These liabilities will have specific consequences and are reported and settled in a variety of ways. Three common casino liabilities include:
• Progressive Jackpot Liabilities
• Ticket expense Liabilities
• Player award Liabilities
Progressive jackpot liability occurs when a casino “promises” to pay an increasingly larger jackpot that is typically based on how much the customers wager. These jackpots can reach in the millions of dollars. The normal procedure for tracking this liability is to periodically read all progressive jackpot displays and note the total value. On any given day the total progressive liability could go up as these jackpots increase in value, or if a jackpot is paid or settled the liability could decrease.
There are a variety of both accounting and regulatory rules concerning how this liability should be accounted for. Many regulatory bodies take this “promise to pay” statement seriously. For example, if a casino chooses to decommission a progressive jackpot, that liability is required to be distributed to other progressive jackpot links.
As the popularity of progressive jackpots increase worldwide, the monitoring and reporting of progressive liabilities takes on an ever-increasing importance.
Perhaps the most important liability that occurs in the casino environment is the cash ticket liability. Ticket liability occurs when a patron cashes out a ticket but does not immediately redeem the ticket. This ticket is a monetary obligation. It continues to be a liability until it is expired or redeemed. A casino’s ticket liability is the total of all active un-redeemed tickets. Typically the casino’s ticketing system can report this value.
Another way of monitoring a casino’s ticket liability is to calculate the change in liability over a given time frame. To calculate the change in liability we take all the tickets that were issued, less all the tickets that were redeemed, less all the tickets that were expired. For example, if in a given day $100,000 of tickets were issued, $85,000 in tickets were redeemed, and an additional $1000 expired, this would give us a change in liability of $14,000. We should be clear that the redemption of tickets could be from tickets that were issued several days prior. If we add this to the previous day’s liability, with any luck, this should equal today’s total liability as reported by the ticketing system. There are other factors that can affect ticket liability, including tickets that have been voided, or tickets or other system/user errors.
Ticket liability is especially important when considering how taxable slot machine win should be calculated. Tickets that have been issued by a slot machine are considered an expense, and as such, issued tickets reduce the slot net win. Many gaming jurisdictions have considered that reducing the taxable gaming win by all outstanding tickets may not be an accurate way for the casino to report the true slot “profit.” These regulators have accurately supposed a portion of these outstanding tickets will never be redeemed, thus the casinos will not have to pay gaming tax on these unredeemed tickets.
The most common method for accounting for these un-redeemed tickets is to add back in the ticket liability to the reported slot win so the adjusted (simplified) slot net win becomes:
(BILLS IN + TICKET IN) – (HAND PAID JACKPOTS – TICKET ISSUED) + TICKET LIABILITY
By adding back in the ticket liability, the casino pays gaming revenue tax only on tickets that have been physically redeemed.
This is a key reason why casinos must carefully monitor their true ticket liability. This ticket liability adjustment can make a significant difference in the amount of gaming revenue tax a casino is responsible to pay.
Another type of liability that casinos carefully monitor is those obligations that concern player point awards. Player point liability accrues as casinos provide patrons points for play or spending throughout specific venues and are not immediately redeemed. For the most part the casino is liable to provide the patron the advertised value. However, in most cases the casinos have the option on how this accrued liability will eventually be removed from patron accounts.
In the case of point reduction from player accounts, casinos typically decide the length of time they will reside in the patron’s account. Some have them expire in a certain amount of days if not used. Others allow them to stay in patrons’ accounts indefinitely, which, in this case, will remain as a liability. As with ticketing, the casino’s player tracking system will have the settings to enable the process of expiration days or not.
A daily audit of point accrual and redemption should be performed. Again, the casino systems should have the proper reports to complete this audit. An audit typically consists of comparing the total coin in, bet or venue purchase reported that day, to the total value of the points awarded to patron accounts. This process will manage the knowledge of point liability.
Overall, it is important to track these above-mentioned liabilities for proper tax reporting, regulatory requirements, and proper accounting practices.
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.