The casino industry, especially the Las Vegas Strip though more broadly the entire land-based retail gambling world, is on the precipice of another dramatic change.
Casino floors are evolving rapidly. Square footage is becoming less densely occupied. And key player demographics are shifting dramatically. A significant transition is on the rise. This one likely means a new set of permanent, crucial pivots that have a lasting impact on both the floor, the operator and the player experience as a whole.
Casino operators need to understand and analyze three key areas in order to develop a more robust image of what the future holds for their operations and players.
First, we need to look at the current state of the casino industry. While the market is notorious for its steadily evolving landscape, the challenges facing today’s gambling industry are unprecedented, as impactful as they have been swift.
Second, with these changes come modifications to player psychographics. The traditional model of “know your customer” must now take into consideration a new generation of potential players, one that views the casino floor and gambling in general much differently.
Third, in light of these changing player psychographics, operators need to create stronger definitions of their current players compared to the desired new and future player.
Coupled with all these factors, we need to look at the behaviors of these players when it comes to the casino floor’s most valuable asset: slots.
While slot machines have traditionally been the major revenue generators and ideal revenue-per-square-foot units, the new breed of player behaves differently, and survival and growth depend on an intimate understanding of that behavior. Lastly, once all of these points have been fleshed out, we need to look at the opportunities that exist in new games—specifically, games that can help usher in a new generation of player.
Reviewing the Current State of the Gambling Industry
The impact of Covid-19 on the land-based gambling industry cannot be overstated. Closures, travel restrictions and new safety measures following mixed re-openings have all landed significant blows to the market. But even prior to this most recent and unexpected cataclysmic shift, there were signs of an industry pivot.
For decades, casino floors have been dominated by slot machines, which sometimes occupied more than 80 percent of floor space—and for good reason. According to the Center for Gaming Research at the University of Nevada, Las Vegas, the hold advantage of slot machines ranges from 5 percent to 10 percent. As a result, slot machines typically account for approximately 80 percent of casino gaming revenue.
The greatest hold for a table game, by contrast, is double-zero Roulette, at 5.3 percent, which also requires significant staffing costs as well as slower wagering velocity.
But the greater question is one of player interest. The average slot player is aging, and the current landscape of the casino floor is leaving roughly one-third of carded players hugely underserved, accounting for less than half of their represented market share in slot revenue. Players under the age of 50 simply aren’t playing slots in meaningful volume, despite the prevalence of these machines on the floor.
Considering the changes currently under way in the casino and regulated gaming market, we need significant adjustments to the way players are catered to on the floor. That means understanding players in a much more profound and nuanced way.
The Evolution of Casino Players and the Shift to a Younger Demographic
The gaming industry has always been wary of shifting player demographics and psychographics.
As far back as June 1955, an article in Life magazine argued that Vegas’s luck had run out, and that its doomsday clock was ticking. It posed a simple question: Was there really something to offer every potential player in the market? That same question, which proved alarmist more than 60 years ago, is one that Vegas has been asking and answering ever since. The question has become more valid over time. In fact, due to the evolution of the player, the player’s access to the rest of the world, and notable data about player engagement, the supposition holds far more weight now than it did in 1955.
Since 1984, gaming revenues on the Las Vegas Strip as a segment compared to other property revenues have dropped from nearly 59 percent, to 35 percent. Meanwhile, revenues from other areas such as entertainment have increased in share from about 6 percent to more than 13 percent, with room revenues seeing the greatest jump, from less than 12 percent in 1984 to more than 23 percent today (UNLV and Nevada Gaming Control Board, 2019).
All the while, the average age of visitors to Las Vegas has decreased over time. The data tells us something important: take a changing visitor demographic, couple it with a flat evolution of the venue (save for a few bigger, brighter, and louder machines), factor in a decreasing number of retirees (the casino floor and slot machine’s most significant demographic), and operators clearly must adapt in order to boost casino floor revenues.
Even more interesting, younger visitors are becoming increasingly affluent over time. Market research for the Las Vegas Convention and Visitors Authority shows that the percentage of visitors with an annual household income over $100,000 has increased from 15 percent in 2014 to 34 percent in 2018.
If players are arriving with more money to spend, how is the share of gaming revenue staying flat, while shares of non-gaming amenities are on the rise? The crux of it is that there’s simply more to do, and more engaging offers available to prospective players, particularly those that can be categorized as underserved.
Current vs. Desired Slot Player Behavioral Analysis
Traditional slot machine players are getting older. Hard as game-makers might try—with new chair and screen designs, or expensive character or brand licensing deals—younger players simply are not sitting down at slot machines the way a now aging player demographic used to.
In a recent study led by Andrew Cardno, CEO of Game Changing Technologies, unique player data was reviewed for multiple years of slot machines, table games and skill-based gaming.
More than 70 percent of slot revenues are coming from players over the age of 55. Players between the ages of 60 and 70 represent the largest share of slot revenue for the casino. By contrast, players between the ages of 20 and 30 represent the smallest share of revenue, even lower than that from players between the ages of 80 and 90. Those are not encouraging statistics with regard to desired players.
When discussing this data, Cardno had this to say: “A casino is like a general store; it has to have products to cater to a wide range of customers. It’s a simple fact that some products produce higher revenue, but having a store full of just that product would result in poor returns.”
Members of the Gen X, Millennial and emerging Gen Z generations have been an elusive demographic since they started coming of legal gambling age. Having started to reach economic and spending maturity during the financial crisis in 2008, they’re warier about where they spend their money. The value of a dollar is weighed against its returns very differently, hence the rise of entertainment spending in markets like Las Vegas and experiential spending among millennials in general. That, in part, helps explain the decreasing engagement with this coveted audience.
So if these coveted demographics are looking for ways to gain more from every dollar they spend, then mathematically, traditional slot machines might not have the same appeal as they have for older demographics. For young players, there are some key drivers for engagement that are less available with traditional slots.
There’s minimal community component. The hold is higher than it is anywhere else on the floor. And as far as the unique or varied entertainment value of slots, the gameplay has remained largely unchanged, save for the abovementioned brand integration or progressive components.
This begs the question: What if any changes can casinos make to appeal to millennials and younger players and increase their share of slot revenues?
Reimagining the Casino Floor with Skill-Based Gaming
If you were to visit a large casino twice with a few months between visits, there’s a good chance you might see several changes on the casino floor, especially in terms of slot placement, machine changeouts and upgrades.
The main reason for this is that casinos constantly aim to replace their lowest-performing machines. The idea, very simply, is that if you have three machines and if one performs poorly among the three, then replacing it with a new machine will increase the casino’s Win Per Unit Per Day (WPUPD) average, thereby increasing the total average performance for the set.
The reality is that this “Trading Spaces” method leads to significant cannibalization. The truth is these new machines aren’t attracting new players, but rather spreading the WPUPD thinner among existing players. Without modifying the offer for players, attracting a new, different and younger gambler isn’t likely to achieve the intended result.
With all this in mind, what are the options available to operators that can both prevent cannibalization and encourage the desired player outlined in the previous section to begin playing on high-yield machines? The answer lies partially in introducing new genres of gaming technology, often referred to as skill-based games.
Skill-based games have been a hot topic of discussion for some time, but their adoption has not yet taken off at scale. It’s a strange phenomenon, as data shows a tremendous upside. That said, adoption in regulated markets tends to have a longer cycle, and while traditional slots have been around for a century, skill-based games are in their infancy, only having existed for about four years. Yet they may be only the tip of the iceberg of skill-based gaming has to offer.
Alex Alvarado, VP of casino operations at MGM National Harbor Hotel & Casino in Maryland said: “I’ve rarely if ever been to a casino that needed every gaming seat or slot that it had on the floor. And yet most properties will benchmark a skill-based game against a slot that no one will miss, as opposed to thinking about the new line of business [skill-based games] could create—all of this as operators are trying to solve for how to become a primary entertainment destination for the clearly underserved markets that exist in future generations. Many of these underserved players are in our facilities today, and we aren’t catering to them.”
For example, the peak of revenues on GameCo’s video game gambling units comes from 30-year-old players, and more than 80 percent of revenues from these units is coming from carded players between the ages of 21 and 49. In terms of cannibalization, these machines are monetizing Gen X, Millennial and emerging Gen Z players, the underserved slot demographic, at a rate four times that of traditional slot machines. And in terms of attracting new, uncarded players to the casino floor and, more specifically, to electronic gaming machine play, these machines are attracting this potentially untapped market 12 percent more frequently than other units.
That’s a particularly encouraging figure, especially when we consider that in the United States when it comes to Millennials, there are three times as many carded players as there are players spending on traditional slot machines. Shrinking that gap even slightly has the potential to generate significant new revenue for operators.
A recent study by GameCo on player lifetime value took a closer look at what these figures mean in terms of incremental revenue for the operator. The key consideration has to do with the lack of cannibalization we’ve already reviewed. Assuming an average WPUPD of $250 for traditional slots and a WPUPD on new skill-based games of $200, the data shows that by engaging a new player with skill-based games by swapping 5 percent of the lowest-performing traditional slot machines with skill- based games yields an overall revenue increase of 4 percent.
With the declining average age of Las Vegas visitors (44 in 2016 down from 47.7 in 2015), non-gaming spend (food and beverage spend has increased by 25 percent since 2010.
Where Do We Go From Here?
Considering the shockwaves felt by the industry due to the current global circumstances, it’s almost certain that we can expect dramatic changes, even as normalcy returns to the casino market. Engaging a new generation of slot players was already a tough hurdle—and that was before the effects of a pandemic and global shutdown.
Now, as an aging core of slot players becomes more trepidatious about venturing out, the need to engage young players is more important than ever. What’s clear is that the current model as it stands will not be the answer.
If casinos are going to continue assigning dominant shares of floor space to slots, they must give heavy consideration to expanding skill-based games. The data shows that the potential for engaging a younger, more elusive player and activating currently uncarded prospects has its best chance of success with these machines.
The current global situation has lent itself to a reset of sorts when it comes to the casino floor. With that reset comes the opportunity to abandon the old “Trading Spaces” model of traditional slot machines, and invest in a new generation of games for a new generation of players.