Outside perspectives & casinos in the LVBP

Here’s my latest LVBP column:

In my capacity as director of the Center for Gaming Research at the University of Nevada, Las Vegas, I recently helped to host a group of visiting MBA students from London’s Cass Business School here in Las Vegas. While in town, they heard presentations from strategic development, operations, and marketing executives from several casino operators, and participated in lively question-and-answer sessions with each. Their acceptance in the executive offices of Las Vegas highlights the critical role that outside input can play in the continuing viability of Nevada’s gaming industry.

via Las Vegas Business Press :: David G. Schwartz : Outside perspectives can help spark innovation.

I think this is a question that you can debate forever: of what value are non-gaming insights to the gaming business? It’s got some major implications for the development of the industry.

Sandoval’s message to gaming in the Las Vegas Business Press

My latest column in the Las Vegas Business Press is now available. In it, I consider Governor Sandoval’s recent call for modernization in Nevada’s gaming regulations:

In his State of the State address, Nevada Gov. Brian Sandoval briefly noted the necessity of updating the state’s gaming regulations to reflect the new realities of 21st century gambling. It’s a good message to share and it highlights the work the industry and its regulators have done to keep moving forward.

Sandoval highlighted the need for “a flexible environment for the technological resources that are the underpinning of modern gaming devices,” suggesting that the recent forays into mobile gambling — courtesy of dedicated devices developed by Cantor Gaming and applications that run on smart phones, one of which recently gained board approval — will continue. With commerce and information-sharing migrating from brick-and-mortar to Internet to mobile, it makes sense that more people are going to want to gamble using these technologies.

via Las Vegas Business Press :: David G. Schwartz : As gambling shifts, state must be ready to adjust.

The importance of modernization was really driven home last Friday, when I went to the opening of Cantor Gaming’s new sportsbook at the Tropicana. Cantor is moving aggressively into mobile sports gaming. In addition to their dedicated devices, which you can already get at the M, Venetian/Palazzo, Hard Rock, Tropicana, and Cosmopolitan, Cantor is developing apps that run on smart phones and tablets.

My latest report: Casino employment

As you might have heard, unemployment’s been on the rise in Nevada. I figured it might be a good idea to take a look at the big trends behind the numbers. So I consulted the Nevada Gaming Abstract, a great source for data. With the help of my student employee, Tracy Liao, I was able to pull data from each annual report and create a master table, with stats from each year since 1990.

But that was only part of the puzzle I wanted to solve. Knowing that casinos are hiring and firing people isn’t enough: I wanted to get a handle on how productive casino employees have been over the years. So I went to another source of data, the Gaming Revenue Reports, and pulled in statistics on the numbers of slot machines and table games (these aren’t in the Abstracts, just like non-gaming data isn’t in the Revenue Reports).

As a result, I was able to determine how productive casino departments were, not only in the sense of revenue per employee, but also with regard to the number of employees per gamign position.

Here’s the executive summary of what I found:

Total payroll and revenues increased in absolute terms, with the increase in payroll out‐pacing the rise in revenues. In part, this is due to the recession; while total revenues have fallen by about 12 percent since this FY 2007 high, total payroll has only fallen about 6 percent. As a result, the percentage of revenue that payroll entails has risen slightly, mostly due to declining revenues. In general, however, the trend has been for payroll to constitute a smaller piece of casino resort revenues.

This trend is best seen in the casino department, where a variety of labor‐saving devices have made employees progressively more scarce on the floor. The financial results of the trend are evident; on a per capita basis, casinos have, on balance, reduced their labor costs by nearly twenty percent.

The decline in the total number of employees since FY 2006 (17.5%) has not matched the total decline in payroll; as a result, those employees that remain are better paid, both in absolute and relative terms, than they were before the recession.

Basically, across the state, payroll hasn’t risen as fast as revenues. Casino employees, then, are producing more, for every dollar in payroll (which also includes benefits) that they earn.

It’s no surprise that the gaming floors themselves have seen a major transformation. Ever wonder why casinos have invested so much in labor-saving technology? Because labor is expensive. In 1992, labor costs accounted for about one-fifth of all casino revenues. At their low point, 2007, that percentage was down to about 15%. In other words, casinos cut their labor expenses by about 20%, while the total number of positions increased.

Here’s the short form: from 1990 to 2009, revenues increased by about 140%. Payroll increased by 70%. Even while payroll per employee nearly doubled, revenues increased at a rate twice that of total labor costs.

I’m hoping that this report helps people better understand just where we’ve come from and where we are heading. For me, it highlights the need for economic diversification. There’s no way the casino industry is going to return to its previous employment levels, even if business starts booming again tomorrow. I’m also hopeful that other scholars and public policy folks will use the raw data to bolster their own research and analysis.

The future

Inspired by Gerald Davis’ Managed by the Markets, I wrote an LVBP column about similarities between gaming companies and other ones. My bold suggestion is that the gaming industry is more like than unalike others:

As big as the companies that run Las Vegas casinos seem in this town, they're really on the small side compared with the corporate giants that dominate major national industries — the ones pundits say are “too big to fail” just as poor management and declining demand push them to the brink of failure.

Casino companies tend to follow the pack, doing what the bigger companies do. So to get a handle on what's coming to the Strip, we should look at the trends that have been shaping corporations throughout the world.

The first is finance: Most of the companies running casinos today have taken on huge debt to finance new construction, acquisitions, or taking the venture private.

Being heavily leveraged isn't necessarily a smart business decision, but many companies have found themselves in similar situations. The reason? Relatively cheap money that banks were lending, plus a stockholder imperative to maximize short-term profits and thus drive the stock price higher. Thus, rapid expansion and debt accumulation became a logical, if not always sensible, strategy.

via Las Vegas Business Press :: David G. Schwartz : For clues on gaming’s corporate future, follow other industries.

You can click through and read the whole thing.

To me, the corporate/financial aspects are the least interesting part of gambling (I’d rank it third, after operations/CCTV and marketing), but the general public seems far more interested in reading about this aspect of the business. Partially it’s because far more people are investors in gaming companies through stocks and bonds than are interested in the nuts and bolts of how casinos operate.

But there are, luckily, some folks who are fascinated by the operational side of things. I’m talking to a few of them at the Player Development Summit today, in a session I’m doing with Bill Zender on research and ethnic marketing.

On Tuesday, there’s a session called “21st Century Casino Marketing Tools That You Probably Aren’t Using Yet” I hope will tie into with Chuckmonster’s discussion of sponsored conversations.