Making Sense of the Changes Occuring in the Casino Industry and Las Vegas

Steve Ruddock : August 17th, 2016
Vegas revenue increases

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In a recent New York Post column, Michael Kaplan, excoriated the city of Las Vegas for what he called, a tightening of its belt to near suffocation levels. The gist of the column is Kaplan has grown frustrated with the increasing fees and lack of freebies the city’s casinos offer.

“Casinos exist to take your money at the gaming tables,” Kaplan wrote. “But they’ve long been pretty sporty when it comes to giving back in terms of free rooms, cheap food, gratis booze — even comped airfare if you’re willing to shell out enough while playing craps or roulette.”

But not anymore.

“The town expects you to risk cash against insurmountable odds,” Kaplan continued. “All while it is becoming sadly chintzy in how much it puts out for its suckerish losers.”

What has replaced the freebies is even more abhorrent to visitors like Kaplan, resort fees, daily parking charges, and high-end restaurants where a single starter could have paid for two people at the all-you-can-eat buffets from days of yore.

Yes, Kaplan is right, the cheap buffets have all but disappeared; comped rooms and shows are harder to come by; and good luck finding a $5 blackjack table at a prominent Strip casino. But when it comes to bang for your buck, good luck finding a better value than Las Vegas.

While I understand Kaplan’s frustration, I take a bit of exception to the overall tone of the column, and particularly to the title of the column (which could very well be be the work of a headline writer and not Kaplan), “Vegas is trying to cheat you out of even more money.”

I don’t understand this mentality.

First off, most people budget for gambling and understand the casino has an edge, so calling them “suckerish losers” is quite patronizing.

But more importantly, and to Kaplan’s main point, the odds of leaving Las Vegas a winner are not insurmountable. In fact, the house edge is rather small in many games, and when you factor in comps it’s even smaller; the type of comps Kaplan seems to think are warranted would likely give the player the edge over the house.

The casino doesn’t want the discerning gambler Kaplan envisions everyone to be:

“Hopefully other casinos around town — where no-charge valet parking remains in effect — are enjoying a bump from gamblers who realize that steakhouses and slot machines are not all that different from one place to another.”

Kaplan is missing the point of some of these changes. The casinos drawing in these discerning customers looking for the best value are struggling, while the casinos pushing them out the door are thriving.

Let’s be realistic here. Does a casino want a 10 percent margin from a person who has budgeted $10,000, or do they want a 2 percent margin from 10 people who have budgeted $500? And if you don’t think this is how it works, go to the Aria or Venetian poker room and watch average people pull a never ending stream of $100 bills out of their wallet in a $2/$5 No Limit Holdem game, and compare this to what happens when people get stacked in the poker rooms at the lower end casinos.

It’s good to put asses in the seats, but not if most of the seats were given away.

To be fair, Kaplan’s perception of Las Vegas is pretty common amongst people who have been visiting Las Vegas for years but have become infrequent visitors to the city.

They still see Vegas as gambling first, and then all of the other stuff.

But times have changed.

The new face of Las Vegas

In addition to the Kaplan’s of the world, there is a new kind of visitor to Las Vegas. A visitor less interested in gambling and more interested in the Vegas experience. And what has happened is Vegas casinos have recognized that these people are the perfect customer, and shifted their business model to reflect what these people want.

When I was in my 20’s I would go to Las Vegas to play poker and gamble I would look for the best value – I was a value-seeking customer who spent a lot of time on the casino floor. My value to the casino was extremely low as most of that time was spent at a poker table, or playing near-perfect blackjack strategy.

Now, as someone who doesn’t go to Vegas to gamble anymore (I might play poker once during a trip), I don’t want value. I want to enjoy myself, and if that means paying out the nose to do so, so be it. I really don’t care about some ludicrous resort fee (which is no different than bag fees imposed by airlines), or not getting a free buffet I have no interest in using, since I’ve already spent $400-$500 on dinner and a show for me and my wife.

And I’m sorry, but a steakhouse is not a steakhouse. Even if the food is cooked in the same kitchen by the same people, the atmosphere matters. As I’ve noted, I want the Vegas experience, and I’m willing to pay a bit extra for it.

The new version of me is far more valuable to a casino than the old version of me. And people looking to have fun will always be willing to spend more than people looking for value.

Basically, I look at Vegas as the adult version of Disney World, only instead of (over)spending whatever it takes to give your children the experience of a lifetime, that money is spent on you. The wife and I are not going to be talking about the time we got comped a free room because we played blackjack for two hours, or how great the buffet is at x casino.

Instead of spending over thousand dollars on a ticket package for the Magic Kingdom and other parks, Vegas goers spend that money on renting expensive sports car, pricey dinners at high-end restaurants, and shows. And then they might do a little gambling.

In 2016, Las Vegas is less about the gamble and more about crafting an experience that people will remember, and also want to share – which is instantaneous and for all the world to see thanks to social media.

And that’s the Vegas trick. The place is so over-the-top that you can forget you’re just some random John and Jane Doe from the suburbs for a weekend. Like Disney World, it’s an escape.

You don’t do all that and then stay at one of the low-end casinos on the Las Vegas Strip for $29 a night, and even if they gave you the room for free a lot of people would pass, and choose one of the top-end casinos that cost several hundred dollars or more a night. And they’ll pay the resort fees, parking charges, and all, no questions asked. Reason being, even the suites at the lower end casinos don’t fit in with the image they want to create during their Vegas getaway.

Money may not buy you happiness, but it definitely can buy you a memorable experience.

Non-gaming revenue

Kaplan, and many other people who are mainly there for the gamble, haven’t seemed to catch on to the fact that the casino industry, particularly in a destination city like Las Vegas, has gone through a seismic change in how they value customers.

Initially, this was done out of necessity, as competition is rampant in Las Vegas, and virtually every casino market across the country, and it was taking more and more comps and freebies to win customers’ dollars. And because of this, non-gaming amenities once used to lure gamblers in became revenue streams.

And now that money is flowing into their coffers through these other non-gaming channels, the industry is no longer obsessed with pushing every visitor onto the gaming floor so they can pump quarters into a slot machine. Especially when these pushes require multiple nudges in the shape of comps and freebies to lure them onto the casino floor.

That person’s money is just as green, and tends to flow more freely, when its spent in a high-end retail shop, or on an expensive dinner and a show. And the more people frequent these spots, the more valuable that rental space is for the casino.

If your casino is built entirely on gaming revenue, you’re business will eventually have a day of reckoning.

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