Hashimoto: Casino Management: A Strategic Approach © 2008 Pearson Education, Upper Saddle River, NJ All Rights Reserved. Chapter 11 PRICING: REVENUE CONTROL Steve Durham The House Advantage

Hashimoto: Casino Management: A Strategic Approach © 2008 Pearson Education, Upper Saddle River, NJ All Rights Reserved. Terminology: Drop, Payouts, Hold Drop 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 )

Hashimoto: Casino Management: A Strategic Approach © 2008 Pearson Education, Upper Saddle River, NJ All Rights Reserved. Payouts Money paid for winning wagers, becomes part of payouts. Occasionally called a “paid out.” Win / Hold Interchangeable 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

Hashimoto: Casino Management: A Strategic Approach © 2008 Pearson Education, Upper Saddle River, NJ All Rights Reserved. Paper Trail of Revenue Sportsbook department – each dollar bet is logged; all actual bet activity is accounted for. Customer places a bet Employee inputs information into computer Ticket is issued for transaction Receipt officially recorded when transaction is registered in the computer Employee must balance hard copies with computer receipt at end of shift Hard copies and computer-stored information constitute the revenue in the gaming centers Bingo, Keno – like sportsbook, managers know all activity that occurred in their departments during a specific period of time.

Hashimoto: Casino Management: A Strategic Approach © 2008 Pearson Education, Upper Saddle River, NJ All Rights Reserved. Table Games Approximately track drops and payouts Not every transaction is recorded No digital record or hard copy of each transaction exists Customer exchanges currency for chips Dealer follows specific procedure exactly Displays dollar and chip transaction for surveillance Calls out bill size for Pit Supervisor Currency Dropped into drop box following specific procedure Drop box is collected by security and drop team Taken to vault Opened and contents counted as revenue for table

Hashimoto: Casino Management: A Strategic Approach © 2008 Pearson Education, Upper Saddle River, NJ All Rights Reserved. Electronic Gaming Devices Each transaction is recorded by a computer chip in the machine. Computer chip transmits data to mainframe. Coin Goes 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.

Hashimoto: Casino Management: A Strategic Approach © 2008 Pearson Education, Upper Saddle River, NJ All Rights Reserved. Paper Trail of Paid Outs Table Games Approximate measure using fills Order form to request more chips for a specific table Used to represent the paid outs Pit Supervisor Examines rack Determines how much of each denomination is needed Completes a “fill slip” on computer Fill request is transmitted to Cage

Hashimoto: Casino Management: A Strategic Approach © 2008 Pearson Education, Upper Saddle River, NJ All Rights Reserved. Table Games (cont’d) Cashier Places fill slip face up so surveillance can see Fills the order Security also counts amount of chips Cashier keeps copy Security takes fill slip copies and chips to pit Dealer Security waits for end of hand Dealer verifies fill amounts Dealer signs fill slip, Dealer transfers chips to rack, and drops fill slip Security and Pit Supervisor observe entire transaction

Hashimoto: Casino Management: A Strategic Approach © 2008 Pearson Education, Upper Saddle River, NJ All Rights Reserved. Cage Operations Responsible for the control of money Maintains inventory of cash and equivalents Four areas: cashier cages, soft count room, hard count room, vault Each area has a manager who reports to Controller (or similar position) Cashier Cage Acts as a bank for guests Exchange currency, chips, coins, electronic gaming tickets; cash checks

Hashimoto: Casino Management: A Strategic Approach © 2008 Pearson Education, Upper Saddle River, NJ All Rights Reserved. Drop Team Consists of cage employees and a security guard Collect table game drop boxes and electronic gaming device buckets; replace bill validators on casino floor Hard Count and Soft Count Rooms Soft count room inventories paper money; hard count room inventories coins and chips Each has a different employees to count the cash or cash equivalents Drop boxes opened individually, one at a time. Money is transferred to the vault, which prepares the banks for employees

Hashimoto: Casino Management: A Strategic Approach © 2008 Pearson Education, Upper Saddle River, NJ All Rights Reserved. Controls in Place Signatures Provide a traceable line of responsibility Assures employees are not accused of theft if the funds disappear Separation of Duties Each person has specific responsibilities Multiple Employee Involvement More than one person involved in transaction - Lessens likelihood of theft or collusion Surveillance - Observe transactions via cameras in ceiling - Digital record created

Hashimoto: Casino Management: A Strategic Approach © 2008 Pearson Education, Upper Saddle River, NJ All Rights Reserved. Duplicate / Triplicate Forms Verify the transfer of responsibility Confirm the exact description of the funds Cash Countdowns Party receiving funds counts down the amount Both parties confirm by signing Digital Trail Provides a trail that should match the paper trail being created simultaneously Hard copies can be “lost;” digital trail discourages temptation to steal or embezzle

Hashimoto: Casino Management: A Strategic Approach © 2008 Pearson Education, Upper Saddle River, NJ All Rights Reserved. Man Trap Small anteroom in the vault or count rooms Door 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 Oversight This 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

Hashimoto: Casino Management: A Strategic Approach © 2008 Pearson Education, Upper Saddle River, NJ All Rights Reserved. Hold Percentage = Hold ÷ Drop Varies from period to period Constant over long term (many trials) Variation by Drop Period Pit 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. Hold Percentage

Hashimoto: Casino Management: A Strategic Approach © 2008 Pearson Education, Upper Saddle River, NJ All Rights Reserved. Finances Access to Capital Early Nevada operations utilized profits to purchase additional table games or slots New entrants into market were self-funded Organized crime - Funds from illegal activities - Funds from labor union pension funds Nevada law changed, allowing licensing of corporations; opened equity and debt markets Bill Harrah Listed on the New York Stock Exchange Other sole proprietors followed

Hashimoto: Casino Management: A Strategic Approach © 2008 Pearson Education, Upper Saddle River, NJ All Rights Reserved. Public Perception External 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 whole Continued stability in legality of gaming Tight regulation of industry Continued social acceptance of gaming as entertainment

Hashimoto: Casino Management: A Strategic Approach © 2008 Pearson Education, Upper Saddle River, NJ All Rights Reserved. Financing Expansion: Equity vs. Debt Equity Allows greater financial flexibility Gives up some control, dilutes partners/owners percentages by increasing number of owners Equity partners expect continual dividends Debt A fixed payment; comes to an end Primary control vs. stockholders Interest portion is expense deducted from profits