Las Vegas Business Press :: David G. Schwartz : Casinos have overlooked best incentive for customers: free gambling

Casinos have overlooked best incentive for customers: free gambling

Articles recently published by Chris Anderson in Wired explained that "free is the future of business." He was mostly concerned with digital and Web products, but his work should be required reading for the casino industry, which has famously been a leader in giving things away "free."

Traditionally, every casino department except gambling was a loss leader. The thinking: Give people cheap food, entertainment and rooms, and they'll come gamble. In fact, you should give your best gamblers everything for free, including hotel suites, gourmet meals and use of the casino's private jet. With interest-free markers, casinos even gave their credit players free loans, sometimes even discounting losses in the name of promoting future play.

But in the late 1990s, that changed. On the Strip, the rooms, restaurants and theaters emerged as profit centers in their own right. With the rising importance of business travelers who have access to expense accounts but don't care to gamble much, nongaming parts of the resort began to hold their own.

David G. Schwartz

In the big Strip resorts, gaming win now accounts for about 40 percent of total revenue. Room rates have consistently risen, and prices for tickets and meals are not dropping.

Nightclubs blow the old model completely out of the water. Instead of being comped drinks, patrons pay up to $500 per bottle for the same vodka they could get elsewhere for $28. It used to be that casinos offered free alcohol to get people in the door; now, they charge dearly for alcohol because people want to be where the action is.

What are Strip resorts selling now as their main draw? Not gambling. I'd guess that rooms will become the chief revenue earner, accounting for about 40 percent of the total. Strip resorts will be selling an overall experience that's predicated around paying top dollar for a magnificent hotel room or suite.

So why not offer free gambling as an incentive? $100 in slot play for every room-night purchased might offer incentive to a potential customer on the fence. A free entry in a poker tournament could induce visitors to pay for a weekend's stay.

The per-unit costs of gambling don't directly correlate to their use like Web servers (which Anderson cites in his article). Of course, the busier a casino is, the more dealers it needs to staff, but with increasing mechanization, labor is becoming a less important part of the picture. If you've got a slot machine that cost you $10,000 a year ago, does it really make much difference whether someone comes in off the street and plays $200 cash or you sell someone a room at $400 a night and let him play for free for an hour? In the former case, the casino's win theoretically should be about $13.60. Isn't it smarter to give up that $13.60 for the profits from a higher room rate?

Free gambling might also be a way to work around the Unlawful Internet Gambling and Enforcement Act. Congress has banned pay-for-play online gambling, but what if your subscription to a magazine bundles in nonrefundable credits for cash games? Before you protest that there's no way to make money off free gambling, ask yourself whether you could have imagined a way to make money off of free Web searching, video sharing or online classifieds? The people behind Google, YouTube and Craigslist did.

David G. Schwartz is director of the Center for Gaming Research at the University of Nevada, Las Vegas. His latest book is "Roll the Bones: The History of Gambling."

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