Slot players continually lament that casinos don’t have enough machines that pay off. New research shows slot managers can make the same complaint – except in this case, it’s the casino’s revenue coming up short.
In general, machines that take up more than half of a casino’s slot floor space account for only 15 percent of revenue, said Nick Hogan, co-founder and CEO of ReelMetrics, a data-science firm serving the global slot-machine industry. In contrast, machines that get 10 percent of floor space generate 40 percent of the revenue.
“It’s like your front-row customers spending all their time in the cheap seats,” Hogan told casino executives June 9 at the AGS GameON Customer Summit at the Hard Rock Casino in Hollywood, Florida. “It’s just a mismatch” that leads to “precipitous declines” in player activity and satisfaction.
Hogan outlined findings from ReelMetrics’ Cupid initiative, which aims to match players and slots in a way that increases satisfaction and loyalty, while driving up casino profits. Since beginning Cupid in December 2014, ReelMetrics has accumulated a staggering amount of player and casino data from 265,000 contributing machines, tens of millions of anonymized player profiles, and billions of playing sessions.
Researchers devised nine categories of players and nine others for machines. Players in the A1 category are the most profitable to casinos, with C3 the least profitable, Hogan explained; X1 machines are the high-demand, best-performance products, while Z3 slots are “dogs.”
In analyzing player attributes, ReelMetrics looks at such factors as the amount gambled on the various machine clusters and the length of each playing session to help calculate a “loyalty score,” a 1-to-8 ranking of how much the machine itself appears to fortify loyalty.
“Once we have these engagement profiles, that enables us to then isolate and prioritize preferences, which is what it’s all about,” Hogan said.
He suggested that a “balanced” floor would allot 40 percent of its space to the best-performing X cluster, 45 percent to the Y cluster, and only 15 percent to the low-performing Z cluster. However, casinos typically give only 10 percent to the X cluster, while the Y cluster gets 35 percent, and the poorest performers get 55 percent.
“What we’re seeing is there is a lot of fat to carve out,” Hogan said. “These acute inventory imbalances are the rule, not the exception.”
He said 78 percent of the machines that reach the gaming market fail on the slot floor.
“We end up with wide misses. Our shelves, so to speak, are stocked and dominated with products for which there is little or no material demand.”
He blamed an “undue fixation on accounting” for allowing poorly performing machines to remain on the floor. Companies typically depreciate hard assets, such as a purchased slot machine, over five years. Instead of booking the depreciation amount, he said, casinos would be better off getting rid of an underperforming machine by storing it or selling it on the secondhand market.
“You’re not really depreciating an asset. What you’re doing is amplifying a liability. This thing is on the floor. It hurts you. It impacts your players and play negatively.”
Hogan acknowledged that ReelMetrics tends to favor premium slots, which are leased from manufacturers. Many operators limit their premium slots to less than 10 percent of the floor, often because that’s what their competitors do.
Hogan told of one well-known client, which he did not identify, that increased premium slot space from a single-digit percentage to more than a quarter of the floor space.
“It blew the roof off the joint in terms of revenue,” he said. “Secondly, a huge chunk of that middle to upper tier (of players) actually moved up. This was just based on inventory composition.”
He said leased machines offer flexibility, because a title that doesn’t perform as expected can be switched out for something new.
One questioner wondered whether oversaturation of one type of machine could pose a new set of problems. While agreeing that everything has a limit, Hogan said the current slot-floor makeup suffers from too many choices, not too few; he cited one client with about 88 percent of its slot titles offered on just a handful of machines – in many cases, only one per casino.
“There is just too much variety in our industry,” Hogan said.