Freeplay or “non-cashable downloadable credits” is an ingenious marketing tool that has been widely deployed in casinos throughout the world. This technology allows the casino customers to download marketing credits directly to a slot machine.
This concept revolutionized how slot marketing is conducted. Millions of dollars of freeplay have been awarded through various casino marketing programs. However, questions have been raised as to how to account for these funds from a both a financial and analytical perspective.
In the early days of these programs many believed that freeplay had very little actual cost to the casino. As a result, casinos ran generous freeplay marketing promotions. The underling belief being that gambling psychology, waste, and the eventual expiration of these credits would make the real cost to the casino negligible. However, as the analytics came in, many soon found that freeplay was not free.
Recall the net win equation for slots: Total Credits Purchased (Drop) – Total Credits Collected. Credits can be purchased by coins, bills, tickets…or downloads. From the slot machine’s perspective, it does not matter how the credits are purchased. Thus, when calculating the slot machine win, freeplay must be included in the calculation.
This leads to an important concept. If a casino gives away $100,000 in freeplay for a month, the net win of the casino is increased by $100,000 (assuming all credits are used). Intuitively this makes no sense. We can’t give away $100,000 and then report our net win has increased by $100,000. This would overstate our win from both a financial and taxable perspective. Thus, from a financial perspective,
freeplay used must be excluded from the net win equation. Excluding or reducing a slot machine’s win has a consequence. Let’s take an example: For a given slot machine, assume the following data for one month: Our net win equation tells us the win for this slot is: Total Credits Purchased – Total Credits Collected or ($10,000+25,000 + $5,000) – ($20,000 + $6,000) = $17,000. However, as we determined above for financial purposes, we can’t include freeplay. By excluding the free play, our win is reduced by $8,000 making the adjusted net win $9,000. Where this causes issues is when the analysts examine the actual hold percentage of individual or groups of slot machines.
One of the key slot analysis procedures is to compare the theoretical hold percentage of slot machine to the actual hold of a slot machine.
Recall that the actual hold percentage is calculated by taking the Net Win and dividing it by coin-in. In our example, the expected or theoretical hold for this particular example is 7%. So when we exclude freeplay from net win, the game appears to be under performing when compared to its expected hold. Whereas, when we include free play, the game is slightly over performing as compared to its expected hold. This example highlights that for analytical purposes we must include freeplay when calculating the Net Win.
Considering how freeplay should be accounted for depends on the purpose of the reporting. When the slot data is being used for accounting and financial purposes then freeplay should be excluded from the win calculations. However, if the data is being used for analytical reason the freeplay must be included as part of the win calculation.
Josh Cantrell is Founder of and Senior Slot Systems Consultant for Sierra
Gaming Consultants (www.sierragamingconsultants.com). He specializes in slot operations, slot accounting / analysis, and slot system support. He has over 25 years of experience working in casino markets around the world including those in Canada, Mexico, Macau, South Africa, and throughout South America.