Developing Analytical Tools for Casino Marketing Professionals

by Andrew M. Klebanow

It is generally understood that the sum of all marketing and advertising expenditures is the one of the largest expenses in. casinos. However, despite their impact on a property's profitability, it is difficult to easily identify all of the costs that make up Marketing and Advertising on a property's profit and loss ("P&L") statement and see their effects on both property revenue and cash flow performance. It is equally difficult for the marketing professional to quickly calculate the property's player reinvestment rate based on the data presented in the P&L.

To better understand how marketing professionals track marketing costs and measure their results and to better understand the notion of player reinvestment, the author conducted a series of interviews with casino marketing and casino finance professionals. The end result was a white paper discussing those findings. This article represents a summation of those findings.

Analysis of Marketing and Advertising Expenses
Most casino P&L's do an excellent job of detailing each operating department's revenue and expenses. However, marketing and advertising expenses can be found on multiple pages of this report. For instance, system generated comps (those generated by the casino's player rewards program) normally appear as an expense to the Slot Club Department. In addition, comp expense can be found in Slots, Table Games, Hotel and on almost every revenue-generating department's monthly operating statement. Thus, answering the simple question, "what is the ratio of comp expense to property revenue?" becomes a time consuming task.

Other marketing and advertising expenses are just as difficult to identify. Direct mail is divided into a number of categories. The design and printing of mail pieces may be booked as an advertising expense under "Print Production." Postage may be booked to Casino Marketing while the actual value of the offers redeemed might be booked to the Slot Club. This in itself is ironic since no other marketing activity has a greater impact on property revenue than direct mail and yet, it is difficult to answer simple questions as, "what is the relationship between direct mail expense and property revenue?" or "did direct mail have an impact on cash flow?"

Analysis of Player Reinvestment
The terms "player reinvestment" and "player reinvestment rate" are often used to describe the costs associated with the suite of benefits that casinos bestow on their players. However, despite the frequency with which these terms are used, there is no industry-wide definition that describes the specific components that make up player reinvestment. To better understand how the industry defines player reinvestment, a survey was conducted by the author among casino operators that asked for definitions of Player Reinvestment and Player Reinvestment Rate.

A key finding of the research was that there is no industry-wide definition of the term "player reinvestment" or the term "player reinvestment rate." While there is general agreement that the money spent on fostering loyalty and encouraging repeat visitation forms the bulk of player reinvestment costs, casino operators differ on the specific expenses that make up player reinvestment. Some financial officers lump all of the costs associated with casino marketing and advertising to form what they think is player reinvestment while others limit it to just those costs associated with the administration of the player rewards program. Others take a more analytical approach and attempt to identify only those costs that are directly associated with player reinvestment.

The Marketing Analysis Report
Managers of casinos in a several jurisdictions have come to recognize the importance of being able to monitor each component of Marketing and Advertising. To better illustrate the effects of these expenses, they enlisted the help of their Accounting departments to produce a monthly analysis of all marketing and advertising expenses and their relationship to property revenue and earnings. This monthly analysis allows property leadership to closely monitor the effects that each marketing and advertising activity has on overall property revenue as well as on earnings before interest, depreciation and amortization ("EBIDA"). The Marketing Analysis Report consolidates marketing expenditures that are scattered throughout the P&L and shows the relationship of those expenses to gaming revenue and EBITDA on a monthly basis.

Table 1 illustrates a Marketing Analysis Report. It shows net monthly property revenue along with EBITDA, then details key marketing and advertising expenses and their relationships to both revenue and EBITDA. Ultimately, each property would design their own analysis, offering differing degrees of detail. By understanding the total cost of all promotions, direct mail, comps, bus marketing and advertising, marketing directors, departmental managers and corporate leadership can gain an understanding of which marketing activities have the greatest effect on revenue and EBITDA. Table 1 shows a sample Marketing Analysis Report.

Table 1

Once leadership can see each of these expense categories every month, property managers can then "adjust the gauges" to see if they can improve property performance. As an example, promotional expense may be reduced to see if revenue declines. Conversely, a portion of marketing could be re-allocated to direct mail to see if EBITDA can be increased. Over time, the property's managers learn what range of spending for each marketing activity is right for their property.

Calculating the Player Reinvestment Rate
Player reinvestment is comprised of all marketing expenses that are used to foster loyalty and encourage repeat visitation among rated/carded casino patrons. The player reinvestment rate is a simple fraction with total player reinvestment expenses in the numerator and Carded/Tracked Win (win that is attributed to players who use their player reward cards) as the denominator. The resulting ratio is the player reinvestment rate. The numerator in this ratio is comprised of the following components.

1. Comps
Comps issued to customers make up the lion's share of player reinvestment expenses. However, not all comps are associated with player reinvestment. Those that are include system generated comps that are issued through the property's casino management system, primarily for meals at the casino's restaurants. Also included are discretionary comps that are issued by casino hosts for additional meals, hotel rooms, airfare, limousine service and other premium services. Other comps that fall into player reinvestment are complimentary room offers and show tickets issued to players through direct mail offers or other marketing campaign vehicles.

Those comps that are excluded are beverage comps that are distributed to all gamers, regardless if they are members of the rewards program, employee and manager meal comps and any other comp that is not associated with tracked gaming activity.

2. Points Redeemed For Cash or Non-Negotiable Slot Credits
Almost every player rewards program issues bonus points to players using their slot club cards. Those bonus points are usually redeemed for sa

Date Posted: 10-Jul-2008

Andrew M. Klebanow is a Principal in Gaming Market Advisors, a Las Vegas based
consulting company specializing in gaming market assessments, feasibility analysis,
operations analysis, marketing plan development and player reward program design
for both US and International gaming markets. Mr. Klebanow can be reached at
Andrew@gamingmarketadvisors.com or +1 (702) 547-2225