Finance

How to Calculate the Player Reinvestment Rate

Posted on June 16, 2007

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 casino operators 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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“New and Better” works

Posted on March 16, 2007

The rapid growth of Indian gaming has created an unusual dilemma for the leaders of many tribes. In the years following the passage of the Indian Gaming Regulatory Act, many tribes attempted to develop casinos. Unfortunately, it was unclear how successful these gaming properties would ultimately be, particularly for those tribes whose reservations were far removed from major population centers. Access to traditional capital markets was difficult. Amidst this uncertainty many casinos were developed using low-cost construction techniques or existing commercial structures were converted to gaming space.

As the industry matured and as properties were able to demonstrate their viability to the investment community, the cost of capital dropped and many tribes were able to replace their temporary structures with more attractive, full-service gaming/entertainment properties. Conversely, other tribes chose to keep their original properties and gradually expand them, all the while continuing to employ low cost construction techniques. Many of these casinos generated outsized revenues relative to their invested capital. The logic for many in tribal leadership was, why
incur additional debt by replacing low-cost structures when revenue streams were growing? The emerging dilemma was, why spend the money if one did not have to?

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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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Player Incentives: Don’t Give Away the House

Posted on May 16, 2004

Almost all segments of the leisure and hospitality industries utilize loyalty programs. Airlines, hotels, rental car companies and even restaurants employ methodologies to induce repeat visitation, foster loyalty and build long term relationships with their more frequent and most profitable customers. The airline industry first instituted these programs in the early 1980’s and was followed by hotel and rental car companies. Today, a wide variety of retail industries employ some form of reward programs. They have all come to understand the value of incentives rewarding frequent users of their products and services. While there are no hard and fast rules regarding the percentage of customer reinvestment, it is generally assumed that these industries return between 2% and 15% of the theoretical revenue derived from their loyal customers in the form of various incentives.

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But Did the Casino Make Any Money?

Posted on December 16, 2003

At a recent presentation of casino performance before the tribal council, the casino manager distributed handouts illustrating gaming activity. “Handle is up,” he proclaimed as the council members examined bar charts showing year over year handle growth. “Business is growing. The casino is experiencing consistent increases in handle from prior years. We’re driving revenue.”

The casino’s marketing director then walked the council through an analysis of recently completed direct mail campaigns, special events and promotions. For each of these campaigns the marketing director presented a profit and loss statement showing the profit made. “Our direct mail program has been very successful. Marketing has been able to drill down into the database and mine very profitable customers. Our theoretical win continues to improve and for each direct mail campaign, we have been able to generate on average, theoretical win in excess of 75% of expenses. Our marketing is working.”

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Dispelling the Myths of Cash Back

Posted on June 16, 2003

The player rewards program or slot club is the cornerstone of any effective casino marketing plan. Too often these programs are created by mimicking what the competition is already doing or by examining what casinos in other markets do with their clubs. Often these programs use “cash back” as the primary incentive to get players to use their cards. Cash back in this scenario refers solely to the redemption of bonus points for cash. This article examines cash back as a marketing tool and some of the myths that surround it.

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