Gambling Operations
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Industry Overview
The US gambling, or gaming, industry consists of about 500 casinos, about 400 Indian casinos and bingo halls, and about 280 hotel casinos with combined annual revenue around $90 billion. Companies with large casino operations include MGM MIRAGE, Harrah’s Entertainment, and Foxwoods Resort Casino. About $35 billion of annual revenue is taken in by commercial casinos, $25 billion by Indian casinos, another $25 billion by state lotteries, 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 gaming companies hold more than 60 percent of the market. The casino hotel market is even more concentrated, with the top 20 firms holding 75 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 local residents, who may not be able to afford travel to gambling centers such as Las Vegas or Atlantic City.
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, 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 percent. The take on most table games may be higher, from 15 to 30 percent. State lottery games are mainly numbers games. State lotteries often retain around 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 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 their casino. A large hotel casino like the MGM Grand Las Vegas has about 6,000 hotel rooms, suites, and other accommodations; 2,400 slot machines; 160 table games; theaters; restaurants; bars; and a number of retail stores. Typically, around 40 percent of revenue at a hotel casino comes from the casino, 20 percent from food and beverages, 25 percent from hotel rooms, and 15 percent from retail stores, shows, and other entertainment. The trend in recent years has been toward larger casino hotels.
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 percent 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 around $25 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. 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 has become popular, despite federal law making it illegal except for horse racing and certain other online gaming. Because of harsh anti-gambling laws, credit card companies do not process gambling charges by US residents. (To get around that ban, gamblers use a private cash or check transaction system, debit cards, or even wire transfers to make payments and receive winnings). Most Internet gaming sites operate from offshore servers. Federal legislation has been introduced in Congress to legalize Internet gaming, which could boost the revenues of casino operations even while increasing competition with their bricks-and-mortar locations. Americans gambled nearly $6 billion on foreign gaming websites in 2009, according to the American Gaming Association.
