Promotional Chips

Introduction | Match Play Tokens (with exchange) | Conclusion |

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 Roulette.

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.