We have written many articles
about player database management,
optimizing performance
of your promotional
coin offerings to increase operational
profitability and most
recently, slot floor analytics to
drive highest net contribution
from each game on your floor.
We have also discussed the negatives of how the
wrong promotional coin offerings drive revenue
but actually erode profitability by spending on the
wrong patrons.
We have had many questions regarding why
using new metrics such as individual patron
return on investment (“ROI”) is the best way to
succeed, especially when considered against the
“ole tried and true” methods of using average
daily theoretical win (“ADT”) or average daily
actual win (“ADW”) with some sort of recency
pattern. As further evidence of effective implementation
of ROI programming, there have been
comments by those properties whose results have
improved since they have moved on from or augmented
the low tech ADT, ADW and “bounceback”
programs in favor of individual patron
ROI-based incentive marketing.
The biggest hurdle in using ROI marketing
is confusion about the process. Simply put, the
issue boils down to getting the most performance
from the amount of spending your budget
can absorb. In this regard we are going to try
and relate the casino customer ROI evaluation
process to something that should be familiar to
most everyone; the use of the salary caps in professional
sports.
Even to the casual observer, salary cap is a
well-known and discussed topic of the NFL,
NHL and NBA leagues in efforts to maintain
relatively even level of competition. As we
tried to put salary cap into the best words, we
found the following definition from
SportingCharts.com, a web based company
that is improving the analytics of sports by
providing tools, resources and unique visuals
to better arm fans, fantasy players and bettors
in their decision making:
“The salary cap is calculated as a percentage
of the league’s revenue and divided equally Within most successful casinos, there is a group
similarly devoted to understanding the total dollar
budget for promotional credits. From the
budget, the group determines how much should
be spent relative to which customers get high $$,
which customers should get low $$ and which
customers should get $0.
Finite pool of talent
Within every market, casinos share customers as
there are only so many customers who will play at
quality levels to deserve reinvestment. To that
extent, the NFL is the same when it comes to players
as there are only so many talented players who
will even get considered for pro sports. This means
there are many dollars chasing few qualified recipients.
The salary cap makes the spending of total
dollars on all the team’s players a flat amount of
total dollars, yet the amount spent on any individual
player is completely up to the team. As each
customer in your database contributes to your
property’s revenue, and more importantly, net revenue
by way of promotional credits, each player
must continually be evaluated against every other
player to EARN their level of promotional credits
rewarded to them by the property.
Discretionary use of Cap $$
With the NFL, if the team spends too much on
one player there will be fewer dollars available for
other players, likely altering that team’s chances
to win. It’s no different at your casino. With the
premise of finite marketing dollars being spent
towards many customers in mind, you only have
so many promotional credits that you can spend.
Internally the casino operator must be very aware
of the tipping point at which your promotional
credit spending does not drive a like or positive
change in your net revenue. Net revenue here is
simply gross win minus promotional credits. Of
course, the only way to gain this knowledge is by
heavy use of analytics internally on each player or
customer, respectively.
Intangibles/Goal
If you spend much time watching professional
sports, you will see that there are many intangibles
that go into making a successful team. One of the
intangibles is coaching and management. While
the salary cap dollars are fixed, the coaching and
management groups have the ability to evaluate all
potential players differently from other teams and
therefore fix salary cap dollars differently. Of course
the goal is to produce a winning team while spending
within the salary cap constraints. For a casino,
management is one intangible. Trying harder at
analyzing customers is not something every property
is willing to undertake. For those that do
expend resources to do this task better, they have
seen results that are beneficial to the property.
Lee E. Harden, CEO at LCO Casino, Lodge &
Convention Center, Hayward, WI had this observation
regarding management of results using ROI
to shape reinvestment strategies. “Beginning in
early 2014, we redefined our player reinvestment
based on what would bring us the highest incremental
ROI. The ROI analytics method goes well
beyond traditional segmentation strategies by
measuring multiple player variables to create clear
visibility to profit potential. Most traditional DB
programs build on all the standard stuff about location,
frequency, and monetary value. Our successes
included building high yielding player segments
by competitive category showing which players
provide the highest and lowest ROI. In 2014 our
results have allowed us to buck the current trend of
industry decline with 6 consecutive months of substantial
incremental increase to slot win. While we
are in a very competitive market, especially topline,
our 2014 bottom line productivity has
improved greatly by deploying the ROI analytics.
We are continuing to work to explore new avenues
for efficient promotional credit investment to continue
our 2014 results into 2015.”
To wrap up, we discussed the similarities of professional
sports salary cap and your casino’s promotional
credit spending. What the issue boils down
to is that you must get the most performance from
the amount of spending your budget can absorb.
Hopefully, this article is another way to think
about that. Please let us know your thoughts and
opinions and we enjoy defending our position and
hearing alternative positions. We are available at
our email: JaySarno@jsa2002.com or by phone at
(609) 457-9775.
1“Sporting Charts explains Salary Cap”,
http://www.sportingcharts.com/dictionary/nfl/s
alary-cap.aspx (accessed September 29, 2014)
Jay Sarno has 20+ years of experience in the
Hospitality and Gaming Industry. Jay consults
on casino marketing segmentation programs,
software product development and technology
solutions evaluations, selections and implementations.
Jay has implemented over 20 data
warehouse systems and currently also teaches
courses in Hospitality Management for Richard
Stockton College of NJ. Jay can be reached at
JSA2002@comcast.net and welcomes your comments
and questions.