Assessing the Profitability of Premium Players

Abstract

High rollers may not mean high profits, particularly when casinos offer financial incentives to attract premium players.

A Qualitative Analysis of Slot Clubs as Drivers of Casino Loyalty

“…Although casinos face elevated costs due to loyalty efforts, it is not clear whether such efforts in fact create loyalty. To make matters worse, Lucas, Kilby, and Santos (2002) demonstrated how the spiraling acquisition costs for premium players (high-rollers) have eroded profit margins to the point of making some customers unprofitable and even creating a players' advantage. In response to that challenge, Harrah's, for one, developed a marketing strategy that does not focus on this high-end market.…”

The Host: A Casino's Best Friend or Worst Enemy?

“…33 A study conducted in 1999 indicates that only 5 percent of the gamblers who gambled in Las Vegas were considered premium players; however, that 5 percent produced 40 percent of the gross gaming win in Las Vegas. 34 A major multiproperty gaming company's independent research suggests that approximately 11 percent of the gaming industry's players are responsible for more than 50 percent of the industry's total revenue. 35 Therefore, even casinos that cater to middle-to-lower wager players with limited amenities pay an enormous amount of attention to catering and retaining their respective premium players.…”

“…40 The number of whales is also uncertain, but the figure ranges from 200 to 350 worldwide, depending on how a study defines a whale. 41 Despite the importance of whales, not all casinos desire to pursue them because the volatility of their play activity may be too risky for the casino to assume. 42 Moreover, only casinos with the most luxurious accommodations and the highest table limits can attract and cater to whales.…”

“…98 A recent phenomenon that resulted from increased competition for premium players is the granting of play incentives, usually in the form of rebates on loss and discounts. 99 "Rebates on loss" started in the early 1980s when casinos started reducing the amount that players owed on their outstanding credit if the players paid within an agreed timeframe. 100 "Discount" is an agreement between the player and the casino that the casino will provide the player an incentive, such as a percentage of the theoretical value the player generates, if the player's gambling activity meets specified criteria.…”

“…101 Usually the casino and player negotiates the terms of the discount before the player initiates play. 102 However, the term discount is somewhat misleading as players do not necessarily need to lose to receive the discount, they just need to gamble to the agreed level. 103 Whether a player wins or loses, the player qualifies for the discount when the player's gambling activity generates the agreed theoretical value.…”