Casino Enterprise Management

The term “free play” has been a part of the casino industry for as long as I can remember (which is a long time), but today many industry executives, owners and operators still hold back on their decision to offer free play to casino customers due to their lack of understanding of how it is applied and what it means for the bottom line.

Do any of these questions sound familiar?
• Why do we offer free play?
• What is the intent of the free play?
• How do casinos generate revenue if they use their own money for customers to play?
• What is the value of offering free play?
• How much free play should be given away?
• How does free play factor into the reinvestment calculation?

Questions like these are common when evaluating marketing campaigns bursting with free play offers.

Before taking any action, let’s step back and first try to fully understand what a $5 free play offer, for example, really means for the customer and the operator. Shedding some light on the history of slot growth and a brief review of Player Tracking 101 will come in handy.

It’s so easy to push through requisitions to purchase merchandise to be used as giveaway items for players’ club members. Hmm, why not reward the customer for walking through the door, providing personal information and playing at one of the many slot machines scattered through the casino floor? What a great concept! But why do we have to reward people?

The Players
Let me tell you a little story about a Las Vegas casino in the early 1980s that installed the first card readers on their slot machines to track customer play in an effort to understand the value of slot machines.

Back then, table games had host and floor staff who greeted customers and seemed to know most of them by their first name, but the slot player was a completely different gambler that went basically unknown. Table games kept rating cards on their players, but nobody could possibly keep track of the play a slot player provided to the casino. Pit players were rewarded with free shows, transportation, meals, golf and many other luxuries through their actual or theoretical losses. Slot players had to beg for a free or discounted buffet—and needed a casino employee to vouch that they had, in fact, played for several hours on a dollar machine to gain such a luxury.

This pioneering casino realized that the revenue stream generated by slots continued to grow and was much more profitable than the table games due to the large expense of complimentaries in the pit. But recognizing an individual slot player’s worth required tracking their play, which was actually easier said than done.

When the first player’s club booth opened, we figured slot players would rejoice at finally having a vehicle by which to gain complimentaries—without having to have someone vouch for their play. This was not the case. When we asked people to sign up for a card, they asked, “What’s in it for me?” When told they would earn points toward meals, rooms and so on, their responses ran the gamut from “oh, we only come on the weekend” to “well, I don’t want the IRS to know how much I play.” Because there was no immediate gratification or perceived benefit to joining the player’s club, players declined the offer.

This prompted the introduction of cash back. Once customers knew that they would earn cash for their play, which could be redeemed the same day it was earned, joining the player’s club was an easy sell … though we did our share of buying, too. Yes, we had to buy player’s club information by offering cash back, free decks of cards, a 2-for-1 buffet coupon, or any other item with a perceived value greater than or equal to standing in line for a few minutes to provide a name and address.

Let’s see … earning cash back through rated play began in 1984, from what I can remember about working as a slot technician at the Frontier Hotel. The cards used at that time had holes punched in them called “holorath,” since magstripe wasn’t approved for use in player tracking systems. But I digress.
Getting back on track, once we understood the immediate-gratification mindset of the gambling customer, offering some type of tangible item that would cause them to play at the casino became a major factor when planning marketing campaigns to generate increased play.

The Games
The slot product was not entertaining during this period, lacking creativity in both design and concept. Looking for an improved vehicle to keep people sitting in their chairs longer, the industry voiced this opinion to manufacturers, and the manufacturers responded by adding entertainment elements to their game profiles.

This is where bonus features begin to flourish in new slot machine concepts and player tracking systems. At the time, it was interesting to watch known dollar players shifting over to the newest of the bonus feature games—games in a nickel denomination with a maximum wager of 45 coins ($2.25). While operators worried that they were cultivating nickel play and losing dollar play, what they failed to recognize was the increased value of the nickel play, which was holding 7 percent versus the dollar play at 3 percent.

While this sounds good, the prospect of increasing revenue by shifting players to higher-hold games began to create another problem that the industry would realize over time. What happens to coin-in and time-on-device when hold percentages increase? Key metrics for slot operators are coin-in and headcounts. While operators were not changing machines to increase the average hold percent of their games, customers seeking the new wave of bonus games began creating a higher hold for the casino through increased play on these 7-percent-hold games, abandoning their favorite 3-percent dollar machines. As time advanced, the introduction of penny games with bonus features and hold percentages in the 12-15 percent range began to saturate the market, capturing the majority of play on nearly every gaming floor and again causing hold percentages casino wide to increase to an all time high. But once again, as the hold percent of the machines increased, the coin-in and headcounts declined. Customers felt the pinch of higher hold percentages but continued to enjoy the bonus frenzy machines as an added entertainment package.

Free Play
So, where does free play come into all of this? Well, free play is a golden opportunity to provide gaming customers with a product they don’t get from a machine that has a hold of 15 percent—time on device. Since today’s customers want more time to play the machine and chase the bonus feature, and since the bonus feature offers more credits, which allow customers to continue their play, free play basically gives players exactly what they want—more time!

But what is free play to the casino? Free play is a way of rewarding customers while at the same time taking advantage of a tax break on slot revenue. Remember, free play is marketing dollars you are inserting into your own slot machines for your customers to play, and since you put the money into the machine and it has already been taxed once, it can’t be taxed again and can be deducted (100 percent) from the slot revenue before that slot revenue is taxed.

We’ll continue this discussion in the next installment of this series on free play.

Rich Lehman is VP of Gaming Operations for the historic Golden Gate Casino in downtown Las Vegas. A 27-year gaming veteran, he has served as VP of Slots, VP of Casino Operations and General Manager.