Bill,
I'll start by saying that I'm speaking in some very rough terms, but I
don't think I'm playing fast and loose with the facts of the situation.
What I'm suggesting is that their new strategy is expected to reduce
the numbers in their least profitable segment of their customers.
Variable overhead (vs. fixed) is related to the volume of business,
i.e. number of customers they serve -- reduce customers and variable
overhead falls.
My reference to gross margins is a general accounting reference to
what in the casino industry is, I believe, more correctly terms
revenue. Whatever the case, my meaning is the net absolute machine
win (coin in less coin out) before any expense is considered. While
the win from the "knowledgeable" players who leave will be removed
from the equation, I'm suggesting that the win from the patrons who
stay will increase in an amount that will more than offset the lost
business.
It's my expectation that while they will play less, as a whole they'll
part with more money. They may cap their trip losses so that they
won't lose much more, if any, on their losing trips. But on their
winning trips they'll generally come away with less. On the whole,
over the course of a year, they'll leave more dollars with the casino.
(Admittedly, I'm simplifying the economics here, but I don't think
the overall picture is significantly distorted from the reality that
will bear out.)
Bottom line, if the strategy is successful and they maintain a
sufficient number of players who comprise their most profitable FPDW
players at present then they'll achieve a very desirable result of
increasing gross margin while reducing variable expense at the same time.
However, the lynchpin of that strategy is holding onto the profitable
segment who are currently responsible for a present 2%-3% average hold
on FPDW. And their ability to accomplish that is questionable. But
if I had to lay a bet on that, I'd favor the inertia that I suspect is
typical of the less knowledgable player. Let's hope I'm wrong and
Coast will find out that they have a bit to learn about "smart casino
management".
By the way, let me note that the 99.5% accuracy number I cited is the
% of the theoretical return achieved by the player after accounting
for strategy errors - i.e. the player has a strategy cost of .5% and
therefore plays FPDW at an expected return of 100.2% (before points).
In winpoker practice, I achieve 99.94% accuracy (I'm referring to
"Error Effect Return %" - the critical statistic in determining
effective play return). My wife, an occasional vacationing player who
doesn't sweat the game achieves in practice around that 99.5% figure.
Considering the large number of LV regulars who've really nailed the
game, I don't think the 99.5% average knowledgeable player guestimate
is likely to be far off the mark.
My point is that this segment of "knowledgeable" players is not a
profitable segment. And whether the expected return of that segment
is 100.2% or even as low as 99.5%, factor in cashback, promotion
expense, limited comps, and rooms for out of town players and this is
not a profitable segment. And I don't expect that this is an
inconsequential segment of the business. We may be talking a minority
of their players, but these tend to be the highest volume players in
the house. And I personally know more than a few who've done very
nicely, although admittedly that's anecdotal evidence -- but I count
it significant considering my distance from LV and infrequency of visits.
Bill, I want to stress that I appreciate that you took the time to
question my statements and I hope it doesn't appear that I'm trying to
hit you over the head with a sledgehammer in reply. Clearly, I tend
to be a little long-winded. Understand that I simply want to be clear
in communcating the specifics of my concerns.
- Harry
Harry,
I'm not sure I follow your logic. Variable overhead costs in a
casino are
mostly labor and maintenance. Are you saying that by not playing the
machines they won't break down thereby reducing overhead?
Please explain how you reason that gross margins will go up. I see
total
hold down, most overhead fixed therefore squeezing gross margins.
For a long time I have contended that the knowledgeable player is the
player on the margin. While not as profitable as the bulk, they are
significant and a small number can have a real impact on the bottom
line.
Regardless of the general opinion on this board, even most of us do not
play to a big advantage, very few can even achieve the 101.2% that FPDW
pays on double points days at Coasts. Even at that rate we are only
earning
$12 / hour (at 800 hands/hour). Assume 100 perfect players are
playing an
average of 5 hours the casino won't even notice $6000. Even if they are
playing 24 hours it's less than $30,000 per day over the long run.
On the
120 machines they had at one location that's not noticeable.
On the other hand assume that even 100 of us average 99.5% return.
Then we
are losing, on average, $5 / hour. 100 players playing 5 hours at .5%
disadvantage earns $2500 / day for the casino. Also not enough to be
noticed.
The .5% is a real number. I know at least one casino that has
calculated
that as the return on FPDW. They are perfectly satisfied with that
return
on a few machines considering how much they hold on others. This is
smart
···
--- In vpFREE@yahoogroups.com, Bill Coleman <billc140@m...> wrote:
casino management as opposed to the other.
B
>Yes, there'll be more empty seats once we walk and the NSUD converts
>play a few shorter hours. And retail sales will correspondingly fall.
>But there's a very strong chance that overhead costs will fall
>significantly while gross margins fatten. That's a situation any
>business would desire.
