Casino Reinvestment and Expansion

The proper care and feeding for the Golden Goose

In the current trend of economic decline across the entire spectrum of spending by consumers, casino are facing an unique problem in determining how they can maintain their the profitability of their operations while remaining competitive. This is further complicated in the commercial gaming industry due to rising tax rates as well as within the Indian gaming industry, due to self-imposed payments to tribal general funds and/or per capita distributions, as well as an increasing trend of the levy of fees by the state.

Deciding how amount to “render unto Caesar,” while also ensuring that the funds are available to keep market share, increase market share and increase the profitability of your business, is a difficult task that needs to be carefully organized and carried out.

In this light and from the perspective of the author, which is based on time and grade-based knowledge of the creation and management of these kinds of investments, this article provides methods that can be used to plan and prioritize the casino reinvestment strategy.

Cooked Goose

While it is axiomatic that you should not cook the goose that lay the golden eggs, it’s remarkable how little consideration is given to its ongoing treatment and nutrition. In the case of the new casino, tribal councils, financiers and investors are eager to reap the benefits and it is common not to allocate enough of the earnings to the maintenance and enhancement of assets. This raises the issue of what percentage of profits should go to the reinvestment process, and to which goals. Visit:- https://mspuiyi88.com/

Since every project is unique and has specific situation There aren’t any hard and quick guidelines. In the majority of cases most of the major operators of commercial casinos do not pay net profits in dividends to their shareholders, but instead invest them into improvements to their existing facilities while looking for new venues. Certain programmes are also supported by additional equity or debt offerings. The lower tax rates on dividends from corporations will change the focus on these methods of financing but they will still adhere to the business prudence that is fundamental to ongoing investment reinvestment.
Profit Allocation

As a whole and prior to the current economic situation, companies that are publicly owned were operating with a ratio of net profits (earnings before income tax and depreciation) which averaged 25% of the income after deducting the tax on revenue and interest payments. In the average, nearly two-thirds of the remaining profits are used for investment and replacement of assets.

Casinos operating in low tax rates on gaming are more likely to invest in their properties, which in turn increases revenues that ultimately increase taxpayers. New Jersey is a good exampleof this, since it requires specific reinvestment allocations as an incentive to increase revenue. Other states, like Illinois and Indiana that have more effective rates, face the risk of cutting down on the amount of reinvestment, which could eventually diminish the capacity of casinos to increase market penetration particularly as states around them are more competitive. Furthermore, a well-run management system can increase the amount of profit available to reinvest, resulting from the efficiency of operations as well as favorable equity and borrowing offerings.

The way a casino company decides to distribute its casino earnings is an important factor in determining its viability over the long term, and should be an essential element of the initial development strategy. Although short-term loan amortization or debt prepayment plans may initially appear appealing to be able to get out of being obligated however, they also drastically limit the capacity to reinvest or expand in a timely manner. This is the case for any distribution of profits either to investors or, in the case of Indian gambling projects distributions to the tribe’s general fund to pay for infrastructure or per capita payments.

Additionally, many lenders make the error of requiring too much reserve for debt service and putting restrictions on reinvestment , or even additional leverage that could seriously restrict a project’s capacity to remain competitive and/or take advantage of opportunities.

While we do not advocate that all profits be reinvested to the business We are urging the idea of an allocation plan which takes into consideration what are the “real” costs of maintaining the asset, and maximizes the impact of this program.

Establishing Priorities

There are three major aspects of the capital allocation that must be considered, as illustrated below, in order of importance.

1. Maintenance and replacement
2. Cost Savings
3. Revenue Enhancement/Growth

The first two areas are simple enough to comprehend as they directly impact on market positioning and enhancing profitability. However the third one is a bit difficult to comprehend because it has greater of an indirect effect that requires a deeper understanding of market dynamics and a greater risk to invest. The entire subject matter is discussed further.

Maintenance and Replacement

Maintenance and replacement provisions must be an integral part of the annual budget of the casino, which is a fixed reserve that is based on projected replacement cost of fixtures, furniture equipment, building systems, and landscaping. We often get annual wish lists which do not correspond to the actual wear and wear and tear of these objects. Therefore, it is crucial to plan the replacement process, allotting money that does not need to be spent during the year of accumulation. In the beginning, it might not be important to spend money for the replacement of brand new assets, but by accumulating funds to reserve to be recycled in the future, you will mean that you do not have to search for funds at times when they are needed most.

One particular area to be considered is the slot machine, whose replacement cycles have been slashing in recent times, as more modern technology and games are being developed at a faster rate and in line with what competition dictates.

Cost Savings

Cost savings programs and systems is, by nature, and when properly researched, an investment that is less risky profits allocation funds than almost every other investment. These investments can take the form of innovative energy-saving systems and products that reduce labor costs and more effective purchasing intermediation, as well as interest reductions.

There are some caveats to these products One of them is to analyze the claimed savings in relation to your personal application, since often the claims of the product are exaggerated. Lease buy-outs and prepayments of debt can be beneficial, particularly if the contracts were signed in the early stages of development, when equity funds might have been restricted. In these instances, it is crucial to consider the impact of this strategy in the end, when compared to other ways to use the money to invest in growth or revenue-enhancing investments.

A new trend in recent times is the increasing popularity of cashless slot machines that not only offer the opportunity to save on labor costs for fills count and hand-pays they also provide an aid for customers who don’t want carrying around heavy coin buckets. They also help in encouraging the use of multiple games.
Revenue Enhancing & Growth

Leveraging is the primary driver of any growth or revenue associated investment. It includes the following:

o Patronage Base
o Funds Available
O Lands
O Marketing Clout
Management Experience

The idea is to maximize the utilization of the existing assets to increase revenues and profitability. Examples of this include increasing the base patronage spending, and expanding the trading area by providing additional services or products, like retail stores, entertainment options such as leisure and recreational facilities and overnight accommodation, as well as more restaurants and, of course, expanding gaming.

Master Plan

The anticipation of future expansion and growth should be fully included in the initial master plan so that it ensures a seamless integration of all possible components of a phased-in plan and also allows for the most minimal disruption to operations. It’s often not possible to predict market trends and therefore expansion options must be considered with care.

The Big Picture

Before embarking on any kind of enhancement or expansion program, we recommend taking a step back and looking at the current position of the property in relation to the marketplace and competition. We have seen this in a variety of gaming jurisdictions across the nation, many casino enterprises which have been “fat and happy” for several years, discover themselves in a period of no growth. This can be because of competition from new local area casinos or regional venues which can result in a decrease in the number of patrons coming from other markets in the area. In addition, the existing customers may get bored of their experiences and seek out new opportunities. The history of the Las Vegas strip is testament to the effectiveness of constantly “reinventing” oneself.

Our approach to these market research is initially centered on determining the extent to that the facility currently in operation is able to penetrate the market, and also in relation to market share of competitors. In general, this is an analysis of the present patronage base based on data gathered from the player database for tracking and mailing lists, in conjunction with day-part daily, weekly, monthly and seasonal trends in revenue.

The data is then interspersed to assess the overall potential of the market to determine how much certain market segments are using the facility, and what needs it meets. But what is more important is that this kind of analysis will reveal markets that aren’t making use of the facility in a more comprehensive manner and the reasons for this.

Occasion Segmentation

Our own research has revealed, the casino market is divided by different characteristics of use-on-occasion, which also includes regular patterns of spending and visitation. Traditional methods of market measurement, such as gravity models, typically evaluate the demographic characteristics of a particular population by comparing revenues in similar markets. However, a segmentation of events market analysis provides more in-depth details about the factors that lead to a visit to a casino and how they relate to the benefits desired, and the extent that the event determines the average amount of money spent and frequency of visits. This kind analysis of information mining can be far superior to gravity modeling because it is able to assist in determining the kind of facilities and positioning strategies needed to draw each market segment by assessing their contribution to the overall potential. This method is being used successfully in the restaurant industry and other industries that provide leisure time services particularly in the context of a growing demand and supply market.

Perhaps more important taking a look at markets from an event-based view, we can see the scope and nature of the underling competition. This can often, does not just comprise other casinos, as well as other entertainment and leisure activities like restaurants, clubs theatres, restaurants, and the similar.

Demand Density

Another crucial aspect of event segmentation is the measurement of the overall market characteristics of day-parts, that is revenue density based on time of the day, weekday and monthly, weekly and seasonalally. This is particularly important when casinos are trying to limit any more than normal fluctuations that could occur between a quiet Monday morning and a crowded Saturday night, or have extreme seasonal fluctuations.

Through separating markets based on their patterns of demand and patterns, a better understanding will be obtained of which facilities can help boost low demand times, and others that could just add to already high-volume peak periods.

A lot of expansion programs fail to account for the additional facilities like high-end hotels and restaurants in accordance with peak demand times. This means that the total effect of the costs and expenses associated with these investments could negate any contribution they could make to a rise in gaming revenue. Instead, “fill-in” markets are the most effective way to boost overall revenue because they make use of existing capacity. Las Vegas has achieved great success in creating strong mid-week activity through promotion of its extensive conference/convention facilities.

Amenity Driven Markets

Another benefit of utilizing occasion-segmentation is its ability to also indicate the potential impact certain amenities have on “impelling” visitation. While gravity models analyze the characteristics of gambling-related spending of a specific market however, they are not able to measure the impact of other non-gaming-related activities that may nevertheless generate casino traffic.

The most important data regarding the frequency of use by people who go to restaurants entertainment, entertainment, and weekends away can form the foundation on the basis of which amenities are designed specifically for these types of markets and, in turn increasing the number of visitors. While many of these customers might or may not use casinos but their exposure to the possibility of using it could increase their usage and create another source of revenue.

Looking at an Las Vegas paradigm, more and more of the Strip properties are producing at least morerevenue from non-gaming than gaming revenue; and their restaurants and hotels are not as subsidized, and together with their increasing retail components are a major contributor towards the overall bottom line.

Program Development

After having a solid knowledge of market dynamics and their impact on the current market share/penetration rates in relation to the competitive mix and the general usage that the marketplace is able to provide, an matrix could be constructed that balances demands against supply. This process aims to pinpoint areas where there is a lack of demand or oversupply, which provides the basis for the development of appropriate facilities, upgrades and expansion guidelines and strategies.

Impact Criteria

There are two kinds of strategies for expansion and upgrade that are subsidized and profit-centers. Subsidized elements could include the addition of or upgrading of facilities that further increase the current market share of gaming and thus having a direct effect on the growing revenues of casinos and profit centers are intended to leverage the current patronage patterns by providing additional spending options, and have an indirect effect on the gaming activities. While many of the more traditional facilities, like hotels, restaurants, retail establishments, entertainment venues, and leisure facilities could be classified into either of these categories, it is crucial to distinguish between the two in order to be able to clearly define the criteria for design and development.

Upgrading/Expansion

As previously mentioned, Las Vegas continually seeks to improve its own model to boost repeat visits, which in turn creates an effect of snowballing as every venue has to keep up with its counterparts. In a way, upgrading programs, which could include the creation of a fresh and new appearance, can be as an insurance plan against declining revenues. They do not necessarily correlate to increase in revenue per se. It is not to be confused with the replacement of worn carpeting or slot machine recycling upgrading programs should aim to bring new energy into the building in terms of the ambience, quality of the finishes, layouts, and overall design.

Expanding capacity in existing facilities is not a result of market analysis, and more an issue that of “making hay while the sun shines,” that is based on an understanding of patterns of visitation. Back-ups of patrons to table games and gaming positions are both good and bad, based on the time they happen and how frequently. A high per-position per day net win rates aren’t necessarily a sign of a flourishing casino because they can also indicate missed opportunities due to the insufficient amount of games. In contrast, more positions will not always produce the same results.

When determining the capacity of the construction of a new facility, it is essential to analyze the patterns of demand into their respective parts of the day that will allow for maximum utilization during peak times and minimize inefficiency – the point at which the cost for additional capacity are overshadowed by the net profit potential.

 

Leave a comment

Your email address will not be published.