Gambling in American History

Bally’s was the worldwide innovator. It moved machines from being mere mechanical devices activated by pulling a handle to being electromechanical devices. The handle pull was now just an alternative way to push a button to make the machine run. Bally’s first machine was the Money Honey, which contained a much larger capacity to store coins, making bigger payoffs more possible. In 1964, Bally’s developed a progressive machine, which permitted a jackpot amount to grow each time the player made a losing play. The possibility of winning thousands of dollars on machine play was opened up. Also, the machines could accumulate jackpots large enough that the expected payoff return for a player could become positive (over 100 percent). Soon the company made multipliers, that is, machines that accepted up to five coins; with each additional coin put in, the prizes would multiply. Bally’s added reels to some models. In 1968 it marketed a machine that had three play lines on it. In the late 1970s it developed low-boy machines that had flat horizontal playing surfaces, over which the player could lean. Eventually, this style of machine was adjusted to be operational on a bar surface. Bally’s also developed the popular Big Bertha, an extremely large machine (six to eight feet across) that would dominate a casino floor, drawing attention to slot machine play. In 1980 Bally’s engineered another breakthrough. It linked machines together so that several could offer one very big progressive jackpot.  The Hilton casinos of Las Vegas used these networks of machines to offer million-dollar guaranteed Pot of Gold jackpots.
The 1980s were not kind to Bally’s. It entered the casino business as an owner of an Atlantic City casino and then several casinos in Nevada. Other casinos became somewhat reluctant to buy Bally’s products and thereby display the name of a competitor of their gambling floors. But more importantly, the computer age had descended, and Bally’s was hesitant to make the leap. One of Bally’s sales executives, Si Redd, worked on the development of a video gambling device with a cathode-ray tube. Poker could be played on his device. He wanted Bally’s to market the machine and give him the appropriate credit. Bally’s higher executives, however, did not want to stray from their “winning formula” of the 1960s and 1970s. They struck a deal: Si Redd would leave the company and promise not to make any machines that would compete with the Bally’s models nor to use knowledge he had gained at Bally’s. In turn, Redd would be given a five-year exclusive right to develop his poker machine. Redd became instrumental in starting International Gaming Technologies (IGT), which manufactured and sold video poker machines. Five years was all he needed. By the mid-1980s, IGT surpassed Bally’s in machine sales, and after IGT won the right to make reel machines as well, it thoroughly dominated the market, with over 75% of the sales of machines in the United States and Canada. IGT now stands as perhaps the largest slot machine company in the world, sharing that world market stage with Aristocrat and Sigma.
The computer technologies and cathode-ray tube video screens have changed the look and operations of machines in many ways. When California authorized a state lottery in 1984, Nevada casinos worried. They could not compete with a multi-million-dollar jackpot; IGT came to the rescue. The company developed Mega-Bucks, a statewide network of machines offering one progressive jackpot. Although the jackpot has never risen to the levels of some lottery jackpots, it has gone over $10 million several times, and it keeps many Nevada regulars from running to the state line to buy California tickets – at least until the California jackpots get really high. The Mega-Bucks network includes upward of 1,000 machines. Within casinos there are many other linked networks of machines.
Modern machines developed by IGT, Sigma, Bally’s, Anchor, Mikohn, and other companies have also incorporated other features. One machine has holograms in its displays. One blackjack machine features a three-dimensional dealer who appears to actually deal out cards as he talks to the players, wishing them good luck, congratulating them on wins, consoling them on losses, and urging them to try again. Sigma has simulated a racetrack and horse races. The games have also taken on names of popular nongambling games. Mikohn has a Yatzee machine. Anchor developed a Wheel of Fortune game involving reel play; when a certain winning combination appears, a wheel above the machine spins for the superjackpot as noises from the television Wheel of Fortune game are heard. There is also a monopoly game. Several casinos have banks of Elvis machines. Although all the machines offer gambling games, with their variety has come a variety of rules, making the machines much more sophisticated than the ones that just asked the player to pull a handle – or decide how many coins to play and then pull a handle.

The notion of using a machine for gambling bounced around in many inventors’ heads during the last decade of the nineteenth century. It was the era of inventions, after all. Gambling contraptions of one sort or another proliferated around San Francisco. There, in 1893, Gustav Frederick Wilhelm Schultze registered a patent for a wheel machine. This gave the inspiration for Charles August Fey to make a machine with spinning reels. Three years later he put together his final version of a machine that bears a resemblance to today’s machine. Fey called his machine the Liberty Bell. It had three reels with bells, hearts, diamonds, spades, and horseshoes. Three bells paid off ten-for-one in drinks. Schultze challenged Fey’s and others’ rights to make machines, but he was unsuccessful in having his patent stand up in court, as the validity of gambling machines was questionable.
Fey did not seek to win a patent for his machine. Instead, he sought to guard it by maintaining ownership over each unit he produced. He arranged to place the machines in establishments around San Francisco and other nearby areas with an arrangement that he would take 50% of the revenues from the machine and let the owner of the premises have 50%. The process was effective for several years, but according to Fey’s grandson, Marshall Fey, in 1905 someone from the Mill’s Novelty Company of Chicago secured a machine through unauthorized means and used it as a model for their own machine (Fey 1983). Soon the Mill’s company was making a wide line of machines. In 1906 it developed the first machine that stood upright on its own and did not have to be placed on a stand. This machine, “the Kalamazoo”, and all others came under the scrutiny of legal enforcement against gambling.
Back in San Francisco, the police chief arrested several premise owners. One was fined but appealed. He won the appeal in the Superior Court, which ruled that the machine games were not lotteries. Police actions were also frustrated by defense allegations that enforcement was hypocritical in that California permitted poker card clubs. Nonetheless, the machine makers were wary of legal crackdowns, and they made several adjustments to try to defend their products. Some adjustments and subterfuges used by the manufacturers over the early days of machines included the following (many of these ruses are still attempted in various places):
Machines indicated that prizes were paid off as cigars or drinks or other merchandise rather than cash.
Signs on machines indicated that the machines were not gambling machines.
The machines played music as the coins entered them, and they had signs saying.
Buttons were placed on the machines, and reels could be stopped from spinning when the buttons were pushed. In this way a skillful player could always win, hence the element of chance was removed and the machines were not gambling machines.
The machines portrayed game symbols from games that were legal. For instance, they used poker hands in California.
One of most ingenuous attempts at seeking to avoid the tag of being a “gambling” machine came early, as machines were developed that would tell the player exactly what they would win when they put the next coin in. There was no chance. Of course, what the player was seeking was a chance to play in order to find out what would come after that. Courts wrestled with definitions of gambling on these kinds of machines for many decades.
Machines also were configured so that a player would actually get a piece of gum or some other novelty prize with each play, under the ruse that they were buying merchandise from the machine.
Through the twentieth century, cat-and-mouse games were played among machine owners, operators, police, and the courts. But these games were often quite secondary to the fact that machines were illegal and yet were operating. Public acceptance along with patterns of public bribery and lax law enforcement allowed the machines to proliferate in most locales of the United States. During the years of national prohibition of alcoholic beverages, mobsters gained control over the placement of many machines, and accordingly, the machines became associated with organized crime in the minds of many law enforcement people.  As gambling became legalized in many forms, such an association caused policymakers to leave machines out of the mix of legalized gambling products. Even down to the current day, the biggest battles over the scope of Native American gambling permitted under the Indian Gaming Regulatory Act of 1988 has focused upon whether a state has to allow a tribe to have slot machines (or other gambling machines).
Over the years since Fey’s first Liberty Bell, down to the 1980s, the machines did not change much in basic appearance. Although their facades contained many variations, they all had the spinning reels. Growth in the numbers of machines was constant into mid-century. In 1931, a new company in Chicago developed the Ballyhoo pin ball machine. Bally’s placed over 50,000 of such “skill” machines in bars and restaurants during their first year of operation. The machines allowed players to win more games but not money. In fact, winners could be paid for the number of games they won. Bally’s concentrated on these “novelty” machines as its corporate strength grew.
In 1951 the federal government passed the Johnson Act in an attempt to stop illegal gambling machines. The law exempted machines from prosecution if they were in legal jurisdictions, and as a result, many operators moved their businesses to Nevada. The law also caused Bally’s to lobby Illinois for permission to make machines. In 1963 Illinois repealed the state prohibition on manufacturing machines. At this time the Mill’s company and two others (including Jennings, a spin-off from Mill’s), dominated the gambling machine business. This was soon to change, as Bally’s entered the field with a new knowledge base about recreational machines and their players. Within twenty years Bally’s took over three-quarters of the machine business in the United States.

A Personal Story

Let me tell you about my introduction to slot machines, an introduction that taught me about beginner’s luck. That is what I had the first time I went to a casino in Las Vegas. I was on my job interview at the University of Nevada, Las Vegas, in 1980. The department chairman recruiting me suggested that we go to the Hilton. There I saw bank after bank of slot machines and tables. I indicated a hesitation to play the table games, as I did not know the rules, and they seemed somewhat complicated. Moreover, the games moved very fast, and the players at the tables really looked as if they knew what they were doing. Like other slot machine players, I felt “intimidated” by the table play. So we found some empty machines. I thought I would just have to put in the coins, so I “bought” ten dollars worth of quarters. The machine asked me a question, however: Did I want to play one, two, or three coins? I had to think about that for a while (something a player cannot do when he sits down at a table – take a little time to think things over). The machine indicated that with one coin I could win only with cherries; with two, I could win with cherries and other fruit and bells; with three coins, I could win any time the machine showed a winning combination – cherries, fruit, bells, and the jackpot bars. Well, we were educated, smart people (we both had Ph.D.s, and those are not easy to come by). So we figured the jackpot ($100) was just a bit too much to hope for, too much of a “long shot.” I would play two coins. I played the two coins the first time and lost. I played two coins again, the reels spun, and what do you know, one, two, then three bars – jackpot! Bells and whistles, lights, the $100 jackpot sign flashed. The trouble was that no money flowed from the machine. I had not won the jackpot that the machines so proudly proclaimed for the world to see, because I had only put two coins into the machines. That was bad enough, but soon other people around me were telling me, “Why, you didn’t win because you have to put three coins in for a jackpot.” I was quite aware of what had happened (Ph.D.s have some intelligence). Then someone else would tell me the same thing. I also heard side comments about that “stupid tourist” who does not know you always put in the maximum number of coins. I had most of my roll of quarters left, so I played on, but with very little enthusiasm. When the coins were gone, I left as quietly as I could.
Beginner’s luck? Some might not think so. I certainly did not feel “lucky” at the moment. After I began to study gambling, however, I became quite convinced that that is precisely what I had experienced – beginner’s luck.
Just think, within five minutes of my first exposure to slot machines, I had learned that machines were not easy things that could be played without some thought. Indeed, since 1980 the slots have increased in variety and in complexity. I learned that the gambling devices were smarter than I was and that that might have something to do with the fact that they seemed to be taking over the casinos and winning so much money from the players. I also learned the best lesson any new resident of Las Vegas can ever learn – that the player has to be a loser, or to put it in personal terms, this player (I) was a loser. The lesson has not stopped me from gambling, but it sure has slowed me down. Imagine my potential gambling history had I won $100 after playing one dollar and fifty cents. I shudder to think about it. I have to live in Las Vegas, a city with nearly 200,000 slot machines, and they are everywhere – on the Strip, in locals’ casinos, in bars and taverns, restaurants, car washes, liquor stores, convenience stores, drug stores, and supermarkets.

The Value of the Machines

Slot machines are very attractive. They are the devices that usually get amateurs started gambling. They move very fast and they can be quite “captivating.” This can be quite all right if the gambling is responsible. Certainly, machines add a lot to the entertainment value of many lives. They also shift revenues to employees, as well as to government coffers. Individual slot machines make considerable sums of money for their owners, ranging from about $50 a day ($18,000 plus a year) to over ten times that much ($200,000 plus a year) each, depending on where they are found. Yet each machine usually represents an investment of less than $3,000 or $4,000 a year. A machine and related equipment cost from $5,000 to $10,000, and labor and energy costs to operate the machine are minimal, perhaps an equal amount of dollars (supervisors can watch ten to twenty machines, and a service person can handle 100 machines). These are lifetime costs. The costs can then be divided by a three- to five-year annual cycle. For example, the typical Las Vegas casino machine might cost the operator $4,000 a year to maintain (including all overhead), whereas it produces $35,000 in revenue – that is, it takes $35,000 a year away from the players (even the “smart” ones who know they should put in the maximum three coins each time they play).
In the early days of Las Vegas casinos (the 1930s into the 1970s), slot machines were an extra among the gambling products. The really serious gambling was at the tables, and the machines produced only a small part of the house revenues. Casino owners would say such things as, “They pay the electric bills,” or in a sexist phrase, “They keep the women busy while their men are doing the real gambling at the tables”. Now this casual attitude about machines is gone. One discussion of Las Vegas games published in the 1960s told how machines made about 15 percent of the revenues of the big Strip casinos. Now many Nevada casinos, especially those such as Texas Station that serve local residents or casinos appealing to drive-in gamblers from Phoenix or southern California (e.g., those in Laughlin), bring in over 80 percent of their revenues from machines. Over the past two decades, the machines have also become much more generous to the players, often giving respectable returns of over 95% – a gamble as good as that offered at many table games. The higher returns are essential for the success of the machines, as the players of machines are now much more sophisticated – in terms of searching for best payout schedules.
The value of slot machines for the casinos is reflected in the fact that almost all the casino properties in any competitive jurisdiction will give free services (complimentaries) to slot machine players, something they did only for table high rollers in the recent past.  Since the mid-1980s, the casinos have instituted “slot clubs”, and through magnetic cards they record the amount of play an individual has, then award extra prizes – free meals, free casino stays, free shows, merchandise, and even cash bonuses – based on the player’s patronage. In the Harrah’s chain of casinos (over twenty properties) there is a single slot club, and players can use their card in any of the casinos to accumulate points for prizes.
If there is a Gresham’s law in gambling, it would simply be that slot (and other) machines for gambling will, where permitted, eventually drive out all other forms of gambling. I have studied the intricacies of European casino gambling over the past fifteen years. Country after country seriously deliberated over issues such as whether the casinos could serve drinks on their gambling floors; whether local residents could enter the casinos; whether casinos could advertise and have signage; whether the casinos could cash patron’s personal checks. Although public officials oversaw such earthshaking measures in order to properly protect the public from this “sin” industry, the same governments with very little deliberation decided that slot machines could go almost anywhere – in taverns, in children’s arcades, in seaside recreation halls. Even though Spanish casinos were being “taxed to death” (they pay a gross win tax averaging over 50 percent), over 500,000 slots filled Spanish restaurants and bars, paying scant taxes. British authorities delayed for years a decision to allow casinos to expand their offerings of two machines to four, while at the same time giving no attention to the fact that gambling halls throughout the urban areas and recreational communities were able to have hundreds of machines. The issue in European gambling is no longer how to apply intricate detailed regulation to casinos, but just how wide open noncasino machine gambling can become. Or in the case of France, the issue is to what extent will machine gambling be allowed to go within casinos that were prohibited from having them until the late 1980s. In several U.S., Canadian, and other Western Hemisphere jurisdictions, lotteries are finding that their best revenues come from slot machines dispersed throughout their territories and called video lottery terminals. In many of these places, horse- and dog-race tracks have turned to machines to boost their revenues and have found that slot machines have become their essential business product. More and more, all over the world, the expansion of gambling has become essentially an expansion of machine gambling.
The era of machine gambling seems to have arrived with the twenty-first century, but the ride of machine gambling from the latest years of the nineteenth century has been an uneven and rocky journey.