The impact of online gaming, virtual worlds, video technology and player psychology on Las Vegas casino revenues
Clear Peak Distinguished Associate, managing partner at MAPS Capital Management in San Francisco
The economic downturn taught companies across every industry many lessons. For the gaming industry, the downturn was especially difficult, yet, conditions have illuminated a path for improved profitability.
In 2008, Sherman Bradley, Online Casino Advisory’s senior gambling analyst, advanced the idea that diversification in Las Vegas is as responsible for the city’s lost revenues as the national economic conditions. By choosing gambling as just one of many income streams, casino operators lost the recession-proof quality the resorts had enjoyed.
In 1990, non-gambling revenues were 42 percent of a casino’s total income. In 2008, it reached 60 percent, making Las Vegas as a gambling destination uncompetitive with casinos closer to home of travelers. During the same decade casino stocks fell in value by a similar 60 percent and are under further earnings pressure since the current economic downturn.
For two decades, Vegas resorts were innovators in entertainment, mainly as a lure for gamblers. Today, Strip hotels compete in offering packages for the larger tourist market with a secondary revenue interest in gambling. The collective result of this transitional focus has made Las Vegas substantially less recession proof. As a result, Las Vegas might consider a return to its gambling roots in combination with the integration of new trends in gaming to become more competitive not only with web-based gambling and other gambling destinations, but to compete with the new generation of “gamers” who are comfortable with multi-player experience and virtual environments.
Equally important, casinos must be better at understanding consumer behaviors by mining visitor data. Today, casino-issued loyalty cards carry some longitudinal data but it is not as sophisticated as information collected by the credit card industry. For example, the FICO score managed by credit bureaus provides any authorized entity with key information including how many cards are issued to a person, their credit utilization and overall risk based on exposure to other financial activities including insurance, equity lines, mortgages and so on. A similar system may be developed for the gaming industry.
Finally, Las Vegas casinos may wish to employ the “destination” approach used by many Caribbean resorts whereby gamblers are incented to participate in activities – and spend their money – on property. All-inclusive packages, minus gambling, of course, invite visitors to spend their dollars in a single location. Everything looks “free” in that it is prepaid for the stay. A gambler has no way to tradeoff wins and losses against cash out of pocket to pay for other things.
Cross-Industry Insight: For some companies that diversify and spread offerings too thin, they can suffer bottom-line setbacks in economic downturns. A concentration on core offerings with service enhancements that draw from marketplace trends to compete for wallet- and mindshare are a strategic way to build the bottom line.
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