HTM110-Chapter11.pdf

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C h a p t e r 11

Gaming entertainment

L E A r N i N G o B J E C T i V E S

after reading and studying this chapter, you should be able to:

• Outline the history of modern casinos.

• Describe the various components of modern casino hotels.

• explain how casinos have been integrated into larger
hospitality operations.

• Understand the basic principles of casino operations.

• Discuss the different positions within the gaming industry.

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486 Part iii tourism, recreation, attractions, Clubs, and Gaming

One of the most significant developments in the hospitality industry during
the past three decades has been the astounding growth of the casino
industry and its convergence with the lodging and hospitality industries.
With its rapid expansion in North America and throughout the world,
new opportunities have been created for hospitality careers within casino
resorts.

Gaming entertainment
While the gaming entertainment industry is a global industry, there are five
types of legal gambling in the Unites States. this includes charitable gam-
ing, commercial casinos, lotteries, Native american gaming, and parimutuel
gaming. Some form of legal gaming exists in 48 of the 50 states, with com-
mercial casinos representing the largest part of the domestic gaming market.
While gaming revenues vary by the state, the industry contributes billions
of dollars in tax revenue to these local governments on an annual basis.
the gaming entertainment industry has seen development not only in the
United States, but also internationally, particularly in the asian destinations
of Macau and Singapore. the size and scope of the global gaming industry
are expected to reach $117.9 billion dollars in 2015.

When a customer places a bet in any type of gaming activity and the
casino guest wins the game, he or she receives a cash payout; if the guest
loses the game, the money is wagered. the total amount of the bets is called
the handle, and the net amount spent by the guest is called the win by the
gaming entertainment industry.

What is the difference between gambling and gaming? Gambling is play-
ing a game of risk for the thrill of the action and the chance of making
money. true gamblers spend a great deal of time learning and understand-
ing a favorite game of risk and enjoying the subtle attributes, and, in par-
ticular, they find an enjoyable challenge in trying to beat the house, or win
more than they lose from a casino. a gambler has little interest in anything
other than a casino floor and the games it offers. It is true that of the nearly
40 million visitors who go to Las Vegas, the approximately 27 million peo-
ple who go to atlantic City, and the hundreds of thousands who frequent
other casino operations, they love the green felt table, the whirling roulette
wheels, the fall of the chips, the lottery-like game of keno, and the thrill of
the game. the rows of colorful slot machines sounding out musical tones
and flashing lights, the distant sounds of someone hitting the jackpot, and
the ringing bells and shouting guests create an environment of excitement
and anticipation that can be found only on the casino floor. the gaming
industry has exploded from just two jurisdictions in 1976 to some form of
legal gambling in 48 states.

Not long ago, the presence of slot machines or blackjack tables was all
that was needed to lure visitors. however, with the rapid spread of casinos
through North america, this is no longer true. the competitive nature of
casino business has forced the creation of a bigger, better product to meet

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chapter 11 Gaming entertainment 487

the needs of its guests. this product, gaming entertainment, has evolved
over the past decade.

Games of risk are only part of the total package of entertainment and
leisure time activities found in gaming entertainment. Gaming entertainment
serves a customer base of social gamblers, customers who play a game of
risk as a form of entertainment and social activity, thus combining gam-
bling with other activities during their visits. Social gamblers, by this defini-
tion, are interested in many gaming entertainment amenities and take part
in many diverse activities during a stay. Gaming entertainment refers to the
casino gaming business and all its aspects, including hotel operations, enter-
tainment offerings, retail shopping, recreational activities, and other types
of operations, in addition to wagering on the gaming floor. the heart of
gaming entertainment has been dubbed the “entertainment megastore” with
thousands of rooms; dynamic, interesting exterior architecture; and nongam-
ing attractions.

Gaming entertainment is the business of hospitality and entertainment
with its core strength in casino gaming. according to this definition, a gam-
ing entertainment business always has a casino floor area that offers various
games of risk that serve as the focal point for marketing to and attracting
guests. Next in importance to the guests are high-quality food and beverage
operations.

Gaming entertainment is one of the last hospitality concepts to sup-
port the full service, tableside gourmet restaurant, in addition to the
lavish buffet offerings that many casino locations offer. the number of
foodservices is wide and diverse—from signature restaurants featuring
famous chefs to ethnic offerings to quick service, franchised outlets. the
gambling entertainment industry offers unlimited career opportunities in
restaurant management and the culinary arts that were unheard of just a
decade ago.

Gaming entertainment also goes hand in hand with the lodging industry
because hotel rooms are part of the package. Full service hotels are part and
parcel of gaming entertainment. rooms, food and beverage, convention ser-
vices, banquet facilities, health spas, recreation, and other typical hotel ame-
nities support gaming entertainment. Most of the largest and complex hotels
in the world are found in gaming entertainment venues, a number of which
are described in detail later in this chapter.

Gaming entertainment offers a place where guests can gamble (the
casino floor), eat and drink, sleep and relax, and maybe do some business.
But there is much more: the entertainment ranges from live performances
by the most famous entertainers to production shows that use high-tech
wizardry. Gaming entertainment includes theme parks and thrill rides, muse-
ums, and cultural centers. the most popular gaming entertainment destina-
tions are designed around a central theme that includes the hotel and the
casino operations. Unlike its predecessor, the casino business, the gaming
entertainment business has numerous revenue-generating activities. revenue
is produced from casino wins, or the money that guests spend on the casino
floor. the odds of any casino game are in favor of the house, some more

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488 Part iii tourism, recreation, attractions, Clubs, and Gaming

than others. a casino win is the cost of gambling to guests, who often win
over the house in the short run and are therefore willing to place the bets
and try their luck.

Nongaming revenue comes from sources that are not related to wager-
ing on the casino floor. as the gaming entertainment concept continues to
emphasize activities other than gambling, nongaming revenue is increasing
in importance. this is what gaming entertainment is truly about: hospitality
entertainment based on the attraction of casino.

What form does gaming entertainment take? the mega-resorts of Las
Vegas and atlantic City garner the most publicity as the meccas of the gam-
ing entertainment industry. however, there are smaller properties through-
out Nevada, and other casino-based businesses in 48 states and seven
Canadian provinces. these casinos take the form of commercially operated
businesses, both privately and publicly held. Some are land based, mean-
ing casinos are housed in regular buildings. Other are in river boats that
cruise up and down a river or on barges moored in water and do not cruise,
called dockside casinos. Casinos are also operated by Native american tribes
on their reservations and tribal lands. these are land-based casinos and are
often as complex as any operations in Las Vegas. Gaming entertainment is
also popular on cruise ships.

there is a strong support for gaming in the marketplace as an entertain-
ment activity. patrons are required to be 21 years of age to gamble in the
United States, and research shows that more than a third of americans have
visited a casino in the last 12 months, and 32 percent of them have actually
gambled in those 12 months. according to the market research, more than
85 percent of U.S. adults say casino entertainment is acceptable for themselves
or others. eighty-six percent of americans report having gambled at least once.

Commercial casinos account for 36 percent of gaming revenue. Indian
casinos and state lotteries tie for second place at 26 percent. the demo-
graphic makeup of the typical gaming entertainment guest has remained
consistent during the past several years. In comparison to the average
american, casino players tend to have higher levels of income and education
and are more likely to hold white collar jobs. the customer profile of Las
Vegas is a younger demographic of guests who spend money in search of
total entertainment experience.

historical review of Gaming
entertainment
the precise origin of gambling is still unknown today. however, according
to Chinese records, the first official account of the practice dates back to as
far as 2300 b.c.e.! the romans were also gamblers. they placed bets on char-
iot races, cockfights, and on dice throwing. this eventually led to problems:
gambling, or games of chance, was banned except for during the winter
festival of Saturnalia.1

LearNING OBjeCtIVe 1
Outline the history of modern
casinos.

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chapter 11 Gaming entertainment 489

In the seventeenth century, casino-style gaming clubs existed in england
and Central europe. a public gambling house was legalized for the first
time in 1626 in Venice, Italy, and one gambling establishment, in Baden-
Baden, Germany, opened in 1948 and is still open today.2 Soon the upper
class met in so-called casinos to socialize and gamble. In the first half of the
nineteenth century, organized gaming casinos started to develop.

Las Vegas—the name alone summons images of neon lights, extravagant
shows, outrageous performers, and bustling casinos where millions are won
and lost every night. Las Vegas is all of that and much more. this city repre-
sents the american dream. Since the state of Nevada legalized gambling in
1931, Las Vegas has been transformed into one of the most elaborate cities
in the world and one of the hottest vacation spots.

the gaming entertainment business in the United States has its roots in
Las Vegas. From the early 1940s until 1976, Nevada, and predominantly Las
Vegas, had a monopoly on the gaming entertainment business. Casinos had
no hotel rooms, entertainment, or other amenities. the hotels that existed
were just places to sleep when guests were not on the casino floor.

Las Vegas is rich with tales of Benjamin hymen Siegelbaum, better
known as Bugsy Siegel. Siegel was born February 28, 1906, in Brooklyn,
New York, to a poor jewish family. It is said that he began his career at a
very young age by extorting money from pushcart peddlers. eventually he
turned to a life of bootlegging, gambling rackets, and murder-for-hire opera-
tions. In 1931, Bugsy was one of four men who executed Giuseppe “joe the
Boss” Masseria. Several years later, he was sent out West to develop rack-
ets. In California, Siegel successfully developed gambling dens and ships.
he also took part in narcotics smuggling, blackmail, and other question-
able operations. after developing a nationwide bookmaking wire operation,
Siegel moved on to build the well-known Flamingo hotel and Casino in Las
Vegas. the casino ended up costing over $6 million, which forced Siegel to
skim profits. Siegel subsequently died in Beverly hills in june 1947, hit by a
barrage of bullets fired through the window of his home. the day after his
death, three mobsters walked into the Flamingo hotel and announced that
they were the new owners.3

During the 1970s, atlantic City was in an impoverished state, with high
rates of crime and poverty. In an effort to revitalize the city, New jersey vot-
ers, in 1976, approved casino gambling in atlantic City.4 Later casino gam-
bling was legalized in the state of New jersey by the Casino Control act. the
state looked to the casino industry to invest capital, create jobs, pay taxes,
and attract tourists, thus revitalizing the economy and creating a financial
environment in which urban redevelopment could occur.

the act initiated a number of fees and taxes specific to the casino hotel
business that would provide revenues to support regulatory costs, fund
social services for the disabled and the elderly through the state, and pro-
vide investment funds for the redevelopment of atlantic City. the Casino
Control act created the Casino Control Commission, whose purpose was not
only to ensure the success and integrity of the atlantic City casino industry,
but also to carry out the object of reversing economic futures of cities.5

Sensing that the objectives of the Casino Control act were being fulfilled
in New jersey and wanting similar benefits for its state, but not wanting

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490 Part iii tourism, recreation, attractions, Clubs, and Gaming

land-based casino gambling, Iowa legalized riverboat casinos in the early
1990s. Illinois, Mississippi, Louisiana, Missouri, and Indiana followed suit in
rapid succession. as the casino industry spread throughout the United States
and Canada, its competitive nature created a need for what is now known as
gaming entertainment and added to non casino attractions. Gaming enter-
tainment is, therefore, a natural evolution of the casino industry.

Native american Gaming
In California v. Cabazon Band of Mission Indians, et al. (1987), the Supreme
Court decided 6 to 3 that once a state has legalized any form of gambling,
the Native americans in that state have the right to offer and self-regulate the
same games without government restrictions. this ruling came about after
the state of California and the county of riverside sought to impose local
and state regulations on card and bingo clubs operated by the Cabazon and
Morongo bands of Mission Indians. the Court clearly recognized the rights
of tribes with regard to certain gaming activities.6

Congress, which some observers say was alarmed by the prospect of
losing control over tribal gaming, responded to these court decisions
by passing the Indian Gaming regulatory act of 1988 (IGra). the IGra
provides a framework by which games are conducted in a way that protects
both tribes and the general public. For example, the IGra outlines criteria
for approval of casino management contracts entered into by tribes and
establishes civil penalties for violation of its provisions. the act is clearly
a compromise in that it balances the rights of sovereign tribal nations to
conduct gaming activities on their lands with the rights of the federal and
state governments to regulate activities within state and federal b s.7
the three objectives of the IGra are as follows:

1. provide a statutory basis for the operation of gaming by Native
american tribes as a means of promoting tribal economic development,
self-sufficiency, and strong tribal governments;

2. provide a statutory basis for the regulations of gaming by the Native
american tribe adequate to shield it from organized crime and other
corrupting influence;

3. establish an independent regulatory authority, the National Indian
Gaming Commission (NIGC), for governing activity on Native american
lands.8

IGra defines three different kinds, or classes, of Native american gaming
activities:

• Class I gaming, consisting of social games played solely for prizes of
minimum value or traditional forms of Native american gaming

• Class II gaming, consisting of bingo, games similar to bingo, and called
games explicitly authorized by the laws of the state

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chapter 11 Gaming entertainment 491

• Class III gaming, consisting of all forms of gaming that are neither class
I or class II gaming, and therefore including most of what are consid-
ered casino games.9

the significance of the definition of class III gaming activity is that it
identifies the games that must be located in a state that permits such gaming
for any purpose by any person, organization, or entity and are conducted
in conformance with compacts that the states are required to negotiate “in
good faith” with the tribes.

While the federal gaming law precludes state taxation, the tribes in sev-
eral states have voluntary payments and also negotiated payments to state
governments under certain circumstances. Often tribes give local govern-
ment voluntary payments in recognition of services the tribe receives, and
some pay revenues in exchange of permissions to maintain a casino gam-
bling monopoly in a state. In Michigan, Connecticut, and Louisiana, tribes
have agreed to make payments to the state as a part of their comprehensive
compact for casino gambling. In almost all the states, the tribes make pay-
ments to the states for costs incurred by the states in regulating the casinos
as provided in the negotiated agreements.

there are over 400 gaming facilities on reservation lands in 28 states, and
Native american gaming has been one of the fastest growing sectors of gam-
ing in the United States. Foxwoods resort Casino in Ledyard, Connecticut,
operated by the Mashantucket pequot Indian reservation, is one of the larg-
est casinos in the United States with more than 6,300 slot machines and 380
table games.10

the Casino resort: a hospitality
Buffet
today, casino resorts are among the most visible hospitality businesses in
the world. twenty of the 30 largest hotels in the world are casino resorts on
the Las Vegas Strip.11 the size and scope of the global gaming industry are
expected to reach $117.9 billion dollars in 2015. those aiming for careers in
hospitality, even if they have no special interest in working on the gambling
side of the operation, may find themselves considering a position in a resort
that has a casino, but also a full spread of lodging, food and beverage, enter-
tainment, and retail offerings.

even if you don’t plan on working on the casino floor itself, a rudi-
mentary understanding of the nature of gambling—and the specifics of
casino gambling—is an essential tool for those who want to pursue careers
in casino resorts. today, many casino resort presidents and key executives
have come up through the lodging or food and beverage side of opera-
tions; a solid understanding of what’s happening in the casino—and how
casino guests are different from other hospitality patrons—makes advancing
through the ranks that much easier.

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492 Part iii tourism, recreation, attractions, Clubs, and Gaming

What is gambling?
In its broadest definition, gambling is the act of placing stakes on an
unknown outcome with the possibility of securing a gain if the bettor
guesses correctly.

to be considered gambling, an act must have three elements: something
wagered (the bet), a randomizing event (e.g., the spin of slot reels or the flip
of a card), and a payoff.

this broad definition of gambling includes many dissimilar activities:
contests between animals (horse racing, cockfighting) and between humans
(team and individual sports); lotteries; and games of chance played with
cards, dice, and other randomizing elements. Some of the best-known games
fall into the last category: poker, blackjack, and baccarat are played with
cards, and craps with dice. Slot machines, which were originally mechanical
(but now are electronic) devices, award prizes based on the random stop-
ping of reels, are also popular, and are typically the most-played games in
most casinos today.

how do casinos make money from gambling? the answer lies in the
kind of gambling they offer. there are two basic categories of gambling:
social gambling and mercantile (or commercial) gambling. Social gambling
is conducted among individuals who bet against each other; mathematically,
each player has the same chance of winning. poker is a classic social game:
every player is drawing from the same deck and has the same opportunity
to check, raise, or fold. Other social forms of gambling include dominoes
and Mah jongg.

In mercantile or commercial gambling, players bet against “the house,”
a professional gambler or an organization that accepts wagers from the gen-
eral public. Mercantile games have a mathematical advantage for the casino,
or a house edge that lets professionals profit from them while still offering
fair games. all lotteries are mercantile games, and every game found on the
casino floor is a mercantile game. there is a small guaranteed bias toward

the house that, over time,
ensures the casino will win
more than it pays out.

the house edge is best
explained by looking at the
game of roulette, which fea-
tures a wheel with 38 slots
numbered 1–36, in addition
to a single zero and a double
zero. On each spin, a small
ball falls into one of the
38 slots. If you bet “straight
up” on a number, you win
35  units for each one unit
you bet. So if you bet one
dollar straight on, you’d
end up with 36 dollars: the
one dollar you staked, plus

A casino area with slot machines.

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chapter 11 Gaming entertainment 493

35 more. Since the wheel has a 1-in-38 chance of hitting any number, you
should be paid off at a rate of 37:1, not 35:1. that extra two dollars is the
house edge; it seems slight, but over time, it adds up.

the house edge is what makes casinos possible; without it, the only way
to offer games of chance to the public that can generate an income would
be to cheat. the house edge allows casinos to offer their customers honest
games, fairly dealt, and still remain in business.

the game of poker is an interesting exception to the rule that all casino
games have built-in house edges. Many casinos have poker rooms, in which
players bet against each other using a table, cards, and a dealer supplied by
the house. the casino has no direct stake in the outcome of each hand but
instead takes a small percentage of each pot (the rake) to defray the costs of
operating the room. though it is a popular game, poker makes little money
for casinos. poker instead is offered as an amenity for those players who
will also play straight-up mercantile games or for those who are visiting
with slots or table games players. the house edge is a theoretical number;
it describes the amount of money wagered (handle) that the casino should
keep over time. For tables and slots, casinos track the hold percentage to
better understand how well the casino is performing.

to understand the hold percentage, we need to understand two other
terms: handle (or -in) and win. the handle is the total amount of
money bet at a game. the win is the handle minus the money paid out
on winning bets—essentially, what the casino keeps. the hold percent-
age is the percentage of the total handle that is retained as win. On slot
machines, the hold percentage tracks very close to the theoretical house
edge. On table games, however, the hold percentage is usually consider-
ably higher than the house edge.

though the games offered in casinos have a statistical bias toward the
house, they are still games of chance. In the short run, players can get lucky
and walk away with the house’s money. In small-stakes games this isn’t
a problem, since the sheer number of bets taken tends to drive the hold
percentage toward its histori-
cally expected value.

Games played for high
stakes, such as baccarat, are
different. Because there are
large amounts of money being
spread over fewer decisions,
these games have a great deal
of volatility; in a given month,
the hold percentage for a bac-
carat game in a single casino
can fluctuate wildly.

as a manager of a casino
resort, it is important that you
have an appreciation of the
nature of volatility. just because
the casino department is report-
ing a net loss for a shift does

This resort on the Las Vegas Strip models itself after New York City.

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494 Part iii tourism, recreation, attractions, Clubs, and Gaming

not necessarily mean that the department
is inefficient or incompetent; it may just be
an expression of volatility. Over time, gam-
ing wins will tend toward their historical
average.

Managers also need to understand
that, because of volatility, casinos are not
like other hospitality businesses. a typical
hotel, running at 95-percent occupancy for
the weekend and with full restaurant book-
ings, will certainly make a profit. Because
of volatility, however, even a busy casino
can end up in the red for a shift, or even
a weekend, if one high-stakes player has a
run of good luck.

comps: a Usual Part of an Unusual business
Volatility isn’t the only aspect of the casino business that makes it different
from most other hospitality businesses. Comps are another area that set casi-
nos apart.

Comps are complimentary goods and services offered to casino
patrons in to attract their business. Comps are found in virtually
every casino, and any casino “guest of consequence” has expectations of
receiving comps. Unlike in other hospitality operations, where comps are
given primarily as part of service recovery to compensate for a customer
service failure or other miscue, comps are distributed as a usual part of a
casino’s operation.

the value of comps varies; generally speaking, higher-producing play-
ers are given higher-value comps. For example, a small-stakes slot player
might receive an offer for a discounted or free buffet; a baccarat-playing
high roller, betting $10,000 a hand for several hours, might receive a full
rFB (room, food, beverage) comp, with all expenses in the casino’s most
lavish accommodations paid for. Casino guests might also receive comps for
entertainment or other gifts. Many slots players receive cash back when they
reach certain play thresholds.

Casinos, with thousands of guests on any given day, rely on customer
loyalty programs to track patron play. patrons who wish to receive comps
and other offers join the casino’s player loyalty club (e.g., Caesars’ total
rewards, MGM resorts’ M life, Wynn resorts’ red Card). Slot players insert
the card they receive into the machine they are playing; the card then tracks
money played and won. table games players have a pit manager swipe their
card, tracking their time of play and average bet size.

Casinos use the information they gain about a player’s gambling patterns
to offer him or her comps, based both on theoretical wins by the player
and his or her expected levels of play. Most loyalty programs have tiered
rewards structures, giving patrons an incentive to play more and unlock
more rewards.

Casino Win Defined

Let’s say you into a roulette game for $100 in $1 chips. You
place 100 even-money bets, winning 94 and losing 6. In this
case, the following are true:

The handle is $100.
The win is $6.
The winning percentage is 6 percent.

T h i s i s v e r y c l o s e t o t h e t h e o r e t i c a l h o u s e e d g e o f
5.26 ­percent.­But­if­you­continued­playing­for­another­
100 bets,­you­might­lose­another­6.­In­this­case,­the­handle­
would still be $100, but the win would be $12, and the hold
percentage 12 percent.

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chapter 11 Gaming entertainment 495

Loyalty programs are an essential part of casino marketing; many guests
base the money they spend gaming upon where they receive the best comps.
Good casino managers know they must send out good offers to qualified play-
ers. Casinos also use sophisticated software to monitor and deliver bonuses
to slot patrons as they are playing on machines. recently, some casinos have
begun tracking and rewarding nongaming spending as well, a reflection of the
broadening of the casino resort revenue stream. For example, some casinos
offer rewards on dining, shopping, and even staying at their hotels.

I’ve been fortunate enough to work at three of the largest and most successful Las Vegas casino resorts. This
experience has allowed me to interact with very diverse clientele from towns and cities from around the world.
The gaming floor of a casino is buzzing with patrons enjoying the varied product offerings that most casino
mega-resorts possess around the clock every day of the year.

These casino operators go to great lengths to attract and retain casino players. The first …