Gambling Operations
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Industry Overview
The US gambling, or gaming, industry consists of about 500 commercial casinos and 160 Indian casinos, with combined annual revenue close to $85 billion. Companies with large casino operations include MGM MIRAGE and Harrah’s Entertainment. About $35 billion of annual revenue is taken in by commercial casinos, $20 billion by state lotteries, about $25 billion by Indian casinos, and the rest by horse racing, bingo, charities, and bookmaking. (For gambling companies, "revenue" is the total amount bet minus winnings paid to gamblers.) Most casinos are small, limited by the size of the surrounding population. The industry is concentrated: the top 20 companies hold more than 60 percent of the market.
Competitive Landscape
Growth in consumer income and state spending has driven expansion of the US gambling industry. The profitability of individual companies depends on efficient operations and effective marketing. Large operators have the financial resources to make large investments in facilities and efficient computer operations, and have cross-marketing opportunities. Small gambling facilities can thrive by catering to a local clientèle. The industry is fairly labor-intensive: annual revenue per employee is $90,000.
Products, Operations & Technology
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 a variety of table games such as roulette, baccarat, Black Jack, and craps (dice). The house take on slot machines varies, but can be as high as 35 percent; that is, the house keeps 35 percent of all the money bet; the take on most table games is a bit lower. State lottery games are mainly numbers games. State lotteries often retain 40 percent of all money bet.
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 percent of gross revenues, often in the range of 20 to 25 percent.
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 their casino. A large hotel casino like the Trump Plaza in Atlantic City has about 900 hotel rooms; 2,800 slot machines; 100 table games; a theater; eight restaurants; four bars; and a number of retail stores. The trend in recent years has been toward larger casino hotels. Typically, 50 to 60 percent of revenue at a hotel casino comes from the casino, 15 percent from food and beverages, 10 percent from hotel rooms, and 15 percent from retail stores, shows, and other entertainment.
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 25 to 35 percent of net annual revenue and extend for a term of five years. 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 almost $50 billion and net profits of $20 billion. With a "take" close to 40 percent, 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 machines are now computerized, increasing their reliability, decreasing maintenance costs, and allowing operators to collect information using electronic game monitoring units (GMUs). Slot machines in casinos are typically replaced every three to five years by newer models, although their effective life is ten years. Computer technology has allowed the development of new games, such as video poker and "wide-area" games that hook several electronic machines together, and has increased player involvement with a game by offering improved graphic displays and sound. Video poker and other electronic gaming devices (EGDs) are now found in many places besides casinos. 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.
