Recession? Lean on Analytics

After a brilliant post-Covid resurgence, the U.S. gaming industry now looks to be facing a new challenge, that being a recession of at least some magnitude. David Jacque Farahi (l.), executive chairman of Quick Custom Intelligence and former COO of Monarch Casino & Resort Inc., offers his thoughts about the importance of data analytics in an uncertain economy.

Recession? Lean on Analytics

Seventy percent of economists predict a recession in 2023, according to a Bloomberg poll. There was the adage that the casino industry is recession-proof. We learned that to be false in 2008. Why? In recessions prior to 2008, the supply-demand dynamic of the gaming industry was lopsided, and there was a lot more demand than there was supply, given the limited number of gaming markets.

Additionally, in prior recessions, Las Vegas had yet to change its business model. It was still the land of cheap buffets and discount hotel rooms, so what better place to visit when you were low on discretionary dollars? Sadly, those days are over. Today, gaming industry supply has outgrown demand nationally, and most casinos are no longer the home of cheap buffets, if they even have them any more (among other low cost forms of “loss-leader” entertainment).

So, if a recession is coming, and the gaming industry is no longer recession-proof, we should be hunkering down and preparing for a tough year. The best way to do this is to make our businesses more efficient. We can do this by reducing unprofitable expenditures and identifying areas for profitable growth. There is no better way to accomplish these two goals than with analytics, or, said more simply, by using data to make more informed decisions.

We know properties are extremely data-rich, with endless data sources, from slot accounting systems, to F&B POS terminals to the hotel and beyond. The hard part is corralling all this data into one place and in a form that can be flexible, reported on, and, most importantly, acted upon.

This is no easy task. Some operators have been able to do this internally, but often, it takes outside professionals to do it right; and when it is done right, the sky’s the limit. You can slice and dice your data with speed and accuracy, driving actionable insights to make your operation more efficient, all with the flexibility and immediacy that rapidly changing market conditions require.

Professor Tom Davenport, who literally wrote the book on the subject (Competing On Analytics: The New Science of Winning), describes it this way: “Leading companies are doing more than just collecting and storing information in large quantities. They’re now building their competitive strategies around data-driven insights that are, in turn, generating impressive business results. Their secret weapon? Analytics: sophisticated quantitative and statistical analysis and predictive modeling supported by data-savvy senior leaders and powerful information technology.”

In short, if you’re not using analytics in your business today, you are likely falling behind the competition.

As Davenport describes in his subsequent book on the subject, the first step is to ensure you have a senior-level analytics “champion” within the organization, driving the data-centric culture. Second, you need data science professionals who know how to leverage the raw data and write new algorithms, which give you the industry-specific and proprietary key performance indicators (KPI) that drive outsized results. Given all the data we have in the gaming industry, the possibilities here are only limited by imagination.

Let’s talk through a couple of the endless examples.

Many operators realized during Covid that less is more when it comes to their slot floors. They realized they didn’t need as many machines as they thought, and with post-Covid slot floors shrinking, expenses have shrunk along with them. But have slot floors been reduced enough?

The best way to answer this question is by digging into the second-generation slot KPI, utilization. Slot machine utilization sounds like something that should be easy to calculate; it’s not. Over a decade ago, we tried to do it manually by standing behind players and timing game play with a stop watch… let’s just say it didn’t work. Calculating utilization is very hard, yet powerful when done correctly. It is a key to getting to the Goldilocks slot count—not too much and not too little.

Another example is mail programs. Each property has extensive mail programs, sending out hundreds of thousands, if not millions, of pieces of mail a year. How do we know if they are working? How do we know if the mail is being used to drive incremental profit?

Test and control programs are the best way to understand if your mail is getting the results you want. Would Joe Smith be coming to the property anyway, even if you didn’t send him the $5 in weekly freeplay? Would Karen Johnston give you more of her gaming wallet if she received hotel suite offers instead of just a steakhouse offer? Having a test and control program is challenging to implement, and requires the right tools to evaluate, but the benefits are endless. Just learning how to improve your inactive mailer can be worth hundreds of thousands of dollars annually, so the work is certainly worth the reward.

Wasteful spending in mail programs, the slot floor or otherwise is bad enough in good times, and it is only exacerbated in times of economic uncertainty. That makes effective analysis more important than ever. Analytics is not just about organizing and reporting on your data, it’s about what you do with that knowledge.

A recession appears to be coming, and with it players will have less discretionary dollars to spend. Now is the time to get ahead of it, and the competition, by investing time and capital in a data-driven approach to improve your property’s efficiency and, ultimately, your bottom line.