Per square foot, what part of the casino makes the most profit?
With slot machines taking up less and less space per unit on casino floors (the shrinking footprint equals more machines), the easy answer would seem to be “slots.”
Clyde Barrow, chairman of the Department of Political Science at the University of Texas-Rio Grande Valley and an oft-quoted expert on casinos writes, “Historically, the slot department has been the most profitable operation in any casino, although the payout rates in Las Vegas were typically higher -- 95%-99% -- compared to 89%-93% for local and regional casinos. Therefore, the profit rate on slots was lower in Las Vegas than in local and regional casinos, which typically enjoyed a monopoly on convenience. What Las Vegas casinos lost in profit rate, they made up for in volume.”
That gets us to the crux of the question: profit versus revenue. For instance, the most critical area in a Las Vegas casino is the baccarat room, where the casino can win or lose fortunes over a weekend or even in a session, often depending on the good or bad luck of a single high roller.
David G. Schwartz, director of the Institute for Gaming Research at the University of Nevada-Las Vegas, says the profit/revenue question “doesn't factor in expenses, which is a whole other barrel of fun. A bacc table makes much more than a roulette table, but has much higher overhead (dealers, plus maintaining bacc players).”
Casinos routinely discuss revenue, but generally refrain from discussing profit, except in the most general terms. An Institute for Gaming Research abstract showed slot machines steadily ramping up their win percentage over a 17-year period, from 5.23% in 2000 to 6.65% in 2016 (numbers for 2017 are not yet available). Table games had a much higher win percentage, but also a more volatile one, swinging between 15.12% (2002) and 11.7% (2010). Except for an aberrant 2006 when sportsbooks won 7.89% of the betting handle, they've hovered in the 6.58% (2003) and 4.86% (2016) spectrum.
Boyd Gaming spokesman David Strow throws in another complication. “It depends largely on the tax rates charged by the casino’s jurisdiction.” For instance, MGM National Harbor in Maryland earns roughly $50 million a month, evenly divided between slots and tables, but slots are taxed at 60% and tables at only 20%. Hence, National Harbor stands to make much more off its tables, even if they are more volatile and labor-intensive.
“In higher gaming tax jurisdictions (think 30%+), the property’s non-gaming amenities can often be more profitable than casino operations, simply because they have a lower tax rate than the gaming operations. That’s not to say that non-gaming accounts for more revenue overall, but the non-gaming revenue can have higher profit margins under those circumstances,” writes Strow.
“Typically, hotel rooms are the most profitable non-gaming amenity, but this depends entirely on occupancy and rates. If you aren’t able to fill hotel rooms, the profitability drops quickly (as there's a fixed cost associated with each room, regardless of whether you fill it or what rate you get for it). And as far as the casino floor goes, again, not really a single standard response there.” He adds, “Table games are theoretically more profitable, but slots are more consistent (and still account for more overall revenue).”
Barrow says, “As slots machines (and table games) have proliferated across the United States, the large Las Vegas casinos have shifted their focus from gambling to non-gambling amenities and entertainment. They now generate 50% to 70% of their revenues from hotels, bars and restaurants, conventions, weddings, and entertainment venues.
“Thus, the profit center for the large Las Vegas casinos is shifting from slots to non-gambling sources of revenue and that is why you will continue to see those casinos keep raising prices on drinks, hotel rooms, parking, and live entertainment, while scaling back on comps, such as free parking, free drinks, free rooms, and free tickets to shows.” (Tell us about it.)
“Las Vegas is now about high-end entertainment options, while local and regional casinos remain focused primarily on slot machines, which still account for about 70% of their gross revenues and an even higher percentage of their profits,” concludes Barrow.
In the end, it depends not only on the tax rate, but also on the maturity of the gaming market in question. Safe to say a casino in Mississippi is making a lot more off slots than one in Las Vegas, while a casino in Las Vegas is making a lot more off its nightclub than one in Mississippi.
