Do You Know Your Casino's VCL?
by Steve Karoul

By now many of you are beginning to tire hearing me constantly say that the casino business today is not about making money but rather it is about creating value. Value is a nebulous term that can relate to both the customer and to the casino. It can even relate to a public company's share holders or to a Native American Tribe's members. VCL is one of the many variable factors that can affect value. Therefore, I think is important to review VCL and hopefully clear up some of the many misconceptions that are out there.

Do you know your casino's VCL? VCL stands for "Volatility Comfort Level". For that matter, do you know what your own personal Volatility Comfort Level is? For example, if you went to a Roulette Table, would you be comfortable betting $1,000 straight up on a number that pays 35 to 1 odds? This represents high risk but high potential reward as well as a high VCL. Or, on the other hand, would you be more comfortable betting only $10 on Black or Red which is an even money bet with minimal risk but also minimal potential reward or low VCL. Simply stated, your tolerance for risk in relation to potential value is what VCL is all about. As I mentioned previously, it is one of the subtle influencing factors that can have a dramatic affect upon value or perceived value in a casino. It can also influence profitability as well. Therefore, without profitability, it will be very difficult for a casino to create value.

With all of the recent consolidations in the casino industry, VCL will become an increasingly more important subject in the future so I think it is worth discussing. It will also be very interesting to watch and observe how some of the giants of the industry will make future decisions based upon VCL. For example, Harrahs which is known for a relatively low VCL recently acquired Caesars Palace which is known for having a very high VCL. This is similar to Circus Circus when they built the Mandalay Bay Casino. Circus Circus is basically a grind casino with a very low VCL and the Mandalay Bay Casino is higher end with a fairly high VCL. However, MGM Mirage Corporation just acquired Mandalay Bay and Circus Circus. This means that we now have two of the giants of the industry with properties within their groups with diametrically opposed VCL's. The big question is what will happen next?

Will Harrahs operate Caesars Palace with a very high VCL? Their options are to downgrade their VCL for the property but by doing so they would denigrate the Caesars Palace brand and cachet for being a high-roller property. Another option would be to spin off Caesars Palace and sell the property and thereby keep the Harrahs corporate VCL consistent throughout the company. This would surely simplify various marketing programs as well as yield some cost saving efficiencies to their marketing efforts. The same could be true for MGM Mirage who will also have to decide what to do with grind properties such as Circus Circus. Companies that offer corporate Players Club cards such as Harrahs, MGM-Mirage, etc. will face new problems, challenges and expenses as their customers try to figure out where they receive the best "value" from their membership.

Volatility Comfort Level (VCL) has also played a big role in operations that are run by an individual leader such as Steve Wynn or Benny Binion. Steve Wynn has always been known for having a very high VCL which can be seen today at his new Wynn Casino where the table maximums are all $10,000 or higher. Benny Binion took a different approach using VCL. His marketing strategy to attract high-rollers to a non-high-roller property was through the use of an aggressive VCL policy of accepting an individual's first bet as his maximum bet. High risk, high reward is also quite synonymous with many of the casinos in London. Most of these casinos are small with 15 or fewer table games. In addition, British gaming regulations are quite restrictive and prohibit the casinos from advertising gaming per se. Therefore, many of the London casinos have accepted a very high Volatility Comfort Level (VCL) with the hope of attracting more high-roller play to their tables. They understand the volatility and accept it as a consequence of high risk, high reward.

Some of the highest betting in the world takes place in the VIP rooms in Macau where you can bet up to $250,000 a hand at Baccarat. However, there is one big difference that I think is worth mentioning. Most of the VIP Room operators in Macau all use a Table Differential to lower or control their VCL and still allow customers to wager much higher amounts of money. A table differential is the amount that the casino will set as the difference between what is bet on Banker and what is bet on Player at the same table. Therefore, a $100,000 Table Differential is the Volatility Comfort Level (VCL) of that particular operator. In other words, they are willing to accept up to $100,000 worth of risk on every hand wagered even if the actual betting is much higher. For example, you could have two players playing against each other on the same table with one betting $500,000 on the Banker which would be perfectly acceptable as long as the other player did not bet more than $600,000 on the Player. The VCL or differential for the table is $100,000 per hand.

Cruise ships used to always have very low VCL's until Star Cruises owned by Genting in Malaysia started to operate high level shipboard casinos offering land based casino betting limits. This has set a new trend for VCL's for casinos on cruise ships and you can now find gaming cruises or sea-going gaming junkets on board Star Cruises, NCL, Carnival Cruise Lines, etc. As an industry we have also witnessed other VCL changes in both table games and in Slots. For example, table games such as Caribbean Stud Poker actually reduce a casino operator's VCL since the game basically accrues money from other players on the game and then pays it out for the big winning hands. Customers like these games because they can get a chance at big payouts for a minimal investment. The accrual therefore lowers the casinos VCL. The same is true for example with IGT's Megabucks Jackpot Slot Machines. They allow the casino to market huge jackpots with minimal risk thereby lowering the casino's VCL since the huge jackpot does not get paid out directly from that individual casino but rather from IGT's accrued jackpot funds.

There are some casino games such as Roulette that allow a player to decide their own personal VCL. A player can bet even money bets on the game thereby choosing a very low VCL or they can bet numbers straight up for 35 to 1 odds going after much higher payout which means they are willing to accept a much higher VCL. The Lottery probably represents the lowest VCL of any gaming entity and the highest VCL for any customer who actually bets on a lottery. Even, Poker, which is red hot right now, has a very low VCL for the casinos since it has no risk. The players are playing against each other and not the casino. The casino takes the "rake" which is a small percentage of the amount wagered which translates into low risk, low reward for the casino.

Back to the basics. If you work in the casino industry today you need to understand as much as possible about Volatility Comfort Levels (VCL) for many reasons. First, your boss may ask you about a big player and whether or not to book their action. Second, you really do want to have some comfort level that you are making the right decision when it comes to risk which we all know can be extremely volatile. In

Date Posted: 16-Nov-2005

Steve Karoul is Vice President of Casino Marketing for Foxwoods Resort Casino located in Connecticut. Steve has over 25 years of experience with top casinos both domestically and internationally. He is a contributing writer to several different major casino publications often injecting his own experiences. Steve can be reached at Tel. (1-860) 312-5070 or by E-mail: skaroul@mptn-nsn.gov

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