Question of the Day - 27 June 2024

Well, this is a business question, but since we've been observing casinos for decades, we can take it on with some confidence. Here are a few of the more common problems, in no particular order.

One way that casinos lose money is theft and it can come from many different angles. Internal theft, such as pilfering of everything from toilet paper and casino chips to bartenders overpouring alcohol and floorpeople overcomping players, are the usual culprits.

Outside theft also comes from all directions. Some casinos get 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. 

Inside/outside theft isn't uncommon via collusion between a dealer and a player, where the dealer gradually "dumps" the game to his confederate (overpays, pushes, or pays losing hands, etc.).

Management mistakes can cost any business a lot of money, but casinos in particular. These alone can drive a casino into bankruptcy.

A big one is player promotions gone wrong. Fact is, the players are usually better mathematicians than the casino. We can't 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. One of our favorites was a casino that offered a 2-1 payoff on any natural blackjacks. This went south in less than 24 hours. It cost the casino a pretty penny and a few people their jobs.

And it's not just the money that's lost. When the casino eventually wakes up from its promotion dream, realizes what's going on, and kills it, it not only looks clueless, but it creates all kinds of ill will from the players who didn't get a shot at the juiciness. Then they stop coming and the casino loses more money.

Then there are all the comps and rewards for everyday players. You’ve got free play, cashback, bounce-back cash, players club sign-up deals, comped rooms, food, entertainment, transportation, and free stuff, from keychains to cars, from T-shirts to leather jackets. It all adds up to millions, probably even billions, a year.

Of course, 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. For graphic descriptions 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, read Whale Hunt in the Desert. It all adds up to a lot of money and then, if the whale pops a nice win, it’s all for nothing.

Loss leaders ain't cheap. Here at LVA, we've made a career of pointing people to them, especially in our Top Ten Values. Just consider all the free drinks -- yikes! 

Same as all businesses, the payroll is usually the biggest expense. Then add in the expenses of training, matching taxes, human resources, uniforms (leasing and cleaning), free meals, vacations, and on and on. And forget about it if a casino has disgruntled employees for some reason. If people don't feel welcome on their first visit, they won't come back. Heck, if they don't feel appreciated on their 1,000th visit, they won't come back. And a reduction in floor traffic can close a casino quicker than anything else.

Then there's the gambling. The house decidedly doesn't always win. Advantage players can do real damage. So can lack of theoretical. The casino’s edge is based on the long run. Anything can happen in the short. Some players go to the casino, wager a large sum, win, and leave. Sometimes the fluctuations turn against the casino; this happened, actually, to Caesars in the first quarter of this year. 

And then there’s the competition. Casinos essentially all sell the same product. So they have to outdo and one-up one another, all of which costs money.

And how about the cost of that money? Debt service is very expensive. And you wouldn't believe how in debt most casinos are.

How about all the lawsuits? The casino industry is sued more than doctors. Why? Because casinos have millions of dollars lying 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.

Again like any everywhere else, there's the 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, entertainment tax, employee taxes, income tax. The casinos have to pay royalties to game designers to offer certain games; they also have to buy/rent shuffle machines, cards, dice, etc. And that’s just the beginning.

Because let’s not forget the light bill! Here at QoD, we'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, water-misters running 24/7, dancing waters.

And don't get us started on the costs of media advertising and PR, direct mail and all the other marketing efforts, capital expenditures, the cost of land, the cost of construction, the cost of depreciation, the cost of staying up to date with technology. Casinos, even the biggest ones as we saw last year, are vulnerable to hacking, social engineering, and costly ransomware. 

And these are all 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 the above together and it’s not so unimaginable that a casino can lose money. And if loses enough, like your small joint up in Washington, it will go out of business.