You could say the electronic table game (ETG) category and the American casino market are still in the getting-to-know-you phase, which is why this magazine included a session on ETGs at its Cutting Edge Table Game Conference last November.
The conversation revolved around the early history of ETGs in the U.S., some of the operational barriers to growth, and how they are being addressed. The fact that they are being tackled aggressively speaks to the opportunity that many see in the category, especially with the growth of live dealer-assisted stadium-style ETG environments.
Speaking at the session were two people with hands-on ETG experience from an operator’s perspective: Derek Amundson, a university lecturer and consultant who was previously vice president casino operations at Excalibur; and Ari Mizrachi, vice president of operations and optimization, Tangam Systems, and formerly table games director at Parx, which was the second installation of dealer-assisted ETGs in the U.S. They were joined by John Connelly, global CEO, Interblock, a leading supplier of ETGs. Here are some excerpts from the conversation:
Let’s start with a basic overview of ETG’s globally. How does the U.S. measure up?
CONNELLY: Electronic table games from a North American perspective are really in their infancy. We’re still under 0.4 percent of the casino floors in the U.S. that are comprised of ETGs, whereas if you go to Asia and Europe you’ll find casinos with 25 to 30 percent of their floors allocated to ETGs. That said, the trends we’re seeing in North America right now are statistically very positive. We see casino groups crossing the 5 percent of the casino floor threshold, which you wouldn’t have seen even 36 months ago. The real growth potential from a macro perspective is definitely here in North America.
Ari and Derek, tell us how your properties got into ETG’s.
MIZRACHI: The first reason why we worked with vendors in this category is that in the state of Pennsylvania, as in many new jurisdictions, there’s a big gap between slot tax and table game tax. Now it’s 17.5 percent, back then it was 15.5 percent [slot tax is 54 percent currently]. I had big reservations at the time, not knowing how the games were going to perform. Dealer-assisted roulette was brand new at the time. We assumed we were going to attract Millennials, because we all talked about that. We thought we’d get young people to play ETGs; we were wrong. We thought it was going to be dominated by table games players; we were wrong. But it was a huge success. We learned that only 30 percent of the ETG players used their card, but of the players that did get rated over 65 percent were slot players. For us that was an absolute home run. If they spent $100 on slots, we only kept $43.50, compared with retaining $84.50 of ETG spend.
AMUNDSON: At Excalibur, we were at about 1-2 percent of floor space with ETGs. It’s still early and I think a lot of learning is still happening. We started with iTables, dealer-assisted, still managed by table games. Early on, things didn’t go well; price points needed to hover a unit or two lower than where we were to appeal to the mass market. When you factored in labor, it wasn’t a profitable endeavor for us at that time. More recently, the ETG player, from a session time standpoint, was a lot shorter than live table game play but a lot longer when indexed against slot players. In terms of average bet, it was anywhere from $10 to $25 less than on the traditional table gaming floor. With the product we were using at the time, we weren’t able to yield minimums based upon head count and time of day.
How do those observations square with what Interblock sees from the broader market?
CONNELLY: Three years ago when I came to Interblock, this is what we heard daily. Fast-forward to today and there are a lot of software implementations and data that didn’t exist 36 months ago. We did a user group study about 18 months ago, and we found that we’re getting crossover play from slot players and that players are staying longer and playing more. When you look at high-end slot players that are coming over to ETGs, it’s incremental spend, which obviously is important when you’re holding 8 to 10 percent on slots and you’re holding less on ETGs. We’re starting to see the comfort level on ETG’s rise and more carded play as well. I think the term “Millennial” is overused, but there’s a new type of player coming into casinos and we’re seeing new carded play on the ETG stadium-format; 50-plus percent of the players at stadiums are new carded players. It doesn’t mean they weren’t in the casino before but now they’re opting to get a card and we can start to track to them.
One of the biggest disadvantages on an ETG three years ago was the ability of ETGs to compete against slots. A lot of people looked at ETGs from a house average perspective, but now operators such as Caesars and the bigger casino groups are starting to categorize ETGs outside of their slot and table reports and put it in its own category. The reason why is it’s a little unfair to take a blackjack game doing 6:5 that holds 1.8 percent and compare it to a slot game holding 8 percent. If the play is truly incremental and you’re doing 80 percent of house average, the handle that’s going through that product is massive. So we’re starting to learn that ETGs need to be looked at a little bit independently, carded play is a priority, but the technology, specifically the ability to increase hold and handle now exists whereas it didn’t before. We can churn through more handle on an ETG than we could before through technology, and you’ll find a lot of side bets are becoming very common on ETGs as well. Because of technology, you can offer three or four side bets whereas on traditional table games you can’t.
Lastly, I think we’re starting to get a lot of good analysis on the ability to reduce operating expenses. I think you’d be hard-pressed to find anybody in the industry who makes money on a traditional $5 or $10 table game pit. They’re almost loss leaders to bring players in. We’re now able to create $5 and $10 areas of the floor in electronic table game pits, reducing labor costs and operating expenses while driving revenue to the bottom line. It seems like ETGs are starting to find their niche, especially on lower-limit games, and are attracting new players and driving incremental handle.
ETG’s are often managed by the slot department since they run off the slot system. What was the approach at Excalibur and Parx?
AMUNDSON: The slot team was in charge. From a regulatory perspective, it was a standalone machine. But the games play a lot closer to a table game product and it would probably be more optimal with some insights from that group of leaders. It seems to me that ETGs should live with the table games department due to their knowledge, yet because regulations in Nevada to date have mandated that standalone machines fall under slots—the litmus test I use is the bill validator—it usually rolls up through slots.
I would suggest there’s a high degree of conversation between the slot and table game leadership teams to ensure that the product you’re putting out on the floor is the right product. Things can be masked with bad data due to improper settings on those machines. That’s my experience. For example, you can find on The Strip today 3:2 ETG blackjack products with surrender. I’d be willing to bet they’re not that profitable, yet there are probably unrated people playing it right now and having a pretty good game and coming in pretty regularly because they’re finding things that they normally wouldn’t find. That’s going undetected because maybe the right person isn’t taking a look at it.
MIZRACHI: At my casino, ETGs came under table games because that’s whose P&L was hit by them. One of the greatest things I got out of implementing ETGs was the chance to interact with the slot department. Even though it was my responsibility in terms of selecting vendors and products and executing, the slot team serviced it. Some pitfalls: any cash outs over $10,000 went into hand pay mode. When slot attendants typically go to the machine for that, they hand somebody a W2G for taxes. It was roulette and 35:1 on your favorite number is not a taxable event in a table game and players complained. That was my fault. I didn’t educate the slot department on what ETGs actually were.
For me, ETG’s are fun when it comes to tweaking things and seeing how players react. At a couple of clicks of a mouse with ETGs, you decide how often dealers can spin a ball; we went from 25 seconds to 18 seconds, then 21 and 22. We analyzed the data and we had great reporting tools. The one downfall is it can go into your data warehouse and your casino system and it looks like slot data and it’s irrelevant. If you’re offering roulette and baccarat and craps through ETGs, when you go into your CMS system it’s going to report coin-in, coin-out and you’re not going to have a clue who is playing which ETG, roulette, baccarat or craps. That is critical to know where the money is coming from. For the first time in the table games world we have pure data. We held 5.26 in roulette, 1.5 in baccarat; it was pure. We always sweat the money; with ETGs, there’s no sweat. You’re going to hold that house edge over turnover, it’s going to happen.
But the one thing I learned with the original vendors is we need better reporting because our first product had two roulettes and two baccarats; you had a choice. Two of the games were on a live table; one roulette and one baccarat. The other two games had a dedicated podium and 98 percent of the handle came from those two tables. If you looked at the math and the data in the aggregate, I would have thought the games were doing great, no need to change anything. There were so many controls that had to go into those live games. Work with these vendors to understand where the data is coming from.
What are some other management models you’ve seen as an ETG supplier?
CONNELLY: In Asia with baccarat, ETGs fall predominantly under table games. You’ll see stadiums with 300 seats. At Resorts World New York, we’re about to do a stadium with 900 seats. Of those, about 650 are just baccarat. The huge installs are for the Asian player. Whereas when you go to the central/Midwest region, you’ll see more of the slot players who have always been intimidated by the live table game environment, which is not the best place to learn how to play.
From a technology standpoint, we have been working 18 months with the state of Nevada creating a stadium product reporting structure that allows you to differentiate between each game, because Nevada taxes games differently. We just went live at the MGM Grand with a stadium which for the first time allows casinos to break out automated ETGs vs. live dealer and by game. That was essential to go live in this state; otherwise, we weren’t allowed to. Now we’re getting a better understanding of who is actually playing the games. Usually when a carded player comes in, we know they’re a slot player, but what are they playing? The level of detail that we’re now going to be able to data mine is infinitely greater. Pennsylvania and Maryland are unique because live dealer is almost mandatory because of the tax structure. What motivates them is unique compared with other states.
How would you characterize the attitudes of table game managers toward ETGs?
AMUNDSON: From my perspective, the appetite for ETGs wasn’t through the roof. People viewed it as something that had the potential to eliminate traditional table game floor space. Oftentimes when you look at a traditional casino floor, there are some underperforming slot units out there that this category seems well-suited to replace. Some of the $5 ETGs that we had on the floor were among the most profitable games that we had, especially with the implementation of side bets. If you have a $5 game with two side bets at $5 each, the expected value of that game changes dramatically. All three of these products can live together in the casino of the future.
What if the products can live together but the people in charge of the products less so?
MIZRACHI: As a table game operator you care about your team, and the truth about ETGs today is that the dealers probably aren’t going to make many tokes. Now, the amount of hours used for dealers to deal ETGs is insignificant, but as soon as were thinking about installing it and the dealers started training for it, they were like, “you’re just going to take money away from us.” That’s a real-life issue that a director or vice president has to deal with. For the folks that complained, I did the math with them. We had tens of thousands of dealer hours and about 50 going to ETGs. And ETGs are going to bring in customers who will eventually convert to live table games, so in the end this is going to benefit everyone. But challenge number one when you install these games is don’t ignore the dealers… because if you do they will disengage.
CONNELLY: This product has fallen into the slot department and slot executives are compensated, as they should be, to drive profitability per-square-foot on the slot floor and the most common methodology that’s used is house average. We tend to have meetings with the CFO or someone who is looking at the entire casino floor; we tend not to get to the table games manager which is surprising. I do agree that ETGs are much more related to the table game side than to the slot side, as I’m even learning. You don’t want a slot manager doing the settings on an ETG like you do on a slot machine, just as you wouldn’t want to see a slot manager manage games in the pit. When you start to see ETGs fall under a separate category, for instance slot manager bonuses aren’t tied to a game that holds 1 percent or 1.5 percent and/or take valuable floor space away from slots, the question becomes more how are we going to use floor space to really revitalize the casino.
We’re all concerned about where our industry is going to be in five or 10 years. Almost every study of younger customers you read projects more demand for table games than slots when they enter their prime earning years of 50 and over. When you look at the online world, for people now aged 50 and older, over 90 percent of their play is in slots; 40 years old and under, over 90 percent of their play is tables. So in one decade we go from slots to tables. The question is when these people are 50, will they play slots? This is the $100 billion question. For now, the hedge is ETGs and learning that ETG players don’t like to be stuck in the middle of a group of slot machines. They actually like to be in the middle of the floor near the table game pit. We didn’t know that 36 months ago. When we put ETG pits near live pits the numbers skyrocket. We find that video walls and creating stadium areas for ETG players also cause numbers to skyrocket.
I enjoy talking to all people in the casinos, but the minute I hear the term “house average,” I cringe. I can almost guarantee that if you replace the bottom 5 percent of a slot floor with ETGs, you will grow your casino floor EBITDA-wise. As a company we just opened eight states in the past four months. We just opened in Illinois and Oregon; in many states the experience level is one or two years whereas internationally we’re talking 25 years of experience.
Audience comment: In our market, slot employee incentives revolve around coin-in on games that hold 9.1 percent and our guests figured out that they can sit at an ETG all day long and get rewarded like a slot player on a game that holds like a table game. Settings are very crucial when it comes to reward programs.
CONNELLY: The good news is that a lot of rudimentary issues we were dealing with three or four years ago have been worked out. For instance on roulette, we had a situation a few years back where players were betting $100 on red and $100 on black and racking up the comps. Fast forward to today and whether it’s craps or roulette, there are settings within the software that enable operators to protect themselves and their player reward programs that didn’t exist even 24 months ago. When I joined Interblock, we had seven engineers; Shuffle Master when I left had six. Now I have over 90. There’s a lot of momentum going into the stability and reliability of the product from a U.S. perspective. In Nevada, there was a year-and-a half of development on the regulatory side just to enter here with a stadium concept.
AMUNDSON: It’s important not to categorize ETGs as a slot or a table. Every point of discussion, whether it’s rules, rewards or settings, speaks to the importance of looking at these games through a different lens. And in doing that, it’s a team effort between gaming operations, marketing and suppliers to put a product on the floor that’s going to benefit all stakeholders in the property.