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Oregon Lottery Video Poker Specific Numbers

– The “loss rate” for a brisk player at most games is $27 per hour, nearly four times the minimum wage.

– The “house edge” on most games is over five times worse than that with e.g. craps or blackjack.

– Players do react rationally though imperfectly to varying hold
percentages (house edge), and preferentially play games with a smaller
hold (smaller house edge).

– A bar with the legal limit of five such machines would net (EBIT)
nearly $39000 annually, with the state keeping the other $100,000.

– The lottery in effect pays $310 per square foot per year to rent bar
space, a 1000% premium over the downtown central business district.

– These numbers are below the statewide average, which is likely skewed by some very high-volume locations.

(Some numbers have been rounded to fit annual time frames.)

This machine had ten normal games, of which all had a 10% hold, except
one with 6% (“Flush Fever”) and one with 8% (“Oregon Gold”). The
“draw high” game is 0% hold (no house edge).

Contrast this with

5.3% for roulette,

1.5% for craps, and

1-2% for blackjack.

By far the most money was played on “Flush Fever,” the game with
the lowest hold. This is probably because the difference between
a 10% hold and a 6% hold is so dramatic, that even without labeling, a
player can detect it readily. About 45% of the action (money
played) was at this game. “Jacks or Better” got about 12% of the
action. With 8% and 7% respectively, were “Deuces Wild” and
“Oregon Gold” (the 8% hold game).

Since there are ten games, and the #1 and close #4 games are the least
and second-least holding games, we can surmise that people play more at the lower hold games.

Previously, I had speculated that the least you would expect a player to lose
under a 10% hold, playing one 25-cent game every ten seconds (brisk but
not blazing) would be $9 an hour. In fact, nearly all games recorded an
average bet of 75 cents or more. That means that the hourly loss
rate would be at least $27 an hour, an hourly rate equating to a full-time salary of
$54,000 a year.

In fact, the overall hold percentage is reduced by two facts: 1.
players preferentially play the less-biased games, and 2. an
even-money, “double or nothing” bet with no house edge is offered to
winning hands. The overall theoretical hold for the machine as
played should have been 6.37%, though it lagged slightly with only 5.8%
actually held.

Of the cash that had, over three years, been fed into the machine, more
than half is denominated in $20s (the largest). About $267,000 in
bills had been put into the machine. About $184,000 in winning
tickets had been printed. Although on each coup the player might
expect 90% back, for every buck actually put in the machine, only 69
cents come back out.

The machine in question had about $1.4 million in action put through it
over 3 years (recall, action is calculated each bet, so it will be many
multiples of cash drop). The total hold was about $83,000, about $2300 a month (one machine), or
about 5.8% of action (the “draw” game counts toward action, but cuts
down on the hold percentage since it has no inherent advantage).

How much play did this box get? With an 83 cent average bet, and
476,400 dollars put through a year, that’s about 574,000 bets per
year. That’s about 1752 a day, or 131 an hour through a 12-hour
day. This sanity-checks my 360/hour estimate — 1/3 of the
time in rapid play seems sane.

The bar had five video lottery machines (the legal limit), but only one
of them was kind enough to tell us its financial history. To
situate it, it’s a youngish, dive-y 20s and 30s bar, with pool tables, the kind
of place where a cuba libre costs less than 4 bucks and they don’t call
it a “cuba libre.” In those terms, the patrons of that bar could
have had another 21,000 cubas libres over the last three years instead
of playing video poker. This is not “el primo” territory for
video poker, though I would guess they do OK by video poker standards.

To do some quick math:
5 machines * 89000/year/machine = $445000 / year / bar drop
5 machines * 27667/year/machine = $138335 / year / bar hold
Retailer commission (average, per Oregon Lottery) 28% = $38733 / year / bar hold

To get $38733 annually, risk free, at 2% interest, you’d need
nearly a cool $2 million in the bank. What does the retailer
stake for this? About 25 square feet per machine, including chair
space. With five machines, that’s 125 square feet generating
$38733, or $310 / sq ft / year. Today in Portland, Oregon’s
largest city, you would be hard presesed to find Class A office space
renting for more than $30 / sq ft / year. So the rental rate that
the Lottery is paying dive bars is only a 1000% premium over that for a
suite in Portland’s toniest skyscraper.

To bring it back to earth, let’s sanity check all of this against the known figures:

circa 2100 retailers * $138335 / year / retailer = $290 M hold overall

This is in sanity-range with the lottery’s published $530 M figure
(there tend to be a few top-performers in the video lottery that skew
the results to the high end).

This could be an interesting case study for anyone looking at the
recently-again-in-the-news issue of Oregon’s video lottery.
Unfortunately, nobody is talking about how we can mitigate the harms;
instead, everybody just wants to wring more money out of the program.

Oregon Lottery Video Poker Specific Numbers – The “loss rate” for a brisk player at most games is $27 per hour, nearly four times the minimum wage. – The “house edge” on most games is over

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Man Vs. Machine

Curzi, 35, had moved to Oregon in 2012 from San Francisco after selling a software company he’d helped found a decade earlier. He was fascinated with the games—the ubiquitous, flashing terminals found in bars, delis and even pancake houses—and he played occasionally when out drinking with friends.

On this day—Jan. 10, 2014, a Friday—Curzi paused playing video poker while a pal went to get a beer. He used the break to study his hand—a 2, 4, 5, 6 and 7 of different suits. He was close to getting a straight, which would pay $5 on a $1 bet.

The game Curzi was playing, draw poker, allowed him to discard cards and get new ones from the dealer. He knew his best chance was to discard the 2 and hope the machine dealt him a 3 or an 8 to complete a straight.

But the machine suggested he do something Curzi thought strange: It recommended he discard the 7. He would get his straight only if he drew a 3. That would cut Curzi’s chances of winning by half—and he thought it was terrible advice.

“Hey, is this right?” Curzi asked his friend when he returned.

Curzi took out his iPhone and snapped photos of the screen and the machine’s serial number.

It was the first step to uncovering what he says is a $134 million scam by the Oregon Lottery.

Here’s how the video poker hand Justin Curzi got on Jan. 10, 2014, led him to investigate the Oregon Lottery machines.

Oregon voters approved the state lottery in 1984, and today state-run gambling contributes about $550 million a year to Oregon’s budget, behind only personal income taxes.

The lottery encourages dreams of riches. But the games are engineered to take your money. “Everyone should understand that the odds in all our games favor the lottery,” says Jack Roberts, Oregon Lottery director.

That’s why news reports two months ago that a Portland man was suing the lottery to recoup video poker players’ losses struck some as ludicrous. Who would sue over losing money while gambling?

But it’s not so simple. Curzi—who friends say is intelligent, analytical and obsessively curious—launched a personal investigation of Oregon video poker machines that led him to conclude the machines were cheating players out of millions of dollars every month. That’s why he filed a class-action lawsuit against the Oregon Lottery in Multnomah County Circuit Court, alleging fraud. Lottery officials deny Curzi’s allegations.

“Good for him,” says Les Bernal, national director of the advocacy group Stop Predatory Gambling, based in Washington, D.C. “What the Oregon Lottery does with these games is create the illusion that you have some control, where in reality you actually have far less.”

Curzi is aware some people might assume he’s suing to make money. He insists he’s not. “The real reason I’m doing this,” he says, “is because it’s outright wrong.”

“Justin is not afraid to jump at things, he’s not afraid to question things,” says Rob Steele, a friend of Curzi’s dating back to high school in New Jersey. “That is just catnip for Justin.”

Six days after his curious experience with the Jacks or Better game at Quimby’s, Curzi sent a polite and inquisitive email to the Oregon Lottery.

“Hello, my name is Justin,” he wrote on Jan. 16, 2014. “I’ve attached a photo of a hand that was given to me in one of your Oregon Lottery machines.”

Curzi explained how he believed the video poker machine should have given him the best advice. “This does not seem to be the case,” he wrote.

Draw poker is a game of luck, strategy and second chances. The dealer gives players five cards. Players then get a chance to discard cards in the hopes of being dealt better ones.

When you’re playing poker around a table in real life, you’re betting against other players in hopes of having the best hand.

But in video poker, you’re not betting against anyone. Each hand costs you 25 cents (or more, if you increase your wager), and you win money based on a scale of how strong your hand is. A pair of jacks might win you your 25 cents back. A royal flush—the highest and rarest combination—would win you up to $600.

Unlike slot machines, video poker gives the player a sense that strategy matters. In reality, if you play long enough, the machines are geared to eventually take your money, no matter how many wins you record. Still, the sense that a player can outsmart the game is part of its allure.

What caught Curzi’s attention was a feature on the draw poker games called “auto-hold.” The feature puts the word “hold” over cards it suggests players should keep. Players can reject the suggestions at any time.

But auto-hold has a second, less obvious function. It allows players to play faster, because they don’t have to stop to think about what cards to hold before hitting the button to draw again. That’s important because faster play translates to more money for the Oregon Lottery.

Before he got a response from the lottery, Curzi returned to Quimby’s, wondering whether the game’s bad advice had only been a fluke.

He shoved a $20 bill into a machine to play the same Jacks or Better game. Within 10 minutes, the game was again advising him to hold cards that cut his chances of winning in half. Curzi says he just wanted a simple explanation.

“I certainly didn’t think,” he says, “I would discover what I know now.”

Who Plays Oregon Lottery Games?

Curzi grew up as a sports-focused kid in small-town New Jersey, the son of a prominent lawyer and a stay-at-home mom. Curzi—who played football despite his small size—also wrestled, played baseball and graduated near the top of his high-school class. He played wide receiver at Amherst College, where he majored in economics and history. That led him to New York City after graduation.

“I thought the only two jobs on earth were investment banking and consulting,” he says now.

He landed his first job selling investments. Working on commission, he’d target an office building, climb to the top floor, then work his way down, knocking on doors. “I was 21, looking like I was 16, asking people to give me their money,” Curzi says. He soon climbed the monthly leader board. His boss told him he was one of the youngest salespeople to reach the top.

He wasn’t destined for a traditional job. A sticker on Curzi’s apartment door showed a group of people heading one direction, and one person walking the other way. “Routine,” it read. “The enemy!”

In 2003, he moved to Brazil and quickly immersed himself in the culture, teaching himself Portuguese within months. “You feel like the guy has been there two or three years,” says Ken Barrington, a college friend who visited him.

In Brazil, Curzi met an American computer programmer working on a way to help accountants share QuickBook files. The two teamed up and sold the program, cold-calling potential clients from Rio de Janeiro on an Internet phone line. “We must have sounded like we were speaking through tin cans,” Curzi says.

They called the business Emochila—mochila means “backpack” in Spanish and Portuguese—and it blossomed to 30 employees. In 2011, Curzi and his partner sold the company to Thomson Reuters in a private deal; Curzi declines to say for how much. But friends describe him as wealthy. “I’m not Elon Musk,” Curzi says of the co-founder of Tesla and PayPal.

Curzi moved to Portland in 2012 with his then-girlfriend (and now wife), who grew up in Tigard, and now lives in a $565,000 Victorian in Northwest Portland. He consults for private clients, provides microloans to entrepreneurs through the website Kiva and drives a 1996 Isuzu Rodeo “whose crowning feature is where a dog chewed the back seats.”

Friends say they are not surprised Curzi—who’s just as likely to want to discuss North Dakota’s fracking economy as the business model for Purringtons Cat Lounge—zeroed in on something as small and seemingly innocuous as a quirk in a video poker game.

“So many times in life, people just overlook the obvious,” Barrington says. “Justin has a knack for pointing those things out.”

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