Penn is on the right side of the acquisitions game because it is one of the most efficient operators in the business, with post-tax margins just north of 29 percent currently and on track to hit 30 percent by 2020. As Dan Cherry, Penn National’s corporate vice president of gaming, pointed out in his opening keynote address at Casino Journal’s Cutting Edge Table Games Conference last month, margin growth keeps a company in acquisitions mode. “The moment we stop leading the industry in margins we know we’re bait to be acquired ourselves,” he said. Given the size and success of Penn, it’s worth hearing how the company sees the gaming business evolving, in this case, table games.
Here were Cherry’s four key thoughts on the category:
Focus on growing table games revenue from the bottom line
“The things we talk about in driving profit: increasing drop; increasing win; and increasing hold… those are all crucial, but none of them have anything to do with growing profit,” said Cherry. “They’re important, you need to do them, but it doesn’t equate to growth. There are really five gears that help grow revenue: table capacity; house edge; open hours; table pricing; and game pace. All of these are controllable. Just because we maximize those five things doesn’t mean we’re maximizing profitability of our table games department; the reason is hidden cost such as marketing expenses that hit marketing or slots; beverage comps or security labor that hits another department; gaming taxes; and labor costs. What we’re focused on is what are the metrics we can use to manage the bottom line instead of the top line. Traditionally, people look at win-per-table-per-day or month. That’s not as important a metric as win-per-hour and profit-per-hour after you back out all variable expense.”
Maximize our most precious resource—labor
Noting that the U.S. economy is presently at or near historic lows for unemployment, Cherry said every day it’s harder to find dealers, pit bosses, supervisors, housekeepers and beverage servers. At the same time, states are raising minimum wage, even for toked positions. You hear about restaurants abolishing tips as a form of compensation. When you look at the numbers, Millennials—even when adjusted for age and income—tip less than their predecessors. And they’re also less likely to work in a tipped position. If these trends continue what does it mean for table games and the industry’s ability to increase positions?
“Scheduling is a focus for everyone,” said Cherry. “It needs to be visible to people at the department head and executive level. Don’t just assume that because you have set a scheduling strategy that it is being executed the way you want to. Know going into the week if labor matches up with volume. Know at the end of the week if you executed the best schedule possible and if there are things you need to adjust.”
Everyone should have an electronic table games strategy
There are a lot of obstacles to that, acknowledged Cherry. “There may be people here who are at a property where slots gets the ETG revenue, or the table games department gets it; either way, don’t let that be an obstacle to making good decisions,” he said. “We’ve taken the path of starting to report ETG’s as a third or separate category.”
Lots of people bring in ETGs, they perform half house average and then a month later they’re out the door. “For the most part, I don’t think that these games are ever going to perform as strong as a slot machine, so I think you have to look at them in different ways,” said Cherry. “Look at who’s playing ETGs, as an acquisition tool. People say skill-based gaming and social gaming bring in the Millennial. I haven’t seen that proven yet. The one thing we know on our floor that’s appealing to a younger, uncarded demographic and that’s profitable is ETGs. My gut is if we’re here a couple of years from now, the installed base is going to be a lot bigger than it is today.”
Technology, data integration and performance management
“Player reinvestment and ratings is for me the most important thing to think about,” said Cherry. “Historically, we’ve done a terrible job of data science and data management and technology in the table games business. Vendors follow the money. We have to demand it, be active in seeking out technology that helps our dealers deal faster; identify which dealers are more successful and which games; to identify which dealers are better at selling side bets.