Two Way Hard Three | Las Vegas Casino & Design Blog

November 9, 2011

September morning not all sunshine for Nevada

Posted by daveschwartz

Come for the Neil Diamond reference, stay for the analysis of the gaming numbers! I've got plenty of the latter after the jump:

Superficially, it looks like the second straight month with a 6% or so decline statewide. Some people might be reaching for the panic button. But it's not time to hit that button just yet.

The reason why I'm not rending my clothes over what seems to be a starting negative trend is that the number I've said is the real one to watch--slot handle--actually increased. A year ago when we were in the first stages of the "baccarat recovery," I cautioned against getting too excited about monthly revenue increases when they were driven solely by more high-end play--which really benefits only a few casinos--and incremental gains in slot revenue eked out by higher hold percentages. The real sign of a larger recovery for the Nevada gaming economy has always been the slot handle. Last fall and winter, that continued to fall.

Since the summer, however, slot handle has been gaining, which I think is a sign that the overall demand for gambling in Nevada is growing, however slightly.

The reason that revenues aren't keeping pace with the growing handle is that, yet again, slot hold percentages fell. While one school of thought considers lower hold a negative (less potential revenue converted into win), I know I'm not alone in believing the opposite.

Here's why: lower hold percentage means, fundamentally, slot players won more. Let me repeat that: slot players won more. That's got to be good news for casinos, long-term. For all of the griping you hear about machines getting tighter (and, truth to be told, hold percentage has been steadily climbing for years, though that's chiefly due to migration to higher-hold low denom games), you haven't heard anyone saying that machines have been looser lately. Yet, if you look at the numbers, they have.

This is the opposite of what I call the Garrulous Jackpot effect. Whenever anyone hits a royal or lines up three sevens, you hear all about it because people like to share when they have something nice happen. Unless you're afraid that people will ask you to borrow money or pick up the check, in which case you put on your best (video) poker face and say, "Meh. I just about broke even." People rarely boast about their slot losses. So you get conditioned to assume that winning at slots is the norm since that what everyone talks about, and if you keep on playing you'll join that happy majority soon.

That digression was certainly an interesting month on the Strip. Slot revenues increased. Outside of baccarat, table revenues increased. But baccarat play--which has buoyed the Strip so much over the past year--fell by more than a third. With no aberrations in the hold percentage, that meant the VIPs just weren't playing like they were last year. I half-facetiously asked on Twitter whether Asian high rollers were saving up for Golden Week in Macau, which set the basis for a strong October there, and it's entirely possible that there's a link between the two numbers.

Elsewhere, Downtown declined, but not as badly as the Strip, with an increase in slot handle that bodes well for the future. The real story is on the Boulder Strip, where an unknown (to me at least--if you've got the inside story let me know) high roller absolutely killed it at blackjack, possibly winning a few million dollars and driving down the month's average blackjack hold to under 3%.

I wonder if he's talking about his big win with his blackjack buddies. If so, the Ebullient Blackjack Effect might be driving revenues next month.


Read archived comments (6 so far)
November 9, 2011 2:37 PM Posted by bigdaddyj

Dr. Dave, I have a question for you regarding "High-end" play - whenever you read about "whales", i.e. players with credit lines over $1million and/or willing to risk over $1million at the tables per visit, the number of players in this range is almost universally quoted at between 200 and 300 or so...yet in reading "Whale Hunt in the Desert", there is a passage that indicates that about a year after opening the Mirage, Steve Wynn asked for a printout of all players who had signed up for credit lines of over $1million and that the number that came back was around 500 (and that was over 20 years ago!); Likewise, another article I read recently that featured an interview with Wynn VP Alex Pariente cited him as handling Wynn's 200 to 250 biggest players, and defined them as players willing to lose $500K and up a my question is, especially in light of the concentration of wealth at the top over the past decade or two, combined with the explosive growth in wealth among Asian (particularly Chinese) gamblers, who make up a large proportion of high-end gamblers, what do you estimate to be the true number of "whales" (i.e. players with over $500K or $1million in casino credit or per trip losses) in the market today? Given these factors, shouldn't it surely be higher than the 200 to 300 number that is so often bandied around?

November 9, 2011 8:19 PM Posted by Dr.Dave

I think like a lot of other things in the business, this is just repeated often enough that everyone thinks it's true. According to Wikipedia, there are currently 93,100 people in the world with net worth of over $30 million. The question is, what subset of these people likes to gamble? I don't know, but if you say it's 10%, you've still got more than 9,000 potential whales.

Outside of that general guess, I couldn't tell you. And I don't think anyone knows for sure, since that number's probably changing all the time. I have a feeling that there's a lot of burnout at that level of play.

November 11, 2011 5:27 AM Posted by Sam

Hey Dr. Dave,

From one consultant to another (I do pharma BD consulting), how much high-level strategy thought is there in gaming? Like, do companies like Caesars and MGM hire gaming consulting firms to do a strategic development project looking at the short- and long-term effects of decreased slot hold on coin-in, revenue, loyalty, and non-gaming spend? Are these companies truly considering the long-term effects of their gaming and comp policies on the positioning of their gaming brands? Do they invest in understanding the best way to reach the educated gaming customer?

It's always interesting to me when you mention how you are "not along" in thinking that decreased hold is a good thing - is there a behind-the-scenes for-profit community of independent consultants and strategists who go back and forth over the benefits and costs of hold rates? It seems like the data should exist by now to really hammer these trends and connections down...and more importantly, how to play on your positioning in these spaces.

For example, let's look at Caesars Palace versus Bellagio for Blackjack. Let's say I'm a $25/hand player who brings 2k over 2 nights. So, I'm looking for a $25 player, and thanks to the Wizard of Vegas, I know that the best $25 table at Bellagio will give me ~0.28% house edge, while the best $25 table at CP hits me at ~0.55%. Why is there not a giant marketing effort/sign/mailing/internet/world-of-communications campaign by MGM that says "ATTENTION MID-TIER GAMBLERS - IF YOU PLAY BLACKJACK AT BELLAGIO YOU WILL LOSE YOUR MONEY AT HALF THE RATE VERSUS CAESARS". Like, how is this not plastered on the Via Bellagio for all who walk through? Or, on the flip side, how does CP not have "ATTENTION MID-TIER GAMBLERS - IF YOU PLAY BLACKJACK AT CAESARS YOU WILL RECEIVE 2X MORE FREE ROOMS THAN AT BELLAGIO."

Like, it just seems to me that there is huge opportunity to drive share through this type of marketing (towards educated gamblers looking for the best tables) - so it always baffles me that nobody EVER talks about hold between two COMPETITORS.

Okay, my two cents. Your take?

November 11, 2011 9:50 AM Posted by Dave

1. Not to my knowledge--at least I can say that I've never been hired to look at slot hold.

2. I don't usually talk about gaming-related things with other consultants. I was referring more to the sense that I get talking to folks who work in the industry, and those who gamble.

3. There is definite potential there, but I think they might be leery about opening up that can of worms. Again, not being directly involved in marketing a casino I can't say exactly why they don't do it, but I suspect it's because they don't particularly want gamblers who are that savvy that they will make their decisions based on better EV. It's just a hunch.

Downtown casinos talk about slot hold--including featuring it in their ads--and the Las Vegas Club in particular has used this as a differentiation point. Yet it generally hasn't caught traction on the Strip, largely because slot hold there is among the highest in the state.

November 12, 2011 2:58 PM Posted by bigdaddyj

I have a theory - albeit completely off the top of my head - that perhaps the reason why MGM doesn't heavily promote its better blackjack rules is because there's so much written about this in online blogs and forums that savvy or educated players already know this to be true, and perhaps if this was advertised to the general public, it would force Caesars to engage in a race to the bottom, so to speak, and put better rules on its blackjack tables, thus negating what might otherwise be a competitive advantage that they have with more serious (and probably by definition also higher-end) blackjack players? Just a thought, because otherwise I would agree, you would think MGM would promote their better blackjack rules, that's the only thought that popped into my mind after reading your post as to why they might not do it...

November 13, 2011 9:34 AM Posted by Jeff in OKC

I'm having real trouble making this clear in my mind, so I apologize in advance if this comment is too disjointed.

I think the Strip casino companies are still run from the top, by strong leaders. Loveman, Adelson, Wynn and Murren are men who are clearly in charge and their companies work well enough that they don't "need" outside input. The exception might be Caesars, who have been driven by a study and marketing focus for about 20 years, while being built by Phil Satre and Loveman. They are still relatively new companies that haven't had periods of stagnation that brings the lack of confidence that makes consultants attractive. I also think that gaming companies are loathe to share any information with each other and can't imagine they would provide enough information to make any consultant studies effective. One other issue might be that commercial gaming is still seen as a business that just takes money from people, rather than being an entertainment experience. So it might not be a business that is attractive for "serious" consultant services to approace and rather they will wait until the gaming companies come to them.