This is an excellent question, considering that most people are too mesmerized by the flashing lights, cocktail waitresses, and array of slot machine noises to notice the background music.
I can’t speak for all the casinos, but the ones I’ve worked at utilized an in-house sound system consisting of prerecorded music cartridges (now discs) set on a shuffle mode that loops, so that it’s self-serving and maintenance-free. The service company comes by once a month to change the cartridges/discs. I doubt, since the dawning of the digital-satellite age, that the larger casinos still use this type of system, though I've no doubt that many of the smaller ones still do.
Today, most large casinos subscribe to Muzak, a satellite music service that's wired through the automated fire-alarm and public-address system (used for paging) via a cut-off switch, so that they don’t compete with or drown out each other. The resorts have sensors located throughout the casino floor that automatically adjust the volume based on the ambient noise level of the crowds.
A newcomer (in the past few years) and a direct competitor to Muzak is DMX. Though the Muzak and DMX services are similar, DMX offers a larger selection of music and a polling function to see what music is currently popular, while Muzak has been stereotyped for the elevator music it provided in the early days.
Another reason the casinos utilize such services and don’t just buy and play their own CDs is for convenience purposes; Muzak and DMX deal with the licensing fees and other red tape due to ASCAP (American Society of Composers, Authors and Publishers).
Finally, here’s a little secret. The reason most mainstream casinos play classic rock is that they’re targeting the age group with the most disposable income (Baby Boomers) -- obviously you'll get a different soundtrack at the Hard Rock, Palms, Planet Hollywood, etc., tailored to their crowd. The casinos leave nothing to chance.
