Accounting for Progressive Liabilities

When you walk into a casino you hear jackpot bells, reels spinning and see the bright flashing lights, but what I see is the gaming vendor names, the bingo cards and the progressive balances. Managing the accounting for casinos is very specialized and I would have never imagined this would be my career path, but I love where the casino industry has taken me. With any specialized field there is a lot to learn, and I am here to discuss one of the most common accounting issues for casinos I have seen over the years, progressives.

Progressives are machines on the casino floor where the amount the players can win continually increase based on the play on that machine or group of machines. There are so many things to consider when accounting for progressive liabilities in the general ledger.  First you must determine what type of progressives are on the floor. Are they wide area progressives, in-house progressives, stand-alone or linked progressives?

Let’s talk about them individually and how they should be accounted for.

WAPS typically have very large jackpots over $200k. They are enticing to patrons with the possibility of winning huge. What they may not know is those machines are being played all over the country and the possibility of winning is very minimal. WAPS jackpots are guaranteed and paid out by the vendor of the machine which is very different from in-house progressives and therefore, they are handled very differently.

Since the vendors are responsible for paying the jackpot there is no liability on the casino’s books. However, there is a step that is often missing when accounting for these types of machines and that is the casino’s portion of the payout when the machine hits. The vendors will send reports to the casino which will indicate how much of the jackpot was their portion and this must be recorded as a payout in the general ledger.

First, what’s the difference between the two?

The difference is that stand-alone progressives are single machines where the jackpot grows only on that machine.  Whereas linked progressives are groups of machines in which the jackpot grows on several machines at the same time. When the jackpot hits, all the machines reset to the same amount. When machines are linked, you don’t want to record the liability for every one of those machines because they are essentially one in the same. That is easy to miss when recording the progressive liability or the amount due back to the players.

Rule of thumb, look for duplicate readings less the base amounts before adjusting general ledger.

Lastly the most common issue I see with progressives are retired progressives. Since progressive machine carry a liability or jackpots that are due back to patrons, what happens if that machine is removed from the floor? Those amounts can’t just disappear because they are owed to the players.  There are two scenarios that can happen.

1. The balance of the machine can either be transferred to other progressive machines
2. The machine is considered retired

If the balances aren’t transferred, then those balances are still due to the players, right? The answer is yes so, they must still be treated as a liability but I recommend that you move those to a separate liability account so casino management can use those funds in other ways. When that liability is carried separately on the balance sheet management can use those funds to pay for promotions or anything else that will benefit the players. Most often these funds are not recorded properly or at all. If this is handled properly, management can reduce promotion expense by using this liability balance.

As I mentioned previously, there are so many things to consider when accounting for progressives. Ensure you or your accounting staff are looking at these very carefully it can save you from potential financial misstatements.