Cash Back

by Andrew MacDonald

The Costs and Benefits of providing players Cash Back through Slot Programs 

Many Slot Clubs today provide cash back to their players based either on a percentage of turnover or theoretical win. This in many cases has replaced redemption schedules where gifts are redeemed for points accrued through the play of gaming machines.

Slot Clubs themselves have become prevalent for a number of reasons including generating player loyalty through rewards, and providing an immensely important direct marketing tool.

Because of the importance of Slot play to the Casino business, these clubs have become increasingly sophisticated over time and Slot managers have realised that "cash is king" in this area of their business too.

Thus "Cash Back" has become the cry from many a Casino Slot Club.

The question is however what does cash back really cost an operation, and what immediate growth in results may occur as a direct consequence of providing people a rebate on play which may either be put back through the gaming machine or taken home as a bonus.

It is possible to calculate both the cost range and revenue impact of providing cash back to players. Without going into the relevant formulas, costs will vary between

• the face value of the monies paid to the player assuming no re?investment (take the money and run), and
• the point where all cash back monies received are reinvested and the cost is essentially the additional tax paid on this "gratis" revenueSimilarly, the turnover impact will vary between
• zero given no reinvestment of cash back (players either reduce their initial stake or do not consider cash back as additional gaming funds), and
• cash back divided by game edge assuming all cash back is played to exhaustion (players wager their initial stake plus the cash back, which is considered a bonus or a series of 'free plays')

Fears about the cost of cash back given the 'take the money and run' scenario should therefore be balanced against the potential positives of incremental turnover growth. Cash back creates the potential for the re?investment of funds, especially when small amounts may be redeemed frequently. This is in contrast to prize redemption lists where it is difficult to argue that direct incremental play results from having someone redeem for example a toaster for their "Slot Club" points.

And whilst physical goods are nice if you need them, cash back provides a tangible, immediate reward for playing. Find out what the player wants and give it to them.

Thus, what cash back does is to provide an opportunity to grow turnover over pre?existing results in the first year of operation, a matter that needs to be considered when analysing results. While the cost of providing cash back is simple to calculate if no incremental play occurs (being the face value of funds issued), it is also possible that the real cost is as little as the gaming tax paid on cash back turnover generated assuming the full reinvestment of funds. In the latter case, if funds are played as total incremental revenue and the recipient plays until ruin, then in many cases the cost realised will actually be lower than the cost of goods sold through a gift catalogue.

In reality, the 'true' cost of cash back will lie somewhere between these extremes, a factor that should be considered in the design phase of Slot Club rewards. Improving cash back rewards over those of your competitors by recognising the potential range of costs, and understanding the factors that move activity towards one extreme or the other, can provide an operation a very real competitive advantage. Alternatively, providing cash back may simply facilitate the realisation of a lower operating cost structure through the switch from a gift redemption list to cash rewards.

Hopefully this information will be of use to some Slot Club managers or Casino marketing executives who are looking at cash back programs. With sophisticated slot management systems now available, it is possible to have cash back programs linked directly to gaming machines, reducing the potential for cash back to walk out the door. An example of one such system is the Acres Bonusing System recently installed at Motor City in Detroit, once again demonstrating how technological advances are changing the ways in which a modern casino interfaces with its customers.

Date Posted: 30-Sep-2000

Andrew MacDonald is a highly respected Australian expert on Casino Operations and gaming statistics. Several of his works are utilised by the University of Nevada Reno in their Executive Development Program. He is currently employed by Australia's largest casino operator, Crown Limited, as Executive General Manager, Table Games Operations and Development .
Andrew may be contacted at andrewmac@urbino.net.