MGM Did What?

MGM is one of the three main flagship conglomerates that make up Las Vegas.  Caesars Entertainment and Station Casinos are the other two.  The recent acquisition of the two Cannery properties and, the Aliante in North Las Vegas by Boyd Gaming , also puts them squarely in competition for the most expansive corporation in Las Vegas.

Normally, when competition exists, competing factions will attempt to lure customers to their products with value based propositions.  But MGM like other major strip properties have gone in a different direction by grabbing every dollar from their guest and players that they can. Why?  Simply stated: because they can.

Recently MGM started charging guest to park their cars in their parking lots.  Not to valet their cars but to park their cars in their parking lot and walk to the casino. This is both amazing and preposterous at the same time.  While it’s true that some of the top tier M Life Players Club card holders will have this parking fee waved, the vast majority of their guest, and believe me I use this term loosely, will have to fork over more and more dollars for the same experience, which by definition is decreasing value to their customers.

This is a surprising but not completely unexpected action by MGM. I believe this to be the result of Las Vegas’ falling revenues, coupled with the massive hit taken by MGM on the City Center project.  However, MGM still has some redeeming qualities on their gaming floor.  They are one of the few properties in the US that offers a single zero Roulette game.

Professional Gambler Frank Scoblete is a widely published casino gaming authority as stated by the Washington Post.  He says “reducing the house edge as much as possible is the first step taken when trying to achieve a winning strategy in any casino game.”  In a roulette strategy guide that Frank authored for 888casino he essentially  says from a probabilities stand point online roulette is very similar to live casino roulette in so far as playing a single zero roulette wheel is always preferred to a wheel with both a single zero and a double zero slot.  This cuts the house advantage in half from 5.3% to 2.7%.”  

MGM has one of the best Double Deck Blackjack game in Nevada in both penetration and rules. The only down side to these quality games is that they have higher minimum bets than normally seen on Las Vegas gaming floors.

With the gaining momentum for the legalization of internet gaming at the national level by the US congress, as well as the online gaming revolution in most foreign countries and in few US states like Nevada, it would make all the sense in the world to offer the player extended value for their play and give them a reason to return to a property.

But year after year the casinos find new and cleaver ways to extract more and more dollars from Las Vegas visitors. When the economy was booming, like in the years prior to the 2008 housing collapse, the casino introduced the infamous low denomination penny and nickel slot machines.  Ironically these machines raised the average wager of a player from a 3 coin quarter machine at 75 cents a pull to the 90 cent wager of an 18 line nickel machine.  And since it is standard practice for a slot machines hold percentage to go up as the wager denomination goes down, players were betting more money at a decreased win rate.  Not exactly a positive experience for players. But because the money was flowing continuously, thanks to our friends at the Federal Reserve and credit rating agencies no one really noticed.

Toward the end of 2008 when the housing crisis was in full throttle, the consequences of the penny and nickel slot initiatives were very noticeable.  Las Vegas room occupancy rates fractioned and casinos began feeling the financial strain. To prevent a bankruptcy MGM had to partner with Dubai to offset the multibillion dollar loss incurred by the Las Vegas City Center Project.  Around this time many casino properties adopted a resort fee in attempt to increase revenue.  It worked in the short term, but as usual the player got the short end of the stick, and ultimately occupancy rates dropped even further.

As financial hard times carried on play rates at casinos began to sour.  Most of the major casinos began drastically reducing comps that they were offering to their low end slot players, as well as ratcheting the payout percentages on their high traffic slot games.   It’s clear that continuously garnishing dollars from players is not without precedents.

The increase amount wagered on slot machines coupled with the reduced value initiatives were more than the players were willing to tolerate over time.  And because Locals casinos like other businesses are generally governed by the 80/20 rule, meaning 80% of the revenue from 20% of a player base, the profits from the recurring players started drying up.  In fiscal year 2015 Nevada casinos had their best year in a long while by only managing to lose approximately $662 million.   Believe it or not this is a vast improvement over previous years. Given the data it’s clear what the results of most Nevada casinos policies were.

A plausible reason for their refusal to change is that Las Vegas boasts a 25 million person a year visitor rate.  Many of them are once or thrice a year visitors, so the 80/20 rule does not apply for the 12 or so major casinos on the strip. They rely on high turnover rates and a naïve customer base to drive their gaming profits.  This crystallizes the reasoning why 2/3 of their revenue is derived from non gaming sources, like shows, shopping and food.  As it stands now, there is no incentive for these properties to rely on repeat customers for their gaming revenues because they don’t need it.  However, in local market casinos, like the South Point Casino just south of the strip and The Orleans , just west of the strip on Tropicana Ave, local players are these casinos life blood.

The profits that local casinos like South Point and The Orleans show is much better than then those at the main strip property counter parts.  Why? The main reason is because these properties treat players well and give value to their players for their play.  In addition to having loose slot machines these properties offer their players good food at a low cost.

The Barona Casino in San Diego has embraced this player centric philosophy and has long been the envy of gaming resorts across America. It is one of the very few gaming operations that has shown consistent year-to-year growth and extraordinary financial success over the past decade; Barona has achieved its unprecedented success by employing a very simple strategy: Give players what they want, while they play. By providing unprecedented “time on device” (that defies industry standards), offering the loosest slot machines and loosest table games possible, issuing loose comps and then feeding players while they gamble, Barona has developed unparalleled Player Loyalty that continues to make them the dominant gaming operation in the San Diego market.

Some casinos want to take as much of your money as fast as they can, while others will play the long game, and get more of your money over time.  And as the saying goes you can shear a sheep a hundred times but you can only skin them once. Most senior executives are only with companies for a few years.  CEOs and CFOs in particularly rarely consider the fourth dimension (time) and look for every opportunity to immediately cut cost and increase revenue.  In gaming this usually happens at the expense of future profits.  So MGM continue charging parking.  Maybe it will become a standard practice, maybe it won’t. But it’s a losing proposition for the customer and an even bigger loss for the gaming industry as a whole.