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Ten Things the Gaming Industry Won't Tell You
1. "You can't win..."
Everyone knows the house has an advantage. But most casino patrons don't realize just how heavily the odds are stacked against them. Take keno, in which you pick a string of numbers, hoping to match them to what the casino randomly generates. The house advantage is at least 25%, increasing with the more numbers you pick, says John Alcamo, author of Casino Gambling Behind the Tables. The odds of hitting, say, the 10 spot — a string of 10 numbers — are nine million to one. (Getting killed by fireworks is nine times more likely.) Despite those odds, a $2 bet usually pays off at only $50,000 to $200,000.
Slot machines are popular because they offer a shot at a big jackpot for little investment. For example, $3 gets you a chance at the Megabucks jackpot, which links slot machines in Nevada and builds like a state lottery from a base of $5 million. The odds of winning? Nearly 17 million to one. You have a better chance of being killed by an asteroid striking Earth.
OK, so maybe you won't win the jackpot in slots. But surely you have a decent shot of walking out ahead of the game, right? Don't count on it. "Slot machines are the biggest moneymakers in the casino," Alcamo says. "That should tell the players something." Experts like him never play games that give the house more than a 2% advantage, and quarter slots put the advantage at about 8%.
Your best bet? Blackjack. If you play perfect strategy, the house advantage is less than 1%. And in craps, the pass- and come-line bets give the house an advantage of less than 1.5%.
2. "...and if you do, we might not pay you."
While on vacation in Lake Tahoe in September 1996, Cengiz Sengel stopped to show his wife the lights of Reno, Nev. They walked into the Silver Legacy casino, got a $20 bag of quarters and headed straight to one of the slot machines. A few pulls later, three jackpot symbols popped up in the windows. The Sengels jumped up and down, hugging each other as fellow slot players rushed over to congratulate them. They had just won nearly $1.8 million. Or so they thought. A supervisor, claiming the machine had malfunctioned, denied the Sengels the payout. The couple appealed all the way to the state Supreme Court, which this June ruled against them.
Effie Freeman can sympathize. In 1995, she put $3 into a slot machine at the now — defunct Splash Casino in Tunica, Miss., and was stunned to see red, white and blue ducks line up, signaling a $1.7 million jackpot. But the state gaming commission ruled that it didn't count because the machine had gone into "tilt" mode.
Todd Westergard, a Nevada regulator, says that such decisions, no matter how cruel they sound, are only fair. It's the computers inside the machines, not what pops up in the window, that determine winners, he says, and in the Sengels' case the computer connection was disrupted.
But gamblers don't care about the technical explanations. "The main thing is that we got those three symbols," says Cengiz Sengel. "They found a way not to pay us."
3. "We promise more than we deliver."
Twenty-seven years ago only seven states had lotteries, and only Nevada allowed casinos. Now 37 states have lotteries, and 28 have casinos (including Indian gaming). Why have policy makers and the public allowed gambling to flourish? One reason is the notion that it creates jobs and commerce.
But research suggests the downside far outweighs the benefits. "The economy as a whole would be much better off had we not allowed [casino gaming] to expand," says Earl Grinols, a University of Illinois economics professor. Figuring in a broad range of factors — crime, lost productivity, bankruptcy, social services and regulatory costs — Grinols determined that each pathological and problem gambler costs the public $13,600 per year; the total works out to $180 per citizen. That more than negates the industry's economic benefit, which Grinols estimates at $50 to $70 per citizen.
Much of the income generated by casinos simply gets diverted from other local businesses, critics say. Atlantic City's a good example. Within four years of the casinos' arrival, a third of the city's retail businesses had closed. Meanwhile, crime soared.
What about lotteries? That money surely is a windfall for causes like public education, right? Not always. A study by St. Mary's College professors Patrick Pierce and Donald Miller found that while lotteries provide an initial boost to education budgets, the increases quickly taper off. In fact, the professors say, states with lotteries eventually provide less support for public education per capita than do states without them.
4. "We know everything about you."
Casinos have developed sophisticated techniques for targeting and profiling repeat gamblers. Harrah's Entertainment (HET) has led the way, hiring marketing experts and a Harvard professor. In 1997, the company began gathering details on players when it rolled out its Total Gold frequent-gambler cards (now called Total Rewards) and has built a database of 19 million customers. Players insert the cards into slot machines or hand them to casino supervisors when they play table games. The cards are marketed as a prestige item that helps players accumulate comps such as free rooms, meals and show tickets. But the real purpose is to track the habits of each customer and tailor a marketing plan that will keep players coming.
If you're a big bettor, you'll find that casinos know all kinds of creepy information — just enough to push your buttons. "You put your slot card in the machine and bing, it's ticking off in the office," says syndicated columnist Mark Pilarski, who spent 18 years working at casinos. "If you're a good customer, they send down a hostess, she pats you on your back and offers you dinner. She gets information on you. Next time you come in they ask about your wife or dog by name. They know your anniversary. They'll definitely send you a card for your birthday."
5. "We're a lousy investment."
If you don't want to bet on their games, maybe wagering on casino stocks is a good option. Think again. Though gaming stocks are up 16% this year, most haven't provided a great return over the long haul. The sector's up only 22% over the past five years, compared with the S&P 500's 171% increase.
Some stocks have been outright busts. Harrah's is trading 47% below where it was five years ago. Mandalay Resort Group (MBG) is down 35%. And let's hope you didn't let your money ride on The Donald. Stock in Trump's gaming company, Trump Hotels & Casino Resorts (DJT) is down 78% over the past five years.
One big winner has been MGM Grand (MGM), up 36% this year. Still, analysts at Salomon Smith Barney and Lehman Brothers just downgraded their ratings on the stock from Buy to Neutral. The reason? With a recent expansion of casinos and hotel rooms, Vegas may be getting saturated. Add in competition from Indian gaming in California and the prospect of a slowing economy, and revenue could take a hit.
Gaming stocks are not for the faint of heart. Saddled with debt, many of these companies experience the kind of wild price swings that only a day trader could love. "It's a very trade-oriented sector," says Lehman Brothers analyst Stuart Linde. "It goes in a boom-or-bust cycle."
6. "Addicts keep us in business."
Does the gaming industry target addicts? "It's like asking, Does the vodka industry target alcoholics?" says Henry Lesieur, head of the Institute for Problem Gambling. "Well, they target heavy drinkers, and a certain percentage are alcoholics."
Duke professors Charles Clotfelter and Phillip Cook did a study that found that 10% of lottery players account for 68% of lottery purchases. Similarly, Illinois professor Grinols estimates that one-third to one-half of casino revenue comes from problem or pathological gamblers. "After a while [some casinos] don't want compulsive gamblers because they overrun their credit," Lesieur says. "But by then they've already made a lot of money off of them."
Perhaps more disturbing are cases where casinos allow known addicts to continue betting. After losing a million dollars, Houston businessman Joe McNeely sent a letter to several Louisiana casinos asking that they not allow him to gamble. But that didn't prevent him from losing another $2 million. McNeely then sued five casinos, claiming they continued to market to him aggressively even after they were aware of his addiction. Representatives of one casino, he says, even showed up at his mother's funeral and invited him to stop by. Though the casinos pointed out that McNeely hadn't registered with the state police, which has a self-banning system in place for addicts, they settled the suit last fall for an undisclosed amount.
7. "We target your children..."
More kids today gamble than are involved with drugs, smoking or drinking, according to Jeff Derevensky, a psychology professor at McGill University in Montreal. One reason: They're growing up with a message that wagering is acceptable. "Today's 10-year-old will spend their entire life in a world in which gambling is sanctioned and owned by the government," he says. To make matters worse, Derevensky has found that the addiction rate among youths is two to four times that of the population at large.
Though it's illegal to play the lottery if you're under 18, studies show that a high share of adolescents buy tickets — 32% in Louisiana, 34% in Texas and 35% in Connecticut. How? In some states, ticket sales aren't always monitored. Twenty-nine states use automated machines in public places such as airports and stores as one way of dispensing instant-game tickets. "You'll see that [the industry is] trying to appeal to younger people," says Laura Letson, executive director of the New York Council on Problem Gambling. Last year, for example, the council flagged the New York lottery for its marketing tie-in with Warner Bros." "Wild Wild West" — a movie rated PG-13.
It's not just lotteries that are accused of catering to kids. Pete Earley, author of "Super Casino", points to the new family-friendly atmosphere promoted in Las Vegas. (MGM Grand now has the second-largest theme park in the country.) "It's calculated," he says. "You're encouraging future generations to come there, and reinforcing that gambling is OK."
8. "...and your parents."
Five years ago an elderly woman was brought by her adult children to a geriatric clinic in Omaha. Caring for their mother after she had a stroke, the children discovered that she had rung up $35,000 on credit cards at casinos in nearby Council Bluffs, Iowa. It was the first of many similar cases for Dennis McNeilly, a psychologist at that clinic.
He began studying the effects of gambling on seniors and found that casinos tailor their marketing to attract an older crowd. The Station Casino in St. Charles, Mo., for instance, has a Golden Opportunities Club for people 55-plus, in which they can earn credits toward meals and gambling chips. The casino also offers free valet parking and $1 lunches to seniors, and some of its slot machines are based on detective stories from the '40s. Some casinos run shuttle buses from retirement homes. McNeilly found one casino that featured former stars of Lawrence Welk's TV show. The industry even has a term, "third-of-the-month club," to describe gamblers whose casino trips coincide with the arrival of Social Security checks.
"The senior population is getting destroyed by gambling," says Ed Looney, executive director of the Council on Compulsive Gambling of New Jersey. He cites the fact that in 1997, gamblers 60 and older accounted for 65% of the $3.7 billion Atlantic City took in. "You have a right to market your product, but there's a line you need to draw," Looney says. He points out research that shows seniors get to the crisis stage of gambling faster, and don't have the time to rebuild their finances when they get in trouble. "There's no way they can recover," he says.
9. "We have your legislators in our pocket."
At an investors' conference in June, MGM Grand Chief Financial Officer James Murren was asked about the status of the company's new temporary casino in Detroit. He acknowledged that MGM couldn't complete a permanent facility in four years, as it had promised the city. Still, he added, "There's no way in the world they're going to shut us down. We pay our gaming taxes daily."
His comments reflect just how reliant policy makers have become on casino money. And it's not just in the form of taxes. In 1998 congressional and presidential candidates received $5.7 million from the gaming industry, up from $1.1 million in 1992. Soft-money contributions jumped from $400,000 to $3.8 million.
From 1997 through 1999, the gaming industry spent $22.5 million lobbying federal lawmakers, more than such powerful contingents as alcohol and gun groups, according to political watchdog Common Cause. With that kind of spending, it would be tough to pass antigaming legislation, says William Thompson, a professor of public administration at the University of Nevada at Las Vegas. "They've got the bucks, and the opposition doesn't. The casinos make contributions to every viable candidate." Adds Robert Goodman, head of the U.S.Gambling Research Institute: "Government is moving toward relationships that are problematic."
10. "Our regulation is full of loopholes."
Gaming industry officials like to say that their business is tightly regulated. But the truth is, regulators often have their hands tied. Take Indian casinos. Though they have to cooperate with the states to some extent, often tribes are left to regulate themselves. A new compact in California, for instance, leaves it unclear whether the state has the power to audit the tribes' books or inspect their slot machines.
Keeping tabs on Internet gambling is even tougher. Congress is discussing possible measures, but for now regulators can do little about the 850 foreign sites that cater to U.S. gamblers. In some countries, all that's necessary to get a license is to register. "They don't have anything like regulation," says Sue Schneider, chair of the Interactive Gaming Council.
Then there are the "cruises to nowhere," boats that depart from coastal U.S. cities and head into international water, where they offer gambling in an unregulated environment. "In a lot of cases, we aren't even sure who the entities are operating these games," says Kent Perez, Florida assistant attorney general.
The following is from Eric Nager at Southern Capital Services. Please contact him if he can assist you in your tax and gifting planning.
Benefits & Opportunities in New Charitable Giving Program
Provide for Families, Loved Ones, and Charities You Care About
Let us introduce a new program that offers you the opportunity to provide for family and loved ones as well as a charity or church, and can also save on taxes. You can allocate financial resources of cash, stocks, real estate, or other assets through trusts that offer current and estate tax savings, and designate the church or charity, and individuals, as beneficiaries. This stewardship supports everyone except the IRS.
A collaboration of area firms with decades of expertise has joined to offer this program that benefits both individuals and organizations in their charitable giving. BancTrust Company has served the people of South Alabama since 1986. Southern Capital Services, Inc. has provided its clients with financial advisory and management services for over 20 years.
Providing for the needs of your family and loved ones is essential. Support for others that you care about and the organizations that are meaningful to you is vital. It is important for us to assist you in achieving your objectives. We will help you accomplish these objectives for everyone’s benefit: you and those you desire to help.
Through a program of wills, bequests, charitable lead or remainder trusts, or pooled income trust investments, both the designated organization and loved ones will benefit. And, you can gain a tax advantage at the same time.
Benefits to Organization
The church or organization gains by being named as a beneficiary in a will. Moreover, by being named in a trust, the charity either receives the gift after your other beneficiary, or they can receive the benefit first. All of these gift opportunities provide individuals with ways to support the organization with assets now and for the future. Having the trust assets on record enhances the financial position of the church or charity.
Benefits to Individual
Individuals benefit in this program by directing their resources to support the church or charity they desire. They can further designate family members, loved ones, or others to be beneficiaries as well. Tax benefits are provided to the donor immediately.
Local Trust Relationship and Management
BancTrust Company and Southern Capital Services, Inc. will practice sound stewardship of your funds on behalf of you and the organization. Locally, they will work to build the personal relationship and manage the funds to everyone’s benefit.
Southern Capital Services, Inc. has a successful record managing investment risk by seeking the highest rate of return possible within the client’s investment objective and risk tolerance. Their years of experience mean they have seen all types of markets, both bull and bear, and know how to respond with innovative strategies. Southern Capital’s overall philosophy is to provide clients with the quality money management they would seek for themselves based on integrity and competence, as well as service.
BancTrust Company has been in business since 1986, and manages over $460 million in trust assets.
Charitable Remainder Trust
A charitable remainder trust is the legal arrangement you can use to give to a charity now, but make your gift effective only after you or another income beneficiary has received income from the gift for as long as you desire.
This kind of trust has a great advantage over simply making an outright gift – while you live or in your will. That advantage is the present tax deduction you can take for what is effectively a future gift. A charitable remainder trust lets you:
+ Give now
+ Deduct now
+ Deliver the gift later
This delayed delivery allows you - or your other beneficiary - to continue to receive the income from the gift during the time before your trustee hands the trust’s assets over to the charity.
For the tax year when you establish the trust, you can deduct the present value of the charity’s interest in the charitable remainder - the assets the charity will ultimately receive. You can still take your deduction if you are the beneficiary who receives the trust’s income during the term of your trust.
Charitable Lead Trusts
A charitable lead trust is the gift arrangement that lets the charity benefit first, because it receives the trust income during the term you set for the trust. At the end of the term, your noncharitable beneficiary receives ownership of the trust property. With this trust you can:
+ Give now
+ Deliver the gift now
+ Deduct now
+ Get your property back for your beneficiary later
A charitable lead trust will generally produce a lower deduction amount than a charitable remainder trust. So, it is less frequently used. It may be the more desirable choice, however, if you have little need for immediate income and are willing to trade some current income for tax advantages.
Pooled Income Funds
Individuals may also contribute to a pooled income fund. The charitable organization creates the fund, rather than the individual.
Specific amounts and illustrations involving gifts of cash, stock, real estate or other assets considered for any of these opportunities will be reviewed privately based upon your interest and resources.
Relationship Trust for You
Through our relationship, which is local and personal, we will help you custom design charitable trusts that meet your needs. Our reduced fees will save expense, and therefore provide greater return for the trust and beneficiary. We are here and available when you need us. Tax savings are realized for you and/or your estate, and funds support your interests rather than the government’s. Everyone but the IRS wins. In fact, in these opportunities presented, you can give . . . and receive at the same time.
How You Can Participate, Next Steps
You are invited and encouraged to participate in this program. Please contact:
Eric M. Nager at 251-626-1140, fax 251-626-3257, toll free 888-438-6410, or Email: firstname.lastname@example.org. Mail address: Southern Capital Services, Inc., 29000 US Hwy 98, The Summit – 201A, Daphne, AL 36526.