Chapter 15 Casinos. Identify the changing trends in and demographic profiles of the casino market....

Chapter 15Chapter 15

CasinosCasinos

Identify the changing trends in and Identify the changing trends in and demographic profiles of the demographic profiles of the

casino market.casino market.U.S. Gaming Market U.S. Gaming Market

United States United States In 2002, gross gaming revenue in the United In 2002, gross gaming revenue in the United States peaked at over $68.7 billion.States peaked at over $68.7 billion.The global gaming environment is in the midst of The global gaming environment is in the midst of a rapid growth period.a rapid growth period.There is a population of 197.2 million adults There is a population of 197.2 million adults (over the age of 21) in the U.S. Of that (over the age of 21) in the U.S. Of that population, 51.2 million are casino gamblers; population, 51.2 million are casino gamblers; which makes the casino gaming participation which makes the casino gaming participation rate about 26%. rate about 26%.

Changing TrendsChanging Trends

State by State State by State

Utah and Hawaii are the only states that Utah and Hawaii are the only states that ban gaming entirelyban gaming entirely

The three most pertinent forms of The three most pertinent forms of gambling are:gambling are:– Land-based gamblingLand-based gambling– River-boat gamblingRiver-boat gambling– Native American gamblingNative American gambling


Major Companies Major Companies The top four large cap gaming operators of The top four large cap gaming operators of 2004, as measured by revenue, are Caesars 2004, as measured by revenue, are Caesars Entertainment, Harrah’s Entertainment, Entertainment, Harrah’s Entertainment, Mandalay Resort, and MGM Mirage.Mandalay Resort, and MGM Mirage.

Native American (Tribal) Gaming Native American (Tribal) Gaming The The Indian Gaming Regulatory Act of 1988 Indian Gaming Regulatory Act of 1988 allowed Native American gaming facilities to allowed Native American gaming facilities to begin proliferating in earnest.begin proliferating in earnest.Currently, tribes operate 203 Class 3 (casino) Currently, tribes operate 203 Class 3 (casino) and 72 Class 2 (bingo) gaming operations in 29 and 72 Class 2 (bingo) gaming operations in 29 different states.different states.


Native American (Tribal) Gaming (cont.)Native American (Tribal) Gaming (cont.)

Economic development strategies have aimed to Economic development strategies have aimed to stimulate depressed regions, cities, and stimulate depressed regions, cities, and communities by utilizing the rise of gambling communities by utilizing the rise of gambling activity as a tourism policy.activity as a tourism policy.

Today, roughly 330 casinos are run by more Today, roughly 330 casinos are run by more than 200 tribes across 28 U.S. states.than 200 tribes across 28 U.S. states.

Southeastern Connecticut is the home of the Southeastern Connecticut is the home of the largest Native American casino market.largest Native American casino market.


From Casinos to Resorts From Casinos to Resorts Casinos have two general objectives: extending Casinos have two general objectives: extending the length of stay for on-site guests, and the length of stay for on-site guests, and broadening the appeal in order to increase the broadening the appeal in order to increase the potential market.potential market.

First phase: Casino serving a local marketFirst phase: Casino serving a local market– Las Vegas needed to become a destination because Las Vegas needed to become a destination because

it had virtually no local market to rely on. In its first it had virtually no local market to rely on. In its first growth stage, Las Vegas attracted local customers growth stage, Las Vegas attracted local customers simply because of the legalized gambling, but that simply because of the legalized gambling, but that was not enough to promote additional growth.was not enough to promote additional growth.


Second phase: Increased competition from other Second phase: Increased competition from other locationslocationsAfter the legalization of tribal gambling and After the legalization of tribal gambling and gambling in other states, Las Vegas lost its gambling in other states, Las Vegas lost its virtual monopoly on the gambling industry.virtual monopoly on the gambling industry.Las Vegas entered its second major growth Las Vegas entered its second major growth phase by tapping into the mass market by phase by tapping into the mass market by offering 99 cent buffets and inexpensive lodging.offering 99 cent buffets and inexpensive lodging.Traveling to Las Vegas to gamble became a Traveling to Las Vegas to gamble became a more feasible option for many casino-goers.more feasible option for many casino-goers.


Third phase: Entertainment convergenceThird phase: Entertainment convergence

The attributes that exist for a casino in the third The attributes that exist for a casino in the third phase of development include:phase of development include:– The area experiences a greater increase in the total The area experiences a greater increase in the total

visitor revenue per capita.visitor revenue per capita.– Elements of entertainment and hospitality transition Elements of entertainment and hospitality transition

from marketing costs to centers of profit.from marketing costs to centers of profit.– The average length of stay for guests extends.The average length of stay for guests extends.– The area experiences a slight decrease in per-capita The area experiences a slight decrease in per-capita

gaming revenue.gaming revenue.


Objectives of Resort Casino Development Objectives of Resort Casino Development

There are numerous ways to increase There are numerous ways to increase revenue:revenue:– attracting a new type of guest demographicattracting a new type of guest demographic– extending guest stayextending guest stay– attracting guests from a wider market areaattracting guests from a wider market area– through direct revenue through new elementsthrough direct revenue through new elements– arrest market-share erosion from competitive arrest market-share erosion from competitive

casino-resortscasino-resorts


Role of specific elements Role of specific elements

An entertainment retail center is the An entertainment retail center is the element that has the greatest potential element that has the greatest potential impact on casino resort development.impact on casino resort development.

Potential revenue from a residential resort Potential revenue from a residential resort development can have an impressive development can have an impressive impact.impact.


Casino GamblersCasino GamblersProfileProfileAtlantic City is the second-largest gambling market in the Atlantic City is the second-largest gambling market in the entirety of the United States. entirety of the United States. Roughly 53 million Americans participate in casino Roughly 53 million Americans participate in casino gambling.gambling.Gamblers’ median age is 46.Gamblers’ median age is 46.Nonetheless, gambling is most popular in the 51 to 60 Nonetheless, gambling is most popular in the 51 to 60 age group.age group.Casino gamblers have a male/female ratio of 45/55.Casino gamblers have a male/female ratio of 45/55.Of the gamblers, 46% graduated or attended college.Of the gamblers, 46% graduated or attended college.


Casino GamblersCasino GamblersProfileProfileThe states that generate the most casino trips The states that generate the most casino trips are California, Illinois, Nevada, New York, and are California, Illinois, Nevada, New York, and Michigan.Michigan.The income level of gamblers is on average The income level of gamblers is on average higher than the rest of the populations.higher than the rest of the populations.Higher-income gamblers are the ones who bear Higher-income gamblers are the ones who bear the financial burden of casino gambling.the financial burden of casino gambling.However, lower-income gamblers living in Las However, lower-income gamblers living in Las Vegas spent more of their income on gambling Vegas spent more of their income on gambling than the wealthier Las Vegas dwelling gamblers.than the wealthier Las Vegas dwelling gamblers.


The Games People PlayThe Games People Play

Casinos choose to allocate roughly 80% of Casinos choose to allocate roughly 80% of their floor space to slot machines and their floor space to slot machines and other EGDs.other EGDs.

Approximately half of all slot players prefer Approximately half of all slot players prefer 25-cent and 50-cent machines.25-cent and 50-cent machines.

Blackjack is by far the most popular table Blackjack is by far the most popular table game, followed by roulette and craps.game, followed by roulette and craps.


Promotional StrategiesPromotional StrategiesMany casinos offer complimentary services and Many casinos offer complimentary services and goods known as “comps”.goods known as “comps”.Comps can include things such as caps, T-Comps can include things such as caps, T-shirts, and buffets for the low-end players, up to shirts, and buffets for the low-end players, up to dinners, transportation, and hotel rooms for the dinners, transportation, and hotel rooms for the higher-end players.higher-end players.A “whale” is a type of gambler that generally A “whale” is a type of gambler that generally wagers $50,000 or more per hand and can wagers $50,000 or more per hand and can easily wager $10 million in only a weekend.easily wager $10 million in only a weekend.Whales never pay for any part of their trip.Whales never pay for any part of their trip.


Impact of Heavy Spenders Impact of Heavy Spenders

““Whales” or “high rollers” account for the Whales” or “high rollers” account for the bulk of casino wins. Roughly 13% of bulk of casino wins. Roughly 13% of casino player club members generate casino player club members generate about 84% of total tracked revenue that is about 84% of total tracked revenue that is associated with loyalty club members.associated with loyalty club members.

Identify the critical variables in Identify the critical variables in determining a casino’s profit determining a casino’s profit

potential.potential.

Organizational StructureOrganizational Structure

One of the keys to a casino’s success is One of the keys to a casino’s success is the effectiveness of the management the effectiveness of the management team, which includes: team, which includes: – President or General Manager President or General Manager – Vice PresidentsVice Presidents– Games or Casino Manager Games or Casino Manager – Other floor employeesOther floor employees

Critical Variables in Profit PotentialCritical Variables in Profit Potential

Staffing Staffing The adequacy of customer service and the The adequacy of customer service and the overall profitability of a casino operation overall profitability of a casino operation are directly affected by proper staffing.are directly affected by proper staffing.Overstaffing unnecessarily increases the Overstaffing unnecessarily increases the casino’s labor costs, while understaffing casino’s labor costs, while understaffing can lose revenue as unsatisfied customers can lose revenue as unsatisfied customers leave to find a casino that can meet their leave to find a casino that can meet their service needs. service needs.


Number of Dealers NeededNumber of Dealers Needed

In order to calculate the number of dealers In order to calculate the number of dealers needed on a given day, the casino manager needed on a given day, the casino manager must:must:– determine the number of stations that must be determine the number of stations that must be

manned for each day of the week in questionmanned for each day of the week in question– consider how many dealers will be necessary to keep consider how many dealers will be necessary to keep

the stations open yet still allow for scheduled breaksthe stations open yet still allow for scheduled breaks– figure out how many days employees work per week figure out how many days employees work per week

and the average vacation time per employee each and the average vacation time per employee each yearyear


HistoryHistory

In 1985, the Secretary of the Treasury In 1985, the Secretary of the Treasury determined that the definition of a financial determined that the definition of a financial institution needed to be expanded to include institution needed to be expanded to include casinos. casinos.

There were many ramifications that stemmed There were many ramifications that stemmed from the announcement, but the most important from the announcement, but the most important is that a casino must report any transactions that is that a casino must report any transactions that involve greater than $10,000 in cash that occur involve greater than $10,000 in cash that occur during any 24-hour period.during any 24-hour period.


Front Money and Safekeeping Deposits Front Money and Safekeeping Deposits

There exist unique methods for handling player There exist unique methods for handling player deposits for front money or safekeeping. Two deposits for front money or safekeeping. Two options in particular stand out:options in particular stand out:– Physical segregation of the cash deposited; placing Physical segregation of the cash deposited; placing

the cash in a designated location and returning the the cash in a designated location and returning the same cash to the patron.same cash to the patron.

– Recording the number of bills of each denomination in Recording the number of bills of each denomination in a given cash deposit. The deposit is returned to the a given cash deposit. The deposit is returned to the player in the same denomination and number of bills player in the same denomination and number of bills that were in the original deposit.that were in the original deposit.


Casino Cage, Credit, and Collections Casino Cage, Credit, and Collections

Casino CageCasino CageThe area known as the casino cage The area known as the casino cage functions as the financial center of the functions as the financial center of the operation. operation. It maintains an accountability of the chips, It maintains an accountability of the chips, tokens, and cash that are used in order to tokens, and cash that are used in order to fund the casino’s operations.fund the casino’s operations.


Casino CreditCasino Credit

Casino credit is used primarily as a Casino credit is used primarily as a marketing tool. Casinos don’t charge any marketing tool. Casinos don’t charge any interest for the use of their funds, but interest for the use of their funds, but credit is usually only given to players who credit is usually only given to players who the casino believes will take full advantage the casino believes will take full advantage of the line by gambling with the new funds.of the line by gambling with the new funds.


Types of Casino CreditTypes of Casino Credit

Check-cashing privileges are one form of casino Check-cashing privileges are one form of casino credit.credit.

The total amount a casino is willing to extend to The total amount a casino is willing to extend to a customer is known as the credit line. a customer is known as the credit line.

The term “front line” corresponds to players who The term “front line” corresponds to players who bring cash to the cage to deposit.bring cash to the cage to deposit.

If the player only desires that the cage hold the If the player only desires that the cage hold the funds for security and convenience reasons, the funds for security and convenience reasons, the procedure is known as safekeeping.procedure is known as safekeeping.


Classes of CustomersClasses of Customers

Roughly 75% of those who apply for casino Roughly 75% of those who apply for casino credit have casino credit somewhere else. credit have casino credit somewhere else.

Any person who has applied for casino credit at Any person who has applied for casino credit at four or more establishments during a two-week four or more establishments during a two-week time span is labeled “4 in 14.” time span is labeled “4 in 14.”

According to casino research, 80% of “4 in 14” According to casino research, 80% of “4 in 14” applicants will write a bad check sometime in the applicants will write a bad check sometime in the next six months.next six months.


Credit DecisionCredit Decision

Ability/willingness to PayAbility/willingness to Pay

An applicant’s willingness and ability to pay are An applicant’s willingness and ability to pay are determined on the appearance of the applicant’s determined on the appearance of the applicant’s bank account and a report from Central Credit. bank account and a report from Central Credit.

Other factors that influence this attribute are:Other factors that influence this attribute are:– The length of time the applicant has been in businessThe length of time the applicant has been in business– The applicant’s position within his or her companyThe applicant’s position within his or her company– The applicant’s age The applicant’s age


Setting limitsSetting limitsSetting appropriate credit limits protects Setting appropriate credit limits protects not only the casino but also the applicant.not only the casino but also the applicant.

Slot Management Slot Management Roughly 50% of the total casino win Roughly 50% of the total casino win comes from slot machines.comes from slot machines.In Nevada, slots are responsible for In Nevada, slots are responsible for generating more than 67% of the total generating more than 67% of the total casino win.casino win.


Cashless Casino Cashless Casino

Cashless slots are configurable to return Cashless slots are configurable to return bar-coded tickets or coins. bar-coded tickets or coins.

The slot player who receives a ticket has The slot player who receives a ticket has the option of cashing it at the change the option of cashing it at the change booth or taking it to another machine.booth or taking it to another machine.


Participation GamesParticipation Games

Now the typical machine lasts only two to Now the typical machine lasts only two to three years, with video reels that three years, with video reels that experience shelf lives only six to nine experience shelf lives only six to nine months long in some markets.months long in some markets.

This decrease in shelf life is a result of a This decrease in shelf life is a result of a decrease in demand.decrease in demand.


Participation Games (cont.)Participation Games (cont.)

In the lease/purchase system of slot machines, In the lease/purchase system of slot machines, the amount of the lease/purchase payment is the amount of the lease/purchase payment is used toward the ultimate purchase of the used toward the ultimate purchase of the machine.machine.

Under a participation agreement arrangement, Under a participation agreement arrangement, the casino pays nothing up front for the slots. the casino pays nothing up front for the slots. The manufacturer and the casino then share in The manufacturer and the casino then share in the revenue the machine generates; based on a the revenue the machine generates; based on a predetermined percentage division.predetermined percentage division.


Types of Slots Types of Slots The three main slot categories are multipliers, The three main slot categories are multipliers, line games, and buy-a-pays. line games, and buy-a-pays.

Mechanical ConfigurationMechanical ConfigurationThe elements include payoff schedule/reel strip The elements include payoff schedule/reel strip combination, coin denomination, casino combination, coin denomination, casino advantage, and hit frequency.advantage, and hit frequency.

Casino AdvantageCasino AdvantageSlot machines usually average 0.5 percent up to Slot machines usually average 0.5 percent up to 25 percent casino advantage.25 percent casino advantage.


Hit FrequencyHit FrequencyHit frequency refers to the percentage of trials Hit frequency refers to the percentage of trials during which the machine pays something back during which the machine pays something back to the player.to the player.

Floor ConfigurationFloor ConfigurationSlot machines should be arranged at the Slot machines should be arranged at the entrance and the exit of anchors in such a way entrance and the exit of anchors in such a way that customers will be exposed to the maximum that customers will be exposed to the maximum number of machines upon passing through the number of machines upon passing through the doorway.doorway.


Successful Slot ServicescapeSuccessful Slot ServicescapeServicescape satisfaction ratings are influenced Servicescape satisfaction ratings are influenced by overall cleanliness, interior decor, and by overall cleanliness, interior decor, and seating comfort; as well as one’s ability to seating comfort; as well as one’s ability to navigate the casino floor.navigate the casino floor.In a casino setting, the ambience may be judged In a casino setting, the ambience may be judged according to cigarette smoke levels, overall according to cigarette smoke levels, overall lighting levels, sounds of excitement (clanking lighting levels, sounds of excitement (clanking sound of coins or dinging of slot bells), and air sound of coins or dinging of slot bells), and air temperature.temperature.


Table Game OperationsTable Game OperationsRevenue and Profit per Square Foot Revenue and Profit per Square Foot In a casino, however, highest and best use of In a casino, however, highest and best use of floor space describes that which generates the floor space describes that which generates the maximum profit. Profit, rather than revenue, maximum profit. Profit, rather than revenue, should be the maximized value.should be the maximized value.

Maximizing Profit per Available RoomMaximizing Profit per Available RoomA great deal of untracked spending appears to A great deal of untracked spending appears to occur in hotel segments including Group occur in hotel segments including Group Business, Free Independent Travelers, and Business, Free Independent Travelers, and Wholesale.Wholesale.

Identify potential solutions to Identify potential solutions to financial problems faced by financial problems faced by

casinos.casinos.Casino Accounting Casino Accounting Table Drop and CountTable Drop and Count

Casinos, unlike most businesses today, do not Casinos, unlike most businesses today, do not record transactions at the point of sale. The record transactions at the point of sale. The proceeds of the shift of the day are unknown proceeds of the shift of the day are unknown until the count is performed.until the count is performed.

Slot Drop and CountSlot Drop and CountThe drop from the slots is different from table The drop from the slots is different from table games drop because the amount removed from games drop because the amount removed from the slot machines is known.the slot machines is known.

Solutions to Financial ProblemsSolutions to Financial Problems

Internal AuditInternal Audit

The Nevada Gaming Control Board has The Nevada Gaming Control Board has established Minimum Internal Control established Minimum Internal Control Standards (MICS) for use in internal audit Standards (MICS) for use in internal audit functions.functions.

The MICS declare that all internal audits The MICS declare that all internal audits must be independent of the department must be independent of the department subject to audit.subject to audit.


Player Rating Systems Player Rating Systems Quantifying the DisadvantageQuantifying the Disadvantage

Quantifying a particular player’s disadvantage is one of Quantifying a particular player’s disadvantage is one of the greatest challenges that faces casino management the greatest challenges that faces casino management today.today.The profitability of any one character can be determined The profitability of any one character can be determined by how the game is played, the player’s skill level, the by how the game is played, the player’s skill level, the bets played, the total amount wagered, and the speed bets played, the total amount wagered, and the speed with which the game is played.with which the game is played.In order to maximize profit yet still deliver comps to the In order to maximize profit yet still deliver comps to the players, management must be able to determine a players, management must be able to determine a player’s theoretical value to the casino player’s theoretical value to the casino


Actual vs. Theoretical WinActual vs. Theoretical WinThe formula for theoretical win is:The formula for theoretical win is:– Average bet * hours played * decisions per hour * Average bet * hours played * decisions per hour *

house advantagehouse advantage

Estimating the Casino AdvantageEstimating the Casino AdvantageBlackjackBlackjack

Casino marketing rarely focuses on players who Casino marketing rarely focuses on players who do not bet at least $50 per hand. do not bet at least $50 per hand. A customer who plays alone at a table will be A customer who plays alone at a table will be dealt roughly four times as many hands per hour dealt roughly four times as many hands per hour as the same customer who plays at a full table.as the same customer who plays at a full table.


Estimating the Casino Advantage (cont.)Estimating the Casino Advantage (cont.)Craps Craps

Craps is more difficult than any other game when it comes to Craps is more difficult than any other game when it comes to determining a player’s percent disadvantage and average bet. determining a player’s percent disadvantage and average bet. An average craps player is more difficult to handicap because his An average craps player is more difficult to handicap because his bets must be placed along with the amount that will be bet on bets must be placed along with the amount that will be bet on proposition wagers.proposition wagers.

RouletteRouletteOn a zero (or double-zero) roulette wheel, the player disadvantage On a zero (or double-zero) roulette wheel, the player disadvantage on every bet (except one) is 5.26%.on every bet (except one) is 5.26%.

BaccaratBaccaratThe casino employee should choose the most conservative skill The casino employee should choose the most conservative skill level if doubt exists. level if doubt exists. For rating purposes, a conservative skill level will provide the lowest For rating purposes, a conservative skill level will provide the lowest house advantage.house advantage.


Rating SystemsRating SystemsTracking individual play, summarizing the Tracking individual play, summarizing the gaming activity at the player level, and storing gaming activity at the player level, and storing demographic player data can all be achieved by demographic player data can all be achieved by a slot player rating system.a slot player rating system.Casinos obtain information when players enroll Casinos obtain information when players enroll in the casino’s slot club or the player tracking in the casino’s slot club or the player tracking program. program. Management ensures that players use their Management ensures that players use their tracking cards through a reward system, in tracking cards through a reward system, in which the player’s gaming volume determines which the player’s gaming volume determines the magnitude of the award.the magnitude of the award.

Identify the most important financial Identify the most important financial ratios relevant to casinos.ratios relevant to casinos.

Table Game Hold as a Management Tool Table Game Hold as a Management Tool

UsesUses

Table game hold represents the Table game hold represents the percentage of chips bought at the table by percentage of chips bought at the table by the customer that the house wins back.the customer that the house wins back.

Casino management uses hold when Casino management uses hold when making decisions on employee honesty making decisions on employee honesty and productivity.and productivity.

Important Financial RatiosImportant Financial Ratios

High Table OccupancyHigh Table OccupancyCasino profit is equal to wins less expenses.Casino profit is equal to wins less expenses.The casino’s two main types of expenses are: The casino’s two main types of expenses are: – Payroll expenses, which are indirectly correlated to Payroll expenses, which are indirectly correlated to

the number of customers, but directly related to the the number of customers, but directly related to the number of open gamesnumber of open games

– Expenses that directly relate to customers (gaming Expenses that directly relate to customers (gaming taxes, complimentary beverages, etc.)taxes, complimentary beverages, etc.)

When management attempts to increase When management attempts to increase occupancy by putting the same number of occupancy by putting the same number of players at fewer games, the return on labor is players at fewer games, the return on labor is increased successfully, but the maximization of increased successfully, but the maximization of profit is not achieved. profit is not achieved.


Casino Marketing Casino Marketing Marketing costs have continually risen as Marketing costs have continually risen as competition between casinos has risen.competition between casinos has risen.

Match Plays and NonnegotiablesMatch Plays and NonnegotiablesMatch play coupons and nonnegotiable chips Match play coupons and nonnegotiable chips (like promotional chips) are increasingly being (like promotional chips) are increasingly being used as a marketing strategy.used as a marketing strategy.Nowadays, match play coupons and Nowadays, match play coupons and nonnegotiable chips are given away in much nonnegotiable chips are given away in much larger increments and at times, hundreds of larger increments and at times, hundreds of dollars.dollars.


Gambler’s SpreeGambler’s SpreeIf a well-known casino is offering a certain program, it is If a well-known casino is offering a certain program, it is more likely to be adopted by a competing casino, more likely to be adopted by a competing casino, regardless of its actual merits.regardless of its actual merits.The proliferation of $5 table game programs is one The proliferation of $5 table game programs is one example of “gambler’s sprees.”example of “gambler’s sprees.”

Dead Chips and Chip WarrantsDead Chips and Chip WarrantsA chip warrant is a voucher, generated and controlled by A chip warrant is a voucher, generated and controlled by the casino. The player presents it at the table, receiving the casino. The player presents it at the table, receiving an equal amount of nonnegotiable chips known as dead an equal amount of nonnegotiable chips known as dead chips.chips.


Dead Chips and Chip Warrants (cont.)Dead Chips and Chip Warrants (cont.)A player may purchase a chip warrant for A player may purchase a chip warrant for $100,000 at the casino cage. The casino agrees $100,000 at the casino cage. The casino agrees to rebate the player somewhere around 1 to 3 to rebate the player somewhere around 1 to 3 percent of the purchase, after the dead chips are percent of the purchase, after the dead chips are lost. lost. The dead chips can be wagered just like live The dead chips can be wagered just like live chips, and winning bets are paid in live chips. chips, and winning bets are paid in live chips. Once all the dead chips have been wagered out, Once all the dead chips have been wagered out, the live chips that the player possesses the live chips that the player possesses represent actual cash, which they can be represent actual cash, which they can be exchanged for at the casino cage.exchanged for at the casino cage.


Dead Chip CommissionDead Chip Commission

The dead chip bonus can be awarded The dead chip bonus can be awarded after the end of play, rather than at the after the end of play, rather than at the beginning.beginning.

The player will pay all of the face value of The player will pay all of the face value of the dead chips, and after they are lost, he the dead chips, and after they are lost, he or she will receive a cash refund equal to or she will receive a cash refund equal to the dead chip bonus.the dead chip bonus.


General Slot MarketingGeneral Slot MarketingCash MailCash Mail

Direct mail promotions consist of cash incentives Direct mail promotions consist of cash incentives in tiered offerings.in tiered offerings.

Restaurants and SlotsRestaurants and SlotsThe notion that restaurant operations can The notion that restaurant operations can successfully generate slot play is popular, but successfully generate slot play is popular, but has been proved incorrect. The success of this has been proved incorrect. The success of this strategy varies between properties. strategy varies between properties.


Food Loss LeadersFood Loss LeadersMany casinos lose millions annually through operating Many casinos lose millions annually through operating food outlets.food outlets.If a restaurant is casino-operated, it’s more likely to incur If a restaurant is casino-operated, it’s more likely to incur substantial losses.substantial losses.Contracting outside restaurant companies to operate Contracting outside restaurant companies to operate food service is one option.food service is one option.

Drawing-Based PromotionsDrawing-Based PromotionsCustomers acquire tickets though winning top award Customers acquire tickets though winning top award jackpots on specific slot machines. The two-part, jackpots on specific slot machines. The two-part, numbered ticket is torn and half is thrown into a drawing numbered ticket is torn and half is thrown into a drawing drum, with the remaining half going to the customer.drum, with the remaining half going to the customer.Cash prizes for these drawings can reach up to $1 Cash prizes for these drawings can reach up to $1 million.million.


Acquire, Retain, RecoverAcquire, Retain, RecoverSlot marketing can be divided into three categories: Slot marketing can be divided into three categories: customer acquisition, customer retention, and customer customer acquisition, customer retention, and customer recovery.recovery.

Consumer Choice FactorsConsumer Choice FactorsThe general convenience of a location is one factor that The general convenience of a location is one factor that causes consumers to choose one casino over another.causes consumers to choose one casino over another.

Rebates on LossesRebates on LossesPremium players are often offered a rebate on their Premium players are often offered a rebate on their losses by casinos who want to retain their patronage.losses by casinos who want to retain their patronage.


Premium Player SegmentPremium Player SegmentMarketing to premium players is threefold:Marketing to premium players is threefold:– One part of the equation is the amenities offered by One part of the equation is the amenities offered by

the property.the property.– The second part involves the hosts, who serve as The second part involves the hosts, who serve as

communicators between the high roller and communicators between the high roller and management.management.

– The third part is defined by the deals that are offered The third part is defined by the deals that are offered to the premium player. to the premium player.

If any one of these elements is missing, the If any one of these elements is missing, the casino will find it more difficult to attract the high casino will find it more difficult to attract the high rollers it wants.rollers it wants.


DefinitionDefinitionA three-tier framework can be used to describe a A three-tier framework can be used to describe a “premium player”“premium player”– Tier-1 players have a maximum credit line of $20,000.Tier-1 players have a maximum credit line of $20,000.– Tier-2 players’ credit lines range from $100,000 to $500,000.Tier-2 players’ credit lines range from $100,000 to $500,000.– Tier-3 players have credit from $1 to $5 million. Tier-3 players have credit from $1 to $5 million.

Acquisition CostsAcquisition CostsThe costs associated with attracting high rollers have a The costs associated with attracting high rollers have a deleterious effect on premium-play profits. deleterious effect on premium-play profits. Costs have become so high that some casino owners Costs have become so high that some casino owners are questioning the profitability of this segment.are questioning the profitability of this segment.


True CostTrue CostIn some cases an a priori discount can turn the In some cases an a priori discount can turn the house’s advantage into the player’s advantage.house’s advantage into the player’s advantage.

Quick-Loss RebatesQuick-Loss RebatesQuick-loss rebates are structured to award a Quick-loss rebates are structured to award a player the greater of 15% of a player’s actual player the greater of 15% of a player’s actual loss or 45% of theoretical win, in order to cover loss or 45% of theoretical win, in order to cover airfare and room, food, and beverage costs.airfare and room, food, and beverage costs.This rebate may exist because management This rebate may exist because management believes that short-term losses will be kept by believes that short-term losses will be kept by the casino.the casino.


Costs of CompetingCosts of Competing

Casino managers give premium players free Casino managers give premium players free rooms and expensive food, which obviously rooms and expensive food, which obviously have costs associated with them.have costs associated with them.

Casinos do not set any minimum-play criteria for Casinos do not set any minimum-play criteria for these players, endangering their profit potential.these players, endangering their profit potential.

Discounting RationaleDiscounting Rationale

The process of discounting and rebating is fairly The process of discounting and rebating is fairly young, having first appeared in the 1990’s. young, having first appeared in the 1990’s.


Discounting Rational (cont.)Discounting Rational (cont.)They probably began with high rollers losing huge They probably began with high rollers losing huge amounts of money and being unable to pay the full amounts of money and being unable to pay the full amount. A discount was offered, on the theory that amount. A discount was offered, on the theory that collecting something is better than collecting nothing at collecting something is better than collecting nothing at all.all.Eventually, this discount turned into an incentive, to be Eventually, this discount turned into an incentive, to be used in bidding wars; players benefited.used in bidding wars; players benefited.Although casinos may recognize the damaging effects of Although casinos may recognize the damaging effects of their discounts, they still want the high-roller visits. their discounts, they still want the high-roller visits. These discounts can have a catastrophic effect on profit.These discounts can have a catastrophic effect on profit.


Discounting DangersDiscounting DangersIn the case of loss rebates, players must be In the case of loss rebates, players must be asked to play a minimum number of hands to asked to play a minimum number of hands to ensure that the casino does not lose money. ensure that the casino does not lose money. Discounting policies should also prevent players Discounting policies should also prevent players from pooling their actual losses from different from pooling their actual losses from different games, because the house advantage varies games, because the house advantage varies from game to game.from game to game.When misapplied by people who do not When misapplied by people who do not understand the math, discounting can be truly understand the math, discounting can be truly disastrous. disastrous.

The End!The End!

Chapter 15 Casinos. Identify the changing trends in and demographic profiles of the casino market....

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Transcript of Chapter 15 Casinos. Identify the changing trends in and demographic profiles of the casino market....