Casino Enterprise Management

In my last article, I wrote about a few concepts associated with a well-planned floor design. This month I want to discuss options relating to the hold percentage on that same floor. In my 15 years in this industry, I’ve learned some critical lessons about pricing games on a casino floor:

1. The process isn’t easy. Don’t come into it thinking it is.

2. The process can never be completely finished.

3. The slot operator can never have enough time to truly examine all of the information.

I’ve been fortunate enough to have worked as a consultant during the opening of new casinos and revamping the floors of existing casinos. Since I’ve often been relieved of the hard work of staffing, meetings and personnel issues, I’ve had more time to think about pricing options.

Here’s what I’ve learned:

The pricing of your floor is complex and extremely time-consuming. The shear amount of data and variables related to setting hold percentages is staggering, yet it’s your job to sort through it all and make your adjustments based on that data and your knowledge of the casino’s player base. But it doesn’t end there. As a slot operator, we typically don’t have the last word on setting hold. As is usually the case, hold decisions are ultimately made by individuals or groups who are not part of the analytical process. As such, they may not have a good understanding of the delicate balance of it, and may just be looking at the simple math associated with the bottom line, and making hold decisions from that perspective. This, in my opinion, is a huge mistake. Profit maximization is an ongoing strategy that consists of executing various short-term goals. But every one of these short-term goals must work toward one single goal: maximizing the long-term economic viability of the casino. Driving business to your competition isn’t usually associated with economic viability.

Occupancy

If your floor is at 60 percent occupancy on any given weekday and in the 80th percentile during your peak times, the idea of raising your hold percentage makes perfect sense as long as your crowd is larger than the number of devices your facility can offer. I mean, this is just the basic law of supply and demand, right? Unless your facility is located in a major population center and has few competitors, I’m betting you would love to have this particular problem. The reality in our industry is that the supply of machines is much higher than the demands of players within our geographical areas. And with each passing year, this is becoming more true with every new property that opens. (Before comparing numbers with those from the past, take into account what the competition was back then.) What is your casino’s occupancy as it relates to the number of machines on your floor? The truth is that a vast majority of casinos were built when there was less competition, and before the economic downturn, and consequently, currently have more machines than patrons. For whatever the reason, these same facilities have not decreased the number of machines they offer in relation to the demand. As such, the cost to operate the facility continues to increase while the demand for that product continues to decrease.

Average Player Spend

Let’s examine the average spend of the customers that frequent your facility. This can be determined easily with the data provided by your slot accounting system and should be considered when you set the pricing on your floor. For the sake of this discussion, let’s say it’s $100. How much playing time will you allow your players to play with that $100? Let’s say your customer sits down at a 100-line penny machine that is set at a 9 percent return to the house. He inserts his $100 in the validator and wagers one credit at the maximum lines allowed, for an average bet of $1 per spin. Statistically, after 100 spins the player should have $91 remaining; he would have lost 9 percent of his spend on the first cycle of his money. If the player continues to play the same bet and all factors remain constant, your player will exhaust his money in 1,100 spins.

Now that we know how many spins we are allowing our patrons for their average spend, we can easily figure the time on device by factoring in the number of spins our player’s average per minute. If our customer base averages nine spins per minute and we divide the 1,100 spins by that nine, it stands to reason that it will take our player a little over two hours to exhaust his $100.

Does two hours on your machines equal the perceived entertainment value your player equates to spending $100? Remember that you have far more competition for this average spend than just the other casinos in your area. That same casino player could spend that $100 on dinner and a movie, going bowling or attending a sports event. With this in mind, shouldn’t we factor in the cost of these other activities related to the perceived value they allow the patron for his entertainment dollar? Blowing through $100 in two hours may not be regarded as a good entertainment spend in the view of the casual player. We need to be constantly aware of this and price our floor according to the discretionary income of our customers. After all, we’re not the only game in town.

The Effect of Increasing Hold on Time on Device

In the long run, raising the hold percent on your floor without examining the factors above can actually do more harm than good. An increase of one full percent point to the overall hold will decrease your player’s time on device by an alarming amount. To figure out what the effect would be on your customers, let’s use the following formula:

New hold – previous hold = difference. Divide the difference into the previous hold and you can approximate the decrease in the average player’s time on device.

As you can see in the above table, a seemingly insignificant increase in hold percentage can vastly affect the time your players have to enjoy the games on your floor. The fundamental issue with raising the hold exclusive to any other options is that you haven’t changed the size of your existing players’ spend; all you’ve really done is decreased their time on the device. This will do several things to your floor, and not one of them would I consider to be positive. The decrease in time on the device will lead to fewer visits by your regular players per month. This will also lead to a decrease in the coin-in over the long term as your customers realize they get fewer bangs for their entertainment dollar at your facility and spend their money elsewhere. We need to remember that players are smart. If they are loyal to your facility and visit you more than one trip a week, they will know almost immediately when you have “tightened” the machines. If you are fortunate, a number of your more knowledgeable patrons will let you know their displeasure so you have an opportunity to correct the decision before it does too much damage. Usually they don’t say anything, and quietly become regulars somewhere else. If you’ve raised your hold in such a manner, the steady decrease in slot revenue over time should alert everyone that a corrective action must be taken immediately. Increasing hold is next to impossible to hide, and doesn’t address one of the most fundamental issues we all face: While your customer has limits to how much they can spend, their options on where they can spend that money is limitless.

Kevin Parker has been in the gaming industry since 1995 and participated in the opening of five Native American properties on the West Coast. Previous positions include Director of Gaming, Director of Slot Services and Director of Casino Operations in two different facilities. Parker recently co-founded Lynx Gaming Solutions.