SWOT and Strategy Evaluation Paper

Demand for gambling is driven by consumer income growth and state spending. The profitability of individual companies depends on efficient operations and effective marketing. Large operators have the financial resources to make significant investments in facilities and efficient computer operations; they may also enjoy cross-marketing opportunities. Small gambling facilities can thrive by catering to local residents, who may not be able to afford travel to such gambling centers as Las Vegas or Atlantic City. The US gambling industry is concentrated: the top 50 companies account for about 60% of revenue. The casino hotel segment is even more concentrated: the top 50 companies account for about 90% of revenue.

Gaming operators mainly provide a place or a means to play games of chance, where the odds of winning favor the "house." Popular casino games are slot machines (slots); video poker; and table games such as roulette, baccarat, blackjack, and craps (dice). The house take on slot machines varies, depending upon the denomination of the slot machine, but generally runs between 5% and 10%. The take on most table games may be higher, from 15% to 30%. State lottery games are mainly numbers games. State lotteries often retain between 30% and 40% of all money bet, according to the National Conference of State Legislatures.

The actual operation of a casino involves acquiring and servicing gambling machines, training and supervising dealers and cashiers, entertaining customers, and managing cash. Large game equipment manufacturers are International Game Technology and the Bally Technologies. Gambling operators are free to set the odds of winning at a particular game as long as they prominently post a pay schedule on the machine. Operating licenses for some casinos require the operator to pay the state a fee based on a percentage of gross revenues.

To attract and retain customers, some casino companies operate casino hotels that can accommodate large numbers of guests and that contain a variety of entertainment, restaurants, and retail stores in addition to the casino. A large hotel casino like the MGM Grand Las Vegas has about 6,000 hotel rooms, suites, and other accommodations; 2,000 slot machines; 150 table games; theaters; restaurants; bars; and a number of retail stores. Typically, around 70% of revenue at a hotel casino comes from the casino, 10% fromfood and beverages, 10% from hotel rooms, and 5% from retail stores, shows, and other entertainment. While the trend in recent years has been toward larger casino hotels in Las Vegas, the economic downturn of the late 2000s generally slowed casino construction in other markets.

Some casinos are located on land owned by legally designated American Indian Tribes. Although these Indian casinos are regulated differently, they are operated like other casinos, usually under third-party operating contracts with regular commercial casino operators. Typical operating contracts give the operator up to 40% of net annual revenue and extend for a term of five years or more. Although not directly regulated by the state in which they operate, Indian casinos must have a revenue sharing agreement ("compact") with the state.

States operate a variety of state lottery games, most of which involve guessing a randomly drawn number. "Instant games" let the gambler buy a ticket with a hidden number that can be revealed by scratching off the covering. About 40 states operate lotteries, with combined annual sales of about $20 billion. With a "take" between 30% and 40%, lotteries typically return less money to players than casinos do. To counter moral objections, some states "earmark" the proceeds of lottery operations for specific laudable social spending projects, like education. Lottery tickets are sold through special computer terminals that retail outlets rent from the state.

Slot machine operators collect information using electronic game monitoring units (GMUs). In addition to games themselves, the control of gambling operations relies heavily on computer devices and programs to take bets, print tickets, track revenue and payouts from individual machines, and perform various accounting functions.

Internet gambling, especially online poker, enjoyed rising popularity in the late 1990s and early 2000s despite federal laws designed to curb illegal online gambling and interstate wagering. The Federal Wire Act of 1961 has been used to ban online interstate gambling and wagering on foreign websites, and the Unlawful Internet Gambling Enforcement Act of 2006 prevents banks and credit card companies from processing transactions with those sites. However, in 2011 the US Department of Justice ruled that the Wire Act applies only to sports betting and not to other forms of gambling. That decision significantly expanded opportunities for legal online gambling in the US. A handful of states have enacted legislation allowing real-cash online gambling within their borders. Nevada was the first to offer legal online poker, in 2013; Delaware and New Jersey soon followed. The gaming industry is largely split over the issue, as some casino operators worry that gambling websites will lure customers away from their brick-and-mortar locations. Competing online gambling bills have been introduced in Congress in recent years, including some measures that would streamline further legalization and others that would outlaw the practice nationwide.

Slot floors are becoming totally cashless through the use of ticket-in/ticket-out (TITO) technology. When cashing out, players receive a ticket that can either be redeemed for cash or be inserted into another slot machine for credits on the cash meter of the new machine. Server-based games allow casino operators to make changes to any slot machine on the floor through a central, secure computer server. Casinos are also embedding RFID devices in their chips to improve security and track players.

Promotional efforts for casinos and other betting attractions target regional customers, who typically live within a three-hour car ride of a betting attraction, and consist of radio ads and highway billboards. Online, television, and print ads target vacationers who select "destination" resorts that provide a variety of entertainment and activities. Many casinos play up their nongaming entertainment, such as shows, shopping, celebrity chefs, and luxurious accommodations. States typically advertise lotteries through local billboards and radio spots.

Because most gamblers lose money, gambling operators try to make the losing fun, presenting gambling as entertainment that is worth the price. Casinos use players club programs to award gamblers points toward rewards, while allowing the casino to monitor the playing habits of individual gamblers, which helps them design individualized marketing incentives. Other incentives include “comps,” in which high rollers (bettors who spend a lot of money in a casino) are given free drinks, food, accommodations, or other perks to ensure their loyalty.

Accounts receivable may be high, because some players may not pay their debts promptly. Many casinos may extend credit viamarkers -- personal warranties that customers are good for their debts. Capital investments in buildings and equipment are significant, both because gambling equipment is expensive and because casinos and casino hotels must frequently be refurbished to attract gamblers.

Casino hotels are labor-intensive: average annual revenue per employee in the US is about $125,000. For casinos and other gambling establishments, average annual revenue per employee in the US is about $165,000.

US gambling operations are regulate primarily by states. Until gambling was legalized in Atlantic City in 1976, casinos operated only in Nevada. In many states, casinos must be located on riverboats, a requirement that effectively restricts the size of operations. Regulation is largely aimed at preventing organized crime from association with the industry, which is attractive because of the large cash flow. State regulators must approve all games played, but gambling operators are free to set the odds of winning a particular game.

Indian casinos are regulated by the National Indian Gaming Commission (NIGC) under the Indian Gaming Regulatory Act (IGRA), which sets rules defining eligible Indian tribes, their relationship with states, and requirements for oversight of gambling operations.

Gambling generates more than $450 billion in revenue worldwide, according to Global Betting & Gaming Consultants. As casino gaming and other forms of gambling continue to expand in new markets, specifically in Asia, the industry’s gross yield (gaming income minus payouts to winners) is expected to exceed $525 billion in sales by 2019. Land-based casinos generate about 35% of worldwide gaming revenue, followed by lotteries, which account for about 30%, according to Morgan Stanley. Online gambling makes up about 10% of the global market. Other forms of gaming, such as wagering on sports and parimutuel events such as horse racing, account for the remainder.

The world's largest casino gambling markets include the US, Macau, Singapore, Australia, and South Korea. The growth of Europe’s casino industry has leveled off in recent years, but the region's online gambling sector is thriving, especially in the UK, the largest regulated Internet gambling market. Major companies based outside North America include Tatts Group (Australia); Galaxy Entertainment and SJM Holdings (Hong Kong); and UK-based IGT and William Hill. All of the major US casino companies also have foreign locations or investments in overseas gambling operations.

Macau, a special administrative region (SAR) of China, has become one of the world's largest gambling markets, thanks to heavy investment from both domestic and international casino developers. US-based casino companies that operate properties in the territory now earn as much as two-thirds of their global revenue in Macau, according to Scotiabank. However, gaming revenue in the region began falling sharply in 2014 after the Chinese government launched a widespread crackdown on corruption and organized crime that caused casinos to lose business from wealthy VIP customers.

Despite the downturn in Macau, emerging markets in the Asia/Pacific region offer potential for growth in traditional casino gambling, fueled by the size of the Chinese market and the steady expansion of the middle class in many areas. Developers are opening multibillion-dollar Vegas-style casino resorts in markets such as Singapore and the Philippines to attract local and international gamblers, putting additional competitive pressure on casinos in North America and Europe. Another market primed for gaming industry growth is Japan, which is considering legislation that would permit casino gambling ahead of the country's hosting the summer Olympic Games in 2020.

Australia has a thriving gaming industry that includes casinos, lotteries, sports betting, and various forms of racing. Melbourne and Sydney are home to some of the country's top casino destinations. The lottery business includes both government-run games and those contracted to private operators.

Major growth is also taking place within the international online gaming sector. Interactive gambling generates about $40 billion in annual global revenue, and that figure could approach $60 billion by 2018, according to H2 Gambling Capital. Online gaming services may face regulatory challenges in some markets. Internet gambling on websites served by companies located in other countries is a contentious issue in the US.

Most employees in the gambling industry work at casino hotels as regular hotel employees, who provide housekeeping and janitorial services, work as servers, or provide security. Casino employees who work the gaming activities need licensing by regulatory authorities and require special training. The average hourly industry wage is moderately lower than the national average, although casino dealers get high pay.

Due to lower wages and a reliance on part-time employees, turnover in the leisure sector can be significantly higher than average. The injury rate for employees of casino hotels is nearly 40% higher than the national average. Injuries occur less frequently among workers at standalone casinos and other gambling establishments.

Industry Employment Growth Bureau of Labor Statistics

Average Hourly Earnings & Annual Wage Increase  Bureau of Labor Statistics