Sunday 29 May 2011

Can You Afford to Skip the Casino Feasibility Study?

The idea to develop a casino is often driven by circumstances such as having sub-optimized space in the foyer of a hotel, the need to fill a gap in hotel occupancy or the availability of a license as part of a tourism investment scheme. All too often the idea develops a life of its own and the next steps are the creation of a casino design (that neatly fits the development team’s perception of what players want) and the start of construction, followed by the search for casino management. The problem is that there are common misconceptions about casinos and gamblers that lead developers into pitfalls time-and-time again! More about that later but let’s look at how the most successful operators go about things…They start with an understanding of the market, its willingness, size, disposable income, access, competition (for all entertainment), market-specific needs and compatibility of the player profiles with other users of the hotel, resort or entertainment complex. This understanding then forms the basis for the remainder of the feasibility study which estimates the number of potential visitors and their frequency of visit, the length of the average gaming session and the average stake. Extrapolating further, projections about the capacity requirements in terms of equipment, floor area and operating times are formulated. Finally, financial spreadsheets are crafted to present a supported and considered opinion on profit, capital expenditure and returns on investment. But more than just the numbers, the feasibility focuses thinking on how to optimize the opportunity, on flushing out potential fatal flaws and on what will be required to compete effectively in the market. The feasibility does not need to be a lengthy and expensive exercise conducted by a celebrated academic. What’s sufficient in the early stages is to understand whether you have a rough diamond or a worthless glass chip. A professional casino consultant will be able to deliver an initial feasibility for a reasonable price in as little as 10-working days, providing not only a decision point on the idea or opportunity at hand but also delivering a framework for screening future opportunities. Let’s look at some of the pitfalls…

The “license to print money” myth is a surprisingly popular assumption about casinos and one that seems to prevent people from conducting all the usual due diligence and care that would go into say, a shop or restaurant opportunity screening exercise. Examples that come to mind follow. A large casino was developed in a jurisdiction where there are restrictions placed on slot machine maximum stakes. The revenue expectations of the slot machines were heavily relied upon to render the casino viable. When a revenue capacity model was run on the slots by an experienced manager several days before opening, it showed that it was a physical impossibility to generate the required slots income with the number of machines installed… The casino failed to live up to expectations. A large casino developed in Britain by a US operator failed miserably because it did not understand the propensity for live gaming or the mobility of players in the market, whilst a British company failed spectacularly in Las Vegas because it didn’t understand the customer and made fatal design flaws.

The “James Bond” image is another popular misconception about players and casinos. The Pareto Principle applies heavily to casinos with approximately 80% (or more) of the revenue being produced by 20% (or less) of the visitors. That 20% does not constitute people who don formal dress for an occasional night out; it’s more typified by the frequent visitor who feels at home in the casino in comfortable, casual wear. The un-initiated 5-Star Hotel manager is invariably aghast at the presence in his or her lobby of the “non-James Bond-ness” shall we say, of the casino players! “Where’s that casino manager, he’s obviously got this all wrong…” And on goes the conflict-of-interests. The feasibility study will enable the corporation to identify these conflicting situations in time to create solutions such as providing a separate casino entrance and differentiating F&B standards and prices in the hotel and casino.

I recall an incident where a group of executives went to great lengths to propose the development of a large caravan park in the grounds of a destination casino resort, some 2 hours drive from a major city. The executives proudly began to present their highly polished and detailed plan to greatly increase footfall to the resort when much to their dismay they were harshly reprimanded by the CEO. They had failed to recognize that the hundreds of caravans on the road would delay the 20% of visitor that produce 80% of the revenue and the significance of such shortening of the gaming session!

The feasibility study will highlight the key drivers of the casino and let you put into perspective the priorities of the business. It will help you avoid fatal/serious flaws and give you the best chance of optimizing your opportunity. Now wouldn’t you agree that’s an excellent result for 10 days’ fees!


 

Saturday 21 May 2011

Time’s Ripe for Casino Scams

Here is a copy of an article I wrote a short while ago, I hope it provokes some thought.

Even at the most prosperous of times you’d be advised that somewhere, somehow, someone in your casino is stealing from you. This can be hard to understand when your management and staff are well paid, well treated and have excellent career prospects. So what is the underlying motivation then? Well, it’s simply greed. But let’s now wind up the volume of the motivation. Let’s take away the hope of career prospects; let’s freeze pay; let’s lay-off people; let’s increase work load through a no hire policy; let’s clamp-down on complimentary F&B for players which effectively reduces tips. The cost-benefit equation which had previously kept all but the very greedy on the straight-and- narrow path of honesty now looks different. There’s even a new dimension added... steal what you can whilst you can, before you get laid-off! The scene is now beautifully set for the greedy opportunist that has been operating his scam during the good times. He has a plan, he has confidence and now he has many willing accomplices. He has in his hands the acid to corrode moral and the infectious germs of corruption to break down the integrity of your control structures. If you have not previously had thieves imprisoned when they’ve been caught, then your staff may be under the impression that you would rather let them go than suffer the negative publicity... Perfect conditions for the spread of the germs.

In an ideal world, you would have predicted the current economic crises down to a tee. Through your timely and persuasive communications your staff would understand that some sacrifices would be needed for the sake of the business and after a one-off redundancy exercise and they would all live happily ever-after. The fact is that no one knew how the credit crunch would affect their casino. For many, the sensible way forward was to play it day-by-day, with several rounds of redundancy taking place each year and an unknown further number in the future. Although the step-by-step process is the worst scenario for employee morale, the consequences of cutting too soon and too deep would make a fast recovery difficult and vulnerable to a take-over if caught in a sudden market recovery.

The continual rollout of technology in the casino industry is another source of threat to your employees and another source of imbalance to the cost-benefit equation. Unlike the frog that doesn’t perceive the gradual rising temperature of the cooking pot in which he eventually boils, we need to stop from time-to-time to take measurements and re-assess our businesses. Whilst the economic downturn focuses management effort on cost-reduction don’t forget the importance of maintaining staff morale and adjusting your management controls to balance the increased threat. It is of course difficult to avoid contradiction... On the one hand tightening up controls implies distrust, whilst on the other hand you’re trying to maintain trust and respect in the relationship... Consider that your management consultant will be able to broker a sincere and lasting understanding and get everyone behind the new measures that the health of the business requires.