It’s a word we hear thrown about these days in the context of additional monies coming into your property. “Incremental revenue” has become the new buzzword about increasing your earnings by adding more amenities or different attractions that produce more earnings.
Those of you who remember Glenn Schaeffer will recall that he was one of the trailblazers for “incremental” revenue, or what we also call non-gaming revenue. When I was working for my previous employer, we were producing a show in Detroit called the Northern Gaming Summit in the mid ’90s when gaming was coming to that part of the world. I asked Schaeffer to deliver a keynote speech and he agreed. Schaeffer is truly a gaming visionary. As the CFO and COO for Mandalay Bay (nee Circus Circus), Schaeffer, along with the amazing team put together by founder Bill Bennett, created some special environments.
Soon after he arrived from a harrowing trip from Vegas, Schaeffer gave a scintillating speech at the summit, focusing largely on non-gaming revenue. He said he considered every slot machine, table game, restaurant, hotel room and gift shop a cash register. They should all produce revenue for the property, and he explained how that could be accomplished. He presciently predicted that increased competition from all sources—not just other casinos—would force gaming operators to be more imaginative and creative when it came to the experience of their guests.
Remember, this was 20 years ago when the main theory about gaming was “build it and they will come.” Now that Schaeffer’s prediction has been brought to life, there are many casinos and gaming companies that have responded accordingly. The company that bought Schaeffer’s company, MGM Resorts (which also had swallowed Mirage Resorts a couple of years earlier), has gone all in. Its Mlife system rewards customers for any spend within the corporation, whether inside the casino or out. Innovative programs like the “Wellness Rooms” at MGM Grand, its partnership in the T-Mobile Arena in Las Vegas and its expansive non-gaming amenities at MGM National Harbor in Maryland have proven to be successful.
Las Vegas Sands’ robust meetings and convention business in Las Vegas, Asia and Bethlehem, Pennsylvania, brings customers in for many different reasons.
But for smaller companies, tribes and stand-alone casinos, the decision can be more difficult and more costly. Sometimes it’s difficult to assess return on investment for something you’ve never done before. Something as simple as a hotel can become an albatross for a casino that may not have the expertise or experience to run it.
But decisions really need to be made now, before the competition swoops in with a bright and shiny new casino, connected to a full-service hotel, complete with retail, meeting space and entertainment.
In this issue of GGB, we conclude a series of three articles by Bob Boughner and Steve Gallaway from Global Market Advisors that examine non-gaming amenities and how they can contribute to any casino’s bottom line. Boughner, like Schaeffer, is one of the visionaries who have actually created assets that perform. In his long career with Boyd Gaming, he assisted in the development of many of the properties in Middle America and was largely responsible for development of the Borgata, the most successful casino in Atlantic City.
By combining a robust group of non-gaming assets with some of the best gambling in the city, Borgata far outpaces every other casino in Atlantic City. (For example, in August, Borgata posted over $70 million in GGR, with Harrah’s Resort in second with just $32 million.)
So incremental revenue can be very important. You have to do a deep dive to separate non-gaming revenue from gaming revenue when you get to gross operating profits (I don’t pretend to understand it), but that’s what CFOs are for. And CFOs are generally the ones that can determine the ROI of any non-gaming investment. Ironically, the most lucrative ROI of non-gaming amenities usually comes with a parking garage, according to HBG Design. The worst? A golf course, by far.
But that means the ROI of additional hotel rooms, meeting and convention space, more restaurants, a spa, bars and lounges and other attractions should be weighed very carefully. Because when a casino is only a casino, people will find another outlet for their non-gaming fix.