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Best of Liz Benston

Gaming Guru

Liz Benston

Smaller Casinos May Face Tougher Rivals with Mergers

28 July 2004

LAS VEGAS -- Smaller, regional casinos nationwide will likely face tougher competition for customers if the two pending acquisitions between MGM MIRAGE and Mandalay Resort Group and Harrah's Entertainment Inc. and Caesars Entertainment Inc. take effect, executives said at a national conference of marketing officials this week.

Marketers said their casinos are becoming more sophisticated about attracting customers but acknowledged that many casinos are still far behind Harrah's, which would become the world's largest casino company if it buys Caesars. Harrah's has the world's largest gambler loyalty program as well as software that can track customer preferences and offer perks based on an hour or so of slot machine play. Marketers spoke at Casino Marketing 2004: The National Conference, which concluded Tuesday in Las Vegas.

The biggest casino companies will eventually own more regional casinos that can use combined customer databases to offer more appealing rewards for gamblers, said Andrew Klebanow, a Las Vegas-based consultant and former executive at Santa Fe Station and Sam's Town casinos.

While gamblers will still patronize their local casinos, they may gravitate toward casinos that are able to offer free rooms at sister properties in Las Vegas, for example, Klebanow said.

"Gamers tend to play where they stay," he said.

As an example, MGM MIRAGE's MGM Grand Detroit casino is celebrating its fifth anniversary by offering gamblers trips to Las Vegas. Both the MGM Grand Detroit and Detroit's MotorCity casino, which is part owned by Mandalay Resort Group, use software that tracks gamblers' play -- similar to systems used in Las Vegas, marketers said.

Meanwhile, some parts of the country such as southern Mississippi and Colorado are engaged in fierce marketing wars with neighboring casinos, marketing officials said. Other areas such as Detroit and Illinois, in part because of limited competition, are being more conservative with freebies, experts said.

Penn National Gaming Inc., which operates one of the country's largest racetrack casinos in Charles Town, W.Va. and is a leading operator of "racinos" nationwide, said business is thriving in spite of potential competition from mergers as well as new states considering gambling.

Penn National and its racino competitors aren't liberal with complementaries because the demand for local casinos exceeds supply, said Dave Zamarin, vice president of marketing.

"There's no cash back, no cash in the mail," Zamarin said.

Still, Penn National's racinos face competition from states such as Pennsylvania and Nebraska, he said. Pennsylvania recently legalized slot machines at race tracks and Nebraska is considering full-blown casinos. The Pennsylvania-based company operates race tracks in its home state that could benefit from slot machines, analysts say.

Penn National is eyeing states that are considering racinos as a way to raise tax money, including Maryland, Ohio, Michigan, New Jersey and Texas, Zamarin said.

The company faces negative perceptions of the casino industry as it makes inroads into new states, he said.

"A lot of people in Maine think they're dealing with the 'Sopranos,' he said, referring to the popular cable channel show featuring Mafia families. "We need to convince them about how highly regulated (casinos) are."

Maine voters last year approved slots at a Bangor race track owned by Penn National.

Meanwhile, casinos in some areas are chipping away at each other in search of new customers.

For the first time in about five years, revenue growth at the largest and most sophisticated casinos in Minnesota, Michigan and Wisconsin has slowed as smaller casinos improve their marketing efforts and spend more to attract customers, said Karen Bromberg, a Minnesota-based casino consultant. These smaller casinos, meanwhile, are experiencing double-digit revenue growth for the first time in years, she said.

While casinos in the region generally have player loyalty clubs, they still aren't utilizing the technology to its full potential, she said. Even the most advanced casinos aren't completely analyzing the data from their loyalty programs, she said.

In the historic mining town of Black Hawk, Colo., marketers are faced with the daily challenge of distinguishing their casinos from 22 properties located within a mile of each other.

Gamblers have accumulated as many as a dozen slot club cards and often walk from casino to casino, picking up comps along the way, said Meera Rosser, director of marketing for Black Hawk Gaming. Some top gamblers receive mailers for up to $250 in cash per week in exchange for their business, she said.

"It's an expensive battle to fight," she said.

Commercial casinos nationwide continue to face intensifying competition from Indian casinos -- the fastest growing gambling market.

Multimedia Games Inc., the nation's leading manufacturer of bingo games for tribal casinos, said it is eyeing "hot" states such as New York, North Carolina, Florida, Wisconsin, Oklahoma, Arizona, Washington and California where Indian casinos are spreading.

Even Alabama, which doesn't have tribal casinos but operates charity bingo, is opening the door to electronic bingo games, said Glenn Goulet, senior vice president of marketing research for the Austin-based company.

Multimedia's electronic bingo games look and play similar to slot machines, giving players a "Las Vegas" experience at their hometown casino, Goulet said. The company's machines are under fire in some states for that very reason, though some courts have upheld the legal right for tribes to offer the games.

Some regional casinos are even offering free trips to Las Vegas, where players can gamble on the same slot machine titles now adapted to tribal bingo games, Goulet said.

Shipping players to Las Vegas is smart marketing, he said.

"Las Vegas is Mecca. People are going to go there anyway," he said.

Meanwhile, a California marketer predicted that tribal gambling in the Golden State will "expand drastically," eventually surpassing Nevada as the nation's leading casino gambling state.

The world's largest casino companies also will gravitate to California, lured by the business potential as well as a regulatory climate that's more accepting of technological innovation, said Troy Simpson, executive director of casino marketing at Barona Valley Ranch Resort and Casino near San Diego.

Tribal casino compacts in California allow marketers to more aggressively "push the envelope" to attract customers, while Gov. Arnold Schwarzenegger has a pro-business bent that will allow the best casinos to flourish, Simpson said.

"He believes in letting competition run its course. The smaller casinos may fall by the wayside," he said. "It will be survival of the fittest."

California's tribal casinos continue to drive business from Reno and Lake Tahoe casinos, which are having difficulty attracting capital and are fighting a losing battle for customers, said Steve Browne, a vice president with Reno-based Raving Consulting Co.

"They're firing away at each other and buying their customers," Browne said. "Marketing expenses are shooting through the roof."