Casino Reinvestment And Expansion

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Right Care & Feeding within the Golden Goose

Under brand new paradigm of declining economic conditions across a broad spectrum of consumer spending, casinos face a unique challenge in addressing how they both maintain profitability while also remaining extreme. These factors are further complicated although commercial gaming sector with increasing tax rates, and within the Indian gaming sector by self imposed contributions to tribal general funds, and/or per capita distributions, or a growing trend in state imposed payments.

Determining how much to "render unto Caesar," while reserving the requisite funds to maintain market share, grow market penetration and improve profitability, is a daunting task that needs to be well planned and carried out.

It is this context and the author's perspective that includes time and grade hands-on experience in the development and management of these types of investments, this article relates ways to plan and prioritize an internet casino reinvestment strategy.

Cooked Goose

Although you would have it axiomatic not to cook the goose that lays the golden eggs, it is amazing how little thought is oft times made available to its on-going proper care and giving. With the advent of a new casino, developers/tribal councils, investors & financiers are rightfully anxious to reap the rewards and there is a tendency never to allocate a sufficient amount of the profits towards asset maintenance & enhancement. Thereby begging the question of the amount of the profits should be allocated to reinvestment, and towards what goals.

Inasmuch as each project has its own particular involving circumstances, there aren't any hard and fast regulation. For the most part, many for the major commercial casino operators do not distribute net profits as dividends due to their stockholders, but rather reinvest them in improvements to their existing venues while also seeking new locations. As well as programs are also funded through additional debt instruments and/or equity stock offerings. The lowered tax rates on corporate dividends will likely shift the emphasis of financing methods, while still maintaining the videos . business prudence of on-going reinvestment.
Profit Allocation

As a group, and prior to the current economic conditions, the publicly held companies had netting profit ratio (earnings before income taxes & depreciation) that averages 25% of greenbacks after deduction of the gross revenue taxes and interest repayment demands. On average, almost two thirds belonging to the remaining profits are utilized for reinvestment and asset replacement.

Casino operations in low gross gaming tax rate jurisdictions a lot more readily in the reinvest in their properties, thereby further enhancing revenues is going to also eventually benefit the tax trust. New Jersey is a good example, as it mandates certain reinvestment allocations, as an income stimulant. Other states, with regard to Illinois and Indiana with higher effective rates, risk reducing reinvestment that may eventually erode the ability of the casinos to grow market demand penetrations, especially as neighboring states become more competitive. Moreover, effective management can generate higher available profit for reinvestment, stemming from both efficient operations and favorable borrowing & equity attractions.

How a casino enterprise decides to allocate its casino profits is a critical element in determining its long-term viability, and must be an integral aspect from the initial development strategy. While short term loan amortization/debt prepayment programs may at first seem desirable so as to quickly fall out from your obligation, these people could also sharply reduce the ability to reinvest/expand on a timely reason. This is also true for any profit distribution, whether to investors or even in the case of Indian gaming projects, distributions a few tribe's general fund for infrastructure/per capita payments.

Moreover, many financiers make the error of requiring excessive debt service reserves and place restrictions on reinvestment or further leverage which can seriously limit a given project's chance to maintain its competitiveness and/or meet available opportunities.

Whereas figure out how advocating that all profits be plowed-back in the operation, are generally encouraging the consideration associated with the allocation program that considers the "real" costs of maintaining the asset and maximizing its impact.

Establishing Priorities

There are three essential areas of capital allocation that should be considered, as shown below and to be able of main priority.

1. Maintenance and Replacement
2. Cost savings
3. Revenue Enhancement/Growth

The first 2 priorities simple enough to appreciate, due to the fact they possess a direct affect on maintaining market positioning and improving profitability, whereas, 3rd is somewhat problematical in that it has more associated with the indirect affect that requires an idea of the market dynamics and greater investment risk. All aspects that are herewith further discussed.

Maintenance & Replacement

Maintenance & Replacement provisions should as being a regular purpose of the casino's annual budget, which represents a fixed reserve based on the projected replacement costs of furniture, fixture, equipment, building, systems and gardening. Too often however we see annual wish lists that bear no relationship into the actual wear & tear of the products. It is therefore important really schedule the replacement cycle, allocating funds that do not necessarily in order to be actually be incurred on year of accrual. Throughout a start-up period it may not seem essential to spend any money on replacing brand new assets, however by accruing amounts to become reserved for their eventual recycling will avoid having to scurry for the funds when they are most needed.

One area of special consideration is slot machines, whose replacement cycle has been shortening of late, as newer games & technology is developing within a much higher rate, so the competition dictates.

Cost Savings

Investment on price savings programs & systems are, by their very nature and when adequately researched a less risky associated with profit allocation funding then almost any other investment. This stuff can often take is very important of new energy saving systems, labor saving products, more efficient purchasing intermediation, and interest reductions.

These items have their caveats, one of these is to thoroughly analyze their touted savings against your own particular application, as often times the product claims are exaggerated. Lease buy-outs and long term debt prepayments can sometimes be advantageous, specifically the obligations were entered during growth stage when equity funds may happen to limited. Through these cases it's critical to look at this strategy's net result on the bottom line, on the flip side with alternative uses for the monies for revenue enhancing/growth investments.

One recent trend is the growing popularity of cash-less slot systems, which not only provide labor savings for fills, counts and hand-pays, but also serve with regard to aid to patrons that do not in order to lug around those cumbersome coin buckets, while also encouraging multiple game employment.
Revenue Enhancing & Growth

Leveraging will be the key catalyst of any revenue enhancing/growth related investment decision. It includes the following:

o Patronage Base
o Money handy
o Lands
o Marketing Clout
o Management Experience

The principal is to leverage using of choices asset towards achieving higher revenues & profitability. Typical examples include increasing average patronage base spending and widening the effective trading radius, through providing additional products/services, such as retail stores, entertainment alternatives, recreational/leisure amenities, overnight accommodations, more restaurant choices, and of course, expanded gaming.

Master Planning

Anticipation of potential growth and expansion should be fully incorporated into the project's initial master planning so as it assure cohesive integration of pay day loan elements in a phased-in program, while also allowing for that least amount of operational interruption. Unfortunately, it's not always possible can be expected market changes, so expansion alternatives end up being carefully taken into account.

The Big picture

Before starting any type of expansion and/or enhancement program we strongly suggest first stepping back and assessing the property's present positioning compared to the market and competitive environment. Once we have observed in numerous gaming jurisdictions from the country, often casino ventures that also been operating "fat and happy" for a few years, are in a zero-growth period. Sometimes this is stemming from competition stemming from either/both new local area casinos or regional venues that contain affect of reducing patronage from peripheral area markets. Additionally, the current client base may get bored with their experience so are seeking greener pastures. The historical growth of the Nevada strip is testament on the success of continually "reinventing" oneself.

Our approach to these market studies is initially committed to determining volume level to how the current facility is penetrating the potential market or in relationship for any competitive market shares. Typically, this represents an research into the current patronage base in terms of information gleaned from the player tracking data base, and mailing lists, along with day-part, daily, weekly, monthly and seasonal revenue trends.

This information is then interfaced with an examination of total market potential to indicate the extent to which certain market segments are with all the facility and the needs it is fulfilling. Towards the point however, is that this kind of analysis will indicate those market segments that aren't utilizing making a fleet of more fully, and how come.

Occasion Segmentation

As our proprietary studies have indicated, casino markets are segmented by various characteristics of occasioned-use that also include typical spending & visitation patterns. Classic methods of market measurements, including gravity models, usually only weigh the demographic characteristics of a given population, based on revenues achieved in similar markets. However, an occasion segmentation market analysis reveals more more information as towards reasons precipitating a casino visit, where did they relate on the benefits being sought, as well as the degree that the occasion determines average spending and visitation frequency. This type of data mining is more helpful than gravity modeling, in that it support determine the type of facilities and positioning strategies crucial attract each market segment, by measuring their relative contribution into the aggregate potential. The process has been successfully utilized in the restaurant business and other leisure time service industries, especially amid a widening supply/demand current market.

Perhaps even more importantly, reviewing the market from an occasioned-use perspective, reveals the extent and characteristics for this underling competition, that, in many cases merely include other casinos, but also alternative entertainment and enjoyment activities, such as restaurants, clubs, theaters, and the like.

Demand Density

Another essential requirement of occasion segmentation happens to be in measuring overall market characteristics by day-parts, which is revenue density by time of day, day per week, weekly, monthly, and seasonally. This is specially important data when casino venues are searching for to lessen any compared to normal fluctuations that may be occurring between a slow Monday morning when a packed Saturday night; or that experience severe seasonal variations.

By segmenting markets by their demand patterns, the best understanding could be gained that amenities may help bolster the weak demand periods, and people that can only add to the already maximized peaks.

Many expansion programs often make the mistake of configuring additional amenities such as high-end restaurants and lodging elements founded on the peak demand periods. As a result, give effect of costs & expenses as a consequence of investments can negate any contribution they may make to increased gaming revenues. Rather, "fill-in" financial markets are the most efficient means to extend overall revenues, as they utilize existing capacities. Las vegas, nevada has achieved great success in creating strong mid-week activity through promotion of their extensive conference/convention facilities.

Amenity Driven Markets

Another benefit from utilizing occasion-segmentation is being able to also indicate the potential impact certain amenities enhance "impelling" visitation rights. While gravity models examine the casino related spending characteristics of your respective given market area, the formulas cannot measure the relative impact of any non-gaming driven activities that could nonetheless generate casino traffic.

Important data relating for the population's occasioned-use of restaurant, entertainment, and weekend getaways can often form the cornerstone on which to focus amenities made to cater to the people markets; in fact so doing, increase socializing. Whereas many of these patrons might or might not utilize the casino, their exposure towards opportunity may hasten their use, as well as creating method to profit center.

Again, looking to the Sin city paradigm, as well as more on the strip properties are now generating as much, not really more, non-gaming revenues than gaming revenues; as their hotels and restaurants are less & less subsidized, and along with their growing retail elements, represent strong contributors towards the bottom line.

Program Development

Once along with a basic understanding of the market dynamics, both easy the existing facility's niche shares/penetration rates in relationship to the competitive mix, and functioning occasioned-use of your market, a matrix could be created that sets require against the production. This function seeks to identify areas of un-met demand opportunities and/or over supply, that forms the spring-board to the creation of relevant amenities, expansion and upgrade criteria & marketing methods.

Impact Criteria

Essentially there are two types of expansion/upgrade strategies: subsidized and profit-centers. Subsidized elements might include adding and/or improving amenities that will further widen current gaming market penetration/shares, thusly developing a direct relation to growing casino revenues; while profit centers are in order to further leverage current patronage patterns with additional spending opportunities, and that have an in-direct influence on gaming activity. Although many of the more traditional amenities, such as restaurants, hotels, retail shops, entertainment venues and recreational facilities can fall into one or both ultimate categories, its important produce the distinction, so with regards to clearly establish the design/development criteria.

Upgrading/Expansion

As recently been previously discussed, Las Vegas continually seeks to reinvent itself like a means to increase repeat visitation, that by itself creates a snowballing affect as each venue must keep-up featuring its neighbor. To somewhat of an extent upgrading programs, could possibly include creating a new and fresher look, is comparable to an insurance policy against slipping revenues, as well as necessarily relate to any incremental growth per se. Not to be mistaken for replacement programs of worn carpeting and video slot recycling, an upgrade program should seek to create new excitement about the facility in relation to its ambiance, quality of finishes, layouts, and overall décor.

Expansion of existing capacity is less a purpose of market analysis and more a function of "making hay while sunlight shines," based on a thorough understanding of the visitation pattern densities. Patron back-ups for gaming positions and restaurant tables can be both good and bad, depending on when they occur and how often. High per position per day net win averages are not always a sign of a prospering casino, as they quite could also mean lost opportunity any an insufficient number of games. Conversely, additional positions are not invariably going produce the same averages.

When initially configuring capacities for a new facility, it's important to fully evaluate the demand patterns their particular respective day-part components that will maximize penetration during several periods while minimizing inefficiency - the point where the expenses related to additional capacity is exceeded by its net income potential.

Food & Beverage Amenities

Within most casino venues, restaurant amenities are "loss leaders," in order to retain & attract casino patrons with low prices and great value; yet they have the option to both widen occasioned-use of the casino, while also representing potential profit locations.

In Nevada, which may be the only state where detailed historical F&B departmental operating results are available for casinos, properties with gaming revenues averaging between $20M to $200M showed food operations having a net departmental loss of 1.5% of sales in 2001, versus almost a 14% loss in 1995.

Much of these major turnaround is because of the growth the actual world number of food outlets, especially more upscale/specialty restaurants, which has spurred sales from 20% of gaming revenue in 1995 to almost 27% in 2001. Moreover, food costs have been reduced sharply from 45% in 1995 to 35% in '01.

As the previous discussion on occasion-segmentation revealed, a consumer's choice of any casino visit can sometimes compete to entertainment/leisure time activities, including dining out. Having a market relevant restaurant facility within the casino can serve to draw the dining-out destination market, with the casino enjoying its proximity. Therefore when market conditions indicate changes within a casino's restaurant configuration, concerns to be addressed are how are they going to be designed to satisfy the present patronage base, widen occasioned-use, and improve profitability.

Lodging Elements

With turnkey hotel development costs ranging between $75K to $350K per available room, a place positioning strategy had better be well analyzed. Yet we see many such projects undertaken with little understanding of the market dynamics and economic impact.

Nationwide, as mentioned by our most recent survey, there are 724 casinos around the country; comprised of 442 commercial operations, about 50 % of which are located in Nevada, and 282 Indian gaming venues, of which 209 offer most, if not all, of Las Vegas type (Class III) exercises. Roundly 58% of casinos in the flooring buisingess gaming sector have co-located hotels, weighed against 37% of class III Indian gaming venues, despite their containing precisely the same average number of games.

The high preponderance of hotels from inside the commercial sector owes to some people gaming jurisdictions requiring them; including Nevada (for an unrestricted license) and On the internet services. Moreover, much of the Nevada market demand comes from beyond a daytrip radius, making overnight accommodations necessary in order to gain market share. When extrapolating these states from the total, the percentage of all commercial casinos with hotels drops to 50%, a great average of 312 rooms & 1,183 games.

The obvious advantages of casino lodging units could be ability to draw gaming markets from past the typical outing radius, whilst having a somewhat "captured" market (Casinos with Hotels). Moreover, guest rooms could be another perk-use for player club points. Hotels also widen a casino's occasioned-use through non-gaming leisure activities & amenities, augmented by the ready accessibility to gaming, while also representing another profit center (Hotels with Casinos). Additionally, within a traditional lodging setting, a casino/hotel has an aggressive advantage thanks to its added entertainment selling points and features.

Among the major Las Vegas properties decreasing hotel rooms than games, as the city transits from a gaming destination for a more that are of a resort & convention hot spots. In so doing these properties increased their hotel profitability and investment returns by not in order to offer rates that are low to attract gamers. Whereas, some areas such as Laughlin and Reno, which don't enjoy the critical mass of a Las Vegas, still locate one necessary to supplement their hotel investment with casino revenue, simply because low room rates and large seasonal visitation fluctuations

In configuring a casino hotel development it is therefore important to understand the market and financial dynamics together with their impact on overall gaming revenue and profits. From inside the free-standing (non-casino) hotel industry, financing terms are usually over a 15 to 20 year amortization schedule with a ten year balloon/refinance, where you can break even point that approaches 65% to 70% occupancy. Typical casino based lodging elements enjoy high occupancy levels on the weekends, but low levels weekday. Inevitable that your incumbent to "build a church for Easter Sunday," keeping in your thoughts the overall efficient technique asset.

Moreover, if the intent might be to attract additional casino patronage from a wider market radius, it is important to evaluate the cost virtually any hotel subsidy versus the potential increase in gaming sales. A new 200 room hotel at an internet casino already generating 20,000 weekend visitors, may only be adding 2% to 4% more players, while exposing itself to higher costs. In regards to occasioned-use, especially among tourists and weekenders, casino hotels may also be competing with alternative resorts in the spot.

Ideally, these kind of facilities, when not situated in markets with insufficient local/day-trip markets (e.g. Laughlin), should be configured on the basis of their non-gaming related and off-peak period support so concerning maintain relevant room rates and adequate levels of profitability. Ought to also include those amenities these investing arenas are seeking, including, where applicable: conference and convention facilities, and indoor/outdoor recreational variables.

Albeit associated with a niche market, RV Park facilities are a less intensive investment in overnight lodging facilities that can nonetheless offer some of the benefits. Based on the latest data, there are definitely than 9 million households in the united states that own RVs, and represent one of every ten vehicle owning households. As households have the 55 & over age groups, in which have a compared to average gaming propensity and annual take-home pay.

RV Park development charges are well below those for hotels, in fact have a high seasonal use, peaking inside summer months in temperate resort environs and winter months months in the "snowbird" areas.

Retail/Outlet Shops

Retail/Outlet shopping is gaining a major foothold at casino venues across the particular. First represented by casino logo shops and several high-roller/jackpot-winner positioned boutiques, these stores have grown into major malls and entertainment centers. The Forum Shops at Caesar's Palace in Las Vegas enjoys the best per sq . ft . sales of all retail malls in the U.S., as well as the growth in retail sales in area is significantly outpacing regarding gaming revenue. The presence of these shops serves as both is so popular to the area's 35 million annual visitors, who are now lowering costs than 4 hours each and every day actually gaming, as well as a major profit center that leverages the visitation base.

In less resort destination type markets, outlet malls are strong traffic generators from that your casino facility can draw patronage. On a smaller scale, casinos can widen their occasioned-use by unique and indigenous shopping that is especially positioned to attract the "adjunctive" daytripper trade. The extent and characteristics of these stores in order to be scaled towards potential market, current visitation trends, or any local aura.

Entertainment

Although entertainment is a mainstay in casino environments, stemming through your Rat Pack days in Las Vegas, to today's imposing concert/arena venues and specialty shows; their market dynamics less misunderstood. They at once, diversions, attractions, profit centers, and public relation tools. They can however, also generate major losses, and therefore should be studied to discover their appropriate configuration.

With most major entertainment events occurring during the weekend periods the attracted audiences may possibly not have any significant impact on the likely already busy season. Therefore it in incumbent how the specific event be structured so to at least break even or turn a small profit. While this is somewhat self evident, better central issue the entertainment venue's power to also amortize its initial development cost investment. Outdoor facilities can sharply reduce construction costs, but also are prone to weather vagaries and seasonal use. Moreover, party tents and temporary structures tend not to have the cache of just a fixed venue that is a vital part of the casino surgery center.

Recreational Facilities

There is lots of attention these days being directed at the developing on recreational facilities at casino venues, particularly those associated with resort projects. Golf courses are a common adjunct to many resorts, the best part is Indian communities enjoy the advantage of having accessibility ample land areas and water rights these involving undertakings force.

As with all of the other revenue enhancing reinvestment alternatives discussed herein, recreational facility development might be of interest within the context of its ability to generate additional casino patrons and/or serve to be a profit room. Whereas golfers traditionally have a high gaming proclivity the association of golf with an internet casino is it isn't in sync, given the magnitude of time vital for a typical round. Moreover, even under the highest utilization rates, a typical 18 hole golf course will only accommodate about 140 players per day, while the nation's average in year round environments is roughly 100 rounds per day. This is not a regarding additional players for the casino, whether or not all of them gambled, especially considering the cost of an average course, excluding land, ranging between $5M to $15M.

However, golf course development included in a resort package and/or to fill a local market demand can have numerous non-gaming related benefits. Through your resort development standpoint, a golf course as well as other recreational elements can boost facility's competitive positioning, short and snappy where its development/operating costs can be recaptured through higher room rates/green penalty fees. Many traditional golf courses also "pencil-out" when incorporating fairway home sites, which have a particularly higher value than non-golf course sites. Given the trust status of Indian lands, this may be somewhat problematical on reservation lands, unless some kind of long term land leases could be negotiated for your home owners.
Planning/Financing & Implementation

Once most of the salient market factors are usually considered and weighted against their cost vs. benefits, a comprehensive reinvestment & expansion program can begin to take figure. A design & construction team should be assembled that will assist further interpret the program in terms of creative and value engineering input, while maintaining its established market positioning and financial strategies.

Importantly, plan promises should illustrate how each element will be coordinated in the overall facility fabric and also the manner that will be financed. Some funding can stem from reserved profit allocations, whilst independently funded with additional debt, whose amortization may be factored in the overall project's feasibility explore.

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