House edge: hold percentage and the cost of EGM gambling

Abstract

Price in commercial gambling is effectively the house edge of the game. For electronic gaming machines (EGMs), house edge is the hold percentage. The paper tracks changes in hold percentage for club and hotel EGM gambling in Australia. We use real gambling turnover and revenue data to show that hold generally falls over time, save for the State of Victoria between 1993 and 2009. In Victoria, hold fell during the roll-out phase of the sector, before rising steadily. We examine local level data, finding that hold varied considerably by gaming operator across the period, before converging. The unique owner/operator corporate duopoly that existed in Victoria is posed as a potential explanation for aggregate price changes. We then calculate estimates of the monetary value of changes in hold percentage. We find increased hold can lead to substantial monetary redistributions of gamblers' stakes toward the house and away from gamblers. Policy options to protect gamblers from the unfairness of undetectable price rises are discussed, including the possibility of a more tightly regulated hold percentage, a tax on windfall profits derived from raising hold, and tying game identities to particular hold percentages.