Casinos Changing Their Business Model

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Tuesday, April 11th, 2017 | Written by Shane Larson

In the 1970s, casinos really existed for one reason–gambling. Fast forward to 2017 and what a casino is has drastically changed. Resort casinos now boast world-class dining establishments, entertainment from A-list stars, luxury accommodations, five-star spas and even roller coasters and amusement park rides. Let’s take a look at some of the key features of the casino industry as it stands in 2017.

– Moving Beyond Perks. Previously, casinos tried to gain the edge on their competition by offering better perks to frequent players. They would give away bonuses to encourage players to choose their casinos over the nearest competitors. As the industry has grown and gamblers have had more options to choose from, this model has proven far too costly, and operators have now shifted away from trying to undercut one another with promotions, inexpensive rooms and wasteful buffets.

– Redefining the Casino Experience. Casinos are increasingly striving to become world-class resorts, places where people can enjoy incredible food, lavish accommodations and entertainment beyond the gambling floor. Gone are the days of catering to individuals looking to have a cheap vacation experience, and these days casinos are reshaping the casino experience as a pampering, luxurious vacation.

– Focusing on Other Revenue Streams. Gambling now amounts to only a part of the profits generated at casinos, and in Las Vegas gaming revenues have actually decreased significantly since 2007, shrinking by $600 million. Room revenues have increased by $800 million, though, more than making up for the loss of profits. Casinos have therefore discovered that by improving amenities and achieving four and five-star status they can bring in more income than they can by cramming more slot machines onto the casino floor.

– Changes in Perception. The new casino experience is having a positive effect on more than just casino profits. As casinos become more than just meccas for gambling, much of the stigma surrounding gaming is vanishing, and more and more people are starting to view casino gambling legalization and expansion in a positive light. Not only do casinos now provide entertainment for non-gamblers and families with children, but they also give thousands of people jobs and strengthen the overall economy.

– New Ways of Regulating. Massachusetts may be late to enter the legal casino market, but the state’s groundbreaking regulations could end up becoming the gold standard for the future. In Massachusetts, lawmakers have required casino operators to pledge a minimum financial investment in their proposals to build new casinos. Not only do the proposals have to be approved by the state’s gambling regulator, but elected officials in the area where the casino is proposed to be built and local voters also get to weigh in on developments.

The winning casino is then given exclusivity in the area, making them invested in the success of the community rather than just focused on obliterating the competition. Other key differences between Massachusetts laws and other states’ laws include full non-smoking facilities, and mandatory use of a problem gaming system called GameSense. Should more states follow in the footsteps of Massachusetts, the view of the casino industry would undoubtedly become even more positive.

Nevada Returns to Profit in 2016

Helping to the illustrate the success of the casino model being employed by the industry is the fact the USA’s biggest gambling market, Nevada, returned to profit in fiscal 2016 for the first time in eight years. Furthermore, it wasn’t gambling that allowed the Silver State to turn a profit, but room rentals and fees. In fact, hotel room rentals on the Las Vegas Strip now account for 28.12 percent of its revenues, compared to 16.10 percent back in 1984.

Meanwhile, gambling currently accounts for 34.2 percent of the Strip’s revenues, versus 58 percent in 1990, and commenting on the dramatic turn around in focus, Michael Lawton, analyst for the Nevada Gaming Control Board, said that while it has been a “long road” to return to a positive net income, the recent result was a hugely significant as it came across all areas of the board. Looking further ahead, David Schwartz from the University of Nevada, Las Vegas (UNLV) has said that that “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.”