Casino Reinvestment and Expansion

The Proper Care & Feeding of the Golden Goose




Cooked Goose


Profit Allocation






Establishing Priorities


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


Maintenance & Replacement



Cost Savings



Revenue Enhancing & Growth


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


Master Planning


The Big Picture




Occasion Segmentation

As our proprietary studies have indicated, casino markets are segmented by various characteristics of occasioned-use that also include typical spending & visitation patterns. The traditional methods of market measurements, including gravity models, usually only weigh the demographic characteristics of a given population, based on revenues achieved in similar markets. However, an occasion segmentation market analysis reveals more detailed information as to the reasons precipitating a casino visit, how they relate to the benefits being sought, and the degree to which the occasion determines average spending and visitation frequency. This type of data mining is far more helpful than gravity modeling, in that it can help determine the type of facilities and positioning strategies necessary to attract each market segment, by measuring their relative contribution to the aggregate potential. The process has been successfully employed in the restaurant business and other leisure time service industries, especially amid a widening supply/demand marketplace.

Perhaps even more importantly, looking at the market from an occasioned-use perspective, reveals the extent and characteristics of the underling competition, that, in many cases not only include other casinos, but also alternative entertainment and leisure time activities, such as restaurants, clubs, theaters, and the like.

Demand Density

Another important aspect of occasion segmentation is in measuring overall market characteristics by day-parts, which is revenue density by time of day, day per week, weekly, monthly, and seasonally. This is especially important data when casino venues are seeking to lessen any higher than normal fluctuations that may be occurring between a slow Monday morning and a packed Saturday night; or that experience severe seasonal variations.

By segmenting markets by their demand patterns, a better understanding can be gained of which amenities may help bolster the weak demand periods, and those that may only add to the already maximized peaks.

Many expansion programs often make the mistake of configuring additional amenities such as high-end restaurants and lodging elements based on the peak demand periods. As a result, the net effect of costs & expenses for these investments can negate any contribution they may make to increased gaming revenues. Rather, “fill-in” markets are the most efficient means to increase overall revenues, as they utilize existing capacities. 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 examine the casino related spending characteristics of a given market area, the formulas cannot measure the relative impact of any non-gaming driven activities that could nonetheless generate casino traffic.

Important data relating to the population’s occasioned-use of restaurant, entertainment, and weekend getaways can often form the basis on which to focus amenities designed to cater to these markets; and by so doing, increase visitation. Whereas many of these patrons may or may not utilize the casino, their exposure to the opportunity may hasten their use, while also creating an additional profit center.

Again, looking to the Las Vegas paradigm, more and more of the strip properties are now generating as much, if not more, non-gaming revenues than gaming revenues; as their hotels and restaurants are less & less subsidized, and along with their growing retail elements, represent strong contributors to the bottom line.

Program Development

Once equipped with a basic understanding of the market dynamics, both in terms of the existing facility’s current market shares/penetration rates in relationship to the competitive mix, and the overall occasioned-use of the market, a matrix can be created that sets the demand against the supply. This function seeks to identify areas of un-met demand opportunities and/or over supply, that forms the spring-board to the creation of relevant amenities, expansion and upgrade criteria & strategies.

Impact Criteria

Essentially there are two types of expansion/upgrade strategies: subsidized and profit-centers. Subsidized elements may include adding and/or improving amenities that will further widen current gaming market penetration/shares, thusly having a direct impact on growing casino revenues; while profit centers are designed to further leverage current patronage patterns with additional spending opportunities, and having an in-direct effect on gaming activity. Although many of the more traditional amenities, such as restaurants, hotels, retail shops, entertainment venues and recreational facilities can fall into one or both of these categories, its important to make the distinction, so as to clearly establish the design/development criteria.


As has been previously discussed, Las Vegas continually seeks to reinvent itself as a means to increase repeat visitation, that in itself creates a snowballing affect as each venue must keep-up with its neighbor. To some extent upgrading programs, that may include creating a new and fresher look, is a lot like an insurance policy against slipping revenues, and do not necessarily relate to any incremental growth per se. Not to be mistaken for replacement programs of worn carpeting and slot machine recycling, an upgrade program should seek to create new excitement about the facility in terms of ambiance, quality of finishes, layouts, and overall décor.

Expansion of existing capacity is less a function of market analysis and more a function of “making hay while the sun shines,” based on a thorough understanding of the visitation pattern densities. Patron back-ups for gaming positions and restaurant tables can be both good and bad, depending on when they occur and how often. High per position per day net win averages are not always a sign of a prospering casino, as they could also mean lost opportunity because of an insufficient number of games. Conversely, additional positions are not always going to generate the same averages.

When initially configuring capacities for a new facility, it is important to fully evaluate the demand patterns into their respective day-part components that will maximize penetration during the peak periods while minimizing inefficiency – the point where the costs associated with additional capacity is exceeded by its net income potential.

Food & Beverage Amenities

Within most casino venues, restaurant amenities are “loss leaders,” designed to retain & attract casino patrons with low prices and great value; yet they have the ability to both widen occasioned-use of the casino, while also representing potential profit centers.

In Nevada, which is the only state where detailed historical F&B departmental operating results are available for casinos, properties with gaming revenues averaging between $20M to $200M showed food operations having a net departmental loss of 1.5% of sales in 2001, versus almost a 14% loss in 1995.

Much of this major turnaround is due to the growth in the number of food outlets, especially more upscale/specialty restaurants, which has spurred sales from 20% of gaming revenue in 1995 to almost 27% in 2001. Moreover, food costs have been reduced sharply from 45% in 1995 to 35% in ’01.

As the previous discussion on occasion-segmentation revealed, a consumer’s choice of a casino visit can sometimes compete with other entertainment/leisure time activities, including dining out. Having a market relevant restaurant facility within the casino can serve to attract the dining-out destination market, with the casino benefiting from its proximity. Therefore when market conditions indicate changes in a casino’s restaurant configuration, the questions to be addressed are how can they be designed to satisfy the current patronage base, widen occasioned-use, and improve profitability.

Lodging Elements

With turnkey hotel development costs ranging between $75K to $350K per available room, a market positioning strategy had better be well studied. Yet we see many such projects undertaken with little understanding of the market dynamics and economic impact.

Nationwide, according to our most recent survey, there are 724 casinos around the country; comprised of 442 commercial operations, about half of which are located in Nevada, and 282 Indian gaming venues, of which 209 offer most, if not all, of Las Vegas type (Class III) games. Roundly 58% of casinos in the commercial gaming sector have co-located hotels, compared with 37% of Class III Indian gaming venues, despite their containing a similar average number of games.

The high preponderance of hotels within the commercial sector owes to some gaming jurisdictions requiring them; including Nevada (for an unrestricted license) and New Jersey. Moreover, much of the Nevada market demand stems from beyond a daytrip radius, making overnight accommodations necessary in order to gain market share. When extrapolating these states from the total, the percentage of all commercial casinos with hotels drops to 50%, with an average of 312 rooms & 1,183 games.

The obvious advantages of casino lodging units is their ability to attract gaming markets from beyond the typical day trip radius, while also having a somewhat “captured” market (Casinos with Hotels). Moreover, guest rooms can be another perk-use for player club points. Hotels also widen a casino’s occasioned-use by offering non-gaming leisure activities & amenities, augmented by the ready availability of gaming, while also representing another profit center (Hotels with Casinos). Additionally, within a traditional lodging setting, a casino/hotel has a competitive advantage by virtue of its added entertainment features.

Among the major Las Vegas properties there are more hotel rooms than games, as the city transits from a gaming destination to more of a resort & convention destination. In so doing these properties increased their hotel profitability and investment returns by not having to offer low rates to attract gamers. Whereas, some areas such as Laughlin and Reno, which do not enjoy the critical mass of a Las Vegas, still find it necessary to supplement their hotel investment with casino revenue, due to low room rates and large seasonal visitation fluctuations

In configuring a casino hotel development it is therefore important to understand the market and financial dynamics and their impact on overall gaming revenue and profits. Within the free-standing (non-casino) hotel industry, financing terms are usually over a 15 to 20 year amortization schedule with a ten year บาคาร่าทดลอง balloon/refinance, and have a break even point that approaches 65% to 70% occupancy. Typical casino based lodging elements enjoy high occupancy levels on the weekends, but low levels weekday. It is therefore incumbent not to “build a church for Easter Sunday,” keeping in mind the overall efficient use of the asset.

Moreover, if the intent is to attract additional casino patronage from a wider market radius, it is important to evaluate the cost of any hotel subsidy versus the potential increase in gaming profits. A new 200 room hotel at a casino already generating 20,000 weekend visitors, may only be adding 2% to 4% more players, while exposing itself to higher costs. In regards to occasioned-use, especially among tourists and weekenders, casino hotels may also be competing with alternative resorts in the region.

Ideally, these types of facilities, when not situated in markets with insufficient local/day-trip markets (e.g. Laughlin), should be configured on the basis of their non-gaming related and off-peak period support so as to maintain relevant room rates and adequate levels of profitability. They should also include those amenities these markets are seeking, including, where applicable: conference and convention facilities, and indoor/outdoor recreational elements.

Albeit more of a niche market, RV Park facilities are a less intensive investment in overnight lodging facilities that can nonetheless offer some of the same benefits. According to the latest data, there are more than 9 million households in the United States that own RVs, and represent one of every ten vehicle owning households. Many of these households include the 55 & over age groups, who have a higher than average gaming propensity and annual income.

RV Park development costs are well below those for hotels, but usually have a high seasonal use, peaking during the summer months in temperate resort environs and in the winter months in the “snowbird” areas.

Retail/Outlet Shops

Retail/Outlet shopping is gaining a major foothold at casino venues across the country. First represented by casino logo shops and a few high-roller/jackpot-winner positioned boutiques, these stores have now grown into major malls and entertainment centers. The Forum Shops at Caesar’s Palace in Las Vegas enjoys the highest per square foot sales of all retail malls in the U.S., and the growth in retail sales in the city is significantly outpacing that of gaming revenue. The presence of these shops serves as both an activity to the area’s 35 million annual visitors, who are now spending less than 4 hours per day actually gaming, as well as a major profit center that leverages the visitation base.

In less resort destination type markets, outlet malls are strong traffic generators from which a casino facility can draw patronage. On a smaller scale, casinos can widen their occasioned-use by offering unique and indigenous shopping that is especially positioned to attract the “adjunctive” daytripper market. The extent and characteristics of these stores should be scaled to the potential market, current visitation trends, and any local ambiance.


Although entertainment is a mainstay in casino environments, stemming from the Rat Pack days in Las Vegas, to today’s imposing concert/arena venues and specialty shows; their market dynamics are much misunderstood. They are at once, diversions, attractions, profit centers, and public relation tools. They can however, also generate major losses, and therefore should be well studied to determine their appropriate configuration.

With most major entertainment events occurring during the weekend periods the attracted audiences may not have any significant impact on a likely already busy period. Therefore it in incumbent that the specific event be structured so as to at least break even or turn a small profit. While this is somewhat self evident, the more central issue is the entertainment venue’s ability to also amortize its initial development cost investment. Outdoor facilities can sharply reduce construction costs, but also are prone to weather vagaries and seasonal use. Moreover, party tents and temporary structures usually do not have the cache of a fixed venue that is an integral part of the casino facility.

Recreational Facilities

There is a lot of attention these days being given to the development of recreational facilities at casino venues, especially those associated with resort projects. Golf courses are a common adjunct to many resorts, and many Indian communities enjoy the advantage of having access to the ample land areas and water rights these types of undertakings require.

As with all of the other revenue enhancing reinvestment alternatives discussed herein, recreational facility development should be considered within the context of its ability to generate additional casino patrons and/or serve as a profit center. Whereas golfers traditionally have a high gaming proclivity the association of golf with a casino is not exactly in sync, given the length of time required for a typical round. Moreover, even under the highest utilization rates, a typical 18 hole golf course will only accommodate about 140 players per day, while the national average in year round environments is about 100 rounds per day. This is not a lot of additional players for the casino, even if all of them gambled, and especially considering the cost of an average course, excluding land, ranging between $5M to $15M.

However, golf course development as part of a resort package and/or to fill a local market demand can have many non-gaming related benefits. From a resort development standpoint, a golf course as well as other recreational elements can add to the facility’s competitive positioning, to the point where its development/operating costs can be recaptured through higher room rates/green fees. Many traditional golf courses also “pencil-out” when incorporating fairway home sites, which have a particularly higher value than non-golf course sites. Given the trust status of Indian lands, this may be somewhat problematical on reservation lands, unless some sort of long term land leases could be negotiated for the home owners.
Planning/Financing & Implementation

Once all of the salient market factors have been considered and weighted against their cost vs. benefits, a comprehensive reinvestment & expansion program can begin to take shape. A design & construction team should be assembled that can help further interpret the program in terms of creative and value engineering input, while also maintaining its established market positioning and financial strategies.

Importantly, the program should illustrate how each element will be coordinated into the overall facility fabric and the manner in which it will be financed. Some funding can stem from reserved profit allocations, while others independently funded with additional debt, whose amortization has been factored into the overall project’s feasibility analysis.

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