Analysis of the American Casino Industry

American Casino Industry 1 Cover Page Analysis of the American Casino Industry High Rollers SOM 122, Section M008 December 8, 2000 American Casino Industry 2 Executive Summary The most important technological change for the casino industry has been the introduction of online casinos. Many existing casino companies view such sites as a threat, but, because the legality of online casino sites has not been completely determined yet, it is recommended that existing casinos create their own virtual casinos in order to compete in the relatively new market. Another technological change, the integration of advanced computer systems into slot machines, has shown promising results. These computer systems provide marketing research on individual customers and should be partnered with tracking devices, such as "frequent gambling cards." With regard to resource availability, casino operators are having a difficult time staffing their casinos in today's tight labor market. The availability of employees should be a major concern when considering new markets. Existing casinos in competitive environments should offer appropriate benefits to attract employees. The industry has done a relatively good job in the field of public perception and, specifically, society's view on compulsive gambling. However, the results of a national commission study on the effects of casinos on America, due out very soon, could have devastating consequences to the industry. The American Gambling Association should be ready to use the media in an attempt to soften the image of casinos. The results of this study will affect the number of state gambling licenses issued. These licenses are the industry's most critical resource, besides capital, and allow for expansion into new markets. A greater number of effective governmental lobbyists should be employed to combat and move towards restriction. The three largest companies in the industry are Park Place Entertainment, Harrah's Entertainment, and Mirage Entertainment. It is predicted that these companies will maintain their industry leadership position into the next two to four years. When considering expansion, casino companies such as these need to recognize the intense competition that exists in many areas and also recognize markets that are already saturated, such as Las Vegas. Companies should also consider expanding globally into new and developing markets with business-friendly governments American Casino Industry 3 and legal systems. American Casino Industry 4 Table of Contents Cover Page.....................................................................................................................................................................1 Executive Summary .......................................................................................................................................................2 Table of Contents...........................................................................................................................................................4 Introduction ...................................................................................................................................................................5 History ...........................................................................................................................................................................6 Analyzing Industry Forces ........................................................................................................................................... 11 Competitive Structure .................................................................................................................................................. 24 Evaluating Marketing Practices ................................................................................................................................... 41 Industry-Wide Threats and Opportunities ................................................................................................................... 49 Recommending Strategic Changes .............................................................................................................................. 58 Conclusion ................................................................................................................................................................... 64 References ................................................................................................................................................................... 65 American Casino Industry 5 Introduction The U.S. casino industry has had an intriguing history of development. Land casinos, both stateregulated and Native American, and Internet-based casinos have constantly changed due to factors such as history, industry forces, competitive structure, marketing practices, threats and opportunities, and strategic changes. Industry forces are important to identify, because they are the engines of the industry, while consumers are the fuel. Industry forces are those that drive the industry forward. Taking advantage of the benefits from technology, resource availability, socioeconomic trends, government actions, and customer needs and actions will help casinos thrive in the competitive environment that exists. The competitive structure of the American casino industry is very complex. Competition takes place not only between individual casinos, but also between industry leaders, land casinos, and virtual casinos. The complexity of the competitive structure creates intense competition and thus a need for creative marketing. In order to sustain a high level of growth, the casino industry needs to attract consumers through effective marketing. Using product, price, place, and promotion, the industry has continually worked to create the theme of mass customization. Marketing can head off threats and may help utilize opportunities. Sources of threats and opportunities often coincide. The economy, governments, and technology are three examples of sources that are both opportunities and threats. The analysis of the threats and opportunities present in the casino industry is a basis for the recommendation of strategic changes. The recommendation of such strategic changes is what will allow the casino industry to continue thriving in America. The analysis of history, industry forces, competitive structure, marketing practices, threats and opportunities, and the recommendation of strategic changes of the American casino industry are all vital to any expert in the industry. American Casino Industry 6 History Casinos were first developed in the United States during the colonial days. The card games and games of chance that were played in the back rooms of New England taverns reflected the fact that gambling had already become a social leisure. After the Civil War, state governments created lotteries as a source of revenue. As western expansion occurred, taverns and casinos became popular. Due to its riverboat casinos, Louisiana became the first state known for gambling (www.uwm.com, 2000). As people continued to expand westward, gambling occurred in most growing metropolitan areas. As a result, local governments found it fitting to establish laws and regulations in the best interest of the citizens as well as politicians. Consequently, gamblers continued to move further on westward. At the end of the 19th century, gambling was legalized in Arizona, Colorado, Idaho, Minnesota, Montana, Nevada, and New Mexico (Peterson, 1951). In 1931, the state of Nevada passed a law legalizing gambling, which has never since been repealed. Although, , in hopes of tax revenues and reducing political corruption, it has been amended many times (Peterson, 1951). Then in 1935, Harold's Club opened in Reno, Nevada. In 1937, Bill Harrah also opened his first club in Reno. This club was the first to attract large numbers of out-of-state patrons. Harold and Harrah‟s casinos are viewed as the first successes in the history of the American www.casinohistory.com A 1920‟s casino gaming industry, and they encouraged the development of similar private and public casinos in Nevada. At this time, Reno, Nevada, was the center of the casino industry (http://www.uwm.com, 2000). Legal gaming in Nevada underwent a major transformation during World War II. Air conditioning and the growing popularity of the automobile in the early 1940s caused an explosive growth of Nevada‟s gaming industry. The cool casino breezes made the blast furnace heat of a Southern Nevada summer almost tolerable. In addition, the automobile transformed Las Vegas into a weekend playground American Casino Industry 7 for gamblers from Southern California. Regional airlines began flights to Las Vegas, providing yet another boost to the state‟s tourist trade (http://www.ci.las-vegas.nv.us/history.html, No Date). Las Vegas‟s population tripled from 1941 to 1945. Downtown Las Vegas boomed with new casinos, as a new era of gaming in Nevada began. In the 1940s, large casinos were established in Southern Nevada, the most popular being El Rancho Las Vegas, Last Frontier, Flamingo, and El Cortez. These hotel-casinos were only the beginning of the growth that followed in the city of Las Vegas. Casinos were built throughout the state of Nevada. However, along with the great growth of the economy, casinos also brought a great deal of crime (http://www.uwm.com, 2000). The most infamous mobster to enter Nevada was the handsome and wealthy Benjamin Siegel, a member of the New York crime syndicate, "Murder, Inc." Siegel was known by the nickname "Bugsy," a hot-tempered gangster detested by many. Siegel had Bugsy amassed a considerable fortune through his monopoly of the wire services that fed race information to legal sports books. He extracted large sums of money from the legal Nevada bookmaking operations very dependent on the wire services he controlled. From his headquarters at El Rancho, Siegel envisioned the development of the world‟s grandest hotel, the fabulous Flamingo. Siegel wanted a resort that would change “The Strip.” El http://www.crimelibrary.com/ Rancho and the Hotel Last Frontier were set in the western theme. Siegel saw something different -- Hollywood in Las Vegas. He saw lights flashing, people gambling, and headliners appearing. Siegel had many obstacles to overcome, however. Since the war had just ended, building materials were still being rationed. He had to use political connections to secure the scarce and costly building supplies. However, constructions cost projections were not Siegel‟s strong suit. He exceeded his $1 million budget by $6 million. These cost overruns did not endear Siegel to his financial backers, and American Casino Industry 8 in 1947, a few months after the Flamingo opened for business, Siegel was shot and killed in his Hollywood, California home. (http://www.lvstriphistory.com/, No Date) The significance of Siegel's presence should not be underrated. Even though he was not the first dream weaver on The Strip, nor was his Flamingo the first resort, Siegel started a trend that still exists to this day: a modern, neon filled street that attracts celebrities not only to appear, but also to gamble at these resorts. Siegel took the dream and made it a reality with the Flamingo being the first prototype of what The Strip would become. In 1976, New Jersey legalized casino gambling. Almost overnight, Atlantic City was engulfed by the casino industry. Casinos in Nevada are spread throughout the state and exist in various stages of sophistication, from a few slot machines in a tavern to the giant hotel casinos. On the other hand, the casino industry in New Jersey consists of a controlled number of very similar casinos all located in Atlantic City (http://www.library.ca.gov/crb/97/03/chapt1.html, 1997). A more explosive growth of the casino industry in the United States began in the late 1980s. Iowa and South Dakota were the first two states involved in this upsurge. In 1989, both states joined Nevada and New Jersey as the only states with legalized casino gambling. After three years of debate, the Iowa legislature authorized low-stakes gaming on riverboats in 1989 (http://www.library.ca.gov/crb/97/03/chapt1.html, 1997). Mississippi joined the crowd of increasing states with legalized casino gambling on March 23, 1990. Mississippi had some previous experience with cruise ships that left Biloxi and decided to open casino cruises that sailed on international waters. Now, Tunica County has almost a dozen Las Vegasstyle casinos. On the south shore, Biloxi and Gulfport have become casino Meccas in Mississippi (http://www.library.ca.gov/crb/97/03/chapt1.html, 1997). In 1992, Louisiana became the exception by legalizing both land-based and riverboat casinos. Although only one land-based casino was authorized to operate in New Orleans, gaming devices, such as video poker, were (and currently are being) used in taverns, on racetracks, and at truck stops throughout American Casino Industry 9 the state. These land-based devices accepted bets up to $2, and would pay up to $500. In contrast, Louisiana riverboats offer high-stakes gambling (http://www.library.ca.gov/crb/97/03/chapt2.html, 1997). Missouri soon recognized the boom in gaming and sought to catch up with the popularity of gambling in the Mississippi River. In late 1992, riverboat gaming was authorized throughout the state. However, Missouri had failed to amend its constitution to allow all casino games, so the Missouri Supreme Court put reel-type slot machines and other games, such as craps, on hold until the Missouri citizens voted to amend their constitution. The delay caused riverboats to open offering only video poker and blackjack (http://www.library.ca.gov/crb/97/03/chapt2.html, 1997). Besides the gaming boom on the Mississippi River, land-based casinos have dramatically spread throughout the United States. South Dakota, which legalized gambling in 1988, was the first state to legalize land-based casino gaming in the decade following New Jersey‟s legalization. Colorado joined South Dakota on October 1, 1992, by allowing blackjack, poker, and gaming devices in three small towns (http://www.library.ca.gov/crb/97/03/chapt2.html, 1997). Places that have legal casinos now face a major challenge in achieving their goals because of increased competition. Thirty years ago, Nevada was the only state with legal casinos. Having a geographic monopoly advanced Nevada‟s casino growth. In the late 1970s, the monopoly eroded with the legalization of casino gaming in Atlantic City (http://www.library.ca.gov/crb/97/03/chapt2.html, 1997). In 1988, the United States Congress passed a bill saying that Native American casinos were legal, state government laws permitting. Tribes in Minnesota, Connecticut, and Wisconsin opened full casinos on Indian reservations, while entrepreneurs outside of tribes could not open casinos in these states. Congressional action caused many states so that they could legalize gaming to realize revenues from the gaming activities of their citizens. Nine states now have legal state-regulated casinos. The prospect exists for a dozen other states to legalize casino gaming in the next few years. Both Native American and state-sanctioned casinos throughout the United States compete for the same consumer dollar. American Casino Industry 10 Differences in regulatory policy between states can influence the economics of a state‟s gaming industry. These differences can make one state‟s gaming industry more competitive than another. The history of the casino industry has been back and forth, as states decided whether they wanted casinos or not. While regulation and individual casinos may differ, the basic forces driving the industry are present in most cases. American Casino Industry 11 Analyzing Industry Forces Introduction The influences that have driven the casinos on a roller coaster ride of legalization laws over the years are still very prevalent today. There are a number of external forces that influence the strategies and profit potential of the American casino industry, the five most important of these being technology, socioeconomic trends, resource availability, government actions, and customer needs and actions. In examining each of these forces, the current position and likely future directions of the forces are discussed as is the importance of each for the industry. Technological Changes Technology in the 21st century is growing at a faster pace than ever before. The casino industry has taken full advantage of new and improving technology in many forms. Online casinos, security systems, and various forms of casino equipment are just a few examples of the technology the new millennium has ushered in. Using this technology, the casino industry has been able to keep up with the technological surge in ways that enable casinos to be enormously successful. As of March 29, 2000, casino gambling had been legalized in one form or another in 48 states across the United States. Comparing that to twelve years ago, when only two states had legalized gambling, America seems to be on a casino binge. However, for people who live in states where gambling is not legalized or simply do not want to leave their homes, there is another option: the World Wide Web. Online gambling is a phenomenon that has caught on very quickly across the United States (http://web.lexis-nexis.com/universe, 2000d). This new form of technology has allowed casinos, such as Flamingo Las Vegas, to create websites, like www.flamingolasvegas.com, that allow them to connect with customers that they had not been able to reach before. The online casinos have been so successful that firms have created virtual casinos, which do not exist anywhere other than in web space. There are not “the same kind of borders www.inwardcasino.com Online Casino Game American Casino Industry 12 we had before,” said the chairwoman of the Interactive Gaming Council (http://proquest.umi.com, 2000b). Casinos are now simply able to get into people‟s homes and onto their private computers where federal, state, and local governments have a hard time monitoring what is happening. People who live in states where laws strictly prohibit gambling can now undermine “the system” in a way that was never before possible, while hardly fearing punishment. One example of an online casino that has survived by avoiding the laws and power of the United States federal government is one that is run off the Caribbean island, Antigua. Steve Schillinger co-owns and operates this gaming operation and boasts about his site‟s popularity. He admits that most of his customers are based in areas where gambling is illegal; many of his customers are from the United States where the legality of such online gambling is questionable. Schillinger‟s website is a prime example of how one can reach new demographic groups with online casinos (Pascual, 2000). Security systems are another prime example of technology at work in the casino industry. With people trying to swindle casinos, steal money from other gamblers, and commit other various crimes, security keeps both the customers and the casino operators comfortable at all times. There are many different types of security systems currently in use today, but only a few are as widely spread and known as the OASIS. Casino Data Systems OASIS v.11 is a very popular, Windows® based security system that is easy to use, fast, and accurate due to the advancement of technology. It is a electronic monitoring system that is used “to collect, integrate, analyze, and report information on player and machine activity” (http://web.lexis-nexis.com/universe, 2000e, p. 1) in casinos across the United States. So, not only is it possible for casino managers to monitor any type of foul play that is occurring, it is also possible to use the gathered information to see patterns in customers, identify who the high-rollers are, and be able to market to groups that may have otherwise gone unnoticed on the casino floors. The opportunities that are presented by OASIS security are vast (http://web.lexis-nexis.com/universe, 2000e). The casino equipment that OASIS and other security systems monitor ranges from keno games to slot machines, and every piece of equipment has had its share of technological advancement. The slot American Casino Industry 13 machine‟s history and current level of technology provide examples of the advancement of the industry and how the slot machine has had a major effect upon the casino industry. Technological advancement has allowed slot machines to be tailored to both the consumer and the casino. Now, more than ever, the machines inside casinos are easy to use and understand by basic design and technological advances (Eadington & Cornelius, 1999). In 1894, Charles August Fey invented the first slot machine. Slot machines first made their way into casinos in San Francisco, and mass production soon followed. Decoration was quickly looked upon as a gimmick, much as it is today, and the slot machine under went major simplification. There were many variations in machine designs from mini-walk in theaters to automatic trade clocks and gambling guns. In the 1930s, slot machines changed from mechanical to electric, and then in the 1970s they were transformed to the electronic-microprocessor (Eadington & Cornelius, 1999). Slot machines have since become much more recognizable and conventional. They are typically more generic and are user-friendly in every aspect, including size and scale. Today, there are only minor variations in slot machine design and hardware found in various casinos. Although technology has been the major force of change for slot machines, it has also allowed for customers to remain comfortable with a machine that is very similar to what they have been accustomed to. Rather than putting new games on the slot machines, designers have incorporated different combinations and variations of more traditional slot games. New backgrounds and names make slots seem as though they may hold something new for the customer but do not confuse casino patrons. Thus, while technology has played a critical role in the developmental history of the slot machine, it has not changed the machine a great deal (Eadington & Cornelius, 1999). Whether analyzing slot machines or online casinos, technology has had a critical role shaping the industry. Technology has allowed for industry expansion and higher profits, as more and more customers become attracted to casino gambling. Thus, technology has created a greater customer base, but as will be discussed in Competitive Structure, it has also created greater competition within itself. American Casino Industry 14 Resource Availability The availability of critical resources is, has been, and will be, vital to the American casino industry. Employees, raw materials, capital, space, and management skills are critical resources that can have a major impact upon the industry. Resource availability is one of the five major industry forces that can make or break any individual casino as well as the industry as a whole. Due to the fact that the casino industry is service oriented, employees are a necessity for casinos. Park Place Entertainment employs more than 57,000 people. “Casino gambling presents job opportunities for dealers, slot attendants, . . . pit managers . . . hotel managers, bartenders, wait personnel, chauffeurs, . . . [and] taxi drivers” (http://galenet.galegroup.com, 2000a, p. 1). The employees create an enjoyable experience that all casinos are looking to provide. However, with average costs of $20,500 per employee, such employment can be expensive and hard to find in today‟s tight labor market (http://galenet.galegroup.com, 2000a). Employees have to be able to handle all types of people and situations on a second‟s notice. Friendliness and courtesy are necessary in all situations, as customer loyalty to the company is highly coveted. Experienced employees are actively sought after, as training can be costly. Finding such people is not easy by any means for an industry as specialized as the casino industry. Though sometimes overlooked, the availability of raw materials is imperative to the www.flamingolasvegas.com Employees at work in a casino success of casinos. In this highly competitive game of building massive structures where a month‟s delay can cost a casino over $100 million, these building materials are in high demand in such places as Las Vegas and Atlantic City where everybody is asking for the same bricks and cement. American Casino Industry 15 Space, both for online and land casinos is a most obvious necessity. Web space is usually much less expensive than physical land. For only a few thousand dollars, one can build a site that is functional. While land availability, on the other hand, may not make or break the industry as a whole, it most definitely affects individual casinos competing for such space and also helps shape the geographic landscape of the industry. Effective management is one of the resources that are critical to the success of casinos and, thus, the industry. While this resource may have been readily available in the past, the recent tightening of the labor market has provided a new constraint on American casino companies. They compete with other U.S. companies along with each other for good managers. As decision makers, managers must do many things. They must respond to both opportunities and threats, be able to make programmed and non-programmed decisions, realize that the future is not always predictable, be willing to take risks, and make acceptable and responsible decisions. As with any company, a casino‟s success, and therefore the industry‟s, is directly dependent on its management, good or bad (Jones, George, & Hill, 2000). To build any form of casino, whether it is land or online, capital is an absolute necessity. Money is needed to build the casino, buy the equipment, pay the energy bills that power such equipment, and pay off winners. In fact, the entire concept of a casino is based upon money, and with larger jackpots increasingly being used as a marketing tactic, casinos have been strapped for cash. While the success of individual casinos obviously determines the availability of capital, casinos frequently rely upon banks for substantial loans. The government is also concerned with casino capital, as it systematically monitors and taxes casinos. No matter your position on the casino industry, capital is a most vital industry resource, and as Competitive Structure will describe, the availability of capital is the most direct cause of success and failure. Resource availability has been a critical part of the function of the casino industry. The resources mentioned are important individually but also rely upon one another. From employees to managers, the American Casino Industry 16 casino industry has many forces that it currently relies upon for continued operation of business and will well into the future. Socioeconomic Trends Demographic changes, including families in relation to gambling, and compulsive gambling, have had a dramatic effect upon the casino industry. Changes in customer behavior patterns, lifestyles, and values are all aspects that casinos must look upon in order to ascertain their current and potential customers. Changes in the demographics of the customers in the American casino industry are occurring all the time. From state to state and region to region, people are differentiated by such aspects as religion, race, opinion, average age, and financial situations, to name a few. The demographics individual casinos focus upon will vary depending upon location in the United States along with the location of competitors. Turning Stone Casino, of Verona, New York, markets to a variety of New York citizens from an array of backgrounds. Mirage‟s Bel Lagio casino in Las Vegas, on the other hand, markets itself to a higher financial demographic that includes Asians and other foreign high rollers. The intertwining of family and gambling is an idea that the casino industry has tried repeatedly to present to the American society with varying degrees of success. While initially viewed as a pointless gimmick, the world class Las Vegas Overview of Visitors 40.0 35.0 30.0 shows, video arcades, and child care facilities that have been added to casinos have provided the casino industry with a larger portion of family demographics than it has ever Millions 25.0 20.0 15.0 10.0 5.0 0.0 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 held before. Such changes have had the surprising impact Years American Casino Industry 17 of forever changing the face of the industry from a corruptive world of sin into an exciting world of family entertainment. Such issues will be further discussed more fully in Marketing Practices. Compulsive gambling is a problem that has plagued the industry since its inception. While many might view such a disorder as an opportunity for greater profits, its repercussions have included a greater degree of government involvement along with negative public sentiment. The addiction to gambling begins from something that all people feel when they visit a casino: the pleasurable adrenaline rush of the risk. “For some this feeling can be seductive and alluring; a minority of players succumb to the darker side of gambling, addiction” (http://casinogambling.about.com, 2000). People have gambled away their entire life savings in response to the need that they feel for the “high” that comes with the moment-to moment excitement. It is “…when the thrill of the game outweighs everything else” that someone has become addicted (http://casinogambling.about.com, 2000). The fact that there is such a problem associated with gambling has put a tremendous pressure on the casino industry. Critics feel that casinos should be held responsible for gambling addicts, and some have proposed that casinos provide safeguards for compulsive gamblers, as many European casinos do. Rather than simply providing fantasy for people, it is viewed that casinos should also provide the reality aspect for those who truly need it. Such public sentiment has spurred companies like Harrah‟s to create anti-compulsive gambling programs in order to avoid further negativity and government inspection. The effects that compulsive gambling has on the casino industry will be discussed further in Industry-Wide Threats and Opportunities. American Casino Industry 18 From the coast to coast, casinos have had a major impact on the day-to-day lives of many American citizens. Furthermore, such individuals have left their mark on the casino industry as well. The socioeconomic trends present in the casino industry have a variety of ways of showing themselves, but they are monitored closely, as casinos attempt to market more directly and efficiently to customers. Government Actions Throughout the years, the various levels of the United States governments‟ opinions about the casino industry have oscillated in response to economic situations and societal perceptions. Individual state governments are the ones that have erected most regulations and laws concerning land casinos. The federal government has worked on many potentially far-reaching discussions about the online casinos. The regulations, laws, and bills in effect today have a great consequence upon the major players in the casino industry, both on land and online. A recent bill to outlaw gambling on the Internet was voted down. The bill was created by a group of libertarians, anti-gambling social groups, such as the National Coalition against Gambling, and progambling Internet entrepreneurs. There were many positions held by people opposed to and supportive of the bill, but the most interesting was the fact that they both agreed that there are not the same kinds of borders in the casino industry that there used to be. Pro-internet gambling leaders feel that this is terrific, because today there are many new customer groups that can be reached. Anti-gambling associations feel this is horrible because of this same reason: more customers. The major problem is the lack of control over Internet users‟ actions (http://proquest.umi.com, 2000b). Some of the people who run such online casinos live offshore of the United States. This is due to the federal government‟s “arm,” known as American, law not being able to reach outside of the U.S in this matter. “„We will definitely stay open. What are they going to do? Just charge us again? We‟ve already been charged, and we‟re still doing business,‟” (Pascual, 2000, p.2) stated one co-owner of an Internet gambling site who claims receiving $200 million in sports wagers in 1999. Many such online casino owners feel that there is no reason to worry about running an online casino offshore, because the worst that the American government can do is to try to block the casino, and that is nearly impossible. American Casino Industry 19 Many people believe that the only way to stop online gambling would be to literally “turn the Internet off, [but]as millions of online gamblers attest, it‟s far too late for that” (Pascual, 2000, p. 3). Such federal bills to outlaw Internet casinos continue to pose a viable future change for the industry. These types of federal decisions are the ones that will have the most impact upon the casino industry. When and if these types of bills ever make it into American federal law, the repercussions upon the casino industry could be substantial. The potential customers, along with their revenues, via online interaction would be lost, and the spread of gambling worldwide would be stifled (Pascual, 2000, p. 1). There are, however, many other types of laws that the federal government puts into place that also have a major impact upon the industry. Affirmative action and environmental protection laws are a major source of concern for casinos, just as they are for any other business. Instead of filling the open spaces of employment with people who are simply the most qualified, employers must also worry about how many minority workers are employed. Environmental protection laws make it so that casinos must watch their usage and disposal of resources to be in accordance with the law. Such laws provide casino operators with even more headaches that they wish they did not have. State governments have had a large variety of opinions and actions regarding casinos. There are aspects, such as whether or not casinos should be legal, who may own the casinos, and what the licensing requirements are, that vary from state to state. While their intricacies are difficult to sum up, there are a few key examples of state laws and regulations at work on the casino industry. There are two types of regulation that are commonly used in the American casino industry: licensing and ongoing review coupled with enforcement of controls. Licensing is a very widespread idea, and every state that has legalized casinos today has some form of casino licensing. “Casino owners and managers, game manufacturers and distributors, and casino industry educational facilities” (http://web.lexis-nexis.com/univese, 2000d, p. 1) are subject to such regulation. Many people inside of the industry must be licensed in order for the casino to be considered legal. Any key employee who has a financial interest in the business, is involved in the operation of the casino, or shares operating profits is required to be licensed. Everyone at the supervisory level and above must also be licensed. In effect, all American Casino Industry 20 those with any real control must be properly licensed to work in a casino (http://web.lexisnexis.com/univese, 2000d). Licensing has had a substantial effect upon casinos. In areas with licensing, it is public knowledge who has control over different aspects of a casino. In response, casino operators shy away from criminal backgrounds, as they run the risk of losing their operating licenses (http://web.lexisnexis.com/univese, 2000d). The second type of regulation that is currently in practice is that of “ . . . ongoing review and enforcement of controls” (http://web.lexis-nexis.com/univese, 2000d, p. 1). This creates an effort within states to ensure fairness and honesty inside of the casino industry. Both Nevada and New Jersey, along with many other states, have this type of regulation in place concerning their casinos (http://web.lexisnexis.com/univese, 2000d). This type of regulation carries with it great weight as both states and casinos are involved in monitoring activities designed to maintain legality while bettering practices. Proper reporting of finances and regulatory compliance are two factors involved in this second type of regulation (http://web.lexisnexis.com/universe, 2000d). One example of a state law changing the casino industry‟s horizons occurred recently in California. The vote, which occurred in March of 2000, has allowed Native American tribes to legally build full-blown casinos. This state constitutional amendment was approved by public voters who supported this major change. The potential impacts that this can have on the American casino industry as a whole, as well as the California casino industry, are astounding. “Experts agree that California‟s casino industry will quickly grow to rival that of Atlantic City, with annual revenues of $4.5 billion or more” (http://web.lexis-nexis.com/universe, 2000b, p. 1). In an area where casinos were previously forbidden, casinos are being built in a mad dash to capture the Californian market thirsty for its share of casinos. While MGM may not open its doors next week, such could be the case in a few years (http://web.lexisnexis.com/universe, 2000b). American Casino Industry 21 Government actions have both progressed and hindered advancement of the casino industry. Both federal and state governments will continue to enact regulations, bills, and laws to shape the industry. While the casino industry may employ powerful lobbyists, it has had little impact in changing government actions when faced with economic situations and social perceptions. Such problems will be discussed further in Industry-Wide Threats and Opportunities. Customer Needs and Actions While there are many different types of customers that the casinos are currently trying to market towards, there is one group in particular that stands out among the crowd: women. This group is very distinct in its size, buying practices, and motivational trends. Their needs and actions have driven the industry to alter its marketing tactics in order to court them. Women need to feel secure and in control while gambling in casinos. In response, casinos have tailored customer service operations in order to give women such comfort. Control revolves around the excitement of risks and snap decisions without judgment. Along with other gamblers, women enjoy the fantasy world created by the casinos today. While women make up approximately half of the population, the casino industry has recently shown them greater attention than in years past. Two other groups focused Gamblers Visiting Casinos Four or More Times a Year %of females 54% Gamblers Visiting Casinos One to Three Times a Year %of males 46% on by casinos are Asians and the elderly. These demographic groups, along with women, will be discussed in fuller detail in Males are 42% Females are 58% Marketing (http://galenet.galegroup.com, 1993). American Casino Industry 22 From buying practices to lifestyles, customers of the casino industry provide a variety of needs that the casino industry must take into account. Casinos, good or bad? The United States‟ casino industry has become “one of the fastest growing, most lucrative . . . leisure industries in the world” (http://galenet.galegroup.com, 2000a, p.1). Based on consumer expenditures, gambling has surpassed sporting events as America‟s most popular leisure activity. The casino industry‟s growth is greatly due to the positive perception it has created for itself. Many politicians begin to consider casinos for the extra tax revenues they would provide, but then become captivated by the other supposed benefits they could bring to an area (http://galenet.galegroup.com, 2000a). Depending upon whom you ask, the casino industry “has emerged as one of the greatest contributors to the nation‟s economy in terms of revenues, employment opportunities, and the building and construction industry” (http://proquest.umi.com, 1998b, p.1). It is said that casinos directly employ almost 375,000 people with an average yearly wage of $26,000, while employing an additional 500,000 people indirectly. Casinos are touted for “generating the revenue struggling cities need to sustain themselves” (http://galenet.galegroup.com, 2000a, p. 1) while also providing lavish improvements in the infrastructure of run-down urban centers. However, such positive views do not reflect the entire story (http://proquest.umi.com, 1998b). In reality, many people have come to learn that “legalizing gambling has failed to stimulate the expected economic miracle” (http://www.britannica.com, 1997, p. 2). One must take into consideration the negative externalities that casinos create such as the costs of a greater need for law enforcement, more frequent street cleaning, and the extra social services needed when gambling leads to the break-up of families due to addiction. One must also pay attention to the quality of jobs created and not simply the quantity. There could also be a loss in business for local firms, because consumers spend their money on slot machines that could have been spent elsewhere. In many areas where casinos have entered, there have been increases in the attendance at homeless shelters and soup kitchens coupled with increases in American Casino Industry 23 every form of crime. Heavy traffic has also resulted in many areas that were not prepared for the infrastructure requirements of casinos. Studies have also shown that of all the groups affected negatively by casinos, the poor were hurt most (http://proquest.umi.com, 1997). These contrasting views should provide reason for skepticism when analyzing the effects casinos have on local communities. These very issues are the targets of investigation for a national commission set up by President Clinton to study the impact of gambling on American society. The results of this study should provide more concrete answers to the question of whether casinos are good or bad for the United States. Conclusion Throughout its past, present, and most likely into the future, the casino industry has, is,`` and will face many forces whose effects range in outcome. While the forces are indeed complex and difficult to recognize, companies will focus on technology, resource availability, socioeconomic trends, government actions, and customer needs in order to compete. The importance of such recognition is most evident when analyzing the competitive structure of the casino industry. American Casino Industry 24 Competitive Structure An industry‟s competitive structure describes the nature and structure of competition found within an industry, relative to individual firms. An industry can be described as having perfect competition, in which there are many small firms with no control of prices. It can also be described as having monopolistic competition. In this type of competition, there are a few large and medium-sized firms along with several smaller firms, none of which having substantial price control. An industry can be described as being an oligopoly, in which there are four or five large competitors with control over the market. Lastly, an industry can be described as being a monopoly, in which one firm controls the entire market along with the prices. As will be explained in greater detail, the casino industry most closely resembles having monopolistic competition. However, the situation changes depending on the location in the United States (Denton, 2000). The casino industry‟s competitive structure is a direct result of the industry forces described in the previous section. These forces have molded the industry into the intensely competitive sector it is today, leaving many failed firms behind. Such nonsuccesses will be described, as will those companies that have not only survived but also prospered. These successful firms, such as Park Place Entertainment, have recognized the threats and opportunities present in the industry environment and, by using effective marketing, have been able to adapt to fit the customer. Fifty years ago, the casino industry was not nearly as competitive as it is today. With Las Vegas and Atlantic City the only major players in a legally restricted game, most consumers did not have a great deal of choice. Even within the two cities themselves, a few key players, one example being “Bugsy” Siegel, controlled the scene. Since then, Las Vegas and Atlantic City, along with the entire gambling industry, have changed a great deal. Gambling of all sorts has become much more easily accessible. One example of such increased accessibility is the rise of riverboat casinos. In 1999, “$8.4 billion of gaming revenues (about 28% of the [gaming] industry‟s total) came from . . . water-based casinos” (Graves, 2000, p. 5). While boat casinos are not focused on in this report, it should be noted that they offer distinct advantages over American Casino Industry 25 the traditional land casino. They can be opened relatively quickly and cheaply as compared to traditional land casinos, where serious entry into the Las Vegas market, for instance, can cost over $1 billion along with several years of construction (http://www.proquest.umi.com, 1998a, p. 3). The industry has also changed in the fact that the number of states allowing casino gambling has increased tremendously. Today, “some form of legal casino gambling is available in more than twenty states,” (Graves, 2000, p. 11) as compared to only two in 1976. This surge is due, in part, to the Indian Gaming Regulatory Act of 1988, which gave Native American tribes the right to develop gaming facilities, individual state laws Native American Reservation Casino Winnings 8,000 7,213 permitting. This is where differences in competitive structure begin. In many states, Millions of Dollars 7,000 6,000 5,920 5,000 4,000 3,000 2,000 1,000 0 gambling casinos are permitted solely on Indian Reservations. Such is the case in New York 1982 1997 1998 0 State, where Turning Stone Casino, located on the Oneida Year reservation, enjoys a virtual monopoly of the area besides Casino Niagara in Canada. Such a situation obviously sets up a competitive advantage for Native American casinos. These casinos, in many cases, enjoy an otherwise unobtainable location along with tax-free profits. Native American tribes have started to take advantage of this opportunity. Of the approximant 550 Native American tribes in the United States, “more than 65 have negotiated agreements with states to allow gaming on Native American land” (Graves, 2000, p. 18). In 1999, “Native American land had estimated casino winnings of $7.8 billion,” (Graves, 2000, p. #5) which was about 26% of the gaming industry revenues. Due to such industry expansion, consumers are no longer unable to visit a casino. In most cases, a casino is located within a day‟s drive. American Casino Industry 26 Las Vegas is not only facing competition from its neighbors on the reservation, but also from other casino-centered cities. Casinos have opened their doors throughout the country on land other than reservations. In most cases, with dreams of tax revenue in mind, states throughout the country have loosened their laws to allow casinos in. Today, gambling is legal in 48 states and more than twenty states have casinos (Graves, 2000). Thus, reflecting strategic opportunities and diverse state regulations, “there is considerable variation in the . . . scope and location of new casinos popping up around the Untied States” (Graves, 2000, p. 18). These variations have an impact on the competitive structure of the industry. As stated before, such a structure depends on the area being considered. As an overall picture, though, the casino industry in the United States most closely resembles having monopolistic competition. While there are larger firms, such as Harrah‟s Entertainment, located in such places as Las Vegas, there are also the relatively smaller players which are all vying for basically the same customers. This increased competition has helped to create a larger market, however, comprising over 500 legal casinos presently in the United States. “Since 1990, the U.S. gaming industry has more than tripled in size,” (Graves, 2000, p. 11) and yet, it is this very expansion that has produced a most serious threat. The saturation of many markets has caught many companies overextended. In a race to capture markets, many larger companies such as Park Place and Harrah‟s entered a construction and acquisition race for the biggest and the best casinos. “Since October 1998, more than 10,000 hotel rooms have opened in the Las Vegas area [alone]” (Graves, 2000, p. 10). The casino industry is closely tied to the hotel industry. As will be discussed in greater detail in the marketing section, casinos and hotels, usually owned together, work concurrently to attract and retain customers. This expansion in Las Vegas provided a great scare for the industry. The market simply could not absorb such expansion, and it has not been until recently that some of these casinos are getting out of the resulting debt (http://proquest.umi.com, 1998c). The increased competition has given firms the choice between effective marketing and failure. As such, there has been a growing emphasis on entertaining customers and gaining their loyalty. For example, casinos have been emphasizing themes for differentiation while offering reward programs to American Casino Industry 27 create customer loyalty. The various marketing techniques used by casinos will be discussed in the Marketing Section. Therefore, although the odds at table and slot machines favor the casino, that alone does not guarantee a firm‟s financial success. Construction and acquisition activity, along with customer giveaway expenses, drain profits. To get a better picture of the casino industry‟s competitive structure, it would be useful to take a closer look at its two largest markets: Las Vegas and Atlantic City. Las Vegas and Atlantic City Even with the increased competition, of the $29 billion of winnings for United States casinos, “45% was in the two oldest gaming markets – Nevada ($8.9 billion) and Atlantic City ($4.2 billion)” (Graves, 2000, p. 5). Las Vegas and its surrounding areas have more than 6 million square feet of casino space as compared to Atlantic City with 1.1 million. Las Vegas is much more of an overnight destination for visitors with many more hotel rooms than Atlantic City, which is more of a day-trippers‟ destination. Las Vegas also has a busy airport serving its business customers attending conventions. Atlantic City also generally has tighter restrictions than Nevada for casino development. While Las Vegas was home to more than 200 casinos varying in profits, Atlantic City only carried 12 in 1999 (Graves, 2000). Given these differences, gambling ventures have generally been more profitable in Las Vegas. In 1999, “Nevada casinos had estimated gaming revenues of $8.9 billion, up 11% from the year before, while casino winnings in Atlantic City totaled about $4.2 billion, up approximately 3%” (Graves, 2000, p. 17). These differences between Las Vegas and Atlantic City do not imply that the two cities are in direct competition for business. On the contrary, many casino firms, such as Park Place Entertainment, operate casinos in both cities as complements of one another. Competitive Atmosphere The long time rivalry between Stephen Wynn, the creator of Mirage Resorts, and Donald Trump provides the best example for the competitive nature of the industry. Since the 1980s, the two men have competed to purchase companies that have come up for sale and even “block[ed] the other‟s developmental plans” (http://galenet.galegroup.com, 2000b, p. 786). In fact, there has actually been a American Casino Industry 28 history of “spying . . . fraud, money-laundering, conspiracy, perjury and theft of trade secrets” between the two “titans of the gambling world” (http://web.lexis-nexis.com/universe, 2000a). Law suits and counter law suits are still pending as the evidence is examined: “a clock radio with a hidden transmitter . . . a modified jock strap with hidden tape recorder . . . micro cassette tapes the size of postage stamps” (http://web.lexis-nexis.com/universe, 2000a). While this may seem unbelievable, it should give a picture of how competitive the industry is. When billions are at stake, there is no fooling around. This competitive nature has only increased, and it is not predicted it will die down any time soon. An analysis of specific companies will clarify such competition. Analysis of the leading companies Park Place Entertainment With revenues of $2.5 billion, “Park Place Entertainment Logo Corporation was the industry leader in 1998” (http://galenet.galegroup.com, 2000b, p. 785). Hilton Hotels Corporation, www.flamingolasvegas.com which formerly led the industry, split its operations into two in 1998, creating a hotel unit and a gaming unit. Park Place, the gaming unit of Hilton, owns 28 casinos in such places as Australia, Uruguay, Canada, South Africa, and the United States. Its domestic holdings include casinos in Biloxi, Tunica, Gulf Port, Atlantic City, Delaware, Reno, Tahoe, Laughlin, and Las Vegas. It also controls riverboat casinos in Crystal Harmond, Indiana, and New Orleans. Its more famous casino holdings include the Flamingo, Bally Entertainment Casinos, Caesar‟s Casinos, and Hilton Casinos. Bally and Hilton casinos are chains connected by name in hopes of creating brand recognition and customer loyalty. For instance, one can find a Bally‟s casino in Las Vegas, Atlantic City, Tunica, and Indiana (http://www.playppe.com 2000d). Park Place had annual sales of $3,176.0 million in sales for 1999. It earned about $55,719 per employee, while employing approximately 57,000 people. The fact that Park Place does not earn as much per employee as other leaders such as Harrah‟s reflects its customer service approach for its casinos. It American Casino Industry 29 fills it casinos with many more workers than its competitors. Park Place is publicly held on the New York Stock Exchange under the ticker symbol PPE. Park Place Entertainment is considered by many to be the most diversified gaming company in the world. It maintains this reputation by creating new and interesting casinos. For instance in 1999, the company unveiled the “pie‟ce de re‟sistance with Paris Las Vegas, bringing the passion, excitement and savoir faire of Paris, France, to the entertainment capital of the world” (http://www.ballys.com, 2000c). It is this innovative attitude that has kept Park Place in the lead for several years. It was on December 31, 1998 that Park Place Entertainment was spun off from Hilton. Like many other casino companies, it has changed names and hands many times through a series of mergers and acquisitions. In this most recent case, Hilton hotels felt it best to separate itself from the lagging casino industry. Park Place, along with other casino companies, has stunned such skeptics as it has recovered from the bad times. This has been due to the booming United States economy of the past few years. In March of 1999, the 600-room Grand Terrace Hotel & Spa opened in Tunica, Mississippi, joining the 188-room Grand Casino Hotel and the 578-room Grand Veranda Hotel. In June that year, Park Place opened the Oasis Resort and Spa, adding 600 guestrooms to the existing 400-room Grand Gulfport Hotel in Gulfport, Mississippi. The resort features a 3-acre water park complete with a lazy river, pools, jacuzzi and spa, along with the 16,000 square-foot Bellisimo Spa and Salon. Then in September, it added Paris Las Vegas featuring a 50-story Eiffel Tower replica, approximately 3,000 guestrooms, 140,000 square feet of convention and meeting space with an 85,000 square-foot ballroom – the largest in Las Vegas. In December, its Biloxi casino was given an expansion adding over 25,000 square feet of gaming, 50‟s-style restaurants, and a salon house (http://www.playppe.com 2000d). Whether it has been physical expansion, purchases, or new construction, it is obvious that Park Place has been escalating its presence in the industry. It has been this type of industry-wide expansion that has worried many investors and kept competition so fierce. However, even in the face of such skepticism, Park Place and other casino moguls feel that expansion will bring in revenue. Whether it is in American Casino Industry 30 Las Vegas or the United States heartland, Australia or Africa, Park Place is trying to position itself as a world leader. Its domination and #1 status, though due in major part to skillful management, has had a great deal to do with its shear size. Since its inception, Park Place has had more casinos to draw revenue from and more capital to make acquisitions or construct with. Size alone, however, cannot keep a company on top forever. The intense competition present in this industry will distinguish the best companies in time. Flamingo The Flamingo Las Vegas, owned by Park Place Entertainment, Flamingo Casino is one of the world‟s busiest casinos. Known for its “Megabucks and the popular Flamingo Gold, guests can enjoy table games . . . [such as] Caribbean Stud Poker, black jack, and craps, as well as other favorites like keno and the Big 6 Wheel” (http://www.flamingolasvegas.com, 2000a). The Flamingo also offers a brand-new Race and Sports Book, www.flamingolasvegas.com which offers wagering on almost any sporting and racing event (http://www.flamingolasvegas.com, 2000a). Like most casinos of its kind, the Flamingo offers a wide range of entertainment for its customers. As will be discussed in greater detail in the Marketing section, the Flamingo tries to create loyalty by offering unparalleled gaming, service, and entertainment. Such entertainment changes regularly at the Flamingo, however, in order to keep its customers coming back. Presently, the Flamingo offers the musical “Men Are From Mars and Women Are From Venus,” “Forever Plaid,” a men‟s glee club, as well as “Bottoms Up,” a show featuring “some VERY alluring young women, and some head turning young men as well, . . . [in] entertainment the way it used to be in Las Vegas” (http://www.flamingolasvegas.com, 2000a). This type of traditional entertainment reflects the Flamingo‟s long history on the strip. When many people think of Las Vegas, the Flamingo comes to mind. Unlike some of its younger competitors, the Flamingo tailors to the older, more traditional Las Vegas demographic. American Casino Industry 31 Harrah’s Entertainment Logo Harrah‟s Entertainment, Inc. followed Park Place with $2.0 billion in revenues (http://galenet.galegroup.com, 2000b, p. 785). Founded more than sixty years ago, Harrah‟s is considered by many to be the most recognized and www.harrahs.com respected name in the entertainment industry. Operating 21 casinos in 17 markets under the Harrah‟s, Rio, and Showboat brand names, its goal has been to provide great customer service in exciting and entertaining environments. Harrah‟s concentrates on “building loyalty and value for [its] customers, shareholders, employees, business partners, and communities by being the most service oriented, technology-driven, geographically-diversified company in gaming” (http://www.harrahs.com, 2000). It was William Fisk Harrah, the son of a lawyer and real estate owner, who started the company in 1930. After having been caught cheating on a college chemistry exam, William bought an old building on the Venice pier in California for $500. After refurbishing the premises and employing good workers, he grossed as much as $50,000 a year. After a state crackdown on gambling, Harrah relocated to Reno in 1937. After opening several operations, his enterprise flourished during the free-spending World War II years (http://galenet.galegroup.com, No Date). Harrah continued his expansion in the face of opposition. In 1955, Harrah acquired a property on Lake Tahoe. When the authorities were not willing to help, Harrah doubled the width of the mountain roads and assembled a fleet of snowplows to clear the roads. His effort paid off, and his casino turned a profit of more than $1 million in its first year. His style and persistence is what allowed the company such great success (http://galenet.galegroup.com, No Date). In 1971, Harrah took his company public in the face of great opposition, becoming the first casino company listed on the NYSE. To the surprise of the skeptics, its stock rose from $16 a share to $71 a share. Harrah‟s net sales increased from $77.9 million in 1970 to $195.6 million in 1979, while its net income grew from a low of $4.3 million in 1971 to a record $16.9 million in 1978. One security analyst American Casino Industry 32 called Harrah‟s “the most tightly controlled and best managed casino company in the world” (http://galenet.galegroup.com, No Date, p. 3). After Harrah died in 1978, the company was bought out in a surprising move by Holiday Inns, which, at the time, was run by a pious Baptist opposed to gambling. Harrah‟s continued on a bumpy road of expansion. In one partnership, a frequent practice of Harrah‟s, it teamed up with the real estate developer Donald J. Trump forming the Harrah‟s Trump Plaza. This along with some other ventures failed as competition in markets increased. Trump and Harrah‟s went their separate ways (http://galenet.galegroup.com, No Date). Harrah‟s, like other casino firms, participated in a headlong expansion in the 1990‟s which has continued into the new millennium. Harrah‟s was passed off from Holiday Inns to a number of companies but, like Park Place, was eventually spun off from a hotel division, Promus Co., as the casino division Harrah‟s Entertainment. Unlike Park Place, however, Harrah‟s has placed a greater concentration its riverboat division (http://galenet.galegroup.com, No Date). In 1999, Harrah‟s had annual sales of $3,024.4 million in operating revenue. It earned about $75,971 per employee, while employing 39,810 people. Its ticker symbol on the New York Stock Exchange is HET (http://galenet.galegroup.com, No Date). As stated previously, Harrah‟s concentrates on building loyalty and value. Harrah‟s Code of Commitment is one example. “The company is setting a higher standard for accountability in its dealings with its employees, customers, and communities” (http://www.harrahs.com, 2000). Harrah‟s also attempts to build a relationship with the community in which one of its casinos resides. Through the use of time, money, and in-kind contributions, “outstanding corporate citizenship can be found in every area of Harrah‟s Entertainment, from CEO Phil Satre, to the thousands of employees at each property” (http://www.harrahs.com, 2000). Harrah‟s has donated millions to such projects as the Susan B. Komen Foundation, the United Way, and to education in the area. Besides being involved in the community, Harrah‟s promotes responsible gaming, and it boasts to have developed the industry‟s first initiative to “help employees, guests, and the public learn and cope American Casino Industry 33 with compulsive and underage gambling” (http://www.harrahs.com, 2000). Through such programs as “Operation Bet Smart ®” and “Project 21 ®,” Harrah‟s has continued the efforts that it started. While some may see such efforts as a waste of time and resources, Harrah‟s sees it as a chance to turn public perception around so that local communities do not see casinos as negatively as they used to. In fact, Harrah‟s community reputation precedes it, and it has won local properties over other casino companies for this very reason. Besides using public relations, Harrah‟s has employed an incredible marketing plan that is as revolutionary as it is effective. Titling its program as “Total Rewards,” Harrah‟s boasts “fantastic card benefits . . . generous offers . . . [and] valuable comps” (http://www.harrahs.com, 2000). Total Rewards offers three levels of cards, each with distinctive privileges, which can be used at Harrah‟s casinos across the United States. Offering discounts in one‟s mailbox, a Harrah‟s customer can enjoy preferred reservations and seating at restaurants, priority check-ins, airline packages, VIP lounge access, room upgrades, and show tickets. As will be discussed in greater detail in the Marketing Section, such tactics help to create loyalty among customers. Harrah’s Las Vegas Casino Harrah‟s Las Vegas is located in the center of the Las Vegas Strip. Harrah‟s Patrons can enjoy more than 103,000 square feet of 24-hour festive carnivalthemed casino gambling. The fun extends outside to “the strip‟s only indoor/outdoor bar, overlooking Caraval Court entertainment and shopping areas . . . [Or, one can enjoy] the fresh, one-of-a-kind experience of “Takin‟ It www.harrahs.com Uptown with Clint Holmes,” the original creations of “The Mac King Comedy Magic Show,” or laugh hysterically with the comedians at the “Improv” (http://www.harrahs.com, 2000). The wide range of activities represents how individual casinos try to create and offer “the best show in town.” American Casino Industry 34 An Obituary for Harold’s Club “The grand-daddy of them all [bit] the dust in downtown Reno in the wee hours of Dec. 15, 1999” (http://www.nevadalabor.com/harolds.html, No Date). Founded in 1935, Harold‟s Club Casino was considered a historical landmark in the casino industry. By placing Harold‟s Club Demolition “Harold‟s Club or Bust” signs all across the world in the 1940‟s, its founder “Pappy” created “arguably one of the top 10 advertising campaigns of the 20th Century” (http://www.nevadalabor.com/harolds.html, No Date) and possibly the Nevada gambling industry itself. Tourists from around the world came to visit this unknown place to gamble. A warm management team with old values greeted them. Unlike other casinos, Harold‟s did have clocks, gave http://www.nevadalabor.com advice on betting, returned 10% of losses of someone who had gone bust, and displayed the sign: “Gambling is a game of chance. We advise you to wager no more than you can afford to lose. The Management” (http://www.nevadalabor.com/harolds.html, No Date). History and values have not fared well in recent years for such casinos. With the tightening of the financial markets, Harold‟s was simply unable to obtain the capital required for necessary expansion. This reflects the great dependence the casino industry has on capital and, more specifically, banks. Harrah‟s Entertainment, which purchased the bankrupt Harold‟s, viewed it as “a critical piece to [its] future strategy” (http://web.lexis-nexis.com/universe, 1999). Harrah‟s demolished the old favorite and extended its existing casino onto the additional real estate, thus reflecting its strategy of expansion through acquisition. In such well-developed gaming markets as Las Vegas and Reno, the smaller competitors are having an extremely hard time. One after another, venerated casinos are being bulldozed in order to make way for more Harrah‟s or Mirages. Without substantial capital, it is impossible for such small players as Harold‟s to compete in a time when tourists are looking for the newest thing around. “Rest in peace, old gal” (http://www.nevadalabor.com/harolds.html, No Date). American Casino Industry 35 Mirage Entertainment A Mirage Casino With revenues of $1.52 billion, Mirage Resorts is ranked third in the industry. Unlike its competitors, Mirage has focused primarily on Las Vegas. It does however have casinos in Mississippi, New Jersey, and Argentina. Some of its better-known casinos are the Treasure Island, The Golden Nugget, Mirage, which will be discussed in greater detail, and Bellagio, which is one of Las Vegas‟s most luxurious www.mirage.com casinos (http://galenet.galegroup.com, 2000b, p. 785). In 1999, Mirage Resorts Inc. had annual sales of $2,402.7 million in operating revenue. It had sales of $80,492 per employee, while employing 29,850 people. Its ticker symbol on the NYSE is MIR (http://galenet.galegroup.com/, No Date). In August of 1945, a group of businessmen opened up the Golden Nugget casino in downtown Las Vegas. It was considered the largest casino at the time with over 5,000 square feet of gaming space. The casino degenerated, however, under poor management, and it was not until Steven A. Wynn took over that the casino made a great turnaround. Not only has Wynn made Mirage (formerly known as Golden Nugget Inc.) the success it is today, but he has also changed the face of the industry into something the public enjoyed viewing (http://galenet.galegroup.com/, No Date). When New Jersey legalized gambling in 1978, Wynn purchased an entire square-block lot on the Atlantic City Boardwalk. Golden Nugget continued to build in Atlantic City until 1984 when the company pulled out due to increasing competition, taking a $15.3 million loss. Then in 1987, ground was broken in Las Vegas to create the Mirage casino/hotel boasting 3,030 rooms. It was then that Donald Trump attempted a failed acquisition of the Golden Nugget, thus initiating the long-standing feud between Trump and Wynn (http://galenet.galegroup.com/, No Date). American Casino Industry 36 In 1991, the company changed its name to Mirage Resorts, Inc. Its net income jumped 57% to $46.8 million on revenues of $822.8 million. In 1992, Mirage began its construction of the Treasure Island Resort along side the Mirage. Then, in 1994, Mirage announced a 50/50 agreement with Gold Strike Resorts to build Monte Carlo, a $250 million casino on the Las Vegas Strip. In 1995, Mirage began building the $550 million Beau Rivage casino project in Miloxi, Mississippi, its only casino outside of Las Vegas at the time. In 1996, Mirage entered a joint-venture agreement to develop and operate a casino in Atlantic City. This year, the Bellagio Resort, totaling over $1.6 billion, opened on the Las Vegas Strip. Featuring a fine art collection of original masterpieces and an 11-acre lake, the Europeanstyle Bellagio Resort is unparalleled in the casino world (http://galenet.galegroup.com/, No Date). Like its competitors, Mirage went on an acquisition/building spree in the 1990s. There have simply not been enough patrons to fill all of the rooms of these luxury hotels (http://www.proquest.umi.com, 1998a; http://proquest.umi.com, 1999a). Mirage has been successful however. Steven Wynn has been the one to lead the company through such success. Wynn has established Mirage as the industry standard. His trademark is his management style. “He operates his casinos with a system that rewards employees with terrific work conditions, good benefits, and vacations . . . [He] believes supervisors must use persuasion rather than authority” (http://galenet.galegroup.com, 2000b, p. 785). Like all companies, management is crucial to success. In this case, Wynn has led Mirage to such success and will most likely do so in the future. Mirage Casino On November 22, 1989, Golden Nugget Resorts, now known as Mirage Resorts, opened the Mirage casino and hotel on the Las Vegas Strip. This lavish hotel features “a five-story manmade volcano that erupts every 15 minutes, and the permanent magic and tiger-taming act of Siegfried and Roy” (http://www.galenet.galegroup.com, No Date). At a cost of $620 million, it is estimated that the Mirage has to earn over $1 million per day to simply break even. American Casino Industry 37 Wynn‟s Mirage creation set the industry standard at a level no one had predicted. The service at Mirage was and still is astounding. This hotel casino was the first to tailor itself for families and entertainment, instead of solely for gamblers. Myste‟re Cirque Du Soleil Performers This change in marketing for the industry will be discussed in the Marketing section. In October of 1993, Mirage Resorts Inc. opened up the pirate-themed Treasure Island Resort along side of the Mirage. Skeptics forecasted that the two casinos would destroy each other, but Wynn brilliantly integrated the www.mirage.com two into a paradise. Connected by a state-of-the- art above ground tram system, patrons can visit both casinos, enjoying what each has to offer. Such offerings include an actual indoor rainforest and zoo, a grand system of pools and waterslides, gourmet restaurants, and the world-famous Myste‟re Cirque Du Soleil. Featuring champion caliber acrobats, gymnasts, singers, dancers, musicians, and clowns from 15 countries, Myste‟re has forever changed the face of Las Vegas entertainment (personal communication, S.C. Madsen, October 28, 2000). Analysis of smaller casinos Turning Stone Casino Turning Stone Casino, which is run by the Oneida Indian Nation, opened in July of 1993. This 96,000-square-foot structure has the advantage of being New York State‟s only casino. This advantage is reflected in its nontraditional marketing tactics. Turning Stone is not modeled after Las Vegas. Instead, it is decorated in “subtle tones of gray and royal blue” (http://galenet.galegroup.com/, 2000, p.1), thus trying to reflect a classier image for casino gambling. Turning Stone also boasts a no-alcohol policy reflective of the damage locals say alcohol has done to the Indian people. This pleasant atmosphere is open year-round, 24 hours a day, seven days a week. It features “slots, blackjack, keno, craps, roulette, and pai gow poker” (http://galenet.galegroup.com, 2000, p. 3). American Casino Industry 38 Forty percent of its customers come from surrounding areas, while 12% come from Pennsylvania, eastern Ohio, Ontario, Quebec, and Connecticut. It has focused a great deal on marketing itself as a destination for trade shows, business expos, national conventions, and business meetings. It offers a “full service business center for . . . business needs, which includes office space, computers, faxing, [and] copying” (http://www.turning-stone.com, 2000). This marketing is very similar to casinos in Las Vegas that advertise their amazing facilities for business. Such practices not only provide extra revenues, but they also bring in potential gamblers. Presently, its marketers are focusing on Syracuse and Albany as possible markets, and they plan to go even further down state. Turning Stone Casino is a very good example of a casino on a Native American reservation. Built in order to help save the economy, casino visitors “contributed $169 million in tourism earnings in Oneida Country . . . [while] bringing more than 3 million visitors yearly” (http://www.syracuse.com/newsstories.html, 1999, p.1). While traditional casinos on lands other than reservations can start up casinos for economic help, such has not been the reason in the past few years. Due to the great domestic economy, local and state governments have been more reluctant to give out casino licenses The Internet Internet gambling has recently entered into the market for consumer dollars. Internet sites offer many of the same services casinos do, the primary difference being that consumers do not need to leave their homes to participate. Though this will be discussed in greater detail in the Threats and Opportunities section, Internet gambling/casino sites are becoming significant players in the industry competitive structure as casinos compete for patrons. Internet gambling resulted in revenues of $1.1 billion in 1999 (http://proquest.umi.com, 2000a). It is predicted “some demand for [traditional casinos] will be siphoned off by new Internet sites” (Graves, 2000, p. 3). This is all at a time when competition in the industry has never been fiercer. There have been some attempts by the government to limit such sites, which United States Senator Kyl described as, “unregulated, accessible by minors, addictive, subject to abuse for fraudulent American Casino Industry 39 purposes like money laundering, evasive of state gambling laws . . . and already illegal at the federal level in some cases” (Graves, 2000, p. 3). There has not been any specific legislation passed, at least by both houses of Congress that would effectively put an end to these Internet sites. The illusive nature of such sites, along with the fact that most are located offshore, makes control rather difficult. Government attempts of this kind were discussed in Industry Forces. Many traditional casino companies have responded to this Internet threat by creating their own web sites. Presumably, these sites would fair better than competing sites due to name brand loyalty and recognition. However, the Internet market presents an entirely new set of problems and advantages. First, the barriers to entry in this market are monetarily substantially lower. Web space is cheap relative to the coveted property on the Las Vegas strip. Therefore, casino fat cats cannot out-build competitors like those that they can in the traditional sense. There are however using more than their good names to promote their sites. As will be discussed to a fuller extent in the Marketing section, casino companies are tying their land casinos to their Internet sites with “frequent gambler points” and other promotional offers designed to create casino loyalty. Traditional casinos are a great place to advertise to potential online gamblers. However, most larger casino companies are simply trying to block Internet sites that pose as a threat. Formula for success While the formula for success is never cut and dry, there are specific characteristics needed in the casino industry. There are three main ways to grow. Casino operators can “either increase sales or profits at existing properties, . . . open new units, or . . . make acquisitions” (Graves, 2000, p. 14). Casinos need sizeable capital investments for land, buildings, furnishings, and equipment. Such capital is usually borrowed in this industry. There is also large-scale employment need for service-oriented workers. This can pose a problem in the tight labor market of today. The casinos depend on tourism and leisure travel, which are directly affected by personal incomes and thus the economy. Regulation is also key. Zoning approvals and state licenses are requisite and are often one of a firm‟s most important assets. Success depends on the answers to some of the following questions: How large is the company? Does it exploit American Casino Industry 40 the advantages of its size? Can it raise the capital needed to maintain its operations and grow? Has the company differentiated itself from its rivals in ways that give it a competitive advantage? What is the likelihood that others will turn up the heat in its particular area? While these ideas and questions may seem repetitive with regard to Industry Forces, they should help to solidify the idea that the competitive structure of the casino industry is comprised of its industry forces and rests upon marketing. These also relate directly with Threats and Opportunities (Graves, 2000, p. 22). Conclusion This evaluation of the casino industry‟s competitive structure has shown the intense competition that exists, and although individual companies may differ in their strategies, each must tailor itself to meet the customer if it expects to survive. In this fierce scramble to capture customers, the casino has begun an unexpected, yet furious marketing campaign whose potential effectiveness has been hailed as a worldclass example. American Casino Industry 41 Evaluating Marketing Practices Introduction The recent influx of competition, along with the saturation of markets, has led much of the casino industry into a do-or-die race for effective marketing through the four P‟s: product, price, promotion, and place. The American casino industry‟s product has proved important in the realm of marketing. Uncharacteristic of many industries, the casino industry does not provide its consumers with a physical product. Rather, the product is the fantasy experience while in the gambling environment of the casino. It produces entertainment and the dream of fortune. While for some it is a hobby, to others it remains a dream or aspiration of the everlasting desire for wealth. In the fast growing mixture between the entertainment world and the casino industry, pricing has drastically varied from five dollar betting to million dollar tables. The evolution of new technology has lead casinos into a multibillion-dollar industry in which the variation in pricing between firms has played an important role. As is the case with all industries, promotion is an influential concept that greatly contributes to the growth of the industry. The standards for types of promotions, along with the audiences that are being targeted, have been largely focused upon in the past few years through marketing. Product The casino industry was one of the most dynamic segments of the leisure and tourist industries for the last quarter of the 20th century. “It is generally understood that a casino is a physical venue that offers table games such as: blackjack, roulette, craps, baccarat, poker and/or slot machines. These slot machines include reel-type slot machines, electronic gaming devices, video poker machines, amusement with prize machines, and fruit machines” (Legalized Casino, 1999). However, the industry has provided people with a much greater product: the dream of making money. Many people view casinos to be less as play and more as a sincere chance for them to transform their lives for the better. This aspect is what has made the industry so successful. American Casino Industry 42 Casinos have also been the lifeblood of some communities, generating revenue struggling cities need to sustain themselves. However, long-term studies often show that cities with casinos experience economic setbacks in addition to the benefits. The benefits are tax revenues and the creation of new jobs. Casino gambling provides job opportunities for dealers, slot attendants, and pit managers. Since the industry has become entangled with the entertainment world, there has been a huge increase in jobs in the hotel and restaurant industry. Hotel managers, bartenders, wait personnel, chauffeurs, and taxi drivers are in demand. Price The intertwining of the casino industry and the entertainment world has created a multi-billion dollar market. “By the late 1990s, casino gambling had grown into a $22 billion industry. During this period about 154 million Americans wagered $640 billion annually on all forms of gambling” (Greenless, 1988). The pricing structure of the casino industry is different from that of most other industries. Government intervention, as previously discussed in Analyzing Industry Forces, plays an important role in not only rules and regulations of gambling, but also pricing. Since slot machines and table games are calculated through a certain chance percentage, the casinos would be able to take any percentage of the money put into the slots without customers knowing. For this reason the government has imposed laws stating that casinos are restricted to a certain percentage set by the state. This helps protect the gambler. In turn, this forces casinos to gain their revenue by volume. Moreover, casinos work to attract as many people as possible through entertainment and attractions. In this rapidly growing technological era, innovations are constantly affecting a multitude of industries, including the casino industry. Entertainment corporations are creating new slot machines and means of entertainment for the casino industry. As a result, costs in the industry have rapidly grown. In order to stay up to date with the changing times, casinos must purchase new technology to satisfy consumer demand. As a result, profits have decreased while competition has increased. Casinos are spending millions of dollars in order to sponsor events such as boxing matches, in hopes that this will attract attention as well as customers. American Casino Industry 43 Due to the increase in costs and promotion of casinos, people tend to spend more money to play these changed games and spend vacations at hotels that are more luxurious. In addition, numerous casinos have purposely increased their prices as a marketing tactic. By only installing high-priced betting tables, these casinos hope to attract a more elite and wealthy group of gamblers who will, in turn, gamble more money. This technique has also worked in the www.americangaming.org Consumer Spending on Commercial Casino Gaming opposite direction; certain casinos focus their marketing towards a more middle and lower class in anticipation that there will be a larger audience and volume of gamblers. Thus, the pricing of the casino industry is changing in every aspect; not only are game prices elevating, but people are spending record amounts of money in gambling and casinos, as illustrated in the graph above. Casinos have been the financial saviors of many Native American tribes in the past decade. Taking what they thought as their sovereign rights, which exempted them from the laws of the states, tribes began putting card rooms and bingo halls in their reservations. Before long, many people were coming by the busload to play. Many tribes, such as the Mashantucket Pequot, began to seriously cash in on these casinos. The Pequot own the largest and most profitable Native American casino in the western world, with an estimate income of 2.6 billion dollars. The reason for this phenomenon is that Native Americans are exempt from the laws and taxes of the states and are, therefore, able to provide cheaper rates in areas where gambling is illegal. This has in turn attracted a large amount of people and enabled Native American casinos to grow and expand. Promotion Gamblers who come to casinos with the intention of winning money are habitually disappointed. As casino crime lord Meyer Lansky‟s universal gambling truth stated, “gamblers never win, the house American Casino Industry 44 never loses” (Legalized Casino, 1999). Slot machines and most table games allow players to make bets where the probability of winning is relatively high. While frequent wins are characterized by low payouts, these wins encourage further gambling. Frequent-winning and low paying games are not the only way casinos get people to keep playing. Nothing less than psychological warfare is going on at casinos across the country. “The days of shaved dice, missing face cards and rigged roulette wheels are long gone. But the pursuit of profitability in the corporate era of gambling has turned the average casino into a financially hazardous place for betters” (Legalized Casino, 1999). The casino‟s beliefs are all based on the fact that since the house has an advantage over the player, the longer the house can keep the player playing, the more money the house will make. The gambling industry spends millions each year making casinos more comfortable by widening isles, creating fresher air, and putting back rests on the chairs at slot machines. The casinos do such things in order to keep the gambler gambling, because every minute is a minute‟s profit, and, without any clocks in sight, the minutes can add up (Legalized Casino, 1999). Casinos have false ceilings with rooms above them where security can watch for cheats and swindlers. From these same vantage points there are other people with alternate jobs. They are hired to observe and study what situations encourage gamblers to play longer. As stated before, the longer people play, the more money casinos receive. These tricks of the trade are not just directed at the comfort level of the players, but also at their subconscious. Adding a certain scent into the air can make slot players spend up to fifty percent more than average at times. When money is turned into chips, in the player‟s mind, it decreases its value. When a gambler asks a dealer for change for a hundred dollar bill, the dealer is under orders to give the player the lowest denomination possible, in five-dollar chips. The player would easily spend the fivedollar chips as pocket change. However, a twenty-five dollar chip is much more likely to be saved or even cashed in. Colors, which can affect the subconscious mind, play a very important role in marketing. Betters can be easily drawn to bright red machines, but tire of them quickly. Many casinos now put bright red American Casino Industry 45 machines on the outside of isles. Inside the aisles are the calmer cool blue and greens that seem to encourage the player to stay longer (Legalized Casino, 1999). Similar to other industries, the casino industry utilizes traditional means of advertisements. Television commercials, radio advertisements, One form of entertainment casinos can advertise. magazine advertisements, billboards, and online advertisements are all techniques that are used to attract certain audiences. In this technologically advanced era, the Internet has played an important role in all sorts of businesses; the same stands for the casino industry. Although there has been government intervention, the promotional techniques of the industry have also been regulated. Casinos are not permitted to advertise any gambling activities. As a result, they are forced to incorporate entertainment and resorts in order to advertise for themselves and attract people. Casinos utilize the Internet to advertise for such things as entertainment events and vacation packages. This technique also works in the opposite direction. Casinos advertise for their online gambling sites through their actual casinos by posting signs, distributing brochures, giving away T-shirts, and providing discounts. In addition to these traditional promotional techniques, casinos also use methods such as gambling tracking cards, casino-credit cards, and airline and hotel packages. By offering casino-credit cards and gambling cards with point systems, casinos hope to gain customer loyalty. If gamblers begin to accumulate gambling points, which are rewarded, they are more likely to return to the same casino. Often, casinos focus their marketing towards “high rollers” by offering them special packages including hotel rooms and private jets. Providing reward programs for loyal customers is common. High American Casino Industry 46 wagering people are offered private gambling tables, luxurious sweets, and in some cases sexual pleasures. Once again, this is provided in order to attain the loyalty of high rollers. In the mid- to late-1990s casinos began targeting families. By modeling their casinos after themes such as carnivals, ancient Egypt, or treasure islands and by providing services such as childcare, casino operators successfully marketed their casinos for family outings and vacations. The Mirage casino constructed an indoor zoo and a number of creative architecturally shaped pools. In doing so they had hoped to appeal to families with younger children, so that not only would there be adult activities, but there would also be numerous activities for their children. In addition, they also offer childcare for young children and alternative activities for older children, such as concerts and shows. The Flamingo casino, for example, offers shows such as the musical “Men Are from Mars, Women Are from Venus.” Moreover, the themes helped casino operators distinguish their gaming houses from those of other operators. While some analysts have viewed the family-oriented casino marketing attempts of the 1990s as a failure, one can easily see the positive changes at work in the casinos marketing towards families. Casino owners are trying to make the experience more pleasurable for gamblers. For example, the Stratosphere features Super Tush 2000 seats. Many casinos also have designated smoke-free floors. Additionally, some casinos, including the President Casino in St. Louis, have clubs frequent players can join to earn free meals and merchandise. To increase commerce, casinos have increasingly targeted business people for marketing. By offering grand auditoriums and convention halls, along with special promotional offers, the casino industry has successfully attracted corporate attendance. However, today‟s business traveler is demanding that the same electronic entertainment and service amenities found in the home and office be present in their hotel rooms at the casinos. However, to turn a room into an electronically modern environment with the latest computer, telephone, and television technology is not a simple task. Various casinos have decided to begin integrating their rooms into “smart” rooms, which contain the latest technologies, such as computers with the Internet and DVD players (http://web.lexisnexis.com/universe, 2000c). American Casino Industry 47 As competition for the gambling dollar increases, casino resorts across the world are seeking ways to differentiate themselves from the crowd. Increasingly, properties are turning to interior and exterior landscaping to distinguish the property through the creation of elaborately themed gardens, poolscapes, and green areas. Casinos are utilizing themes such as New York City and Egypt (Start casino, no date). As the casino industry and entertainment have grown together, individual casinos have not only incorporated entertainment technology, but they have also worked in association with one another to create synergistic effects. Casinos such as the Mirage and Treasure Island, both owned by Mirage Entertainment, have worked together to organize entertainment shows such as Siegfried and Roy or laser light shows. Other casinos have organized national events such as conventions or heavyweight championship fights to attract attention. The restaurant industry is another aspect that has contributed to the grand scale marketing techniques of casinos. Casinos offer an enormous amount of cheap food at the casinos in an attempt to keep people inside. Many casinos have such specials as "Women eat free at 6:00" to cover the slower times of the day. Others have gourmet restaurants to attract wealthier clients, many of which are tourists. Gamblers are at the mercy of the big business casinos. Most people do not fully realize how much they are controlled by institutions that have made a science of studying their behavior at the gaming tables. Place As a high investment business, information from market research is a critical part of in the initial investment plan. The use of Geographic Information Systems has played an important role to assist decision-making in business applications. It provides a completely new dimension to information processing by introducing spatial aspects to market research (http://proquest.umi.com, 1999b). This system has provided demographics data so that casino operators can effectively market and open new casinos in the most effective locations. These locations of casino operations are subject to variable regulations set by the government. This has had a great impact on the geographic nature of the American casino industry. Casinos in the American Casino Industry 48 United States have been restricted to certain states, which have allowed gambling only in certain cities, such as Las Vegas, Atlantic City, and New Orleans (see Industry Forces). Indian reservations are the other main areas in which casinos are located. Since Native Americans have been exempted from state laws, many tribes have been able to construct non-taxed casinos on their reservations (AICPA, Map 1994, p.62). As shown in the map to the left, this accounted for a great majority of casinos located in the United States. In this highly competitive www.americangaming.org environment, effective marketing is necessary for survival and advancement. Using new technology, casinos are now trying to understand individual customers, so that they will be more effective in their marketing attempts. By incorporating such added benefits as themes, casinos have an easier time marketing the product of fantasy while also using pricing differentiation to target individual customers. Considering the geographic diversity of the casino industry and all its complexities, it is clear that casinos must utilize effective marketing to take advantage of opportunities while avoiding threats. American Casino Industry 49 Industry-Wide Threats and Opportunities Introduction The economy, state governments, society, technology, and competition are commonly recognized as the sources of threats to the casino industry. The following threats can be identified as some of the most significant: the slow-down of the economy, regulatory laws, the industry‟s reputation in the society, and technological changes. These threats show weak points of the casino industry that should be given detailed analyses. The threats of the past and the present help suggest what threats might occur in the future. The actions taken to deal with threats in the past can help develop a method for dealing with those same threats in the future. Casinos will be able to avoid potential harm by recognizing both the threats and their sources, along with possible solutions. Potential opportunities in the casino industry play a vital role in its growth and progress. There are many opportunities available each year. The economy, federal and state governments, technology, and marketing are the most dominate sources of such opportunities to the casino industry. Tremendous growth of the industry in the past decade has been due to such opportunities as technological evolution, state laws, and a stable economy. Both missed and recognized opportunities provide examples for current industry leaders dealing with the ever-changing casino industry environment. The industry-wide threats and opportunities have many similar sources, and these can provide both fortune and misfortune in the industry, depending on time and vantage point. Through the stormy navigation of sometimes-ambiguous signals, the casino industry has learned to recognize and capitalize on opportunities while minimizing threats. Threats Economy The economy of the United States is constantly oscillating, even through long periods of sustained growth or decline. The casino industry, similar to many other industries, greatly depends on the conditions of the economy. Both economic stability and instability are major sources for threats of the American casino industry. American Casino Industry 50 Economic instability yields a scarcity of both consumer spending dollars and bank capital loans. When there is a lack of money in people‟s pockets, they tend to hold onto it just a bit tighter, and thus the trips to the casino for the leisurely form of entertainment, known as gambling, either slows down or stops completely. Economic instability also has an effect on the capital market, which the casino industry relies heavily upon for loans. On the other hand, economic stability can also develop into a potential threat. In times of economic stability, local governments are less likely to legalize casinos or provide more licenses. This is because governments are no longer in need of casino taxes to boost their revenues during these times. Economic conditions greatly affect the casino industry. However, different groups appreciate economic shifts. Established casinos enjoy better revenues during positive economic times, while entrepreneurs enjoy greater opportunities during economic downtimes. Considering the fact that the economic situation affects lawmakers, government actions must also be analyzed. Government Actions Since the inception of the casino industry in the United States in the early 19th century, government actions have been a source of a threat to the casino industry. The federal government and state governments play different roles in regulation of the casino industry. While state governments handle the licensing and regulation of existing casinos, the federal government handles larger issues such as the legality of online gambling. The state governments are the ones who decide which types of regulation to impose upon the casinos located within their state borders. There are two major types of these regulations. One is licensing. Casino owners, managers, game manufactures, distributors and educational facilities for employees have to meet specific licensing standards of a particular state in order to work in a casino (http://www.ci.las-vegas.nv.us/history.html, No Date). The second regulation is “ongoing review and enforcement” (http://www.uwm.edu/, 2000, p. 1). State governments regulate the casino industry very closely through this type of intervention. One of the reasons why the casino industry is monitored very rigorously is due to the fact that there exist many American Casino Industry 51 opportunities exist for fraud because of the high amount of cash transactions. Being dependent upon state governments, the casino industry must be resourceful in order to thrive. The federal government can also play a major role in the industry. The National Gambling Impact Study Commission (NGISC) was formed by President Bill Clinton to “look at gambling‟s connection to crime and bankruptcy” (http://galenet.galegroup.com, 2000a, p. 1). The results of this study could have a major impact on how casinos are perceived. To deal with the two main forms of restrictions, the casino industry should concentrate its efforts on lobbying as previously discussed in Analyzing Industry Forces. Lobbying is widely used by various industries to introduce favorable laws, and the casino industry should not be an exception. Society Society and its perception of casino gambling represent a source of threat to the American casino industry. Casino gambling is known by some in the United States as a game of addiction. “Addiction is compulsive need” (http://casinogambling.about.com, 2000, par. 3). Casinos provide people with the fantasy of winning. As with all addictions, gambling can lead to devastating results. Anti-Gambling Picture Organizations such as the National Coalition Against Gambling (NCAG) try to stop casino gambling from spreading. The NCAG was successful in 1996, when they alone defeated 30 gambling state proposals. Anti-gambling organizations are a threat due to the infamous reputation that they create for http://www.ncalg.org the casino industry. As a result, casinos can lose money from such campaigns against gambling addiction along with gaining negative reputation (http://galenet.galegroup.com, 2000a). In the past, crime has had a tendency to flourish around casinos when large amounts of cash are circulating and innumerable cash transactions are taking place. Groups of drug dealers start to increase the sale of drugs, and illegal alcohol distribution, theft, and prostitution have had a tendency to show up in areas with casinos. These activities endanger the safety of individuals living in that area. Consequently, American Casino Industry 52 local governments show their concern for citizens by strictly regulating and in some cases banning casinos. There have been occurrences when casinos try to cheat their big winners. One example of such an incident occurred in Arkansas where a couple filed a lawsuit against Fitzgerald‟s Casino. The couple was playing on a $25-per-play slot machine when Sharon Jones hit $40,000 on the slot machine. Employees claimed that the machine was broken, so the amount went unpaid. Besides refusing to pay the winnings, the casino threatened the couple. The Jones‟s are now seeking to regain their winnings of $40,000 and an additional $750,000 in punitive damages. Cases such as these have had a negative effect on the image of the casinos as a whole (http://www.webarchives.net/december_1999, 1999). Technology Many forms of technology have revolutionized the casino industry. This evolution in technology has brought the casino industry to a higher level of achievement and has allowed for mass customization. However, technological innovation creates difficulties for the American casino industry as well and must be viewed as a potential threat. While online gambling was introduced relatively recently, immediate concerns arose from both the government and some traditional land casinos. Online gambling is extremely hard to control in terms of the age and geographic location of online casino players. Some states prohibit casinos, but when people go online, they can play from any state they desire with only a small chance of being tracked. While gambling is strictly illegal for minors, the Internet provides a new place for such gambling to take place. The government has noticed such illegal activity. Due to some of these problems and the extensive lobbying land casinos have done, the U.S. government has attempted to ban online gambling. United States Senator Jon Kyl introduced a bill to ban online gambling, but it was never passed by both houses. Unfortunately, many online casino companies are located in the Caribbean, Antigua, or Romania, and the United States cannot enforce its laws to locations outside of the country‟s borders. Trying to force Internet Service Providers into policing the Internet can prove tricky as well. American Casino Industry 53 Another bill that might affect the casino industry was introduced recently. This bill “would prohibit credit-card companies from completing transactions with online casinos” (http://www.casinojournal.com/, 2000b, pg. 2). Although this could put a temporary hold on virtual bets, many feel that online casinos would find ways around this ban and continue business as usual. Therefore, online gambling, a multi-billion dollar component of the casino industry, would only be threatened for a short period of time. The spread of casino equipment into places other than casinos is a threat that technology has made possible to exist for quite some time now. In many states where gambling is legalized, slot machines have become an every day reality. This fact often has the effect of taking away the excitement of the actual casino. In Nevada, slot machines can be found in places as common as the local grocery store. This wide spread of the casino equipment Las Vegas Map reduces the originality of the actual casino, as casinos turn into an everyday event for people. Technological advances have become a source of many everyday threats that the American casino industry faces. From the Internet, to the wide spread usage of casino equipment, the threats provided by technology greatly affect the casino industry. Competition In any industry, competition is a major source of threat. Firms compete for consumers and may lower their prices. One example of such competition is occurring in Las Vegas. In Las Vegas, there are a great number of casinos located extremely http://www.prairienet.org/~scruffy/e.htm American Casino Industry 54 close to one another as illustrated on the map to the above. This saturation of some casino gambling markets has drained profits for casinos, as they offer promotions and build better casinos. The growth of casinos across the United States has created higher levels of competition. Competition is regarded as beneficial to customers but can present a threat to the casino industry itself. This is partially due to each individual casino‟s attempt to be competitive. Through these attempts, the individual casinos can get so carried away as to bring down the revenues of the industry as a whole. The economy, government, society, technology, and competition remain the sources of many threats to the American casino industry. Threats are inevitable in any industry and, thus, will continually arise throughout the future of the casino industry. The casino industry needs to adapt in order to minimize the damages that might result from the potential threats. Opportunities Economy The same reasons that make the economy a source of threats for the casino industry also provide opportunities. Again, one‟s position in the industry will determine if an economic event is a threat or an opportunity. When the economy is faring well, there is an opportunity for existing casinos to enjoy greater profits. During good economic times, consumers spend more on entertainment and the casino industry benefits. Thus, good economic times provide the greatest opportunity for established casinos. Entrepreneurs, on the other hand, view economic downturns as opportunities. It is during these times that politicians are looking for ways to generate greater tax revenues. Casinos seem to be the easy solution and, therefore, a greater number of licenses and casino legalizations occur during bad economic times. Federal Government The government has been a key source for growth and development of the American casino industry. During times of slowdown in the economy, the American casino industry has managed to sustain growth due to the flexibility of laws introduced by the government. The casino industry has used American Casino Industry 55 lobbyists as a means to alter the opinions of people in the government and hopefully to change laws as well. Lobbying is an absolute necessity for the American casino industry, in that it gives this controversial industry a chance for survival in the United States. State Governments Today, forty-eight states have some form of legalized gambling, more than twenty of which include casino gambling (http://galenet.galegroup.com, 2000a). The state governments have, at times, been very helpful in the process of expansion and growth of the casino industry. Though the issue is debated, many people feel that having casinos is beneficial for the states. The casino industry can provide job opportunities in the area of casinos‟ location, while bringing related businesses such as hotels and restaurants to the area. The casino industry can attract tourists, which is beneficial for the state‟s economy as well. The taxes that casinos pay to the government can be very helpful. Turning Stone Casino in the New York State contributes “more than $158 million to the state‟s economy each year” (http://www.syracuse.com/newsstories.html, 1999, p.1). If states were to accept these ideas, they would have great reason to welcome casinos. For casinos, it is a great benefit, because they are able to reach more customers, and they benefit from having state governments supporting them. State governments have a very strong affect upon their districts and borders, and the growth of the casino industry in America is dependent upon each government on the local level. Technology Technology has been a large source of benefits in the casino industry. In the past decade, the technological evolution has rapidly expanded. One of the latest technological innovations has been the Internet. Online casinos have been established to reach more customers. Internet casinos are very cheap to build compared to land casinos. Some people prefer to gamble at home, because it is so much more convenient. Online casinos got $1.1 billion in bets in 1999, and $2.2 billion is expected in year 2000 (http://proquest.umi.com, 2000a). The tremendous growth of virtual casinos shows that the casino industry has grasped technology as an opportunity and is using that opportunity to maximize their profits. American Casino Industry 56 To enhance the safety and comfort of land casinos, many security systems have been introduced. CDS‟ OASIS casino management system was developed in the year 2000. This system is based on the Windows ® operating systems and OASIS extremely easy to use. It is accurate and fast. Using electronic monitoring, it is able to effectively keep track of every player (http://web.lexisnexis.com/universe, 2000e). This provides safety for both casino and consumer, because both are protected from theft and cheating. Technology helps the casino industry to grow by providing access that is more direct to individual customers. New security and organizational systems help to run casinos more efficiently. Technology greatly improves growth and stability of the casino industry. Technology helps casinos decrease expenditures on once-costly practices. New technologies allow the casino industry to run business faster and more efficiently. Technological innovations are on the rise, and with the latest innovations, such as the Internet and security systems, the casino industry needs to concentrate its efforts to further grasp such opportunities. Marketing Marketing is a major source of opportunity for the casino industry. Heavy advertising has been done through many mediums so that the majority of Americans will be exposed to at least the names of casinos. The GPS system, billboards, Internet advertisements, mail pamphlets, and television are just a few of the ways in which casinos reach out to their customers and pull them in. Casinos spend enormous amounts of money on these types of advertising to draw in potential customers. There are many benefits for each type of advertising. This was discussed to a greater degree in Marketing Practices. Marketing is an important aspect that, if practiced wisely, provides the industry with financial success and more customers. Conclusion There are many threats that are presented to the casino industry. Their sources -- the economy, government, society, technology and competition -- have proved to be strong factors pressing the industry American Casino Industry 57 to its limits. Effective management of these sources is the only way that the casino industry will move forward into the 21st century. Opportunities and their benefits are critical to the success and growth of the modern day casino industry. The state and federal governments, the economy, technology, and marketing practices are all sources of opportunities for the casino industry. Considering the tremendous growth of the industry in the past decade, conclusions can be drawn that the casino industry has been taking advantage of many opportunities, and if this tendency continues, such success will naturally follow. Despite the threats and with the help of many opportunities, the casino industry remains a multibillion dollar industry. This industry has been successful, especially in the past decade, and has proven to be a rapidly growing industry. In order to improve even more, the casino industry should minimize its threats through recognition and preemptive action while looking ahead for possible opportunities and using strategic placement. American Casino Industry 58 Recommending Strategic Changes The future of the United States casino industry will most likely be an interesting one that should span well into the 21st century and possibly beyond. While there will be unexpected changes and developments along the way, the casino industry‟s future will depend heavily upon the same forces that it has depended upon in the past. Such forces will involve government actions, socioeconomic trends, customer needs and actions, resource availability, the economy, and technological changes. These forces will have impacts upon marketing tactics, the future of online gambling, and the domestic and global industry competitive structure. Such a future forecast will yield recommendations for existing firms to capitalize on opportunities while avoiding threats. As has been the case throughout the history of the casino industry, government actions will continue to influence the industry in a most direct manner. It is the state government that sets the profit limits that casinos are able to enjoy. The state governments also determine licensing guidelines and the number of which they will distribute. Therefore, the state governments have the power to direct the growth of the industry. This power, barring major change in laws, will still be in effect 20 years from now. This provides both opportunities and threats for the industry as a whole. It is recommended that casinos lobby government lawmakers, as they have been doing, in order to receive licenses, lower restrictions, and increase profit limits. This would provide expansion for existing casinos and entrepreneurial opportunities for newcomers. It is very likely that the federal government will come to a decision regarding the future of online gambling within the next year. Such a decision could have enormous impacts upon the competitive structure of the industry along with the marketing tactics used. As discussed previously, most traditional land-based casinos are lobbying for anti-online gambling legislation as protection. The government posses another threat to the industry with regards to public sentiment. The results of the NGISC, as previously discussed in Industry-Wide Threats and Opportunities, could stain the image and reputation of the casino industry that it has worked so hard to clean up. For a long time, casinos have marketed themselves as economy boosters through tax revenues, increased tourism, and job American Casino Industry 59 creation. If the study found that these allegations were overstated, or worse, that casinos created local crime, drug use, depression, and other negative externalities, the expansion of the casino industry could slow down, if not stall, for several years. Such an impact could not only affect local lawmakers wary of casinos, but it could also affect the socioeconomic trends involved. Throughout the casino industry‟s history, consumer behavioral patterns, lifestyles, and values have changed. This is most evident in the bumpy road of legalization. Certain states made casino gambling legal and then outlawed it only to legalize it once again. The casino industry has worked very hard to remove its negative image of sin through promotion and marketing tactics geared toward families. However, much of this perception could change with the Clinton Study. If such a negative image did evolve, the casino industry could begin a marketing campaign designed to soften its image, as the tobacco industry has done. There will be other changes in socioeconomic trends and customer needs and actions as well. Currently, U.S. consumers are saving at some of the lowest rates in history, and this is obviously beneficial to the casino industry. These spending and saving patterns will change at some point in the future, and the casino industry will have to adapt. Values could change as well. Today, entertainment is viewed very positively, but in an economically slow period, casinos could be viewed as wasteful. Consumer values directly correlate with the demographic makeup of an industry. Like many U.S. industries, the casino industry is facing a major shift in its demographics as the population ages. In the future, casinos will be catering to a greater number of retirees that tend to be more financially cautious. Marketing will have to change with such shifts, and casino operators will have to find innovative ways to attract older Americans while not estranging younger customers. Some casinos might attempt to market only to older Americans, while others might try to bring in a variety of demographics. The future of the casino industry is also dependent on resource availability. Energy, as a resource, could come to play a greater role in the future. As Americans use energy to greater extents, energy has become more expensive. Should a situation similar to that in Silicon Valley arise, where there were devastating energy shortages throughout the summer, energy could be viewed as more of a critical American Casino Industry 60 resource. Another force, the availability of capital, the industry‟s most precious resource, could decline if the industry came to be viewed as declining or risky. A capital drought would limit the expansion and acquisitions this industry is so fond of. The availability of land will also play a critical role in some areas. Similar to the situation on the Las Vegas “Strip,” other areas could develop to a point where land becomes very scarce. More likely, though, the critical resource of casino licenses will limit further expansion. As discussed, social and governmental perceptions determine the availability of such licenses, and it is up to the casino industry to lobby for what it wants. The economy will continue to play a directive role in the casino industry as well. If the economy does well, which is the present scenario, the casino industry, along with other entertainment industries, will benefit from increased profits and revenues. States will be less willing to give out casino licenses, because there will not be a need for the tax revenues casinos create. Therefore, during a good economy, existing casinos will do well, but the industry will not expand much geographically. On the other hand, if the economy turns south, which is forecasted within the next 10 years by many economists, the casino industry‟s profits will decline as consumers curb spending. It is during these times though, that states look for extra tax revenues. They accomplish this task either by legalizing casinos or by giving out more licenses, thus increasing the geographic scope of the industry. Both economic cases, which we should see in the next 10 years, provide the casino industry with opportunities and threats. It is recommended that existing casino companies be prepared for both scenarios. It might be recommended to have capital saved, while it is also recommended to seize every opportunity for expansion into new markets, such as California. Technological change is a force that will continue to shape the casino industry in the future. There will be research and development directed towards newer and better table and slot games, as well as security systems that are more advanced. The most promising developments in the next 10 years, though, will most likely involve marketing. As competition has increased, casinos have been forced to develop better marketing techniques. With direct marketing, casinos have been able to target a single customer in order to determine his or her individual needs and wants. Such marketing will continue with American Casino Industry 61 the help of technological advancement. With the increasing use of gambling cards for frequent gambling points, casinos can track where, when, and how much customers spend in casinos. Individual slot machines are being integrated with advanced computer systems and card scanners that read such cards, and hotels and other venues are being readied for their use as well. After gathering the appropriate data, casinos will be able to send direct mailings to customers offering discounts on the particular activities they enjoy. If it is determined that a particular customer tends to leave after 45 minutes on a particular machine, an employee could bring that customer a complementary beverage 43 minutes after the player arrives in an attempt to keep the customer gambling longer. The possibilities of this type of marketing are astounding. This style of marketing will be readily used within the next 5 years, and the casino industry will raise the bar for what is termed “effective marketing.” Another technological advancement in the industry has been the introduction of online casinos. As the Internet plays a greater role in the day-to-day lives of Americans, the idea that the online casino sector is poised for great expansion is a real possibility. This expansion, at least where the United States is concerned, will be directly affected by any government action or inaction, for that matter. Regulation could put a near end to such activities, and there are many critics, including Senator Kyl, who resolutely support such regulation. If online gambling persists, as it very well could, it is most likely that a few major players will emerge, and the others will drop out. Such has been the case in most Internet sectors. However, before such shakeouts occur, online casino marketing could get interesting and customers could benefit from great promotions. It is recommended that traditional casinos attempt to get into this market. Traditional casinos have the edge of being able to market their online sites while a customer is sitting at a real slot machine. Casinos should integrate their frequent gambling cards and promotions with their online sites. That way, when customers were not gambling at the Harrah‟s Las Vegas land casino, they could be gambling at work or home on Harrahs.com online casino. Online casinos will also continue to affect the competitive structure of the industry. Most obviously, traditional casinos will have a new form of competition to deal with. It is predicted that U.S. American Casino Industry 62 casinos will continue to lobby against online gambling, as these sites tend to steal profits away from other casinos. Besides the changes brought about by online casinos, the competitive structure of the industry will change dramatically in the United States. These changes will vary in degree depending on the area concerned, but changes of some sort will affect all. Well-developed markets such as Las Vegas will continue to stomp out smaller competition, but it is not predicted that an oligopoly or monopoly will develop in these markets. Though such a situation is possible, it is not likely due to the many investors willing to enter into the casino industry. Competition will continue to be tough in such well-developed markets, but the growth in Las Vegas will slow, and the market may even shrink in response to its overextension and saturation. Across the nation, the story will be different. Such markets could be developed over the next 30 years or more, pending government regulation. California, for example, which recently legalized casinos, will go through an intensely competitive period as different cities fight for licenses and customers. An inevitable shakeout period will occur. This process will continue until the Californian market is saturated. Such saturation would mean that there are enough casinos in appropriate locations to meet demand. This saturation will most likely not reach the level that Las Vegas has reached, but there will be many casinos. While there may not be as many casinos, their quality will be comparable to those of Las Vegas. This is because the investors that build casinos in California will be the same ones that are building in Las Vegas. This process of market saturation could take decades depending on the number of licenses and restrictions the state imposes. Then there are states that presently do not permit casinos. It is predicted that states like New York, which only allows casinos on Native American reservations, will jump onto the bandwagon as neighboring states enjoying tax revenues from their casinos. Thus, the monopolies that some Native Americans enjoy could end in the future, and the casino industry could expand across the United States like a virus. Such expansion, which may take 50 years or more, would continue until the United States market was completely saturated and consumers did not need to drive hours in order to gamble. This American Casino Industry 63 expansion will put a serious drain on such well-developed markets as Las Vegas and Atlantic City. Casinos will become as common as movie theatres and customers will not feel the urge to make the trip to Las Vegas. Again, this industry expansion throughout the United States may never happen; and if it does, it may not reach maturation in our lifetimes. United State casino companies will continue to spread on a global market as well as a domestic one. These markets will accept or reject them similarly to the states of America. It is predicted however that casinos will eventually be accepted by the world, and maybe some day, everyone will have the chance to go to a nearby casino. American Casino Industry 64 Conclusion The casino industry is an integral part of the leisure and entertainment world. The concept of casinos has not changed much since their inception at the beginning of the 19th century; people go to casinos to gamble. What has changed is their scope. Technological development, economic growth, advanced security systems, and new marketing strategies have moved the industry into a new stage of rapid growth and reshaped it into a widely accessible form of entertainment through the Internet. Throughout the casino industry‟s history, casino gambling has always been regarded as a vice by society. Neither restrictive laws nor anti-gambling associations have been able to stop casinos from becoming a multi-billion dollar industry. Instead, the industry has managed to utilize available opportunities to their full potential and navigate through numerous threats presented by the economy, society, competition, technology, and government legislation. While federal and state governments play an important role in shaping the casino industry, they have limited power to impose the “traditional” laws on the Internet-based business. 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