Two Way Hard Three | Las Vegas Casino & Design Blog

October 19, 2011

Comps: Atlantic City Vs. Las Vegas

Posted by daveschwartz

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.


Read archived comments (3 so far)
October 20, 2011 7:41 AM Posted by Jeff in OKC

Is there a way to apply "real" values to comps? The reason I ask this is because some casinos have sign up bonuses, or other promotions that claim to be something like $200 in free slot play. But, the "200 value" is really 20 spins on a specific group of 1985 style, 3 reel, single line IGT machines and each spin has a $10 "value". The prize someone wins on these machines is usually along the lines of a free casino logo ballcap, or a 1/2 off drink coupon at the 1AM performance of the Molly Hatchett tribute act Holly Matchit. My question is does the casino write that comp off at $200, $5 or somewhere in between? And how gray is the accounting world when it applys to comps?

October 21, 2011 7:41 AM Posted by marc

Showboat has always been the most overly comping of the Caesars properties for me in AC. They usually offer comps by the tier of their hotels from what I can tell. In Vegas, I'm offered much better comps from Harrah's than Caesars Palace.

October 21, 2011 9:21 PM Posted by bigdaddyj

This may or may not be relevant to the numbers, or even true, but I'm wondering if the reason Atlantic City has higher comp ratios is because the have to give out more "hard" comps?

I believe I've posted on here previously how my father was a "whale" in Atlantic City back in the 80's & 90's; He lived in North-Central New Jersey, and probably visited about twice a month for afternoon or evening gambling trips, and maybe stayed overnight for a long weekend maybe four times a year. Considering the amounts he bet (he frequently played multiple hands of blackjack at $10K a hand, and roulette at several thousand dollars a spin - and remember, this is back in the early-to-mid 80's), based on his theoretical loss the amount he was owed in comps gambling that much 24+ times a year had to be through the roof - yet they never had to fly him in on a private jet, arguably the best suites in Atlantic City never cost as much as the ones in Vegas, he didn't eat nearly as much as someone from out of town would do in Vegas, etc.

So, as a result, a lot of the "comps" he got from Trump Plaza in AC were "hard" comps - when he came down for a weekend, his suite would be filled with gifts to take home, like cases of wine where each bottle was worth hundreds of dollars. He frequently received MAJOR pieces of jewelry, worth tens of thousands of dollars, as gifts to give his wife. They often sent him on fully paid vacations on their dime - they usually sent him on a private jet to a seriously expensive resort on Barbados at least twice a year; once, they sent our whole family on a first-class cruise of the Mediterranean on a small, luxury cruise ship with about 50 cabins, all filled with Trump high rollers & casino hosts. He told me they once offered to give him a Lamborghini Countach and he turned it down! Super Bowl or World Series tickets? Never a problem. Even if he wasn't going himself. They often regularly comped his family, friends, employees, etc. on their property even if he wasn't with them - I spend many a weekend down there, in penthouse level accomodations, with groups of friend racking up thousands of dollars in food charges and my father was nowhere to be found.

By comparison, while when he did go to Vegas, he was still given the royal treatment, I don't recall him ever mentioning any "hard" comps that the Desert Inn had given him beyond the private jet, killer suite, free meals & show tickets, etc.

So I guess my point is, since Atlantic City is arguably so much more dependent on local gamblers than Las Vegas, that perhaps more of the comps they give out are off-property "hard" comps that they can't fudge the price on, so to speak? I mean, what does an otherwise empty room in your hotel really cost you when you comp it to a whale, even if you're asking $10000 a night for it, vs. having to shell out an actual $10000 in cash for a good or service in the form of a hard comp?

Just a thought...