PROMOTIONAL CREDITS AND SALARY CAP BASICS

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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.

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