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How Al Capone Started Slot Clubs

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March 01, 2008
Gaming | Technology
Bill Geoghegan - Bill@LGTConsulting.com

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© 2008 Hospitality Upgrade. No reproduction without written permission.

It is well known that Al Capone was sent to prison in 1931, not for any of the many crimes with which we associate his Chicago mob operations (bootlegging, murder, extortion and prostitution), but rather for failure to file and pay taxes on income that he earned from his illegal gambling operations. IRS Special Agent Frank Wilson was assigned to dig into Capone’s business dealings, because Capone lived well, but never showed any income.  It was Wilson’s accidental discovery of a ledger showing the net profits of an illegal gambling house, listing Capone as a recipient of part of those profits, that led to Capone’s own tax lawyer, Lawrence P. Mattingly, admitting that Capone had an income.  In spite of Capone’s best efforts to buy off the jury, he was found guilty on five of the 23 counts with which he had been charged.  The judge sentenced him to a total of 10 years in federal prison.

This conviction sent many members of the underworld looking for creative ways in which to show a legitimate business as the source of their income, although most of their money was earned through illegal means.  Showing a lavish lifestyle without any income would peak the interest of the authorities. 

One of the most commonly used ploys was to engage in a legitimate business that was cash only (no accounts, no business customers), which would make it impossible for auditors to authenticate the income.  Routes containing coin-operated gaming and vending machines, such as soda and gum, were high on the list of desirable businesses for the members of organized crime, because no one could dispute the income that they chose to report.

There has frequently been an unsubstantiated link between some of the early manufacturers of coin-operated vending and game machines and organized crime.  It was thought that juke boxes, pinball games and vending machines were the domain of the mob, placing those machines in protected businesses, and sharing the take with the proprietor.   The same vending and pinball companies soon started making coin-operated slot machines, some of which vended gum and candy, but also ventured into the gambling realm.  Gambling was legal in some jurisdictions (particularly Nevada) so it was a legitimate device to manufacture.

In the post-war era, the real source of income for the casino owner was table games, with the slot machines being a place in a casino to amuse the wives and girlfriends of the table players. It was not long before slot machines became a significant source of income for the casino.  Soon the problem was reversed.  Instead of having to report excess income from vending machines to cover illegally earned income, the trick now became skimming, or showing less income from gambling operations that were actually received, in order to avoid paying taxes on that income and to pay off investors who were not on the corporate rolls.

The advent of the state gaming control entities brought regulations that required manufacturers or casinos to place counters in each slot machine to keep track of how many coins were dropped into the slot, and how many coins were paid out.  The difference between those two numbers was the casino’s win.  On occasion, there was more paid out than went in, and a slot attendant had to fill the machine with coins to complete a payoff, but those fills were carefully logged, usually by a team of two people that were required to watch each other when a machine was opened.  Over the long haul, the income from each machine greatly exceeded the outgo.

Part of the daily operations of a slot department became logging the amounts on each meter on each machine at regular intervals.  Depending on the jurisdiction, those intervals might have been daily or by shift. This was a very tedious and time-consuming task, so the machine manufacturers started placing electronic counters which could be polled at regular intervals from a central computer.

These transaction were written into a log which could later be used to build the reports required both by management (balancing to the hard count, or the count of coins) and by the jurisdiction.  It was quickly discovered that by adding a device that read an optical or magnetic card, another type of log transaction could record – card insertion or card removal.  By requiring that any transaction (repair of the slot machine, refilling the coins or clearing a jam) be logged by the person performing that event, management could see who had opened a machine.  Alarms were placed on the cabinets so that opening the machine would also cause a log entry.

It also made sense that a player could insert a card, causing a new log entry.  It marked a beginning point for that player, with all of the transactions attributed to that player until removal of the card.  Knowing the point at which a card was inserted, all of the coins dropped, all of the payoffs, and the point at which the card was removed would allow a system to know exactly how much a specific player had played and had won or lost to the casino.  From there, the marketing department takes over.  Being able to rate the slot players, offering comps and points in return for amount played, has made it possible for the marketers to send invitations and specials to their best customers.  Virtually every casino, and now many taverns and bars, are linked to a slot or player club. 

All of this data collection and marketing has taken place with one-way data collection.  A polling signal sent to the slot machine causes the meters to upload their current values, and simply keeping a log file of each reading, processing that data, and accumulating the transactions between card insertion and card removal was sufficient to give the casino powerful marketing information.  By making the reporting near real time, a slot accounting system could identify a hot player, or one that is playing a lot of coins in a short period of time.  It could also identify a player who is not in the slot club, but is playing at a high level, sending a signal through a wireless device to a slot club representative, who could go to that machine and offer an immediate slot club sign up to that player.

But a two-way communication with the machine (or a device connected to the slot machine) allows many more things to occur.  For example, printing and validation of tickets (in place of coins) can be done when there is two-way communication with a central server.  Some of this communication does not actually take place with the slot machine, but rather with something that is attached to the slot machine, such as a ticket printer or bill validator. 

One of the current trends in slot patron marketing is to allow a person who is sitting at a slot machine to communicate with other services within the casino. For example, a player could make a restaurant reservation and be sent a message when the table is available.  This is a bonus for the casino, because rather than waiting in line at the restaurant, the player can be at any machine in the casino, playing while waiting for notification that a table is available.  The slot management system knows where the player is by the inserted card, and can send a notice to a small LCD display on the slot machine.

Other services, such as ordering a drink or placing a request to the valet, can also be implemented through the slot peripherals.  Innovative marketing managers are constantly finding new ways to reward their best players, and offering additional services through the slot system is one of the most popular methods. So the next time you ask your slot machine to have your car brought up, you can thank Al Capone.

Bill Geoghegan is a consultant in Las Vegas. He can be reached for comment at Bill@LGTConsulting.com.

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