Casinos are devoting space once reserved for rows of slot machines to new types of game spaces

They call it Level Up. It looks like an amalgamation of a sports bar, pool hall, amusement arcade, video game room and college frat house. There are hip murals on the wall, an array of video monitors; there are pool tables. There’s beer pong. There’s bubble hockey. There’s a giant Pac-Man video game.

Oh, and there is gaming, too. It is, after all, in a major Las Vegas Strip casino.

Level Up is the MGM Grand’s answer to the new and persistent call for something different on the gaming floors of commercial casinos. In other words, it’s meant to cater to a massive group of players who might not be enamored with the traditional slot machine. That includes not only the millennials—itself a larger group than the baby boomers, who currently wager the most in casinos—but Gen X and Gen Y.

And yes, baby boomers who just want to see something different on the floor.

“We built Level Up at MGM Grand with the intent of not only attracting a millennial customer, but a customer that has a millennial mindset—an individual who considers themselves to be an early adopter,” explains Tom Mikuluch, senior vice president of business development for MGM Resorts International. “The premise behind the project was to build a space that looks different from what guests are accustomed to with an ‘everyday casino.’

“Yes, Level Up has the common gaming elements, but, through our partnership with Hakassan Group, we also integrated features that we know this specific customer segment appreciates. We wanted to develop an environment that naturally attracts these guests, and has a gaming element naturally mixed into the venue.”

The gaming elements at Level Up are definitely not the traditional casino-floor fare. There is a version of the Pulse Arena from Interblock which features a group of electronic table games in an ultra-lounge-style setting. Pulse Arena is a multi-game product with live DJs, dealers, and both hybrid and automatic ETGs presented in branded or non-branded “environments,” which can easily adjust to various demographics.

According to Mikuluch, the ETGs in the Pulse Arena at Level Up are currently available with completely automated games as the casino goes through the approval process for live games in an arena-style setting.

Other games slated for the area include the newest skill-based offerings, first from Gamblit Gaming, which specializes in the kinds of games people may play on their mobile phones. Mikuluch says Level Up will soon feature Gamblit Model G units—four-player tables built for community play. Players join or compete in puzzle-based and other mobile-style games, or can select head-to-head poker matchups, tactile fruit-slashing games, proprietary Gamblit card games and other offerings.

“We are excited to see this unique product introduced in Level Up,” Mikuluch says, “as these games received a lot of attention at G2E. We’re interested to see how our guests react upon installation.”

On the other side of the country, the Tropicana in Atlantic City recently joined the Caesars Entertainment properties as the first casinos in the East to offer newly approved skill-based offerings from New York-based startup GameCo. “Danger Arena” is an arcade-style first-person shooter video game, in which players wager to use an attached video game controller to find and shoot robots, or “bots,” in one of 10,000 different video-game sequences.

Steve Callender, general manager of the Tropicana Atlantic City, reports that Danger Arena is drawing more than just the millennials. “It’s a little bit older of a crowd than I thought,” he says. “I was expecting just the twentysomethings to be playing, but the average age on the machines is in the 30s, and I have some people in their 50s on them as well.” He says one recent visit to the floor showed players at three units were 10 years apart in age.

These casinos are not alone in diversifying space which once would have been the exclusive domain of traditional gaming machines. Resorts in Atlantic City, managed by the Mohegan Gaming Authority, has devoted large parts of its casino floor to non-gaming attractions from a food court to various bars and lounges carrying the Jimmy Buffet Margaritaville theme. O’Sheas in Las Vegas has beer pong tournaments; the Downtown Grand has eSports events.

Ten years ago, it would have been unthinkable for casinos to devote big chunks of casino floor space to attractions like these. Before the Great Recession, casinos typically stuffed as many slot machines as possible into an available space—rows and rows of penny multi-line games returning holds of 10 percent, 12 percent or more.

But the perfect storm of recession, high holds and a rising younger demographic dealt operators in many major markets a hard truth: Fewer people were playing the slots. Though the economy recovered, many casinos still have not reached pre-recession slot revenues.

Interblock Global CEO John Connelly, who was a longtime vice president for Bally Technologies prior to moving to the electronic table-game leader, stresses that not all markets saw this downturn, but for some, the recession hit hard. “What we saw was there obviously was an increased level of saturation in some markets,” he says. “When the economy was going well, it was, ‘You build it, they will come.’ In many cases, the more slots you put on the floor, the more incremental revenue.

“You can’t generalize when you talk about the casino sector, because there are still markets where that is the case, and they haven’t even come close to a saturation point. But other casino operators, both domestically and internationally, are oversaturated on their floor. Some operators are moving slot machines from one casino into new casinos they are opening.”

Connelly says the five-year replacement cycle for a typical slot machine is a thing of the past. “Most would agree we’re never going back to the replacement cycle we had in the mid-2000s,” he says. However, what the recession did do, he says, was open up the market to new types of games, and new uses for floor space. He says that is not only fueling the propensity for new types of skill games, but is causing the rapid growth of electronic table games—which have grown from a previous 0.5 percent average of North American floors to more than 5 percent in some of Interblock’s partner casinos—and a growing appetite for new styles of presentation such as the Pulse Arena.

“I wouldn’t say the demand for (traditional) slots has decreased,” Connelly says. “I think there is still a high propensity for certain demographics to play slots. Would I say that the younger demographic is less prone to play slots than the older demographic? Yes. Is there data to substantiate that? Absolutely. When you look at online wagering and look at the demographic play of slots vs. table games, it’s staggering. You’ll find the older demographic primarily plays slots and the younger demographic primarily plays table games.

“When you look on a casino floor, you’re not seeing as many younger demographics enter a casino to wager. You’re seeing them enter a casino to go to shows, bars, nightclubs, restaurants, shopping, but never stepping on a casino floor. I don’t want to say there isn’t a demand for slots, because there is—it’s still a very profitable part of our business. But I think you’d be misguided to say you shouldn’t be looking at alternatives for the future.”

“Clearly, the Great Recession tripped into motion this drop-down in earnings rates on slot machines, and overall market earnings for EGMs,” says Eric Meyerhofer, CEO and co-founder of Gamblit Gaming. “That grabbed everyone’s attention, and in the recovery years, we haven’t seen the bounce-back for the EGM, and perhaps the broader casino business overall. It has now been a full eight years since (the recession’s worst year). People are eight years younger, and technology has become eight years more pervasive.”

Meanwhile, the time is drawing closer to when the massive millennial generation will have the kind of discretionary income that makes for good, loyal casino patrons. With study after study showing they are not likely to spend that money on traditional slot machines, casinos have been looking for ways to offer what they do like.

Regulators in Nevada and New Jersey were among the first to respond to the new slot-floor reality in 2014, with laws and regulations inviting new game styles for the slot floors, including skill-based video games and other innovations. Casinos like MGM, Tropicana and the Caesars Entertainment Atlantic City properties are experimenting in just how these new games will be monetized, where they will be offered, and what kinds of attractions and gaming can convert former slot-machine square footage into space that brings in new gamblers.

“We realized that our consumers’ tendencies are changing,” says Mikuluch. “We believe that our guests between the ages of 21 and 35 have an appetite to gamble—there is evidence that supports this—but ultimately it is a matter of identifying the channel in which they want to game.

“Slot machines are not leaving the casino floor anytime soon. However, the younger demographic is not as interested in playing them as in years past. Our challenge is to identify what will truly engage this segment of our business.”

 

Augment, Not Replace

Buddy Frank, the longtime slot operations vice president of California’s Pechanga Resort and Casino, witnessed the evolution of the slot floor from when he joined that casino in 2007 through his retirement in late 2015. Frank, now a consultant, stresses that the need for new types of games on the slot floor doesn’t mean traditional slots are in a cycle of decline.

“I’m a big contrarian when it comes to saying the slot machines’ time is over,” Frank says. “In fact, if you look nationally overall, slot revenues are higher than they’ve ever been. But at individual properties, they’re down.”

Frank notes that even where they are down, operators have reconfigured floors to achieve maximum profit. “You want to create an image of a full and exciting floor,” he says. “A lot of operators will take their large slot areas and reduce the space so it feels more exciting. There’s nothing wrong with that—it’s the exact right thing to do. You base it on supply and demand.”

Many casinos have the merchandising of a smaller floor down to an art. The Stratosphere in Las Vegas went from 1,200 machines a decade ago to its current total of 700 machines—and overall slot revenue has climbed. In a recent interview with the Las Vegas Review-Journal, Stratosphere Slot Operations VP Bill Boswell credited wider aisles creating a comfortable play atmosphere, as well as careful placement of profitable games in end caps, where they have proven to earn more.

Frank adds that even success in a traditional slot floor doesn’t change the need for casinos to prepare for the future. “I don’t think the slot machine’s dead yet,” he says. “On the other hand, you’d be a fool to stick your head in the sand and not try to look at what’s happening with the upcoming millennials, and with the entertainment industry as a whole.”

MGM’s Mikuluch agrees. “As operators, we have to take responsibility and do our part to help move the industry forward,” he says. “We work directly with the manufacturers, as they are always creating innovative products for our eventual display and customer use when visiting our resorts.”

The Level Up attraction is a microcosm of that effort—not only in its millennial-friendly non-gaming attractions, but in the gaming. The Gamblit games and the Interblock ETG attraction were to be joined in mid-February by Konami’s skill-based version of Frogger, which features a bonus indistinguishable from the arcade game in which recreational players—from younger boomers to Gen-X and beyond—have used their coordination and dexterity in arcades and pizza shops to get a digital frog across a busy video street.

“Our MGM Resorts team is always looking to expand gaming where we can, whether it be in lounges, skill-based games, or eSports venues,” Mikuluch says. Frogger, he says, is “one of the examples that give us the chance to push the status quo a bit to learn more about how the guest and overall industry will react.”

Of course, Frogger is one of many games from major manufacturers that test skill limits within a traditional slot-machine format. Scientific Games will soon release the skill version of Space Invaders, which features the same shooter game that stormed the arcades in the 1980s and never slowed down. International Game Technology will launch Lucky’s Quest, a game that is practically indistinguishable from the mobile-phone puzzle-style games that have gained widespread popularity. Everi has both partial and full-skill versions of Fruit Ninja, the mobile game testing skill at swiping a screen to slice up digital fruit.

 

Floor of the Future?

All eyes, though, are on the experimentation with areas that use skill-based and other new types of games within tailored environments. The casinos with the most floor space—MGM, Harrah’s, the Tropicana—are now giant testing grounds for these new slot-floor offerings.

Despite what many think, the new spaces generally are not replacing under-performing traditional slot machines. Frank comments that while the number of slots on the floor at Pechanga did go down in the thick of the recession, the numbers at that and other California casinos went back up with the recovery.

Callender says the same thing regarding the Tropicana. “Our number of games did go down in 2010 or 2011, but we’ve been adding back since then,” he says. “We do continue to reconfigure our floor, make it more beautiful and change the traffic patterns to make it easier to navigate, because it’s such a big place.”

The Tropicana includes nearly 133,000 square feet of casino floor space, not to mention another 200,000 square feet in The Quarter, the Old Havana-themed retail, dining and entertainment complex—where slot machines already have appeared in the courtyard running through the two-floor attraction.

Callender says space in The Quarter now accommodates the GameCo Danger Arena first-person shooter games, and other space within the dining and retail center soon will be devoted to millennial-friendly attractions.

“When we put gaming in The Quarter space,” he recalls, “it was because there were a lot of baby boomers waiting in line at Carmine’s and The Palm (restaurants). We wanted to give them a chance to sit down and play. But when we actually put them in a (separate) room over there, we targeted the millennials—because a lot of millennials come over to spend money in The Quarter, but they don’t necessarily come over to the casino side.

“Now, we put the electronic roulette in there, and we have some of the GameCo games in there, and people are playing.”

He stresses that none of this has reduced the inventory of traditional slots at the property. “Though we’ve started to add the non-traditional games, we really haven’t had to take our traditional slot machines off,” Callender says. “But we have invaded that space. We think it’s important to have everything in the right place, and we take advantage of our traffic patterns, and where people are going to more easily find these new games.”

Blaine Graboyes, CEO of GameCo, says the Tropicana is the company’s best site so far, and early results confirm the games are appealing to all age groups—with a lot of customers new to the casino floor. “Our most critical goal is driving incremental revenue and bringing new customers to the casinos,” he says. “We’ve seen that 60 percent of our players are under 40, so it’s likely to say that those are people that aren’t typically playing slot machines.

“We do exit interviews at the casinos in New Jersey, and we found that 50 percent of the people playing our games do not regularly go to the casino or play slot machines. That means half of our customers are net new customers for the casino.”

Callender says the casino is planning a new area on the other side of The Quarter that will specifically be designed to cater to millennials, and the Tropicana also is exploring eSports events. “We want to target some of the younger crowd,” he says, “and give them a chance to have a place they can call their own.”

Casino operators are only beginning to scratch the surface of how they are going to attract and retain younger customers in the coming years. Luckily, they have years in which to experiment, with new areas, new styles of games, new amenities. “I think you have to be flexible, and try to keep track of the analytics to figure out what’s working and what’s not,” says Callender. “We have some pretty smart folks in this industry, and they’ll figure out how many of each game you should need, and other details.”

“We believe there is an appetite for the next generation to game, and it’s all about the vehicle that is used to present it,” Mikuluch adds. “The next generation is competitive and loves to share their achievements with the world. Yes, I understand the cliché that ‘all millennials received trophies playing soccer whether first or last place to boost self-esteem,’ but most millennials that I know still want their trophy to be bigger than their peers’.

“As a result, new forms of gaming may be developed that embrace community and competition. But the idea and entertainment value associated with gaming always will be a staple of Las Vegas.”

One thing on which Frank, Callender, Mikuluch and other operators agree is that the new games and venues should ultimately add customers rather than cannibalizing the traditional slots. “I don’t think the traditional games are going to go away very quickly,” Callender says. “On a recent Saturday, every slot machine in this place was taken. (That’s around 2,600 machines.) And I think that there are still a lot of people who are just looking for a luck factor. Not everybody wants to have a game of skill.

“The slot machine itself has been changing and upgrading, and the content is so important to these slot companies—they spend so much money on research and development to give the slot player what they want. I don’t think they’re going anywhere, even according to some of the millennials I’ve talked to. They’ll play a game if it’s got a wheel on it, and they can find a big payoff.”

“Classic games like blackjack, baccarat, craps, roulette— and slots, too—will never go out of style,” says Mikuluch. “Everything evolves over time, and gaming may be in the midst of its transitional phase.”

This phase will see an evolution not only in games offered, but in how casinos measure the results from those new games. “When it comes to skill-based gaming, I’m cautiously optimistic there is a place for that product within a casino,” says Interblock’s Connelly. “However, it will solely depend on a casino’s appetite to measure those games in a completely different fashion. If we’re going to measure skill-based gaming using the same metrics we use to measure slot machines, skill-based gaming is going to continue to be at the shows, and continue to not be on the casino floors.

“It’s going to be up to the operators—Are they OK with the fact that bonus rounds can take well over a minute up to three minutes? That means that on a Friday night, you’re not potentially generating as much handle or net win. By definition in skill-based games, if you’re going to allow the player to have that entertainment factor, it’s going to be challenging to generate the same net win as a typical slot machine on the floor.

“Will the operators carve out a section of the floor for skill-based gaming that allows for that? I think you’re going to find the larger operators with that square footage that’s under-utilized, or who have the capacity to try things within their environment, are already trying to create areas that are geared more toward a younger demographic.”

Connelly adds that the same principles apply to ETGs. “If you measure the ETG against a slot, why would you put it on the floor when a typical table game, a blackjack, can hold less than 2 percent? These are low-holding games. So, if you’re going to measure them against a slot machine that could be holding 10 percent and use the typical discussion point of house average, it becomes challenging.

“However, if you really start to dive into the types of players who are playing the products, is it truly incremental revenue? As you remove the bottom 5 percent of a slot floor and replace it with an automated table game or a skill-based game, are you bringing in incremental revenue with the remainder of the handle on the floor remaining the same?”

Those metrics are being studied and examined as large casinos like MGM, Tropicana and others experiment with new ways to present slot-machine gaming.

“Over the years, we have learned that more slot machines does not equal more revenue,” Mikuluch says. “Creating an inviting or intriguing slot floor is a better approach versus the classic warehouse style that many slot floors adopted in the past. Our focus has shifted from ‘packing it all in’ to getting the most out of the slot inventory that our guests have a desire to play.”

Frank Legato

Author: Frank Legato

Frank Legato is editor of Casino Connection and also editor of Global Gaming Business magazine. He has been writing on gaming topics since 1984, when he launched and served as editor of Casino Gaming magazine. Legato, a nationally recognized expert on slot machines, has served as editor and reporter for a variety of gaming publications, including Public Gaming, IGWB, Casino Journal, Casino Player, Strictly Slots and Atlantic City Insider. He has an B.A. in journalism and an M.A. in communications from Duquesne University in Pittsburgh, PA. He is the author of the recently published book on gaming, How To Win Millions Playing Slot Machines... Or Lose Trying.