Secrets and Profitability

March 12, 2020 3:00 PM
  • Buddy Frank, CDC Gaming Reports
March 12, 2020 3:00 PM
  • Buddy Frank, CDC Gaming Reports

The man who can keep a secret may be wise, but he is not half as wise as the man with no secrets to keep.” – Edgar Watson Howe

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Last year, Scientific American published an article by Columbia Business School researcher Michael Slepian called “Why the Secrets You Keep Are Hurting You.” In that work, their research found that that 97 percent of people have at least one secret at any given moment and that people have, on average, 13 secrets. Want to know a fourteenth? Few industries keep as many secrets as gaming, and those secrets are causing more harm that you might imagine.

Why do we do it? Maybe it’s rooted in our organized crime genealogy. After all, letting the Feds know how much we were skimming probably wouldn’t have been prudent. Or maybe it’s from our carnival background, where we bragged about “97% paybacks!” instead of proclaiming “Lose 3% of your money!”

Whatever it was, the time for secrets is over. Or it should be.

Let’s begin with one of our modest secrets: resort fees. Those may not be truly secret, but they do fit Webster’s definition as “something kept hidden or unexplained.” These fees have been quite successful at boosting ADR, so the hurt is definitely not felt on our bottom line. But it has put our industry in a legislative and public relations spotlight that is anything but flattering.

A 2018 Consumer Reports found that 34 percent of respondents said they had encountered a hidden or surprise fee at a hotel in the past two years. More than half of those said those fees had caused them to go over budget.

Worse yet, CR named names. “Although all the hotel websites reviewed by CR failed to show the additional fees and charges clearly,” the magazine reported, “some were even less clear than others. Four hotels, including Atlantis Casino Resort Spa; Eldorado Hotel Casino in Reno, NV; Mohegan Sun in Uncasville, CT; and Wynn Las Vegas made no mention of their resort fees when presenting the initial room rate, delaying notification until customers reach the checkout page.”

The most frustrating part of these hidden fees is that they work. A recent Psychology Today report revealed that “partitioned prices lead to an average nine percent increase in customer preference when compared to an all-inclusive price. Resort fees are so effective because they create the illusion of transparency. Consumers mentally process base prices more thoroughly than they process ancillary prices.”

But this little mind trick on secrets has given birth to the Hotel Advertising Transparency Act of 2019, H.R. 4489. Congress could soon outlaw these fees. While some Nevada representatives like Dina Titus are trying to kill the bill, it, or other jurisdictional legislation, could pass soon to stop the practice; 50 attorneys general have launched investigations, and Nebraska is suing Hilton. Whether the laws change or not, the fact that nearly all consumers hate the fees and feel deceived is not good for our industry.

“It hurts to keep secrets” –  Michael Slepian

Something that’s not hidden, but still tends to be a deep casino secret, is your slot mix. The truth is that until recently, most operators bought new slot machines based on:

  1. who had the most proven winners in the past;
  2. having the same machines as your neighbor;
  3. the most entertaining salesperson;
  4. who throws the best parties at G2E/NIGA; and/or
  5. having the biggest and/or brightest machine.

Since no one knew what was working or not working until local data accumulated, you had no other tools at your disposal. And if you didn’t have a particular model or theme on your floor, you were flying blind. So we all ended up with dozens of machines in our basements or warehouses that we never should have bought in the first place.

The old school solution was to send out clandestine operatives with a click counter, a small notebook, and a decent memory to log the competition’s floor. Our surveillance teams wasted a lot of time seeking out these spies as though they were the villains in a John le Carré novel. And, embarrassingly, we often bought the same games that were failing at the competitors, since our count surveys didn’t record financial performance, only counts.

But things are starting to change for those willing to give up some perception of secrecy. ReelMetrics and the Eilers-Fantini Reports are two solutions that everyone in the industry should be using.

(Disclaimer: I have no interests in or consulting agreements with either of those firms – I just like them.)

Their concepts are pretty similar: the firms collect data on the relative performance of slot machines from a number of different casinos and analyze the numbers. They protect the identities of the participating properties by encoding their submissions. The “relative” performance means that the participants only provide an index number against their house average.  That way, a smaller Nevada casino with a house average of less than $100 per day per machine can produce data that is meaningful for a strong Native American casino generating more than $500 per day per machine in Oklahoma.  Plus, they both do analysis on a broad regional basis for more localized tracking.

This is not a new idea.  Several vendors proposed such concepts over 30 years ago. Sadly, they failed due to the industry’s paranoia about secrecy. Those who’ve signed on with these new services have made dramatic improvements in their slot selection for a number of reasons.

“There are some secrets that we think we’re keeping, but those secrets are actually keeping us.”

Frank Warren

While a brand-new game cannot be evaluated until there’s at least a few weeks of performance, once that data flows, it’s invaluable. An operator will have exacting detail of what games to add, what theme conversions to make and how to configure or reconfigure their games (min/max bets, denomination, progressive rates, etc.)

One other side benefit of these databases is that slot manufacturers are also subscribers. That means that they can quickly see what math or game mechanics are working far faster than they did in the past.  For operators, that means better future games and fewer duds.

Together these two vendors have nearly 450,000 slots in their databases. That volume alone helps reduce paranoia, since any given property represents a very tiny segment and so provides even more anonymity. Despite these tremendous benefits, there are still doubters and secret keepers. More than 50% of slot manufacturers and operators in America are not participating in these types of sharing. They are hoarding secrets that are hurting their profitability.

A common argument against participating from some is “we have certain machines on our property that only work here. They are proprietary, and we don’t want to share that information.” That argument is both flawed and short sighted. There are still folks walking around with click counters that have most likely noticed that you keep those games on your floor year after year, so it’s hardly a secret, anyway, and the percentage of games that are local winners/losers compared to these national databases would probably never exceed 5% in the most extreme case.

Thus, these operators are sacrificing valuable data that would benefit 95% of their floor just to keep the other 5% private. “Proprietary” may become a relic term in our future social and digital world. Today, in the U.S., your floor is just not that unique. Thinking it is may lead you to place less emphasis on far greater issues like service, response times, convenience, security, technology, cleanliness and communications.

Nothing haunts us like the things we don’t say.” – Mitch Albom

In her book Work It: Secrets for Success from the Boldest Women in Business, author Carrie Kerpen claims that “your network is one of the most valuable things you possess.” She’s not alone in saying this. There are dozens of books on the value of business networks. Be prepared to scroll several pages in your Amazon search on the topic.

Networks are secret weapons in plain sight. They’ve been slow to grow in the gaming world, but the situation is improving. Surprisingly, surveillance departments – at least some of them – were early adopters. The sharing of relevant information between the surveillance and security departments of competing properties in Atlantic City has been responsible for stopping dozens of scams and cheats. Sharing info about bad folks is good business. Nevada’s infamous Black Book and the Griffin book were early forms of networking that worked to our advantage. In the infamous case of the brilliant slot cheat and former Nevada gaming regulator Ron Harris, networking alerts from one NJ casino about a strange Keno payoff that led to a hotel room search in another casino ultimately helped uncover Harris’s scheme. Without networking, he would never have been caught.

“The secret to strong security: less reliance on secrets.”Whitfield Diffie

Today, even though we have services like CDC Gaming Reports to keep us up-to-date on breaking casino news, there is still nothing as worthwhile as a good network among your gaming colleagues in your given discipline. Hopefully, every slot director has a network of peers who are willing to share important information freely. Discussing machine flaws among technicians, employee issues with supervisors, counterfeit schemes with cage managers and cheating schemes with security/surveillance/operations is just common sense.

Those who share relevant information and consistently network profit immensely. Those who keep secrets don’t.

“It’s never too late to become an effective networker” – Billy Dexter

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[Author’s Note:  Prior to writing this piece, I was asked to sign a Non-Disclosure Agreement that I wouldn’t reveal that having more information is the least expensive and most productive path to success. I refused to sign. NDAs are yet another secret that the gaming industry doesn’t need.]