G2E Asia was in Macau this year from May 12 through May 14 . Like all trade shows, it has two components, a trade show and discussions on current issues. The trade show puts the latest games and devices on parade. The discussions bring industry leaders, analysts, and insiders together to talk. The latest trend in Macau, side bets were on every mind.
Side bets have become a thing in Macau. They are not new; the idea has been around for 35 or 40 years, driven by individual entrepreneurs who invent new options for old games. The inventor hopes to sell the ideas to casinos and get a small piece of the pie. Usually, the sales pitch includes an improved hold or win percentage. At a time when card counters were cutting into table game revenue, the idea had some appeal. It still does, but it has limited appeal for players.
Players are in the game to win — in Nevada, at blackjack and in Macau baccarat. Players understand odds. They make bets where they might have a chance and side bets rarely offer the same level of opportunity. It is not unlike parlay bets in sports betting. You can win a lot if you win, but winning is much less likely with each added proposition. Those touting side bets in Macau describe gamblers as eager for more volatility, a chance for a greater win-to-bet ratio. Players do look for better win ratios, but they are always sensitive to the underlying odds. There is a simple time-tested rule: The higher the house hold, the fewer bets will be made and the number of repeat customers will decrease over time. Of course, that is just my opinion. It is based on casino experience here, not in Macau. And that experience was 30 years ago, not today. So, a grain of salt.
After side bets, upgrading players and player-acquisition expenses were next on the G2E Asia agenda. The representatives of the industry in Macau described a bright future, wherein a suite produces five times the yield of a conventional hotel room. With an upgraded room, the casinos in Macau want an upgraded customer. The junket industry with its high-rolling VIPs has mostly disappeared; in their place are the premium mass players. Premium mass is the growth segment, the mass. The average tourist gambler is important, but the high-end players pay the bills and service the debt.
The Chinese market is a huge, but the number of people who fit the premium profile is not so large. That creates a very intense competition for players and it has produced another new, but very old, idea: promotions/incentives. Give players an incentive to play at your casino. In Macau, they like to call it “investing” or “reinvesting” in players. It is a concept as old as retail sales and has been a part of gaming since casinos began to get competitive. Here it began after the Second World War. When there were not enough customers for all the casinos, out came the promotions: free drinks, meals ,and rooms. Casinos sometimes gave away everything except the bet and even that sometimes was discounted.
As the industry became more sophisticated, the criteria used for dispersing those incentives tightened; only real players needed apply, except when a new casino opened, a new management team was hired, or the town was hit by a recession, bad winter, or some other catastrophe. Those events shake up the terrain and stir the pot of marketing ploys.
The most intense competition is often in small towns. But it can come to the big towns too. For example, in the wake of the recent downturn in Las Vegas, casinos have started offering incentives to get people in the door — discounts on everything and coupons too, much like your local supermarket. It is ironic, because tightening up on the incentives in Las Vegas may have caused the downturn.
As common as the situation is, it was surprising to see it come to Macau. The player-investment strategy is already having an impact on the bottom line. It is the nature of those battles that profits suffer, expenses go up, and the quality of the player goes down. That worries the analysts. The poster child for promotional expense is online sports wagering. The model was created by FanDuel and DraftKings in their earlier existence as fantasy sports operators. The fantasy part is gone, but the advertising and incentive strategies are still very much alive. Spend spend spend for market share is the rule. But probably not sustainable.
Last week, FanDuel bid goodbye to its CEO Amy Howe. The company declared it needed to change direction. Parent company Flutter’s CEO Peter Jackson said, “There’s a bunch of organizational changes that we’ve made, which I think really will sharpen our focus on execution and delivery, which ultimately has been one of our challenges.”
In the end, that is what one can expect. Eventually, the cost becomes too high. Stockholders protest and analysts point out the flaws. Then, like FanDuel, another direction and new managers are chosen and a new era begins. Using old ideas to solve new problems gives insight into the future and there is a cycle to these things.
