Summary

In this two-part episode, Nick & guest co-host, Dan Cherry, speak with Professor Anthony Lucas of UNLV’s William F. Harrah College of Hotel Administration. Tune-in as we discuss and debate some of Anthony's seminal, award-winning analyses, and chat about the status and future of gaming education & research. Also in this episode, growing concerns about economic headwinds.

Transcript

Nick Hogan:

Okay, so let’s move on to the free play study. So could you maybe just break that down for us quickly, what you were looking at? Yeah.

Anthony Lucas:

That’s a long road too, but first we started to look at free play just overall. For every dollar we redeem in free play, what do we get back in incremental play? So we spent a dollar basically. Another thing that bugs me, we’re talking about, I think Dan mentioned earlier, things that bother me about things in the industry people need to know, if someone says free play has no cost, just stop talking to them. It has a cost called the payout, because when those bets hit, you got to pay out actual real money.

So we were trying to understand, okay, we know it has a cost, we could spend that money somewhere else, so it’d be nice to know if that 40 million a year we’re spending is actually doing anything for us. And so there’s two kinds of things. There’s spend per trip and there’s visitation, so we want to see an uptick in one or both of those things. And so it was easier to measure spend per trip first, so that’s where we started, and at one point free play was doing pretty good. And again, free play is not categorically bad. It’s not. It can be done well. There’s not some return on free play that applies to everyone. That doesn’t exist because it matters who you send it to, how much you send them, the offer protocol, frequency, amounts, selection, all those things matter a lot and they will affect your return.

But what we kept finding was, and we did 20 something studies where we would just say, okay, what’s a dollar in free play produce? Now that includes everybody, high end, low end, middle, everybody, and that was the limitation of the study. But we kept finding, we’re giving away almost a dollar and we’re getting back less. And so we started to say, it doesn’t look like… In the early 2000s, we saw success where we would see for every dollar we redeem in free play, we get a dollar 35 in un-money spent, and that was pretty good, 35% return, and so things were good. And then they got bad really fast and so we started to see 75 cents was the norm. And shockingly, even though I just said everybody’s program is different, but that 75 to 80 cents was very common. I would say 90% of the studies, we would find a dollar redeemed in free play got us about 70 to 80 cents, somewhere in there in incremental play.

But then we started to say… We started broadly and we refined it. We started looking at that same model but within segments of the loyalty program, like what did segment one do, segment two, all the way up to the top players? And we didn’t get very good results there either, and again, we’re still looking to spend per trip. And then skipping over a few studies, we got to the one I think you’re talking about where we did a randomized controlled trial, which is the gold standard of research design. I think any economist would agree with that, including Nobel laureates like Richard Thaler, the guy I got it from.

So yeah, it’s a pretty good design, and so we created… I think we took 600 players from the same offer tier, not the same loyalty program tier but the same free play offer tier, and we split them up. All 600 of those people I think got, I want to say it was $15 a week or something in the pre-demotion period, and then we kept a hundred of them at that same level. And then I think we decreased a hundred of them to $10 a week, and then we decreased another a hundred to $5 a week, then we increased I think a hundred to $20 and we increased a hundred to 25. And so I don’t know if you’ve seen that study, but that’s coming out in a British journal. It should be out in a couple of weeks.

So the reason we did it was free play has ballooned into this tremendous expense, and it’s a primary plan centered for most casinos in the United States. And so I think it was Andrew Clemenow I want to say that said we’re in the golden age of free play. Everybody’s doing it and they’re doing it big, and he’s not wrong. And so yeah, we wanted to understand, is it increasing spend per trip? Is it increasing visitation? And so we did this within groups study. We did it between groups one, two and Cornell, but we wanted to say Nick was getting $15 a week in this six month period in what we call the pre-demotion period, and then Nick got $5 a week in the post-demotion period, the same six-month period year over year, because we were trying to address seasonality. How did Nick’s behavior change? Because we changed his incentive, we dropped it by 67%. We found that you actually gambled more. Let me see. I’ll pull up the result. I think I have it right here.

Of course, I don’t, but… Yeah, actually I do. All right. So yeah, you actually had a significant increase with outliers omitted. So your spend for that six month period actually went up, even though I dropped your incentive by 67%. The rest of them, I would say to summarize it, we don’t really see a connection between the amount of free play that you’re giving people and their spend within that group, within that group. It could be different for the high end, and so in the paper, we say, “Be careful, don’t replicate this experiment with your best players because there’s too much risk.”

And