The price of gaming has been a growing topic of interest for the casino industry for some time, the most recent example being an Applied Analysis slot hold study funded by the Association of Gaming Equipment Manufacturers (AGEM).
The study, which analyzed payout percentage trends in 15 states, found that slot-hold percentage increased by 6.2 percent from 2007 to present. During the same period, handle decreased 18 percent slot revenue fell 13 percent.
The findings were released after the Casino Marketing & Technology Conference, where a panel called, “Where Has All the Value Gone How Do We Bring It Back?” addressed the issue of rising slot hold and its accompanying impact on players. One of the key takeaways from that discussion was that the impact technology has had on the way slot games play has been profound and there’s probably no turning back. Led by Dennis Conrad, president and chief strategist, Raving Consulting Company, the panel also featured Mike Meczka, president, Meczka Marketing Research and Consulting and Anthony Curtis, publisher, Huntington Press, which puts out the Las Vegas Advisoreach month. A summary of their discussion follows.
LOSING FOUR TIMES FASTER
Any discussion of the rising cost of slot play has to start with speed of play. Gambling games are an exercise in losing math, so when the pace of math is applied at faster and faster rates, players are going to lose quicker if hold percentages remain constant.
“When you had to pull the handle and wait for the coins, it was about one play every 10 or 12 seconds,” said Meczka. “Now it’s one play every three seconds and in some places every two seconds. If it’s three seconds, that’s 20 pulls per minute. If it’s $3 per pull, you’re going through $60 per minute times 60 minutes. You’re talking about a pretty significant sum of money, and we’re not allowing our patrons to enjoy the time.”
Another factor is higher max bets. It used to be the only bet that was higher than three coins was video poker, with five coins. So players are playing faster and it takes more money to play faster.
“The most egregious thing is the number of coins that are required,” said Meczka. “You can play a 50-line game with one coin per line, which is 50 cents. Or you can play max bet of 10 coins for $5 per pull. The worst thing about that is they’re called penny games. And the manufacturers, with the full cooperation of the operators, have mandated holds of 10-12 percent on lower denomination games. Higher denomination games hold three percent. Penny games don’t vary; when I’m playing $5 a bet on a penny game, I’m paying 12 percent to play that game. And suddenly, players are saying, ‘I make my bets, my money’s gone and I can’t do anything about it.’
“It’s criminal that we allow penny games to have a 12 percent hold. Nothing can alienate a customer quicker than that. Casinos think that customers won’t know the difference between a six percent and a 12 percent hold and we’ll get them out quickly. They are right; customers do get out and spend their money on cruise ships and other activities.”
The phenomenon extends to table games side, where the most popular payout, unless you’re playing a $25 or $50 bet, is 6:5 for blackjack. “How much does that cost the customer?” asked Meczka. “If I was getting paid 3:2 and I had $10 bet, I received $15 back. Fair enough. Now if I have $10 bet I get $12 back. So I’m out $3 and you’re realizing 30 percent less profit. How long can this continue? Not long. People aren’t going to play. Another thing that has occurred is operator greed with many table games, including the new carnival games such as pai gow bonus rounds, which have 40 percent holds. You can’t keep a customer going if they keep on getting beat in that fashion.”
THE WORST MISTAKE YOU CAN MAKE
“The customer won’t know the difference between six percent and 12 percent; everyone who feels that has got this wrong,” said Curtis, quoting a school of thought that many casino operators at least covertly, and often openly, embrace.
“I’m not a Gary Loveman hater; I got to meet him a couple of times and he’s a brilliant guy,” said Curtis. “But he made a real mistake when he said in that book, ‘the customer can’t feel the difference, so who cares?’ Let me explain to you how it works: We put a customer here and he plays two different games. One is six percent and one’s 12 percent. Loveman is correct; the player will not be able to peg the hold percentage. He’ll be wrong almost as often as he is right. But he will get a result, and that result will be dictated by the probability of the game he is playing.
“He will take that result home and out to the marketplace, as will hundreds of thousands of other players. They will all land on their respective points on the bell curve and they will get the exact collective experience that you don’t think they’re getting. They will be able to tell, as a single entity, that this is the casino that has 12 percent hold and this is the casino that has six percent. And they will talk about it, write about it, blog about it and there will be word-of-mouth. There will be a slow and steady exit from the tighter property and approach to the looser one. It’s math.”
Both Curtis and Meczka recommend looser machines accompanied by heavy advertising as a way to win back the affections of worthwhile decliners and defectors, and in Curtis’ case, he actually has a real-world success story to back it up.
“I was called by the TV show Bar Rescue to revamp the video poker product at a locals Vegas bar,” he said. “I didn’t want to do that gig, but when they told me I was going to have my own little casino, I couldn’t wait. This bar had the worst pay schedules you could have. The best offer was 6:5 bonus poker, a 96 percent game. It was just complete garbage. They had a slot operator who was never getting paid. They had no volume, no drop, nothing. They gave it to me and let me do exactly what I wanted. We immediately put in a couple of 100 percent-plus games, and we did two things with them. I did not put them on dollars; I put them on quarters or 50 cents. And they were two of the most difficult games to play correctly. One of them was called Loose Deuces, the other was 10/7 Double Bonus. If you are an absolute super expert playing like a computer you can eke out maybe 12 bucks an hour at those games. OK, I’ll fade that guy if he wants to come in and do that.”
The rest of the pay schedules, “the ones that everyone wants to play,” Bonus Poke, Double Double, Keno, were set at 95 or 96 percent. The bar also had some middle games that everyone recognized, like 9/6 Jacks or Better.
“And then we advertised the hell out of it,” said Curtis. “The message was, ‘We have the loosest video poker machines of any bar in all of Vegas.’ We were so out there with that message that Gaming Control contacted us and they explained gaming to me. I showed them my research and they said ok, go ahead, advertise away. Within a week, they doubled their volume. Within four weeks, they were up about five times. At the end of the month they got their first paycheck in I don’t know how many months. It absolutely worked. Then there was a lawsuit, they sold the bar and pulled out the machines.”
For Meczka, lowering the price of game play is about something larger than growing revenue; it’s about getting back to what regulated gaming is supposed to be all about: stakeholders, not shareholders.
“It bridles me that casino owners are allowed to be able to think about shareholder equity,” he said. “In every market except Nevada and Mississippi, having a casino is a privileged license. You’ve been granted something no one else can do. I don’t want to hear comparison to Macy’s, you have a privilege and you have a social and moral responsibility to your stakeholders. Those are our customers; people who come to a casino with great frequency, expect a fair return on their investment, and expect a reasonable return for you to take to your stakeholders, be it a board of directors or tribal chair.
“I plead with you to understand who the customer is, to better understand them and give them what they want. After all, having a casino, and particularly in a monopoly or oligopoly market, affords you the highest opportunity for legal return on investment in the United States. All you have to do is run a casino like it’s a place where people go to gamble and get a fair shake. Let’s take care of our customer and let’s consider our customer to be our partner and stakeholder and that is the corrective action that we can take.”
DISCUSSING A CULTURE OF VALUE
An audience composed of casino marketers had some questions about all of this. After all, lowering holds isn’t something they control. What would be the near-term outcome, why should we expect customers to understand what hold percentages really are and what other things can casinos do to create value? Here’s a summary of those conversations and more:
What if we all took your advice and loosened the games, the customer still has a finite wallet. What do you think the outcome would be?
Curtis: Then you’d have to find new customers. We’re talking about a different question; how do you keep your bedrock customers who have been around for years? If the customer is losing his money you have to promote and do new things.
Meczka: If in fact everyone did this, there would not be decliners and defectors and our revenue would be constant with existing customers and increasing as new people come into the market. We’d be offering a satisfactory experience and we wouldn’t have negative talk from people who used to go to casinos.
Conrad: There’s probably a transition that happens. All that reinvestment you’re probably spending to make them lose focus on how fast they’re losing their money; the free play, the double points days, the VIP events and all that, some of that has to change. You’ve got to have the stomach for it. Which leads to another question: Marketers see this better than anyone else. They understand the defector dynamic, loss of revenue, etc. But casino owners, stockholders of major companies, don’t necessarily get it. What can they do from their perch?
Meczka:Marketers need to do excellent test-and-control tests to find out which segments are most valuable. The Pareto Principle comes into play here dramatically. No matter how we do this; 20 percent of the players account for 60-80 percent of the revenue. Once we identify those people, we’ll be fine. The thing we can’t do in a casino is simply take arithmetic averages and think they’re going to work. All customers are created equal but some are just more equal than others.
ATM fees are something operators need to examine. They are mostly $2 and $3, but here in Vegas it’s $6. Those casinos that decrease their fees actually see their overall market share increase.
Curtis:That point is super strong. Anything you can do to entitle customers to do more is fantastic. The property with the lowest ATM fees on the Strip is Casino Royale. It’s $1, and there’s a bar called 7-11 in town that has a $0 ATM fee. They do it for a reason and they’ve been doing it for years.
If you lower hold percentages, what’s the trade-off with marketing incentives?
Conrad: I’ll share the Barona experience. I don’t know the secret sauce, but I bring management groups there who are trying to get to the next level. And I can tell you they have reduced the hold percentages on their machines and they have advertised it in an honest way using their own employees.
It’s not all machines. They have some great video poker schedules. They have, “manufacturer’s bests” where they’ve asked manufacturers to verify for customers that the game they have on Barona’s floor is the best pay table that they offer. They promote the fact that they’ve been voted “Loosest Slots in Market,” which is a popularity contest among newspaper readers, but they have a whole package of things. And they have no ATM fees.
They’ve created a whole value package, which has allowed them to go without any general brand advertising. That’s about a $10 million savings, which they are spending against their customer base in a variety of ways. One is having executives walk around with $20 vouchers going up to players, strategically identified, and saying, “I see it’s your birthday,” or, “I see you haven’t been winning in the last hour,” or, “I see it’s your first time here,” or, “You haven’t been here for a while.” You can’t quantify it, but if you go to Barona, Sycuan and Viejas and on any given day, these are three very professionally run casinos and you will see what kind of market share Barona has.
Meczka: Chuck Hickey, the Barona vice president of slots, has been around for awhile. He opened the Empress in Chicago and he had a monopoly when it opened, with one boat. Everyone wanted him to increase the slot hold and he said, “Sometimes we’re going to have competition and people have long memories.” And it was not until Harrah’s doubled the number of boats that they had in the market that they were able to get more share with twice as much capacity as Empress had in Chicago. There are a number of places that exemplify the success of having a low-hold casino model, not least of which is San Pablo Lytton Casino in San Pablo, Calif.
Curtis: South Point is another example. Not to get on the Barona love train. But they have a top-to-bottom program; it’s not just a strategy they’re working on. Part of it is never allowing any of their managers to sweat the money or show any concern about losing.
I’ve worked in some of the most competitive markets in the country, with all properties having hold percentages around five percent, and we get the same number of letters saying our machines are too tight as I get where I’m at currently. They aren’t winning as much as they used to because the games have changed. What can we do to address this easily and quickly?
Curtis: You do it in other ways. Work on entitlements. Gamblers want to gamble and they want to be entitled. Entitlement is seeing a program that’s better; seeing the Las Vegas Advisor in the mail…As far as people writing, you’ve got a game with negative expectations so you’re going to get more losers than winners. I’m all for giving them a great value whatever it may be. Whether it’s giving them the highest cashback, the best steak for under $5, 50-cent beers from 9-11 on Monday through Thursday; they’re all great inducements that don’t cost a lot.
Meczka: Our target customer is someone who comes to the casino three to four times a months and brings $200-$300, correct? How many people in this room have visited a casino six or more times with $300 of their own money in their pocket on each visit? It’s not until we talk to our customers that we find out exactly what they want, and the quicker we do that research the better we’ll all be.
Conrad: Other ideas: Promote what machines are holding and which are the loosest. Put some of the machines you took off the floor back, as well as the candies that were taken out in the players club because someone didn’t want to spend $5,000 every six months and thought the players wouldn’t miss it. Do a couple of things that say to your customers, “We get it, you liked those candies.” Mix that up with a couple of looser machines that are clearly and honestly that. It’s not one or two things; it’s lots of little things that all speak to value.
What do you think the impact of skill-based slot games will be? Will they offer a better value to the player?
Curtis: I’m not real optimistic because it’s not going to be what these younger people want. They want true head-to-head skill-based competition. They’re going to look at it a long time until somebody comes up with something great and then they’re going to stick their noses up. To me the casino experience is extremely social and everyone wants to go where the busier place is.
Conrad: My original thought was at least they’re trying something new. But I ran that by a slot manager and his thought was that the regulators and the casino owners aren’t going to let it be truly skill-based to the point where they’re vulnerable. They’ll have a little bit of that and create a little buzz. To help make up for that, they’re going to have to gouge the people who don’t play the game well and we’re going to hurt more people than we’re going to help.
Curtis: There’s almost no way around that. Look at horse racing. In a pari-mutuel pool it’s the really bad players who get beat up. Look at poker. It’s the reason why really big poker isn’t sustainable. Daily fantasy sports, too. It will take a long time, but you put skill in anything and the bottom skill level going to get it.