Are Slot Machines Honest?

by Steve Bourie  Learn more about the author 

All of the stories in this book relating to slot machines and video poker are based on the assumption that those machines act in a random manner. This means we’re assuming that those games aren’t programmed to avoid giving a player a winning slot combination or poker hand and the opportunity exists on each pull of the handle, or push of a button, for any possible winning combination to occur.

We know that there are gaming regulatory agencies that are supposed to provide the public with protection from playing on a rigged machine but how is it done? and how effective is it?

Being the nosy guy that I am, these were a couple of questions I was curious to get answered and it ended up taking me on a little bit of an adventure. Not only did it result in this story about the regulatory process for electronic gaming machines but it also led me to question the motives of a national news organization.

In the United States there are only four states that have their own facilities for testing electronic gaming machines: Montana, Mississippi, New Jersey and Nevada. For the other states that offer legalized casino gambling but don’t have their own labs almost all rely on the services of Gaming Labs International - an independent testing firm based in Toms River, New Jersey.

It only made sense to start with the biggest state first, so in February 1997. I called the Nevada Gaming Control Board to ask for permission to visit their testing lab in Las Vegas. They told me I needed to get permission for that from Bill Bible, the Control Board’s chairman, so I wrote him a brief letter explaining that I wanted to write a story about the lab for my book. Twelve days later I received a reply from him stating that I was welcome to visit the lab but that some parts of it were confidential and would not be accessible to me. He only requested that I call that department in advance to make an appointment. A few days later I called and made arrangements for a visit on March 18 at 3:00 p.m.

Not being a computer expert - just a curious casino gambler - I wasn’t exactly sure what I should ask and about 10 days before my trip I started to ponder questions I thought might be appropriate. Then, on March 12, just six days before the scheduled visit, I was watching television when I switched channels and caught a story on the ABC News show PrimeTime Live about slot machines. The segment was titled "Against All Odds" and featured their chief investigative reporter Brian Ross.

The story focused on the computer chips in slot machines and began with parts of an interview with Frank Romano who, Ross said, was banned from the industry because a company he owned with two partners was charged with rigging its video poker machines to avoid giving out royal flush jackpots.

Ross went on to say that the public knows little about the inner workings of machines and that PrimeTime conducted a four-month investigation into the industry that included numerous interviews with industry officials, the reading of confidential documents and the viewing of secret video tapes of an interview with a former state gaming official who was involved in a slot cheating scandal.

Ross said that Romano claimed he didn’t know anything about the cheating at his company and that he had persuaded a federal judge of that fact. Also, Romano had no qualms with talking about the "secrets" of the gambling industry even though Larry Volk the person at his company who programmed the chips to avoid giving the winning hands had been murdered: Volk was shot to death at his house in Las Vegas shortly before he was scheduled to begin giving testimony about how he programmed the chips to cheat.

Ross said Romano claimed the computer chips made cheating possible and that the true "secret" of the industry was that the chips of many machines were programmed with a "near-miss" feature which didn’t directly affect the odds of the game but did lure players into playing longer.

Romano then gave an example where a slot machine would line up two 7s on the payline and have the third 7 settle below the payline making people think they were close to winning. He said those kind of results were programmed into the machines on purpose.

Ross said the casinos pay out up to 98% on these machines and that Romano claimed the industry came up with this idea as a way to get the dollar volume up by keeping the players at the machines for a longer period. Romano claimed it was "cheating" and that the industry was "teasing" the player by making them think they were close to winning.

The next scene shifted to an interview with gambling addiction authority Valerie Lorenz who, Ross said, wasn’t surprised that the industry would do such a thing.

Next was an interview with Bill Bible, chairman of the Nevada Gaming Control Board who said that cheaters would be caught and prosecuted. Ross commented that most of the Board’s cases involved players cheating casinos and asked Bible if it also applied to casinos that cheat customers. Bible replied that it did and that his department inspects computer chips both before they’re put in the machines and also after they’re out in actual play.

Ross then questioned how good a job the state did in examining the chips because of allegations raised in a six-hour series of supposedly "secret" videotapes with Ronald Harris, a former Gaming Control Board employee who was involved in a slot cheating scandal. Harris was a computer expert in the gaming lab where the machines were tested and the videos were made by the attorney general’s office while questioning him about his cheating activities. Harris was eventually convicted of felony cheating charges.

Parts of the "secret" tape are then shown with Harris claiming that the state’s gaming regulations weren’t being enforced and that the machines were "deceptive."

Harris: I remember reviewing one, and it was a thousand times more likely that the three 7s would line up directly above the payline than on the payline. I mean, doesn’t that seem deceptive to anyone here?

Questioner: To make the customer feel as though they came very close to getting a jackpot and that perhaps the next one or the next one, to paraphrase the ad, the baby would be ready to deliver?

Harris: Yeah, exactly. Exactly. Yeah, it’s out there. It’s being done. It’s condoned by the board...

Ross commented that the attorney general’s office told PrimeTime it couldn’t prove any criminal wrongdoing based on Harris’ allegations and that they never looked at all into the alleged "deceptive" features on slots.

The interview with Bible then continued with him confirming that Harris was a former employee who had a great deal of knowledge about the industry and that his allegations were still under review. Bible denied that any cheating was allowed by him or the board and he pointed out that Harris just didn’t have much credibility.

In the next scene Ross said that two other former employees of the lab, without any criminal backgrounds, also believed that the machines were "deceptive." He interviewed Gordon Hickman a retired employee who said that the machines were very prevalent. Ross said that in a confidential memo to the attorney general’s office Hickman claimed that he was ordered to okay machines that "display near-misses in 7s a third of the time just above the payout line." Ross said Hickman thought the machines were "deceptive" but he was ordered to approve them anyway. The machines in question were manufactured by International Game Technology (IGT), the world’s largest manufacturer of electronic gaming machines and a company which controls about 75% of the market.

Next was an interview with Tom Baker, president of IGT, in which he’s shown a copy of the Harris video. Baker denied that his company’s machines were "deceptive" in the way Harris described them on the tape. Ross challenged Baker by asking if his machines were "deceptive" and again questioned whether or not IGT was teasing customers into thinking they were close to winning when they played those machines. Baker replied that Harris said a lot of things, however, Harris was a convicted felon but Baker and his company were not. Ross responded by showing Baker a copy of Gordon Hickman’s confidential memo to the attorney general’s office about the same subject. Baker then denied there was any favoritism given to his company that he knew about.

At that point Ross pointedly asked if IGT programs its machines with a “near-miss" feature. Baker answered by saying his company’s machines were programmed in accordance with the law. Ross then asked if the law allowed the “near-miss" feature. Baker said he personally didn’t know, but if his company was doing it then the law allowed it.

A voice-over from Ross then commented that gambling industry critics have concerns about the regulations that are in place and the scene shifted back to gambling addiction expert Valerie Lorenz who said the casino industry makes the laws in Nevada and she questioned if any other business would be allowed to get away with deceiving the public in such a manner.

The next scene shifted back to Bill Bible with Ross questioning him as to whether or not he thought the public was treated fairly when playing gaming machines in Las Vegas. Bible replied that he had no doubt the public was indeed treated fairly.

The final scene went back to Romano who said that the machines were designed to entertain the public as well as to take their money. Ross then asked if a casino customer is better off going to the machines or to one of the table games. Romano replied that they’d be better off going home and that ended the report.

It didn’t take long for the effects of PrimeTime Live’s broadcast to be felt. The very next day U.S. Representative Frank Wolf (R-Va.), a longtime opponent of legalized gambling, requested an immediate investigation by two federal agencies. "I have asked the FBI to investigate claims of illegality and the Federal Trade Commission to investigate illegal trade practices," Wolf said.

The segment also became a subject of discussion that same day in the Manitoba Parliament when Gary Doer, an opposition party leader, called for a government investigation into the matter because a Winnipeg casino used slot machines manufactured by IGT. "If the computer machines are programmed in the United States to have this kind of near-miss operation to entice people, particularly addicted people, to keep going, I want that stopped here in Manitoba," said Doer.

The show also sparked a call in the Nevada legislature for its own investigation, but with a slightly different twist: they wanted to know who leaked the attorney general’s confidential Ronald Harris videotapes to ABC News. "That entire piece is hinging on the unsubstantiated allegations of a convicted felon, “said Nevada Assembly Minority Leader Peter Ernaut. "What is said on those tapes is secondary to how they got public."

The Nevada legislature didn’t seemed too concerned about the allegations raised in the broadcast because they believed they weren’t valid. “Our programs do not create a near-miss scenario and every symbol is randomly selected," said Brian McKay, general counsel for IGT. "We don’t make deceptive machines. We never have," he added.

Well, this certainly was an interesting can of worms that had been opened. It surely gave me some additional direction for the questions I wanted to ask but, actually, I was already familiar with the subjects raised in this report.

I knew that American Coin was the company that Frank Romano had been associated with and that it was involved in the biggest cheating scandal in Nevada gaming history. In July 1989 the Nevada Gaming Control Board seized about 1,000 of the company’s gaming machines in 93 southern Nevada locations (mostly bars and taverns)after it discovered that they contained unapproved computer chips. The company’s video poker machines had been altered to avoid giving a royal flush and their keno machines had also been programmed to avoid giving out the top jackpots.

Eventually, the company surrendered its license and paid $1 million in fines. Authorities also pursued a criminal case against the company but were later forced to drop those proceedings when their star witness Larry Volk, the American Coin programmer who said he had been ordered to program the rigged chips, was shot in the back of the head and killed outside his Las Vegas mobile home in October 1990. A suspect was later arrested and tried in the case but a jury didn’t convict him.

Romano, who was a one-third partner in the company along with his brother-in-law and father-in-law, claimed he never knew of the cheating scheme. In a later bankruptcy proceeding against his partners a federal judge agreed with Romano’s claim of innocence and ruled in his favor.

As for the "near-miss" scenario I knew that this issue had been raised before with Universal Distributing, a Japanese slot manufacturer, that had specifically developed a "near-miss" program for its slot machines. When showing a non-winning combination on their slot machines Universal’s program would put two symbols on the payline and then place the third symbol just above or below the payline to make players think they were close to winning. When the Universal machines were originally approved for use in Nevada the state’s regulators weren’t aware of the problem. In 1988, however, the Nevada Gaming Control Board discovered the "near-miss “scenario and filed a complaint against Universal. The Board then held a series of hearings to discuss the "near-miss" issue and officially ruled it illegal. This resulted in Universal having to reprogram about 15,000 of its machines throughout the state.

Well, if the "near-miss" had been ruled illegal in 1988 then why would PrimeTime Live broadcast a report that would purposely lead its viewers to believe that it was in use today? Maybe what I had heard about the illegality of the” near-miss" was wrong? I knew this was an issue that I had to bring up during my visit to the testing lab.

The five-story State of Nevada office building at 555 East Washington Avenue is about 10 blocks north of the hustle and bustle of Las Vegas’ downtown casino district. I went to the second floor to meet Greg Gale, Chief of the Audit Division for the Gaming Control Board, who brought me to meet Mark Robinson, the Lab Manager for the board’s Electronic Services division. They explained that Gale was temporarily supervising Robinson’s area because the department’s chief recently retired and that Electronic Services would be on its own again once a new chief was in place. All of my questioning was directed to Robinson, but occasionally Gale would supply an answer to help clarify an issue.

What are your department’s duties?

We test machines before they’re approved for use in Nevada and then we also have a field inspection group that goes out every day and checks the chips that are in the machines to be sure that what’s out there is actually what we’ve approved.

How did your department come about?

Back in the early ’80s the Board had the lab and it was under the enforcement division. We also had a group of computer programmers, who did in-house computer programming, and that was in the administration division. The Board decided to form a separate division that had all the technical resources in one division and that became Electronic Services.

So you had a lab back in the early ’80s. Do you know when it first started?

I don’t know the exact date. Somewhere in the late ’70s, like about ’75 or ’78. They started looking at the mechanical machines and developed sort of an expertise in the enforcement division first. Then, as the electronics grew in the machines, they realized they needed an electronics group to handle it.

How many people are in the department?

There are a total of 18 in electronics and computer services. We’ve got 10 in the lab part.

What is the background of all the people that check the machines?

Primarily electrical engineers.

How long have you been here?

I’ve been with the Board 12-and-a-half years and I’ve been in the lab about a year-and-a-half now.

And you’re in charge of the whole lab?

The lab inspectors, the whole thing.

And the lab part tests the machines?

Yes, out in the field and prior to approval. We have a group that does both. We have six people that go out and do it in the field and we’ve got three herein the office.

This is for the entire state?

Yes. For the entire state.

So, some of you would go to Reno?

Right. We do have agents who are permanently stationed in the Carson City office: four of them. Three of them go out and one is their supervisor who also does some in-house work with the electronic equipment.

What’s the normal procedure when a manufacturer comes in with a new slot machine?

We have about a six-month process to get it approved. We start by testing the machine to make sure it’s random. We look at the source code. We look at the principles behind how the random generation occurs and we look through the source code for any possible problems.

What is the source code?

The source code is the programming that makes the machine run. All of the slot machines we’re approving today are computer-based machines; there are no mechanicals anymore.

Do you get a written printout of the programming?

Generally, we get it on a floppy disk so that we can use our computer tools to review it faster. Reading it page after page isn’t practical anymore.

What do you look for?

Most of it’s written in a way that’s fairly understandable. There’s some modules that make up each of the functions that go on in the machinelike maybe handling the hopper or handling the coin acceptor so you need to look at those specific functions in greater depth and read through them to see how they work.

The main thing that we’re looking at though is its random generation. How does it pick the stops that it’s going to show you? Or, how does it pick the cards it’s going to show you? And we’ve developed over the years a pretty good understanding of the various ways you can generate numbers randomly using a computer.

When you approve a particular model of machine. Do you just approve the initial program or every program the machine can use?

We do approve each program. The first program that is approved is the first model of that machine. It goes through the entire process and it gets presented to the Board and the Commission for their approval or denial. If the machine is approved then the manufacturer may modify it under the regulations and they can make all kinds of variations to that machine.

They primarily get a platform approved, like a spinning-reel slot machine or a video poker machine. Then all of the minor variations, like changes in paytables, or in the case of poker you go from regular poker to deuces wild, to jokers wild, to any possible combinations you can think of...

Gale: We should probably say that before you can actually submit a device to the lab for its inspection approval you need to have a license in the state of Nevada. That’s really the initial step. You have to apply to us and you have to submit to a background and financial investigation. Once you have that license in hand you can then submit your device for approval.

Robinson: Once we’ve reviewed it and we find that it meets all of the regulations and technical standards then we recommend it for field trial and the chairman administratively approves a field trial at a location that the manufacturer has selected. They go out and install one or more machines at that location and we administer a field trial where we observe the machine for problems on the floor. We also have the location tell us about any problems they may have with it.

What can happen in the field test to disrupt the approval process?

The primary thing is meter problems where the machine doesn’t have a good accounting of everything that is going on. A lot of times in the field you’ll have people playing them and they’re hitting buttons all over the place and doing all kinds of crazy things to them that you might not do in a lab environment.

Gale: Like pouring a soft drink down the coin acceptor to see if it will trip the coin hopper!

Just having the machine on for hours and hours and hours - you know -days continuously, sometimes generates different problems than you’ll see in a lab environment. Some of the mechanical problems will also show up a lot more in the field than they will in the lab.

Because they’re taxed, I guess you need to have an accounting of each machine’s revenue?

That’s correct. Every machine has to have the capability to count the coin in and the coin out. That’s what our audit division is looking at when they’re out doing their audits.

Once you’ve approved a particular machine is that manufacturer then free to re-set the machine paybacks to whatever they want within the 75% minimum payback limits of Nevada law?

Correct. They can make all the variations to that machine that they want to within the technical standards.

How do you know that the chips in the machines are within the limits of the law? Is every machine tested?

Every machine is tested to a degree, yes. When a manufacturer submits changes he gives a summary list of his changes in the chips. We review those and we also, on a sample basis, review the modules themselves in a greater depth to make sure that what they’re telling us on the surface is also true in the chips.

Initially, are you approving the chip or the whole machine?

Initially, we’re approving the whole machine including the chip. After that it’s just chips that need to be changed to different percentages.

If a casino wants to change a chip inside a machine to make it payback less do they have to let you know?

No. They can go ahead and change the chips on their own, but they need to have a system internally to be sure that they’re putting in only approved chips. That’s what our field inspection is going out and verifying daily: that they are all approved chips.

So, if they have a machine that’s returning 90% and they want to change it to 80%?

That’s okay as long as it’s an approved chip.

Who puts the chip in? The casino or the manufacturer?

It depends on their relationship with the manufacturer. Sometimes the manufacturer will come out and do it or sometimes the larger casinos have an in-house staff that can do it and they can probably do it cheaper that way but you need some experience in doing that. The manufacturers will do it but they’ll charge extra fordoing it.

And each chip is set to pay back a certain amount?

That’s correct.

How many approved chips are there?

We have a total of about 45,000 chips approved for all machines.

How many are approved for any particular brand of machine?

It would depend on the particular brand. It could be anywhere from two or three all the way up to several thousand.

But the probabilities of the randomness would be the same in all of that one machine’s chips and just the payback percentage would change?

That’s correct. Different manufacturers do it different ways. Some put the part that is the random number generator in one chip and then put the attributes about the payout percentage in a separate chip and that makes it easier to sort of mix and match. Other manufacturers don’t design that way, but they will have the same random number generator in all their chips.

Is there some sort of coding on the chip that let’s you know it’s an approved chip?

There is a code number which we have on file that contains all of the attributes on that chip including its percentage. We would look at either the manufacturer’s code number or our own approval number which also has to be on the chip and then from that we go back to our computer and it tells us what percentage it has to be.

Are the chips in the machines sealed or taped? Is there any way you can see if they’ve been tampered with?

Not visually, no.

Gale: Now, with Megabucks and some of the larger slot machine payoffs, many times the manufacturers will actually seal the EPROMS into the boards themselves where people can’t take them out, or they’ll put them behind a locked door where only they have the key. But, we’re talking about Megabucks which is 6,7,8 million dollars a jackpot and it’s installed at 135 casinos in the state so they’re very concerned about security over their programs. But we detect modification through the inspection process. That’s how you know something’s been tampered with: you pull it out and you read it.

Robinson: Also, the tape could be missing but the chip could be just fine. So, if you do go after a machine that had been taped and the tape was gone maybe somebody just took the chip out and put it back in again.

Are all of the machines taped?

No. Only the Megabucks machines, the wide-area progressives and some of the casinos voluntarily tape their larger denomination machines

How do you know that a chip hasn’t been tampered with internally?

When we go out to the field we have a laptop computer that has a database with all of the signatures of all of the chips so it knows what all of the chips should look like. We take the machine apart and we take the chips out of the machine. We put them into our laptop and press the button and it will read the chip and all of the contents in there. It will do the same calculations on those chips that we did here in the office. It will compare what the values should be and look it up in a database and if it finds that it’s an approved value then it will go ahead and say "that was an okay chip." Otherwise, it will alert the operator to make sure that they’ve actually put the chip in right and then, assuming that was done right, it will log that as a chip it’s never seen before and we’ll follow up on those.

You only do this on a spot basis?

On a random basis we will show up at a location one day and say “we’re going to do your location today and we want access to the machines right now."

Do you check all of the machines in that location?

No. If it’s a restricted location (this means it’s licensed for 15 or fewer machines) that has 15 machines we’ll do all 15. Generally, we can do about 100 machines in a day so we’ll only do a sample at a large location because, otherwise, at a really large location, we could be there potentially 20 days.

How long does it take you to visit every casino and do you visit every casino?

We do try to visit every casino and our cycle is about every two years.

What if you get a complaint from a player that they think there’s something wrong with a machine?

We’ll go and do the same kind of chip inspection and we will see if it’s an approved chip or not. If it’s not an approved chip we’ll take the chip out and bring it back to the lab and analyze it there.

Then, on a case-by-case basis, depending on what we see is wrong with it...if it’s labeled with an approved label number we’ll start by comparing that chip with the approved chip and see how different it is. Is it completely different or just a couple of bytes different? Then we’ll actually go in and analyze what the effect of the difference is. We will also talk to the manufacturer and say "how did this get out without going through the approval process?" and we try to work it through there until we eventually determine what the problem is with the chip.

What’s the penalty if it’s not an approved chip?

It could be anywhere from a simple violation letter all the way up to loss of license. It depends on exactly what we’re looking at: was it maliciously done? Is it actually a gaffe where the house or player is cheated?

We had the case of American Coin back in 1989 where they were specifically putting in gaffed chips that produced no poker royal flushes. They lost their license on it as opposed to an administrative error on their part where it’s a good chip, but somehow it got through the cracks and it didn’t get submitted to the Board properly but there doesn’t seem to be any malicious capability in the chip - somebody was just sloppy with the paperwork.

I saw the recent PrimeTime Live show about slot machines and it implied that many of your machines have a "near-miss" feature. I thought that the “near-miss" was outlawed. Is that correct?

That’s correct. There was a case that involved an attribute that was labeled "near-miss" and that relates back to Universal Distributing Company in 1988. The process that they were using, which was deemed at that time to be a” near-miss" feature, was not in accordance with the regulations. What they would do was after they selected the reels, if you had a losing combination they would present a different losing combination that was more like 7, 7 and 7 just below the line. It was outlawed because it didn’t just independently select the reels and then display the results to the player. It independently selected the reels and if it didn’t like the results that it came up with it went to another table and randomly selected a different set of results to show to the player.

Gale: After it determined that a losing combination was selected then it went out and got different symbols to display to make it look like you just barely missed a jackpot.

Robinson: More frequently than it should.

Gale: But you’re right (about it being outlawed) since regulation14 was amended back in 1989 to prevent that type of activity.

What Gale was referring to here was the section of Nevada’s gaming laws that was completely updated in 1989 and applies to "manufacturers, distributors, gaming devices, new games and associated equipment."

Regulation 14.040 pertains to minimum standards for gaming devices and parts of it specifically state "All gaming devices submitted for approval: must use a random selections process to determine the game outcome of each play of a game. Each possible combination of game elements which produce winning or losing game outcomes must be available for random selection at the initiation of each play. The selection process must not produce detectable patterns of game elements. After selection of the game outcome, the gaming device must not make a variable secondary decision which affects the result shown to the player." The wording in those regulations seemed to adequately sum up the state’s position on the "near-miss" scenario: it’s illegal.

After the interview we took a brief tour of the lab. I guess I had visions of a sprawling lab with technicians in white coats scurrying about in a high-tech environment. Instead, it was just a rather small room - about the size of your average McDonald’s dining area - with nobody there and work benches strewn with electronic equipment plus a few slot machines. The highlight was seeing the area where the approved chips were kept. It consisted of a series of storage cabinets that were covered with a heavy-gauge metal screen and padlocks.

My visit left me with the impression that these guys were obviously very good at what they did and there seemed to be a lot of safeguards in place to prevent cheating on a machine. It just seemed that the department was kind of small for the massive amount of work it needed to do.

A check of Nevada’s gaming records for the fiscal year ending June30, 1996 showed there were 185,610 slot machines throughout the state. Hmm, let’s see, if there are six people that go out and check on the machines and they can do a maximum of 100 machines a day - it would take them 1,856 days, or five years, of working seven days a week, to inspect every single machine!

Of course, Nevada’s gaming industry really hasn’t had much in the way of scandals so maybe their system works just fine. But what about the other states? Do they do it differently?

On May 15, 1997 I went to 1601 Atlantic Avenue in Atlantic City, New Jersey to meet with Richard Williamson, Supervisor of the Technical Services Bureau at the state’s Division of Gaming Enforcement. We were joined by Keith Furlong, Public Information Officer for the Division and we spoke in Williamson’s office located in a state building just a few blocks west of the boardwalk’s casinos.

What does your department do?

We do the pro-active review of the games.

How many people are in the department?

There are 19.

How many actually go out in the field to test the machines?

Eleven. We’re not that big of a unit for the job we’ve got. A little bit of a historical perspective on this: we’re the same size that we were 10years ago and in the past four years we’ve gone from just four slot manufacturers to11, plus three keno systems.

How many machines are there?

33,000 but that goes to 35,000 right before the end of the summer with the opening of Bally’s Wild Wild West Casino, plus Trump is putting in another 600games in a new area which will be open by the Memorial Day weekend.

Do you test every single machine in the city?

Yes. Every game that goes up in the casinos, we go out and we inspect every game. We actually seal the chip onto the circuit board. We come back... we have a database where we put in the information that "machine 1234 was put on Bally’s Park Place floor on this date, with this denomination and this program in it." And if it’s a progressive, it was set at this rate of progression. We have documentation that supports all that information so that we’ve got an audit trail.

How long does it take you to inspect all of the games in the city?

Well, we don’t go out and inspect every game every year. What we do is I have an audit program set up where we use a random selections process. We’re at a 95% assurance level with a 2% deviation. We go out and we take from the population of slot machines. We have a random start and we pick every Nth one. We go out and we just inspect all those games from top to bottom. We come back and record it.

Are you selecting by kind of game or by casino?

By casino. We’ll do a random selection of all the games in a casino. But that’s our audit program. That’s the only time that we go into a casino and don’t tell them what games we’re going to look at.

All of the other times we go and do inspections is when the casino is calling us to change the payoff percentage, do denomination changes, put bill acceptors on, or do some kind of a modification to the game. We go in and the casino creates the on-site inspection paperwork which spells out what’s happening. Then we go in, we inspect the games and sign off on the paperwork. We give a copy to the principal that’s on-site for the Casino Control Commission so they have our signature that the games are working as approved. The games goes up and we come back and document it in our database.

So you don’t continually inspect every machine?

We pre-inspect every machine before it goes up. It has to have the approved EPROM (computer chip). We don’t do 100% verification because I don’t think it’s cost effective. What I do keep track of on a database is the last time we looked at a game so at any point in time I can query for any game that has been looked at any variety of times.

Can a casino go in and change an EPROM on their own?

No. Not in this jurisdiction.

What do the casinos do when they want to make a change? Call the manufacturer?

No. They contact us and we schedule one of our gaming equipment specialists to go out to the casino and, generally, when they’re doing an EPROM change they’re doing a bank of games or they’re doing a model change where you change the chip, you change the glass, you change the reel strips and you’ve got anew slot machine.

So, the casinos are not allowed to go inside the machines to change any of those things unless you’re there to supervise it?

Yes.

How does your approval process work for a new machine?

Well, naturally, the company would have to be licensed, or at least be in the licensing process, before they could submit a product.

Assuming they’ve met that requirement, what do they have to submit?

They send in a full slot machine. They send in documentation on...let’s say an operator’s manual. They also send in more detailed documentation on the random number generator used within the game. I’d have to say that’s one of the most important features. We do that first because if the random number generator doesn’t pass then that’s the end of the game.

What kind of testing do you do?

The first thing we check is the random number generator to make sure that there are no discernible patterns within that program. Then we do a physical review of the game. Review it for security to see that it can’t be compromised in very simple ways, like easily opening up the door, or having easy access to the inside of the machine. Then we do a review of the circuitry of the board to see that they don’t have switches or ways of manipulating the game that would not be detectable by the casino management or the regulators.

A lot of times the tendency by a manufacturer is to make these machines real user friendly and sometimes they can go to excess and give them (the casino) the ability to change payout percentages without any notification to management or the regulators. So we would have them remove anything that could compromise the integrity of the game.

The next thing we’ll do is a mathematical review of the particular program that operates the pays and plays of the game. When we do that review we’re doing it to make sure that it’s in compliance with the minimum payout percentages mandated in this jurisdiction.

The final step is to do an emulation of the game. We take it into the lab and then with our electronic equipment, rather than just playing the game, we force pays and we force losers.

For instance, we require that all machines lock up on the top award. So, if you receive the top award, say a royal flush, then you should not be able to throw those cards away. Then we check that the meters are working properly; that the pays occur and record properly; and that the machines will lock up on single awards over $1,200because that’s an I.R.S. rule.

About how long does it take for your approval process?

The time is really subjective to the experience of the company and the familiarity of the company with our regulations. So, for a seasoned manufacturer - someone who’s been submitting products for years - the approval process is generally quicker. Also, location has a big difference. If they’re close we can pick up the phone and talk to them. Time zones make a difference, language barriers - if it’s somebody from Europe or Japan - it’s more difficult. So those are factors that extend the time of the prototype approval. Say, if the company was in New Jersey, and they submit the product and they’re very familiar with the rules and they’ve done all their homework on the game we could probably knock out a prototype in 60 days.

It’s my understanding that your department was also involved in the discovery of the "near-miss" slot machine programs. Is that correct?

Yes. It was discovered while it was in here for approval but the facts are that it was discovered at the same time in Nevada and that company withdrew it from the approval process here. So, actually, we never did issue a letter on it.

But, the "near-miss" machine is illegal? Is that correct?

Well, it would be illegal in this jurisdiction if someone were to send one in.

Do you consider a video poker machine to be different than a slot machine?

It was determined by the Casino Control Commission back in the first couple years of the ’80s that it is a slot machine.

So you don’t make any difference in your laws between skill and non-skill machines?

Only to the fact that we require the payout percentage to be 2% higher on a game that is affected by skill.

You require it to be 2% higher? That’s the first I’ve heard of that. I haven’t completely read your laws, but...

It won’t say that in the law. It was a policy adopted by the Commission about the time that video pokers were approved because of a field test. They went out and they watched people play and it was determined that someone who was very unskilled at playing poker could lower the payout percentage of the game below the minimum standard just by continually making poor selections. So they thought they should raise it2% so that even a poor player would have a better chance with the added 2% payout.

The minimum return on slots is 83% so the video poker machines would have to return a minimum of 85%?

Yes.

I’ve read some articles where the writers claim that because New Jersey law treats video poker machines the same as slots that the video poker machines might be programmed to avoid giving players better hands by dip switches or other means. Are the machines allowed to do that?

No. As part of our proactive approach to the game inspection we do no tallow dip switches. We do not allow a casino to arbitrarily change the payout percentages. We do keep a record on what program is in there at all times for investigative and auditing purposes. The casinos are required, when they do their count of the games, to calculate the payout percentage of the game and compare it to the theoretical payout and investigate the differences. They have to report that to us for every slot machine.

They have to tell you the theoretical payout?

We require them to compare the actual with the theoretical and we tell them what the theoretical is.

What are the sanctions you can take against a casino if you find them in violation of your policies?

Well, that’s all licensing and it comes down to individuals. We have licensing requirements with internal controls where an entity would have to report this and someone in a certain department is required to report those things. So, if they don’t report it, you go to the person whose job it is.

Generally, most of these things can be worked out by going to the individual. If that doesn’t work you go to their boss. If that doesn’t work you go to corporate counsel. If that doesn’t work then you resort to legal measures, but it’s really all one-on-one. It’s not that big of an industry here, we’ve just got 12 entities and we know all of them. So, if you’ve got a problem you just walk in, or make an appointment, and sit in their office or have them come over and talk it out.

What would you say is the most common problem you’ve seen in the machines?

Most common? Lights out. The game’s got to operate as prototype approved. It’s like your car: if your turn signals aren’t on who’s going to know you’re turning? If the coin-in light is off how are you going to know that the coin was accepted?

My point is that when a game hits that floor it should be in a working condition so that the patron understands how the game works because there’s no place else they can go for the rules other than what’s right in front of them. And, if they do have a question, someone within the casino, be it a slot attendant or whoever, should be able to come over and explain it to the patron so that there’s no complaint that goes beyond that game.

After our interview I took a tour of the testing facilities and I noticed it contained many of the same electronic testing machines that I had seen in the Nevada lab. The only difference here was that the facilities were spread out in three smaller rooms as opposed to being in one room. Also, I guess my timing was better here because I did see a few people working on some projects.

My impression, once again, was that many safeguards were in place for the player. Actually, there seemed to be more safeguards in New Jersey because of their restrictions on the ability of the casinos to go in and make changes to the machines on their own.

Also, it was interesting to discover that although Nevada has almost six times as many machines as New Jersey, they only have about half as many inspectors: just six compared to New Jersey’s 11.

Even with their more aggressive rules, however, New Jersey officials still don’t test every machine on a continuing basis and, just like in Nevada, a random testing program is used. Williamson noted that "it’s not cost-effective" to test every machine and I guess I could see his point. Also, when questioned on the "near-miss" slot machines, Williamson said they were not allowed in New Jersey which is the same situation as in Nevada.

After leaving the state facility my next stop was at Gaming Labs International in Toms River, about 75 miles north of Atlantic City. GLI is a private testing facility that is contracted by gaming regulatory agencies throughout the world to do testing of gaming machines as well as lottery and keno systems.

The company’s president, James Maida, previously worked as a testing engineer at New Jersey’s Gaming Enforcement Division in the mid 1980s. In1989 GLI was the first independent testing lab to open in the U.S. and it has been responsible for servicing more than 160 gaming jurisdictions throughout the world. The company is hired by regulatory agencies for consulting on gaming issues as well as for auditing programs but its primary function is the testing and monitoring of electronic gaming equipment. GLI is the largest company of its kind in the world and in 1996 Maida was named one of the top 25 most influential people in gaming by International Gaming and Wagering Business Magazine. Besides its Toms River headquarters GLI also has offices in Colorado, Africa and Australia.

I wrote a few months ahead to ask about visiting the lab and made arrangements with Todd Elsasser, Director of Operations, to meet for an interview and a tour of the facility.

Downtown Toms River looks like a typical "quaint" mid-American small town and GLI’s offices were located in a rather large single-story storefront office at 26 Main Street. Elsasser and I spoke in his office for about 45minutes and then went on a tour of the facility which had a much larger area devoted to testing than either of the state facilities. There also seemed to be about a dozen or so people directly working in those areas, but still - no white lab coats!

Elsasser and I covered a lot of subjects and when I sat down to write this story I called him back to ask him a few more questions. Unfortunately, he never returned my calls and then, after sending him an e-mail to inquire about us getting together, I received a message on my answering machine from James Maida saying “regretfully, we cannot give interviews... we’re a regulatory agency and not allowed to give interviews to the general press. We would not be able to make any statements, nor should we be quoted in your publication." He also suggested that for information on the "near-miss" controversy I should consult the article he wrote for the summer 1997 issue of Slot Manager" magazine.

I’m not sure what happened to make the folks at GLI change their mind but, due to Maida’s request, I can’t go into the exact details of what was said at Elsasser’s office. The truth is, however, that it was pretty similar to what was said in both Nevada and at the state facility in New Jersey: there are safeguards in place to regulate gaming machines in all of the states with legalized casino gambling. The regulations may differ slightly from state-to-state, but there are programs in place to protect the public when playing in a regulated jurisdiction.

Now, what about that "near-miss"? Well, in his article Maida wrote that after the PrimeTime Live story was broadcast he received lots of calls from his clients concerning the "near-miss" feature and he assured them that those kind of games do not exist in North America.

I guess that pretty much summed up the situation: two state regulatory agencies said that "near-miss" machines were illegal and then the president of the world’s largest independent testing laboratory also said those kind of machines were illegal and just didn’t exist. So that’s the end of that controversy, isn’t it? Well, not exactly.

In the August 1997 issue of Casino Journal, a respected trade publication that follows the casino industry, writer Jeff Burbank reported that while a “near-miss" on the payline is outlawed in Nevada, a "near-miss" above or below the payline is perfectly legal in that state.

Burbank interviewed Ellen Whittemore, the former deputy attorney general for gaming in 1988 and 1989 who was responsible for writing Nevada’s Regulation 14 which pertains to the "near-miss" situation. She said that a “near-miss" above or below the payline was legal and that actually it was better for the players because it meant that players could more easily win jackpots.

What Whittemore was referring to here was the "virtual reel “technology used in today’s slot machines. At one time slot machine jackpots were limited by the number of stops on each reel but that isn't the case anymore.

Previously, if a machine had three reels and each reel had 22 stops, then the maximum number of combinations that particular machine could show was 10,648 (22x 22 x 22). Therefore, a $1 machine couldn’t offer a jackpot of more than $10,648 or it would lose money. Someone then came up with the idea of a "virtual reel" that could offer many more combinations by using a computer chip to create a make believe reel with as many stops as were needed. This way a $1 machine with, for instance, three 50-stopvirtual reels, would have a maximum number of 125,000 (50 x 50 x 50) combinations. The only problem is that the actual reels in the machines still only have 22 physical stops, so the computer must tell the reels where they should stop. This is known as “mapping" and since there are more "computer" stops than “physical" stops it necessitated that many of the winning symbols appear more than once. Whittemore said that because of the virtual reel technology and the random number selection process it is just natural that "near-miss" combinations would appear more frequently above or below the payline. The Nevada Gaming Commission held extensive hearings on this subject and on September 22, 1988 it filed a stipulation declaring it legal.

Pretty confusing, isn’t it? Well, the important thing to remember here is that although a "near-miss" is acceptable above or below the payline, it can’t be programmed into the machine. It is only allowed when it’s the result of a random number generation process that just happens to put those particular results on the reel. If a "near-miss" is purposely programmed to appear either above, below, or directly on the payline, then that would be illegal in any regulated gaming jurisdiction.

One of the major problems when discussing the "near-miss “issue is that different people may have different interpretations of what it means. In this instance Whittemore used it to refer to combinations appearing above and below the payline. Traditionally, however, the "near-miss" got its name from the Universal Distributing incident and only applied to a "near-miss" directly on the payline which was purposely programmed into the machine. Which brings us back to the PrimeTimeLive report.

Did PrimeTime Live mislead its viewers to think that any kind of “near-miss" was legal on Nevada’s slot machines? I believe they did. At no point in the show did they ever actually define what a "near-miss" was and they also implied at the beginning of the program that the "near-misses" were occurring directly on the payline. Additionally, they never mentioned the fact that a “near-miss" on the payline is illegal in Nevada. This was a simple fact they could have easily looked up in the state’s gaming regulations and it’s hard to believe that they didn’t know about it.

It seemed that the ABC news show had its mind made up going into the story and set out to find any source of information that could help lead to their preconceived conclusions. After all, their two prime sources were a convicted slot cheat and a former gaming industry official with a bias against Nevada gaming regulators. Although the news show portrayed Romano as one of a select few willing to talk about the gambling industry’s "secrets," the fact is he wasn’t exactly pleased with the state’s regulators. This became much more apparent on April 16, 1997, just five weeks after the show aired, when Romano filed a $6 million lawsuit against the state Gaming Control Board, the state Gaming Commission and state Attorney General Frankie Sue Del Papa for violating his civil rights in the handling of his American Coin case.

I realize that television is a competitive business that often relies on sensationalism to sell itself, but I’m sure we would all like to think that a major news organization would try to present a balanced presentation of a situation and let the viewers decide for themselves who’s right and who’s wrong. That just didn’t seem to be the case here. If they wanted to be fair they should have at least hired an independent lab to check the claims of their sources and report those results in their broadcast.

Eventually, the initial controversy over the "near-miss" issue died out and no hearings of any kind were ever held. Chances are pretty good, however, that this issue will continue to linger and the industry will one day have to come up with a way to permanently resolve it.

And how does this story affect you? Well, at least when you walk into a casino and play a slot machine in a regulated jurisdiction you can be assured that measures have been taken to assure you of a fair game. You can also be assured that a "near-miss" won’t be programmed to appear on the payline, but I suggest that you don’t look above or below that payline to see what else is showing!

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