Wednesday, March 16, 2016

Gambling News: MGM PGP It's bad.

Judging from the scuttlebutt around various Las Vegas Message board the recently announced MGM Profit Growth Plan is starting to cut into gambling compensation in a big way.  Anecdotal evidence, again from the chatter boards, reveals that the cuts are starting hot and heavy.

1. Reduced comp percentages:  This is the option that really seems to be getting everyone's goat, because theoretical-based compensations somewhere around 40% of expected loss has been the law in Las Vegas for a while now. Like free-parking, which we'll get to in a minute, 40-45% is almost viewed as a constitutional right by the seasoned high-roller. It's hard to tell just how far the exact rate has fallen but there are reports that it could be by as much as 10%.

2. Death by 1,000 cuts. - A poster on the VegasBoards forum noted that MGM has cancelled the Sirius XM radio service in their luxury fleet of courtesy cars, have cut the schedules of experienced dealers, as well as implemented a series of other cuts that can only be viewed as gambler unfriendly.

3. Raising comp prices.  Call it the third prong in the gambler-pitchfork that is the PGP, by raising comp prices,  (there is a good discussion on this here) In effect, MGM has decided to reward the players less, reduce how much they can get, and charge them more for getting it.

The effect of this is driving more players to less networked casinos like The Cosmopolitan or Wynn/Encore who, while still making cuts, are not doing so with the speed of MGM.Left out of consideration, for the most part, is Caesar's who really doesn't have anything in it's profile that can really cater to the modern high-end player.

MGM does have hotels that can compete however, in the form of Bellagio and Aria but the company seems content to abandon the deep-pockets gambler in return for courting the younger, clubbing crowd that both don't get, and usually don't ask for, compensation.

There are also rumors that the casinos are altering the calculations on their theoretical loss calculations downward. It's going to be difficult to determine whether or not this is actually taking place because they are treated as trade secrets and not readily available. According to one recent report, they are also loss-amount restricting the loss payback to $100K, which is awful.

In the short-run there's no reason to think that this is going to get better before it gets worse. The more casinos clamp down on the players the less revenue comes from the gaming floor. This is acceptable to the casinos because 1. They're currently making up for the lost revenue in retail (both club and store-front sales) 2. Room renovations mean that they can charge higher rates to millennials, who don't gamble as much, don't ask for free stuff, and just come to Las Vegas to party.

It's not that the millennials aren't gambling, it's that they don't do it very often, seriously.  The typical millennial gambler in Las Vegas is stopping off at a black jack table, craps, roulette or even slots for fun. They're typically with a group of friends and are willing to blow $200-$300 on a lark. The ones with a bigger bank-roll aren't any more serious, but they might think they are, and can waste thousands per night making hunch plays.  For this they typically do not get either rated, or comped for an entire weekends play.

Casinos, being managed by unoriginal people, are both struggling with this and adapting poorly to it by over-correcting the opposite way.  Back in the Aughts and during the so-called great recession, you could roll into Vegas with $4000, generate some play and walk-out, just, with a Jr. Suite and a limo ride to the airport.  Back then the resorts were selling the adventure.  High-end wine prices were reasonable, though not cheap, and high-rollers* were treated with style and panache. The dream was real.

Today, at MGM properties especially, you're thrown into a mechanical world of algorithms and theoretical formulas. For the most part discretionary comps have been removed from the discretion of the host, and upgrades are an auto-fee rather than a perk. They're cutting down on the rate you earn and making it more expensive to redeem. It's the classic vice that players are stuck in.

At the end of the movie Casino, a must-watch if you haven't, Robert DeNiro's character is bemoaning the changes that Vegas underwent in the late-80's. He finishes up by saying this: "Now a high-roller walks into a casino with a briefcase holding a Million Dollars and a pimple faced kid asks him for his ID." The problem for the high-roller is this: Where else are you going to go?

*It's not right to call high-rollers 'whales'. In fact, using that term will get you branded a 'noob' by those in the know. In fact, there are only around 20-30 true "whales" in the world.  And even they don't call themselves "whales". If someone identifies themselves as a whale, they are lying.

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