Most casino operational executives and their marketing counterparts understand that promotional chips and coupons are an essential part of every casino’s marketing plan. Usually, coupons are utilized as game starters—how the casino attracts players to the gaming tables. In many cases, coupons are used during slow times in an attempt to generate more interest and play in the live games (i.e., action and activity generates more interest in the table games).
Sometimes coupons are used to attract new players to the tables so the executive can see if any are likely candidates for the player tracking system, in an attempt to develop future profitable casino customers. This is known as “fishing.” The casino uses the coupon as fishing bait, and just like a fisherman, can elect to keep the bigger fish while releasing the smaller ones.
Player reinvestment is the recent buzzword for player complimentary rewards. Promotional chip programs are now used to provide additional options for management to reward customers for their table play in a similar manner to how they reward slot customers. Promotional chips can be used instead of cash as a player reinvestment tool when the issuance of cash does not guarantee the reinvestment reward will be played across the tables.
The biggest question with coupons and promotional chips is not why the casino uses them (though many executives abuse these programs), but what effect the coupons and promotional chips have on the gaming-generated revenue and statistical results of the table games themselves. The knowledgeable executive needs to understand the cost and effect of these coupons so he or she can wisely determine the effectiveness of each promotion. The learned gaming executive needs to understand that even the use of paper coupons has a noticeable effect on the outcome of the games and the indirect costs to the operation that lie outside marketing’s P&L sheet.
In this two-part series, I will be examining the cost and effect that coupons and promotional chips have on live gaming operations. I will explain the different methods used to handle these promotional tools and provide you with the information needed to develop your own decisions as to how the different promotions affect your gaming operation.
Match Play Coupons
Match play promotional coupons are used in conjunction with cash or casino chips of the same value as the coupon. This promotion is frequently referred to as a “game starter,” or an introductory offer. The purpose of the match play coupon is to motivate the casino customer to begin play on a live table game (usually blackjack). The customer is required to risk an amount of his or her own money with the incentive that a winning decision will return double the risked amount. Usually, this coupon is known as a single-decision offer since, win or lose, the coupon is taken by the dealer (a “push” allows the coupon to be played an additional time).
Even though the coupon is just a slip of paper, it still poses a cost to the casino. In essence, match play doubles the value of the player’s winning hand but is meaningless when the player’s hand loses. The customer’s money and coupon are waged against the usual house mathematical edge of the game. The chances of winning the coupon/money wager are basically 50/50 with the house advantage factored in as well.
For example, a customer places a $5 match play coupon in his wagering circle on a 21 game along with a $5 casino value chip. The chances of the player winning are (0.5 – [house advantage/2]) X -$10 ($10 is the casino valued chip times 2), and the chances the player will lose are (0.5 + [house advantage/2]) X $5 ($5 is the casino value chip alone). In this example, a house advantage of 1.2 percent will be used for the game of 21:
• Player Wins = (0.5 – [0.012/2]) X -$10 = (0.5 – 0.006) X -$10 = 0.494 X -$10 = -$4.94
• Player Loses = (0.5 + [0.012/2]) X $5 = (0.5 + 0.006) X $5 = 0.506 X $5 = $2.53
• Net Cost of a $5 Match Play Coupon = -$4.94 + $2.53 = -$2.41
As you can plainly see, the $5 match play coupon does possess a functional cost for the casino: $2.41. For each coupon played across the gaming tables, the casino pays a small fee in game loss. This small fee adds up over time, especially when the casino’s match play promotion is structured to place a couple hundred coupons into action each day. Does the casino really get a bang for its buck by using a match play coupon promotion? I’m not one to completely abandon the match play program. The promotion does have some merit when handled correctly and used to promote first time play. [Note: The coupon is placed down the drop box immediately after it has played. This procedure serves two functions: it takes the coupon out of play so it can’t be used for a second time, and it gives the accounting department a “piece” that can be counted to determine promotional costs.]
In many situations, match play promotions are used by marketing to bring in large numbers of players when business is slow. It’s not unusual to see a match play promotional program that produces 200 coupons played per day at a medium-sized casino when marketing distributes the coupon indiscriminately. Placing two coupons in every hotel room, giving away a coupon per person in the coffee shop or dining area, or using coupons in conjunction with direct mailers can easily produce an inundation of coupon play.
Realistically, the effect on statistical game performance due to the use of match play coupons becomes two-fold. First, the coupon creates a losing situation whenever it is played. As calculated previously, a $5 coupon, matched with a $5 casino value chip, costs the casino approximately $2.41 per each table decision. If 200 coupons were used by the casino patrons each day, these “pieces of paper” would equal $482 in gaming loss.
Second, additional cash must be used to buy casino valued chips needed to play with this offer. Like any other buy-in, it increases drop. In most cases, the coupons will be played in groups of two. This represents the play of this promotion by a husband and wife, or two people who have shared a hotel room or dined together. Since a majority of the coupons will be played two at a time, it can also be assumed that the two players will purchase their “trial play” casino chips with a single $20 bill. And in most cases, the coupon customer will play only the coupons, cashing out the remaining chips at the casino cage when the two coupons have been exhausted. This purchase will increase the casino’s table drop by approximately $2,000, based on a 200 coupon trial play by customers buying in at a rate of $20 per every two promotional players. The effect can be seen in Table 1.
In this situation, the 200 coupons have cost the casino an approximate $482 reduction in table win and have driven the hold percentage down by 1 percent. For count room purposes, the coupons themselves are treated as “pieces of paper,” and their numbers are usually recorded for accounting purposes, with the intention to write the calculated cost off as an advertising expense.
Match play coupon caveats: In some cases, the user is required to place chips in excess of the value of the coupon. This requirement will reduce the cost to the casino through a larger contribution of monetary value waged with the coupon. Some programs restrict coupon use to even money wagers and pay even money on blackjacks. This also decreases the cost of the coupon by increasing the mathematical house advantage substantially. Some match play coupon programs are structured to allow the coupon to play for multiple decisions. These are known as “play till they lose” coupons and are used until the wagered coupon loses. This structure can increase the coupon’s effect for more than one decision, which results in a greater cost to the casino.
“First Card is an Ace” Coupon Promotion
The “Ace” promotion is a single-decision coupon that is played in the game of 21 in conjunction with a casino value chip. The customer places the coupon on the table in his or her betting circle along with the casino chip(s). The coupon becomes the player’s first card, which is an Ace. The usual procedure when using an Ace coupon is for the dealer to deliver a card only on the second round, using the coupon as the player’s first card. If the player receives a 10-value card as his second card, the player has a “blackjack,” and if that blackjack doesn’t push a dealer’s blackjack, the wager is automatically paid 3:2. If the second card is not a 10-value card, the hand is played out by the coupon customer exactly like any other hand of 21. [Note: When used on a 21 game that pays 6:5 on blackjacks, the short blackjack payoff results in a reduction in cost.]
The cost of this promotion is very easy to calculate. Any time a player receives an Ace as his first card, he has a theoretical advantage on money wagered on that hand of 52 percent. For instance, if a customer places a “First Card is an Ace” promotional coupon on a 21 game wagering circle along with $10, the customer assumes a theoretical edge of 52 percent and an expected win of $5.20 ($10 X .52 = $5.20). Since this is a single-decision coupon, the coupon is taken by the dealer after every hand (other than a push) and dropped down the table’s drop box. These coupons are accounted for in the same manner as the match play coupons.
In order to make this promotion advantageous to the casino, the Ace coupon must limit the maximum wager placed in conjunction with the coupon (the lower the limit, the less the cost will be) and limit the number of coupons the customer can play during a specific period of time (usually two coupons). This coupon is also subject to the same effect on casino drop and win as the match play coupon. The use of this coupon will slightly inflate drop while also decreasing revenue. Using the information in Table 2 as an example, if 100 Ace coupons were played through during a single day at a medium-sized casino, the effect on the drop and revenue would be similar to the use of 200 $5 match play coupons. In this situation, the Ace coupon has a wagering limit of $10. If 100 coupons were played, each time with $10 in casino value chips, the reduction in revenue can be estimated as -$520 (100 X $10 X .52 = $520).
When comparing the effects of the coupons in Table 1 and Table 2, it will be quickly noted that the Ace coupon has a greater cost to the casino if it is played with a limit of $10. Since I have never noticed this coupon played with anything less than $10 in casino valued chips, providing an example less than $10 would be misleading. In addition, this coupon is used sparingly and in limited numbers. In most situations, the coupon is used to entice players to the 21 tables during casino-sponsored special events. The lure of using a first-card Ace, and the possibility of receiving a blackjack, is quite appealing to the average casino customer.
In both previous coupon examples, the use of coupons to entice customer play in table games has its cost. The cash purchase of casino chips needed to play with the coupon offering provides an element of “false drop” that will raise the amount of total game drop. In addition, the coupon’s monetary return to the customer—its primary motivation for play enticement—decreases the casino’s gaming table win. These two factors combine to work against a table game’s hold percentage and, in the examples given, lower the hold percentage by at least one percentage point. The casino executive needs to keep this in mind when evaluating the performance of his casino table games that are marketed through the utilization of coupon-based promotions.
In Part II next month, we will discuss the effect of using single-decision and multiple-decision promotional chips.