Free Play Isn’t Free

Nomenclature is one of the most powerful forces in business. Often it doesn’t matter what something actually is; it matters what we call it. “High yield debt” sounds much better than “junk bonds,” which sounds better yet than “toxic paper.” “Pre-owned” is better than “used.” I read a story recently of how a heretofore worthless fish was renamed “Chilean Seabass” and became so popular it has now almost been fished out of existence.

In our industry, we’ve got plenty of fancy names. We call free stuff “complimentaries.” We call large customers “high rollers.” Offers are described as “reinvestments.” But there is probably no term less understood by industry insiders than that which we tend to call “free play.”

It takes several forms, downloadable electronic credits in some casinos and jurisdictions, non-cashable coupons in others. But fundamentally, free play is aptly named in one way; it offers customers a certain amount of “free” coin-in. Any winnings remaining after a complete cycle of the free play is the player’s to keep. They can cash it out or continue to play it off.

Free play was designed to replace “cashback,” a rebating mechanism that allowed casinos to “reward” slot players with a percentage of their coin-in and/or theoretical. Frankly, the original form of cashback just reduced hold percentage, often in ways that distorted results as low-hold customers could receive a substantially higher percentage of their theoretical losses in cashback than higher-hold customers.

Cash also became an important part of many operators’ direct mail programs. Nothing is more appealing than “free” money, and by offering targeted cash coupons, operators drove remarkable behavior changes within their customer ranks. Early leaders in the use of cash coupons drove substantial market share and profitability.

Despite the power of these programs, cashback always had one major perceived drawback—customers could, literally, take the money and run. They could do this in one of two ways: enter a casino for the purposes of simply redeeming an offer and then leaving; or cash out their cashback at the end of a trip and go home. In the mind of operators, cashback somehow cost less if a customer was compelled to play that money back through a slot machine.

That perceived downside led technology suppliers to invent free play. With it, casinos could run the exact same cashback programs and the exact same mail programs, but with one key difference—they could compel the customer to sit down at a machine and at least run it through one time. Once the customer was sitting at the machine, the theory went, he or she would be much more likely to stay and play.

In every market where it has been used, free play has unquestionably reduced the “walk factor.” Many customers that used to take their cashback at the end of their trip now take it earlier, and many customers who might have visited the cage to cash in a coupon—and then leave—now stay and play.

Because of the compulsory nature of free play, many operators have come to believe that it is, in fact, free in that it doesn’t cost the casino anything to hand it out. As this theory goes, the customer has to run the money through the machine, so the casino will probably end up winning it back.

One of my favorite client arguments was with a CEO who wanted to offer all his customers $10 in free play every day because “it doesn’t cost anything.” When I asked him why, if that was true, he shouldn’t offer them $100 or $1,000 every day, he got angry and called me a “college boy.” He said it was “different,” though he couldn’t explain why.

No single property has learned this lesson better than one of the major East Coast operators. This properties’ “wise” chief marketing officer meant to increase volume and traffic at the property, and to do so, thought all he needed to do was offer customers their average daily worth in free play. So, if you typically lost $100 at this particular property, he sent you a $100 free play offer.

The program worked as designed, generating the highest headcount, highest occupancy, and highest coin-in numbers in the long history of the property. Yet, for the first time in its history, the property lost money. It lost millions. How could this happen?

Free for the Customer but not the Casino
Fundamentally, free play is no different from cash, except that customers have to run the offer through the machine once before they can march to the cage and take whatever is left. If a customer receives a $100 free play offer, and then takes that to the average 8 percent hold slot machine, on average, after one cycle, he will be left with $92, which he can then cash out. So, one way to look at the expense of free play is that it is the same as cash, less that small percentage that may get taken out on the first cycle.

Yet the true expense of free play is far more fundamental and, frankly, is no different from the true expense of any cash back program. There are only two kinds of customers—those who have a limited amount of time to play but aren’t budget constrained, and those who have a limited budget but plenty of time. Retirees in Las Vegas are a great example of the latter; they have a fixed income and a certain amount set aside to play, which they tend to spend until it is gone, no matter how long it takes. Investment bankers going to Atlantic City are a good example of the former. These men (it is a male-dominated field) may take an overnight trip to Atlantic City with an almost (at least until recently) unlimited bankroll and gamble as much as they could before they had to head home.

The true expense of free play directly correlates to a market-demographic’s time/budget mix. For budget-limited customers, free play really is free. Why? Because if I have $20 in my wallet today, and I am going to stay until it is gone and you give me another $20 in “free play,” I will play until that is gone. Then I will get out my original $20 and play it until it is gone.

But for time-limited customers, free play costs dollar-for-dollar. If I only have three hours to play, and plenty of money in my pocket, then every minute I spend playing a casino’s free play is a minute I am not playing with, and potentially losing, my own money. This is lost revenue for the casino. And if you give me too much, I may not even get around to dipping into my wallet at all before it is time to head home.

And that’s what happened at the aforementioned casino. With its average customer living two to three hours away and not staying overnight, the property’s customers found the huge free play offers very motivating. But all too often they were still playing off their free play winnings when it was time to go home.

It turns out the cost to you of free play—and cash back—programs directly correlates to the ration of time-limited to budget-limited customers in your market. The higher the latter, the more expensive free play turns out to be. Unfortunately, there is no one-size-fits-all calculation. When we calculate the individual expense for clients, we use database analysis to determine the cents-on-the-dollar program cost. But even if you don’t have the ability to calculate that, you hopefully know your customers well enough to figure out where you generally fall on that continuum. Get it right, and you are poised to steal market share. Get it wrong, and there will be no nomenclature creative enough to disguise the disaster.

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