A story recently appeared in the Atlantic City Press talking about the apparent rise in comping at Atlantic City casinos. I wanted to compare the AC casino comping (big) picture with the Vegas one, and will do so just after the jump.
The gist of the Press article is that AC casinos are comping more--with an important qualification. Namely, that they're actually giving away less.
Citing the article itself, 2006 was the peak year for Atlantic City's comps: it gave away $1.7 billion in stuff that year, with total casino revenues of $5.2 billion. In 2010, it gave away $1.2 billion (yes, the article says $1.3 billion, but on my calculator $1,223,338,000 rounds down to $1.2 billion) on revenues of $3.6 billion.
And that's the key to the whole story right there. It isn't that the casinos are more generous than they were before, either from the kindness of their own hearts or because of increased regional competition. It's that they're giving away less than they were before, but they're getting less return on their promotional "investments."
In 2006, the industry comp/revenue ratio was 28.9%: casinos gave away about 29 cents of every dollar that they earned in win. In 2010, that number rose to 33.3%, or thirty-three cents on the dollar.
Looking at the totals for individual casinos from 2003 to 2010 makes an interesting point.
As you can see, it's the challenged casinos--AC Hilton, Resorts, Tropicana,and Showboat--that have the highest comp percentages. Showboat's an interesting case since it's part of the Caesars Entertainment megalith. Are comping policies really that much looser at Showboat than Bally's, Caesars, or Harrah's? The whole point of Total Rewards is that they aren't. Isn't it? Instead, it seems that Showboat's just a lot worse at converting comps into increased gaming revenues.
And it's no surprise that the most successful casino in the bunch has the lowest ratio: the Borgata's 28.6% (as of 2010). And the Borgata's seen comparatively little growth in its comp ratio (5% of revenues)compared to other casinos: Tropicana nearly doubled its comp ration from 21.9% to 43.8%.
Worse yet, the trend is heading in the wrong direction. In 2007, there was one casino in the over-40% red zone: the AC Hilton. In 2010, four casinos were there.
As a whole, the industry is spending 8 cents more per dollar of casino win in revenues. That's not sustainable, and those properties with the highest comp ratios are the most likely to collapse.
Let's now turn to the Las Vegas Strip. In 1999, the big casinos on the Las Vegas Strip (those making more than $72 million in revenue that fiscal year) spent about 19.2% of each dollar of casino win on comps and promotional expenses. By 2009, that number had risen to 30.5%--just under Atlantic City's industry average for that year. But in 2010, with $1.3 billion in comps (more than Atlantic City), they'd pulled back to 28.1%--a much more manageable number. While the Atlantic City comp ratio ticked up nearly two percentage points, the Strip's went down by more than that amount.
The simple numbers are an excellent illustration of the differing experiences Atlantic City and Las Vegas have had during the recession: it has hurt Las Vegas, but it has crippled Atlantic City.
It's also interesting to see how different Atlantic City casinos tracked long before the recession started. The ACH has consistently been near the top of the list; Borgata's been at the bottom; and the Taj has hovered just around the industry average. Showboat's always given more away, per capita, than its Caesars stablemates. And it's too bad we don't have the same property-level information available on the Strip, since that would shed a great deal of light on how well individual properties are performing.
When I have the time (which is a major when) I want to do a twenty-year study (meaning it'll use data over 20 years, not that it'll take me 20 years) of Atlantic City casinos' financial performance, factoring in number of positions, revenues, comp and promotional expenses, and capital expenditures. It's easy to see the final outcome--the properties that are well-maintained (Borgata, Harrah's) do the best--but I'm interested to see how well that correlates towards the middle of the market. Does investing 5% more of annual revenues in capex lead to any measurable increase in revenues? Or are casinos better off neglecting maintenance and keeping their money for other purposes?
That's in the future. For now, let's just think about comps. Is too much ever...too much? In other words, as much as players love to lambaste the "beancounters" who restrict comps, what's the alternative? A casino that gives until it hurts? Or, in this case, goes into foreclosure?
The phrase "There Ain't No Such Thing As A Free Lunch" is just as applicable in a casino as it is elsewhere.