Casino Hotels

Gambling is one of the oldest professions in the world. It is estimated that millions of dollars exchange hands everyday at casinos worldwide. In modern times, due to an increased spending capacity the tendency to play at a casino has also increased. Despite the fact that casinos are all over the world, the casinos in the United States are a class apart.

A number of people plan their vacations in order to be able to experience casino activities. It is also important to realize that most of these vacations are enjoyed by the affluent. The need for high-class accommodation has given rise to the growth of casino hotels.

Casino hotels, as the name suggests, are hotels or resorts that house casino activities. These accommodations allow people to experience a holiday and at the same time engage in casino games. Some of these hotels have the reputation of being mini financial institutions. A number of casino hotels even provide cash advances to regulars and old timers of the hotel. This is favorable for the hotel as a cash advance is cash spent at the casino.

Compared to earlier times, the casino experience is no longer related to playing a few games and then returning to separate hotels. Nowadays, casino hotels are built to cater to every whim and fancy of a player. These hotels are designed to pamper customers. This is done keeping in mind that a prospective player or guest at the hotel will play large stakes at the hotels' casinos.

Modern casino hotels offer luxury accommodation suites and rooms. Most of these hotels are very expensive. However, some casino hotels may provide moderate rates during an off-season. Casino hotels are complete hotel experiences, as they house swimming pools, multiple cuisine restaurants, spas and beauty salons. These hotels also have shopping centers, which house a wide range of goods.

A Review of the Rivers Casino - Pittsburgh, Pennsylvania

Location: 777 Casino Drive; Pittsburgh, PA 15212
Driving Distance: 60 miles Northeast of Wheeling, WV; 75 miles north of Morgantown, WV
Open Since: 2009
Hotel Accommodations: None
Other Areas of Interest: Sports Stadiums including Heinz Field and PNC Park; Shopping; Boating; fishing;

The Rivers Casino opened in 2009 and features a gaming floor that holds some 3,000 slot machines. While the casino offers no onsite accommodations, there are many hotels and motels in the local area where one can easily find a room for reasonable rates.
You can find plenty to do at this casino including of course playing slots machines, dinner, entertainment, a nightclub and more. Among the restaurants you'll find a wide selection of choices at:

  • Grand View Buffet
  • Ciao
  • West End Cafe
  • Andrew's Steak and Seafood

Whether you're looking for something quick, something casual or fine dining, you can have it all at this great casino. After dinner, perhaps you'll want to play some slots before going into one of the bars or the nightclub for some nighttime entertainment like Karaoke or catch a simulcast fight on one of their huge screen. Friday and Saturday nights features live entertainment from some of the local talent among others. You can also take in one of the many shows that are held in the 1,200 seat amphitheater as well.

For those who want to perhaps get away from the casino for a while during the day, you're sure to find lots of things to do in the great outdoors ranging from boating and fishing, to shopping or maybe you even want to take in a baseball or football game in season both stadiums when are just a short walk away from the casino. The casino is also only a few minute's drive to downtown Pittsburgh and Point State Park. Other things to do outside the casino could include a visit to the Andy Warhol Museum or a visit to the Carnegie Science center, all of which are close by.

The casino offers a number of bus programs available from some of the larger areas in Ohio and Pennsylvania with some fantastic bonuses for those who use the busses to get there, which virtually amounts to a free ride to the casino! The bonuses include a coin allowance and food comps based on the length of your trip offering both 3 hour and 5 hour packages.

As for accommodations, you can find the Sheraton Hotel as well as others less than a short 3 miles away and when you get to the casino you can take advantage of the valet parking and avoid a long walk to the casino from the parking lot.

The rewards club offered by the casino pays offers comps based on your level of play and may include free food, slot play and more. They periodically offer different promotions giving you chances to win cars, cash and other prizes which are generally based on the amount of play. There are lots of great things to do here, and probably the one downfall, if any, is the fact that they have no accommodations onsite for the players.

Casino Reinvestment and Expansion

The Proper Care & Feeding of the Golden Goose

Under the new paradigm of declining economic conditions across a broad spectrum of consumer spending, casinos face a unique challenge in addressing how they both maintain profitability while also remaining competitive. These factors are further complicated within the commercial gaming sector with increasing tax rates, and within the Indian gaming sector by self imposed contributions to tribal general funds, and/or per capita distributions, in addition to a growing trend in state imposed fees.

Determining how much to "render unto Caesar," while reserving the requisite funds to maintain market share, grow market penetration and improve profitability, is a daunting task that must be well planned and executed.

It is within this context and the author's perspective that includes time and grade hands-on experience in the development and management of these types of investments, that this article relates ways in which to plan and prioritize a casino reinvestment strategy.

Cooked Goose

Although it would seem axiomatic not to cook the goose that lays the golden eggs, it is amazing how little thought is oft times given to its on-going proper care and feeding. With the advent of a new casino, developers/tribal councils, investors & financiers are rightfully anxious to reap the rewards and there is a tendency not to allocate a sufficient amount of the profits towards asset maintenance & enhancement. Thereby begging the question of just how much of the profits should be allocated to reinvestment, and towards what goals.

Inasmuch as each project has its own particular set of circumstances, there are no hard and fast rules. For the most part, many of the major commercial casino operators do not distribute net profits as dividends to their stockholders, but rather reinvest them in improvements to their existing venues while also seeking new locations. Some of these programs are also funded through additional debt instruments and/or equity stock offerings. The lowered tax rates on corporate dividends will likely shift the emphasis of these financing methods, while still maintaining the core business prudence of on-going reinvestment.
Profit Allocation

As a group, and prior to the current economic conditions, the publicly held companies had a net profit ratio (earnings before income taxes & depreciation) that averages 25% of income after deduction of the gross revenue taxes and interest payments. On average, almost two thirds of the remaining profits are utilized for reinvestment and asset replacement.

Casino operations in low gross gaming tax rate jurisdictions are more readily able to reinvest in their properties, thereby further enhancing revenues that will eventually benefit the tax base. New Jersey is a good example, as it mandates certain reinvestment allocations, as a revenue stimulant. Other states, such as Illinois and Indiana with higher effective rates, run the risk of reducing reinvestment that may eventually erode the ability of the casinos to grow market demand penetrations, especially as neighboring states become more competitive. Moreover, effective management can generate higher available profit for reinvestment, stemming from both efficient operations and favorable borrowing & equity offerings.

How a casino enterprise decides to allocate its casino profits is a critical element in determining its long-term viability, and should be an integral aspect of the initial development strategy. While short term loan amortization/debt prepayment programs may at first seem desirable so as to quickly come out from under the obligation, they can also sharply reduce the ability to reinvest/expand on a timely basis. This is also true for any profit distribution, whether to investors or in the case of Indian gaming projects, distributions to a tribe's general fund for infrastructure/per capita payments.

Moreover, many lenders make the mistake of requiring excessive debt service reserves and place restrictions on reinvestment or further leverage which can seriously limit a given project's ability to maintain its competitiveness and/or meet available opportunities.

Whereas we are not advocating that all profits be plowed-back into the operation, we are encouraging the consideration of an allocation program that takes into account the "real" costs of maintaining the asset and maximizing its impact.

Establishing Priorities

There are three essential areas of capital allocation that should be considered, as shown below and in order of priority.

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

The first two priorities are easy enough to appreciate, in that they have a direct affect on maintaining market positioning and improving profitability, whereas, the third is somewhat problematical in that it has more of an indirect affect that requires an understanding of the market dynamics and greater investment risk. All aspects that are herewith further discussed.

Maintenance & Replacement

Maintenance & Replacement provisions should be a regular function of the casino's annual budget, which represents a fixed reserve based on the projected replacement costs of furniture, fixture, equipment, building, systems and landscaping. Too often however we see annual wish lists that bear no relationship to the actual wear & tear of these items. It is therefore important to actually schedule the replacement cycle, allocating funds that do not necessarily have to actually be incurred in the year of accrual. During a start-up period it may not seem necessary to spend any money on replacement of brand new assets, however by accruing amounts to be reserved for their eventual recycling will avoid having to scurry for the funds when they are most needed.

One area of special consideration is slot machines, whose replacement cycle has been shortening of late, as newer games & technologies are developing at a much higher rate, and as the competition dictates.

Cost Savings

Investment in cost savings programs & systems are, by their very nature and if adequately researched a less risky use of profit allocation funding then almost any other investment. These items can often take the form of new energy saving systems, labor saving products, more efficient purchasing intermediation, and interest reductions.

These items have their caveats, one of which is to thoroughly analyze their touted savings against your own particular application, as often times the product claims are exaggerated. Lease buy-outs and long term debt prepayments can sometimes be advantageous, especially when the obligations were entered into during the development stage when equity funds may have been limited. In these cases it is important to look at this strategy's net effect on the bottom line, in comparison with alternative uses of the monies for revenue enhancing/growth investments.

One recent trend is the growing popularity of cash-less slot systems, which not only provide labor savings for fills, counts and hand-pays, but also serve as an aid to patrons who do not like to lug around those cumbersome coin buckets, while also encouraging multiple game usage.
Revenue Enhancing & Growth

Leveraging is the key catalyst of any revenue enhancing/growth related investment. It includes the following:

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

The principal is to leverage the use of the available asset towards achieving higher revenues & profitability. Typical examples include increasing average patronage base spending and widening the effective trading radius, by offering additional products/services, such as retail stores, entertainment alternatives, recreational/leisure amenities, overnight accommodations, more restaurant choices, and of course, expanded gaming.

Master Planning

Anticipation of potential growth and expansion should be fully integrated into the project's initial master planning so as it assure cohesive integration of the possible elements in a phased-in program, while also allowing for the least amount of operational interruption. Unfortunately, it's not always possible to anticipate market changes, so expansion alternatives must be carefully considered.

The Big Picture

Before embarking on any type of expansion and/or enhancement program we strongly recommend first stepping back and assessing the property's present positioning relative to the market and competitive environment. As we have observed in numerous gaming jurisdictions around the country, often casino ventures that have been operating "fat and happy" for a few years, find themselves in a zero-growth period. Sometimes this is due to competition stemming from either/both new local area casinos or regional venues that have the affect of reducing patronage from peripheral area markets. Additionally, the current customer base may become bored with their experience and are seeking greener pastures. The historical growth of the Las Vegas strip is testament to the success of continually "reinventing" oneself.

Our approach to these market studies is initially focused on determining the degree to which the current facility is penetrating the potential market and in relationship to any competitive market shares. Typically, this represents an analysis of the current patronage base in terms of information gleaned from the player tracking data base, and mailing lists, coupled with day-part, daily, weekly, monthly and seasonal revenue trends.

This data is then interfaced with an assessment of the overall market potential to indicate the extent to which certain market segments are utilizing the facility and the needs it is fulfilling. More importantly however, is that this type of analysis will indicate those market segments that are not utilizing the facility more fully, and why.

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.

Upgrading/Expansion

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 d├ęcor.

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 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.

Entertainment

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.