Wizard
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March 16th, 2010 at 9:56:42 AM permalink
I'm in the early stages of some analysis of the Megabucks slot machine. Two questions I'd like to address are the return and probability of winning the jackpot.

It is pretty easy to get a good estimate of the return. Nevada Gaming Control Board annual reports have a specific line item for Megabucks from their web site. Here is a summary from 1996 to 2009.

Year Profit ($) Profit (%) Handle
2009 53,352,000 10.43% 511,524,449
2008 83,981,000 11.85% 708,700,422
2007 88,858,000 12.72% 698,569,182
2006 100,923,000 12.39% 814,552,058
2005 100,923,000 12.39% 814,552,058
2004 67,326,000 10.54% 638,766,603
2003 83,069,000 10.41% 797,973,103
2002 76,842,000 11.98% 641,419,032
2001 69,821,000 11.50% 607,139,130
2000 69,103,000 9.75% 708,748,718
1999 74,921,000 12.28% 610,105,863
1998 134,943,000 12.25% 1,101,575,510
1997 66,166,000 12.18% 543,234,811
1996 57,619,000 10.03% 574,466,600
Total 1,127,847,000 11.54% 9,771,327,540


The handle column was derived by dividing the second column by the third column. So we see a profit, or house edge, of 11.54%.

According to www.a2zlasvegas.com, Megabucks has been hit 34 times between 1996 and 2009. I start at 1996, because they start on Oct. 18, 1995, and I don't know if anybody hit in 1995 before Oct. 18.

It costs $3 a pop to qualify for the progressive. Dividing the handle by $3, that would be 3,257,109,180 plays. Dividing that by 34 jackpots yields a probability of winning of 1 in 95,797,329. However, probabilities of winning often bandied around are 1 in 15 million to 1 in 50 million. I tend to believe the 1 in 50 million. The Las Vegas Sun quotes John Robinson, who puts it at 1 in 49,836,032.

There are a lot of bright people who participate in my forum (thank you), so I'm putting this out there for peer review. Here are some possible comments, and counter-comments:

Perhaps the handle is inflated by players betting $1 or $2 (who wouldn't qualify for the jackpot), this would lower my estimate of the probability of winning. Somewhere in the back of my mind I recall hearing of a woman who only bet $1 and got the three Megabucks symbols, but only won $5,000 because of the small bet. However, I tend to think the vast majority of bets are at $3. This alone I don't think should cause me to be off by a factor of 2.

Another thing to confuse the issue is the Megabucks penny machine. A $3 bet is still required to win the jackpot, but perhaps the probability of hitting is different from the 3-reel game.

Another issue may be that jackpots are paid in an annuity. If the win in the Gaming reports is based on amounts actually paid, not including future payments, that would mess things up. I sent a letter to the Gaming Control Board asking for an answer to that question.

It is also possible the probability of hitting has changed at some point since 1996. Somewhere I heard the jackpot seed changed from 8 million to 10 million at some point, but can't remember when, or the source.

I plan to actually go out there and play it about 2,000 times, so see how often the jackpot symbols come up. However, for now, any comments or criticisms of the above?
"For with much wisdom comes much sorrow." -- Ecclesiastes 1:18 (NIV)
cclub79
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March 16th, 2010 at 10:13:09 AM permalink
Quote: Wizard


I plan to actually go out there and play it about 2,000 times, so see how often the jackpot symbols come up. However, for now, any comments or criticisms of the above?



My comment goes back to something we were discussing a few weeks ago, and I apologize if it was already answered: Can you tell something substantive from how often the symbols come up? I thought the RNG determined whether or not you won and then displayed the 3 reels in any combination. So a losing RNG could show three blanks, or 2 Jackpot symbols and a blank. When I get 2 Wheel Of Fortune symbols in a row, and then nothing, does it mean that I was closer to winning than a different time, or if I get 2 WOF and a cherry, did it just want to find a different way to give me 40 credits instead of paying me 40 credits with 3 Double Bars?

Once on a Double Diamond $1 WOF (5 line), I got 3 Double Diamonds Diagonally ($800), and due to the position, I also got a diagonal Double Bar with the Double Diamond in the middle position, giving me something like an extra 40 bucks. Is there a position on the RNG for a pay of $840 that has to be paid in that manner? And other 3 Double Diamonds that don't pay that way? I'm just trying to find the link between the RNG and the way the win (or loss) is displayed.
Wizard
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March 16th, 2010 at 10:20:48 AM permalink
Single-line slot machines work by randomly stopping each reel according to probabilities established by the slot maker. Each reel is independent, so the win is determined by the reels, not the other way. My page on slot machines tries to explain it.
"For with much wisdom comes much sorrow." -- Ecclesiastes 1:18 (NIV)
DJTeddyBear
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March 16th, 2010 at 10:36:11 AM permalink
I'm afraid to say this, but I think you're thinking like a typical gambler, and not the math wiz your nickname portrays you to be.


First, I believe you're underestimating the amount of coin-in that doesn't qualify.

There are plenty of players that play less then the full coin-in - as long as the basic game is fun and entertaining, they play at low stakes because they know they aren't going to hit the jackpot anyway.

Many players that do play max-bet, will play whatever odd amount is left over on the last spin when they bust out.


Second: Strange as it may seem, I think 14 years is still not enough time to get the true 'law of large numbers' large number.

For instance, I don't recall any sudden national prosperity that enabled the handle to double in 1998, and return to the norm in 1999. That alone should tell you that in 1998 there were far fewer jackpots paid out than normal. Is that because there were other 'winners' that decided to keep quiet rather than suffer the shame of betting cheap and winning a cheap prize? Or does that suggest that the randomness has enough variance that you can't do the kind of analysis you're suggesting?


---



Edit: See my followup post below.


I don't know if your 2,000 spin test will prove anything other than if the casino's comp system correctly records your play.

Does the RNG select the stop point of the three wheels indepentently, and then the computer calculate if the resulting symbols is a winner? I think not.

I may be completely out of my mind here, but this is how I think modern slot machines work: You hit the button which fetches a number from the RNG. That number indicates a win or a loss. If it's a win, it also dictates what type of win and for how much (Or a second RNG number dictates that). The computer then stops the wheels on the symbols that match the type and value selected.

Here's the tricky part:

If it's a loser, I REALLY think the computer does NOT have 'random' results displayed. I think the losing wheels will occasionally deliberately show a 'near win'. Not necessarily a near jackpot, but something, anything, that would screw with a player's head and encourage additional play.
I invented a few casino games. Info: http://www.DaveMillerGaming.com/ ————————————————————————————————————— Superstitions are silly, childish, irrational rituals, born out of fear of the unknown. But how much does it cost to knock on wood? 😁
DJTeddyBear
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March 16th, 2010 at 10:39:33 AM permalink
Quote: Wizard

Single-line slot machines work by randomly stopping each reel according to probabilities established by the slot maker. Each reel is independent, so the win is determined by the reels, not the other way. My page on slot machines tries to explain it.

OK. You wrote this while I was composing my prior email.

Does this mean the RNG stops the wheels WHEN it wants to (i.e. a duration of spin thing), or on a specific symbol?

I.E. Couldn't the jackpot symbol on two wheels be programmed to come up often, but on the third wheel to almost never come up?
I invented a few casino games. Info: http://www.DaveMillerGaming.com/ ————————————————————————————————————— Superstitions are silly, childish, irrational rituals, born out of fear of the unknown. But how much does it cost to knock on wood? 😁
Wizard
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March 16th, 2010 at 10:51:22 AM permalink
DJTeddyBear, I'm afraid you are dead wrong about how slot machines work. I would lay 1000 to 1 on that. I have a box of PAR sheets showing how they are designed. However, I don't want to sidetrack this into another discussion about how slot machines really work. If you want to do that, please start up another thread.

I could be wrong about most plays being $3 bets. That is based on observing players playing for long period of time, consistently betting $3. Much like video poker players usually bet the full 5 coins to qualify for the full pay on a royal flush.

The standard deviation over that time period should be about 5.8 jackpots. So I doubt it is far off from expectations.

Regarding the large handle in 1998, a jackpot was hit for $27,580,878 at the Palace Station on 11/15/98. The seven jackpots before that ranged from 6.3 to 12.5 million. So perhaps the large jackpot induced a lot of play. I've heard of players lining up to play when the jackpot gets big.
"For with much wisdom comes much sorrow." -- Ecclesiastes 1:18 (NIV)
JB
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March 16th, 2010 at 10:53:34 AM permalink
Quote: DJTeddyBear

OK. You wrote this while I was composing my prior email.

Does this mean the RNG stops the wheels WHEN it wants to (i.e. a duration of spin thing), or on a specific symbol?

I.E. Couldn't the jackpot symbol on two wheels be programmed to come up often, but on the third wheel to almost never come up?


It could be designed to do that, but not programmed.

For an overly simplified example, suppose each reel has 100 stop positions. Reels 1 and 2 both have 10 stops that correspond to the jackpot symbol, but reel 3 only has 1 stop that corresponds to the jackpot symbol. If the reels were designed this way, you would naturally see more near misses where the 1st and 2nd reels have the jackpot symbol, and not the third.

I wouldn't call that "programmed" though, because it is still random, it's just that the probability of a near miss would be greater with that kind of reel stripping.

However, based on John Robison's figure, I would guess that each reel has 368 stops, with only 1 stop per reel corresponding to the jackpot symbol.
cclub79
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March 16th, 2010 at 11:00:46 AM permalink
It wasn't my intent to hijack the thread, so thank you both for your response!
DJTeddyBear
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March 16th, 2010 at 11:45:16 AM permalink
Quote: Wizard

DJTeddyBear, I'm afraid you are dead wrong about how slot machines work. I would lay 1000 to 1 on that. I have a box of PAR sheets showing how they are designed. However, I don't want to sidetrack this into another discussion about how slot machines really work. If you want to do that, please start up another thread.

Understood.

I created a new thread: How do slot machines work.
I invented a few casino games. Info: http://www.DaveMillerGaming.com/ ————————————————————————————————————— Superstitions are silly, childish, irrational rituals, born out of fear of the unknown. But how much does it cost to knock on wood? 😁
thlf
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March 16th, 2010 at 1:00:55 PM permalink
To add another quirk to all you math guru's heads, I read how the megabucks and most other wide area progressives inculding the former jumbo jackpot (stations) work. An amount is randomly selected for the jackpot to hit at and as soon as that amount is achieved the first slot machine signal received will display the jackpot. In other words the jackpot will never come up randomly as you guys are suggesting. It is predetermined and whoever is there at the right time will hit it.
DJTeddyBear
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March 16th, 2010 at 1:29:55 PM permalink
Quote: thlf

To add another quirk to all you math guru's heads, I read how the megabucks and most other wide area progressives inculding the former jumbo jackpot (stations) work. An amount is randomly selected for the jackpot to hit at and as soon as that amount is achieved the first slot machine signal received will display the jackpot. In other words the jackpot will never come up randomly as you guys are suggesting. It is predetermined and whoever is there at the right time will hit it.


I find that VERY hard to swallow.

If it works as you suggest, it wouldn't be too hard for an insider to obtain the number and have buddies play when it gets close.

Oh, sure, there is no guarantee of hitting it, but such an inside tip would turn the odds heavily in favor of whoever acts upon it.
I invented a few casino games. Info: http://www.DaveMillerGaming.com/ ————————————————————————————————————— Superstitions are silly, childish, irrational rituals, born out of fear of the unknown. But how much does it cost to knock on wood? 😁
Wizard
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March 16th, 2010 at 1:56:33 PM permalink
Quote: thlf

To add another quirk to all you math guru's heads, I read how the megabucks and most other wide area progressives inculding the former jumbo jackpot (stations) work. An amount is randomly selected for the jackpot to hit at and as soon as that amount is achieved the first slot machine signal received will display the jackpot. In other words the jackpot will never come up randomly as you guys are suggesting. It is predetermined and whoever is there at the right time will hit it.



I've heard that is how the Jumbo Jackpot worked, but I can't confirm or deny it. However that is absolutely NOT how Megabucks worked.
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thlf
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March 16th, 2010 at 2:06:28 PM permalink
Quote: Wizard

I've heard that is how the Jumbo Jackpot worked, but I can't confirm or deny it. However that is absolutely NOT how Megabucks worked.




I am certainly not the person to say I know this for fact, but I thought I read it a few years ago. One reason I believed it would be that it would help explain how the wide area progressives can hit in remote areas with little machine play, and not always hit in the same properties with mega machine play.
cclub79
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March 16th, 2010 at 2:17:50 PM permalink
Quote: thlf

I am certainly not the person to say I know this for fact, but I thought I read it a few years ago. One reason I believed it would be that it would help explain how the wide area progressives can hit in remote areas with little machine play, and not always hit in the same properties with mega machine play.



I don't believe either method would cause a remote area to be more or less likely to pay the jackpot, based on probability.
pacomartin
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March 16th, 2010 at 3:10:34 PM permalink
Wiz

You may want to show the entire year where you pulled the Megabucks Data from.


Year (2009) Profit ($,000) Profit (%) Handle($,000)
1 CENT 1,825,465 10.10% 18,073,911
5 CENT 238,384 6.96% 3,425,057
25 CENT 624,210 5.79% 10,780,829
1 DOLLAR 575,567 5.16% 11,154,399
MEGABUCKS 53,352 10.43% 511,524
5 DOLLAR 117,234 4.89% 2,397,423
25 DOLLAR 27,291 3.96% 689,167
100 DOLLAR 24,733 3.98% 621,432
MULTI DENOMINATION 3,250,396 5.19% 62,628,054
OTHER SLOT MACHINES 86,408 5.50%
1,571,302
TOTAL SLOT MACHINES 6,823,039 6.10% 111,853,098



Megabucks is slightly above penny slots in profitability in Nevada.

Compare to cumulative data in Pennsylvania which keeps a running track of wagers and payouts. Total wagers for the entire 40 months that the slot clubs have been open still is much less than NV for 2009. During those 40 months the 9 slot clubs have gradually been opening with some of the major ones only opening in the last year. However the win percentage is much higher than the average machine in Nevada.

Wagers $63,496,230,872.73
Payouts $57,929,087,580.01

Cumulative Nov 2006 - Feb 2010 Profit ($) Profit (%) Handle ($)
All Pennsylvania Casinos 5,567,143 8.77% 63,496,231
Wizard
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March 16th, 2010 at 3:53:05 PM permalink
Quote: pacomartin

Wiz

You may want to show the entire year where you pulled the Megabucks Data from.



I'm not sure I see your point. My 2009 figure was for 1/1/09 to 12/31/09. Same as the figure your quoted, which is in thousands of dollars.
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pacomartin
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March 16th, 2010 at 9:11:58 PM permalink
Quote: Wizard

I'm not sure I see your point. My 2009 figure was for 1/1/09 to 12/31/09. Same as the figure your quoted, which is in thousands of dollars.



It is the exact same figure. The extra ,000 is understood.

I thought it would be interesting to see what the return is for a Megabucks machine compared to all the other types of slots. Also that Pennsylvania casino crank their slots so tight, that the average slot machine is almost as stingy as a Megabucks machine.

It is not, however, addressing your main area of interest.
boymimbo
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March 16th, 2010 at 10:04:43 PM permalink
What is really interesting in the data is the profitability in the penny slot. It is pretty much the only item in Vegas where the Year over Year data shows an increase in slots, though the multi-denominatiosn are holding their own.

The number of actual penny machines is not increasing and the win % which determines handle is relatively constant over time. So is the recession pushing the nickel and higher denominations to the Penny slots (or not playing at all?) I think so.

Slot Denom Q4 2009 Q3 2009 Q2 2009 Q1 2009 Q4 2008 Q3 2008 Q2 2008 Q1 2008
Penny 8.64% 4.08% 6.67% 10.73% 14.39% 18.34% 26.87% 34.36%
Nickel -39.76% -47.64% -47.78% -43.23% -40.23% -27.14% -12.78% -10.09%
Quarter -21.18% -29.69% -29.23% -29.54% -30.56% -13.48% 2.66% -17.29%
Dollar -17.47% -29.08% -30.43% -26.59% -30.04% -6.20% -10.45% -11.76%
Multi -0.52% -1.87% -5.77% -3.56% -7.85% 5.00% 10.15% 11.20%
All Slots -7.19% -13.40% -14.69% -14.12% -17.67% -4.86% 5.47% 0.27%
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Wizard
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April 12th, 2010 at 9:49:26 AM permalink
I'm almost ready to announce my new page on Megabucks on my "Odds" site. However, I'd be interested in any initial comments or questions on it. Just click on the link above to see a rough draft.
"For with much wisdom comes much sorrow." -- Ecclesiastes 1:18 (NIV)
AZDuffman
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April 12th, 2010 at 10:22:54 AM permalink
Quote: Wizard

I'm almost ready to announce my new page on Megabucks on my "Odds" site. However, I'd be interested in any initial comments or questions on it. Just click on the link above to see a rough draft.



Only thing I might change is to estimate the Present Value (PV) of the annuity. At todays low interest rates it might be quite low. My financial calcualtor is at home or I'd put up an estimate here.
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Wizard
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April 12th, 2010 at 11:02:05 AM permalink
I thought about factoring that in, and taxes. For the annuity, I think I would assume about a 4.6% interest rate, which is what a long-term Treasury Bill pays. I could also look at lump sum lottery wins, which tend to run about 50% of the prize amount. I assume that is pre-tax. The highest tax rate is 35%. I think a round figure is that the winner will get about 1/3 the jackpot amount.
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DJTeddyBear
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April 12th, 2010 at 11:09:45 AM permalink
The concept of only playing the MegaBucks when it becomes a positive expectation reminds me of a commercial for the NY Lottery:

A couple are looking out their appartment window to see money falling from the sky. The wife says "Let's get out there..." The husband says "Nah. It looks like just 8 or 9 million. Lets wait for more." Just at the wife starts to argue, people on the ground are appearing from everywhere, shouting "Free money!".

It's quite effective at making it's point. Of course, people still wait for the big jackpots...



As far as your analysis goes, it's quite interesting. But for MegaBucks (or the Lottery), I think failing to factor in the annuity is a major math mistake. (And with the Lottery, you gotta factor in multiple winners!)

NJ and NY (and probably many other states) allow the winner to take a lump sum rather than the annuity, so it's easy to calculate. Does MegaBucks offer such an option? Or at least publish the bank escrow deposit amount or interest rate? Seems like those numbers should be public record. If so, the calculations can be easily made.


On a side note, the reason they give that option is simple: I have a buddy at the NJ Lottery whose full time job is to track winners down when their annuity check is returned due to a lack of forwarding address.
I invented a few casino games. Info: http://www.DaveMillerGaming.com/ ————————————————————————————————————— Superstitions are silly, childish, irrational rituals, born out of fear of the unknown. But how much does it cost to knock on wood? 😁
DJTeddyBear
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April 12th, 2010 at 11:15:48 AM permalink
P.S. I do NOT think it's necessary to calculate for taxes.
I invented a few casino games. Info: http://www.DaveMillerGaming.com/ ————————————————————————————————————— Superstitions are silly, childish, irrational rituals, born out of fear of the unknown. But how much does it cost to knock on wood? 😁
AZDuffman
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April 12th, 2010 at 11:33:49 AM permalink
Quote: Wizard

I thought about factoring that in, and taxes. For the annuity, I think I would assume about a 4.6% interest rate, which is what a long-term Treasury Bill pays. I could also look at lump sum lottery wins, which tend to run about 50% of the prize amount. I assume that is pre-tax. The highest tax rate is 35%. I think a round figure is that the winner will get about 1/3 the jackpot amount.



I've seen that on lottery wins being about 50%. FWIW, in PA at least lottery wins are state tax free, good for about 3.5% savings there. That Federal 35% rate is going to be a little over 40% by next year. I wouldn't bother figuring taxes for the most part, except to maybe add a line about it.

Here is a question on taxes. When do you have to "declare" you won the megabucks? If I hit I would surely change my residence to FL or TX and save $150,000+ in taxes on the win, and then live in a state I like better anyways. Could a person tell the casino they don't want to claim the win that day? (Assuming the state lets you get away with this.)
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ahiromu
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April 12th, 2010 at 12:37:49 PM permalink
Quote: DJTeddyBear

P.S. I do NOT think it's necessary to calculate for taxes.



I ardently disagree. Taxes add value to taking it in in payments rather than a lump sum... if it is offered. A lump sum is going to be dominated by the top tax rate whereas an annual payment will "suck" more out of the lower rates.
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boymimbo
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April 12th, 2010 at 12:40:30 PM permalink
Mike,

Link here
History of Megabucks Jackpots
(Latest first)
Date Place Amount won
02/21/10Reno Airport, Reno, NV$ 10,422,754.08
12/28/09Bellagio's Resort & Casino, Las Vegas$ 12,262,968.60
07/29/09Casino Royale, Las Vegas$ 12,236,709.00
04/12/09Terrible's Rail City Casino, Sparks, NV $ 33,000,563.00
05/07/08The Palms $ 21,030,657.77
05/19/07Fremont $ 10,762,066.40
02/05/07Orleans $ 12,076,530.00
09/02/06Wynn Las Vegas $ 10,828,990.00
07/28/06Wynn Las Vegas $ 12,317,717.96
06/05/06Cannery $ 20,519,025.00
10/16/05Aladdin $ 11,909,745.00
10/16/05Cannery $ 21,147,947.00



Using the statewide revenue from non restricted sites, from February 2007 to February 2010, I get the following data (in thousands)

Total amount wagered: $1,893,366 = 100%
Total Won: $1,582,459 = 83.586%
Jackpots: $ 89,293 = 4.72%
Reseeds: $ 60,000 = 3.17%

So, for me, your table would look like the following:

Fixed Wins: 83.58
Meter Reset: 3.17
Progressive: 1.55
Profit: 11.70

Since your data set is greater than mine, I would agree with your figures except I think the fixed wins are higher because gaming shows an average monthly profit when there is no jackpot of 12.87%.

On the other hand, in months when there is a win, the profit does not go down by the jackpot value given out for the month, meaning that there is some weird formula being used to accrue the payout, but the profit does go down in months when jackpots are won, just not be the corresponding amount...
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boymimbo
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April 12th, 2010 at 12:50:31 PM permalink
It would be interesting to figure out how taxes are calculated on a Megabucks win. As it is paid out over an annuity, I would imagine first that the gaming revenue report would just show the annuity against their revenue, which explains that the blip in their revenue is a result of reseeding the jackpot at $10,000,000 as well as accounting for the annuity setup, perhaps.

For the winner however, I wonder if the win is always taxable in the jurisdiction they lived in at the time. For example, if you lived in California when you win, would you be instantly taxable on the entire winnings as a resident of California in perpuity. That is, even if you move to tax free state washington, because you were resident in California when you won, your taxes are always payable in California? When I think about it, I think that you win the annuity is the jackpot and that you pay taxes based on where you were resident when you collected the annuity for that year. In that case, if money mattered, I guess I would move to Washington state or another state where there were no state taxes.
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DJTeddyBear
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April 12th, 2010 at 1:48:11 PM permalink
Quote: ahiromu

Quote: DJTeddyBear

P.S. I do NOT think it's necessary to calculate for taxes.

I ardently disagree. Taxes add value to taking it in in payments rather than a lump sum... if it is offered. A lump sum is going to be dominated by the top tax rate whereas an annual payment will "suck" more out of the lower rates.

While I respect your opinion, I gotta elaborate.

It's hard or impossible to calculate, therefore not necessary to even bother.

Everyone has their own tax bracket, and state tax bracket. There is also the very real chance of going gambling crazy with that money, and being able to legimately write off all those winnings as subesequent losses.

None of that affects the expected value of the original drop of the coin in the machine.
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Wizard
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April 12th, 2010 at 2:41:21 PM permalink
Okay, I just added three paragraphs on the annuity and tax issue. I'll copy and paste below.

Quote:


It also bears repeating that the above does not factor in the annuity or taxes. Let's look at what happens if we do consider those factors. For the time value of money, let's use the return on long-term Treasury Bills. Megabucks jackpots are paid in a 25-year annuity. At the time of this writing a 20-year T-Bill paid 4.58% interest, and a 30-year one paid 4.74%. Let's take the difference at 4.66%. Using some actuarial math I won't get into, the value of the annuity is worth 58.35% of face value, based on that interest rate, and 25 annual installments, at the beginning of each year.

For taxes, let's assume close to the expected jackpot of $15 million. Under 2010 income tax rates, assuming the winner is filing jointly, and all other income exactly equals deductions, the taxes due will be 30.05% for 2010. Assuming no change in the tax law, that will drop over time, because the tax brackets will be adjusted for inflation, but the winning payments won't be. I tend to think the recent passage of health care will increase tax rates, especially on large incomes. Let's just assume those factors cancel each other out, to keep it simple.

So to keep things in round numbers, the winner will keep 58% after the annuity, and 70% of that after taxes. So the jackpot winner will see about 58% × 70% = 40.6% of his winnings in current dollars. Factoring the annuity and taxes, the breakeven point becomes $79.4 million. The probability of any given jackpot growing that big is about 1 in 600,000, and will happen once every 243,000 years. Again, I'm making lots of assumptions, so these estimates should be considered very rough.



You can see I didn't even fuss with the state tax issue. If you moved to a tax-free state as soon as you won, for the year that you won I think you would have to pay state taxes on a pro-rata basis according to how much time you spent in the taxable state the year of the win. When I moved from California to Maryland I'm pretty sure that was the principle for both states the year I made the move (1992).
"For with much wisdom comes much sorrow." -- Ecclesiastes 1:18 (NIV)
AZDuffman
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April 12th, 2010 at 3:06:21 PM permalink
Quote: Wizard

Okay, I just added three paragraphs on the annuity and tax issue. I'll copy and paste below.



You can see I didn't even fuss with the state tax issue. If you moved to a tax-free state as soon as you won, for the year that you won I think you would have to pay state taxes on a pro-rata basis according to how much time you spent in the taxable state the year of the win. When I moved from California to Maryland I'm pretty sure that was the principle for both states the year I made the move (1992).



I for one like it. I was wondering what formula you used for the annuity? I had to learn that back in Finance 101 and am just curious if the "pros" use the same formulas or something more complex.
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ahiromu
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April 12th, 2010 at 3:12:34 PM permalink
First bullet point, article is spelled as artitle.

Great page!
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April 12th, 2010 at 3:16:27 PM permalink
Quote: AZDuffman

I for one like it. I was wondering what formula you used for the annuity? I had to learn that back in Finance 101 and am just curious if the "pros" use the same formulas or something more complex.




The formula is V = P * [(1-(1/(1+i)^n)]/i, where

V = value of annuity
P = individual payment amount
i = interest rate
n = number of payments

If you're doing a monthly annuity, which we're not here, remember to divide the interest rate by 12.

Let's say the jackpot was 15M. Using i = 4.66%, and n=25, the fair payment to keep up with inflation would be $1,028,311. You would actually get 15M/25 = $600,000. Actual payment/fair payment = 58.35%.
"For with much wisdom comes much sorrow." -- Ecclesiastes 1:18 (NIV)
Nareed
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April 12th, 2010 at 3:28:06 PM permalink
Quote: Wizard

You can see I didn't even fuss with the state tax issue.



It can get more, or perhaps less, complicated if a foreign national wins a jackpot, right?

I wonder how hard it is to set up an account in a tax heaven in the caribbean....
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April 13th, 2010 at 8:55:20 AM permalink
Quote: boymimbo

Mike,

Link here
History of Megabucks Jackpots
(Latest first)

Date Place Amount won
02/21/10Reno Airport, Reno, NV$ 10,422,754.08
12/28/09Bellagio's Resort & Casino, Las Vegas$ 12,262,968.60
07/29/09Casino Royale, Las Vegas$ 12,236,709.00
04/12/09Terrible's Rail City Casino, Sparks, NV $ 33,000,563.00
05/07/08The Palms $ 21,030,657.77
05/19/07Fremont $ 10,762,066.40
02/05/07Orleans $ 12,076,530.00
09/02/06Wynn Las Vegas $ 10,828,990.00
07/28/06Wynn Las Vegas $ 12,317,717.96
06/05/06Cannery $ 20,519,025.00
10/16/05Aladdin $ 11,909,745.00
10/16/05Cannery $ 21,147,947.00



Using the statewide revenue from non restricted sites, from February 2007 to February 2010, I get the following data (in thousands)

Total amount wagered: $1,893,366 = 100%
Total Won: $1,582,459 = 83.586%
Jackpots: $ 89,293 = 4.72%
Reseeds: $ 60,000 = 3.17%

So, for me, your table would look like the following:

Fixed Wins: 83.58
Meter Reset: 3.17
Progressive: 1.55
Profit: 11.70

Since your data set is greater than mine, I would agree with your figures except I think the fixed wins are higher because gaming shows an average monthly profit when there is no jackpot of 12.87%.

On the other hand, in months when there is a win, the profit does not go down by the jackpot value given out for the month, meaning that there is some weird formula being used to accrue the payout, but the profit does go down in months when jackpots are won, just not be the corresponding amount...



I see your point. My first post in this thread questioned why the Gaming reports didn't seem to jive with the posted list of jackpots. I decided to use the Gaming data as little as possible, relying only on the percentage return. For one thing, who knows how they are calculating the win. Do they count the entire jackpot amount in the year it was paid, or only the payments made on all jackpots in that year? I sent a letter to Nevada Gaming about it, but their answer didn't help much.
"For with much wisdom comes much sorrow." -- Ecclesiastes 1:18 (NIV)
thlf
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April 13th, 2010 at 9:16:20 AM permalink
Quote: Wizard

I'm almost ready to announce my new page on Megabucks on my "Odds" site. However, I'd be interested in any initial comments or questions on it. Just click on the link above to see a rough draft.



I like the info, but do you think you should add as a credit at the bottom: Photography by the guy who destroyed me in liars poker last weekend?
boymimbo
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April 13th, 2010 at 1:18:42 PM permalink
I don't know the answer to those questions based on the data either. For example, when the jackpot is won close to the end of the month, it seems that the revenue dips the following month. Let me put on my accountant hat.

When the jackpot is funded:

DR Slot Revenue 10,000,000
CR Slot Liability 10,000,000

As the game is played (for each $3)

DR Cash .45
CR Slot Revenue -.40
CR Slot Liiability -.05

When the jackpot is won

CR Cash Jackpot
DR Slot Liability Jackpot

So I don't think that the slot revenue is hit when the jackpot hits. But that's on an aggregate, Nevada wide.

My actual feeling is that different casinos probably account differently based on the expected return, depending on how their auditors feel.

For example, some casinos might elect to fund the liability over time rather than take the full 10 million hit when the jackpot is seeded. Maybe with an expectation that 2.3 jackpots are to be won every year they fund the liability that way. My general feeling is that because the revenue dips when the jackpot is won (or just after), there is some accounting that we don't see.
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April 13th, 2010 at 1:41:15 PM permalink
Quote: thlf


I like the info, but do you think you should add as a credit at the bottom: Photography by the guy who destroyed me in liars poker last weekend?





How about, "Photography by the guy who chopped off my foot"?

Quote: boymimbo

I don't know the answer to those questions based on the data either. For example, when the jackpot is won close to the end of the month, it seems that the revenue dips the following month. Let me put on my accountant hat.



As I mentioned earlier, I wrote to Nevada Gaming about it. Here is a scan of their reply.



It says the win amount "reflects the amount won and paid in that month." The way I would think of it is if I won $15M, and got paid $600K for my first payment, then the amount won is 15M, and the amount paid is 600K for the year the jackpot was won. So I'm not sure what to make of the reply. Any thoughts?
"For with much wisdom comes much sorrow." -- Ecclesiastes 1:18 (NIV)
thecesspit
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April 19th, 2010 at 11:11:32 AM permalink
Is the fact that the megabucks is annuity displayed on the machine itself? I've always thought it was a bit of a cheat to make the jackpot paid over 25 years, especially as the gaming company gets use of the funds over that period (e.g. interest) rather than the winner. I assume that company has the cash for the entire jackpot on hand?

I guess i should stop putting in my daily $20 into the machine when I visit Vegas...
"Then you can admire the real gambler, who has neither eaten, slept, thought nor lived, he has so smarted under the scourge of his martingale, so suffered on the rack of his desire for a coup at trente-et-quarante" - Honore de Balzac, 1829
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April 19th, 2010 at 12:41:48 PM permalink
I'm pretty sure the machines do say that...in small print.
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boymimbo
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April 19th, 2010 at 1:34:13 PM permalink
I think I am starting to understand. When the winner wins, they have a choice to get paid over 25 years or receive the annuity, and the jackpot resets to 10,000,000.

The actual win on the meter is not what is paid, and it is not financially reported as such. If it was, you would see the win on the revenue reports for Megabucks dip much more than it actually does in a win month. What is paid initially is the initial 1/25th of the total amount (less taxes of course). Winners then have 60 to 90 days to decide whether they want to get paid a lump sum of 60% of the remainder or have it paid in an annuity over the remaining 24 years. In the case of the lump sum, the win would be reduced by the payout. In the case of the annuity, what is paid is the present value of the annuity (Mike, you know all about this).

In the case of a $25,000,000 jackpot, if you deposit the amount into an annuity earning 5%, the casinos would only have to deposit $13,798,642 to fund the remaining 24 payments. (Or the player could take the $14,000,000 as a lump sum). So the amount on the jackpot is never what costs the casino... it is substantially less. But this transaction does not get recognized until the player makes his decision. This is why I believe the slot win sometimes goes down in the following month for the megabucks win.

In any case, the casinos probably only end up paying about 60% of the stated jackpot amount.
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April 19th, 2010 at 5:08:27 PM permalink
May I ask how you know about the option to get 60% immediately? I'd like to mention that on my Megabucks page, but would like to site the source.
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April 19th, 2010 at 6:15:24 PM permalink
I am not entirely sure of the reliability of this.

However, there was a federal law that passed that must allow winners to take the winnings in a lump sum. In several Las Vegas Review-Journal articles, though, the winners stated that the lump sum amount can't be disclosed, meaning that the 60% is only an educated case in my opinion.
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thecesspit
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April 20th, 2010 at 3:56:57 PM permalink
So where does the other 40% go?
"Then you can admire the real gambler, who has neither eaten, slept, thought nor lived, he has so smarted under the scourge of his martingale, so suffered on the rack of his desire for a coup at trente-et-quarante" - Honore de Balzac, 1829
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April 20th, 2010 at 5:00:26 PM permalink
Quote: Wizard

May I ask how you know about the option to get 60% immediately? I'd like to mention that on my Megabucks page, but would like to site the source.



A source says:

What are the Odds of Winning Megabucks?

Statistics regarding the true odds of winning the Megabucks jackpot remain sketchy. Some put the odds down to about one in 50-million, while others, such as the Las Vegas Sun, put it as ‘low’ as 1 in 17-million. It is certainly understandable why the betting surrounding Megabucks sometimes reaches hysteric proportions and has people crossing over the state line to have a shot at winning so many millions. But do winners really get what they are promised? Let’s take the example of a $35-million win. Initially, for that amount of money, winners get a check of $1.4 million. They then have between sixty and ninety days to decide whether they want to take their money in annual installments over twenty-five years or a lump sum of 60% of the money. For a $35-million win, that would result in $21-million before taxes. Needless to say, most winners choose the former option.

=================================

Here is another article (from 1999) that says Slot expert John Robison said in the Chance and Circumstance gambling newsletter this summer that the chance of hitting Megabucks is 1 in 49,836,032 spins of the reels.

49,836,032 = 233*212

Sorry, I wrote this entry before looking at your site, and I see you have already quoted this article.
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April 20th, 2010 at 6:27:56 PM permalink
Sounds a bit as if this works similar to the Megabucks and Powerball multi-state lotteries. They actually accumulate a cash fund that a winner has the option of taking immediately. The default, however, is that they use the cash fund to purchase an annuity that pays out over decades. For promotional purposes, they always advertise the jackpot as the sum of the annuity payments, which is naturally much higher than the initial cash fund because of the interest earned and the delay in delivery of the funds. Advertising the jackpot in that manner is a bit of an exaggeration, but not an outright fraud. The ratio between the cash value and the advertised jackpot is based on the interest rate for the annuity (plus the annuity duration and any aspect of non-uniform payments) and generally varies along with other long-term interest rates. A ratio of 60% is perhaps reasonable, and the Megabucks slot machine jackpot might even be set up with a fixed 60% rate -- I have no idea. But that would imply that they were committing to a specific interest rate independent of the economy. Using a fixed rate might make it easier in having the jackpot continuously displayed at the machines.
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December 1st, 2010 at 10:13:08 PM permalink
Getting back to this topic, I played the 5-reel video Megabucks 200 times today. You can play it at 1¢ per play, so it wasn't a big investment. I'm not saying the odds are the same as the 3-reel game, but here is what I got.


Reel Logo Probability
1 9 0.015000
2 10 0.016667
3 3 0.005000
4 62 0.103333
5 30 0.050000


The player needs to get 5 logos on the center payline, with a max coin bet of $3 to win the progressive. The "Logo" column shows how many times I noticed the logo in any of the three rows. The probability column is the number of logos divided by the 200 in the sample and divided again by 3, because you have to get it in the middle row.

Taking the product of those probabilities results in a probability of hitting the jackpot of 1 in 154,838,710.

Now, 200 is much too small of a sample size. I only saw the logo three times on reel 3. I plan to get up to a sample size of 1,000 at least to get a better estimate.
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avargov
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December 1st, 2010 at 10:42:12 PM permalink
Wiz: I play the video megabucks occasionally. If you would like, I could track the jackpot logos as well and send the results to you. Perhaps that would greatly increase your sample size...
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MathExtremist
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December 1st, 2010 at 11:23:15 PM permalink
Quote: Wizard

Taking the product of those probabilities results in a probability of hitting the jackpot of 1 in 154,838,710.



Caveat regarding the sample size is noted, but the probability has to be greater than that:

Quote: NGCB Regulation 14, tech standards

2.070 Jackpot Odds. If the odds of hitting any advertised jackpot that is offered by a gaming
device exceeds 100 million to one, the odds of the advertised jackpot must be prominently
displayed on the award glass or video display.

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rxwine
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December 1st, 2010 at 11:40:06 PM permalink
I would lay odds the penny version gets quite a bit of play less than 3 dollars. It's been awhile since I've played one, but I believe the last bet played remains on the screen. You don't often see pennies maxed out when you sit down. The millionizer, for sure is played a lot by people playing less than the 2 dollars max, for instance..
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December 2nd, 2010 at 6:38:34 AM permalink
Quote: avargov

Wiz: I play the video megabucks occasionally. If you would like, I could track the jackpot logos as well and send the results to you. Perhaps that would greatly increase your sample size...



Sure! I would indeed like to add your results to my sample.

Quote: MathExtremist

Caveat regarding the sample size is noted, but the probability has to be greater than that:



You're absolutely right. I tend to think I got fewer than expected logos on reel 3.

Quote: rxwine

I would lay odds the penny version gets quite a bit of play less than 3 dollars. It's been awhile since I've played one, but I believe the last bet played remains on the screen. You don't often see pennies maxed out when you sit down. The millionizer, for sure is played a lot by people playing less than the 2 dollars max, for instance..



Video Megabucks only takes pennies. There are 60 paylines, and you can but up to 5 pennies per payline. So the bet range is 1¢ to $3. I have a box with about a six inch stack of PARS sheets, and I've never seen a game where the reel stripping changes depending on number of paylines or coins bet. You're right that if you go up in denomination, the reel stripping often does change -- the higher the denom. the higher the return.
"For with much wisdom comes much sorrow." -- Ecclesiastes 1:18 (NIV)
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