Professor Anthony Lucas – Part One

Nick Hogan:

Hello, everyone. Here we are in late August with summer pretty much wrapped. I'm fresh back in the saddle, following

a brief break with a family, and I'm joined today by a guest co-host for whom I have limitless time.

He's a 21-year industry veteran who's led corporate gaming ops for both Penn Entertainment and Bally's Corp., and roughly three

years ago, founded his own industry consulting firm, DC Gaming.

He was a guest here on Real Cast back in April of last year. He's a razor-sharp guy with great

ideas and insights, and, as such, someone with whom I always enjoy discussing industry topics. I'm referring, of course, to

Mr. Dan Cherry.

Howdy, Dan, how's the summer been treating you, sir?

Dan Cherry:

Hey, morning, Nick. It's great to be here. Thanks for having me back on. Summer's wonderful here in Vegas. We

got a cool spell, college football right around the corner this weekend, everybody's getting ready for G2E, so it feels

like fall is on the way.

Nick Hogan:

Right on. Okay, so "cool spell," in Vegas terms, means what?

Dan Cherry:

No, it was 70 this morning. It was amazing. Yeah.

Nick Hogan:

That's legitimate... cool spell. Okay. So very good. So, Dan, now before we jump into the news and listener questions,

I just wanted to take a beat to ask you a bit about what you're up to professionally these days.

So can you tell us a bit about DC Gaming and what you're up to there?

Dan Cherry:

Oh, yeah, absolutely. So I've been on the operator side of the business effectively my whole career. So a little

over 20 years, like you said, mostly in the regional markets. And really, what I'm doing is a lot of

the same. I've always had a hankering of trying to explore the other side of the business, whether it's the

supplier side or start my own thing.

And so, with my company, really, what I'm trying to do is just help operators be as strong as they

can be when it comes to gaming operations, but from outside the organization. And one thing I'm really interested in

is, there's so many new technologies that are out there coming to market, and a lot of times the suppliers

may feel like they have a great idea but struggle a little bit on figuring out, "How do I get

a seat at the table at these casino operators?" and, "How do I bring this product to market?" And that's

where I'm trying to... try to add some value, is connect suppliers, technology providers, with operators, and help figure out

how to use the pathway to bring some of these products to the regulated markets and get them approved and

add value for them.

Nick Hogan:

Yeah, fantastic. Yeah, it's something I really do feel is fulfilling me, because we forget sometimes on the vendor side,

that people in operations actually have day jobs.

Dan Cherry:

Yeah.

Nick Hogan:

They're not just there to evaluate this stuff and play with the toys that we throw at them. So it's

definitely a legitimate need out there. Yeah. Well, fantastic. That's great. I'm delighted that you're out there doing this, and

a very competent person to do it, without a question.

Okay. So, Dan, moving on to a bit of industry news. Like most in the industry, I've spent a good

part of this year bracing for really ugly economic news. And I can't say that the last couple of weeks

have steadied my nerves much. Heading the news over the past week or so, we saw some pretty lackluster digits

out of the Strip. First we see international visitation, which has been... from my understanding, is roughly around 15% of

overall traffic, historically. It's down around 13% year-over-year, with the sharpest declines coming out of Canada and Mexico.

I looked up just yesterday some of the airline data. And in terms of the Mexican carriers, Aeromexico's volumes into

McCarran are down 15.8%, Volaris 15.6, and Viva Aerobus down 14.8. Significantly worse were the Canadian carriers, with Air Canada

volumes down 33%, WestJet down 31, and Flair down a whopping 62%. Yuck. Overall, Strip visitation is down 11.8% year-over-year.

And on Tuesday, our friend Barry Jonas at Truist Securities issued an analyst note that was just loaded with double-digit

drops in occupancy rates and room rates across the Caesars and MGM portfolios on the Strip.

And then, lastly, just prior to going on holiday with my family, I did take a look at the ReelMetrics

2025 new machine placements in our network, and that definitely spooked me. I am not going to name names, but

absolutely everybody is down. And on a vendor-by-vendor basis, we see declines ranging from 9% year-over-year, to... brace for it,

Dan... 78%. So, again, yuck.

So a couple of silver linings in there. Barry did note upticks at a few of the independent Strip properties,

as well as some solid performance within the Vegas locals market. Also, I'm a bit guilty of mixing data sources

here, but we have seen some 2020 gaming revenue upticks on the Strip, despite the drop-offs in visitation. Now, I

think Don Retzlaff and I did about five episodes on precisely what that dynamic indicates, but we can leave that

to the side for now.

So, Dan, I'm really hoping that you can help soothe my nerves here, buddy. I realize I'm fixing on Vegas

here, but have you seen any indicators out there that suggests some potentially calm seas ahead?

Dan Cherry:

Yeah. I mean, that's a big question, right? And I think it's the question everybody's talking about. And it seems

like, for whatever reason, in the last couple of weeks, there's all these kinds of industry publications, whether it's local,

or either international, that have picked up on this "Vegas is dead" narrative. And, obviously, it seems like that narrative

is far beyond the reality of what's happening.

But I saw the same July numbers that actually showed, I think, a 4% uptick in Nevada in revenue in

July, but there was a few things in the internals that made that look better than it was. So last

year, if you remember, we had record-high heat, and I think revenues were down in the mid-teens year-over-year.

This year, really strong Bac business, and Bac hold specifically, that caused the increase. And then, for the first time

in a long time you saw actually off-Strip Vegas locals market revenue decline in July, and that had really been

a source of strength for a long time. So, I mean, obviously, everyone's seen the international traffic numbers. I think

even this morning there was a new inflation report that came out that showed that inflation is up close to...

still 3%, and starting to maybe see some of the tariff increases bleed in. So it's hard to say. I

mean, clearly there's this narrative around people feeling like Vegas is simply becoming too expensive, right?

Nick Hogan:

Yeah, yeah.

Dan Cherry:

And price gouging. And it's hard to say how true that is, but one thing I always think about is,

Vegas is not a strip... is not a hyper-local market. We always think about, those of us here in Vegas,

see what's happening day to day. But for a lot of folks, I don't know what the stats are, but

they're visiting Vegas once a year, maybe once every two years. And so a lot of the pushback is... well,

it can't be resorts fees, it can't be ATM fees, it can't be prices going up, because that's been happening

for many years. But the reality is, how many of these people have really experienced one Vegas trip, two Vegas

trips, since COVID, and really just experiencing this and feeling like maybe they're not getting the value for the money?

So it's hard to say.

Nick Hogan:

Yeah, I hear you, for sure. And I guess... I know with the main guys on Wall Street who cover

it... so it's Barry, and David Katz, and Chad Beynon, and these guys. I know what they really focus on

are the unemployment numbers and consumer sentiment numbers. I haven't seen anything crazy there at this point yet, so I

guess that gives me some hope for good things to come. But yeah, what can we do but watch, I

guess, for a while? That's really it.

Dan Cherry:

Yeah. For sure.

Nick Hogan:

Okay, Dan. So time for our listener question. Before I dive in, let me say that we love to tackle

any questions that anybody listening may have. So if you have a question about what we're presenting, or something you'd

like us to present, please drop us an email at [email protected]. Again, that's [email protected]. Our policy is to keep all

questions anonymous, so please speak directly and don't worry about us revealing your identity. That's not something we do.

So this one comes from a California operator who asks, "Hi guys, I'm curious about ReelMetrics's views on the studies

done by Anthony Lucas at UNLV? Any chance you guys would be willing to discuss these on your podcast, what

they are, and why they're so polarized?"

So first, many thanks to the listener for that question. It's a great one. In answering your questions there, I'll

say: A, we at ReelMetrics are big Anthony Lucas fans; and B, Dan and I would be delighted to discuss

his work, but only with a bit of outside assistance, which leads us to today's guest.

This gentleman is a graduate of Ball State University and UNLV, and currently serves as a professor on the faculty

of UNLV's William F. Harrah School of Hotel Administration. Unique to academics in the space, he spent considerable time in

gaming's operational trenches, with ten years of frontline experience in financial and operational analysis for the likes of Harvey's, Harrah's,

MGM Grand, and Palace Station.

His work includes the development of statistical models to better understand the effects of various casino and marketing and operations

variables on overall performance. Additionally, he's developed several performance potential models to explain the variation in individual slot machine performance.

His work has handed him a stack of awards and accolades, including the 2002 Best Article Award from Cornell Quarterly

and UNLV's Boyd Research Award.

Lastly, he's a co-author of Introduction to Casino Management, Principles of Casino Marketing, and Casino Operations Management, which are three

of the most widely adopted textbooks in the field. I'm referring, of course, to UNLV's Professor Anthony Lucas.

Anthony, how are things in the silver state this morning?

Anthony Lucas:

Pretty good so far.

Nick Hogan:

All right. Very good. Now, before we get going here, one thing the listeners don't know is that we did

a session yesterday, and networking problems on our side absolutely derailed it, and you guys were incredibly gracious and patient.

So I wanted to thank all of you for that. And again, apologies for that miserable experience last night. But

hopefully we can make it work today.

So Anthony, let's just start... maybe you can just tell us a bit about yourself, where you grew, when and

where you entered the industry, and what took you to your present role?

Anthony Lucas:

Sure. I don't know how interesting it'll be, but I'm happy to do it. I'm from a small town in

Northern Indiana, population 7,000.

Nick Hogan:

Okay.

Anthony Lucas:

Oddly enough, we did have a university. So I grew up a block away from the campus. So I grew

up in this university setting, and I actually took some classes when I was younger at the university, and [inaudible

00:12:35] instruction that my grandmother paid for. But it was a little bit unique educationally, I guess.

But yeah, I was in college in Indiana, and I needed a summer job, and my father had a lifelong

friend who was a personnel director at Harrah's in Lake Tahoe. And there were no jobs in Indiana. It was

very hard to get a job, especially just a summer job. And unemployment was high in the eighties. And so

I got a job in Nevada working as a busboy... at Harvey's, actually... the first place I got my first

career job. And so I did that for the summer. And, of course, we don't have mountains in Indiana, so

I was taken aback by the natural beauty of Tahoe, and it was overwhelming.

Nick Hogan:

Oh, yeah.

Anthony Lucas:

And so, the next summer I came out with four of my friends from college, and we went to dealer

school, and I dealt blackjack for that summer. And then the next summer I did the same thing. I just

can't even put into words how much fun we had those two summers. Yeah, it was incredible. So that's how

I ended up getting introduced to the gaming industry.

Prior to that first summer as a blackjack dealer, I didn't even know what blackjack was. So yeah, I mean,

I really had no awareness. I mean, the gaming industry wasn't even on my radar. But that time I was

studying accounting and statistics, and I had a BS in accounting, so I took a job as an accountant when

I graduated, and that was my first job at Harvey's. So I was a general ledger accountant.

I only did that for less than a year, and then I became a financial analyst at Harvey's. From there,

I just kept going. And as you noted, at the top of the podcast, I ended up working for several

properties in that area. I'm not sure if that's what you're looking for, but that's probably a quick review of

my background.

Nick Hogan:

Oh, gotcha. Interestingly, so it's all three guys on the line here today, I think, got their start, one way

or the other, on the table side of the operation. I think you did too, right, Dan? You started there

as well.

Dan Cherry:

That's right, Nick.

Nick Hogan:

Okay, okay. And I'm not referring just... bussing tables. I never buss tables. But-

Anthony Lucas:

Different table. I mean-

Nick Hogan:

Yeah. Different table, yeah. Okay. And I think many of the people listening today, Anthony, they're not necessarily familiar with

the William F. Harrah College of Hospitality. So could you maybe just give us a quick overview of the college

there... so the degrees that you offer, the number of students you have, principal areas of research... these types of

things?

Anthony Lucas:

Yeah, I'm shockingly unfamiliar with it too, even though I've been there for 25 years. Seriously, I live in my

head. All I think about is research and analysis and statistics and stuff like that. But I mean, I can

tell you a little bit about it, but I'm probably the worst guy on the faculty to answer that question.

But yeah, I think we have an undergraduate degree. I think we just have one now, and I think it's

a Bachelor of Science in, I want to say, Hospitality Management. But we do have a variety of graduate degrees.

We have an MHA degree, which is Hospitality Administration. I think we have an MS in Hospitality Management. We have

a PhD program. And I think there's one other, but I can't remember what it is. I think we have

about 13 or 1400 students in the college. At one point, I think we had 3000.

Nick Hogan:

Wow.

Anthony Lucas:

Yeah. So we're down from our peak, for sure. But the university, overall, is actually growing. We have over 33,000

students at UNLV now, which is a record enrollment for us this fall.

Nick Hogan:

Yeah, that's much larger than the last number that I saw, which was... granted, I think, early-2000s or so... but

I had no idea it become that large.

Anthony Lucas:

Yeah. So it's really expanded. The university is doing a great... I mean, it is a very exciting place to

be right now. There's a lot of new stuff going on. Now, we're sort of fully fledged, in a sense.

We have a law school, dental school, a medical school, I think nine or ten other colleges. So it's an

exciting place to be, and I'm super grateful that I landed there. Because the industry was... I don't know... a

bit of a grind.

Nick Hogan:

Yeah, yeah, yeah, yeah.

Anthony Lucas:

Yeah. I mean, it was a nice, soft landing. Though, having said that, I wouldn't give up any of the

interaction that I have with the industry. Because that's usually the most interesting stuff that I do. And I can't

do any of my research without cooperation with industry partners, so... at least, the research that I want to do.

And so, yeah, it's a nice mix of the academic life, and then the industry life as well. So I'm

pretty happy with the way it all worked out.

Nick Hogan:

Okay, gotcha.

Dan Cherry:

Hey, Anthony, it's fascinating. A lot of us who have been in the industry for a while, going to a

hospitality program really wasn't the way we got into the business. Maybe some folks on the hotel side, through Cornell

and other places, but typically, people would come in like you on the front lines and kind of work their

way up.

So this is really fascinating, I think, an area, that folks just aren't really sure on how the industry has

evolved. Gaming seems like a really specialized feel of study. And you hear a lot about companies touting their internship

programs, their executive management programs. I'm curious how good a job do you think the industry is doing of partnering

with some of these schools to help with job placement and creating career paths for students?

Anthony Lucas:

Well, again, yeah, that's a tough one for me to answer. I don't really think about those kinds of things.

But I think it's gotten a lot better, because gaming has kind of grown globally and become a little bit

more mainstream. I don't know [inaudible 00:19:47] say we're there yet, but it's moving in that direction. And I think

that's because the size of the industry's gotten so big, and geographically, it's spread so far.

So that's helped a lot, I think, in sort of public-private collaboration, and also with training. I think they see

more of a need now. But yeah, it depends on... you've got frontline jobs, which are important, and I think

a great way to indoctrinate yourself to the industry, but you don't really need to go to college for those.

I think the sweet spot is in the middle and up. And so it's just... we have to do a

better job of, I think, communicating what our curriculum can do and how it can help people when they get

into those entry-level management jobs and beyond.

And I think it's gotten better. But there's still a lot of work to be done there, I think, sitting

down at the table and saying, "Look, here's what we can do for you. Here's what you can do for

us," and maybe create this sort of cooperative agreement and understanding of how we both benefit from it. I think

there's some work to be done there. Again, it's better, but going forward, I think there's a lot of opportunity.

I don't know if that's a very good answer to the question, but that's the best that I could do.

Dan Cherry:

No, no, I think it is, because I think you're hinting at, there's evolution and obviously opportunities for partnership, but

a lot of us in the industry, I think, don't really know what is taught in these programs. So clearly

there's a gap that can be bridged. And it's not a knock, but I think, historically, gaming wasn't really thought

of as a, quote-unquote, "intellectual industry," right? And that seems, over the last few years, really to be evolving and

changing with AI and data science, and kind of blurring the lines between tech and hospitality.

I'm curious about... as this is happening... any misconceptions or disconnects that you think are still out there, that either

you or your students are finding between what's taught in the classroom and what's actually happening in the industry?

Anthony Lucas:

Be careful with that one. I don't want to create a whole new army of enemies. I've got enough of

those. Yeah, there's a lot of disconnects. I'll speak broadly about a couple, but I really don't want to get

a bunch of emails. But yeah, I mean, just how the games produce profits. I mean, I have a lot

of conversations with gaming executives almost every day, and sometimes I see... we don't keep what losing players lose. We

keep the difference between what winning players win and losing players lose: quick loss, discounts, rebates, even dead chip to

a certain degree. Oh, that's better. How slot machines work, promotional chip costs, all these things.

Some people understand it, and we have superstars every other industry, and they get it, but there's still a lot

of people out there that I think would benefit from the material that's in our courses. We explain a lot

of things that people demonstrate to me on a weekly basis that they don't understand. I mean, sometimes I look

out in my classroom and I wish there were more industry people in there, because a lot of the stuff

that we're talking about, they really do need to know.

And I think it was Socrates, or some smart guy, around that time who said, "The most important thing you

can know is what you don't know."

Nick Hogan:

Sure.

Anthony Lucas:

And I think... And that happens a lot with corporations. It's not just in gaming, but like Motorola and other

sort of headliner cases of how hubris can take you down. And so you have to be careful and very

honest with yourself about what you know. Again, I don't want to get too deep into this one, but I

work on a lot of the same projects, and so that tells me that there's sort of this broad-base, sort

of misunderstanding of how some very important fundamentals actually operate.

Nick Hogan:

Yeah.

Anthony Lucas:

And so I think... I don't know. I probably dug a deep enough hole with that one, but yeah.

Nick Hogan:

No, I think it's-

Dan Cherry:

Nick and I have just both written down that we need to both attend your class and audit it.

Nick Hogan:

For sure.

Anthony Lucas:

Anytime. And if you want to teach one, please don't hesitate to ask.

Nick Hogan:

Well, so Anthony... and during your academic career, you've taken on some behavioral topics, which are really at the heart

of the industry's economic model, without a question. And I'm just curious, is it safe to say that you're-

Nick Hogan:

And I'm just curious, is it safe to say that your interest in these topics really developed during your operational

career? And if so, I'm just curious which topics really nagged at you the most over the years?

Anthony Lucas:

I mean, I had a quantitative background when I got into the business, so you know how the minds of

engineers and statisticians work, it's just sort of, we think about things differently. And so I would ask a lot

of questions, which made me immediately unpopular. But when I would get the answer to the question, if it didn't

make sense to me, I would try to understand it by talking to different people or more people. And if

I couldn't get there, that became a topic of interest for me. So really it was pretty organic how most

of these research projects started. I'm a curious person and I just wanted to understand how it works.

And so the more questions I asked, the deeper my curiosity became. And so that's really how I started most

of these things. It's like, that doesn't seem right to me. I usually would begin with, why are we doing

this? And then I would get that answer and then that set the bar. And so then I'd say, okay,

well if that's the stated aim, or the goal, or the purpose, then how can we test if it's actually

doing it, if it's achieving that? And I guess that's how I started it.

Nick Hogan:

Well, I can tell you I identify with this big time. I mean, this is how our company started. It

was really just years of me hearing answers to questions that I asked and those answers just didn't make sense

to me. And so it was, let's start gobbling up as much data as we can and seeing if there

are some hard truths in here that we can uncover. So I certainly see eye to eye with you there.

Okay. So well, then over the years you've authored some studies which have generated a great deal of debate throughout

the industry, and we'd really like to focus on two of these today. The first relates to players' ability to

detect hold percentage alterations, and a second focuses on the impact of free play reductions upon visitation in span. Would

it be possible for you to just quickly summarize each, so kind of the principle questions you were asking, the

methodology you used and the conclusions that you reached?

Anthony Lucas:

Well, the first one would be kind of hard to do that quickly. I think there's been, I want to

say there's probably been more than probably 12 studies, maybe more on the PAR issue. Or not just PAR, but

we call it pay table metrics, like PAR, hit frequency standard deviation. All those usual suspects.

I'll try to do this as quickly as I can, although fair warning, it's probably not a short answer, but

yeah, it started with Jim Kilby's study on hit frequency where he took 10 games, held the PAR constant at

10% and had player engagement protocol and simulations that reflected real-world behavior, which was important. But that was the first

study that really established like, okay, you can look at it from the management perspective, which is long-term and highly

aggregated, or you can look at it from the player perspective, which is neither of those things. And that's an

important lens for understanding how slot machines work. And so he was really concerned about time on device in his

simulations, and he wanted to understand does an increase in hit frequency result in an increase in time on device

or pulls per losing player.

We look at losing players because they're the ones who sort of engaged this abstract notion of gaming value. We

assume that the winning players are satisfied. So what he found was no, that hit frequency is not a good

proxy for time on device. But when I looked at his results, I saw a pattern. And so I knew

there was something underlying the results of the simulation. And so I said, well, what does hit frequency not have?

It ignores the magnitude of the hit, treats all the hits the same. And so I said, well, what incorporates

magnitude of the hit? Standard deviation, which is the engine of what we generally refer to as volatility in the

industry. And so I then performed his analysis or one very similar to it using standard deviation. I was able

to demonstrate that an increase in volatility, all else cell constant is going to decrease time on device.

I had no idea how profound the effect would be until I manipulated actual pay tables and simulated the results.

And then I took on the adage of does a lower PAR actually mean that you're going to have more

time on device? And so I created this study along with Dr. Singh, statistician of the College of Math Sciences

at UNLV, and we said, okay, let's make this five game series that has game one has the lowest par

but the highest variance, and then it goes in opposite directions from there. So game five is the opposite of

that. And what we found was if we were able to manipulate the variance that the game with the highest

PAR, the highest house advantage could actually produce the most time on device. And the reason for doing that study

was we wanted to...

I mean, here's how science works. Somebody comes up with a theory and then everybody else says, okay, let's figure

out a way to empirically test that. Does it apply to all contexts? Does it apply to just some contexts

but not others? And so forth. So we understand the generalizability of the theory. And that's what I was trying

to do was say, look, here's the, well, I wouldn't even call that a theory. I'd call it an ideology,

maybe. But here's this ideology that lower PARs must produce more time on device. And so I basically broke that

by saying, well, that's not necessarily true. You have to consider the variance too. And so then the next study

was we held variance constant and we simulated play at many different levels across games with many different PARs.

And we were able to say, look, if you ask a player, can you detect the difference between a 6%

and a 12% game just based on the results you produce under otherwise identical conditions, would you be able to

have the ability to say that's the low PAR game or that's the high PAR game, or that either of

these two samples didn't come from the same population? That's a statistical take on it.

But in the answer is a profound no. If you just look at the results from play of individual sessions,

it's very likely, at least in the games that we simulated, it's very unlikely that you would have results that

would allow you to say, oh, that's a different game. Or, oh, that's the low PAR game. And so that

study, that produced a lot of email.

So every time we do any studies, then there'll be trade articles that say, yeah, but yeah, but yeah. So

every time we hear a yeah, but, we do a new study to address the, yeah, but. So then we

went into the field because the criticism of the simulation study, the media picked it up, so we got a

lot of mail. But they were saying, well, that operates in the de novo condition, which is just Latin that

means from new. And so in other words, people don't have memories. And so even though I disagree profoundly with

that criticism, because I don't think it really matters in this particular context, but I said, okay, let's do field

studies.

So we went into the field in Australia, Mexico, Southern California, several Nevada jurisdictions, some in the Midwest, some on

the east coast, and we did these trials where we would put identical games in terms of what the customer

could see, the pay table, and we'd put them right next to each other and we would say, well, okay,

let's see. These are human players in repeater markets. We only went in repeater markets. And do we see empirical

evidence that they're recognizing a difference in PARs? And also we wanted to know from the operator perspective, which one

performs better, because operators are under constant pressure to increase revenues. And so that was important to us just as

a performance aspect for operators. It's like, which one does better?

And so that's how we addressed the de novo condition was we went and into these field studies, and we

found in every case that the high PAR game would crush the low PAR game in terms of performance. But

we would also not see play migration, which was interesting. I think we did one in Southern California. I think

we had a series of pairings and we had a 4% game versus a 15% game, both penny reels, and

the 15% game just crushed it. But we never saw any increase in play on a 4% game sitting right

next to it. It's hard to find a 4% penny reel.

Nick Hogan:

It most certainly is.

Anthony Lucas:

You know, on a floor. And so a lot of people would say, well, yeah, but they could have went

somewhere else. And I was like, why wouldn't they go right there? Where else would you go? You know what

I mean? That's as good as it gets in terms of a game to play. And they just didn't go

there. The baseline play for that 4% game never changed for a whole year. So they weren't attenuating to it

or taking advantage of probably the best value, if you call PAR gaming value. I don't, but if you do,

then that would be the landing spot and it should be a positive slope over time. And it wasn't, it

was a zero slope.

So we kept seeing that. We did, I think 19 of these studies, and they were amazingly consistent and they

got bigger, more and more units. But there's a limit on how many units or how big it can get.

And I can talk about that later, but that was a really long answer and I didn't even give you

the whole answer.

Nick Hogan:

It's okay, it's okay. Well, okay, but bottom line on there is that in both in simulation and in trial,

you did not really see evidence that players have this ability to detect these differences in PAR.

Anthony Lucas:

Sorry, you cut out. I couldn't hear what you said.

Nick Hogan:

I'm sorry. I said that, so in conclusion, kind of bottom line on it was that your simulations and your

trials, through those, you did not see by any means convincing evidence that players were able to detect these differences

in the PAR. That is fundamentally what you concluded?

Anthony Lucas:

Yeah, I mean if you use the word fundamental, then I would have to throw in that the outcome distributions

that we observed in simulations indicated that there was no difference to detect.

Nick Hogan:

Oh, I got you. Just because of the limited samples?

Anthony Lucas:

It's a little bit different. Yeah.

Nick Hogan:

Because of the limited sample that a player would get. Is that right?

Anthony Lucas:

Yeah. So if you played game A and game B, and then you plotted the outcome distributions of 10,000 visits

on each one, imagine a red bell curve and a blue bell curve. They land right on top of each

other. So people say, well talk about the ability of the player. It's not really the ability. It is to

a limited degree, but it's more just objectively. It's just there's nothing to detect. What makes a 5% game a

5% game is you hit all the combinations. Well, nobody does that-

Nick Hogan:

Correct

Anthony Lucas:

... on Tuesday night with 100 bucks. And then makes the same thing with a 10% game. What makes it

10% game is you hit all the combinations. Did you hit a top award on both of those games? Of

course not. Probably neither one of them. And so they're not a 5% game and they're not a 10% game

for an individual player on a single visit. And so then he gets into, well, yeah, but over time, can

they stitch all these no difference, no difference, no difference, no difference together and somehow divine that there's a difference

in this long-term aggregated perspective? And I was like, have you been on a casino floor? You're drinking, you're texting,

you're watching people, you're not writing anything down. You're varying your wager. I could go on and on. These are

all confounds that make it even harder to detect a difference in PARs or produce a difference in PARs that's

legitimate.

So we're going to argue about this for a long time, but I'm going to come out the other end

of this one in a good place. I'm pretty sure of that. It's going to take a while and I'll

probably take some heavy fire and I'm happy to do it, but I don't know. If we went to court,

let's use this example, and we're like, okay, before the court today we're going to answer the question of can

people tell a difference in PARs between games? I'm going to present 12 studies. The attorney for the other side

is going to present what? Well, we talk to customers and we think they can. Yeah.

So if there's studies out there, and there might be, and they could be proprietary, like they've been done, but

they weren't published for whatever reason, we got to trot those out there. Because so far all I have are

just naked claims. Well, I talk to customers and they say the games are too tight. Say, yeah, well, they

always will because slot machines have to have a lot of losers so they can redistribute those bets to a

few lucky winners. So there's always going to be a lot of losing. And when I was at Stations, we

would increase the PARs, decrease the PARs, and then we would do these follow-up surveys. And same thing, they're too

tight no matter which way we moved it. And I don't know, we didn't even talk about free play, but

that's just PAR.

Nick Hogan:

That's okay. We can hang on this one for a second because I have some things. Dan, I know you

have some thoughts on this too. You want to start?

Dan Cherry:

Yeah, well, the volatility piece is really interesting, right? Because the games keep getting more and more volatile. So to

your point, you talk about that scatter plot, it becomes even more scattered now as they're really all bonus entries.

So it's really interesting. I remember a few years ago your study came out and really was a hotly debated

topic in the industry. Folks like Buddy Frank putting white papers out and other folks going back and forth. You

touched on it a little bit, but I'm just curious how much pushback and how much engagement do you actually

get from industry folks and really engaging with you? And I know you said like, Hey, no one's brought me

another study here. And actually that's really surprising to me, right? You would think with it being such a hot

button, people would really want to engage on this. Do you get a lot of pushback directly or is it

a lot of just the anecdotal stuff that you mentioned?

Anthony Lucas:

That's a great point. I'm glad you brought it up. I always ask and I never get it. I say,

okay, I respect your opinion and I respect your experience on the floor because it does matter. I mean, they

know a lot of things, but whatever. What is the foundation of your argument? I just don't get it. You

were talking about Buddy Frank, and I mean, I like Buddy, he's pretty brutal in his criticism of me, but

I mean, he's just trying to understand what's going on too.

Nick Hogan:

Absolutely.

Anthony Lucas:

I don't think he's a bad guy, but he was like, well, why don't we just move the PAR to

99%? I'm like, Buddy, I mean, nobody's saying that. We're just saying between 4% and 15%, we've compared a lot

of different gaps in there, but we're just not seeing it at that range. Of course, we can go too

far. I mean, that would be an illegal machine in every jurisdiction that I know of, but that's not really

a legitimate criticism of the work, I don't think. But again, he's just trying to understand-

Nick Hogan:

Yeah, of course.

Anthony Lucas:

... what we're saying. But most of the conversations I have with these guys or with industry people, I would

say the first thought that comes into my head is, you should read the paper.

Nick Hogan:

Yeah.

Anthony Lucas:

You know? Because it is pretty clear to me from the first two sentences that came out of your mouth

that you haven't read it yet, or you just read the limitations section. One of the two. But yeah, look,

I have to write for these. If I could write for industry journals, I would write these articles so differently

than I do for academic journals, but you have to write them in a certain way and they're not that

easy to digest. So I don't really blame people for asking me the things they ask me or saying the

things they say to me because it is kind of hard to understand. And I do get that. People say,

well, I don't really understand what you're saying. It's valid, I think.

Nick Hogan:

And Anthony, when I've discussed your work with other people, I often have these same types of questions that, number

one, have you read it? And number two, did you understand it? What was covered there? But when I hear

some of the skepticism, I'm always wondering, so first of all, to your point earlier, do they understand that this

is not the end of history and that science is actually cumulative? So that's kind of a core question to

ask. But then the second thing is just some of the observations that are out there, and we have a

unique perspective here in that we spend a lot of time looking for configuration optima for operators. So we'll look

at things like pricing variables such as payback, a line count, et cetera, et cetera. And then location, grade. These

are the two things that we are really very closely looking at, pricing variables and location, when we're looking at

configuration optima.

And some of the things that we see there, I would say just generally that aspect of what we do,

the number of counterintuitive findings there is just, it's amazing. I mean, it's upside down half the time. And we'll

look at, let's say games in a given series. So Dragonlink something with which I'm quite familiar, we'll see games

within that family, let's say like a Happy and Prosperous, its sweet spot is going to be around a 95%

payback. Whereas you look at a game like String Festival, closer to 88. So within one game family, seven percentage

point delta in PAR for a sweet spot.

But even more fascinating to me is when we look at clones. And if you look at something like a

Super Bowl Jackpots is basically just a reskin of a game called Crazy Rich Asians. And between those two, we

see a four percentage point delta. So I'm always one who's been on the mind that what really makes a

game successful, it all boils down to a certain emotional resonance with players of consequence. And that resonance is very

fickle. And there's one, you know that book was by an MIT, Natasha Shull wrote this book called Addiction by

Design. I don't know if you guys have ever read this.

Anthony Lucas:

Yeah, I read it.

Nick Hogan:

Yeah. And I mean, I have some major problems with the conclusions reached in that book. I mean major, major

problems with conclusions reached in that book. But there was one thing that I appreciate that she elucidated there, and

that was this notion of the zone, this kind of trance-like state that's entered by these really strong video poker

players. And one of the things that stuck out to me there was they're just rabid annoyance with roll-ups following

winning outcomes. So as the credit meter is racking up, they're very bothered by this.

So I often wonder if people are mistaking what players of consequence come in and they're playing a game that's

had an alteration to the par or to something else, and it's creating a different experience overall, kind of in

a flow state and things of this nature. And I often wonder, I mean, the presence of these sweet spots

does suggest that there is a particular config, a particular setup mathematically, that tends to attract those players more so

than others. That would be kind of the only thing that I would splash into this is it is a

little odd to me, and it's something that we struggle to understand all the time.

I don't know if there was a question in there, sorry, maybe guilty of that, but I don't know how-

Anthony Lucas:

You dropped a lot on me.

Dan Cherry:

It's interesting because game designers will tell you all payback is not built equally, right?

Nick Hogan:

Correct.

Dan Cherry:

Because they're picking and choosing, designing where the payback goes, so sometimes it's in the base game, sometimes it's in

bonus frequency, sometimes it's in bonus amount. So I think that's probably what you're getting at is there's some changes

to the game math that are more visible than others.

Nick Hogan:

Yeah.

Anthony Lucas:

Yeah, I definitely agree with that.

Nick Hogan:

Yeah.

Anthony Lucas:

Yeah, I definitely agree with that. Yeah, so that's one of the things we're working on now, is we're demonstrating...

I'm repackaging pay tables, and so I'm competing both constant now, par and standard deviation, and we're finding that even

when you do that, you could dramatically affect time on device just by repackaging those payouts. So Dan makes a

really good point. No one-

Dan Cherry:

One last... I'll just say, one last real quick question on this topic before we move on to free play.

So you touched on par obviously a lot and you talked about volatility. One thing I think is a lot

less controversial is when you think about pricing in general, one big thing I talk about is how much are

people betting? And I've seen studies have said over the last 10 years, min-bet or cost to cover, however you

want to frame it up has virtually doubled, this whole discussion around consumers feeling the pinch. And I was listening

to another discussion with Fred David and Robert Allen, longtime industry veterans, on a different podcast a few days ago,

and what Robert said was this increase, it's not a bad thing. It's not a bad thing that designers are

designing games for VIPs who can afford to bet these bets. The problem is there's other players too, and no

games are being designed anymore for those players and so when they walk into a casino, their availability pool is

shrinking and shrinking and their games are getting older and older.

So I'm wondering if you've spent any time looking at anything here or your thoughts on just increasing average bet,

increasing min-bet, increasing cost to cover in general. Because a lot of folks are really talking about how they feel

like this is a problem, and a problem that is unclear what the solution is.

Anthony Lucas:

Yeah, that's a great question and great points. I am not looking. I don't have any research projects on my

list that would address those questions or concerns, but I agree. I see why. It's Pareto's rule, we get most

of our profits from a small group of our players, but you're right, at some point, we have to diversify

our offering and provide games for people who aren't in that elite group, and I spent a lot of time

trying to do that at one point in my career. I was like, why don't you... If you're stationed casinos

or someone that has a heavy repeat clientele or some of these places in Australia, all they have is a

repeat clientele, what about games for them?

So yeah, I've worked on a lot of game development stuff, but that's a tough business, and you know, and

Dan I'm sure. We've developed games, my group has. We've tried to develop games that do exactly what you just

said, pay tables anyway, but it's just such a tough business to get into. And because we have day jobs,

we don't always have enough time to get things across the finish line because there's a lot of politics or

a lot of kissing babies and shaking hands to get the game in the market. And we did some, but

I don't know, I lost interest in it.

Nick Hogan:

Well, I think a big mistake is assuming that any one ingredient of this thing is going to make a

hit game. I think that happens all the time. It really is a mixture of things, and when you talk

to truly honest game designers about this, they'll tell you there's an element of luck in designing hits. It's just

really trying to discern what it is that's attracting players and there are just so many elements. I use the

analogy of recorded music all the time. So the reason you may like one album versus the next, it's not

just down to the beat per measure or the chord progression. It's all these different elements getting pulled in and

coming in together into a sweet spot, so I think that is a trap in the sign-off.

Anthony Lucas:

I was talking to Mike Fields, former IGT executive, I think he's still working for Ernie Moody, and he told

me once, he said less than 3% of the games ever reach 200 installs, and I don't mean 200 properties,

but 200 units. So you're right, it is very difficult to hit a home run.

Nick Hogan:

Yeah, title failure rate just overall is around 78%. That's what we track and hasn't really moved materially for years.

That's what we see.

Anthony Lucas:

So I was talking to guys from IGT and they were talking about a game called Elvis, which I don't

know, it's an old game, but it was highly touted and for good reason, people thought it was going to

be this great game, but for whatever reason, it just didn't get a lot of traction. And I guess there

were some licensing and costs to get it to market that were higher than normal, and so they were lamenting.

The problem or the lesson that we learned, and I thought this was really insightful, the lesson that we learned

was don't do things that you can't skin and make another version of it. If you come out with Wolf

Run, if that doesn't work, protect your footprint and have Cat Run and Dog Run and Rabbit Run and all

these other games. If that doesn't work, try this.

And with Elvis, they spent all this money to make the game, it didn't work out and so they didn't

have a replacement for it. Now it's just a footprint. I thought that was kind of interesting, because they were

acknowledging like, "Look, we know it's probably not going to work, but if it doesn't, we've got this other possible

solution."