Casino Enterprise Management

What will be the impact of virtual casinos and online wagering to the bottom line of our current land-based casinos? If you are an avid reader of gaming periodicals, you are well aware of the endless supply of opinions dedicated to the eventual legalization of online gaming. They range from the minimalist who believes there will be no impact, to the radical who warns of the inevitable morphing of online free games into cash-collecting virtual gaming mega-sites rendering the brick-and-mortar casino obsolete. The actual impact will be somewhere between these two extremes.

Throughout the course of history, legal and cultural pressures have created both situations and events that fundamentally change the path of an industry. The legalization of online gaming will be a major turning point for our industry and will almost certainly change the landscape of gambling in our country for the better.

As human beings, we fear the unknown and often characterize change in the worst light. In 1988, the passage of the Indian Gaming Regulatory Act was widely opined to be the harbinger of the death for commercial gaming ventures in Las Vegas, Reno, Nev., and Atlantic City. While the rapid expansion of gaming to rural America did dramatically change the competitive balance, it did not eliminate commercial ventures.

Internet gaming will indeed have a significant impact on a number of facilities, but we as an industry will adapt. The choices of a customer to stay home and play will not be created by Internet offerings; it will exist as a conscious alternative to the poor customer service and rigid business practices that are prevalent in our industry today. Will there be cases of economic Darwinism? Yes there will be, and isn’t that what competitive equilibrium is all about?

Gaming has been and continues to be a closed economic model for manufacturers, large corporations and strategic groups, which allows poor management and short-term manufacturing solutions to not only be rewarded, but also to thrive. Government regulations, restrictive practices and cost advantages independent of scale have protected an industry controlled by special interest groups who could not, or would not, have survived in an industry without these protections. Internet offerings will change this paradigm by allowing true free-market competition in the following areas.

Pricing
In the marketplace, the price of goods and services helps communicate consumer demand to producers, which directs the allocation of resources toward the satisfaction of both consumers and investors. Our industry presently imposes a hold percentage of 6 to 12 percent on all slot transactions just for the pleasure of playing our games. Internet casinos, however, can offer extremely low hold percentages to their customer base, as their startup and capital costs are far lower than those of a land-based casino.

If relative pricing is a result of the evolving consequence of vast numbers of voluntary transactions, virtual slot machines are the perfect example of a free-market advantage. The freer the market, the more prices will reflect consumer habits and demands, and the more valuable the information these prices represent is to all competitors in the industry. This will force innovation in thought and product to keep land-based casinos viable.

Manufacturing Competition
When there is true free-market competition between vendors for the delivery of products and services, prices tend to decrease and quality tends to increase. Our current slot market is controlled by a handful of major manufacturers who have enjoyed limited competition based on control of resources and economy of scale. Internet-based social gaming has already proved to be an amazing tool for testing new games prior to their submission to the gaming laboratories. Currently, it takes months to take a new slot game from the engineering cycle to the marketplace. Additionally, if the game exhibits mistakes in mathematics or graphics in the field, the title is revoked and must be resubmitted for approval.

This cycle, while necessary, adds extraordinary costs in both time and resource while simultaneously limiting the development of new and innovating concepts. Free-to-play sites have allowed both conventional and new manufacturers the ability to road test games outside of the regulatory cycle, allowing literally millions of spins in test mode where agile software development can occur virtually overnight, eliminating many of the edge conditions we see in gaming today. This advance alone has the ability to allow all gaming manufacturers to spend more on development and less on testing.

Advertising
Marketing a game or event in the virtual casino environment is far less expensive than advertising a similar product in a land-based facility. The nature and behaviors of the online gamer make it almost completely unnecessary to utilize print media. Electronic distribution of media allows a company to be extremely nimble in its approach to events and to spend its reinvestment dollars where they count the most, on complementary resources designed to reward players strategically.

The signup process and personal data storage capabilities allow online casinos to easily monitor time on site, spend, play behavior and interests. This information is then utilized to build games and features that assure a higher spend. Lower hold percentages lead to reduced burn rates for the online customer base and create opportunities to upsell within a player’ s average spend.

Land-based casinos should utilize the same approach to attract customers to their facilities, namely incentivizing players’ physical visits based on their virtual experiences. If players are compensated correctly, you can create synergies between the virtual and physical environments that would not have otherwise been possible.

Customer Service
Online competition will necessitate the creation of true customer service in our land-based casinos, the type and quality we normally associate with high-end resorts that do not offer gaming. Virtually every casino in our country declares their customer service to be superior because they are fractionally less offensive than their nearest competitor.

I am continuously embarrassed by the poor service in our industry, and I know I am not alone. Remember when incidents of poor customer service used to stand out in your memory? These occurrences are now so commonplace that we have switched our mindset to recall incidents of great service, rather than the other way around.

If your local grocery or home improvement store treated you in the manner we routinely treat our gaming customers, you would demand to see a manager and insist on a formal apology. Is it any wonder only 5 percent of all Americans actively game in our land-based facilities? People want to be treated with respect and are willing to pay a premium to receive superior service.

The first, and most important, amenity of any casino or resort is our willingness to serve our customers. It’s not that we have hired the wrong people; it’s that we have not provided them with tools that truly help them please our customers. This is an area we can excel in easily by utilizing technology to respond to our players’ requests quickly and efficiently. In order to do this, you must move past the change light and conventional radio found on most casino floors and truly offer intuitive solutions geared toward satisfying the patron’s wants and needs.

To quote the great George Bernard Shaw, “The reasonable man adapts himself to the world; the unreasonable one persists in trying to adapt the world to himself.” We as an industry cannot stop the introduction of online gaming and should embrace its attributes instead of cursing its existence. Will there be economic casualties in our industry brought on by legalizing online gambling? Yes, and hopefully this will allow our industry to start the long journey toward equilibrium by allowing continual innovation to be recognized and rewarded.


Kevin Parker is a Project Manager at Acres 4.0. He 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. He can be reached at kevin.parker[at]acres4.com.