The Casino Industry Case Study By: Index: ? Executive Summary ? Analysis Section (SWOT) ? Alternative Identification ? Recommendation ? Sources Executive Summary There is very wide range of legal gaming / gambling across the globe. This includes various games of chance and gambling forms ranging from casino and card room gaming, lotteries, online gaming, race and sports wagering and charitable gaming, such as raffles, bingo and other low technology games. Legalized gambling has become more prevalent over the last 25 years as more jurisdictions take advantage of the revenue sources from the taxation and regulated gambling industries.
Over this time many governments have allowed for the expansion of legal gambling, including casinos, or introduced regulatory regimes over existing gambling. The United States has approximately 845 casinos operating in at least 30 jurisdictions. Casino ownership in the United States is a mix of commercial and tribal ownership. In 2003, more than $800 billion was wagered at casinos in the United States. In particular, there has been a rapid growth in riverboat and tribal casino gaming over the last ten years. Collectively, tribal casinos took in $25. billion in revenue in 2006, compared with Nevada’s revenues of $12. 06 billion for the same year. Since Bugsy Siegel opened the first modern day casino in 1946, it has been an on-going competition to see who can build the most expensive and extravagant casino resorts in the United States. The money that is being spent on the casino resorts is made possible by the steady growth in gaming revenues. MGM Mirage is currently constructing a $7 billion building, City Center, which is expected to become the “hub of Las Vegas. It is already becoming known as the most expensive privately financed project in American history. With many of the older casino resorts in Las Vegas being demolished, several more projects are being started to fill those vacancies. You might wonder if the amount of money being spent on the new casino resorts is worth it, but in order to survive in this industry, you need to be able to offer the best of the best to the casino consumer. In 2006, Las Vegas attracted about 39 million visitors which is a 10 million increase sine 1996.
With the already high occupancy rates at the Las Vegas casino resorts and the high numbers of overnight casino gamblers, there is still room for expansion. 2,500 miles away, on the east coast, lies the United States second largest casino gaming location. In 1976, gambling was legalized in Atlantic City, New Jersey. Much like Las Vegas, Atlantic City has experienced spectacular growth in casino gaming revenues. While Atlantic City can’t compete with Las Vegas in many aspects such as the broad range of dining, shopping, and entertainment choices, it does offer its own advantages.
Atlantic City officials have pointed out that one-quarter of the United State’s population lives close enough so that they can get to the city on just one tank of gas. Currently, Atlantic City has only 12 casinos and still manages to show a $5. 3 billion casino revenue. This shows the strength of Atlantic City’s business strategy. Las Vegas has 190 casinos and is only bringing in about $1 billion more each year. The largest hotel in Atlantic City has 2,002 rooms while the largest in Las Vegas, the MGM Grand, has 5,035 rooms; yet the difference in total visitors only 5 million each year, in favor of Las Vegas.
Atlantic City and Las Vegas may get most of the attention when it comes to the casino industry, but there are other major sectors of the casino industry in the United States. The greatest growth has come in the form of waterborne casinos which are operating in 6 states. About 70 waterfront casinos are currently in operation, averaging almost $11 billion in revenues. The number of Native American casinos is on the rise, and 70% of the growth in United States gaming revenues over the past five years has come from all Native American casinos.
There are approximately 550 Native American tribes in the United States, and more than 200 of those have negotiated agreements with states to allow gaming on tribal land. Native American casinos are exempt from federal regulations and are not required to pay any taxes on their revenues, but they are generally required to pay a percentage of their winnings to the state in which they are located. Native American casinos are likely going to increase their effect on the traditional casino industry.
By adding more Native American casinos throughout the United States, locations such as Las Vegas and Atlantic City are likely to suffer because less people are going to be making the trips to one of these two competitive locations because they will be able to easily access a casino in their own backyard. Another potential sector of the casino industry is the availability of Internet gambling. This will provide casino consumers with the ability to place bets through home computers and gives them a potentially low-cost business model for firms that already operate casinos.
It is widely believed that gambling on the Internet will eventually be legalized, regulated, and taxed. The potential for growth in the casino industry seems unlimited. With hot tourist locations such as Las Vegas and Atlantic City, more and more Native American casinos, and the possibility of a legalized online gaming industry, large revenues for the casino industry seem inevitable. Serious thought, however, needs to be given to the direction the casino industry wants to take.
If places like Las Vegas and Atlantic City want to survive, they need to look for new ways to attract more consumers to their cities because the more Native American casinos that are established, the less people there are going to be going to these cities. Also, if Internet gambling is legalized, people that gamble purely for the games and the money aren’t going to keep going to high-powered casinos when they can sit at home on the computer and do the same things. Another area of concern is how gaming revenues might be affected by any significant increases in gas prices, which will make travel more expensive and reduce disposable income.
We think the casino industry should continue to try to boost the economy through growth in Las Vegas and Atlantic City. The more people that go to cities like Las Vegas and Atlantic City means that more money will be put back into the economy through airlines, restaurants, retail stores, etc. Analysis Section The steady growth in gaming revenues is causing a boom in locations like Las Vegas and Atlantic City. In Las Vegas, there are approximately 133,000 hotel rooms and there is a very high occupancy rate.
This gives Las Vegas undeniable potential for continued growth. People have been predicting that Las Vegas will reach its saturation point since 1955, but Las Vegas doesn’t seem to be anywhere close to reaching that point. Another major boost for the casino industry is the growing tendency to regard casino gambling as an acceptable form of entertainment for a night out. More often, people are choosing to hit up cities like Las Vegas, Atlantic City, or anywhere that might have casinos as opposed to the traditional vacation spots that have been around the last 50 years.
The growth of casino gambling has also been driven by the significantly better payouts that they give players compared with other forms of gambling. Typically, casinos keep less than $5 of every $100 that is bet; this compares favorably with racetrack betting which holds back over $20 of every $100 that is wagered and with state-run lotteries that usually keep about $45 of every $100 that is spent on tickets. Casinos still are provided with more opportunities to win from a customer. One issue that is hindering the growth of the casino industry is the large amounts of debt that result from trying to survive in the business.
Even as the competition from both rivals and substitutes continues to grow, all of the firms in the casino industry have little choice but to keep spending in order to survive and grow. The debt can be harder to manage if demand for casino gambling does not stay strong and even show some growth. Some casinos in Las Vegas and Atlantic City have gotten into financial problems and have had to close. If the casino industry is going to focus on growth, it needs to work on gearing towards a more family oriented atmosphere without losing the edge and flare that has made Las Vegas into what it is.
This would allow more parents to be willing to bring their entire families to a casino resort if they knew there was going to be ample amounts of entertainment for all ages. Right now, casinos are focused in Las Vegas and Atlantic City; it might be worthwhile to consider adding more variety of locations so that it isn’t so costly to travel to the popular casino resort locations. The opportunities for the casino industry are endless. Currently, there are many new projects being started, such as the City Center project in Las Vegas.
Fancy, new casino resorts are being built all the time to attract new consumers, and obviously it is working. The recent increase in water-borne casinos has also opened up new opportunities for the casino industry by offering gamblers something new that they can’t really experience in Las Vegas or Atlantic City. Water-borne casinos create an atmosphere that is different than what you might expect. There is still the overall sense that you are in a casino, but you are getting to experience it overlooking a body of water in an area that isn’t typically overcrowded.
The growing popularity of slot machines is enticing more people to casinos, many of which had no prior interest in gambling or casinos. Looking further into the future, you can see the huge potential of Internet gambling. Internet gambling offers convenience, affordability, excitement, and the same general thrill you get from traveling to a physical casino. Despite there being such potential for growth in the casino industry, there are many threats opposing its success. There is always the possibility that Las Vegas, which is the most high-powered casino location in the United States, might reach its saturation point.
This would leave many casino resorts in Las Vegas with large amounts of debt and feasible way to get rid of it without declaring bankruptcy. There has been a lot of talk about the growing competition as a result of the move to introduce machines at racetracks. This is going to take consumers and potential revenue away from the casino industry and give it to the racetracks. Internet gambling can also be a threat to the casino industry because it would stop gamblers for getting out and vacationing or enjoying over-night trips to casino resorts.
Instead of spending extra money on transportation, you could sit at home and put that money towards your gambling on the computer. Increases in gas prices pose another threat. If gas prices get too expensive, consumers will stop traveling as often. SWOT Analysis S – Strengths Steady growth in gaming revenues. High occupancy rates at most Las Vegas casino resorts. Growing tendency to regard casino gambling as an acceptable for of entertainment for a night out. Better payouts compared to other forms of gambling. W – Weaknesses Large amounts of debt from trying to survive. Generally not family oriented.
Focused on two major demographic areas; not enough variety. O – Opportunities Many new projects. Increase in water-borne casinos Growing popularity of slot machines. Internet gambling. T – Threats Las Vegas will reach its saturation point. Growing competition as a result of the move to introduce machines at racetracks. Internet gambling. Increases in gas prices. Alternative Identification There are several different outlooks the casino industry can take to further its growth and increase its revenues. Looking at the industry as a whole, pushing the legalization of Internet gambling might not be a bad idea.
If it were taxable and regulated, you are looking at establishing a few billion dollars a year from the Internet portion alone. The only concern with this is figuring out whether or not too much business would be taken away from the casino resorts across the country. Around 200 Native American tribes have negotiated agreements with states to allow gaming on tribal land. That is less than half of the total number of tribes in the United States. If 300 or 400 of the tribes would get authorized to have casinos on their land, you are looking at an increase in revenue.
Adding more casinos on Native American reservations, would increase convenience to gamblers across the country which would increase the frequency of visits to casinos. Another alternative is to focus on the expansion and growth of cities like Las Vegas and Atlantic City. These cities have proven their success, and the increase in the popularity of these locations is indisputable. The casino industry needs to build off of this success and continue to search for new ways to make these locations even better and attract even more people.
The slogan, “What happens in Vegas, Stays in Vegas,” needs to be continually advertised to the public and Las Vegas needs to make sure all parts of the casino industry in the city is using this slogan as well. With increasing population in the United States and the growing interest in the casino industry, saturation of Las Vegas isn’t going to be an issue anytime soon. Recommendations The casino industry is very profitable industry with good potential for growth and expansion. The threats for the industry are minimal risks that aren’t serious needs for concern.
The best plan for the casino industry is to focus on what has been very successful (Las Vegas and Atlantic City) and build off of that. These locations are very well-known and already attract a large amount of people. They need to look for even more new ways to people to visit their cities and get involved in the world of casinos. By doing this, maximum revenues will be achieved in those areas. This would lead to a domino effect for the casino industry because when more people start visiting Las Vegas and Atlantic City, they are going to get a taste of what t’s like to gamble in a casino which means they are going to be more likely to visit smaller casinos in areas closer to their homes such as different Native American casinos or water-borne casinos. We think that the entire casino industry is going to take the United States by storm and provide revenues never thought possible. Sources Dess, Lumpkin, Eisner. ”The Casino Industry. ” Strategic Management 4th edition. McGraw-Hill/Irwin. 2008. http://www. fic. gov. za/DownloadContent/NEWS/PRESSRELEASE/casino%20&%20gaming%20sector%20report. pdf. FATF Report. March 2009.