A new report has suggested that casinos reportedly lose out on staggering profits due to outdated customer loyalty systems. The recent report - which concentrates on land-based casinos as opposed to casino sites - by Acres Manufacturing Company, which offers a proprietary loyalty technology for casino operators, estimated that the casino industry is forfeiting a colossal $37.2 billion in potential profits due to outdated casino management systems (CMS).
The report reveals that despite the considerable growth in casinos across the United States over the last 25 years, the industry's revenue from slot operations has not kept pace.
"The U.S. casino industry today generates lower inflation-adjusted revenues from slot operations than it did in 2000," said Acres in their report. "With no substantial advancements in casino loyalty technology during this time, casino operators find themselves unable to adapt to the preferences of today's consumers and struggle to create or maximize customer relationships."
It's the second sensational report from Acres who have also claimed that casino loyalty enrollment operations cost casinos up to $5 billion a year due to reliance on physical loyalty cards. The previous report claimed that a combination of operating costs of issuing cards, the floor space taken up, and staff costs tally up to these significant annual losses.
Loyalty programs and free slot play, which are standard casino bonuses, are integral to the gaming industry's strategy to attract and retain customers. However, it's been reported there are potential risks associated with these programs. Casino loyalty programs, often perceived as fixed-rate reinvestment initiatives, are variable rate systems that can lead to lost profits or even net losses for the operators.
"While casinos advertise their rewards clubs as fixed rate reinvestment programs, in reality, these are variable rate systems that expose casinos to lost profits (or even net losses) on existing players and lost opportunities to convert new and novice players into loyal, profitable customers," warned the technology company.
For casino operators relying on outdated CMS technology, VIP players and savvy slot enthusiasts can pose significant challenges. These operators often hope less astute clients won't redeem their free play. Acres surveyed nearly 200 U.S. land-based casinos and found that many loyalty programs offer players reinvestment rates that approach or even exceed 100% when exploited optimally. This places operators at risk, relying on breakage caused by unredeemed rewards or players who do not fully take advantage of the program to maintain profitability.
The proposed urgency mooted in the study for gaming operators to scrutinize their CMS technology and reevaluate the concept of free play is underscored by a simple factor: money. Slot machines are renowned for their high-profit margins, as they require less labor expense compared to table games.
However, free play may not be as cost-effective as it seems. Acres highlighted that $1 in free play costs operators more than $1 because bettors have limited time, and if that time is spent wagering for 'free', casinos see no benefit from it. With just $10 in free play, a bettor can significantly hit casinos' modest yields on specific slot machines.
"Simply put, free play is issued so liberally that it is no longer a valued gift or prize, removing its viability as a tool to attract, engage, and retain current and new players," concludes Acres. "While players celebrate even small slot machine wins with enthusiasm, nobody celebrates the issuance of free play because it is a mundane and predictable entitlement documented in the casino's official terms and conditions."