Do you know what your player reinvestment percentage is? Yes, you think you know, but do you really know? Odds are, the answer is no. Having visited multiple properties and conducted close examinations only to discover that what they thought they were investing in their players didn’t match what they were really investing, the crazy thing is that many of these properties are in prime locations in premium gaming markets.
Seth Schorr has an impressive, intense and highly thoughtful approach to reinvestment analysis; he has worked in multiple, vastly different gaming jurisdictions and currently owns Fifth Street Gaming, which operates the Downtown Grand in Las Vegas. He speaks to the complexities of reinvestment evaluation and the challenges casinos have in hitting the sweet spot of reinvesting enough to yield a high response rate—but not so much that there are diminishing returns.
“If you don’t formally include operational expenses in your reinvestment analysis, that’s OK,” says Schorr. “Just make sure to be consistent and take a step back for a holistic view of your property. If you are charging for drinks and parking, that may provide an opportunity to beef up the investment in players via more free play, or… maybe not. Just make sure to be thoughtful and intentional with the investments you make, and see the benefits and drawbacks of visiting your property from the player’s perspective.”
So it’s time to do a player reinvestment percentage audit immediately. Act like it is an emergency, because it is highly likely that there are major revenue and profit opportunities to be had.
If you are a president or an executive of a casino, and you switch properties, put this at the top of your “to do” list when you make your move. It will allow you to hit the ground running and show success quickly.
An MBA professor once said, “As leaders, it is our job to find the points of friction and eliminate them. The points of friction (internally or externally) represent revenue opportunities.”
These words of wisdom ring true, and the player reinvestment audit is the best pathway to identifying these friction points. Here are some common mistakes made when choosing a player reinvestment strategy—and how to avoid them.
Forgetting different markets are different: Sounds simple, right? Many leaders frequently make the mistake of arriving in a new gaming market and drafting plans to change the property player reinvestment percentage without conducting a deep competitive analysis. Make sure this is never you.
Stopping short of measuring opportunity costs: Because the revenue mix at some properties is higher in retail than in gaming, it is now more important than ever to consider how much retail revenue you could be losing by comping rooms. Once this analysis has been made, you can structure your player offer models accordingly.
Lacking the patience to look at the detail: There are lots of revenue and profit opportunities that can be apprehended at a granular level if you take the time to look closely. There is an equal amount of opportunity in evaluating offer types and the true costs associated with each. These opportunities are often missed, because most teams won’t slow down and take the time to spot them.
Depriving the property of consistency: What exactly should you include in your player reinvestment formula? Promotional expenses? Operational expenses? The approach—and the philosophy behind a given approach—varies drastically by casino, but one thing is certain: it is crucial to pick an approach and stick to it so you can make solid business decisions that pay off.
There are many common mistakes when it comes to deciding on a player reinvestment strategy, including failing to understand the importance of average daily win (ADW), average daily theo (ADT), and the trip versions of each in the player reinvestment calculation—but that would take up another article. In general, don’t get so caught up in improving your property’s profit margin that you lose sight of generating revenue volume. And do your best to avoid tightening the player reinvestment percentage so much that you lose sight of the totality of what your players are experiencing when they arrive on property, as compared to your competitors.
But what if you don’t know with certainty what your player reinvestment percentage is now? You can’t formulate a quality strategy and measure the success of implementing it if you don’t know what your starting point is, so it is time to get down to business. You are now ready to conduct a percentage audit! If that doesn’t sound exciting yet, it will soon—once you see the revenue and profit it drives.
Five Steps to Success
Here are some tips and tricks to execute a highly productive player reinvestment percentage audit that yields maximum returns.
Pick the right person to head up the audit. You are about to not only ask most of the departments on property very hard questions, but also to request documentation to verify the answers. This process is going to make the team feel very uncomfortable. They’re going to feel like they’re being audited because, well, they are.
Brace yourself for pushback, and make sure you pick the right person to lead this project. You want a bulldog that doesn’t take no for an answer and always finds a way around roadblocks. You also want someone who doesn’t feel married to the current way things are done. It can be a new executive or an outside consultant. If you don’t have someone with this personality type on your team, get one—it is an essential element of success. In the meantime, if necessary, you must conduct the audit yourself. It is that important.
Choose the right approach. Look, we all make mistakes, and most of us don’t know everything about the areas of business we lead the charge on. That’s OK. It’s important to remind the team of this, both to ease their fears and to let them know that increasing the accuracy of your player reinvestment percentage is just part of the process of running the operation.
If you spot an opportunity in a specific department, make it clear you are not there to judge or put someone on a watch list. You are there to work as a team to get things figured out. Make sure the team knows this. Allow the head of each department to present the findings to you so they feel ownership of them. A task force should be assembled and weekly meetings conducted until project completion.
Don’t take anything for granted. Are you assuming all offers are being accurately tracked and that they’re hitting the right budget? Don’t. Are you assuming the right controls are being executed to minimize advantage player participation and theft? Don’t. Are you assuming each offer is set at the right cost, or that player development is taking into consideration offer and event investment before they comp their VIPs? Don’t.
In this audit, nothing is sacred. Leave no stone unturned. If the team tells you these areas are above board, say, “Show me.” And have them walk you through all the processes: marketing, accounting, the cage, the front desk and the casino floor, as well as the systems being used.
Watch an F&B team member enter an offer into the system, then look up how that offer hits the system at the back end, and follow it all the way through to accounting and see the way it hits the general ledger. It is a lot of legwork, but it is work that nobody else on property is taking the time to do, which is why you will be shocked by all the opportunities you uncover. Don’t let department heads provide you with a surface report on what is happening in their departments—their teams need to show you.
Follow the money. From point and table games being wrong in the operational system to recency, frequency and monetary (RFM) calculations being off in your analytics and database marketing system, opportunities are there.
Think about the worst scenario for your property’s finances and start from there. What if dealers aren’t rating players accurately and low-level players are getting high-level rewards, or vice versa? What if there aren’t proper controls on comps like you thought there were? What if the cage is supposed to be issuing match play, which is how you run the numbers, but they are issuing promotional chips that have double cost? Let these questions lead the way on the audit.
Know the common places to find money. Here is a recap, plus a few more you can put in your tool box:
- Table game formulas
- Player costs hitting the budget wrong
- Point formulas
- Comp formulas
- RFM model formulas
- Pro forma and post forma inaccuracies
- Comp controls
- Player development comp overlap with other expenses
- Offer tracking—lack of tracking or inaccuracies
- Not considering opportunity cost when executing marketing programs
- Problem gambling suppression requests
• No mail coding (outgoing hosts can suppress or delete)