Articles

Don’t Shoot the Messenger

Posted on June 16, 2009

The recession of 2008-2009 has touched nearly every facet of American business. Indian gaming has not been immune from the sudden drop in consumer spending, which followed a rapid rise in fuel prices last summer. Nearly every US gaming market and the vast majority of casino enterprises operating in those markets saw declines in gross gaming revenue and net income, coupled with lower operating margins. Tribal governments in turn saw precipitous drops in revenue derived from their gaming operations and have been forced to reduce spending on essential services such as health care, education and elder care.

The sudden drop in the gaming revenue stream caught many tribal governments by surprise. Since budgeting often takes place in two to three year horizons, it quickly became difficult for many governments to meet their ongoing commitments. Unable to fully fund essential services, governments turned to their business enterprise boards who in turn looked to their casino management teams for solutions to very large and ultimately global business problems.

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Swapping Out Debt: Solving the riddle of debt-asset swaps and triangular deal structures

Posted on April 16, 2009

The riddle of “debt-asset swaps” is currently befuddling CFOs, public debt analysts, casino buyers and hedge funds.

All look to profit from discounted gaming company debt and the sale of distressed assets. Right now, there is a disconnect between a gaming company and its debt. On the one hand, the gaming company’s debt—whether $5 billion of publicly traded bonds or $50 million in privately held notes—is trading at prices that may be 10 cents to 70 cents on the dollar. On the other hand, the gaming company may be willing to retire that debt at face value, as part of its de-leveraging process.

The theory of a debt-asset swap is to take advantage of that disconnect. If one could purchase the gaming company debt at today’s steeply discounted price, and then present it to the gaming company for retirement at face value, then one should be able to profit greatly.

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Examining the Value of Free Play

Posted on April 16, 2009

The use of free play to stimulate demand and foster loyalty has increased dramatically over the past three years. Fueled by advances in technology, newer slot machines, more robust casino management systems and customer acceptance, free play has emerged as a formidable marketing tool for most casinos.

Free play is an umbrella term to describe non-negotiable slot credits that can be used by players for wagers on slot machines. While free play cannot normally be redeemed for cash, any winnings generated by those wagers can be redeemed or wagered again. Free play has essentially replaced cash in all but the largest prizes awarded to customers including bonus point redemptions, direct mail redemptions and a myriad of other demand stimulation programs such as bounce back offers, celebration jackpots and hot player awards. Some casinos even offer free play as a replacement for large scale cash premiums. Customer acceptance also appears high as even the least technologically adept players have figured out the procedure to convert bonus points or direct mail coupons into free play.

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Worldwide Hospitality and Tourism Themes

Posted on February 16, 2009

Marketing professionals have long recognized the importance of fostering loyalty among past and current customers through database marketing. Retailers and supermarket chains have long embraced loyalty programs in order to reward loyal customers through targeted offers. Airline frequent flyer and hotel loyalty programs have become the foundation of marketing strategies for airline and lodging companies. Yet, no segment of the hospitality industry devotes more effort and allocates a greater position of their marketing dollars to customer loyalty programs than the gaming segment.

This paper examines customer reinvestment strategies in the gaming industry, the tactics that gaming operators employ to foster loyalty, the measurement tools they utilize to track the success of their programs and recent trends that track the ever-increasing amounts of marketing dollars that casinos are willing to reinvest in their customers.

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The Components of the Marketing Audit

Posted on January 16, 2009

With the economic downturn affecting casinos in jurisdictions throughout the U.S., casino managers are trying to reduce variable costs to better match business volume. The largest variable expense for a casino is labor, followed by marketing and advertising. While managers have begun to trim labor costs through layoffs and a reduction in hours for hourly workers, many managers are reluctant to reduce marketing expenses. In fact, many operators feel the need to increase marketing expenses in order to maintain revenues and market share.

While maintaining market share is critical, it is often done at great expense and can have a deleterious effect on cash flow. Large scale drawing drum promotions, free play offers and point multiplier days are typical programs that gaming markets see during economic downturns. What casinos should first do is determine how to best allocate their precious marketing dollars. This is done through a marketing audit.

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The Six Audiences of Casino Advertising

Posted on August 17, 2008

The economic downturn, coupled with higher gasoline prices has had a significant impact on many of this nation’s casinos. In response, casinos have stepped up their promotional efforts in order to maintain market share. In addition, many casinos have increased their advertising efforts, ostensibly to attract new gamers to their properties and some defectors who had altered their visitation patterns. The general opinion is that advertising is used to target these segments while direct mail is utilized to encourage repeat visitation from existing customers.

Casinos advertise, particularly during economic downturns. However, they often do so without first understanding the various audiences that these advertisements are supposed to target. Because of this, many advertising efforts fail to reach the right audiences or the wrong messages are delivered to the wrong group. There are six audiences of casino advertising and strategies to effectively communicate with each of them.

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Developing More Effective Promotions

Posted on June 16, 2008

The recent rise in fuel prices coupled with a decline in this nation’s economic growth has had a significant impact on casinos throughout the United States. Once thought immune to economic downturns, casino operators have come to realize that their industry is as vulnerable as others.

To maintain revenue streams and gain market share in this tough economic climate, casino operators have increased the level of promotional activities that they use to attract new gamers to their properties and maintain visitation levels among loyal customers. Often these activities include an increasing number of direct mail campaigns, special events that target premium players and traditional large-scale drawing drum promotions. It is the latter marketing program that this article addresses: the design, implementation and measurement of traditional drawings in which a large marketing net is cast across the gaming population by offering a drawing for a new car (more often these days, a hybrid vehicle), a series of large cash drawings or some combination of the two.

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The Complexity of Bonus Point Multiplier Promotions

Posted on April 17, 2008

Bonus point multipliers have long been used as a marketing tool in casinos. The practice dates back to the earliest days of player tracking systems. For many of the earliest systems, point multipliers were in fact, the only bonus module available. Today, all casino management systems offer some form of point multiplier promotion in addition to far more sophisticated bonusing modules, such as free play, electronic coupons, random free play jackpots as well as large progressives linked to every machine in the casino.

Despite the advent of these more sophisticated bonusing modules, casinos still embrace point multipliers as a marketing tool. They are perceived as a relatively low cost and easy promotion to implement. The recent downturn in the U.S. economy has forced casino marketers to find more ways to stimulate play and move customers from competitors’ casinos without giving the house away. As such, point multipliers are now being used with far greater frequency because of the need to market more aggressively. One need only scan the print ads from the recent President’s Day weekend to appreciate this. In Southern Nevada, one casino offered 5x bonus points over the holiday; another offered 7x points while a third heralded 2x points all day on President’s Day. This begs the question, if bonus point promotions were so salient to gamers, why would anyone go to a casino that offered 2x points when another one down the road offered 7x points?

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Happy Employees Make Happy Customers

Posted on February 16, 2008

Leaders of many Indian casinos have long recognized the importance of providing outstanding customer service to their guests. They recognized that casino gaming is comprised of a unique suite of products and services and those products and services make up what is referred to as gaming entertainment. Gaming entertainment incorporates slot machines, table games, quality food products and lodging delivered in a fun, energetic and entertaining atmosphere. The linchpin of those products and services are the employees who deliver them to guests. They are the ones who
provide the service that makes the gaming entertainment experience memorable. The ultimate measures of success are happy customers who come back on a regular basis.

Making customers happy is not a simple procedure. It involves a complex process of getting the right products to satisfy their needs coupled with caring employees. This requires assembling the appropriate mix of gaming products, restaurants and other amenities and placing them in an attractive environment. Then it requires happy, upbeat employees to deliver great service. The hardest part of the equation is getting employees with the right disposition and keeping them happy so they in turn can make the casino’s customers happy. The ongoing question for all casino operators is how do you keep your employees happy?

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A General Managers Eye View of the Casino

Posted on January 7, 2008

Few people in the gaming organization can appreciate the view that the property general manager has of the casino. Unlike departmental managers, whose primary concerns center on the effectiveness of their departments and how their staff interacts with others, the GM sees how all of the departments interact.

While departmental managers may believe that their department should receive precious capital dollars over others, it is the general manager who truly understands how to prioritize the allocation of capital in order to best meet the needs of the organization. The slot director may sincerely believe that new gaming devices are the most important purchase that the casino should make, the security director may need additional surveillance equipment in order to preserve the safety of gaming patrons, and the information systems director may need new hardware to allow for fault tolerant data processing. Each of these managers believes their needs are most important.

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