It doesn’t sound like the tension between slot machine manufacturers and casinos over hold percentages is ending soon. That was a takeaway from an educational conference last week in Las Vegas about making peace between the sides.
Panelists at the University of Nevada, Las Vegas-sponsored event made their points during the discussion.
Casino operators say manufacturers build expensive games and the slot developers say operators set the payback percentages too high for players to reach bonus levels and have a better experience.
One theory? Casinos are trying to recoup the cost of the machines.
Kathleen McLaughlin, vice president of marketing and product management for slot maker Novomatic Americas, said the games are designed to provide certain experiences for players, but casinos want to make as much money as fast as they can because they’re focusing on quarterly earnings and year-over-year comparisons.
Slot manufacturer can put the game at a 15 percent hold, but a performance guarantee adds to a layer of cost that can lead to a “death spiral” by constantly changing games on the floor. Performance guarantees mean the operator can keep replacing the game themes on a cabinet without incurring conversion costs.
“It hurts to tighten those games, and if you understand the players, the best marketing you can do is allow them to walk out of the casino with $500,” McLaughlin said. “They’ll come back in two days or for six months or two years. It’s a beautiful marketing plan, and it’s so simple, but we continue to over-analyze and over-think and not allow the one thing they want and are playing for.”
Jeff Jordan, executive director of loyalty and rewards for PlayStudios who’s worked for both slot makers and casinos, said setting the price on the slot machine floor is “best delegated to the operator” because they do the analytics and know their customers.
Jordan said the industry needs to spend more money marketing games and have a platform to recommend games to players, much like Amazon does in recommending retail buys based on their customers’ preferences.
“That helps the consumer decide what games they select and that they’re getting on the right game,” Jordan said. “That’s an important initiative.”
Former Borgata Atlantic City CEO Bob Boughner, now a partner with Global Market Advisors, said hold percentage is not something to be tinkered with without an abundance of information. He said it’s not about getting along between slot makers and operators because it’s not a war. It’s commerce.
“One of the challenges that operators face is that the decision-making process in some companies starts at a low-level as it should but it’s not low enough,” Boughner said. “The customer is often not included in that process, and they should be.”
Jordan said there’s “a capital flow problem” in the industry and as new slot machines come online in new casinos that has a “cannibalization effect” on the whole market.
McLaughlin said while the games are expensive, they generate revenue if managed correctly. Slot makers could be smarter and more thoughtful about pricing, but no one is pricing product “out of whack,” she said.
Gavin Isaacs, the non-executive chairman with SBTech, said taking away a player’s experience on a slot machine is like trying to sell someone a purple car.
“If people put $200 in a machine and get 40 minutes of play and only get $20 now, that customer isn’t going to be satisfied no matter what other perks they get during their stay at the casino,” Isaacs said. “What one casino does to the hold percentage of a game at their property can damage that game’s brand at another property.”
History, according to Jordan, showed increasing the hold percentage of video slots didn’t impact bottom-line revenue and casinos rolled out more.
Buddy Frank, president of BF Slot Strategies, who moderated the panel discussion, said the Great Recession in 2008 scared operators who are “still a little bit in shock mode” and their capital budgets didn’t recover as robustly as they should have.
“They have a little bit of fear about buying products, and when they’re more expensive, there’s a little more fear,” said Frank. However, he added, “the good products today are earning well.”
Frank said in his experience increasing hold percentages can have a positive revenue impact in the short term, but almost certainly ends up being very costly over the longer term.
McLaughlin recalled a meeting with casino executives who were looking at how to increase the hold. The analytics side didn’t consider what would happen to their customers.
“That meeting stays with me because they thought it was okay to lose a certain amount of business because they could drive new business and keep capturing new customers,” McLaughlin said.
Frank said he wants to correct a popular opinion that slot revenues are declining.
“They’re not. They’re growing faster than the economy nationwide,” Frank said. “In markets like Las Vegas with lots of competition and perhaps too many units, some operator’s shares are declining. But nationwide, slot revenues are still strong and growing.”
