Cash Back
| The costs and benefits of providing Cash Back through slot programs to slot machine players. By Andrew MacDonald Senior Executive Casino Operations, Adelaide Casino, 1996 |
Casino Analyser Reference Cash Back |
Introduction | Cash Back Example | Conclusion |
Assumptions
1 “Slot Club” point = 0.25 cents (example only)
1 “Slot Club” point earned for every $1 turnover on V.G.M’s (single hit game like Video Draw Poker or Machine Keno)
2 “Slot Club” points earned for every $1 turnover on S.R.M’s (Pokie or Spinning Reel Slot machine)
Proportion of turnover V.G.M’s = 30% (example only)
Proportion of turnover S.R.M’s = 70% (example only)
Weighted number of points earned per dollar = 1.7
Promotional use of “Slot Club” points factor = 1.15 (example only)
Therefore actual points earned per dollar = 1.96
Cost per $1 turnover = 0.49 cents
Thus Cash back as a percent of turnover = 0.49%
Average Return to player = 89.5% (example only)
Hold % = 10.5% Tax Rate = 40.0% (example only : relevant tax in South Australia)
Calculations
Using the above information it is possible to calculate the cost range of providing cash back to players and the impact this may have on machine results if monies redeemed by players through cash back programs are re-invested into the machines (as incremental revenues) and played till exhaustion (total depletion).
1. Let the following variables be expressed as:-
Cash back percent of turnover = C%
Return to player level = P%
Turn ratio to exhaust funds = 1 / (1-P %) = R
Tax rate = T %
Hold % = 1 – P % = H%
2. Cost of cash back as a percent of theoretical win
This will range from the cost of the monies being paid to the player without any incremental re-investment on their part (ie they take the money and run) to a point where they reinvest all monies received through cash back (incrementally) and the cost to the company is essentially the additional tax paid on the “gratis” revenues.
Thus we have:-
Range from = T% x C% / { H % x (1-C % R ) }
Range to = C% / (1-P%) = C % / H % = C/H
3. Potential growth in turnover and win as a function of introducing cash back.
If no reinvestment occurs and players do not treat this money as incremental funds with which to play then growth = 0%
If total re-investment occurs and players play till complete exhaustion of cash back funds; then growth =
{ C% x (1/(1-C % R)) } / (1-P%)
or { C% x (1/(1-C% R)) } / H%
Inputting the correct numbers from the example we have:-
Cost of cash back as percent of theoretical win:-
Range from : 1.96% (play till exhaustion)
Range to : 4.67% (no play)
Note here that the minimum cost is 42% of the theoretical maximum.
Growth in results due to cash back
Range from : 0% (no play)
Range to : 4.90% (all recipients play till exhaustion)
Thus, in reality, costs will range from between 1.96% and 4.67% of win and growth in turnover/win may fall anywhere between 0% and 4.90% by effectively giving people money for playing (based on the example given). Judging what actual impact occurs is almost impossible given the multitude of variables which exist in analysing actual results.
Intuitively based on observed results it would appear little incremental reinvestment occurs in this particular venue with this particular market. However, it is a tangible reward for playing which should satiate some players needs (recognition and reward).
Furthermore the opportunity does exist for re-investment (play) of low level Cash Back, where small amounts of cash may be redeemed frequently, as opposed to prize redemption lists where it is more difficult to argue that direct incremental play is achieved (eg by having someone redeem a toaster for example for their “Slot Club” points).
