Do regulators audit the return percentages on slots?

Hi John,

I've really learned a lot from your articles.

Do regulators audit the return percentage on slots? What are the formulas they would use to calculate that - something like a statistical hypothesis test?

Thanks,
Mary

Dear Mary,

Thanks for the kind words about my articles.

Yes, regulators do audit the performance of slot machines to ensure that the amount of money they have returned to their players falls within a range calculated from the amount of play the machines have received.

You can find the formulas in either edition of Kilby and Fox's Casino Operations Management. Basically, you calculate the standard deviation for the payback program (combination of pay table and virtual reel layout). Then you assume that the results are normally distributed (which isn't true for low numbers of spins — and the definition of low changes with the volatility of the machine) and look up the z score that comprises the desired area under the normal curve (confidence level, typically 95% or 99%). Multiplying the z score by the standard deviation gives you the machine's volatility index (VI). Dividing the VI by the square root of the number of games played, and adding the result to and subtracting the result from the machine's long-term payback gives you the range we expect the machine's actual payback to fall in with the confidence specified.

If the machine's actual payback does not fall in that range, the regulators and the casino will inspect the machine to see if there is something wrong with it.

Best of luck in and out of the casinos,
John

Send your slot and video poker questions to John Robison, Slot Expert, at slotexpert@comcast.net. Because of the volume of mail I receive, I regret that I can't reply to every question.