THE WEEKLY SHUFFLE, 2009-02-22, by Ozone, TwoGunIt's no secret that the casino industry has been obliterated in this economy. That was going to be an inevitability whether they were operated well or not. Gambling in a casino is the epitome of discretionary use of funds, and anything discretionary has gotten hit hard in the last several months. Yet, in hindsight, there are a few things casinos could have done to mitigate the damage. There are also a few things they could still do to avoid going bankrupt. Bankruptcy is a possibility for some firms (Harrah's, Wynn) and perhaps a probability for others (MGM, Las Vegas Sands). Here are a few things casinos could have done to hedge their damage in this environment, as well as a few things they would still be wise to do in order to help avoid bankruptcy.
Most companies have been hurt by the credit crisis. This is especially the case for high-end companies. Vegas casinos were flat-out caught with their pants down. When the economy was doing well, Vegas was expanding rapidly. It didn't take long for a bubble to materialize. Casinos were being built or expanded with a "if you build it, they will come" mentality. Every hole-in-the-wall casino started thinking they needed a 40-story tower added to their roof.
There are many examples of this senseless over-expansion. Two of Vegas's biggest properties, Wynn and Venetian, decided that additional billion-dollar upgrades to their already extravagant resorts made sense. And thus, Encore and Palazzo were erected. These properties were launched with comical timing. Encore opened just a few months ago amidst the worst of the economic downturn.
Another high-end Vegas resort that most likely will never even open is Echelon. Properties like the Stardust and Frontier were bulldozed to make room for the massive, $4 billion dollar Echelon project. Construction had only just began before the project was put on a "temporary halt". If it ever resumes, it likely won't be for several months or years. Echelon's owners are probably hiding somewhere after investing hundreds of millions into something that might conceivably never make a dime!
Sub-Optimal Comp Systems
"Comp" (short for complimentary) systems in Vegas are designed to give players a "rakeback" of sorts on their gambling activities. It has evolved into a dance between players and the casino. The silent agreement is that if you play, maybe you'll get your room, food, transportation, or all three for free. However, the way in which casinos have implemented their comp systems is less than optimal.
Players are comped based on the duration of their play, average bet size, and the game. Essentially, they are comped based on the expected value (EV) that they give up to the casino. In a vacuum, a system like this makes sense. In practice however, it ignores a few human-elements such as the fact that if people are winning, they will continue to play and if they are losing, they will quit. People have a maximum amount of raw money they are willing to lose, not a maximum amount of EV they are willing to give up. So essentially casinos will balk at the requests of a high-roller who blows $3,000 playing $200-a-hand blackjack for thirty minutes, but will treat someone who bets $25-a-hand for 8 hours preferentially.
Of course, from the casino's standpoint, this does make a certain amount of sense. After all, the $25 player gave up much more value to them than the $200 player did. However, hosts and pit bosses who just "follow the computer" with regards to giving out comps regularly alienate bigger players who didn't get a chance to flex their money-muscles since they went broke so quickly! Sure, they might not have any money left to gamble with on that trip, but why not throw them a free hotel room as a gesture of goodwill for next time? After all, they did just win $3,000 from them.
It seems that most casinos have not changed the algorithm of their comp systems to reflect current economic conditions. In a more flourishing time when their hotel rooms were in high demand, it made sense that might not be able to meet every request. But right now, their hotels are practically empty. It costs them almost nothing to put someone in a room that will otherwise just remain empty.
The comp system for the table games necessitates the high roller to generally ask the casino host for a free room or meal. Given people are more unwilling to part with their cash than ever, it's downright silly for these casinos to play some sort of cat and mouse game with one of their many empty rooms. Be straightforward with players. Tell them that if you lose amount of dollars or put amount in play, we'll comp your room, guaranteed. Simple as that. No need for some secrete, elaborate computer system that confuses and angers players.
If Vegas was ran more efficiently, the nicest 15% of properties would be filled to the brim every night while the rest would be empty. But that isn't the case because the top 15% have alienated or failed to attract what customers are still around!
Unsupportive of Online Poker
The casino industry has always been neutral at best or hostile at worst towards online poker. When the UIGEA was on the table, they were silent. No outspoken opposition regarding the bill was made. This was a slap in the face to a phenomenon that indirectly led to huge growth for them. The WSOP and the poker boom was one of the best things to happen to Vegas since its creation. They basically fell ass-backwards into having their poker rooms (and thus, their casinos) filled overnight thanks to online poker! People started playing from the comfort of their own living room and suddenly decided to head to Vegas on a quest to become the next Chris Moneymaker. Yet, when the online poker industry had its back to the wall, casinos sat on their hands.
An outspoken and favorable stance towards online poker might have not only resulted in no UIGEA, but it could have also paved the way for legislation that enabled them to acquire and run online poker rooms of their very own. The resulting value added might have provided for less reason to worry about whether or not their once-blossoming operation will even survive.
The Weekly Shuffle is our Sunday column with our observations and commentary on the poker world. Have an idea for an article? Leave a suggestion on the feedback page.
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