If given the task of selecting a competitive blend of gaming devices for a new casino, where would the best starting point be? Planning for a new casino takes many twists and turns, but some portions of the decision process are consistent with the planning phase for ordering new machines at an existing casino.
The first step is analyzing game performance at the property level. For those casinos that have slot tracking systems, the process of analyzing game performance is faster and more reliable than physically reading mechanical meters for accounting purposes. There are a few variables that change the performance of games in casinos that we must be cognizant of when performing game analysis. Variables such as location, denomination and hold percentage play a key role in defining a slot device’s value to the overall property.
When deciding whether the game is performing up to standards, the actual revenue of a single machine is irrelevant, and should not be used as the only decision maker. Instead, a host of other key elements that make up the characteristics of the game will assist with your decision and provide support for it.
Location Let us start with location. Locations within the casino are not all the same — the entrance of the casino will likely have the highest foot traffic, supporting increased revenue opportunities. Foot traffic is an important element for all casino locations; when a facility is properly planned to support foot traffic throughout, the gaming devices share equal opportunity. So, the first variable looked at to determine the value of a slot machine is its location, comparing its revenue to the other machines in the same location.
Denomination Denomination is another key element necessary for the analysis of game performance. When deciding on ordering new games for the casino floor, the denomination of the gaming device will be required. Determining which denomination devices, you should order requires knowing how many gaming devices you currently have of each denomination and the performance of the denomination in comparison to past revenue numbers. For example, “Casino ABC” has 50 nickel machines that generated $100 W/D/M (win per day per machine) in January; in February it decided to increase the number of these machines to 75 since their numbers were favorable and generated more than $20 W/D/M over the house average. By April, the revenue on nickel machines dropped to $80 W/D/M due to the increased number of devices. With 30 days in the month of April, the revenue that would have been generated by the 50 machines at $100 W/D/M is $150,000. By adding the additional 25 machines to the mix of nickel games, the property realized a decreased daily average win from $100 to $80 but, with 75 nickel machines generating $80 W/D/M, improved the overall win to $180,000. This is partly due to the under-saturation of the nickel product, which assisted in increasing its revenue capability.
Through continual analysis and by researching the value of denominations, the property can off-set declines when there is a potential saturation (having more product than customers for that product).
Hold Percentage Hold percentage is another key element that affects the value of the gaming device when judging game performance with actual revenue numbers. The popularity of a gaming device is typically determined by the coin-in, or handle, it generates. The more coin-in the machine has, the higher it is set on the popularity chart. But making decisions on coin-in without a good review of theoretical hold could have a negative financial impact on the slot department if not weighed carefully. A perfect example of this type of financial impact occurs when the casino fails to evaluate the difference between coin-in and hold percentage when evaluating game performance and sets out to increase the number of highly popular devices with a single goal of improving its coin-in. The decision to replace higher-hold games with more popular low-hold games requires an increase in coin-in to support the change.
For example: To increase the volume of play per day, Casino ABC elects to reduce the hold percentage on its 75 nickel slot machines that generate $80 W/D/M. The nickels’ current hold is 8 percent, generating an average $1,000 coin-in per device per day. The casino opts to reduce the hold to 6 percent on all nickel machines. For the casino to maintain the same $80 W/D/M, the coin-in for the nickels must increase to $1,333 a day, which represents an increase of 25 percent.
This is notable to remember: The casino’s hold percentage declined by 25 percent (the 2 percent hold difference was 25 percent of the original 8 percent hold), requiring an improved coin-in of 25 percent to maintain the same win per machine per day. This relationship between the coin-in and hold is a constant.
Manufacturer Mix Now that we have some of the key variables out of the way, we can address the process of game selection for the casino when either replacing or adding slot machines to the current mix. Location, denomination and hold percentage are universal, meaning all manufacturers have all the denominations and hold percentages that you can utilize, and all casinos have various locations on the slot floor. Conversely, items such as cabinet style, game models, game features and sound packages are inherent to the various machine manufacturers as part of their intellectual property. Decisions related to adding or changing games based on popularity involving the machine manufacturer is conducted once the initial analysis is completed at the property level.
Each time another variable is added to your analysis, the calculations begin to get more complex. In determining the appropriate mix of manufacturers, analysis is performed to gather information related to the number of units by manufacturer separated by denomination. With the denomination analysis complete for the nickel machines at Casino ABC, we then note that four manufacturers have supplied machines in that denomination to the casino. Manufacturer A has 10 machines generating $1,500 coin-in per day per machine with $50 per day W/D/M; Manufacturer B has 20 machines generating $1,100 coin-in per day per machine with $75 W/D/M; Manufacturer C has 25 machines generating $1,000 coin-in per day per machine with $95 W/D/M; and Manufacturer D has 20 machines generating $800 coin-in per machine per day with $100 W/D/M.
Game Selection If we looked at popularity only, Manufacturer A’s 10 devices generating $1,500 dollars per day in coin-in would be at the top of the list of games to purchase and the machines generating $800 would be replaced with the newer games.
The balancing act to move the nickel hold percentage from 8 percent to 6 percent through new equipment is going to be a challenge without losing valuable revenue. As we stated earlier, the hold percent and coin-in change relationally. When the hold goes down, the coin-in has to go up in the same proportion.
While it might not be advantageous to eliminate any of the nickel devices, a quick review of the other denominations may lead to a clearer picture of how the nickel denomination is performing within the casino. If another denomination is declining while the nickel or penny denomination is growing, it is in the best interest of the property to downsize the declining denomination and increase the growing denomination. This is where the analysis of hold percentage, location, denomination and now manufacturer comes into play. At some point in making this decision, a careful review of the installation schedule should be performed to ensure that an over-saturation of the intended product does not occur, giving you more product than customers.
If Casino ABC’s decision to increase the nickel machine count from 50 to 75 created a decline in W/D/M from $100 to $60, the loss of monthly revenue would have fallen below the previous revenue, making the addition of 25 games unprofitable.
In my next article, we will continue with this discussion on the formula for making sound business decisions when changing the mix of games on your casino floor, then eventually look at how to set up a new casino with no in-house historical records to guide you.