THE IMPORTANCE AND DESIGN OF NONGAMING ELEMENTS IN CASINOS

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1 THE IMPORTANCE AND DESIGN OF NONGAMING ELEMENTS IN CASINOS Boao Towers Hainan, China First in a series Presented by YWS OVERVIEW Throughout the history of the casino business, the resort and hotel segment has been focused on earning revenue from gaming. Until recently, the majority of revenue in a casino resort was derived from gaming, so operators wanted to get customers into the hotel and resort in order for them to gamble. However, the growth in gaming options for customers throughout the world is changing what casino operators are focusing on. For example, success in gaming in Macau is driven by the fact that China has no legalized gaming options. Similarly, gaming casinos in Singapore, the Philippines and Vietnam see success in part because there is no legalized gambling in India. Customers travel to these locations to game because they have no legal options at home. In contrast, in Las Vegas, where there are many casino resorts to choose from, there is a greater emphasis on entertainment, because U.S. customers now have so many local gaming options. Scarcity of gaming options no longer drives customers to just a handful of resorts in the world. Casino resorts must differentiate themselves through nongaming options that result in a complete entertainment experience for visitors and greater nongaming revenue for the resort. Since 1999 nongaming revenue in Las Vegas, America s No. 1 gaming market, has been greater than revenue from gaming. The disparity between gaming and nongaming revenue continues to grow in favor of the nongaming amenities in Las Vegas resort casinos. These nongaming elements include restaurants, events, nightclubs, bars and hotel rooms. Hotel and resort operators, along with casino designers, have observed this slow evolution of their customers preferences and have adapted their properties to meet these new demands. There is no one-size-fits-all approach to casino design, because scarcity of gaming options will influence how important nongaming revenue is to the success of a casino. DESTINATION VS. NONDESTINATION CASINOS Nondestination casinos across America tend to cater to local customers, different than casino resorts in places such as Las Vegas, Singapore and Macau that depend more on tourists. The result is that the majority of their revenue comes from gaming. For example, gaming revenue for all casinos in Northeastern America totaled $12.8 billion in 2011, while nongaming revenue accounted for $2.3 billion, or less than 19 percent. Nongaming revenue in Las Vegas, however, outpaces gaming revenue, and as smaller markets note the changes in large-market customer behavior, they are preparing to meet that need. Casino markets worldwide are in various stages of evolution. As more gaming options become available, more market disruption will occur, forcing casinos to look at increasing nongaming revenue. Creating entertainment options that differentiate the property from other casinos is key to attracting and retaining customers. For example, when a new casino opened near Wichita, Kansas, it disrupted the business of other casinos that were

2 further away from the city, because gaming was the primary attraction at all of them, and customers from Wichita opted for the convenience of the new closer casino. When this type of market disruption occurs, the only solution is to offer more nongaming entertainment, with the goal of creating a one-of-a-kind destination attraction. Casino gaming is no longer special to Nevada or even Atlantic City. With casino gaming available across the country, someone in New York City is less likely to drive three hours to Atlantic City to play the same slot machines available 20 minutes from home. As a result, people are less likely to travel for gaming alone and casino managers must offer nongaming elements to attract out-of-market customers. As that trend continues, the design and focus on nongaming amenities will become important for all casinos. This trend is not limited to the United States. In 2002, Macau had about the same gaming revenue as Mississippi. Today Macau is the No. 1 market for gaming revenue. Gaming is still two-thirds of overall revenue at Macau casinos, but that will likely change as casino operators and government officials look to expand their customer base to a larger market base. Theme parks, arcades and other nongaming activities are rapidly being added to existing Macau casino resorts. As gaming reaches critical mass, these nongaming features will continue to drive future revenues as more Chinese consumers begin to travel and vacation. Nongaming revenue is increasing in Singapore as gaming revenue is decreasing. The government has influenced casino resorts to be integrated with many nongaming activities, including Marine Life Park, the largest aquarium in the world. Analysts are forecasting that Singapore s casino revenue will only grow 5 percent to 10 percent in 2013, compared to a growth rate of 15 percent in THE IMPORTANCE OF HOTEL AND RESORT ROOMS Hotel rooms are the largest nongaming segment of revenue, so it s important to remember how much room product matters. Boutique hotels and hotel experiences not only allow a casino resort to charge more money per room, they ensure diversity in revenue from greater food and beverage sales. Casino resorts are still, and will likely always be, playgrounds, as David Kranes has famously been saying since However, that doesn t mean that there can t be class and order to the design of a casino resort. Cavernous casino resorts seem to be a thing of the past, no matter the size of the property. Even larger properties, such as Caesars Palace, are being broken into smaller parts to generate greater revenue, a trend that is likely to continue. Casino hotels and hotel rooms have been taking a new shape recently. When The Cosmopolitan of Las Vegas opened, it launched a new hotel and hotel room product. The Cosmopolitan of Las Vegas was scheduled to open two towers with 2,995 rooms (mixed between condominium units and hotel rooms) but instead opened with between 800 and 1,600 rooms available. Even at full capacity The Cosmopolitan of Las Vegas would still have more than 1,000 rooms less than its neighbor at The Bellagio, which has 4,000 hotel rooms available for its customers. The Cosmopolitan of Las Vegas was always set to be a small property, but it unintentionally became the first major entry of a boutique casino and resort to the Las Vegas Strip when it opened to a soft economy. This model has since been emulated by Caesars Entertainment, which opened a Nobu Hotel at Caesars Palace, and will be replicated across the street when Bill s Gambling Hall reopens as Gansevoort in Branded boutique hotels are a new trend both in Las Vegas and in other major cities. These hotels are typically small and intimate and offer customers more personalized service. This boutique service allows Caesars Entertainment to charge up to $249 for a night at the Nobu Hotel, whereas the daily hotel room rate in southern Nevada averages $108. Proving that customers will pay for quality and a special experience, occupancy at Nobu has been in the low to mid 90 percent level since opening in February, says Gary Selesner, a regional president for Caesars Palace. Delano at Mandalay Bay and SLS Hotel are also marketing themselves as boutique hotels, but with 1,100 and 1,600 rooms respectively, they re closer to being traditional hotels. Boutique hotels aren t exclusive to Las Vegas and have been opening in larger cities in business districts across the country. Las Vegas and other casino resorts may be just the places for a boutique hotel experience as food and beverages have become more important to the way people enjoy their vacations. At many boutique properties, it is not uncommon for food and beverage revenue to average 30 to 40 percent of total revenue, very different from the traditional hotel model. In a laboratory-based study, Finlay, Kanetkar, Londerville and Marmurek (2006) found that Kranes playground design created higher levels of pleasure and lower intentions to gamble. The playground theme continues to support nongaming elements and will be an effective casino design moving forward as revenue continues to diversify in a casino resort. SPACES WITH MULTIPLE PURPOSES INCREASE REVENUE The size of a casino resort may not matter as much as it would appear. Bob Kelly, from Casino Design, says that the key to designing a hotel, casino and resort today is for it to be perceived as comfortable, convenient and easily navigated. It s important to keep the design interesting,

3 dynamic and flexible to ensure that customers will return. Design is always changing, and today, designers believe that the confusing design patterns of casinos in the past are not the way to satisfy customers. This means that casino resort owners will need to work together with their design team to avoid outdated patterns. The most efficient and effective casinos will create their programs and floor plans for the needs of today s customer and prioritize spaces that generate revenue and provide for multiple uses. Certain spaces in a casino resort may have untapped potential and can be used for multiple purposes. Food, beverage and entertainment spaces that aren t being used can be turned into moneymakers more times then not. For example, a ballroom may double as a bingo hall to generate extra revenue, while a bar can act as a place to grab a quick continental breakfast in the morning. That same bar can act as a sports bar in the evening before turning up the music to become a nightclub later in the night. Repurposing bars throughout the day can create excitement and downplay slow periods in a casino resort. The Encore tower at Wynn Las Vegas does this with its lobby bar. In the morning, the bar becomes a quick continental breakfast meeting area and general focal point of the hotel. As the day progresses, the lobby bar remains a meeting place but has a different energy, with different food and beverage offerings. Later in the evening, the lobby bar has even more energy and focuses on drinks instead of snacks. In many casino resorts, this bar would be closed, serve no purpose and generate no revenue. ENTERTAINMENT IS A COMPETITIVE ADVANTAGE In some ways, no matter how large or small, all casino resorts are a destination. The casino resort may only be a destination for a few hours of gaming, dining, a special event or a weekend away, but it is a destination. Entertainment may be large scale or small scale, but it must be accessible. As Internet gaming grows and provides the ultimate in convenience, casino resorts will have to increase their focus on providing an experience that the customer cannot get at home. Just as retailers are struggling with how to compete against online companies such as Amazon, casinos must face the reality that online gaming, whether for real money or points/rewards, will threaten their revenue streams. Entertainment, whether it s unique restaurants, spas, or concerts and events, is what will ultimately attract and retain customers, bringing them to the casino for the total experience they cannot get at home. Roger Gros, of Global Gaming Business, says that it is not only big-name events that draw customers to a casino resort. While a casino in a smaller market may not be able to draw major national artists for concerts or special events, it can draw interest and customers with artists from the local and regional community. Financially and aesthetically, this allows casino resorts to have performers tailored for the market and special events. Many casino resort ballrooms offer flexibility, allowing a property to host concerts, bingo events, viewing parties, conventions and other events at different times of the day, allowing for multiple revenue streams. If there isn t a multiuse ballroom on site, designers, operators and marketing executives can get creative and turn parking lots or restaurants into event spaces. The study Evaluating the Impact of a New Resort Amenity on Gaming Business Volumes about Harrah s Resort in Atlantic City shows just how deeply entertainment is affecting customer revenue. On nights when its pool and nightclub were open, the casino not only earned additional revenue from the nightclub, but table gaming produced $150,550 more drop than the days on which the pool was not open. Using its historical hold rate of 15.9 percent, table games produced $23,937 greater win for Harrah s Resort. The pool and nightclub were open 130 days during the time frame examined in this study, resulting in a total indirect EBITDA contribution of $777,920 ($5,984 x 130). Slot machine revenue was unaffected on nights when the pool and nightclub were open during the study because the design of Harrah s Resort keeps many of the local older slot players away from the rowdier younger clubgoers. According to a recent study, the average slot machine player is a 55-year-old woman, not the typical demographic for a nightclub. Palms Resort and Casino in Las Vegas was designed in a similar manner, so that the parking area, mainly used by locals, enters the casino near the movie theater, sports book, food court, slot machines and casual dining areas, whereas most tourists enter at the main entrance closer to fine dining, nightclubs and table games. This proved to be a very lucrative design for many years as Palms has been one of the most successful casino resorts in Las Vegas. The study Evaluating the Impact of a New Resort Amenity on Gaming Business Volumes also shows that nights on which there is a special event taking place at a casino, the property sees a revenue increase. The money isn t derived only from the special event but also from hotel rooms, food, beverages and gaming. On average, a visitor to a casino resort for a special event will spend $180 more on nights when an event is taking place than on nights with no special happening. In general, showroom attendance has also been shown to increase food revenue in a Las Vegas resort, while dining volume is positively related to gaming volumes on evenings with special entertainment events. That makes the direction of exits extremely important Fiamma Trattoria at MGM Grand Las Vegas, Nevada

4 Todd English P.U.B. Las Vegas, Nevada to the design of events centers and ballrooms. While some customers want to head to the exits, many others prefer to make their way into the casino to eat, drink and play, and both segments must be represented in the layout to drive a diverse revenue stream. Diversity in casino resort revenue is generally good and the recent recession shows that casino gaming is not recession proof. As a result of the increased reliance on nongaming amenities and an increased supply of gaming nationally, gaming revenue is now subject to the same macroeconomic factors that impact other consumer retail and service industries. Meanwhile, in Singapore, Las Vegas Sands opened its integrated casino resort and hotel, Marina Bay Sands. The government in Singapore did not want the building to have the appearance of a casino and instead wanted an integrated property, so Marina Bay Sands created a multifaceted facility that reflected the desire to have gaming be just one part of the casino experience. The result is a unique casino design that earns revenue from every inch of real estate, and it may be the most profitable casino in the world. Each square foot of casino space generates, on average, more than $52 of revenue each day, about twice the rate of many Macau casinos and six times the rate of large Las Vegas casinos. The Singapore government concluded, The design of Marina Bay Sands is unique and will provide a memorable image and destination attraction for Marina Bay. The overall design of Marina Bay Sands fits very well with existing and future developments in Singapore. The setting back of the hotel towers from the waterfront opens up expansive views to the city and the entire Marina Bay. The government wanted, and Las Vegas Sands understood that gaming is just a part of the experience many casino goers want today. Today s casino resort guests want a nice place to eat, they want to be entertained and they want to socialize with old and new friends alike. As previously noted, not all casino resorts are becoming bigger. Caesars Entertainment closed Bill s Gambling Hall, a classic Las Vegas casino, and is renovating the resort casino into a boutique casino resort branded by Gansevoort. Gansevoort Las Vegas will focus on nongaming customers as much, if not more than, on the casino itself. Whether the property is a megaresort adding nongaming amenities, or a boutique casino resort focused on a specific customer segment, casino operators will have to consider the use of every square inch of real estate. The previous design of any casino resort can be changed to refocus on current customer spending trends, giving customers a reason to travel farther, stay longer and spend more money, says Clyde Barrow, head of UMass Dartmouth s Center for Policy Analysis. THE RULES OF RETAIL APPLY Casinos are nothing more than a retail experience, and as such, casino operators face many of the same challenges that retailers face today, including ever-growing competition from online gaming providers. Many of the design principles are the same, and customers have certain expectations as to the location of certain items. In both retail and casinos, the customer tends to navigate counterclockwise, and both retail and casinos need to maximize opportunities to guide customers to revenue-generating areas. Kranes says that, given a choice, players will always choose a wider path over a narrower one. Casino designers will want to create wider paths that guide customers to specific high-revenue-producing nongaming amenities such as branded restaurants, which may offer greater revenue than wholly owned restaurants. Depending on the property, these venues may be owned by the casino resort or leased to third parties and branded with familiar brand names. Corey Nyman, a Las Vegas-based food and beverage consultant, says that a branded restaurant can generate 15 to 20 percent higher price points when compared to nonbranded restaurants. Casinos will need to create more efficient walkways in the future. Jeff Lowenhar, from Gaming Research, speculates that empty rows of slot machines will be replaced with quicker, more efficient paths to social aspects of a casino and resort. With slot machine occupancy averaging 10 to 15 percent, future casino designs will be streamlined. Marina Bay Sands does not earn $52 per square foot by allowing portions of its casino resort to be empty. Social venues will continue to be places where a customer can eat, drink and lounge with their friends. Most people visit casino resorts for energy and excitement; empty parts of the casino can disappoint those customers. It s disconcerting when a customer walks into a casino resort and sees rows of empty slot machines and no clear direction on where to go for what they are looking for. Direct signage above clear wide pathways will not only navigate customers to where they want to go but to where the operator wants them to go. Casino resort designers will want to make a clear connection between the customers, gaming or otherwise, and their restaurants. Increasingly, the nongaming parts of the casino resort are being integrated into the casino itself. Casino resorts such as The Venetian in Las Vegas have many restaurants located away from the rest of the casino, often making it difficult for customers to find them. Recent renovations have placed restaurants within easy viewing of customers, however, the original design and layout of the casino resort makes a complete integration challenging.

5 Eye contact, lighting and design that directly interact with customers will draw them in for direct and impulse purchases from restaurants, bars, retail outlets and other nongaming parts of the casino. As mobile gaming expands in popularity, these nongaming venues will be able to offer revenue twofold, as more gaming will take place here. For example, sports fans could wager on an event via mobile apps while at a sports bar and restaurant. Although sports wagering is only 1 to 2 percent of overall gaming revenue and only available in select markets, this will only grow as more people become familiar with the technology. New social nongaming spaces such as MGM Resorts Park a plaza connecting the New York-New York and Monte Carlo resorts with a 20,000-seat arena and other social spaces will generate both gaming and nongaming revenue. Casino resort customers want to be social, but they also want to be comfortable. Wide open or empty spaces are not intimate and are not appealing to people who want to be social. Nongaming parts of the casino resort will have to be social, intimate and efficient, with clearly marked pathways that guide them to the areas they are interested in. Las Vegas casino operators aren t the only people seeing the change of business to being more social. Native American casino resorts such as Harrah s Rincon Casino & Resort see their casino floors evolving to create a more social gateway. Casino resorts across the country are clustering their gaming floors to create a more intimate gaming environment that also allows the layout to generate wider walkways to new restaurants and other nongaming attractions. resort for customers when they are leaving an event venue or gaming floor. Because many of today s customers will continue to be customers in the future, it s important to prepare for those people at different times in their lives because technology is moving so quickly. Today s younger casino resort customers want an experience that s both special and social. Adding smaller sections to a casino resort helps fulfill both social and special experiences. Creating smaller, more intimate spaces allows for more people to be in contact with each other. It also allows for more customization of a venue within the casino resort. That old large sports bar can be divided into two separate comfortable bars for two different types of customers. Each space can also have multiple themes for different parts of the day so that there s always something to do in a given space. There are many ways to satisfy the need for custom and social experiences, and that begins with easy access to the nongaming parts of a casino resort. But just as retailers must adapt to create unique experiences for shoppers that they can t get at home, casino operators must think about ways to entertain guests with more than just the lure of gaming. CONCLUSION: IT S ABOUT ENTERTAINMENT Casino resort guests are not the same as they were 20 years ago, and casino resorts have to change to satisfy today s customers and be ready for tomorrow s customer. Just as the Internet is commoditizing shopping, it will eventually commoditize gaming. Casino operators must focus on the entertainment aspect to be successful in this environment. Nongaming revenue is increasing every year, and that makes focusing on the design of nongaming areas of the casino resort more important than ever. The focus at a casino resort must be on hotel rooms, dining, entertainment and drinking facilities, not just on the casino itself. In the past, the only reason to visit a casino resort was to gamble, but now, it s about entertainment. Customers who visit a casino resort for a special event tend to spend more money than those who come just to gamble. They may spend money at a nightclub, concert or restaurant and will likely hit the casino or a supplementing area after their event. Designing easy access to supplementing venues is important, but possibly more important is designing wide, clear paths for easy access to these parts of the casino Hakkasan Nightclub and Restaurant MGM Grand, Las Vegas, NV

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