Why Are Slot Machines Taxed And Table Games Not

• Why Are Slot Machines Taxed And Table Games Not Found

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Slot machines You're also required to pay taxes on non-cash winnings. If you win a vacation or a new automobile, you'll need to take the fair market value of your prize and include it as income on. If you look young carry a state-issued ID with photograph such as a driver’s license. Children are permitted in the casino public walkways but are not allowed to be near slot machines or gaming tables. You are allowed to carry open alcoholic beverage containers on the street, but not in a vehicle. Taxes on gambling winnings. Jun 07, 2015  The Washington Post logo. By contrast, table games in the state are taxed at a 20 percent rate. Plans call for it to have 3,600 slot machines and 140 table games.

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Yes, they are taxable. You are on the honor system to report the income. The casinos will not report any winnings to the IRS. It isn’t just on-line casinos, ANY net gambling winnings are taxable, regardless of where or how they were won.

Whether to cash out it all out at once is your decision. Assuming you are a U.S. citizen you are obligated to declare the income on your next tax return. If you don’t you could be charged with tax evasion. However this sort of thing is largely on the honor system. You are also allowed to deduct any gambling losses in the same year against your winnings.

Zero. You can not deduct a net loss at all. However if you have some W2G forms (generally given on wins of $1200 or more in slots, video poker, and keno) then you can deduct other losses against these wins. You should keep documentation for any losses you claim. You may be thinking of deducting losses on stocks. There you can deduct up to $3000 a year, and can carry over amounts larger than that to the next year. I’m still carrying over losses from the tech crash in 2000.

W2G forms are definitely something to think about when playing video poker at the larger bet amounts. Although you are obligated to pay taxes on your net win at the end of the year regardless of how many W2G forms you have, a payout of $1200 or more will necessitate a wait and obligate you to tip the person paying you. In less classy casinos a hand pay will also cause the tip vultures to start hovering around you. To avoid all of this sometimes the player should consider deviating from optimal strategy. For example with AAA88 in 10/7 double bonus the odds marginally favor keeping the aces only. However in a $2 to $10 game hitting four aces will pay over $1200, necessitating a W2G form, while a full house will stay under the limit. Considering the tax implications keeping the full house is the better play.

To answer your question I’ll assume a four of a kind pays 25 times the bet. Then a four of kind on the deal in a $0.20 50-play game will pay $0.20 * 5 * 50 * 25 = $1250. You will get a four of a kind on the deal once every 4165 hands, on average. If you were to drop the number of hands to 47 the win for a four of a kind on the deal would be 47 * $0.20 * 5 * 25 = $1175, staying under the W2G threshold.

I believe the policy at most casinos is that for large transactions you can have the funds any way you want. Before you consider laundering money by turning cash into checks be aware that casinos ask for a Social Security number and make a record of any transaction involving $10,000 or more.

You are subject to tax for any gambling winnings. However table games players are basically on the honor system. An exception that a W2G form is generated if a win is 300 for 1 or more odds and is over $600. That is usually only an issue with progressive jackpots. Also, if there is a cash transaction of $10,000 or over the casino is obligated to fill out a CTR, which stands for Cash Transaction Report. Yet these are nothing to worry about, and I think many big bettors are overly paranoid about them.

Only single wins of $1,200 or over are subject to withholding. If you won over $1,200 in small wins you would not be subject. When you press the cash out button the machine doesn’t know your citizenship and will just print a voucher for whatever you had. Any $1,200 or over win will always lock up the machine until an employee unlocks it. On high denomination games, usually starting at $10 or $25, the casino may keep a log of all your taxable wins. On a $500 machine, I’m sure they would have somebody standing right next to the machine do the paperwork. When you are done they will give you a single W2G form for the sum, and in your case subtract the withholding from that.

The W2-G is based on the gross win, not the net win. So, yes, if the player got a $5000 push on a Red, White, & Blue, he would get a W2-G.

Cliff from Aiea

In the U.S., any gambling winnings of any kind and any amount are taxable. However, with table games, it is on the honor system to report.

I forwarded this one to Brian, who is a former gaming regulator, and currently a casino manager. Here is what he said,

The casino would not know that someone was in the country illegally. If he had a valid passport, the jackpot would be honored. The illegal may not know this, be scared or they may not have a valid ID to show. Whenever someone wins $1,200 or more, ID is required for tax purposes. If someone doesn’t have his ID, the jackpot would be held in the cage waiting for them to claim it. In most cases, the person has legitimately forgotten their ID; however, sometimes you run into a problem, such as a minor who was gaming. If he doesn’t claim it, the money has to be added back into revenue because the deduction (jackpot) was never paid or there are abandoned property rules that prevail. Also, like the U.S., most countries tax worldwide income. To that end, the U.S. has tax treaties with several countries to withhold or notify the respective governments of monies won in the U.S. so Uncle Sam always gets his cut.

This is getting out of my area, but I'll try to help. The IRS web site says that for this purpose, the U.S. has tax treaties with the following countries: Austria, Czech Republic, Denmark, Finland, France, Germany, Hungary, Ireland, Italy, Japan, Latvia, Lithuania, Luxembourg, Netherlands, Russian Federation, Slovak Republic, Slovenia, South Africa, Spain, Sweden, Tunisia, Turkey, Ukraine, and the United Kingdom. Note that New Zealand is not on the list.

If you are a resident of one of the listed countries, and you hit a jackpot of $1,200 or more, then you should ask to fill out a form W8BEN. That should reduce, or in most cases, eliminate the withholding.

Even if you are not from one of the listed countries, or don’t fill out the form, you can still get the withholding back by filling out form 1040NR, or the simplified version the 1040NR-EZ.

My own tax accountant is Marissa Chien EA, author of Tax Help for Gamblers. She does an outstanding job, but some might consider her expensive. For a 1040NR she says she charges about $1,000. She adds this form is usually incorrectly filled out by most others. Her e-mail is .

IRS PDF’s:

• 1040NR-EZ instructions (PDF)
• 1040NR-EZ form (PDF)
• 1040NR instructions (PDF)
• 1040NR form (PDF)
• W8BEN instructions (PDF)
• W8BEN form (PDF)

Marissa is on Twitter at @taxpro4gamblers, where she occasionally answers tax questions to followers.

Title 31 is a regulation stating that the casino should make a record of cash transactions of over $10,000 by a single player in a single day. In such cases, a CTR must be filled out, which stands for Cash Transaction Report. This includes making multiple transactions, adding up to over $10,000. If you cash chips close to, but under, $10,000, the cage will likely want to make a note of it, in case you come back later that day, and go over the $10,000 daily limit.

My advice is to give them what they ask for. You have a lot more to fear by looking like you are avoiding CTRs than the CTRs themselves. In fact, I think there is nothing to fear from a legitimate CTR; the casinos generate lots of them. Personally, I have generated hundreds, to no known detriment. However, it raises lots of attention when you look like you are going out of your way to avoid them. I know one person who was rebuffed when he tried to cash in chips, because he had too many previous redemptions of just under $10,000. So, that is my two cents. Better suited to answer this is 'Brian,' a current Las Vegas casino manager, and former regulator, whom I like to turn to for procedural questions like this.

In a nutshell, Title 31 is the U.S. Department of Treasury Code designed to prevent money laundering. It requires that certain large cash transactions be reported to the Government. These are filed on FinCEN Form 103 “Currency Transaction Reports by Casinos” (FinCEN is the Financial Crimes Enforcement Network). Casinos are required to report all currency transactions in excess of $10K in a single day. The “day” doesn't follow the clock − a casino picks their day (e.g., 3 a.m. to 2:59 a.m.).

All Financial Institutions comply with Title 31. Casinos are considered financial institutions because of the types of transactions they perform, which are similar to those of a bank (e.g., check cashing, wires, loans, cash exchanges). Unlike traditional financial institutions, casinos conduct a great deal of transactions with unknown patrons. When you set up your checking account at the bank, you give them all of the necessary information needed to fill out CTRs. However, when cashing chips at the cage, the only way the casino can get this information is to ask. Casinos have to get all of the necessary information to fill out a CTR before the patron crosses the $10,000 threshold. Since the fines for non-compliance are hefty, they make a diligent effort to comply.

Casinos are apprehensive to give patrons too much information on Title 31 for fear of inadvertently breaking the law. Casinos are specifically precluded from aiding patrons in structuring transactions in such a manner as to allow them to skirt the requirements. When you ask questions, they prefer to point to a preprinted informational card and don’t like to discuss the matter for fear of divulging inappropriate information.

Circumventing Title 31 is relatively easy for undocumented transactions (e.g., chip buys, chip redemptions, etc.), but why would you want to? If the casino has reason to believe that you are purposefully conducting your transactions in an effort to avoid the reporting requirements of Title 31, they'll fill out a Suspicious Activity Report by Casinos form (aka SARC). If a casino learns that you exceeded the $10K threshold and they didn't get the required information, they will bar you from gaming until they get it. — Brian

Here is what the bill says:

In the case of a taxpayer other than a corporation, there is hereby imposed (in addition to any other tax imposed by this subtitle) a tax equal to 5.4 percent of so much of the modified adjusted gross income of the taxpayer as exceeds $1,000,000. -- Section 59C(a) page 337 H.R. 3962 (PDF — 3270 KB) or CNN.com

The surcharge would be applied before the gambler could deduct any offsetting losses. I verified this with Marissa Chien, co-author of Tax Help for Gamblers. For high-level slot players, it is not difficult to rack up W2-G forms in the millions per year. Most of these players will still have a net loss on an annual basis. Past the million point in gross income, the player will pay a 5.4% tax on any win of $1,200 or more, even if there is a net loss for the year. This is just my opinion, but I think that isn’t fair. If we must tax gambling winnings (which they don’t in Canada), it should be on the net, not the gross winnings, on an annual basis. Should this become law, it will ruin high-level slot play in this country.

Why Are Slot Machines Taxed And Table Games Not Found

Marissa is on Twitter at @taxpro4gamblers, where she occasionally answers tax questions to followers.

According to page 12 of IRS publication 529 (PDF), the minimum a gambling log should include is:

• Date and type of wager or wagering activity.
• The name and address or location of the gambling establishment.
• Names of other persons present during the gambling activity.
• Amount won or lost.

In addition, you should keep other documentation, such as W2-G forms and losing tickets. Personally, I keep my log in Excel and always retain W2-G forms and losing sports tickets. The book Tax Help for Gamblers by Jean Scott & Marissa Chien has a whole chapter on this topic.

This question was raised and discussed in the forum of my companion site Wizard of Vegas.
Marissa is on Twitter at @taxpro4gamblers, where she occasionally answers tax questions to followers.

I’m told that said provision (section 59C) was dropped from the final bill. That is the good news. The bad news is there is a new Medicare tax on unearned income above $250,000 for a married couple, starting in 2013. It looks like this may apply to gambling winnings before itemizing any gambling losses. Please ask me about this again in about two years for a status report.

This question was raised and discussed in the forum of my companion site Wizard of Vegas.

gambler

That is quite the difficult and controversial question. Before I answer, let me say that tax law is not my area of expertise, so you should consult a tax professional about your personal situation. Another better source than me about this is Tax Help for Gamblers by Jean Scott & Marissa Chien. Chapter three deals with this topic.

The general rule of thumb is that earnings are taxable and gifts are not. So a no-obligation comp would not be taxable. Anything that was given to you based on points, a drawing, a tournament, or earned some other way would be taxable. Granted this is not going to cover every situation, and some situations can be in a gray area. If you’re in doubt, consult a tax professional.

This question was raised and discussed in the forum of my companion site Wizard of Vegas.

First, you'll have to produce photo identification, or the casino will hold onto the money until you do. If you show identification but decline to produce or declare a valid social security or other tax identification number, then 25% to 30% will be withheld depending on whether the jackpot is more or less than $5,000, and whether you are from the United States or a foreign country with a reciprocal tax treaty.
As of 2011, such countries were Armenia, Australia, Austria, Azerbaijan, Bangladesh, Barbados, Belarus, Belgium, Bulgaria, Canada, China, Cyprus, Denmark, Egypt, Estonia, Finland, France, Georgia, Germany, Greece, Hungary, Iceland, India, Indonesia, Ireland, Israel, Italy, Jamaica, Japan, Kazakhstan, Kyrgyzstan, Latvia, Lithuania, Luxembourg, Mexico, Moldova, Morocco, New Zealand, Norway, Pakistan, Philippines, Poland, Portugal, Romania, Russia, Russia, Slovakia, Slovenia, South Africa, South Korea, Spain, Sri Lanka, Sweden, Switzerland, Tajikistan, Thailand, The Czech Republic, The Netherlands, Trinidad and Tobago, Tunisia, Turkey, Turkmenistan, Ukraine, United Kingdom, Uzbekistan and Venezuela.
I've been trying to figure out the rules exactly, but it is giving me a headache. Please refer to IRS rules for issuing a W2G form for more information.
My thanks to Marissa Chien, co-author of Tax Help for Gamblers , and MathExtremist for their help with this question.
This question is discussed in my forum at Wizard of Vegas.

by John Robison
Do the slot machines on the ends of aisles pay better than the machines in the middle? How about the machines near the table games? They’re tight, right? And are the machines near the coin redemption booths loose? Join us on our journey for finding loose slot machines.
The loose slot machine is the slot player’s Holy Grail. Much as King Arthur’s Knights of the Round Table searched Britain for the Holy Grail of myth, slot players search casinos for loose machines. Slot players have formulated many theories about where casinos place their loose machines to aid them in their quest.

Before we can figure out where the loose machines are, we have to figure out what they are. There is no U.S.D.A. system for grading the looseness of machines and no national or international standard that determines whether a machine is tight or loose.

So, what is a loose slot machine?

Say we have two 94% payback machines. Are they loose? I bet some people say yes and some say no. Why isn’t there agreement? Let me add a little more information to the scenario to see if it gives you an idea of why one person calls a 94% payback machine loose and another calls it tight. What if I told you that one machine was a nickel machine and the other a dollar machine? For most people who play nickel machines, a 94% machine is among the best-paying machines in their area. For most people who play dollar machines, on the other hand, a 94% machine is among the worst-paying machines in their area. The person who called 94% loose probably plays lower-denomination machines, while the person who called 94% tight probably plays higher-denomination machines.
Let me add one more piece of information. The dollar machine is a video poker machine. Dollar video poker players would rather have root canals on all their teeth with no anesthesia while their fingernails and toenails are ripped off than play a 94% payback machine. They have many adjectives for a 94% payback machine, but loose is not one of them.
You see, loose isn’t an absolute. Looseness depends on your frame of reference. Looseness is actually a comparison. We shouldn’t say “loose.” We should really say “looser”. We should really be asking where the looser machines are. But let’s bow to common usage and continue using the term loose machine.

So, what is a loose machine?

Quite simply, a loose machine is a machine that has a higher long-term payback percentage than another machine. The loose machines in a casino are those machines that have the highest paybacks. These are the machines that will take the smallest bites out of your bankroll in the long run. No wonder slot players are constantly searching for them.
Over the years, players have developed a number of theories about finding loose slot machines. Casinos place loose machines near the entrances, for example, so passersby can see players winning and are enticed to enter the casino and try their luck. The loose machines are also at the ends of the aisles to draw players into the aisle, where the tight machines are.
And, of course, a loose machine is always surrounded by tight machines. You never have two loose machines side by side. That’s done for players who like to play more than one machine at a time. If they should happen to stumble upon one of the loose machines, they’ll be pumping their winnings from it into the tight machines around it.
More theories. The machines near the table games are tight because table games players don’t want to hear a lot of bells and buzzers going off and happy slot players whooping it up after a big win. Another reason the machines near the table games are tight is because table games players will occasionally drop a few coins into a slot machine and they don’t expect to win anything, so why give them a high payback.
Similarly, the machines near the buffet and show lines are tight. People waiting in line are just killing time and getting rid of their spare change. They’re not going to play for a long time or develop a relationship with those machines, so the machines can be like piggy banks – for the casino! Money goes in and rarely comes back out.
The machines near the coin redemption booths, on the other hand, are loose. Players waiting in line for coin redemption are slot players and the casino wants them to see other players winning. Seeing all those players winning will make them anxious to get back on the slot floor to try their luck again.
Finally, finding loose machines in highly visible locations is most likely. Again, casinos want players to see players winning and be enticed into trying to get a piece of the casino’s bankroll themselves.
These are the theories I can think of off the top of my head. Maybe you know of some others. Most of the theories have a basis in psychology. When we see others winning, we’ll want to play too because 1) we’re greedy, 2) we’re envious, or 3) we see that at least some machines really do pay off and if we keep trying we might find one too.
Based on my own discussions with slot directors, interviews with slot directors, and seminars I’ve attended, I don’t think these theories are relevant in today’s slot world. To see why, we have to look at how slot machines and slot floors have changed.
Picture a slot floor of 10-20 years ago. Even if you don’t go back that far, I’m sure you’ve seen pictures on TV or in books. The slot machines on a casino floor in that era are arranged in long rows, much like products out for sale in a supermarket aisle. There’s no imagination used in placing the machines on the floor. The machines are placed using cold, mechanical precision.
On page 193 in Slot Machines: A Pictorial History of the First 100 Years by Marshall Fey, there’s a great picture of Bally’s casino floor in Atlantic City that illustrates my point. The picture shows hundreds of slot machines all lined up in perfect rows like little soldiers. The caption reads, “Like a Nebraska cornfield, rows upon rows of Bally slots extend as far as the eye can see.”

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Compare that image with the slot floor layout at a casino that was designed in the last five or so years. Studies have shown that players feel very uncomfortable playing in long aisles. They feel trapped when they’re playing in the middle of a long aisle, particularly if the casino is crowded. As a result, modern casinos have shorter aisles and when a long aisle can’t be avoided, it will be wider than others so players won’t feel like they can’t get out.
One of the finding loose machines theories has casinos placing loose machines at the ends of aisles to draw people into the aisles. Having shorter aisles means having more machines at the ends of those aisles. Can all of these machines be loose?
In addition to being uncomfortable in long aisles, players are also uncomfortable being put out on display for the other players. Perhaps they feel like they might become a target if their good luck is too visible.
One slot director I heard speak said that he tried to create “comfortable niches” for his players. Instead of being in a fish bowl, visible to most of the slot floor, players in his niches can be easily seen by only the other players in that niche.
Another theory about loose machine placement is that casinos place them in highly visible areas. Modern casinos still have highly visible areas, but the areas are visible to a smaller number of players. A loose machine in this area will influence fewer players than before.
The last change in the slot floor that I want to mention is perhaps the biggest change of all. Casinos used to have hundreds of slot machines. Now they have thousands. One slot director in Las Vegas said in an interview a few years ago that with so many machines on his floor, he didn’t have time to micro-manage them. He and his management decided the hold percentage they wanted for each denomination and he ordered payback programs close to that percentage for his machines. Furthermore, he said this was the common practice in Las Vegas.
As much as the slot floor has changed, the changes on the floor are dwarfed by the changes in the slot machines themselves. One thing that struck me about that picture of Bally’s is how all the machines look alike. They really do look like soldiers being inspecting, all standing at attention and in identical uniforms, or like rows of indistinguishable corn plants. In fact, it looks like there are only three different games in the 10 machines in the first row in the picture. Granted, the majority of the machines in Bally’s casino were Bally machines. Still I’m surprised by the lack of variety in the machines in the front row in the picture.
I heard that one theory why Americans have gotten heavier is that we have access to a wider variety of foods today than we had before. When meals consisted of the same thing time after time, it was easy to pass up second helpings of gruel and eat just enough to no longer be hungry. But now we have Chinese one night, Mexican the next, followed by Thai, burgers, pizza, and pasta -- it’s easy to overeat on our culinary trip around the world.
Just as variety in food creates desire, so does variety in slot machines. “Hey, I used to watch The Munsters all the time. I’ll try that machine.” “I never miss The Apprentice. I’ll give that machine a go.” “I played Monopoly all the time as a kid.” “I have a cat and a dog and a chainsaw and a toaster.”
Not only is there more variety in themes on machines, there’s also more variety in paytables. Back in the 1920s, a revolutionary change in slot machine design was paying an extra coin for a certain combination. Adding a hopper to the machine in the electro-mechanical era made it possible for the machine to pay larger jackpots itself instead of requiring a handpay from a jackpot girl. Adding a computer to the slot machine made it possible for today’s machines to pay modest jackpots of a few thousand coins all the way up to life-changing jackpots of millions of dollars.
The computer also makes it possible to add more gimmicks to machines. Gimmicks like “spin-til-you win,” symbols that nudge up or down to the payline, haywire repeat-pays, and double spin all add more variety and interest to the games.
Today’s machines are immeasurably more interesting and fun to play than those of even just a decade ago. Each new generation of machines has crisper graphics and better sound than the prior generation. Slot designers are working overtime to devise compelling bonus rounds that will keep players playing for just one more crack at the round. How many people playing Wheel of Fortune are trying to win the jackpot? Not many. Most people keep playing to get one more spin of the wheel.
Slot directors today don’t need to pepper their slot floors with loose machines to stimulate play. Today’s machines themselves generate more desire to play than seeing a player doing well.
Now I'll finish our discussion of where slot directors place loose machines with some additional thoughts, with a few anecdotes I've heard at slot seminars, and with what I think will be the final nail in the coffin of loose machine placement philosophies.
One of the placement theories says that tight machines should be placed near the table games because the table games players don’t like a lot of noise while they’re playing. Have the people putting forth this theory ever been near a craps table? A craps table with a shooter on a hot roll has to be one of the loudest places -- if not the loudest place -- in the casino. Craps players can be a boisterous lot even when the table isn’t hot. Okay, I can see players needing peace and quiet at blackjack tables (It’s difficult to count cards even in a quiet casino.), but not at craps, roulette, Let It Ride, and other tables. In any case, the casino can adjust the volume level on a machine. The slot director can put a very quiet, loose machine near the tables and not disturb a single table games player.
Another problem with following a loose machine placement philosophy is that it limits the flexibility slot directors have in moving their machines around on the slot floor. If the directors are going to give up a little bit in payback on some machines, they certainly will want to get their money’s worth and ensure that these machines are in locations where they’ll be played, be seen being played, and entice other players to play. Slot floors have only a limited number of high visibility areas. Slot directors won’t want to waste any of their high-paying machines in the more numerous less visible areas, where the machines won’t be encouraging other players.
Now I’d like to share some anecdotes I’ve heard at panel discussions during the big gaming show (first the World Gaming Congress, then the Global Gaming Expo) that’s held in Las Vegas each year.
First, one slot director described an experiment he conducted in his casino. He had a carousel of 5 Times Pay machines that all had the same long-term payback. He ordered new chips to lower the payback percentages on a couple of the machines to see if anyone would notice. The machines with the lower long-term paybacks received just as much play as the higher-paying machines. No player, furthermore, ever complained that some of the machines in the carousel were tighter than others.
In another seminar, a slot director shared the philosophy he used to place some machines that he had inherited from another property. These machines, he said, had lower long-term paybacks than the payback he usually ordered for machines on his slot floor. He said, 'I read the same books that the players read. I put these lower payback machines in the spots that the books said should have the high payback machines.'
My last anecdote is about a decision made by the slot director at the MGM Grand in Las Vegas many years ago. He was ordering 10 Times Pay machines for his slot floor and he was concerned about the low hit frequencies available for those machines. (Machines with multiplying symbols tend to have low hit frequencies, and usually the higher the multiplier, the lower the hit frequency.) The slot director was afraid that his players would think the machines were very tight because they hit so infrequently. He said that he ordered higher paybacks than he usually does for those machines in an attempt to offset the low hit frequency. The machines would still have a low hit frequency, but at least the average value of a hit would be a little higher than if he had ordered a payback percentage nearer the percentage he usually ordered. He hoped that would be enough to keep his players from thinking these were tighter than the other machines on his slot floor.
Although I think these anecdotes are the exceptions that prove the rule that some casinos at least order the same long-term paybacks for machines of a particular denomination, there is evidence that some casinos may not. In the first edition of Casino Operations Management, for example, Kilby and Fox list a number of “general philosophies that influence specific slot placement” including: “low hold (loose) machines should be placed in busy walkways to create an atmosphere of activity” and “loose machines are normally placed at the beginning and end of traffic patterns.”
They then say that “high hit frequency machines located around the casino pit area will create an atmosphere of slot activity.” I’m not sure whether they’re saying high hit frequency should or shouldn’t be placed near the pit. In any case, note that one philosophy said that loose machines create an atmosphere of activity and another said that high hit frequency machines also create an atmosphere of activity. This is the perfect segue into what I think puts the final nail in the coffin about loose machine placement theories.
There is no correlation between long-term payback and hit frequency. A low hit frequency machine can have a high long-term payback. High hit frequency machines, in addition, can have low long-term paybacks. Larry Mak, author of Secrets of Modern Slot Playing, recently queried the Nevada Gaming Control Board to find out the payback reported on penny machines. The Board said it was 90.167%. Most of the penny video slots have very high hit frequencies, yet the overall average long-term payback is very low.
The usual reasoning behind putting loose machines in highly visible areas is so slot players can see other players winning. Maybe we should be more precise here and say that players will see other players hitting and assume that they are winning because they are playing loose machines. But because there’s no correlation between hit frequency and long-term payback, these players can actually be playing machines with low long-term paybacks.
I don’t put much stock in loose machine placement theories, but I do believe slot directors may follow a hit frequency placement philosophy. Slot directors may try to place high hit frequency machines in visible areas to encourage play. This philosophy says and implies nothing about the long-term payback of the machines.

John Robison is the author of 'The Slot Expert's Guide
to Playing Slots.' His website iswww.slotexpert.com