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LAS VEGAS REPORT: WHAT I LEARNED AT G2E 2013

by Stu D. Hoss

Stu D. Hoss is a retired Air Force officer and aviator. He has visited and served in over 40 countries including flying combat missions in the Balkans, Afghanistan, Iraq, and the Horn of Africa. Most of it under the guise of keeping the world safe for democracy, better blackjack, and for a few other personal reasons. He has been playing blackjack for 20 years, and cut his teeth on the tables of South Lake Tahoe during flight training in Northern CA. Mr. Hoss uses basic strategy and the HiLo count method to give himself a chance against the house edge. He currently resides in NV and is weighing his options for a second career.

 

I had the good fortune to attend the Global Gaming Expo (G2E) at the Sands Expo and Convention Center in Las Vegas in late September. Last year was my first G2E visit and I chronicled my experiences in the exhibit hall for the December 2012 issue of Blackjack Insider. This year I spent much less time on the exhibit floor, but attended many sessions of interest to me. Some of these topics included table games, comps, finance, and security. In this article, Iíll give a brief description of the event and share some of my observations and things I learned, often from the casino or "house" perspective, and what they mean to us, as casino patrons and smart or semi-smart gamblers. I hope you enjoy reading this as much as I enjoyed attending G2E 2013.

Introduction

For those of you who arenít familiar, G2E is the premier trade show and conference event for the global gaming industry. Attendees included company executives, corporate managers, industry employees, tribal leaders, and buyers from various functional departments within gaming entities. Other professionals such as software developers, analysts, security experts, and sales staff from companies working within the industry or trying to expand into the gaming industry, as well as, at least one struggling writer and gambler attended. All told, over 450 companies were on hand to display their products and services. There were 125+ exhibitors from 32 countries on the exhibit floor. The gaming industry is larger, more diverse, and more international than most of us realize.

"Who Are You?" or "We Are the People Our Parents Warned Us About"

Have you ever wondered who really gambles and who the casinos target audience really is? More often than not, in recent years, Iíve felt it wasnít me. According to statistics provided by the American Gaming Association, more than one-third (34 percent) of the total adult population of the United States visited a casino in 2012. There were 76.1 million U.S. casino visitors total in 2012. Contrary to what many might think, the younger generations showed the most strength as 39 percent of adults, ages 21-35, visited casinos last year. The percentage for adults ages 36-49 was 34; while 36 percent of adults ages 50-64 visited. There are certainly plenty of options. In 2012, the U.S. commercial casino industry consisted of over 500 casinos in 23 states. Native American casinos were located in 28 states.

In a speech on the future of gaming entertainment, Ramesh Srinivasan, president and CEO of Bally Technologies, told the audience that the age profile of players isnít changing much. The median age of the U.S. population is 45; the gambler is 46. However, one speaker pointed out that interest in gambling on vacation increases significantly with age.

The gambling floor is not the only draw at the modern casino. According to an AGA survey, 26 percent of casino visitors say they rarely or never gamble. Instead, they cite their favorite experiences as the dining, shopping, bars and nightclubs, shows, and other activities offered by a growing number of casinos. Non-gaming amenities are an important part of the visitor experience, and the casinoís bottom line. This is especially true in the Las Vegas market that continues to change and innovate around everything but gaming. Remember the family-friendly era of the 1980ís? The era of celebrity chiefs and gourmet dining followed. We are currently in the maturing stages of the nightlife era with an emphasis on electronic music, celebrity DJs, bottle service, and even "day life" with pool parties at nightclub prices. Disposable income that used to be wagered at the blackjack and craps tables, with limited risk to the house (thanks to casino math), is now being spent on $30+ cover charges, $15 cocktails, and $100+ bottle service with four-figure requirements at nightclubs operated by groups from New York and Miami. The income stream is enormous and there is virtually no risk to the casino. Cha-ching!

"Have You Heard About the Lonesome Loser?" Side bets and 6:5 Blackjack

If you recognize the Little River Band song in the title above, you might remember the next line is "beaten by the queen of hearts every time." Casinos love side bets like Lucky Ladies (where the queen of hearts has a prominent role), Royal Match, Pair Square, and others. In addition, rule changes such as hitting soft 17ís, eliminating the surrender option, and introducing the hated 6:5 payout on player blackjacks have increased table game profits. As a few close friends can attest too, I have been complaining for 10+ years about the eroding, or my perceived erosion, of good blackjack games in Las Vegas and the notion that it would spread to other venues (it has).

I learned at G2E that the "house" generally isnít fond of blackjack. They are scared to death of card counters and advantage play. With an ode to Halloween, itís the perpetual "boogie man" for many casino executives. This was a recurring theme in multiple sessions. However, gaming consultants and experts like Max Rubin, Eliot Jacobsen, and others pointed out that rule changes and security measures have limited player opportunities.

One panelist told the audience that Las Vegas has lost 900 blackjack tables in the last decade. This has created a situation where there are more players on fewer tables. Max Rubin called this, "The wrong idea. That is maximizing payroll. Not profits." He recommended that the house should aim for more decisions per hour and let the house edge take care of itself (a concept I would certainly champion if I ever owned a casino).

At another session, in defense of changing previously player-friendly blackjack rules, a panelist told us, "The younger folks or party crowd is not as educated on casino games. They just want to have fun. The games are dead during the day, so we need to maximize benefits when we have them." He went on to say, "People didnít care when we started hitting soft 17 on the casino floor. It was amazing to me that people didnít care. A couple people complained, but it went over without a hitch. We gained a lot of house advantage without actually giving up many players. In the high-limit area we stood on soft 17 because they (the players) are a much more educated bunch and they appreciate getting a better game."

Donít we all appreciate getting a better game? Wow! I understand the desire to maximize having players, but really? Thereís a challenge to you younger readers in the paragraph above because the house thinks youíre ignorant. As for older readers, apparently if you arenít playing in the high limit room, you arenít too bright either. For the record, it was noted that 60 percent of table games "win" comes from the high-limit play.

In business, itís tough to make money without product. One speaker declared there has been a declining interest in table games over the past 20 years. He went on to say that table games are a "tired product" and "competing with slots is daunting." I probably should have raised my hand and asked him if heíd like me to help him draft his resignation letter and that I could start in his job immediately! I point this out because that is what the house is thinking. Shrinking pits and higher payroll costs (donít tell that to your local Las Vegas market dealer) have led to shrinking profit margins (emphasis on margins, not profits; more on that below). Offering side bets with house edges of 6 percent or more, unfriendly player rules variations, and marketing single-deck blackjack with 6:5 payouts on naturals isnít far removed from shenanigans one might encounter at the county fair or traveling circus; however, they have increased blackjack margins. By hitting soft 17ís the house edge increases 0.20 percent; while the 6:5 payout on player blackjacks versus the correct 3:2 payout increases the house edge by a whopping 1.4 percent. Itís tough to make money without product, but itís pretty tough to make money without customers too. Give yourself and your bankroll a chance; donít play these games.

"Meet the New Boss, Same as the Old Boss" or Is Wall Street the New Skim?

In the "good ole days", Las Vegas casinos shared close ties with "partners" from select East Coast and Mid-West families. Casino operators regularly sent a percentage of the house profits "back East" and kept these transactions off the books. This was called "the skim." Somehow, the Mafia-influenced casinos could offer good games, plenty of comps, provide the skim, and still make a tidy profit. There was plenty of money to go around it seemed. Las Vegas began to go corporate in the 1980ís and the gaming industry has grown exponentially. For good or ill, the "boys back East" are now investment bankers, venture capitalists, hedge fund managers, and company executives beholden to shareholders (allegedly) and "the Street."

According to the AGA, total consumer spending at U.S. commercial casinos was $37.34 billion in 2012, up five percent from 2011. That seems like plenty of money to go around doesnítí it? As the gaming industry has grown, it has also been consolidated thanks to a bevy of mergers and acquisitions, as well as, the ability of corporations to borrow money and leverage assets. There are more casinos than ever, but a large percentage are owned and controlled by the same corporate entity. Take the Las Vegas Strip for example. Publically traded companies like Caesarís Entertainment (central- Strip) and MGM (south-Strip) control most of the properties. Looking north, Wynn, Encore, the Venetian, and Palazzo are owned by publically traded companies, WYNN and LVS respectfully. Deutsche Bank owns the Cosmopolitan. This has led to less competition and a "copy-cat" mentality on the part of many properties. The publically traded companies are risk-averse and donít seem to be as concerned with retaining customers as long as they can find new ones and meet Wall Street analystsí expectations and maintain their stock price.

I attended a couple of sessions dealing with finance and economics and saw panelists that I recognized from guest appearances on CNBC. Iíll cut to the chase for this section and spare you all their gory details. In the previous section, I referred to the term margin. It can take on many definitions, but here itsí simply the "hold" or the portion of money gambled that the casino retains. I learned (and have been thinking this for years) that the operations philosophy of high volume and low margins has all but disappeared. Wall Street demands growth and rising margins quarter over quarter, year over year. Failure to produce the numbers expected by analysts and investors leads to a falling stock price and reduced bonuses for upper management. One panelist, a consultant, summed up this discussion, "Wall Street loves the hold. I asked one of my clients if heíd rather have 15 percent of $500,000 or 10 percent of a million over and over. He didnít even bat an eye. Iíd rather hold 15 percent of $500,000. I can blame everything else on the economy and marketing!"

What does this thinking mean to you and me? Casinos want profits, but they are more concerned with keeping a greater percentage of what comes in their door. I think thatís ludicrous and so did the teller of the story above. Sounds like a dangerous game, but nobody is asking me. The "skim" has been passed on to us and the bottom line is to expect more poor table game conditions, more side bets, more "carnival games" with large house edges, more poor video poker pay schedules, tighter slots, less comps and players club benefits, and more $8 bottled water in your hotel room!

"Comp City" ainít "Suffragette City" or is it?

In 1994, the first edition of Max Rubinís "Comp City: A Guide to Free Casino Vacations" was published. A second edition hit the printing presses in 2001. In his book, Rubin (the same Max Rubin mentioned above) provided insight into how the casinos handle comps, how the system works, and how to exploit it or at least get your fair share. Needless to say, I was somewhat surprised to listen to Mr. Rubin on a panel with several casino executives discussing how the comp system is broken and what the house needs to do to get it back in their favor.

I was surprised to learn that many think the comp system is broken at all. As a player, Iíve never felt like I asked for too much, but thanks to the almighty computer and the virtual elimination of discretionary comps for low and mid-range players, Iíve felt the system certainly wasnít in my favor. However, looking back over the years, I canít really complain. Iíve received my share and always figured it was a pretty fair fight considering I was willing to risk my bankroll in their joint versus at their competitors (and vice-versa, of course).

Free stuff or comps are important to the bottom line if you are going to hang around casinos very often and keep coming back. Free rooms and food help preserve and allow one to build the gambling bankroll. Iíve never been one to affect a casinos bottom line or sink their quarter, so a lot of this doesnít apply. I was astounded to learn that the casinos that have heavily catered to the Asian high-rollers (most Las Vegas Strip properties), now see their comp policies to those players a threat and yet, seem to be befuddled about what course of action to take. Case in point, a high-ranking individual from a Las Vegas Strip property told the audience that a $1 million player that is willing to risk that bankroll over twelve hours of play is entitled to a $30,000 airfare refund, no questions asked, and no tickets required. Thatís the propertyís policy, but now the $1 million player has figured out that a $100,000 player is entitled to $9,000 in airfare refunds. He simply brings nine others with him and divideds his bankroll by ten. He is now a $100,000 player, but the $30,000 becomes $90,000. Not a bad way to start along with complimentary room, food, and beverage (RFB) for the whole entourage. Other similar stories were relayed. Iíd be happy to study this issue for a small consulting fee. Iím sure the readers have a few ideas as well!

Some applicable statistics that were brought up in another session to help explain the pursuit of international players versus domestic players include: International players tend to spend twice as much on retail and entertainment, one and a half times as much on food and beverage, and baccarat revenue is going up like a rocket, more than 20 percent year-over-year in the Las Vegas market. Its sounds like the comp system is working just fine for the house in most of these cases. However, the "whales" can and do influence everything mentioned in the last section.

Despite the technology age, "human error" is still a variable in the comps equation. Panelists noted that one supervisor is often required to watch six games at once, and therefore, rates everybody the same. The casino is "saving" money by paying only one person to watch the games. This could work to your advantage by employing "comp wizardry" techniques, but chances are good that you are being underrated as well. Donít be afraid to ask the pit supervisor about your rating slip when you cash out and be sure to ask that the play be input into the computer system. Thereís a fine line between looking after your own self-interest and being viewed as a nuisance or worse; so practice some people skills if you take this approach.

For blackjack players, the comp tracking is pretty inexact. Generally, playing ability is categorized as "average," "superior," or "poor." In addition, the number of hands you are dealt at your game is generally categorized as "medium," "slow," or "fast." Most of the time you will be rated "medium/average" unless playing heads up in the high-limit room with a boss on your shoulder. The speed categories are based on 240, 120, and 60 hands per hour. The comps a player earns are normally 25-percent of their theoretical loss or "theo." When it comes to being rated at the tables, playing less hands than your category and looking average is good, assuming you are playing into the smallest house edge you can and all other things being even. The takeaway here is that casinos are trying to tighten up their player ratings and comp systems. Realize this could hurt your bottom line. Donít overplay for comps, but make sure you get what you deserve. I recommend you maintain a minimal awareness of your session and trip play and what it returns from casino marketing or your host. In the end, donít be afraid to "vote" with your feet and bankroll if you feel you are being underserved.

Conclusion

There you have it. A few highlights, topics, and things I found interesting at G2E 2013. In summary, casinos are now officially mainstream. As the U.S. economy continues to slowly recover, casino management will continue to be influenced by outside sources from the financial world, often at the behest of their customers. Side bets and 6:5 blackjack donít appear to being going away anytime soon, but you can still choose not to make these bets or play these games. Under the guise of watching the bottom line and/or increasing margins, the comp system is under scrutiny. Watch your mailers and casino offers. Take advantage of promotions in your local markets and be cognizant of reduced playersí club benefits.

Donít forget, casinos are businesses and most of the big ones are multinational or at least national, publicly traded corporations. They have become increasingly risk averse and want to have their cake and eat it too, at your expense, not unlike insurance companies and banking institutions. I am reminded of a corporate speaker I heard yesterday that told his audience, "Iím not a glass half empty or a glass half full kind of guy. Iím a Ďwho took the other half?í kind of guy." We represent the "other half" so play smart and stay disciplined. Set goals and have realistic expectations. My goal is always to leave with more than I came with, even if itís a penny I found in the parking garage! Donít be afraid to speak up for yourself and take your business elsewhere when necessary.

Make your plans to head to Las Vegas for the 2014 Global Gaming Expo. The event is scheduled for 6-9 October at the Sands Expo and Convention Center.

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