There’s a scandal involving former San Diego mayor Maureen O’Connor in which it was reported that she lost one billion dollars playing video poker. The U-T San Diego headline reads “How to lose $1 billion in video poker.” The problem is, however, that this never happened. It might be a clever headline designed to sell a lot of newspapers, but it is a grossly exaggerated number.
The article How to lose $1 billion in video poker included interviews with some knowledgeable experts (including my good friend Michael Shackleford, the Wizard of Odds), but the conclusions reached were faulty. The author of the article, Roxana Popescu, reached out to me as well, but I didn’t get the message until it was too late. The quality of the experts that were used indicates that Ms. Popescu was attempting to provide a well researched report, but you can’t become highly knowledgeable about a subject by talking briefly to a few experts.
I’ve never met Ms. O’Connor and have no personal knowledge of her finances or her gambling habits. But I do know something about video poker.
First, we need to define some terms. “Coin-in” is a term used to describe how much money you play through a machine. “Coin-out” is the amount of money you cash out of a machine (including hand pays). A dollar player ($5 per hand) playing 600 hands per hour (a good speed, but not overly fast) has $3,000 of coin-in per hour. If the player had $3,000 of coin-in and $3,500 of coin-out, that player was a net $500 winner over that hour. If the player had the same coin-in but only $2,500 coin-out, the player was a net $500 loser over that hour.
It is possible to play $1 billion of coin-in over ten years. But a billion dollars of coin-in is not at all the same as a billion dollars in losses. I probably have close to half of that amount of coin-in over the same time period (I actually don’t know my coin-in total) and I’m a net winner.
Video poker machines can be found in much larger denominations than $1 — with correspondingly larger amounts of coin-in. But along with those larger denominations come tax forms called W2Gs. A W2G is issued each time a jackpot is $1,200 or higher. If you’re playing $1 units, five coins at a time, you get these W2Gs rather rarely. If you’re playing $100 units, you get them every four or five hands. This slows things down.
Each casino deals with W2Gs differently. At most casinos, the machine locks up, the attendants must do some paperwork, and finally, the player signs a form. The casino might pay the jackpot in cash (A real nuisance. If you’re playing large denominations, you might have to feed hundreds of $100 bills back into the machine. This is very time-consuming and boring.) The casino might issue cashier vouchers for the jackpot. If the jackpot was, say, $5,000, some casinos will issue one voucher for the entire amount. Some will issues vouchers in units of $1,000. You feed these vouchers into the bill validator just like you would a $100 bill.
Other casinos have the “key to credit” option so that the $5,000 in credits stays on the machine. When the attendants complete the requisite paperwork, they use a special key which allows the player to resume playing.
Some casinos have an attendant sit directly behind the big player. Whenever the player hits a jackpot, the player pauses ten seconds or so for the attendant to write down the amount, and then the player keeps playing. Other casinos do this without attendants. They set the machine up in a special way and the machine records the W2Gs. At the end of the session, the player signs one W2G (perhaps for $55,000 or maybe $525,000 or whatever). Ms. O’Connor is reported to have played at numerous casinos around the country, so she must have experienced a large variety of payment methods.
It is possible that she received $1 billion in W2Gs over ten years, but a billion in W2Gs is certainly not the same as a billion in losses.
There is significant record keeping involved in this. Very few players keep track of their coin-in. At some casinos it’s easy to come by that number as your coin-in for the day shows on the card reader. But you still need to record that figure at the end of the day, enter it somewhere, and add up all the entries. However, many casinos don’t display this number. What then?
At the end of the year, casinos will issue a “Win-Loss” statement if you ask for it in the right way. These documents can show your coin-in, coin-out, net win or loss, and number of W2Gs. Each casino designs its Win-Loss statements a little differently. Players who keep their own records (I strongly advise this) frequently find that casino records are not very accurate. In 2000, for example, I knew my wife and I were ahead about $250,000 at the MGM Grand in Las Vegas. The casino records showed we were behind more than $400,000. It’s probable that that casino has better record-keeping now but I can’t say for certain. I am no longer welcome to play there.
If you add up these not-very-accurate Win-Loss statements, you come up with a meaningless number. The phrase “garbage in-garbage out” is very applicable here.
W2Gs are easier to add up. If you get them by the handful, you should record them (or have someone else do it) on something like an Excel spreadsheet. It is very easy to add up columns on such a spreadsheet. In my case, I record each W2G on the day I receive it. I’m a smaller player than Ms. O’Connor is said to be, and I get $3-$5 million in W2Gs most years. If you asked me what my W2G total was in 2005, I couldn’t tell you. I have the records at home but this is not a number I keep memorized. It would take some effort to add up all of my W2Gs for the past ten years.
Keep in mind that $1 billion is a very round number. If the actual coin-in were $927,399,500, then rounding that off to $1 billion is probably “close enough.” But it’s very likely Ms. O’Connor doesn’t know her coin-in. If her W2Gs added up to $1,235,228,625, then that number can be rounded off to $1 billion as well. Although the sum of her W2Gs is an easier number to come by, she may not know that number either.
And a billion in W2Gs is a LOT more play than a billion of coin-in. In my own case, over the past ten years I might have $400,000,000 of coin-in and $40,000,000 in W2Gs. The first number is 10 times larger than the second. If Ms. O’Connor played larger machines than I did, her W2Gs will be less than 10 times larger than her coin-in — but undoubtedly larger.
At least some reports said that Ms. O’Connor lost $13 million playing video poker. That’s only 1.3 percent of $1 billion. We should be wary of any round number. But 1.% of her coin-in is very different from 1.3% of her W2Gs. The original report by the New York Times indicated that it is probably W2Gs we’re talking about, not coin-in.
And the $13 million figure is suspect as well. There is no universal methodology for adding up your wins and losses and every player does it a little differently. Let’s say a casino gave Ms. O’Connor $20,000 in “up-front money” if she agreed to come in and play a couple of million dollars of coin-in over a particular weekend. If Ms. O’Connor normally lost a lot more than $20,000, that might be a savvy move on the casino’s part — especially since there were numerous other casinos that wanted her action and were willing to compete for her business. (I don’t have specific knowledge that any casino did this with Ms. O’Connor, but I have a lot of specific knowledge that this type of thing is done all the time for big players.)
If Ms. O’Connor actually lost $25,000 that weekend, did she record her loss as $5,000 (because she offset the front money from her actual loss) or did it get recorded as $25,000? Or did she not record it at all and use the casino’s Win-Loss statement — which probably didn’t include the front money “bribe?” If a casino gave her a new Lexus for being a good customer, did that get recorded? Or how about a cruise (in an owner’s suite of course) to (pick a destination). Did that get recorded?
It’s possible that Ms. O’Connor is in debt $13 million today. (I have no way of knowing.) But her current level of debt is not the same as how much she lost. If she used to have assets of $40 million, she could have lost a lot more than $13 million gambling along the way. She has lots of other expenses as well. Everybody has expenses, of course, but rich folks have bigger expenses than not-so-rich folks.
The part of the story I believe is that Ms. O’Connor is in some sort of financial difficulty and gambling at video poker is part of the reason. She openly admits as much. How much difficulty? I don’t know. How big were her losses? I can’t say that either. Were there other very large non-gambling expenses as well? I haven’t a clue.
The part of this story I absolutely DO NOT believe is that she lost $1 billion playing video poker. It simply could not have happened. The way we know this for sure is that if she really LOST $1 billion and she started with “only” $40 million or so, she’d be in debt close to $1 billion. Casinos simply wouldn’t have allowed that to happen. They are willing to extend credit to “good players” (that usually means “losers”), but casinos are normally careful regarding how much credit they are willing to give. In Las Vegas, there’s a Central Credit Agency to which all casinos report the names and the amounts of players who are in arrears. A player in debt millions of dollars would be known to every casino in town. Do you really think they would offer more credit to somebody already buried under a mountain of debt?
But saying she lost $1 billion sure can sell a lot of newspapers.