Imagine traveling back in time to 1970. There, you play a word association game starting with “casino.” The response would be nearly unanimous: some form of “gambling.”
If you were to conduct the same experiment today, the overwhelming majority would still say “gambling,” but you’d also get many other responses. From dining to nightclubs, and from shopping to shows, casinos have radically changed their stripes during the past decade or so.
And ten years from now, the number of people who associate casinos with gambling will continue to drop, as casinos continue to shift the way they’re doing business.
Increased competition leads to a shift in thinking
With casinos proliferating across the country, the competition for customers’ dollars kicked into overdrive.
For a while, casinos decided to stick with the business model that had served Las Vegas and Atlantic City well for many years: Give potential customers perks to come and gamble.
But much like airline fare wars of the past — where airlines would simply undercut competitors’ rates — at some point their profit margin disappears. They’re more or less giving away $100 to get someone to gamble $50.
As with the airlines, the numerous perks simply turned into a bidding war between casinos. Had this continued, it would have led to a profit drought.
Faced with an untenable situation, a number of casinos made some difficult and risky changes. Instead of value, they offered luxury. Casinos began to realize they couldn’t simply offer gambling and expect people to show up.
The new casino experience
Now casinos are going in the opposite direction. Instead of cheap rooms and loss-leading buffets, they’re charging visitors through the teeth for those rooms and plying them with high-end eateries, expensive shows and bottle service in their clubs.
Some have described this as penny-pinching and less value for the visitor. However, in my estimation, it’s something altogether different. It’s a new business model that’s selling people an experience and a status.
Instead of catering to the value hunters, casinos are no catering to the spendthrifts — the people willing to splurge for a once-in-a-lifetime experience.
And it’s working.
Hotel rooms are more valuable than slot machines
Gaming, once the be all end all of casino revenue, now represents just one third of total Las Vegas Strip revenue.
“If the current trend continues, by 2019, rooms will make about as much money as the casino floor, in 2020 they will surpass it, and by 2023, Las Vegas Strip resorts will make about $2 billion more from their rooms than their gambling.”
Schwartz noted that gaming revenue was down $600 million in 2016, compared to 2007, but room revenue was up $800 million.
These numbers are indicative of the idea that casinos have long undervalued their hotels and amenities. They used to give them away as door prizes to anyone who set foot on the casino floor.
As it turns out, the four- and five-star hotels are the real attraction.
Shifting away from gambling is good for everyone
States initially turned to legalized gambling to bring in new revenue. But because of the saturation of the market, existing casinos saw revenues sag as new, swankier venues opened. This led to layoffs, and in some locales (see Atlantic City in New Jersey) closures. This can have a devastating impact on a local economy.
States are now trying to mitigate the potential negatives, and in doing so they’re almost forcing the casino industry’s hand and accelerating the shift toward non-gaming revenue.
Nowhere is this more evident than in Massachusetts.[i15-table tableid=20717][i15-table tableid=20704]
Massachusetts casinos are playing by a different set of rules
Massachusetts casinos are bucking every piece of traditional casino wisdom.
When Massachusetts authorized casinos in 2011, it was a given that gaming would be handled differently in the Bay State. What Massachusetts ended up doing was building on the successes of its gaming predecessors and creating a completely new way of doing things — what I’ve dubbed the Massachusetts Model.
The Massachusetts Model is extremely comprehensive. It fosters not only the casino itself, but integrates the casino into the local economy through jobs, development and economic stimulus.
Turning casinos into economic drivers
From the procedures governing licensing, to robust regulations, to responsible gaming programs, everything Massachusetts is requiring its casinos to do is meant to maximize the benefits casinos offer and minimize the negatives.
This means: Keep the focus on non-gaming revenue streams.
The Massachusetts Model is evident in every step of the casino process. It starts with the way casinos had to approach licensing and work with the host community.
Instead of inviting continued competition, winning Massachusetts casino proposals have exclusive rights to a “zone.” But that doesn’t mean there wasn’t competition.
First, the proposal needed to guarantee a set minimum investment. Next, it needed to be good enough to win over the host community — elected officials and a voter referendum. Finally, it had to be good enough to be chosen over the other casino proposals from that zone.
The competition was in the project, but once a casino was granted a license, it had exclusive rights to that area. Massachusetts sees this not as a path to future complacency. Rather, it is a highway to continued reinvestment, since a company isn’t going to dig a billion-dollar hole in the ground and let it slide into disrepair.
In short, the Massachusetts Model ensured winning casino proposals invested in the project for the long haul.
The casinos of the future will offer gaming the ‘right’ way
The Massachusetts Model also extends to the casino floor.
Casino operators are discovering the gaming environment in Massachusetts is much different than in other jurisdictions. Any company focused solely on gaming revenue would find Massachusetts inhospitable. But, for the casino corporations that are out in front of the zeitgeist, Massachusetts is simply a glimpse into their, and the industry’s, future.
Massachusetts casinos are non-smoking (often seen as a death knell in the casino world). They use innovative responsible gaming programs that the industry has long fought against. (They were widely believed to depress gaming spend.)
But Massachusetts insisted, believing that while the programs might stunt gaming revenue, it was integral to the other parts of the Massachusetts Model working.
It would be undermined without it, as casinos might be tempted to return to their old ways. That would mean going after the low-hanging fruit (gaming) instead of continuing to reinvest in their properties and turning them casinos of the future where hotel, retail, dining and entertainment far outpace gaming revenue.
The early indications point to the Massachusetts Model going over well. MGM (which hasn’t even opened the doors of its Massachusetts casino) has decided to incorporate one of the responsible gaming programs, GameSense, into all of its casinos nationwide by the end of the year.
The casinos of the future will still be heavily invested in gambling, but gambling will not be the sole focus. It will be symbiotic with other entertainment options and feature a focus on responsible gaming.
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