Presentation on theme: "Chapter 11 PRICING: REVENUE CONTROL"— Presentation transcript:
1 Chapter 11 PRICING: REVENUE CONTROL Steve DurhamThe House Advantage
2 Terminology: Drop, Payouts, Hold Money people use for purpose of placing a bet; includes money won from the casino.Also the amount that a player is willing to risk.Historically, money spent to gamble was “dropped” into some sort of collection container.Today money is placed in a “drop box.”Other terms for the drop: Write (Keno), Handle (Sportsbook), Take (Bingo )
3 PayoutsMoney paid for winning wagers, becomes part of payouts.Occasionally called a “paid out.”Win / HoldInterchangeable terms for money casino “holds” onto after gaming ceases.Difference between Drop (money wagered) and Payouts (money paid for winning wagers):Win/Hold = Drop - Payouts
4 Paper Trail of Revenue Sportsbook department – each dollar bet is logged; all actual bet activity is accounted for.Customer places a betEmployee inputs information into computerTicket is issued for transactionReceipt officially recorded when transaction is registered in the computerEmployee must balance hard copies with computer receipt at end of shiftHard copies and computer-stored information constitute the revenue in the gaming centersBingo, Keno – like sportsbook, managers know all activity that occurred in their departments during a specific period of time.
5 Table Games Approximately track drops and payouts Not every transaction is recordedNo digital record or hard copy of each transaction existsCustomer exchanges currency for chipsDealer follows specific procedure exactlyDisplays dollar and chip transaction for surveillanceCalls out bill size for Pit SupervisorCurrencyDropped into drop box following specific procedureDrop box is collected by security and drop teamTaken to vaultOpened and contents counted as revenue for table
6 Electronic Gaming Devices Each transaction is recorded by a computer chip in the machine.Computer chip transmits data to mainframe.CoinGoes into drop box in the bottom of the machine.Drop box is collected by security and drop team.Taken to vault.Opened and contents counted as revenue for machine.When drop is counted, total is compared to computer record.
7 Paper Trail of Paid Outs Table GamesApproximate measure using fillsOrder form to request more chips for a specific tableUsed to represent the paid outsPit SupervisorExamines rackDetermines how much of each denomination is neededCompletes a “fill slip” on computerFill request is transmitted to Cage
8 Table Games (cont’d) Cashier Dealer Places fill slip face up so surveillance can seeFills the orderSecurity also counts amount of chipsCashier keeps copySecurity takes fill slip copies and chips to pitDealerSecurity waits for end of handDealer verifies fill amountsDealer signs fill slip,Dealer transfers chips to rack, and drops fill slipSecurity and Pit Supervisor observe entire transaction
9 Cage Operations Responsible for the control of money Cashier Cage Maintains inventory of cash and equivalentsFour areas: cashier cages, soft count room, hard count room, vaultEach area has a manager who reports to Controller (or similar position)Cashier CageActs as a bank for guestsExchange currency, chips, coins, electronic gaming tickets; cash checks
10 Hard Count and Soft Count Rooms Drop TeamConsists of cage employees and a security guardCollect table game drop boxes and electronic gaming device buckets; replace bill validators on casino floorHard Count and Soft Count RoomsSoft count room inventories paper money; hard count room inventories coins and chipsEach has a different employees to count the cash or cash equivalentsDrop boxes opened individually, one at a time.Money is transferred to the vault, which prepares the banks for employees
11 Controls in Place Signatures Separation of Duties Provide a traceable line of responsibilityAssures employees are not accused of theft if the funds disappearSeparation of DutiesEach person has specific responsibilitiesMultiple Employee InvolvementMore than one person involved in transactionLessens likelihood of theft or collusionSurveillanceObserve transactions via cameras in ceilingDigital record created
12 Duplicate / Triplicate Forms Verify the transfer of responsibilityConfirm the exact description of the fundsCash CountdownsParty receiving funds counts down the amountBoth parties confirm by signingDigital TrailProvides a trail that should match the paper trail being created simultaneouslyHard copies can be “lost;” digital trail discourages temptation to steal or embezzle
13 Supervisory Oversight Man TrapSmall anteroom in the vault or count roomsDoor must be closed and locked before door into the secure area can be unlocked and opened.Entry and man trap are heavily covered with surveillance cameras, constantly monitored.Supervisory OversightThis is essential to control- Pit supervisor watches dealer; cage supervisor watches cashier; drop team lead watches drop team- Supervisors watch to be sure employees strictly follow all procedures relating to cash handling- Monitor employee behavior toward customers and other employees
14 Hold Percentage Hold Percentage = Hold ÷ Drop Variation by Drop Period Varies from period to periodConstant over long term (many trials)Variation by Drop PeriodPit managers look at hold percentage by individual gaming table to be sure controls are effective.When the percentages are not what are expected, it is often hard to say whether someone is stealing or if there is just a natural, statistical variation.
15 Finances Access to Capital Early Nevada operations utilized profits to purchase additional table games or slotsNew entrants into market were self-fundedOrganized crimeFunds from illegal activitiesFunds from labor union pension fundsNevada law changed, allowing licensing of corporations; opened equity and debt marketsBill HarrahListed on the New York Stock ExchangeOther sole proprietors followed
16 Future access to capital depends on four factors: Public PerceptionExternal financing allowed expansion, new development.Greater availability brought more acceptance and funds from public markets.Future access to capital depends on four factors:Success of individual companies and industry as a wholeContinued stability in legality of gamingTight regulation of industryContinued social acceptance of gaming as entertainment
17 Financing Expansion: Equity vs. Debt Allows greater financial flexibilityGives up some control, dilutes partners/owners percentages by increasing number of ownersEquity partners expect continual dividendsDebtA fixed payment; comes to an endPrimary control vs. stockholdersInterest portion is expense deducted from profits
18 Chapter 12 PRICING: COMPS AND CREDIT Jeff L. VoylesMGM Grand
19 PricingPricing – represented by the house advantage; the price the player is charged to playFairness – responsibility of regulators, operatorsManagement needs to:Offer the right price mix to attract and maintain guests without taking unfair advantageFind a balance that allows player to extend time played, enjoy their experience, and permit casino to make a profitRegulations allow for a broad range of payback percentages, allowing the casino to fluctuate house advantages throughout the casino floor.
20 Casino Comps and Player Ratings Complimentary – something given free, or as a gift; often known as a “comp.”A casino comp strives to maintain a balance between profit and customer reward.HistoryOffered to known guests with little researchMethod was inconsistent, unprofitable, unreliableCasinos realized importance of analyzing player’s betting, determining their worth for compsNow, floor supervisor is responsible to examine play of every qualified player
21 Player Ratings Table Game Ratings Process by which a table game floor supervisor monitors the gambling routine of a patron.A gaming device monitors a player’s action through a computerized rating system.Data produced determines value of a player.Table Game RatingsOnce required betting limit is met, supervisor asks if guest cares to be rated.At conclusion of play, floor supervisor closes out rating, calculates average bet, records time played, total amount in/out, and the win or loss.
22 Casino Expected Win / Theoretical Win Average bet and length of play – important aspect of player rating.Data used to determine player’s worth by calculating theoretical win, determining comps the casino can offer.Theoretical win – expected win by casino throughout a length of play. The longer the session, the closer actual win is to the theoretical win.The Central Limit Theorem states that over a large number of independent trials, the casino will see a normal probability distribution.THEORETICAL WIN = HOUSE ADVANTAGE x GAME PACE x AVERAGE BET x DURATION
23 Computerized SystemsDesigned to provide constant source of information; accessed for review at any time.Digital ratings on every table game; player’s card swiped to generate accurate ratings.Future of comps will rely greatly on advancement of technology.Interested in players self-comping, possibly through a computerized kiosk systemCasinos must find a balance between the use of too much technology and personal attention.
24 Challenges and Concerns Casinos must rely on tremendous amounts of labor for evaluating and inputting the data necessary for a casino to administer comps.Customers may also experience frustration if they are new to a gaming property.An unknown player to the casino who asks for a complimentary may be placed on a qualifying basis status.Casinos must be cautious when requesting information from a player.
25 Advantage PlayersIndividuals with sophisticated skill levels that reduce, and sometimes eliminate, the house advantage by exploiting certain opportunities.Some request to not be rated, they value their anonymity and longevity more than receiving comps.Managers must be familiar with a normal theoretical expectation of all games, and recognize when a player’s action falls outside the normal standard deviation.The standard deviation tells how much deviation can be expected when large numbers of independent trials (wagers) are experienced.
26 Human Error False Ratings Errors in ratings create inconsistencies, which result in disagreements with players.False RatingsConsist of a rating that represents a gambling session that never took place.Created to generate artificial theoretical win, gain comps without having to gamble.Can be entered with relative ease because of the large number of rated players an employee is responsible for, therefore allowing the false rating to go unnoticed.
27 Inflated RatingsActually took place, but reveals larger average bets and longer time played than actual.Very difficult to monitor and prevent.Guests are sometimes very generous, offering their comps to other guests or employees.Extremely difficult to identify due to the sheer volume of players and comps distributed.Vital to the success of a gaming company to identify their market and adjust the complimentary system to fit their specific region.
28 Slot RatingsSlots encourage higher gross handles (total amount wagered), volumes of players, lower costs, and less risk than table games.Data tracking system out-performs all data collection efforts in table games.Technology allows vital performance data to be collected from slots while tracking pertinent player information for the marketing department.Each guest is evaluated for the potential value they bring to the casino.For a guest to be rated on a slot machine, the guest must place his or her card in the slot designated for player tracking.
29 Player’s GroupEarly 1980s – slot clubs (and later, table games) began to reward players for frequently visiting the casino.Includes all players who sign up to have their play tracked and evaluated through table games or slots to receive promotions, rebates, comps.Strength of casino is how well they manage the database of players they have created.Casinos must continue to reinvent the way they present themselves to the customer and how they respond to their needs.
30 Casino Credit Types of Credit Closely associated and coordinated with the complimentary systems that casinos use to attract players to the property.Types of CreditMost common – casino-issued counter check, or marker.Rim card – document used on table game to track credit transactions of a high roller who requests multiple credit transactions; eliminates need for player to sign multiple documents throughout session.
31 Credit Process Player fills out a credit application. Amount of credit is requested; casino credit department reviews application.Customer must sign a signature card; represents legal signature.Guest with established credit line is the only person eligible to use the account.Amount is determined by evaluating many different factors: amount of credit already established at other casinos, guest’s credit score, bank balances, past delinquent accounts.
32 Credit DistributionFloor supervisor verifies player has credit available before dealer is instructed to distribute amount.Player signs marker; given to the pit clerk to match the signature against a digital signature.If the signature matches, marker is filed.Floor supervisor and dealer must also initial portion of the marker with player’s name, amount, table number, and time the marker was generated.Slip is put in drop box on the game. Supervisor and dealer also sign table card and put it back on the game table, concluding issuance of the marker.
33 Credit ExtensionA casino marketing executive must first evaluate how the player lost the credit line.The credit extension is coded as a TTO, meaning “this trip only.”Casino hosts are able to grant or extend credit to a guest if they are authorized to do so.It is the responsibility of the marketing executive to determine whether the player is fit to continue or should refrain from gambling for a moment to reevaluate his or her situation.
34 Credit HoldCasino can require guest to use casino credit only after front money or winnings are exhausted.Long periods of time between visits require a player check-in and new signature card to release the hold on the account.A player may also have bad debt from slow pay or no pay from previous trips.If players attempt to obtain credit and use the money for non-gaming related activities.If a patron cashes out an entire credit line with one marker.
35 CollectionsCredit department must evaluate how and when they will attempt to collect a gambling debt.Applicant can designate payment when application is completed.Statement may be sent requesting payment in 30 days, or pay at the conclusion of stay.Third-party collection service may be used.May offer special arrangements for guests who have difficulty paying debts.The “write-off” must be presented and approved by the executive level; at that time debt can be considered irretrievable, or written off.
36 Effective Player Rating Systems The importance of Player Rating SystemsIssuance of complimentariesIdentify customers for marketing purposesEstablishing GuidelinesEnsure acceptable casino profit marginMaximize customer satisfactionActual versus Theoretical WinTheoretical=best indicator of casino gainAvg. bet * hours played * decisions/hr * house edge$150*2.25 hours*60*5.26% = $1,065.15Actual=may indicate future player revenues
37 Effective Player Rating Systems Measurement (supervisory estimates)Game playede.g. BlackjackPlayer’s average bete.g. $150Player’s skill levelSoft=1.00; Avg.=0.60; Hard=0.20Speed of the gameSlow=60; Medium=80; Fast=120
38 Effective Player Rating Systems Measurement Example #1Game House Player Multipliers Game SpeedAdv. Soft Avg. Hard Slow Med FastBJack %$150*2.5%*0.60*80*4(hours)= $720 (theoretical win)
39 Effective Player Rating Systems Measurement Example #2Game House Player Multipliers Game SpeedAdv. Soft Avg. Hard Slow Med FastRoul % n/a$150*5.26%*1.00*60*4(hours)= $1, (theoretical win)
40 Effective Player Rating Systems Measurement Example #3Game House Player Multipliers Game SpeedAdv. Soft Avg. Hard Slow Med FastDice %$150*1.00%*1.68*80*4(hours)= $ (theoretical win)
41 Effective Player Rating Systems BlackJack win = $720Profit margin = 15-20%Net value = $144Roulette win = $1,894Net value = $331Dice win = $806Net value = $141What comps would you give this player tonite?
42 Effective Player Rating Systems Tier 1 = minimum $20,000 creditPremium playersTier 2 = $100,000 - $500,000“Heavy Hitters”Tier 3 = $1,000,000 - $5,000,000“Whales”Categories not all-inclusive
43 Slot Systems Track data on two levels Machine usage (automated)Marketing modulePlayer performanceDemographicsVisitationGaming historyInfo gained through player enrollmentConvince players to use tracking cardsReward systems offered
44 Table Game Hold Win/drop = hold Typical usage Identify good or bad casino managementIdentify theft
45 Table Game Hold Table utilization Table 1 Table 2 Players per tableDrop per player $100 $100Total drop $100 $700Bet per hand/player $ $10Total bet per hand $ $70House advantage % %Hands per hourWin per hour $ $36.40Hold per hour % 5.2%
46 Players per Table & Decisions/Hour No. of Players Hands per Hour
47 Players per Table & Decisions/Hour No. of Players Roulette Spins per Hour
48 Players per Table & Decisions/Hour No. of Players Dice Tosses per Hour
49 Labor Per Table Assume: Dealer: 80/60 x $50 x 1.30 = $86.67 dealer works 60 minutes on & 20 min off1 floorperson per 4 games (0.25 per game); breaks/lunchDealer paid $50 for 8-hour shiftFloorperson paid $150 per shiftTaxes and benefits, add 30%Dealer: 80/60 x $50 x 1.30 = $86.67Floorperson: 480/380 x 0.25 x $150 x 1.30 = $61.58Total labor per table per shift = $148.25(or $18.53/hour)
50 Minimum Break-Even Bets Labor Per TableMinimum Break-Even Bets# of Players 21 Hands/Hour Minimum Bet$9.46$7.11$6.27$5.88$5.65$5.49$5.43
51 Slot Systems Card Use Issue Las Vegas Strip usage rate: 30-35% Estimate 1% increase = $20m gain in EBITDAOnus of remembering to use cardsDo not believe length of stay is sufficientRandom bonus plan addresses eachNot frequent or extended stay-basedSelects from active player setAllows instant public celebration of winnerProvides visible evidence of winningCreates feeling of excitement and anticipation
52 Casino Marketing Match Plays and Non-negotiables Problems and SolutionsGambler’s Spree (Junket)Slot Marketing and Consumer Choice FactorsRebates on LossesTable Game Rule Modifications as a Marketing Tool
53 Match Plays and Non-negotiables Requires cash ‘match’ of betMay not be an even money amounte.g. $2 cash for $1 match play; $3 payoutNon-negotiableCan be bet by itselfCan be styled so that forfeited when:The player loses the betWhen the player wins the bet by exchanging it for a live chip of equal valueIf coupons placed in drop box: with exchangeForfeited only on losing bets: without exchange
54 Match Plays and Non-negotiables Value ExampleAsk: How much would the player have to bet in order to create the same effect?Betting $5 ‘with exchange’ match with $5 cashLeaves the game with $15 if bet is won$5 bet plus $10 payoffOn an even money bet, player would have wagered $7.50Thus coupon has a value of $2.50Factor in house edge of 1.5%; coupon cost=$2.4625; + house earns $0.075Accompanying bet of $164 needed to cover this costBetting $5 ‘with exchange’ nonnegotiableLeaves game with $5 if bet is wonNo personal money betOn an even money bet, player would have wagered $2.50Factor in house edge of 1.5%; house cost reduced to $2.3875Accompanying bet of $ needed to cover this cost
55 Gambler’s Spree (Junket) Attract players to casinoDesigned by independent casino representativesNegotiate with casino-hotel for discounted room rates, F&B credit and some form of match play or nonnegotiable chip bonusAdds transportation and transfersSells package to players at a price to generate a profit of $60 - $100 per player
56 Gambler’s Spree (Junket) ExamplePackage includes 2-night, 3-day hotel, airfare, free drinks and a 50% disc on coffee shop chargesGiven $50 in match play ‘with exchange’ coupons. If bets $5 for 8-hours, then receives add’l $100 cash & $150 matchPlayer gives score card to table games so average bet and time played is recorded
57 Gambler’s Spree (Junket) Casino should ask:What is profit/loss if only minimum is met?What minimum is required for breakeven?Is it reasonable to expect add’l play?Are there others reasons to offer this plan even if it will not breakeven?
58 Gambler’s Spree (Junket) Example assumes:Casino edge of 1.5%Player stays for 2 nightsHotel could sold for $5/more/nightHouse wins one average bet per hourPlayer will eat $60 in meals; $30 discount
59 Gambler’s Spree (Junket) Hours playedAverage bet $5 $25 $25 $25$50 Match Play costhours/bet$100 cash awardAdd’l $150 match playDiscount on mealsLoss on room discountLoss/gain before taxesGaming tax (6.25%)Loss/gain before laborOperations 3.53/hrNet Loss/Gain
60 Gambler’s Spree (Junket) Casino should ask:What is profit/loss if only minimum is met?-$229.24What minimum is required for breakeven?Average bet of $25; play for 12 hoursIs it reasonable to expect add’l play?Average bet is 5 times program designTime is 50% longer than minimumAre there others reasons to offer this plan even if it will not breakeven?Subjective
61 Gambler’s Spree (Junket) Casino should ask (continued):Are there others reasons to offer this plan even if it will not breakeven?Yes: Initial introduction to the casino so players likely to return on their own at no casino costNo: Bargain hunters tend not to be brand loyalYes: May be worth ‘taking a shot’Yes: Competitors offering same or similar
62 Gambler’s Spree (Junket) SummaryDon’t accept a program simply because a competitor is doing itDon’t accept a program unless the anticipated results can be quantifiedSeparate the hyperbole from the factsBeware of any program for which doubts are put to rest only by saying :Trust me, you’ll make a profit.”
63 Slot Marketing & Consumer Choice Factors Database drivenDrive overall business volumeIncrease slot club enrollmentEstablish and build relationshipsBuild loyaltyDrawing based promotions with cash prizesCash mail or direct mail programsTiered offers in the form of cash incentivesBased upon Average Daily Theoretical (ADT)Goal to generate additional visitsMay create sense of entitlement
64 Slot Marketing & Consumer Choice Factors RestaurantsCan be used to generate slot playEvidence is mixedFood loss leadersDoes restaurant volume drive casino volume?
65 Slot Marketing & Consumer Choice Factors Drawing-based PromotionsPopular in repeater marketsMulti-week time frameChances of winning increase with amount of play during qualifying periodsInfinite number of variationsExample:Customers win drawing tickets for jackpotsSelected days, drawings are heldIncremental effect on casino cash flows?
66 Slot Marketing & Consumer Choice Factors Goal is to:Customer acquisitionMass mailingsAppending databasesCustomer retentionTargeted direct mail campaignsRandon bonus promotions; special eventsCustomer recoveryCustomer interviews designed to discoverService delivery problemsLapses in patronage or other dissatisfaction
67 Slot Marketing & Consumer Choice Factors Choice factors (property attributes)Will vary by market and cultureGeneral convenience of location is only consistent factorOther top factorsFavorite place to playYou feel safe thereEmployees are friendly and courteousA good place to take out-of-town guestsAvailability of games
68 Rebates on Losses Rebates to premium players Will receive a discount of x percent when incurring a lossExample: If 10% discount, player only needs to repay 90% of her losses while still receiving 100% of the amounts wonRumored that larger casinos offer up to 25% to a few of the biggest bettorsOnly when the theoretical casino win equals the player’s actual loss does a 10% loss rebate actually cost the casino 10%
69 Table Game Rule Modifications as a Marketing Tool Marketing executives sometimes use rule modifications to win customers and increase profitsA decrease in house advantage results in a decrease in holdTo be successfulPlayers must view rule variation as favorable (beneficial)Play volume must increase to compensate for the decrease in house advantage
70 The Premium Player Higher Acquisition Cost of the Premium Player Players successful at negotiating more perksHotelFood and BeverageOccasional airfareIncreased use of discounts on lossesDiscountingImpact upon profitsRequires longer time of playPrevent pooling losses across gamesBe aware of fixed and variable cost structure
71 Effective Player Rating Systems Tier 1 = minimum $20,000 creditPremium playersTier 2 = $100,000 - $500,000“Heavy Hitters”Tier 3 = $1,000,000 - $5,000,000“Whales”Categories not all-inclusive