The marketing cost associated with matchplay tokens. Paper prepared for the Ninth
International Conference on Gambling and Risk Taking.
By Andrew MacDonald
Gaming Manager, Casino Operations, Adelaide Casino, 1993
Match Play Tokens (with exchange) |
The issuance of promotional chips and tokens to attract play is a widespread practice
within the casino industry. The objective of which is obviously to increase profits
by inducing the public to gamble at that particular facility. Therefore such a
mechanic is often externally focussed and packaged with internal retail offers.
That is the promotional chips are utilised to effectively discount the standard
retail price of items offered by the facility. These generally include room, food
and beverage services where, depending upon occupancy or utilisation levels, the
retail cost differs from the marginal cost to the company.
As an example if, and only if, occupancy is low during a particular period then
the cost of providing a room to a customer is effectively the cost of cleaning
and servicing that room. If occupancy is high, however, the cost, is that of the
potentially displaced revenue from a normal sale.
In the casino industry it is particularly useful to apply this logic during non-peak
periods where packaging an attractive offer is used to attract players to gamble.
One highly marketable method by which this can be achieved is to provide package
customers with a room at standard retail but include promotional chips to add
value to the product. If the chips were merely cash chips no incentive exists
for the customer to play in the casino as they could easily cash these out. Thus,
the provision of cash chips to discount the room rate may only attract customers
interested in a cheap room which would be of little value to the overall operation.
A more effective technique is to utilise match play tokens or non negotiable chips.
Match play tokens require a player to match the value of the token played with
an equal or greater value of cash chips. This practice marginally reduces the
cost to the company of providing match play tokens. Of greater value, is the fact
that this ensures people attracted by the package have a propensity to gamble
as they must also place at risk their own money.
To increase the amount of match play tokens which may be provided and thus enhance
the market perception of added value, these tokens are often used on a "with exchange"
basis. In such circumstances each token can be used once only, that is, if the
bet wins the token is removed. Simply speaking, on an even chance game, if the
player bets a $5 cash chip and a $5 match play and the bet wins then the player
is paid $10 and the match play token removed. A total return to the player of
$15 being bet and payout, therefore the match play could be described as having
a $2.50 betting value. If this is the case and we wish to discount a room by $50
we could provide the customer with $100 in match play tokens as part of the room
package. If the purchaser of the package doesn't gamble then they pay full price
as match play tokens have no value except in play. Only by gambling the full amount
does the customer receive the discounting value. An added advantage of this is
that there is no need to rate (record) play for this player as all calculations
on discount have been made prior to the sale and thus no requirement exists to
monitor how much and how long the player gambles.
Such a simplistic analysis is however fraught with danger and more detailed calculations
are required to determine the potential cost to the company of the unrestricted
use of match play tokens.
In any game the cost of providing a chip to a player is the probability of the
player winning multiplied by the total return to the player (bet plus payout).
In the case of match play tokens (with exchange) the cost is the probability of
the player winning multiplied by the payout only (ie the bet component is not
returned). In an even chance game with a 1.5% house advantage the cost of a token
is 49.25% of its face value. As the token must at least be matched with an equivalent
cash chip bet, then the cost of the token may be reduced by the potential loss
from this required bet, in this example that reduces the 49.25% by 1.5% to 47.75%.
At the Adelaide Casino all tokens at their face dollar value will be treated as
drop, therefore a tax implication exists which in Adelaide is 20% of net win.
This increases the cost to 58.2% of the value of the tokens provided.
What if, however, the tokens could be utilised on non even payoff games such as
In this example, if the player bets only on straight ups the initial cost of the
token is 94.59% of its value. The benefit derived from matching the token is 2.7%
thus reducing the cost to 91.89%.
After tax the cost is increased to 93.51%.
Details of the above calculations are shown below.