Finance

The Tipping Point: Rising slot hold percentages are driving players away, and revenue down

Posted on October 23, 2014

Gaming revenues, and in particular slot revenues, continue to decline in most U.S. gaming jurisdictions. This pattern of decline began at the onset of the recession and has continued even as the economy improved.

Casino operators often cite increases in gaming supply in adjacent states and a slow economic recovery in their markets as reasons for this decline. While the recession certainly affected discretionary spending during the height of the recession, hitting casino gambling hard, the U.S. economy has largely recovered. Gaming revenues, though, have not.

Key macro-economic indexes have returned to pre-recession levels. Two indexes, employment and consumer confidence, have long served as bellwethers for gaming revenue forecasts. In August 2013 the U.S. unemployment rate stood at 7.5 percent, down from 8.2 percent for the prior-year period. By August 2014, the unemployment rate dropped to 6.4 percent. In August 2013, the consumer confidence index stood at 80.3, up from 75.3 in 2012. By August 2014 it rose to 82.0.

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Killing the Gaming Experience

Posted on July 16, 2014

Regional U.S. gaming markets continue to see month-over-month declines in gaming revenues. Analysts tend to blame the weather, the economy, market saturation, increased competition in neighboring states, and of course, Obama for this decline.

What has yet to be cited is that the gaming entertainment experience has fundamentally changed over the past few years, and many casinos no longer deliver the experiences that players have been used to historically.

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The Golden Age of Free Play

Posted on February 27, 2012

A considerable amount of debate has occurred over the costs of free slot play, how to account for it, measuring its impact on profitability, calculating its effect on slot hold and other metrics. What has not been explored are the hidden benefits of free slot play.

Indeed, free slot play can have a profound and positive impact on customer satisfaction, the casino’s profit an loss statement and even the privilege taxes the casino pays on gaming revenue. The industry may in fact be in the midst of a golden age of free play—an age that may soon vanish. Until that time, customers, casino leadership and even the gaming organization’s chief financial officer can enjoy free play’s hidden benefits.

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How to Increase Gaming Revenue in an Economic Downturn

Posted on October 16, 2011

The economic downturn continues to impact gaming revenues in markets throughout the United States. In the face of declining or stagnant revenues, casino operators continue to look for new ways to grow gaming revenue. Some have allocated resources to new media such as social networks, yet none have been able to monetize these new channels of communication. Others have simply turned up the volume of promotions, offering more drawings for cash, vehicles or simply giving away stuff to get people into the door. While those efforts often increase foot traffic, they don’t necessarily have a positive impact on profitability. So what new methods are there for a casino operator to grow revenue? The answer often lies within its own database.

Casinos have long recognized the value of their databases. With the advent of newer slot system technologies casinos have over the last decade introduced tiered reward programs to better acknowledge the value of higher value customers. Caesars Entertainment has long been at the forefront in utilizing a tiered reward program to acknowledge those customers and develop them into very loyal customers. Customers in those premium tiers, referred to as Platinum, Diamond and Seven Star levels, receive a suite of benefits so great that they often gamble exclusively within the Caesars brand family of casinos. They would rather aspire to the next higher tier than spend their gaming dollars at another casino.

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Emerging Issues in the Use of Free Play

Posted on August 10, 2011

Non-negotiable slot credits or what is commonly called free play has become the primary form of customer incentives in many casinos. Free play is now used instead of cash for point and coupon redemptions as well as for a variety of promotions. Combined, free play has become the single greatest component of player reinvestment. The increased use of free play has also created unintended consequences. Free play has affected multiple departments within the casino including Slots, Marketing and Accounting. This article attempts to identify the emerging issues of free play and how they are impacting both the casino and the customer.

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Loyalty Costs

Posted on July 16, 2010

The terms “player reinvestment” and “player reinvestment rate” are often used to describe the costs associated with the suite of benefits that casinos bestow on their players. However, despite the frequency with which these terms are used, there is no industry-wide definition that describes the specific components that make up player reinvestment. To better understand how the industry defines player reinvestment, a survey was conducted among United States casino operators operating in a number of jurisdictions including Indian casinos, riverboat/barge casinos and Nevada casinos.

A key finding of the research was that in the evolution of most casinos, understanding what a property’s player reinvestment rate is does not become an important issue until two seminal events occur: 1) the casino institutes a host program and 2) it begins to mail out cash and free play offers to various segments of its database. Then, as discretionary comp costs and mail redemption costs rise, casino leadership begins to ask, “So what is our player reinvestment rate?”

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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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Measuring Slot Handle Performance

Posted on November 16, 2007

One of the most often used measures of casino business volume is Slot Handle. Often examined on a daily basis, “Slot Handle” or “Coin In” is the amount of money played through all of the electronic gaming devices on the casino floor. The general assumption is that slot handle, multiplied by the casino floor’s aggregate hold percentage, will yield a fairly accurate measure of daily slot performance. Unfortunately, not all slot handle is the same. In fact, in most casinos there is both good slot handle and bad slot handle and failing to fully appreciate how they differ can have a significant effect on a casino’s overall profitability.

Good handle is slot handle that is generated by people wagering on traditional reel slot machines, multi-line video slot machines as well as video poker machines with conservative pay tables. They appeal to players that seek gaming entertainment and are not under any allusion that they can make a living gambling in a casino. The hold percentage of these games is high enough to allow the casino to offer cash back allowances, complimentary dining privileges, mail offers and other perks in order to reward loyalty. Bad handle is generated by gamers wagering on video poker machines that have very generous pay tables and therefore inordinately low hold percentages. Individually, these machines are characterized by high wagering volume (slot handle) and at the end of the day have favorable win per unit per day (WPUPD) averages. However, despite their acceptable WPUPD averages, they often generate bad handle. For this discussion, bad handle is coin handle generated by players who are consistently not profitable to the casino. The total amount of money won from these players, if any, is eclipsed by the perks provided to those players.

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