Name: The Business of Casinos
Uploaded: 2024-11-15T08:27:33.000Z
Duration: 9 min 58 s
Description: Thousands of YouTube videos with English-Chinese subtitles! Now you can learn to understand native speakers, expand your vocabulary, and improve your pronunciation...

Adverbs of degree

A business model where you're responsible for handling and paying out millions of dollars at any given time doesn't seem very stable, yet the industry has proven to generate a lot of money.

Adverbs of manner

No matter what casino you look at, their gambling activities will operate almost identical.

There are two ways they make money from gambling, table games and slot machines.

Each game has their own house advantage, the percent of money wagered the casino will win in the long run.

The most popular table games and their house advantages include roulette, craps, blackjack and baccarat.

The house advantage for slot machines usually ranges from 2-15% depending on the type of machine.

If a game has a 3% house advantage, for example, the casino will keep 3 cents for every dollar wagered on that game in the long run.

So if $1,000 are wagered, the casino will win $30.

The house advantage basically guarantees the casino's revenue.

Casinos can adjust these rates by changing the game designs or reprogramming slot machines, however, it's important for them to stay low.

If house advantages were extremely high, the casino would make much more money in the short term, but people will quickly stop playing.

Despite what may seem like low house advantages, the casinos actually make more than what it seems.

Let's say a person has $1,000 they want to gamble at the blackjack table, which has a house advantage of 2%.

If they were to wager all of that $1,000, the casino would come out with $20 profit in an infinite simulation.

In a real scenario, the person will win and lose bets throughout the night and may end up wagering far more than that original $1,000.

Over the course of a few hours, they may have wagered up to $5,000, meaning they would have lost $100 in the long run instead of just $20.

This is why it's so important for casinos to keep the person playing as long as possible, and is partially the reason for strategies such as a low house advantage, table limits, and complimentary offerings.

The type of player matters just as much to the success of the business, and the customer base can be split into three parts.

There is the coveted VIP players, the common everyday mass market player, and the more casual slot player.

The VIP player is usually the most valuable for casinos because of their ability to wager millions in a trip to the casino.

They often play on lines of credit using special chips and receive the highest complimentary offerings.

The mass market players are the everyday people who walk up to a table on any given night and play modest amounts, still an extremely important segment that even has higher margins than the VIP segment in some locations.

Lastly, the more casual players who don't want to sit at a table or prefer the more relaxed nature of the machine will play slots, which can be the biggest revenue source for the casino.

Casino operators can even calculate the value of these players to see how they should cater to them.

By using the house advantage, bet size, time played, and the pace of the game, the expected amount won can be calculated.

For example, suppose a Baccarat player bets $100 per hand for 5 hours at 60 hands per hour.

Using a house advantage of 1.2%, this player's worth to the casino is $360.

This allows them to not only calculate the performance of individual games, but also allows them to set complimentary policies.

The casino can then determine what they can afford to This could include things such as show tickets, hotel stays, and free restaurant meals, all with the goal of the player staying longer or coming back.

However, there are vast differences between markets despite operating relatively the same.

If we look at Las Vegas Sands, which has properties in three major markets, the US, Macau, and Singapore, we can see the differences between markets and strategies companies use. 80% of LVS's Macau revenue, for example, comes from mass market play, whereas SJM, one of Macau's original casino operators, only generates 50% of their gaming revenue from the mass market.

This difference comes from the different strategies the companies use.

If we take a deeper look into the Macau market, we can see LVS, a relatively new entrant in the market, targeting the mass market customer through non-gaming amenities.

They cater to the modern Macau, filled with new customers corresponding with China's economic growth and increased ease of travel to the territory.

These customers aren't necessarily looking to gamble, but rather enjoy a vacation at one of the massive resorts.

SJM, on the other hand, is one of the originals, and catered to the original Macau market, the VIP player.

The reason companies like this have such large VIP revenues is because Macau has a completely different system for attracting VIP players than markets like the US or Europe.

Macau gets this part of their business through junket operators.

These are companies that offer services to high-income clients looking to play at a casino.

Their services include making luxury travel and hotel accommodations, providing them with specialized offers at the casino, and even offering credit to gamble with.

Junket operators partner with the casinos and make money by taking commissions on the VIP spending during the trip.

Similar services exist in the US, however they are much more regulated.

But in places like Macau, the government only recently started to regulate them.

Junkets are the reason Macau has such a dominant VIP player base, but are also part of the reason why it's declining.

Their history of money laundering and questionable debt collection practices have caused China's government to crack down on the operations.

Macau is now seeing many of these operators move to less regulated countries.

One thing that's common across all modern casinos is the addition of high-end amenities and a variety of things to do besides gaming.

Casinos can no longer rely on gaming revenues alone, and must have non-gaming offerings to not only attract the non-gaming customer, but to also entice potential players and retain current players.

There must be options for the mass-market customers as well as high-end options for VIP customers.

Casinos would not be able to afford giving complimentary tickets to A-list shows or meals at Michelin-starred restaurants to mass-market players, and VIP players will not be motivated to play at a casino that only offers a buffet and some small shows.

As competition within a market increases, casino revenues decline, and operators have to substitute revenue with other sources like non-gaming offerings.

In markets where there is growth in tourism, like Singapore, it's necessary to have non-gaming offerings because it's a destination resort to most customers, not a casino.

This reverse in revenue sources can be seen in Western markets, and the beginning of it can now be seen in Asian markets.

Las Vegas gaming revenues, for example, have been declining since the 90s, while non-gaming revenues have been increasing at a similar pace.

In 1999, non-gaming revenues surpassed gaming for the first time, and since then it's been the dominant revenue source.

The goal for many Western casino operators now is not to attract a certain type of player, but a large volume of players.

Not only to get them to gamble, but spend as much money as possible at the stores, restaurants, and hotels the casino offers.

This is the model Las Vegas Sands applied in Macau and Singapore, and it worked extremely well.

They saw opportunity in Asia's mass gaming market and tourism market, while other By leading in things like hotel inventory, retail space, convention space, and entertainment venues, Las Vegas Sands attracted a tourist-type customer.

As a result, their Macau revenue mix consists of 70% gaming and 30% non-gaming, with most of their gaming revenue coming from mass market customers.

Their Singapore revenues are similar, but it's easy to see how different the type of customer is with slot revenue being much higher.

MGM, a company that doesn't focus as much on non-gaming revenue as Sands, generates 90% of their Macau revenue from gaming, and only 10% from non-gaming.

MGM is a company with a lot of US operations though.

The revenues from their Vegas properties are non-gaming dominant, which is what you would expect from the Vegas market.

However, their regional operations around the country generate 70% of their revenue from gaming.

This is because Vegas was designed as a destination to attract tourists, which over time turned into non-gaming customers.

In areas where casinos are less concentrated and there is no reason for domestic or international customers to travel there, there will likely be a more dominant gaming market.

These patterns are not unique to the US markets, but are also happening around the world.

The operators in Asian countries can be seen responding to these patterns today.

SGM, one of the original Macau casino operators, has recently finished construction on their latest development, the Grand Lisboa Palace.

This is SGM's entrance into the non-gaming world, with the 520,000 square foot palace offering 2,000 hotel rooms, multiple Michelin-starred restaurants, luxury retail shops, and 300,000 square feet of gaming floor space.

This is their response to the declining VIP market, and marks their transition from being heavily reliant on gaming to a diversified tourism and hospitality business.

Las Vegas Sands is expanding its Singapore operations to accommodate for the country's continued growth in tourism and visitation.

The company is investing $4.5 billion to expand its Marina Bay Sands by adding a fourth tower and a 15,000 seat arena.

This would solve their issue of not being able to fully accommodate their current demand while preparing for the rapid growth of Singapore's tourism industry.

The business of casinos has gone through major changes over the years, but operators have managed to stay successful by adapting.

The business is also not completely tangible, as so much of it now lies in the experience customers have, whether they're a non-gaming tourist or a high roller.

Some people will have different preferences in terms of atmosphere, style, and what the casino resort offers.

 At the same time, the business models of casinos can be easily replicated and applied to markets across the globe, yet they all share complexities in terms of operations and mathematics that this video only scratched the surface of.