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IN-DEPTH 27 June 2018
Have we seen 'peak perk'?
Nicholas G. Colon considers the elimination of benefits and freebies for Las Vegas’ lower spend players as self-defeating in terms of repeat business
By Nicholas Colon

In the 1950s, the infamous New York and later LA mobster Benjamin “Bugsy” Siegel had a vision of what Las Vegas should be. His dream was a place where adults could go to escape their everyday lives and be treated like royalty, while mingling with movies stars, professional athletes and singers. An oasis in the desert with great food and world-class entertainment could be experienced at a steeply discounted cost. And, for years it was exactly that. For the past decade, Las Vegas, and really all casino-centric cities, have seen a sharp decline in the amenities that first made Las Vegas great. This begs the questions; why is this being done? And, what are the value reductions being experienced?

Many Las Vegas visitors have been frequenting Las Vegas at larger and larger intermittent ranges over the past 17 years.

I assert that this is because the value seen prior to this time is no longer there. In the late 1990s and early 2000s, casinos were handing out some form of RFB comps (room, food and beverage) to any player wagering almost any amount for an hour or two a day. This is because the casino games were their primary revenue drivers for the resorts. This worked well for gaming companies because the visitors had a good chunk of discretionary income and there was a strong, albeit inflated, world economy.

The competition for gamblers was fierce, and casinos would compete with one another by offering mid- and high-level gamblers show tickets, room suites, and of course, their undivided attention. And as in any competition, the best performer won.

With the mid- and high-level gamblers all scooped up, the casinos turned their attention to low-level gamblers. Enter the introduction of the multi-line, multi-credit, nickel and penny slot machines. The low denomination games were designed specifically for, and marketed directly to, the low discretionary income gamblers. These included peoplewith families and the lower middle class.

The casinos and game designers conjured up the lower limit games with an increased house edge to grow an already impressive revenue stream. The reasoning was that if massive resorts had thousands of rooms available, we may as well fill them and “gamble” that the occupants will lose more than the cost of the room. And we will give them a couple free buffets in the hope that they will lose more than the total cost to the company.

And for a long time the casinos were right.

The casinos were so right that they made massive investments in their low denomination slot machines. The overwhelming majority of any gaming floor is now composed of these types of machines. Because much of the population falls in the low discretionary income range, this approach worked famously. As long as the casinos were able to provide some form of RFB comp to the players, their family vacations were subsidised by the casinos. But as we all know this was not the case.

In 2002, the US and world economies suffered the first in a series of major set-backs. When the internet bubble finally burst, a lot of the new wealth that was driving the middle-class to flourish was gone. This caused some, but not all, people to scale back on their discretionary income. And rather than let the economy correct and redefine itself, it was artificially propped up by the false housing boom. Central banks lowered interest at the behest of their governments, making money easily accessible for the middle-class.

And as in 2002, in 2008 the bottom once again fell out, and the driving force behind the economy evaporated. But, this time it not only affected the customer base, but directly caused tens of billions of dollars in real estate value to vanish, assets that were held by gaming companies. MGM was forced to take on Dubai as a partner and write down several billion dollars in losses, mainly to offset the financial turmoil caused by the Las Vegas City Center project.

The 2008 collapse was doubly harmful for the casino gaming industry; it greatly reduced the disposable income of the customer base, and greatly reduced the total value of the companies, and shareholders were not happy. In the years prior to the 2002 bursting of the internet bubble, the gaming companies invested heavily in low denomination slots to attract the biggest portion of the population. However, when that portion of the population no longer has money to spend, the casinos no longer have a customer base.

In 2015, total losses for Nevada casinos exceeded $660m, and believe it or not it was an improvement over previous years. Casinos implemented a series of actions to stop the bleeding. Every department was forced to become profitable. Even food and beverage, which was always a loser for casino resorts, had to become profitable. Charging people for parking, as much as $20 a day at the five-star resorts was particularly offensive to the customer base. Another absurd aspect was the $15 a day resort fee implemented at all resorts in Nevada and elsewhere.

These two actions were only the start of what happened. Casinos have embraced the low denomination high hold percentage games. The downfall is that the players are burned out fast and repeat business is sparse. In general 80% of an organisation’s revenue comes from 20% of customer base. Now, it is not uncommon to see a 90/10 split due to the customer reduction. The “turn and burn” approach is rapidly taking over. Casinos in Las Vegas are focusing on the Monday-Thursday convention crowds.

They are charging for every aspect of person’s stay, and in this respect it is becoming more of a business-to-business operation rather than a customer service operation. The resorts are filling rooms but charging the companies for them; with this approach the resorts gain revenue from the room sale but reduce their repeat business.

It is easy to get away with this when you have consistent turn-over of new customers. In Las Vegas, the slowest month is December, and it is no coincidence this is when the convention season is at its lowest.

The value is no longer there for vacationers and gamblers. In the modern era casinos are installing applications on their slot machines that determine if the frequency and wager amount is enough to qualify the player for a free drink. And more recently, Boyd Gaming, the company that owns several casinos in the Las Vegas valley, have terminated free vouchers for their Friday night seafood buffets. This does not make any sense to me, as Friday nights are when people get paid, and it’s very likely they will play after they have filled their bellies with crab legs.

Las Vegas is changing. The corporate greed philosophy is all consuming. As the crowds get thinner, the casinos will find new ways to squeeze customers and new ways to eliminate reward benefits for the player. I don’t see any way in altering the current trajectory until the old guard of executives leaves. Better games and better comps will cause players to return but only when coupled with a thriving middle-class, and over time. The US economy has seen an uptick in recent months but only time will tell if it will be enough.
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IN-DEPTH 4 September 2019
Virtual reality: Creating next-gen experiences for players

Singular CEO George Shamugia discusses a new revenue stream for casino operators

The competition in online gaming is intensifying, with players becoming more and more demanding. In some markets, single-customer acquisition costs can reach up to €400 ($440) alongside growing churn rates. Furthermore, the online gaming sector struggles to attract one of the most lucrative groups of players – millennials. The experience provided by casinos no longer appeals to the younger generation.

On  the other hand, the video gaming industry perfectly understands the needs of millennials and by introducing elements of luck in their games offers the best of both worlds. With the launch of loot box systems and Grand Theft Auto’s in-game casino, we have seen their first successful steps in targeting the online gaming sector. GTA V online, with 33 million active players, recently opened an in-game casino, where players gamble real money on games such as poker, roulette, slots, etc. As a result, churn users returned and GTA Online reached the highest number of active players since its launch in 2013.

The online gaming industry has almost fully utilised the potential of the mobile medium. The time has come to look for new, innovative ways of delivering a next-gen experience to customers.

The potential of VR

Could the next big thing for online gaming be a fully fledged virtual reality (VR) casino delivering an immersive experience and limitless new opportunities?

Although not widely adopted yet, VR has a sizable number of customers. Analysts predict it’s poised for explosive growth to become mainstream in about five years. According to market intelligence firms, the VR market will be worth $117bn by 2022, and according to Juniper Research bets made through VR will reach $520 billion by 2021. Upcoming 5G mobile network technology will propel VR’s mass adoption by allowing the development of fully portable untethered and affordable VR headsets.

Different level of social interaction

The captivating nature of gambling comes from its social aspect. Unfortunately, personal interaction is widely missing from online gambling sites. VR technology creates multiple opportunities to bring back and even enhance that social moment. The ability to connect with other players is one of the main reasons behind Fortnite’s popularity. This form of co-experience is the next generation of entertainment. Research conducted by Facebook has found participants spend more time on VR compared to any other medium. This directly translates into increased profits for casinos.

Pokerstars has made efforts in this direction by implementing Voice UI. Instead of using hand controllers to make a call, pass, or raise, players give voice commands.

Another opportunity for bringing in the social element are the players’ avatars. They enable players to build their identity reflected in the avatars’ appearance, but also the avatar's social, competitive and community status. For instance, players are willing to pay real money for virtual drinks at the bar. Operators can offer these social touchpoints for free to VIP customers as an act of appreciation.

VR also brings a new dimension to customer support. Customer support can also be represented with avatars to assist the player in person. The social moment increases the LTV of players and contributes towards lower churn rates.

Rethinking game design

VR is a way more capable medium than a 2D mobile or desktop screen. Instead of copying the existing online experience, games must be redesigned from the ground up for a competitive advantage with VR. For example, a VR slot game can become fully immersive by teleporting the user into the slots’ world of Ancient Egypt. Next, enrich the experience with high-fidelity graphics, realistic spatial sounds and animations. When betting on virtual race cars, the user can be teleported inside the car he/she made a bet on and experience the race firsthand.

New revenue streams

VR casino lobbies create new revenue stream opportunities: ad placement of brands on the venue walls, company logos decorating the bar etc. This kind of branding is not intrusive in the VR space and feels natural from the user's perspective. VR also gives users the ability to change venues from a Las Vegas casino today, to Macau or even Mars casino, the very next day. The dynamic and diverse experience increases retention rates.

The majority of profits for online gaming operators come from their high-roller players. Although they represent a small subset of active players, an operator can launch a separate VR casino brand for them. Providing exclusive VR gaming experiences to high rollers/VIPs, the operator can minimise churn and maximise VR efforts for these player demographics.

The catch with VR is to focus on quality, rather than scale. The target audience might be limited yet, once these players experience it, they will become ambassadors for your offering.

Surely, the opportunities and possibilities offered by the VR medium truly exceed anything offered by mobile and desktop. VR is a new frontier not just for gaming but for every industry, and it’s exciting to see where it takes the industry and what kind of innovation it brings upon us.

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