Inside Asian Gaming

INSIDE ASIAN GAMING | July 2010 42 Marketing How to Calculate the Player Reinvestment Rate The terms “player reinvestment” and “player reinvestment rate” are often used to describe the costs associated with the suite of benefits that casinos bestow on their players. However, despite the frequency with which these terms are used, there is no industry-wide definition that describes the specific components that make up player reinvestment. To better understand how the industry defines player reinvestment, a survey was conducted among United States casino operators operating in a number of jurisdictions including Indian casinos, riverboat/barge casinos and Nevada casinos. A key finding of the research was that in theevolutionofmost casinos, understanding what a property’s player reinvestment rate is does not become an important issue until two seminal events occur: 1) the casino institutes a host program and 2) it begins to mail out cash and free play offers to various Loyalty Costs Andrew Klebanow explains how to calculate the player reinvestment rate segments of its database. Then, as discretionary comp costs and mail redemption costs rise, casino leadership begins to ask, “So what is our player reinvestment rate?” While there is general agreement that the money spent on fostering loyalty and encouraging repeat visitation forms the bulk of player reinvestment costs, casino operators differ on the specific expenses that makeupplayer reinvestment. Somefinancial officers lump all of the costs associated with casino marketing and advertising to form what they think is player reinvestment while others limit it to just those costs associated with the administration of the player rewards program. Others take a more analytical approach and attempt to identify only those costs that are directly associated with player reinvestment. What is Player Reinvestment? Player reinvestment is comprised of all marketing expenses that are used to foster loyalty and encourage repeat visitation among rated/carded casino patrons. The player reinvestment rate is a simple fraction with total player reinvestment expenses in the numerator and carded/tracked win (win that is attributed to players who use their player reward cards) as the denominator. The resulting ratio is the player reinvestment rate. The numerator in this ratio is comprised of the following components. (1) Comps. Comps issued to customers make up the lion’s share of player reinvestment expenses. However, not all comps are associated with player reinvestment. Those that are include system generated comps that are issued through the property’s casino management system, primarily for meals at the casino’s restaurants. Also included are discretionary comps that are issued by casino hosts for additional meals, hotel rooms, airfare, limousine service and other premium services. Other comps that fall into player reinvestment are complimentary roomoffers and show tickets issued to players through direct mail offers or other marketing campaign vehicles. Those comps that are excluded are beverage comps that aredistributed toall gamers, regardless if they are members of the rewards program, employee and manager meal comps and any other comp that is not associated with tracked gaming activity. (2) Points Redeemed For Cash or Non- Negotiable Slot Credits. Almost every player rewards program issues points to players using their reward program cards. Those points are usually redeemed for same-day cash back, non-negotiable wagering credits, comp meals, catalogue merchandise and/or other premiums. The dollar cost of points redeemed is the second component of player reinvestment. It does not include points earned or accrued; only those that are redeemed. (3) Free Play and Non-Negotiable Play Redeemed. The advent of more sophisticated casino management systems now allows for the issuance of “free slot play.” As an example, a player who generates 100 points in a given day may receive a bounce-back offer redeemable for $20 in free play if he/she return within 72 hours. These awards are credited directly to a player’s account