For this answer, we turned to our favorite pseudonymous casino executive, Arnie Rothstein. He says:
Oh, let me count the ways. Casinos lose money from a veritable cornucopia of means and angles. Here are some of the more common problems, in no particular order.
Theft, Inside Internal theft costs the casino millions of dollars a year. Internal theft can be anything from employees stealing (food, toilet paper, casino chips, cash, pillows, towels, etc.) and a bartender overpouring alcohol to a floorperson overcomping players and a dice dealer overpaying.
Theft, Outside Outside theft and threats thereof come in many shapes and sizes. Some casinos get royally whacked by suppliers who sell them stuff they don't need, bill them for stuff they don't get, overcharge them for stuff they do get, and double-charge them by resubmitting invoices. One time at a casino where I worked, a first-aid supply house had hung first-aid kits all around the casino. Periodically, they "resupplied" the kits and billed us for it. I remember one kit in particular had been hung in a basement storage room that was once accessible, but had long since been relegated to storing only odd-sized out-of-use air filters and was now always locked up. Long story short, in one month, without any reported accidents, we were billed $12,800 to restock first-aid kits, at least one of which wasn't even accessible.
Theft, Inside and Outside Cheating at gaming is still a concern and it does happen. One of the big problems for casinos is collusion play, where a dealer and a player are friends or roommates and the dealer slowly "dumps" the game to his roommate (overpays, pushes or pays losing hands, etc.), so that they can pay their rent, their car payments, their drug dealers, and so on.
Management Mistakes This alone can drive a casino, not unlike any commercial enterprise, into bankruptcy. The examples are far too numerous to describe, but they cover a vast litany of losses for the casino. Some are big, but most are silly little mistakes that cost a casino $10,000 here and $50,000 there -- and that type of mistake happens all the time.
Player Promotions This is one of my favorites. Player promos can be a good thing or a really really bad thing. For instance, the insurance bet at blackjack started out as a promo bet (a bored floorperson working the graveyard shift came up with the insurance bet trying to liven up his last open table. He said, "I'll bet you the house has an ace under that ten." The rest is history). That was an example of a good thing (for the house). Now, the bad thing. One Strip casino offered a 2-1 payoff on any natural blackjacks (instead of 3-2). This went south in less than 24 hours. It cost the casino a pretty penny and a few people their jobs.
The fact is, the players are usually much better mathematicians than the casino. I can't even count the times that a casino offered a promotion (dreamed up by some marketing type) that cost it a ton in losses when the players figured out how to exploit it. And it's not just the money that's lost. When the casino finally wakes up from its promotion dream, realizes what's going on, and kills it, it not only looks dumb, but it creates all kinds of ill will from the players who didn't get a shot at the juicy promo. Then they stop coming and the casino loses more money.
Whale Harvesting The expense of catering to -- and fading the action of -- a single whale can drive a smaller casino under and impact a larger casino’s quarterly earnings. Read Whale Hunt in the Desert by Deke Castleman for a graphic description of show-up money, discounts on losses, shopping sprees, gifts, penthouses, butlers, private chefs, entourages, gold-plated lobster shells, cases of Dom Perignon, host commissions and performance bonuses, and on and on. It all adds up to a pretty penny and then, if the whale pops a nice win, it’s all for nothing.
Comps And then there are all the comps and rewards for everyday players. You’ve got cashback; bounce-back cash; players club sign-up deals (one that’s popular right now is a $100 rebate on the first $100 you lose at the slots; this means the casino has to win the money twice); comped rooms, food, entertainment, transportation; and free stuff, from keychains to cars, from T-shirts to leather jackets. It all adds up to billions a year.
Loss Leaders The Las Vegas Advisor has made a career of pointing members to the best meal deals, entertainment values, etc., in Bargain City. Consider free drinks alone; I mean, think for a moment how much free alcohol is consumed by casino patrons a year in Las Vegas (the cocktail waitresses pocket the tokes for those). Now think about the bargain ham-n-eggs and steak-n-eggs and steaks and prime rib and shrimp cocktails and lobster and crab legs. Now throw in the buffets. All are money losers for the casino.
Employee Attitude Disgruntled employees with bad attitudes cost the casino real money. Believe me, I’ve heard it all, from change booth attendants throwing change at customers to cocktail waitresses splashing drinks into players’ faces. If people don't feel welcome on their first visit, they won't come back. In fact, if they don't feel appreciated after their 1,000th visit, they won't come back. And a reduction in floor traffic can close a casino quicker than anything else. The frontline employees are extremely valuable, yet underappreciated, casino assets. I guess the old saying, "What comes around goes around," is true.
Payroll and Benefits Same as any business, the casino has to pay its employees’ salaries and benefits. It has uniform (leasing and cleaning) expenses. Most casinos also supply one free meal a day to its employees. Then there are the expenses of training, matching taxes, human resources, and I’ve already covered inside theft. And remember, the big casinos have thousands of employees.
Lack of Theoretical Some players come into the casino, wager a large sum, win, and leave. The casino’s edge, the house advantage, is based on the long run. Yes, they do have an advantage, but it has to be grinded out over a long period of time. Otherwise, the casino would hurry up and close after beating any customer. The casino’s winnings are, in other words, "theoretical." This means that in theory, the casino should win a certain percentage of every dollar wagered in the long run, and it usually does. But you can’t base the possible theoretical gain off of a player who only makes only one wager (and often with a coupon, which gives the player a huge edge).
Cost of Doing Business The casino pays a tax on every table game and every slot machine in the house. There’s also a room tax, an entertainment tax, an employee tax, an income tax, and that’s just the beginning. There’s a "music" tax for every chair or stool that can be sat on while listening to an artists’ recorded works. The casinos have to pay royalties to game designers to offer certain games, such as Casino War and multi-play video poker machines; they also have to buy/rent shuffle machines, cards, dice, etc.
And let’s not forget the light bill! I’ve never seen so many people who wonder and worry more about a business’ utilities than a casino’s. All those bright lights! Not to mention, in the middle of the desert, fountains, waterfalls, pirate ships, water-misters running 24/7, dancing waters.
Take the TI sirens show. It cost to build it. It cost again to renovate it. It costs to maintain it. It costs for the actors, the people behind the scenes, the people who clean the area, etc. And it’s performed free to the public five times a night.
How about the cost of money? Debt service is very expensive.
And how about the cost of land? And the cost of construction? And the cost of depreciation? And the cost of media advertising and PR? And the cost of direct mail and all the other marketing?
And then there’s all the competition. Casinos essentially all sell the same product. So they have to outdo and one-up each other, all of which costs money.
So Sue Me And they do (at least they try, all the time). The casino industry is sued more than doctors. Why? Because casinos have millions of dollars laying all over the place, enough booze to float a battleship, security guards running and riding around with loaded guns, people from all over the world walking into each other, big swimming pools filled with millions of gallons of water with semi-naked drunk people passed out in the 115 degree sun-stroke sun -- you get the idea. Casinos are a personal-injury lawyer’s dream come true and an insurance agent’s worst nightmare.
Summary Keep in mind that these are just the ways that come immediately to mind. There are also all kinds of esoteric situations and that’s a whole other story. But just add all the above together and it’s not so unimaginable that a casino can lose money. Many do. Only the best-run casinos don’t.
