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Sunday, February 14, 2010

The Big Squeeze

"Short-sighted policies, like raising slot takeout, blamed for much of casino revenue losses" - Stratton

Las Vegas casinos have had a tough time lately, and all of it is not economic related. According to a three part study on gaming today, a good deal is self-inflicted, because of poor customer service, and squeezing customers out of more and more money, inhibiting their enjoyment.

"Casinos are far more interested in getting the money as quickly as possible, to satisfy Wall Street projections or make interest payments on overvalued loans," said Michael Meczka, president of Los Angeles-based MM/R/C Inc. and a 30-year member of the American Marketing Association.

Just like in racing, where we have seen signal fee squeeze from places like Tracknet, and takeout increases at places like Los Alamitos, casinos are treading on dangerous ground according to Meczka:

"How can we extract more revenue from our customers?" he believes is a wrong headed policy.

One of the major items was an increase in takeout on slots.

"Increas[ing] the hold percentage by 1 percent, decreases the playing time by 17.5 percent"

Although a short term bump can occur, in the long term this hurts customers.

The "success" of these policies, however, will eventually doom the casinos, Meczka said. "Ultimately, customers will have less satisfaction with the casino experience," he said, adding that customers will eventually reduce their frequency of visits, cut back on the amount spent and, eventually, stop coming to the casino altogether.

Sound familiar?

Interestingly, these losses have not hit the poker tables; but a couple casinos have tried to mess that up, by charging more. In time, it backfired. One casino tried to increase limits and it failed. They had to go back to old limits.

The author contends that gambling should follow poker, and make sure the squeeze does not happen any longer; customers can be brought back if so. It is all based on one simple premise - that customers have to win money, think they can win money, and if they do they will come back and play.

He recommends: 'The hold on slot machines should be reduced, so that players have "more time on the device." he said. "Implementing these strategies will positively reinforce the player’s experience, resulting in greater satisfaction, a higher likelihood of returning."

Help people win by offering them a chance to win, you will thrive. Do the opposite (i.e. raising takeout) and over time you will fail. Simple isn't it? So why does racing keep squeezing customers in the face of 35-40% handle losses the last decade?

Your guess is as good as ours.

(ht to John G at Paceadvantage.com)

6 comments:

Cangamble said...

It is important also to note, to those who think people don't care what the takeout is in horse racing, the same holds even more true for those in a casino, who generally have no clue what the hold is. But takeout affects all regardless if they know why they are losing faster or not.
The other thing is that when people return less, the less likely they are to bring others. You get a person to go more frequently, and the way it works with most people is the odd family member or friend tags along once in a while.....this is also pretty good for growth.

Anonymous said...

You guys sound like a broken record. Reduce take out, players win more, players play more, players bring more family and friends to the betting venue. Sounds so simple, right?

Wrong! These businesses are getting squeezed as well. Increased local government taxes. Increased federal government taxes. Horsemen want bigger piece of the pie. Jockey’s want bigger piece of the pie. Breeders, Grooms, Hotwalkers, Exercise riders, agents and the list goes on want a bigger piece of the pie. Slot machine manufactures want bigger piece of the pie. Hollywood types want a bigger piece of the pie to use their name or likeness. Regulatory oversight “enhancements” such as NYWRB wanting your hub to be SAS70 approved with once a year audits that cost in excess of $ 50 K. Or the NYWRB requirement that now require “independent monitoring” which cost you in excess of $ 3 K a month. Or the Tracknet's, Keeneland’s, and the NYRA’s of the world requiring ADW’s to go through background checks costing the ADW almost $ 100 K. Let’s not even get into what the race tracks themselves have to go through with the upkeep of the track, the backside, grooms quarters, and overall upkeep. Tote, Equibase, Trackmaster, Video streaming companies, technology companies – all want a bigger piece of the pie.

EVERYONE including the players want a bigger piece of the pie. Well it just is not there guys! Stop calling for reduction of take out because these ADW’s, tracks, and gambling ventures are all getting squeezed themselves from both sides to include their vendors and their customers. They did not go into business to be a charity or to lose money (excluding of course the NYRA, Keeneland, Delmar’s, Trump properties of the world). The gaming venues would stop raising the takeouts if they could stop everyone else from squeezing them.

BTW – it is not only the gaming venues but look at the NBA (coming off NBA All Star weekend) and how they are in the hole this past year by $ 400 million and will have a work stoppage within the next 18 months. How about the NFL who will have a work stoppage as well. These organizations as well as the Casino’s, Racetracks and ADW’s have to stop the bleeding that is caused by the parasites that continue to peck away at their organizations.

I don’t have the answer but lowering the takeout will do more harm then good. Hundreds of thousands of people will be unemployed. Tracks will close, vendors that supply services to those venues will close, farms that sell hay to these tracks and horsemen will fold. It will be a complete snowball that will roll out of control.

Anonymous said...

Anon,

Las Vegas has cooks, and bellhops and $3B venues, and machines, and heat, AC and light and taxes and government interference and unions, and dealers and bartenders and waitresses and executives, and spa personnel............. but they are advised to cut their slots takeout to grow business.

If they grow their pie, the cooks and light and heat and everything else gets paid, and they make more money.

Racing does not worry about making money for all, they worry about slices for a few, and that is the point of all of this.

Cangamble said...

Anon 9:59, as anon 12:55 states, the cost to the industry has nothing to do with the optimum amount that can be received by the industry.
This is about gambling, and all forms of gambling have an optimum price where the industry stands to make the most money from its customers.

Everything in the NBA and NFL ticket pricing is determined by optimum pricing. What their customers are willing to pay at different prices. How much advertising is perceived to be worth, etc.

Horse racing does not go by optimum pricing.

This is about gambling and what price will attract the most bottom line returns for the industry. Every study out says that takeout should be 14% or lower.

Anonymous said...

The more you grow the pie the bigger your pockets are perceived at which time more people come after you. Useless independent monitoring; charge the Tote company who charges the ADW and marks it up. SAS70 requirements charge the tote company who then charges the ADW and mark's it up. Hundred thousand dollar background investigations of new ADW's is not a matter of getting big bucks from the existing ADW's but stopping new ADW's from getting into the game.

AND do you really think lowering the takeout a few points is going to make a difference. Of course you do or you would not keep preaching it. However I know several ADW's out there giving away ALL their profits to grow their business and are unable to garner customers. ADW's that are giving away 5, 7 and 10 % rewards to $ 2 players and they simply wont sign up.

It is not about the price it is about the product and the competition of that product that is now available to the customers today. Not only gambling but other recreational venues. Venues available for that almighty dollar.

The_Knight_Sky said...

Those in favor of incremental lowering of the takeout rates, in all the pools, all of the time, keep fighting the good fight.

No business should be putting up slots to hold off the inevitable demise of localized live racing.

What is going to happen when regional overstaturation of slots impact on racetracks projection in a few short years.? They'll be back to square one.

It's time to right the ship once and for all. Emphasis should be on the wagering horse racing customer - now and for the future.