How Can $50 Be $1,200?

Walt Crawford
Written for Crawford's Corner 99.7 (August 1999), removed for reasons of space and relevance

Slight revisions 6/3/99. It should be noted up front that The Industry Standard behaved professionally & responsibly. When a question was raised, they responded immediately, discussed the issue, and ran a clarifying letter without any difficulties.

This perspective has nothing to do with personal computing or libraries, except that it appears as a result of an article in The Industry Standard. It is about morality and the truth, and itís a tangled little story. Letís start with an odd hypothetical situation.

Youíre tired and need a change of pace. I suggest a new pastime, one Iíve set up for your pleasure. You bring along $100 and sit across the table from me. I change the dollars into quarters as needed, and every six or eight seconds I ask you for a quarter. If youíre willing to give me one, I do something mildly amusing and maybe ask you to do something that requires a small amount of skill. Depending on what happens, I might give you the quarter back, I might keep the quarter, or I might even give you several quarters. Any time you want to stop handing me quarters, thatís OK with me. If you get thirsty, Iíll have someone bring you a drinkófree. You can leave whenever you want, and you can slow down if youíd like.

You try the pastime and find it amusing. It takes your mind off work. You generally find that, for every hundred times you hand me a quarter, you wind up with 95 or 96 quarters. You have a couple of drinks and keep doing this for eight hours. During that time, youíve handed me a quarter 4,800 times, and you wind up with $50 out of your original $100. (You didnít tell me, but you were going to walk away in any case when you got down to $50.) You tell me youíre done, but youíre also ready to eat. I take you to a special restaurant that costs about two-thirds as much as youíd expect. Youíre happy enough.

The next day, you read an astonishing article in the local paper. This article attacks me as a scoundrel and asserts that you spent $1,200 on my pastime: Iím ruining you through my sleazy tricks.

Pretty crazy, right? No journalist could be so stupid as to write something like that. You didnít have $1,200 to spend, and you certainly didnít spend $1,200: you never had more than $100 to even risk on my pastime. But when you complain, the journalist assures you that his figures are correct: after all, you did give me 4,800 quarters, which is $1,200. And, by the way, the city is planning to appoint a commission on the evils of my pastime, and local ministers will be preaching sermons about it.

The Handle and the Take

Nevada residents and other careful readers will have spotted the truth behind this nonsense. Iím a video poker machine (or a casino owner providing such a machine) and youíre a vacationer in Reno or Las Vegas. The best poker slots actually pay back closer to 98% if youíre careful, but I didnít want to make the story too silly. And yes, thatís exactly what most articles, books, and other diatribes about gambling do these days: they claim a level of spending thatís absolute, total nonsense.

If you play 4,800 hands of video poker at a quarter a hand, you have indeed wagered $1,200 during that time. Thatís called the handle: the total amount of money wagered. And thatís the figure youíre seeing when you read that "Americans spend $600 billion a year on legal gambling"óthat is, they wager sums totalling $600 billion. Isnít that terrible? $600 billion that could go to education, clothes, books, whatever: why, $600 billion is ten times as much money as is spent on books and magazines!

But Americans arenít spending $600 billion a year on legal gambling, for exactly the same reason that you couldnít possibly have spent $1,200 on those 4,800 hands of video poker unless you were a wealthy idiot. There are two figures with some amount of legitimacy: the amount you risked and the amount you actually left behind. The former--$100, in this caseóis only interesting if youíre insistent on spending it all. The only legitimate number for actual spending is what you left behind: $50. Which, with nine zeros behind it, is apparently what Americans actually spend on legal gambling: a little less than $51 billion a year. Thatís still quite a bit, but itís an order of magnitude less than $600 billion. $51 billion is the take, the amount that casinos take from gamblers.

Never mind the perks: the free drinks, the discounted food and rooms, the free entertainment. You donít get those with some types of gambling, and trying to factor them in gets too complicated. My wife and I discovered years ago that the total cost of a fine hotel room, good meals, and lots of video poker in Reno was less than than the cost of a comparable resort hotel and meals in many other cities: the gaming was, effectively, free for us. We allow $50 per day per person; weíve never spent that much. For us, itís cheap entertainment two or three times a year (mixed with some of the most interesting sightseeing, in Northern Nevada, you could find anywhere). One extreme case: on my last cruise on the Crystal Symphony, I had an hour to kill and spent it in Caesarís Palace at Sea, playing quarter poker on the bar slots. Naturally, the bartender offered me free drinksóin this case, Crystalís cheapest Chardonnay (De Loach, which sells for about $12 retail). That first-rate Chardonnay would be $4.50 a glass in the other bars. I started with $10 in quarters, played for an hour (probably 500 hands or so), and walked away with $4 or so. How much did I spend? Iíd say $1.50 net or $6 gross; an anti-gambling crusader would claim $125.

I am not advocating gambling as a social good. I drink good wine, but I donít advocate that everyone should drink either. Some people ruin themselves and their families through gambling, just as some people drink themselves to death. Then again, I drive a caróand I suspect more people kill themselves and others through driving excesses than ruin themselves with excessive gambling or drinking.

I am advocating legitimate reporting. It is false and dishonest to claim that Americans are "spending" $600 billion on gambling if they are getting $549 billion of that $600 billion directly back in the process. When you push the larger figure, your unethical behavior makes me question the validity of your moral claims against gambling.

Sorry. That rantís been rising for a while nowóand I donít even live in Nevada! Now, back to my normal topics. Incidentally, Iím not condemning The Industry Standard. I sent them e-mail questioning the $600 billion figure. The writer responded by citing his source (a vehemently anti-gambling book) and admitting that, on further study, it appeared that $600 billion was indeed the handle, while $51 billion was the take. They wouldnít run a correctionóafter all, $600 billion is a "real" (if meaningless) figureóbut they did promise to run a terse letter pointing out the reality. The worst you can say about The Industry Standard in this case is that the reporter fell for the impression the bookís author wanted to give, on an issue that was ancillary to the story being written.

(A Readerís Digest article on the horrors of gambling addiction, around the same time, actually does use the right figure--$50.9 billionóalthough it says it this way: "In 1997 bettors blew a whopping $50.9 billion." "Blew" is an interesting choice of words; itís like saying that any money you spend on a movie, at a sporting event, or indeed for a restaurant meal that costs more than $2 is "blown" money. Compulsive gambling may be a real problem; denying the real entertainment value of gaming doesnít help the discussion. But then, weíre talking Readerís Digest here: rarely the most subtle of periodicals!)

The Rest of the Story

The Industry Standard ran my letter in the next available issue, and they run with a very tight schedule: this letter appeared three weeks after the original story. Here's the letter, exactly as it ran:

"Gambling Online? You Bet!" [May 10], while fascinating, includes a fact that makes for misleading comparisons. It says Americans spend $600 billion a year on legal gambling. That's true only in a context unique to gambling, in which a slot player (for example) may cycle the same roll of quarters through a machine dozens of times, losing a small portion on each cycle.

The $600 billion inlcudes all those cycles: One $10 roll might represent $200 in wagers, or more, before it's exhausted. In casino terms, $600 billion is the "handle."

But that slot player neither spends $200 nor even risks $200. She risks $10, and will eventually spend it (in most cases). That expenditure is the "take"--the amount that's left behind by all gamblers taken as a whole.

The take, roughly $51 billion a year, is the figure that should be compared with other recreational expenditures."

So far so good. The headline on the letter was "Getting a handle on the take," and that strikes me as a clever and entirely fair headline.

I received an e-mail the same day I received that week's Industry Standard. The e-mail objected to my letter on the following basis (paraphrased: I didn't keep the letter):

"Let's say that I start out with $10 in a casino and win $200. I leave the casino with that $200. Then, I come back the next day and lose the $200.

I say I've risked $200, not $10. You may not care whether you lose your winnings, but I certainly do."

My off-the-cuff response was as polite as possible, but basically said "Entirely different situation." The slot player never had $200 in front of her, most likely: chances are, the amount in front of her (or him, but my sense is that women do a little better at being conservative slot players) varied between $0 and $15 or so. When I do this (and I do, two or three times a year, if it's feasible) I figure that $10 is in play, and that I'm risking that $10--many times, since good Nevada poker slot machines typically pay back 95% to 98.5%.

What about the scenario pictured? There's no real relationship to the slot-player case, of course. Will I grant that he's risked $200 on that second day? Yes...but he has not spent $200. He's spent $10, in a roller-coaster fashion. And, frankly, he's probably had a lot more than $10 worth of fun in doing it.

You might note that the overall national gambling situation isn't the 20:1 ratio between handle and take that I suggest here, which only happens if your average payback is 95%. The national gambling situation shows about a 12:1 ratio, and frankly I'm a little surprised that it's that good! After all, that still represents a 91.7% payback on average. Consider that state lotteries have truly abysmal paybacks, typically 50%; Lotto runs an abysmal 75% payback; the Big Five (that wheel that no sane casino player ever approaches except on a free play) has even less than 75% payback; and the 98.5% payback you can get on Nevada's best poker slots assumes perfect playing.

What does all this have to do with PCs, technology, media, libraries, or the future?

Not a lot. It does have something to do with numeracy (getting the numbers right) and fairness. If you're going to bash gambling, bash it for the right reasons--not for numbers that bear no significant relation to reality. (Would the correspondent above claim that Old Evil Gambling cost him that $200 that he won? Possibly...even though, absent gambling, he would never have had the $200 to lose.)

OTOH, as they say in the Web pages, it has little enough to do with my core topics that it made sense to mount it here!

[Updated 6/3/99, Reposted 6/6/99] Layout modified July 18, 1999