http://www.investors.com/editorial/IBDArticles.asp?artsec=23&issue=20060505
<SCRIPT language=JavaScript><!-- OAS_AD('Middle1');//--></SCRIPT> J. BONASIA
INVESTOR'S BUSINESS DAILY
Posted 5/5/2006
Let's face it — Americans really like to gamble.
Witness the national craze for Texas Hold 'em poker. Or the fact that U.S. commercial casinos raked in $30 billion in gaming revenue last year. That doesn't even count the more than 400 casinos run by American Indian tribes in 28 states.
What's more, racetracks in 11 states have been transformed into "racinos" that feature video poker and slot machines. And the governments of 41 states and the District of Columbia depend on income from state lotteries. Only two states lack some form of legal gambling — Utah and Hawaii.
For casino operators, the growth of gambling and other forms of entertainment is a mixed blessing. It's easier for them to ply their trade, but they also face a lot more competition.
That's forced casino operators to retool their business models over the past decade. They now promote customer loyalty by pampering bettors with fancy amenities and targeted rewards.
To lure more people, Las Vegas and Atlantic City, N.J., have become full-blown destination resorts, says Frank Fahrenkopf, president and chief executive of the American Gaming Association.
The Gulf Coast will try to mimic that approach as it rebuilds from hurricane damage, he says.
"The name of the game has changed dramatically," said Fahrenkopf. "To really succeed, you have to offer a complete entertainment package."
Cheap buffets and free drinks have given way to world-class chefs and five-star restaurants. Top performers, posh spas, lush golf courses and elite shops also are in vogue.
"Today we have to compete for that discretionary income buck against such places as Orlando in Florida, or Broadway," said Tim Wilmott, chief operating officer of Harrah's Entertainment, (HET) the largest casino company.
Of course, the industry's main attraction is still gambling. That's why casinos are embracing newer technologies to extract more value from their operations. That includes the use of server-based gaming and putting radio frequency ID tags inside betting chips. Related Story
A big concern for casinos is the growth of online gaming, which should top $12 billion this year. Just 4% of Americans gamble through offshore Web sites, which are still illegal here. But the issue has become a hot topic for policy debates.
The AGA board has called for a federal study into the pros and cons of online gambling in the U.S.
1. Business
Most Americans view gambling as a valid form of entertainment. In polls, 80% of people say they accept gambling as a pastime for themselves or others. Those who oppose gambling often do so on moral grounds.
The popularity of gambling has created a political quandary for public officials. On the one hand, they desperately need the tax dollars derived from betting. On the other, they face a backlash from some vocal voters who regard gambling as a social blight.
That's created challenges for casinos, says industry analyst Michael Pollock. In a recent edition of his Gaming Industry Observer newsletter, Pollock notes that politicians' "fear of the consequences of this industry, or their personal distaste for it, cause them to drum up policies such as requiring casinos to float, even in an artificial moat, or sail up and down a river, or close on Sunday mornings for church."
Tribal gaming, which operates outside the AGA, could be another threat to traditional casinos. So far, though, the tribes haven't really hurt the commercial firms. Most tribal casinos are located far from the legal gambling centers in Nevada and New Jersey.
And in many cases, the commercial casinos have joined forces with Indians to improve the tribes' operations and technologies, says Fahrenkopf.
"The tribes are not putting the pinch on Vegas," he said.
Riverboat gambling has given the industry another big lift. It's allowed Las Vegas-based casinos to spread into a lot more areas.
Harrah's, for instance, has expanded from four sites in the 1980s to 39 today.
"The effect has been that many people in other parts of the country now see casinos as a good place for entertainment," Wilmott said. "They also recognize the associated benefits to the local economy."
Still, Las Vegas remains the center of it all.
And new enticements are helping draw players from the South and Midwest to Sin City, says Tim Richards, vice president of marketing for Progressive Gaming International. (PGIC)
Based in Las Vegas, Progressive makes gambling machines and electronic systems for player tracking.
"You can cross-market through your other casinos on the Mississippi and invite those people out to Vegas," Richards said. "Maybe you'll give away a free hotel room and food as an incentive."
Name Of The Game: Know your customers, offering them the right mix of enticements. But make sure the house wins at the end of the night.
2. Market
Most gamblers are middle class and fairly well educated. They earn $56,700 per year on average compared with $49,000 for the U.S. population as a whole, according to the latest AGA survey.
Fifty-six percent of gamblers have at least some college education. That compares with 53% for the general population.
High rollers are not the industry's core market, according to Wilmott. The typical Harrah's patron visits a casino once a month, spends a couple hundred dollars and takes in a show or meal, he says.
"They tend to have a more fun-loving, risk-taking profile," Wilmott said. "They take more trips, and they travel overseas. They're people who have more experiences."
3. Climate
The industry has matured a great deal since 1989, when Iowa became the first state to approve riverboat gambling. Many others soon followed.
Each state has taken its own approach to taxing and regulating casinos. Nevada, New Jersey and Mississippi remain the most pro-gambling states, says Fahrenkopf of the AGA.
For that reason, the bulk of future developments will take place in those areas. "For the commercial casino industry, our investments will continue to be in these proven markets," he said.
After years of strong growth, the industry is consolidating. The pace of merger deals has quickened in recent years as the riverboat revolution has cooled off. Harrah's completed five acquisitions from 1998 to 2004.
In 2004, MGM-Mirage (MGM) bought the Mandalay Resort Group for nearly $8 billion.
That was followed last year by the industry's biggest deal ever, when Harrah's bought Caesars Entertainment in a merger valued at $9.2 billion.
4. Technology
Gone are the days of coins rattling into steel trays from winning slot machines. Slots are now high tech, with flashing lights, high-definition graphics and whirring sound effects.
Patrons must purchase ID cards that let casino managers track betting patterns and table winnings. Automated card shufflers use internal cameras to monitor the cards that get dealt at blackjack tables. And radio tags are embedded into chips to reduce cheating on casino floors.
Casinos operators also have adopted an approach called server-based gaming. This allows the games and denominations to be changed remotely over a computer network. No technicians are needed to alter the physical machines.
Harrah's uses software technology to manage its Total Rewards marketing program. The corporate database holds records for 40 million people. Of those, 13 million visited Harrah's casinos in the past two years.
By mining the data, Harrah's can tailor its customer service for gold, platinum and diamond card members. Rewards and benefits are based on a player's spending profile. Most-favored players might get top priority for their slot payouts.
"We focus on our marketing program to better understand our customers and increase their loyalty," Wilmott said. "Our goal is to provide a differentiating experience."
5. Outlook
The U.S. gambling industry projects steady growth in the coming years. More mergers are expected as bigger firms swallow their smaller rivals.
Beyond the U.S., international development is seen as the next big frontier. Parts of Asia and Europe are building new gambling centers to serve as commercial magnets.
One of the hottest spots is Macau, a region that many describe as the future Las Vegas of China. Singapore is also very active.
In Europe, Spain, Britain and the Netherlands offer potential upside as well, says Wilmott.
"Asia and Europe have seen the U.S. model for casinos stimulating tourism and capital investment," he said. "They want to imitate it
<SCRIPT language=JavaScript><!-- OAS_AD('Middle1');//--></SCRIPT> J. BONASIA
INVESTOR'S BUSINESS DAILY
Posted 5/5/2006
Let's face it — Americans really like to gamble.
Witness the national craze for Texas Hold 'em poker. Or the fact that U.S. commercial casinos raked in $30 billion in gaming revenue last year. That doesn't even count the more than 400 casinos run by American Indian tribes in 28 states.
What's more, racetracks in 11 states have been transformed into "racinos" that feature video poker and slot machines. And the governments of 41 states and the District of Columbia depend on income from state lotteries. Only two states lack some form of legal gambling — Utah and Hawaii.
For casino operators, the growth of gambling and other forms of entertainment is a mixed blessing. It's easier for them to ply their trade, but they also face a lot more competition.
That's forced casino operators to retool their business models over the past decade. They now promote customer loyalty by pampering bettors with fancy amenities and targeted rewards.
To lure more people, Las Vegas and Atlantic City, N.J., have become full-blown destination resorts, says Frank Fahrenkopf, president and chief executive of the American Gaming Association.
The Gulf Coast will try to mimic that approach as it rebuilds from hurricane damage, he says.
"The name of the game has changed dramatically," said Fahrenkopf. "To really succeed, you have to offer a complete entertainment package."
Cheap buffets and free drinks have given way to world-class chefs and five-star restaurants. Top performers, posh spas, lush golf courses and elite shops also are in vogue.
"Today we have to compete for that discretionary income buck against such places as Orlando in Florida, or Broadway," said Tim Wilmott, chief operating officer of Harrah's Entertainment, (HET) the largest casino company.
Of course, the industry's main attraction is still gambling. That's why casinos are embracing newer technologies to extract more value from their operations. That includes the use of server-based gaming and putting radio frequency ID tags inside betting chips. Related Story
A big concern for casinos is the growth of online gaming, which should top $12 billion this year. Just 4% of Americans gamble through offshore Web sites, which are still illegal here. But the issue has become a hot topic for policy debates.
The AGA board has called for a federal study into the pros and cons of online gambling in the U.S.
1. Business
Most Americans view gambling as a valid form of entertainment. In polls, 80% of people say they accept gambling as a pastime for themselves or others. Those who oppose gambling often do so on moral grounds.
The popularity of gambling has created a political quandary for public officials. On the one hand, they desperately need the tax dollars derived from betting. On the other, they face a backlash from some vocal voters who regard gambling as a social blight.
That's created challenges for casinos, says industry analyst Michael Pollock. In a recent edition of his Gaming Industry Observer newsletter, Pollock notes that politicians' "fear of the consequences of this industry, or their personal distaste for it, cause them to drum up policies such as requiring casinos to float, even in an artificial moat, or sail up and down a river, or close on Sunday mornings for church."
Tribal gaming, which operates outside the AGA, could be another threat to traditional casinos. So far, though, the tribes haven't really hurt the commercial firms. Most tribal casinos are located far from the legal gambling centers in Nevada and New Jersey.
And in many cases, the commercial casinos have joined forces with Indians to improve the tribes' operations and technologies, says Fahrenkopf.
"The tribes are not putting the pinch on Vegas," he said.
Riverboat gambling has given the industry another big lift. It's allowed Las Vegas-based casinos to spread into a lot more areas.
Harrah's, for instance, has expanded from four sites in the 1980s to 39 today.
"The effect has been that many people in other parts of the country now see casinos as a good place for entertainment," Wilmott said. "They also recognize the associated benefits to the local economy."
Still, Las Vegas remains the center of it all.
And new enticements are helping draw players from the South and Midwest to Sin City, says Tim Richards, vice president of marketing for Progressive Gaming International. (PGIC)
Based in Las Vegas, Progressive makes gambling machines and electronic systems for player tracking.
"You can cross-market through your other casinos on the Mississippi and invite those people out to Vegas," Richards said. "Maybe you'll give away a free hotel room and food as an incentive."
Name Of The Game: Know your customers, offering them the right mix of enticements. But make sure the house wins at the end of the night.
2. Market
Most gamblers are middle class and fairly well educated. They earn $56,700 per year on average compared with $49,000 for the U.S. population as a whole, according to the latest AGA survey.
Fifty-six percent of gamblers have at least some college education. That compares with 53% for the general population.
High rollers are not the industry's core market, according to Wilmott. The typical Harrah's patron visits a casino once a month, spends a couple hundred dollars and takes in a show or meal, he says.
"They tend to have a more fun-loving, risk-taking profile," Wilmott said. "They take more trips, and they travel overseas. They're people who have more experiences."
3. Climate
The industry has matured a great deal since 1989, when Iowa became the first state to approve riverboat gambling. Many others soon followed.
Each state has taken its own approach to taxing and regulating casinos. Nevada, New Jersey and Mississippi remain the most pro-gambling states, says Fahrenkopf of the AGA.
For that reason, the bulk of future developments will take place in those areas. "For the commercial casino industry, our investments will continue to be in these proven markets," he said.
After years of strong growth, the industry is consolidating. The pace of merger deals has quickened in recent years as the riverboat revolution has cooled off. Harrah's completed five acquisitions from 1998 to 2004.
In 2004, MGM-Mirage (MGM) bought the Mandalay Resort Group for nearly $8 billion.
That was followed last year by the industry's biggest deal ever, when Harrah's bought Caesars Entertainment in a merger valued at $9.2 billion.
4. Technology
Gone are the days of coins rattling into steel trays from winning slot machines. Slots are now high tech, with flashing lights, high-definition graphics and whirring sound effects.
Patrons must purchase ID cards that let casino managers track betting patterns and table winnings. Automated card shufflers use internal cameras to monitor the cards that get dealt at blackjack tables. And radio tags are embedded into chips to reduce cheating on casino floors.
Casinos operators also have adopted an approach called server-based gaming. This allows the games and denominations to be changed remotely over a computer network. No technicians are needed to alter the physical machines.
Harrah's uses software technology to manage its Total Rewards marketing program. The corporate database holds records for 40 million people. Of those, 13 million visited Harrah's casinos in the past two years.
By mining the data, Harrah's can tailor its customer service for gold, platinum and diamond card members. Rewards and benefits are based on a player's spending profile. Most-favored players might get top priority for their slot payouts.
"We focus on our marketing program to better understand our customers and increase their loyalty," Wilmott said. "Our goal is to provide a differentiating experience."
5. Outlook
The U.S. gambling industry projects steady growth in the coming years. More mergers are expected as bigger firms swallow their smaller rivals.
Beyond the U.S., international development is seen as the next big frontier. Parts of Asia and Europe are building new gambling centers to serve as commercial magnets.
One of the hottest spots is Macau, a region that many describe as the future Las Vegas of China. Singapore is also very active.
In Europe, Spain, Britain and the Netherlands offer potential upside as well, says Wilmott.
"Asia and Europe have seen the U.S. model for casinos stimulating tourism and capital investment," he said. "They want to imitate it
