by Andrew M. Klebanow
It is generally understood that the sum of all marketing and advertising expenditures
is the one of the largest expenses in. casinos. However, despite their impact
on a property's profitability, it is difficult to easily identify all of the
costs that make up Marketing and Advertising on a property's profit and loss
("P&L") statement and see their effects on both property revenue
and cash flow performance. It is equally difficult for the marketing professional
to quickly calculate the property's player reinvestment rate based on the data
presented in the P&L.
To better understand how marketing professionals track marketing costs and
measure their results and to better understand the notion of player reinvestment,
the author conducted a series of interviews with casino marketing and casino
finance professionals. The end result was a white paper discussing those findings.
This article represents a summation of those findings.
Analysis of Marketing and Advertising Expenses
Most casino P&L's do an excellent job of detailing each operating department's
revenue and expenses. However, marketing and advertising expenses can be found
on multiple pages of this report. For instance, system generated comps (those
generated by the casino's player rewards program) normally appear as an expense
to the Slot Club Department. In addition, comp expense can be found in Slots,
Table Games, Hotel and on almost every revenue-generating department's monthly
operating statement. Thus, answering the simple question, "what is the
ratio of comp expense to property revenue?" becomes a time consuming task.
Other marketing and advertising expenses are just as difficult to identify.
Direct mail is divided into a number of categories. The design and printing
of mail pieces may be booked as an advertising expense under "Print Production."
Postage may be booked to Casino Marketing while the actual value of the offers
redeemed might be booked to the Slot Club. This in itself is ironic since no
other marketing activity has a greater impact on property revenue than direct
mail and yet, it is difficult to answer simple questions as, "what is the
relationship between direct mail expense and property revenue?" or "did
direct mail have an impact on cash flow?"
Analysis of Player Reinvestment
The terms "player reinvestment" and "player reinvestment rate"
are often used to describe the costs associated with the suite of benefits that
casinos bestow on their players. However, despite the frequency with which these
terms are used, there is no industry-wide definition that describes the specific
components that make up player reinvestment. To better understand how the industry
defines player reinvestment, a survey was conducted by the author among casino
operators that asked for definitions of Player Reinvestment and Player Reinvestment
A key finding of the research was that there is no industry-wide definition
of the term "player reinvestment" or the term "player reinvestment
rate." While there is general agreement that the money spent on fostering
loyalty and encouraging repeat visitation forms the bulk of player reinvestment
costs, casino operators differ on the specific expenses that make up player
reinvestment. Some financial officers lump all of the costs associated with
casino marketing and advertising to form what they think is player reinvestment
while others limit it to just those costs associated with the administration
of the player rewards program. Others take a more analytical approach and attempt
to identify only those costs that are directly associated with player reinvestment.
The Marketing Analysis Report
Managers of casinos in a several jurisdictions have come to recognize the importance
of being able to monitor each component of Marketing and Advertising. To better
illustrate the effects of these expenses, they enlisted the help of their Accounting
departments to produce a monthly analysis of all marketing and advertising expenses
and their relationship to property revenue and earnings. This monthly analysis
allows property leadership to closely monitor the effects that each marketing
and advertising activity has on overall property revenue as well as on earnings
before interest, depreciation and amortization ("EBIDA"). The Marketing
Analysis Report consolidates marketing expenditures that are scattered throughout
the P&L and shows the relationship of those expenses to gaming revenue and
EBITDA on a monthly basis.
Table 1 illustrates a Marketing Analysis Report. It shows net monthly property
revenue along with EBITDA, then details key marketing and advertising expenses
and their relationships to both revenue and EBITDA. Ultimately, each property
would design their own analysis, offering differing degrees of detail. By understanding
the total cost of all promotions, direct mail, comps, bus marketing and advertising,
marketing directors, departmental managers and corporate leadership can gain
an understanding of which marketing activities have the greatest effect on revenue
and EBITDA. Table 1 shows a sample Marketing Analysis Report.
Once leadership can see each of these expense categories every month, property
managers can then "adjust the gauges" to see if they can improve property
performance. As an example, promotional expense may be reduced to see if revenue
declines. Conversely, a portion of marketing could be re-allocated to direct
mail to see if EBITDA can be increased. Over time, the property's managers learn
what range of spending for each marketing activity is right for their property.
Calculating the Player Reinvestment Rate
Player reinvestment is comprised of all marketing expenses that are used to
foster loyalty and encourage repeat visitation among rated/carded casino patrons.
The player reinvestment rate is a simple fraction with total player reinvestment
expenses in the numerator and Carded/Tracked Win (win that is attributed to
players who use their player reward cards) as the denominator. The resulting
ratio is the player reinvestment rate. The numerator in this ratio is comprised
of the following components.
Comps issued to customers make up the lion's share of player reinvestment expenses.
However, not all comps are associated with player reinvestment. Those that are
include system generated comps that are issued through the property's casino
management system, primarily for meals at the casino's restaurants. Also included
are discretionary comps that are issued by casino hosts for additional meals,
hotel rooms, airfare, limousine service and other premium services. Other comps
that fall into player reinvestment are complimentary room offers and show tickets
issued to players through direct mail offers or other marketing campaign vehicles.
Those comps that are excluded are beverage comps that are distributed to all
gamers, regardless if they are members of the rewards program, employee and
manager meal comps and any other comp that is not associated with tracked gaming
2. Points Redeemed For Cash or Non-Negotiable Slot Credits
Almost every player rewards program issues bonus points to players using their
slot club cards. Those bonus points are usually redeemed for sa
Date Posted: 10-Jul-2008
Andrew M. Klebanow is a Principal in Gaming Market Advisors, a Las Vegas based
consulting company specializing in gaming market assessments, feasibility analysis,
operations analysis, marketing plan development and player reward program design
for both US and International gaming markets. Mr. Klebanow can be reached at
Andrew@gamingmarketadvisors.com or +1 (702) 547-2225