Strategy

Build Your House Out of Bricks

Posted on April 16, 2006

About fifteen years ago, Steve Wynn, then CEO of Mirage Resorts, gave a speech to an audience of alumni and students at a prestigious college of hotel administration. He began by reciting Grimm’s fairy tale of The Three Little Pigs. At first the audience collectively laughed as Mr. Wynn began his recitation but it soon became evident that Mr. Wynn was to recite the entire fable. And so he did.

Mr. Wynn later explained that the lessons taught in this fairy tale were important to the hospitality industry and equally applicable to casino developers as to children. Build a house out of bricks rather than straw or wood and you will be able to weather any storm or wolves that threaten your house. Since its opening in 1989 the Mirage withstood the introduction of more than a half dozen new competitors. Fifteen years later the Mirage continues to compete with the best properties in Las Vegas. In the coming months the Mirage will introduce new nightclubs, restaurants, a Beatles themed Cirque du Soleil show and an improved volcano attraction. Room rates and slot win per unit have and continue to remain well above the market average. After all,
the property was built out of bricks.

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Change is Bad, Change is Good

Posted on March 16, 2006

Not too long ago a casino operating in a very competitive market made a decision to replace its aging casino management system. Property leadership defined their user requirements, evaluated a number of competing systems, narrowed their list to two vendors and ultimately chose a system that best met their needs.

The new system afforded the casino the opportunity to redesign their player rewards program and leadership saw this as an opportunity to create a rewards program that was superior to their competition. To best meet the needs of the market, casino leadership first conducted a series of focus groups with people who gamble in local casinos. Concurrently, they examined their competitors’ reward programs. Property managers then decided on a new rewards program and tested the concept with loyal, premium players in the form of “blue ribbon panel” discussions.

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Why Expansion Projects Falter

Posted on January 17, 2006

Several years ago a casino embarked on a significant expansion of its gaming floor as well as non-gaming amenities, including new restaurants, movie theatres and a showroom. First it hired a reputable firm to conduct a feasibility study to determine if the project and all of its components were feasible. The consulting team that authored the feasibility study analyzed the local and drive-in markets, addressed new cachement areas, conducted demographic and psychographic analyses of those markets, determined which segments of the population in those markets would be attracted to the new amenities and prepared its forecast. The feasibility study also addressed future amenities, including a hotel and retail outlets, and advocated the development of a master plan.

Leadership used the feasibility study to secure financing for the project. They then assembled a design team including an architect, engineering firm and interior design specialists to build the facility along with in-house professionals from operations, entertainment and marketing to manage the opening and subsequent operation of the expansion.

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What Makes a Casino Comfortable?

Posted on December 17, 2005

What makes a casino comfortable? While this may sound like a simple question and whose answer may seem obvious, it is rarely asked during the design process of a new casino or the renovation of an existing one. Nor is it a particularly easy question to answer. To some, a comfortable casino is one that has a down-home feel. To others it may be a casino that provides an environment that is exciting and energetic. Still to others, it may be nothing more than a place where customers are greeted by friendly and happy employees. In reality, a comfortable casino is comprised of a variety of elements including sound casino design, quality engineering, employee training in customer service skills and a healthy dose of common sense.

In the early days of Indian gaming, comfort was often overlooked in the rush to build and open properties as quickly as possible. As casinos became more popular, operators added more machines to existing space or expanded their properties in order to accommodate as many customers as possible. The notion of customer comfort played a secondary or even a tertiary role in the operation of the business. What has evolved for many casino operators are properties that are decidedly uncomfortable to be in.

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What Players Really Want

Posted on December 17, 2005

Understanding the wants and needs of gaming customers has long been the mantra of the most progressive leaders in the gaming industry. Collectively, casino operators in the United States have conducted thousands of focus groups and interviews with casino customers in order to understand how to make gaming experiences better. Spurred by the input of their customers, casino managers have undertaken customer service initiatives, increased training in customer service, developed host programs and invested capital in improving the service delivery process. Yet despite these efforts, most casinos have ignored the one complaint that most irks casino customers: tight machines.

Research has long indicated that what customers seek most in their gaming experiences is “time.” Gamers visit casinos for a variety of reasons including socializing with others, escape from the mundane, recognition and excitement. What they ultimately seek is a diversion from their normal lives. Casinos offer environments that are dramatically different and customers want to
spend as much time as possible in those environments before going back to their regular world. While every customer would like to leave a winner, for virtually every customer, gaming satisfaction is measured not by how much money they have in their pockets at the end of the day, but by how much time they spent in the casino before they extinguished their budgets and went home.

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The Benefits and Challenges of Master Planning

Posted on October 16, 2005

Most casino owners, whether they are tribal entities, public corporations or individuals, have a vision for what they want their casinos to be. Transforming that vision into bricks and mortar requires a master plan. The benefits of master planning are obvious but the challenges and obstacles in the planning process are numerous and often difficult to overcome. This article explores those challenges and offers suggestions on overcoming them.

The master planning process is complex. It relies on a keen understanding of trends in the marketplace, the changing needs of consumers, actions taken by competitors, a certain tolerance for risk, access to capital markets as well as a healthy dose of gut instinct and intuition. When done right, a sound master development plan will allow the tribe’s gaming enterprise to grow and flourish, providing jobs to the community and a steady stream of revenue to meet the needs of the tribal government.

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E-Marketing to Casino Customers

Posted on August 16, 2005

Email and the Internet have quickly become an integral part of the lives of most Americans. Most readers of this publication rely on the Internet and e-mail for daily communication with both friends and business associates. This behavior is no different for the general population.

Currently, it is estimated that 61.2% of adults use tl1e Internet regularly. While it is generally assumed that younger age groups comprise the bulk of Internet users, usage among older demographic groups has increased significantly. Today, the 47% percent of the US population over the age of 50 uses the Internet regularly and their usage rate is increasing faster than younger demographic segments. In 2000,45.8% of people aged 55-64 used the Internet. In 2003 that number jumped to 56.7%.

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Creating the Right Player Reinvestment Strategy

Posted on March 16, 2005

As ga1ming markets mature, and revenue growth slows, casinos struggle to find ways to remain competitive, grow market share and gaming revenue. Inevitably, casino operators are forced to increase the amount of marketing dollars that they spend in various forms of player reinvestment. As spending increases, marketing leadership is faced with answering such questions as “what is the casino’s player reinvestment rate” and “how much is the casino spending to reward and retain gaming customers?”

Unfortunately, these are not easy questions to answer. First, player reinvestment is an ill-defined term. Not all casinos define player reinvestment in the same way. Some use it as a catchall phrase to describe all marketing expenditures while others use the term only to describe comps issued through the property’s casino management system, bonus points redeemed for cash and redeemed mail offers. Others attempt to better define the term to describe all of those expenses that are expended to foster loyalty and encourage repeat visitation.

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The Marketing Dashboard

Posted on February 17, 2005

It is generally understood that the sum of all marketing and advertising expenditures is the second largest expense in U.S. casinos. However, despite their impact on a property’s profitability, it is difficult to easily identify all of the costs that make up marketing and advertising on a property’s profit and loss (P&L) statement and see their effects on both property revenue and cash flow performance.

Most casino P&Ls do an excellent job of detailing each operating department’s revenue and expenses. However, marketing and advertising expenses can be found on multiple pages of this report. For instance, system generated comps (those generated by the casino’s player rewards program) normally appear in the slot club department. In addition, comp expense can be found in slots, table games, hotels and on almost every revenue-generating department’s monthly operating statement. Thus, answering the simple question, “what is the ratio of comp expense to property revenue?” becomes a time consuming task.

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The Socio-Economic Impact Analysis as a Tool for Casino Development

Posted on January 16, 2005

Casino development is a long and complex process. After a suitable site is identified and is found to be in compliance with state compacts and feden1l regulations, a decision is made by tribal leadership to explore the feasibility of the project. Atthis point the tribe may engage the services of an architectural firm to develop an architectural program. Concurrently, a feasibility study is conducted primarily for the developer, in this case the tribe, and lenders who will finance the project in order to determine whether the project is financially feasible.

The feasibility study measures market demand and market supply. It determines the appropriate size and gaming capacity for the project and forecasts the project’s expected market share. Once this is determined, the feasibility study forecasts future revenue streams and expenses in order to determine the project’s cash flow and the project’s ability to meet debt service. If the project is deemed feasible, more detailed financial statements are prepared including balance sheets and pro forma income statements. The initial concept and capacity assumptions are then placed under greater scrutiny as is the project’s positioning and mix of amenities. The architectural programming is further refined to match the project’s size and positioning.

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