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Preface Looking back at Nevada in the old days, before corporate ownership became the standard for casino companies there and elsewhere, one confronts considerable romanticism and folklore about the business of gaming and the nature of casino operations. First and foremost, authorities -- especially those outside of Nevada -- viewed casinos with a very suspicious eye. The gaming industry came from illegitimate roots, and at mid-century casinos were illegal in most jurisdictions in America and throughout the world. Indeed, Nevada had been widely criticized when in 1931 it legalized casino gaming. By so doing, it provided a safe haven for an "outlaw" industry and its "outlaw" managers and owners. The old days for casinos were before 1969. That was the year the State of Nevada passed the Corporate Gaming Act, and permitted publicly traded companies to become casino license holders (Eadington, 1982). It was also a year after the passage of the British Gaming Act and a year before it was implemented, creating a highly regulated and controlled -- but nonetheless legitimate -- casino industry in that country. And it preceded by three years the legalization of the Wrest Point Casino in Tasmania, the first legal casino in Australia. Casino management in the old days and in the early "new" days -- more often than not -- had gained their casino experience in legal or illegal gambling joints in far away places such as Havana, the Bahamas, the French Riviera, Steubenville, or Saratoga Springs. The formal education achieved by most casino managers was limited. Casino management was certainly not considered a respectable way to make a living, especially for those who had other options. Within the industry, a belief prevailed that the only way a person could learn the gaming business was from the ground up, starting on the casino floor, learning every game and every scam, keeping one's eyes open, and constantly observing. After ten or twenty years of such apprenticeship, a person would be ready to run a joint of his own. Being friends with the Boss also helped. Employees were hired on the basis of whom they knew rather than what they knew. "Juice" was the name of the game, especially in Las Vegas. Organizational structures were characterized by a "monopoly on brains," a steep pyramidal hierarchy where orders and directions flowed in only one direction -- downward. Only the Top Man or the "inner circle" had the vision to steer the organization in the right direction (Macomber, 1994). The buck -- and the bucks -- stopped there. For everyone else, it was "dummy up and deal," and the less one knew about what was going on, the better (Solkey, 1980). Customer relations were often developed on a very personal basis. A player was sought after as long as he had the means with which to gamble. If he tapped out, he was no longer welcome. Because gambling debts in the old days were not legally collectible in Nevada or in most other jurisdictions, the trump card of the casino industry was the threat of cutting a player off from further play. Thus, debt collection, a by-product of credit play, involved a combination of carrot and stick strategies to threaten or encourage players to pay up so they could get back to the tables at the casino once again. And the players were for the most part serious -- some would say degenerate -- gamblers. They were predominantly male and played table games, especially craps. Slot machines and roulette were for the ladies or the novices. Serious action players wanted to roll the dice. The more cerebral players were attracted by the challenges of blackjack. Most casino operations were guided by a philosophy that the only profit center for the entire operation was the casino itself. Everything else -- hotel rooms, restaurants, lounge shows, headliner showrooms, golf courses -- were loss leaders expected to generate business for the casino as the ultimate cash cow. This was based on the belief that gamblers loved bargains, and casinos certainly did offer very good value for money inmost of their ancillary products. Then -- as now -- casinos understood that many gamblers did not look at casino losses as expenditures, but rather as bad luck. Thus, compared to other leisure and entertainment industries, casinos had a hidden psychological advantage, and their pricing strategies took full advantage of providing lots of excuses to the player who wanted into the action. Competition in the old days was, for the most part, limited to the State of Nevada. In Las Vegas, market segmentation was bifurcated between the "sawdust joints" of downtown Las Vegas and the "carpet joints" of the Strip. Northern Nevada was perhaps even more homogeneous, with Reno drawing more of a working class clientele, and Lake Tahoe casinos aiming slightly up-market from that. Nonetheless, there was strong competition within each market, and by the late 1960s, it was clear that Nevada's destination resort casinos were dominated by positive economies of scale. As a result, new gaming properties in the 1960s and early 1970s -- such as Caesars Palace, Circus Circus, the Las Vegas International (now the Las Vegas Hilton), and the MGM (now Bally's) -- were each built more expansively and more expensively than their predecessors. By modern standards, investment decisions often were seemingly undertaken based on "back of the envelope" calculations, frequently pursuing untested themes and outlandish ideas. (Occasionally, white elephants were constructed, as with the Landmark in Las Vegas.) But the effect of economies of scale made financing a far more important part of the overall picture. The illegitimate status of casinos in the eyes of the establishment -- especially Wall Street -- foreclosed the industry from traditional debt and equity markets. As a result, sources of financial capital were wherever one could find the money. This occurred through partnerships, the selling of ownership "points" of the casino (sometimes to parties hidden from authorities), or through such questionable sources as the Teamsters Central States Pension Fund. The reception of most casino owners and managers at most banks and financial institutions prior to the 1970s -- with the notable exception of Nevada National (later Valley) Bank -- was a near total absence of interest. The relationship of casino operators to regulatory authorities was also somewhat strained. Nevada created its regulatory structure in the 1950s and 1960s in response to the perceived Federal threat of intervention, brought about by such exposés as the Kefauver Committee hearings of 1951 or the McClellan Committee hearings in 1961 (Skolnick,1978; ch. 9-11). In effect, the State of Nevada was attempting to protect its sovereignty at least with respect to the gaming industry. (Parallels to this situation have arisen in the 1990s with regard to Indian gaming in America.) However, because of the nefarious backgrounds of many of Nevada's early gaming owners and operators, it was difficult, especially prior to the 1970s, to establish a credible degree of regulatory authority over the casino industry. Casino owners and managers who had operated outside the law before coming to Nevada were not the easiest candidates to persuade that regulation was something to which they should submit, even though the casino industry in Nevada had given them legal status. (Many of them were also not keen on paying taxes.) Thus, the old days of casino operations and regulation in Nevada -- and well into the transition period -- had more than their share of bonafide scandal. From the 1950s through the 1970s, Nevada's casino industry had lots of scandals to cope with, including hidden ownership, threats by casino owners against regulators, systematic skimming, and, on numerous occasions, an active presence of organized crime (Reid and Demaris, 1962; Glass, 1981; Skolnick, 1978; Spanier, 1994, ch.9). How much has casino management changed in the past thirty years? Have the changes been for the better? Often, the retrospective view still heard is that "…they knew how to run casino operations in the old days, not like the accountants and attorneys today." Is that really true, or just a romantic notion of a time not so long past? The casino industry has indeed evolved at warp speed, in comparison to most other industries of the late 20th century. It has moved out from the gray shadows of illegitimacy and become a major and visible presence on Wall Street and Main Street. Much of this is a direct result of extensive growth. Casinos and casino-style gaming -- limited to Nevada and Atlantic City as recently as 1989 -- could be found in nearly 30 states by 1999. The venues and forms for casinos also multiplied (riverboats, racetracks, mining towns, Indian reservations, urban and suburban casinos, etc.). Furthermore, casinos exist under a variety of market structures (competitive, exclusive franchise monopoly, regional monopoly, oligopoly) and ownership regimes (private sector with low tax rates; private sector with high tax rates; government owned and privately managed; government owned and managed). Ownership of casinos in America is now characterized by publicly traded corporations with broad-based institutional participation. The biographical profiles of modern casino executives and managers look much like those of executives and managers in the hotel, airline, or insurance industries. Various universities offer courses or even degrees in gaming management. The mainstream business press -- as well as specialized casino trade publications such as International Gaming and Wagering Business, CasinoExecutive, and Casino Journal -- report on, evaluate, and critique gaming industry trends and performance on a regular basis. This volume reflects these trends: in a nutshell, the growing science of gaming management. Articles contained herein deal with a wide variety of topics that challenge the modern casino executive. Part of the evolution of casino gaming has been recognition that, as with other industries, one could apply broad management principles to casinos and gain insights that would improve overall performance. Rather than spending ten to twenty years on the casino floor looking for scams and glad-handing customers, the new generation of casino executives has been formally trained in the disciplines and subtleties of human resource development, customer service, strategic planning, market segmentation, feasibility analysis, compliance, and public relations. He -- or she -- is well versed in EBITDA, win per unit per day, theoretical win percentage, incremental returns from various promotions, currency transaction reporting, and meeting probity. He -- or she -- is becoming increasingly aware of community concerns over issues such as localized crime, underage gambling, and problem gambling. Modern casino management is not as unique as the old school may have believed, though it is far from generic; running a casino is far more complex than running, say, a hotel or a restaurant. Much can be learned by cross-fertilizing concepts, ideas, and strategies from other industries. Successful initiatives from elsewhere can generate considerable gain in casinos' operating performance. Parallels between the airlines' frequent flyer programs and casinos' player tracking programs or between cast members at Disney World and cast members at Treasure Island are good illustrations of such cross-fertilization. Many analysts and observers have claimed that casino industries are evolving from selling gambling to selling entertainment (e.g. Christiansen and Brinkerhoff-Jacobs,1997). At the same time, competition for the leisure dollar, for the entertainment dollar, is becoming increasingly keen. As the third Millenium becomes a reality, the demands on the casino executive to become more systematic, more scientific, more conceptual, can only increase. Volumes such as this one will provide the basis for the continued transformation and education of the gaming manager.
William R. Eadington July 1998
REFERENCES: Christiansen, Eugene and Julie Brinkerhoff-Jacobs (1997), "The relationship of gaming to entertainment," in William R. Eadington and Judy A. Cornelius (eds.), Gambling: Public Policies and the Social Sciences, pp. 11-48. Reno: Institute for the Study of Gambling and Commercial Gaming, University of Nevada. Eadington, William R. (1982), "The evolution of corporate gambling in America," Nevada Review of Business and Economics, reprinted in Kathryn Hashimoto, Sheryl Kline and George Fenich (eds.) (1996) Casino Management for the 90s,pp. 52-65. Dubuque, Iowa: Kendall/Hunt. Glass, Mary Ellen (1981). Nevada's Turbulent '50s : Decade of Political and Economic Change. Reno: University of Nevada Press. Macomber, Dean (1984), "Management policy and practices in modern casino operations," The Annals of the American Academy of Political and Social Sciences, July, Vol. 474, pp. 80-90. Reid, Ed and Ovid Demaris (1963). The Green Felt Jungle. New York: Trident Press. Skolnick, Jerome (1978). House of Cards: Legalization and Control of Casino Gambling. Boston: Little, Brown & Co. Solkey, Lee (1980). Dummy up and deal. Las Vegas: GBC Press. Spanier, David (1994). Inside the Gambler's Mind. Reno: University of Nevada Press. |
