Whatever Happened to Old-Fashioned Gambling?
by Sudhir Kale

Whatever Happened to Old-Fashioned Gambling?

The casino industry is built on numbers, and one would expect the highly paid C-level executives at some of the biggest casino companies in the world to have a good handle on numbers. If this is a reasonable expectation, what is it that prompts so many decision makers to often disproportionately invest (financially and psychically) in suboptimal non-gaming facilities as opposed to the more lucrative gaming operations?

Whether you are looking at the Red Rock Casino in downtown Vegas, the plush resorts rising from the rubble of Katrina, or the proposed Marina Bay Sands to open in Singapore, all the puffery seems to be about the spa, the upscale restaurants, the night-clubs, the fancy retail outlets and, get this right, the museums. Hardly anything is said about the casino, the core that makes these peripheral activities possible.

At the May 26 press conference held by the Singaporean government to announce the winning bid for the Marina Bay site, the five ministers constituting the judging panel said little about Sands’ casino. In fact, the casino was not listed as an evaluation criterion for the four remaining entries to be judged. And yet, not a soul would dispute the reasoning that had Singapore’s integrated resort NOT included a casino, there would not even have been one bidder.

Why this conscious downplaying of gambling in a gambling outfit? Is it shame or simply pandering to public political correctness? I am reminded of Ayn Rand’s Foutainhead where—towards the end of the novel--the money to build the Wynand Building came out of the sales of The Banner, a mediocre tabloid designed to titillate pedestrian minds. The Wynand Building was to be the tallest skyscraper in New York City, a monument to Ayn Rand’s protagonist architect Howard Roark. In their last meeting before Gail Wynand, the financier who commissioned the building shoots himself, Wynand tells Roark that things such as The Banner are only the financial fertilizer that make such things (as the Wynand Building) possible. You listen to some of the speeches of casino presidents or read their recent statements and you find echoes of Gail Wynand punctuating every other word! One only hopes that guilt and shame do not drive these execs to the same end as Gail Wynand.

Now let’s return to the numbers. With regard to the Marina Bay project, to pick a recent example, the EBITDA on gaming activities, according to DBS Group Research, would be 30 percent whereas that on all the non-gaming activities would be 5 percent. Assuming that both the gaming and non-gaming activities offer further capacity and there are no other capacity restrictions, where would you invest your incremental dollar? In understand that investments in various facilities for this particular property have not been at Sands’ total discretion. But even in instances where external constraints are almost non-existent, the increasing non-gaming bias in executive mindset does rear its head.

If feeding the hype about non-gaming activities is a PR exercise, such behavior could be partially excused. But I often wonder whether some executives fall prey to their own PR. Attend a senior executive meeting at most casino companies and keep a tally of how much time is spent discussing various issues. You may be amazed to find that issues concerning non-gaming activities typically would consume 70-80 percent of management time when such activities contribute only about 25 percent to total revenues and far less to total profits.

I already can feel some readers cringing. They want to point me to Las Vegas where non-gaming revenues have overtaken gaming revenues in recent years. However, few ask whether this was a result of a long and deliberate process of sinking capital in non-gaming facilities. What would have been the result if the casino companies had stuck to their core business—gambling, and had totally or substantially outsourced the non-gaming facilities? One cannot discount the real possibility that under this scenario, the casino companies’ ROI could have been higher and the non-gaming facilities could be more efficiently managed.

It is folly for a company that derives over three-fourths of its profits from gambling to think and act as though it is a resort. Many such companies dot the global gaming landscape. The resort mentality inevitably results in sub-optimization. It also conveys disrespect for the gambling customer, typically the ace of spades in the company’s deck of revenue generating activities. Gail Wynand knew that he was catering to mediocrity when he was publishing The Banner. He had true disdain for everyone involved in producing and consuming its offerings. I sincerely hope that senior gaming executives do not share Mr. Wynand’s contempt for gambling. Gambling does provide the fertilizer to make iconic buildings and other hyper-real experiences possible (mostly for the pleasure of non-gamblers). In our quest for such grandeur, let us, occasionally, pause to play homage to the gambler, not just in private gaming rooms but also by way of public acknowledgement.

Date Posted: 08-Jun-2006

About the Author: Sudhir H. Kale, Ph.D. is the founder of GamePlan Consultants and also Associate Professor of Marketing at Bond University. He has published around fifty articles on casino management. GamePlan Consultants advises and trains casino executives on a wide range of issues pertaining to the marketing and management aspects of gaming. You can write to Sudhir at skale@gameplanconsultants.net or visit his website: www.gameplanconsultants.net.

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