar with the legal limit of five such machines would net (EBIT)
nearly $39000 annually, with the state keeping the other $100,000.

– The lottery in effect pays $310 per square foot per year to rent bar
space, a 1000% premium over the downtown central business district.

– These numbers are below the statewide average, which is likely skewed by some very high-volume locations.

(Some numbers have been rounded to fit annual time frames.)

This machine had ten normal games, of which all had a 10% hold, except
one with 6% (“Flush Fever”) and one with 8% (“Oregon Gold”).  The
“draw high” game is 0% hold (no house edge).

Contrast this with ~5.3% for roulette, ~1.5% for craps, and ~1-2% for blackjack.

By far the most money was played on “Flush Fever,” the game with
the lowest hold.  This is probably because the difference between
a 10% hold and a 6% hold is so dramatic, that even without labeling, a
player can detect it readily.  About 45% of the action (money
played) was at this game. “Jacks or Better” got about 12% of the
action.  With 8% and 7% respectively, were “Deuces Wild” and
“Oregon Gold” (the 8% hold game). 

Since there are ten games, and the #1 and close #4 games are the least
and second-least holding games, we can surmise that people play more at the lower hold games.

Previously, I had speculated that the least you would expect a player to lose
under a 10% hold, playing one 25-cent game every ten seconds (brisk but
not blazing) would be $9 an hour. In fact, nearly all games recorded an
average bet of 75 cents or more.  That means that the hourly loss
rate would be at least $27 an hour, an hourly rate equating to a full-time salary of
$54,000 a year.

In fact, the overall hold percentage is reduced by two facts: 1.
players preferentially play the less-biased games, and 2. an
even-money, “double or nothing” bet with no house edge is offered to
winning hands.  The overall theoretical hold for the machine as
played should have been 6.37%, though it lagged slightly with only 5.8%
actually held.

Of the cash that had, over three years, been fed into the machine, more
than half is denominated in $20s (the largest).  About $267,000 in
bills had been put into the machine.  About $184,000 in winning
tickets had been printed.  Although on each coup the player might
expect 90% back, for every buck actually put in the machine, only 69
cents come back out.

The machine in question had about $1.4 million in action put through it
over 3 years (recall, action is calculated each bet, so it will be many
multiples of cash drop).  The total hold was about $83,000, about $2300 a month (one machine), or
about 5.8% of action (the “draw” game counts toward action, but cuts
down on the hold percentage since it has no inherent advantage).

How much play did this box get?  With an 83 cent average bet, and
476,400 dollars put through a year, that's about 574,000 bets per
year.  That's about 1752 a day, or 131 an hour through a 12-hour
day.   This sanity-checks my 360/hour estimate — 1/3 of the
time in rapid play seems sane.

The bar had five video lottery machines (the legal limit), but only one
of them was kind enough to tell us its financial history.  To
situate it, it's a youngish, dive-y 20s and 30s bar, with pool tables, the kind
of place where a cuba libre costs less than 4 bucks and they don't call
it a “cuba libre.”  In those terms, the patrons of that bar could
have had another 21,000 cubas libres over the last three years instead
of playing video poker.  This is not “el primo” territory for
video poker, though I would guess they do OK by video poker standards.

To do some quick math:
5 machines * 89000/year/machine = $445000 / year / bar drop
5 machines * 27667/year/machine = $138335 / year / bar hold
Retailer commission (average, per Oregon Lottery) 28% = $38733 / year / bar hold

To get $38733 annually, risk free, at 2% interest, you'd need
nearly a cool $2 million in the bank.  What does the retailer
stake for this?  About 25 square feet per machine, including chair
space.  With five machines, that's 125 square feet generating
$38733, or $310 / sq ft / year.  Today in Portland, Oregon's
largest city, you would be hard presesed to find Class A office space
renting for more than $30 / sq ft / year.  So the rental rate that
the Lottery is paying dive bars is only a 1000% premium over that for a
suite in Portland's toniest skyscraper.

To bring it back to earth, let's sanity check all of this against the known figures:

circa 2100 retailers * $138335 / year / retailer = $290 M hold overall

This is in sanity-range with the lottery's published $530 M figure
(there tend to be a few top-performers in the video lottery that skew
the results to the high end).

This could be an interesting case study for anyone looking at the
recently-again-in-the-news issue of Oregon's video lottery. 
Unfortunately, nobody is talking about how we can mitigate the harms;
instead, everybody just wants to wring more money out of the program.

2 Comments

  1. Shawn Cook, UO Journalism Student says:

    Fascinating article. I am creating a multi-media project focusing on the same topic, specifically video poker, and appreciate the insight I gained from your story. Thanks.

  2. Shawn Cook, UO Journalism Student says:

    This article is not credited to anyone, but would whomever wrote this be willing to speak to me? Thanks again.

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