Las Vegas Sands made news when they announced that they had basically cut off comps for a large segment of their customers.
In this edition of Simpson on Vegas, Jeff takes a look at that new policy and adds his two cents.
Continue after the break...
I'm not going to say that Las Vegas Sands is crazy to say the company is going to stop giving complimentary rooms, meals and other perks to all but the biggest gamblers at its Venetian and Palazzo casinos, but I will say that, if they follow through, I think it is a short-sighted, stupid move.
This is what Las Vegas Sands Chairman Sheldon Adelson said on the company's recent fourth quarter conference call: "We know that the subject of comps has been played out all across Las Vegas, but we've taken a different position. We've essentially cut out all our accounts except the most highly rated players. No more packaging deals to try to be competitive with others. There's no more comp rooms given out. There is no more RFB. There's no more food and beverage. There's no shopping credits. There's no restaurant credits. There's no showroom credits. We're selling rooms, and we see that it's resulting in a substantial increase in cash income."
And Sands President Michael Leven said on the same call: "We've lowered our comp allotments considerably to get a better customer in, which may cause some short-term occupancy looks that looks down, but to the cash component to us is actually better."
Leaving their biggest gamblers aside, who will presumably still be able to score competitive comps, Sands executives think that they'll be able to fill their rooms with enough people who will spend enough on non-gaming amenities to make up for what the casino would have netted from comped gambling customers or with people who will still gamble without the prospect of earning comps.
I find that hard to believe. First, smart casinos base their comping decisions based on the expected win from rated table play or on points earned from metered (through slot cards) slot play. Most casinos are willing to grant comps based on some fraction of the casino's expected win from recent play (a fraction that is usually based on somewhere between one-sixth and one-third of the expected win for the casino). Future comp offers given to customers who have previously played in the casino are based on past play. A well-run comp program gives customers rewards for their casino play, rewards that should be worth significantly less than than the expected wins from the customers.
When Adelson says "We're selling rooms," he displays a basic ignorance about how a properly functioning high-end casino resort should operate. Sure, he has more than 7,000 rooms to sell (that's more than 2.5 million room-nights per year), so every dollar in average daily rate adds up to more than $2.5 million (gross) per year at 100 percent occupancy. For example, an average rate of $200 over the couse of a year would yield about $511 million in room revenue at 100 percent occupancy, while a $180 rate adds up to only about $460 million. So Adelson clearly wants to maximize room rates and occupancy -- there's nothing wrong with that. All operators should.
But comping is a separate matter. As long as a comping program is being run correctly, it should enhance resort revenue. If the internal "price" of comped rooms is being valued correctly and if the comp program has a sensible reward rate based on rated play or slot points, the casino should be making more than enough revenue on the gaming side to cover the cost of the comps.
A couple of caveats. If the Sands' two Strip hotels are running at full occupancy with cash-paying, non-gambling guests who spend more on non-gaming amenities like food, clubs and entertainment, then the internal value of rooms in the comp-granting process should be adjusted higher to reflect the true cost of replacing a bigger-spending guest.
And second, if gamblers continue to gamble as much or almost as much without comps, then Adelson & Co. are right, and I am an idiot. But I don't believe most gamblers will continue to play at Venetian and Palazzo if they have no prospect of getting anything comped beyond a free drink (I'm presuming players are still getting free drinks at the tables or machines). Why would they? It's not like Adelson's casinos are so hot, so special that gamblers have to play at a no-comps casino. As a matter of fact there are a handful of better casinos on the Strip, two of them right across Sands Avenue.
Now, I should note right here that I'm skeptical about Sands' follow-through on its announced move. Will its hosts really tell a customer who just dropped $5,000 over a weekend, playing 12 hours of blackjack at more than $100 per hand, that they won't pick up the tab for his room or at least a couple of meals? That's where the rubber meets the road on the new policy: When gamblers' expectations (for reasonable comps) aren't met and those folks never return -- and when they spread the word. And will Sands really stop giving players comps for their accumulated slot points? I am dubious.
Steve Wynn said on his own company's conference call that, while he hadn't really paid much attention to the new Sands comp policy, he saw no reason to change the (admittedly conservative in awarding comps) policy at Wynn Las Vegas and Encore. Wynn has long crushed all competitors when it comes to the performance of his gaming floors, and he understands the aspirational nature of the gambling business. Treat the green- and black-chip bettors right -- someday they may be playing with higher-denomination chips.
This isn't the first issue where Sands and Adelson have broken with the Las Vegas pack. I've been talking for a while about the company's indifference to the industry norm of the all-at-once "hard opening" of new resorts, noting that while Sands suffers from a public relations deficit and media criticism, the company gets as many revenue streams flowing as fast as it can and eventually gets the properties operating smoothly. Adelson loves to mention how he understood the value of convention-goers to a modern gaming resort and how he scorned the "conventional" wisdom that those customers were casino poison. (He clearly was right on that matter, proven by the many copycats he spawned.) I think Adelson thinks comping is another issue where he can go his own way, and I think something in his personality compels him to again try to do his own thing.
This time, I'm certain he's wrong.
-- Jeff Simpson, February 2011