Player Pool Table Gaming

Player pool gaming is an alternative concept for casino table gaming under Class II conditions. Class II gaming restricts a casino gaming operator from taking revenue directly from the gaming outcomes, or win/loss. In order to accommodate this rule, and to still operate as a gaming entity, several regulatory areas have opted for the player pool gaming structure.

The first appearance of this concept was in the mid-2000s in California Native American gaming. The short-run game of “Jackpot Blackjack” made its debut as the first Class II game that emulated the standard casino format. Up to this time, Class II operations-type casino bank games were known as “player banked” games. The players at the table would take the bank in turn, and post a specific amount of their money as the bank funds for the next one or two hands. The outcome of those hands, both win and loss, were settled out of that player’s bank fund. After that person’s banking options expired, the next person in order (usually clockwise around the table), had the opportunity to take the bank. How does the house make money? The house charges each player a fee or commission for the privilege of acting as the bank or placing wagers as the players.

Although this “rotating bank” form of Class II gaming was functional, it only appealed to a limited number of gaming customers, primarily Asian. Most people who enjoyed gambling in the Las Vegas casinos found the rotating bank format very strange and unattractive. In order to attract a wider range of casino players, they needed to emulate Vegas-type casino games. The developers of Jackpot Blackjack came up with the idea of extending the rotating bank concept to a permanent bank that is funded by the “players” in theory, and is maintained by management for the “players.” The dealer’s chip tray contained funds of the “players,” and all monies won or lost became the property of the “players.” The house earns revenue by charging the players a fee to place bets, and by also taking a percentage of the monthly “win” as a management fee for maintaining the “players’” account. This game format quickly took on a new appeal.

The original bankroll needed to fund the player pool was “loaned” to the player pool account from the operators themselves. Once the daily winnings amounted to a total equal the amount of the original fund, the loan was paid off from the fund. Of course, the operator charged the player pool fund interest for their temporary loan.

The player pool structure appeared to the casual observer as a standard casino game, its player pool bankroll concept completely invisible except for the fee charged to play each hand. This allowed California’s Native American casinos to offer games that would be friendly to the normal casino customer, but still fell within the legal guidelines of Class II. However, shortly thereafter California’s Native American casinos were approved for Class III gaming, the player pool concept was no longer needed, and eventually disappeared from the California gaming landscape.

Player Pool Concept Taken to the Next Plateau
In recent times, a number of other states have instituted the player pool concept as an alternative to Class II restrictions on full casino gaming. In Oklahoma, the Native American casinos are allowed to operate under the player pool structure, and have spread a variety of standard casino games. In Minnesota, the state racing commission that governs race tracks has allowed two Twin Cities race tracks to operate card rooms, where a portion of their table games can be structured as a player pool. Existing Native American casinos in Minnesota that were allowed to only spread Class III blackjack games per their state compacts were granted the ability to spread other card games, if the games were structured using the player pool concept. Other regions in North America are using player pools to a limited extent; some states are considering this format for future gaming expansion in lieu of full casino gaming.

The elements that go into the player pool structure and revenue, including cost accounting, have changed as well. Interpretations of what constitutes a direct expense have gone from management fee and promotions, to covering employee costs and equipment. Details regarding the revenue and expense structuring are as follows:

Fee collection structures: The original California games took a fee equivalent to $1 per $100 wagered because the players were conditioned to this amount from the rotating bank games. More recent player pool operators have found the $1 fee much too expensive for their market, and have opted for fees of 50 to 25 cents on bets under $100. Fee structures also take into consideration wagers in excess of $100. The fees usually go directly to the tribe or gaming operator, and are considered bottom-line return or EBITDA. Fees are collected from each player per hand by the dealer, and placed directly into a fee collection drop box. This drop box is separate from the drop box used for currency buy-ins at the table.

Gaming revenue tax: The rate of the gaming tax depends on the location just like any other licensed casino operation (Native American table games can sometime be the exception). The tax dollar liabilities are computed from the month ending win number, and are based on the predetermined gaming tax percentage.

Maintenance fee to manage the player pool: Usually, the gaming operator is allowed to subtract 10 percent to 15 percent from the monthly win number as a maintenance fee. This money is used to cover general and administrative costs of the operation.

Direct game operational expenses: Direct expenses usually range from 60 percent to 70 percent of the monthly win number. Direct expenses are considered any expense that is directly related to the operation of the table games. This may include the following expenses:

• Dealer and floor supervisor’s payroll
• Game management’s payroll
• Surveillance and other support personnel’s payroll
• Table gaming equipment including dealing shoes, leases on shuffling machine and hole-card readers, layouts, tables, chairs, and proprietor game leases.
• Gaming operational tools such as playing cards, chips, dealer uniforms.

Promotional costs: The remaining amount of the player pool fund, above the bankroll requirement, may be used for promotions. This is also used more or less as a float control for the amount carried in the fund. More funds can be allocated to promotions when the player pool is excessive, due to increased win, and fewer funds allocated when the win isn’t reaching normal level. Operationally, this is opposite of how management would like to spend their promotional dollar. Because more promotional monies are needed during poor revenue periods, excess revenue periods are funneled into a reserve account that is used to promote the games during slow times without going below the minimum player pool bankroll level.

The revenue flow model for a player pool casino is simple. The monies collected as fees usually go directly to the tribe or the game operators, and are treated as bottom-line profit. Operational expenses above the table game level are paid with funds diverted to the management maintenance fees. The financial structure of a player pool-based casino operation is very similar to a business structured as a not-for-profit company. Player pool race track casinos, or “racinos,” in Minnesota have opted to stop taking a fee directly from the player, but still take the collection from the player pool fund as a direct expense. They have estimated the percentage of fees to revenue, and subtract that percentage from the player pool fund. Racino management quickly realized that the elimination of the fee collection direct from the players has reduced their revenue flow. The anticipated increase in player pool “win” revenue due to the discontinued collection fee never materialized, and the change in the revenue model has financially hurt their operations.

Structure Advantage
The collection of fees per hand is an added revenue flow not gained through a standard or Class III casino operation. In most situations, the fee collected is an immediate pass through to the tribe or the operator. The remaining funds in the player pool can be allocated accordingly without jeopardizing the operation’s bottom line return. Several operations have found out how important the collection revenue is when they decided to take the collection out of the player pool fund instead of directly from the players.

The collection of the fee is a deterrent to card counting and some lesser advantage play techniques. Card counting and several common forms of advantage play are not profitable under the collection fee structure. For example, a professional level card counter, playing on a six-deck game and spreading his/her bets from $25 to $400 during +1 or great positive situations, is looking to earn approximately $30 to $50 per hour. Based on 60 hands per hour, the counter is paying approximately $20 to $30 in fees during that period. The professional counter will not play at a casino where he/she is looking to grind out only $10 to $20 per hour while risking $400 bets to do so. Forms of shuffle tracking and hole-card play are rendered worthless as well.

In some cases, the player pool structure allows the casino to conduct expensive promotions many other casinos cannot. Depending on the cost and tax rate, a number of player pool operations have the ability to spend larger amounts of promotional dollars through temporary rule changes, giveaways, drawings and game-specific promotions. In addition, the amount available to do the promotion is a predetermined amount, forcing market management to work from an established budget.

Structure Pitfalls
Collecting a fee from every player on every round slows the pace of the games and decreases hand decisions. A decrease in hand decisions reduces game revenue. It has been argued that the elimination of the collection and shifting to a less transparent form of collection, i.e., directly from the player’s pool fund, will increase revenue. This is not true, and will be addressed later.

The combination of the fee collection and the casino’s mathematical edge on every wager eats up the customer’s money too quickly. The collection fee can as much as double the theoretical cost of each hand versus the same wager placed in a Class III casino. If a player loses at an accelerated rate, it could diminish their “gambling entertainment” return, souring them from gambling, and making other entertainment options more attractive.

Some casinos have opted to offer periods where the fee is suspended during specific hours of operation. The fees are still collected, but now collected directly from the player pool fund as a promotional cost. Management uses this as a promotional tool to attract customers during slower business periods. Unfortunately, the elimination of the collection with the intent to increase game revenue has not received satisfactory results. In addition, the “no collection” periods have opened the door to some forms of advantage play and card counting. Where card counting has less than a marginal return due to the collection, the “collection-less” periods offer the card counter an excellent window of opportunity to ply their talents.

Because of the collection, high house advantage games such as Three Card Poker, Let It Ride and various poker-style casino games, become quite expensive for the average casino customer. Taking 25 cents per hand from a $5 player on Three Card Poker while his theoretical loss per hand is 15 cents (approximately 3 percent of $5) will reduce the customers playing experience much quicker than the same customer experiences in a standard or Class III casino.

In jurisdictions where live table gaming is restricted to Class II, the player pool format is a very doable option. This format follows the Class II requirement that the casino takes no direct interest in the outcome of the games. Player pooling also provides an independent revenue flow that can be taken directly to the operation’s bottom line. The player pool structuring is not visible to the average player. Where rotating bank games are obviously different and intimidating, player pool allows the customer to gamble in a fashion similar to Class III games (with the exception of the fee collection).

The player pool financial structure can provide the operator with more dollars to allocate to promotions. A number of promotions, giveaways and drawings can be designed that coincide with the game revenues. Reserves can be established to ensure that promotional funds will be available during slow business cycles or periods of negative gaming result fluctuations.

The casino operators involved in player pool gaming need to be careful. Overburdening the fund with direct expenses may drop the player pool dollar amount to a level of vulnerability. Negative fluctuation could deplete the player pool entirely and require management to temporarily “loan” to the pool funds to re-establish the pool. In addition, management needs to be careful when changing or eliminating the fee collection. Not only will this change cut into the operations revenue flow, it may also open avenues of attack to card counters and advantage players.

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