Casinos Losing $37B to Outdated Free Slot Play Systems, CMS Firm Says

Posted on: September 13, 2023, 11:05h. 

Last updated on: September 13, 2023, 01:08h.

Todd Shriber @etfgodfather Read More

Expertise: Financial, Gaming Business, Mergers and Acquisitions.

It’s widely believed that casino operators prolifically print money. Still, the industry is missing out on massive potential profits due to outdated customer loyalty systems, creating significant lost opportunity costs attributable to free play on slot machines.

Acres Manufacturing Company, which manufactures next-generation customer loyalty technology and services for casino operators, pegs the number at a staggering $37.2 billion. That’s for player loyalty reinvestment on casinos’ profitability, owing to antiquated casino management systems (CMS).

Despite the significant expansion in the number of casinos across the United States over the past 25 years, the U.S. casino industry produces lower inflation-adjusted revenues from slot operations today than it did in 2000,” stated Acres in a new report. “With virtually no advancements in casino loyalty technology over the past 25 years, casino operators have become unable to adapt to the preferences of present-day consumers and cannot adequately create or maximize customer relationships.”

Putting $37.2 billion into context, that’s not far off the current market capitalization of $38.3 billion sported by Las Vegas Sands (NYSE: LVS) – the largest gaming company by that metric.

Loyalty Programs, Free Slot Play Risky for Casinos

Loyalty programs and free slot play are two staples of gaming industry customer enticement. The two concepts go hand-in-hand, because when a bettor signs for a rewards platform, the operator often doles out free slot play, albeit usually in modest amounts.

Still, there’s potential risk involved in that scenario for operators. Acres noted that casino loyalty programs are highly transactional and can potentially sap profits or create losses.

“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 opportunity to convert new and novice players into loyal, profitable customers,” added the technology company.

VIPs and shrewd slots players can be problematic for casino operators employing outdated CMS technology, leaving those companies to hope less astute clients don’t redeem their free play.

“In our survey of nearly 200 U.S. casinos, we found that many loyalty programs provide players reinvestment rates approaching or even exceeding 100% when exploited optimally and only maintain profitability through breakage caused by unredeemed rewards or players that do not take full advantage of the program,” noted Acres.

Why Updating Slot Free Play Is Important

There’s good reason for gaming operators to apply more scrutiny to CMS technology and the concept of free play: Money. Broadly speaking, slot machines are high-margin fare and attractive to operators because less labor expense is required than with table games.

“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. “Any observer in a casino will note players happily celebrating even small slot machine wins by cheering, calling friends over, or taking photos of the winning screen. But nobody celebrates the issuance of free play because it is a boring and predictable entitlement documented in the casino’s official terms and conditions.”