Monday, March 14, 2016

Gambling Options for Houstonians: The Impact of the MGM Profit Growth Plan

Judging from the scuttlebutt around various Las Vegas Message board the recently announced MGM Profit Growth Plan is starting to cut into gambling compensation in a big way.  Anecdotal evidence, again from the chatter boards, reveals that the cuts are starting hot and heavy.

1. Reduced comp percentages:  This is the option that really seems to be getting everyone's goat, because theoretical-based compensations somewhere around 40% of expected loss has been the law in Las Vegas for a while now. Like free-parking, which we'll get to in a minute, 40-45% is almost viewed as a constitutional right by the seasoned high-roller. It's hard to tell just how far the exact rate has fallen but there are reports that it could be by as much as 10%.

2. Death by 1,000 cuts. - A poster on the VegasBoards forum noted that MGM has cancelled the Sirius XM radio service in their luxury fleet of courtesy cars, have cut the schedules of experienced dealers, as well as implemented a series of other cuts that can only be viewed as gambler unfriendly.

3. Raising comp prices.  Call it the third prong in the gambler-pitchfork that is the PGP, by raising comp prices,  (there is a good discussion on this here) In effect, MGM has decided to reward the players less, reduce how much they can get, and charge them more for getting it.


The effect of this is driving more players to less networked casinos like The Cosmopolitan or Wynn/Encore who, while still making cuts, are not doing so with the speed of MGM.Left out of consideration, for the most part, is Caesar's who really doesn't have anything in it's profile that can really cater to the modern high-end player.

MGM does have hotels that can compete however, in the form of Bellagio and Aria but the company seems content to abandon the deep-pockets gambler in return for courting the younger, clubbing crowd that both don't get, and usually don't ask for, compensation.

There are also rumors that the casinos are altering the calculations on their theoretical loss calculations downward. It's going to be difficult to determine whether or not this is actually taking place because they are treated as trade secrets and not readily available. According to one recent report, they are also loss-amount restricting the loss payback to $100K, which is awful.

In the short-run there's no reason to think that this is going to get better before it gets worse. The more casinos clamp down on the players the less revenue comes from the gaming floor. This is acceptable to the casinos because 1. They're currently making up for the lost revenue in retail (both club and store-front sales) 2. Room renovations mean that they can charge higher rates to millennials, who don't gamble as much, don't ask for free stuff, and just come to Las Vegas to party.

It's not that the millennials aren't gambling, it's that they don't do it very often, seriously.  The typical millennial gambler in Las Vegas is stopping off at a black jack table, craps, roulette or even slots for fun. They're typically with a group of friends and are willing to blow $200-$300 on a lark. The ones with a bigger bank-roll aren't any more serious, but they might think they are, and can waste thousands per night making hunch plays.  For this they typically do not get either rated, or comped for an entire weekends play. Or, if they do get compensation they're using it at the buffet, which is very low cost to the casino due to economies of scale.

In fact, despite putting on a show, most properties either at MGM Inc. or Caesar's aren't doing much at catering to larger gamblers at all. By lager, I'm referring to the gambler who's putting at risk approximately $150K - $1MM per day.  For the truly large players, what are referred to as 'whales' in the common vernacular, I'm sure they are still receiving comps and perks.  The truth is though, there are only around 20-30 true 'whales' in the world and the competition for them is very, very intense.

Think of the gambling economy like you would the real economy.  How the casinos react to each strata is starting to look like how politicians react to different economic classes in real life:

1. The poor: These are gamblers who are rated at < $30K per day. These are guppies to the casinos and have little value, other than that they usually have to pay for stuff.  They're the type of people for which $5 Free play and 2 for 1 buffet comps were invented.  These are your penny and quarter slot players, or guys you find betting the minimum constantly at the $5/hand table games with little variance.  The casino wants them there for buzz, but isn't really spending a lot of money marketing to them.

2. Lower-middle class: These are gamblers rated at $30K to $150K per day. They're play is just high enough that they are maybe getting free week-day economy rooms, slightly better free play offers and actual free meals at lower-tier restaurants.  Again, it's not costing the casino much to market to these people, and they do gamble enough to create some buzz in the casino. They also create possible revenue streams from rooms that would otherwise be empty. The biggest loss, for them, is a reduction in availability and compensation in the form of weekend rooms.  Now that the new reality is setting in suites are rarely, if ever, attained, especially without resort fees.

3. Middle-Class: These gamblers are rated at $150K to $1MM as is the case in politics they are eating a LOT of the restrictions that casinos are placing on gamblers.  The comp rates for rooms effects them greatly, as does the reduction in theoretical rating, causing many at the lower end to drip down. The drastic reduction in comps is jarring to them, much like when airlines switched from mileage rewards to dollar-based systems. For the first time in a while many of them are hearing from their hosts that they might have to pay resort fees.

4. Upper-Middle-Class: These gamblers rate somewhere between $1MM to $5MM. They have traditionally been used to having suites comped, as well as other perks considered "high-end" for their levels of play.  They are getting decimated due to the theoretical loss calculation being reduced as well as the reduced percentage and the price hikes.  Some are even losing high-end perks altogether, and their free play offers are being slashed drastically.

5. Upper Class: Players rated $5MM to approximately $20MM. While they are getting hit, it's not near as bad as the reduction for the upper-middle and middle class gamblers. They still run through enough play that their comps are readily available, but they don't go near as far.

6. The Super Rich: As I stated before, there are really only around 20-30 of these in the entire world, and the competition for them is extremely stiff. They are not suffering at all, because the casinos want them in the VIP rooms spending large months of money.

Now, here's the rub.  Most of the gamblers that casinos see are found in strata 2-4. And these are the people being hit the hardest with the comp reduction. What this is doing is creating a world where the haves REALLY have, and the pool of have-nots is getting larger.  This is why many people are transferring their business to Cosmo, Wynn etc.  Not that the calculations are any more in the player's favor, but the service and quality of product that they receive is much, much better than what they are getting from MGM and especially Caesar's.

It also doesn't help that gambling on the Strip is getting worse and worse. Most, if not all, of the casinos are cutting blackjack payouts to 6/5 (from 3/2) only keeping them intact on tables with minimums at $100 and up.  Video poker odds are being reduced, and there are persistent rumors that MGM especially has tightened their slots dramatically.

In a world of competition, this would provide an edge to the casinos located off-strip, either downtown or elsewhere, but few of those have the facilities needed to cater to the serious gambler, although their odds are decisively better.

In a future post we'll talk more about my last trip to Vegas, and how I'm seeing the reduction in theoretical and comps sting me, even as a player in tier #1. Because of this, my next stay will be off-strip, where I'm going to try some tricks that I'm going to share to try and raise my theoretical average.

Either way, Las Vegas is changing, and not necessarily for the better for the serious gambler, unless they're located in tiers 5 & 6, which few of us are.



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