ATLANTIC CITY — Cruises, posh suites and exclusive box seats at sporting events. Cars, shopping sprees and private parties. Turkeys for Thanksgiving and hams for Easter. And much, much more.
In the gambling world, these are the “comps” that casinos give to their customers to reward them for their business and loyalty. Nevada’s casinos began showering customers with complimentary gifts when legalized gaming began there in 1931. Comping is an equally important part of Atlantic City’s casino scene and in other gaming markets across the country.
The good news for gamblers is that Atlantic City’s casinos are becoming even more generous with their giveaways. As gaming competition has grown in Pennsylvania and other surrounding states, the slumping Atlantic City market is increasingly using the power of the comp in the fight for customers.
“The Atlantic City casinos are spending more on their customers with comps and other offerings than ever before,” said Joe Lupo, senior vice president of operations at Borgata Hotel Casino & Spa.
Casinos consider comping as a way of “reinvesting” in their customers. The idea is simple: If casinos give something to the customers, then the customers will return the favor by spending more of their money at the slot machines and gaming tables or in the casinos’ restaurants, bars, nightclubs, retail shops and spas.
Atlantic City’s 11 casinos spent nearly $1.7 billion for comps in 2006, when the market peaked at $5.2 billion in gross gaming revenue. Comp spending on a dollar basis has declined in each year since then. In 2010, comp spending amounted to about $1.3 billion, while gross revenue from slot machines and table games came in at $3.6 billion.
However, comp spending as a percentage of gross gaming revenue has increased during the same five-year span, meaning that the casinos are actually more charitable now with their customer freebies. The so-called reinvestment percentage for comps has climbed from 32 percent in 2006 to nearly 38 percent in 2010 and almost 40 percent through July of this year, figures compiled by Borgata using data from New Jersey’s Casino Control Commission and the Division of Gaming Enforcement show.
Measured as a percentage of total casino revenue — from gaming and nongaming sources — the rate of comps in Atlantic City rose from almost 26 percent in 2006 to 27 percent in the first six months of 2011, analysis of the data shows.
“The one thing that is unanimous is that all players like comps, and we provide them at appropriate levels,” said Don Marrandino, president of the Bally’s, Caesars, Harrah’s Resort and Showboat casinos in Atlantic City owned by gaming giant Caesars Entertainment Corp.
One gaming analyst argued that while the upward trend in comps may be good for customers, it is bad for the casinos and their bottom line. He pointed out that casino revenue continues to fall at the same time the casinos are more liberal with their giveaways.
“Atlantic City’s casinos are being more generous in their customer reinvestment dollars. However, they are forced to do this to remain competitive,” said Harvey Perkins, executive vice president of Spectrum Gaming Group, a New Jersey-based casino consulting firm. “So the cost of getting a customer in 2011 is more expensive than it was in 2010.”
Perkins noted that through the first six months of 2011, it cost casinos 36.6 cents out of every dollar in gaming revenue to comp their customers, compared with 33.6 cents for the same period in 2010. Statistics show that gaming revenue was down 7 percent during that time.
“It’s more, but it’s more in a bad way, because total gaming revenue is declining. The casinos are spending more to get less,” Perkins said of the comps.
Casinos are in a quandary because they risk offending or losing their customers if they scale back the perks to save money. Perkins said customers have developed a sense of “self-entitlement,” viewing comps as an absolute reward for their business.
“There’s an old axiom, which is, ‘What you give a customer today, make sure it doesn’t have a negative effect when you take it away,’” he said.
‘We can get more
in Atlantic City’
Gaming customers Al and Deb DiGiovanni, a married couple from Norristown, Pa., stayed two nights for free at Showboat Casino Hotel last week as part of a comps package. They also signed up for a loyalty card at Trump Plaza Hotel and Casino to receive credit toward a free meal and hotel room.
“We’re learning,” Al DiGiovanni said, his wife nodding her head in agreement, of how they are taking advantage of comps.
The DiGiovannis, who live 40 minutes away from a Pennsylvania casino, said comps are a major reason why they make the 90-minute drive to Atlantic City. They have received free slot play from the Harrah’s Casino and Racetrack in Chester, Pa., but the Atlantic City casinos offer bigger perks, they added.
“We can get more in Atlantic City. It definitely makes a difference, for sure,” Al DiGiovanni said. “We would be less inclined to come here if we didn’t get the free rooms.”
There is just about no limit to the types of comps the casinos can offer. Cars have always been a popular giveaway. Hotel rooms, high-roller suites, limo rides, flights, lavish parties, spa treatments, meals, drinks, free slot play, show tickets and shopping cards are other staples. Then there are the more modest gifts, such as umbrellas, bathrobes, holiday food and even Christmas wrapping paper.
Cruises are some of the more extravagant comps offered by Caesars Entertainment. The company also has box seats at New York’s Citi Field for Mets games and at Philadelphia’s Lincoln Financial Field, home of the Eagles. Marrandino said Caesars Entertainment will also be sending some of its most valuable customers to the Summer Olympics in London next year.
“When they invented casino gambling, the comp was the initial way to say ‘Thank you’ to the customer. Not much has changed in the 80-plus years of gambling with comping,” Marrandino said. “I think it’s a great way to recognize a customer.”
Dennis Gomes, co-owner and chief executive officer of Resorts Casino Hotel, said illegal gambling dens started the comps craze decades ago by giving customers free drinks, food and prostitutes. The once mob-controlled Las Vegas casinos carried on the same tradition.
“I grew up in this business in Las Vegas,” Gomes said. “As a kid, I remember going to the casinos there. Even when they were mob casinos, I remember them giving out comps. It was a way of life.”
Comping has evolved in recent years with the help of sophisticated tracking programs. Decades ago, casinos often would indiscriminately give out rolls of quarters to attract budget-conscious bus passengers. Casino hosts would dole out more valuable rewards to higher-end customers based on their level of gambling.
Casinos now target their customers and keep track of their spending habits by using high-tech player loyalty programs. Gamblers insert their loyalty cards in the slot machines or have them swiped at the table games or at restaurants, bars and other nongaming venues. In effect, the more customers gamble or spend, the more comps they receive in return.
“I think you have to find the balance. When you over-comp, you’re not profitable, so there’s that fine line between the loyalty and the level of the comp,” Marrandino said of the casinos’ comping strategy. “But I think you get more bang for your buck in this market. We have more amenities.”
A.C. vs. Pennsylvania
For years, Atlantic City held an East Coast monopoly on casino gambling. But as legalized gaming became an accepted form of mainstream entertainment and as a source of tax revenue, other states began adding casinos during an explosive growth spurt across the country. Atlantic City is surrounded now by other casino states, including Pennsylvania, its main competitor.
Pennsylvania, once a major feeder market for Atlantic City, now keeps many of those gambling customers at home. Atlantic City gaming executives believe that their huge, resort-style casinos give them the upper hand over the typically more modest Pennsylvania gaming halls. They are liberally using comps to leverage that perceived advantage.
“The combination of slot dollars and comp dollars available for nongaming amenities, such as rooms, dining, spas and entertainment, is at a rate almost twice that of our Pennsylvania competitors,” Borgata’s Lupo said.
SugarHouse Casino in Philadelphia, one of 10 casinos in Pennsylvania and the closest one to Atlantic City, shot back that it has an array of attractions in the comps war with New Jersey.
“SugarHouse Casino has a natural advantage regarding comps,” said Wendy Hamilton, the casino’s general manager. “With the entire city as an amenity, we have nearly 70 hotels and 800 restaurants in our backyard. The possibilities are endless.”
New Jersey and Pennsylvania gaming statistics show that Atlantic City’s casinos reinvest in comps at a rate of 39.7 percent, while their Pennsylvania counterparts are at 19.4 percent for their promotional slot credits.
Perkins said Pennsylvania does have one ace in the hole. The Pennsylvania casinos are allowed to give away promotional credits, also known as free slot play, as a comp without having to pay taxes on them.
Free slot play is the primary tool for Pennsylvania’s casinos to draw customers to their doors. Atlantic City’s casinos must pay state taxes on the first $90 million in free slot play, putting them at a disadvantage to Pennsylvania in that type of comp.
“Pennsylvania’s casinos are much more reliant on promotional slot credits since they do not have the array of other complimentary amenities to offer,” Perkins said.
Gomes, the CEO of Resorts, urged New Jersey’s Legislature to amend the law to make Atlantic City’s promotional slot credits completely tax free.
“I would really love to see that changed so we could be on equal footing with Pennsylvania and other surrounding states,” Gomes said.
Perkins maintained that Atlantic City’s casinos would be wise to divert some of their comp spending to improvement projects. He believes that would make them even stronger against their Pennsylvania rivals because of the public’s pent-up demand for new, upscale attractions.
“One thing that hurts Atlantic City in the rising comp costs is the lack of equalized capital spending,” Perkins said. “Casinos need to build a must-see attraction or to build the best store in the neighborhood, so to speak.”
Lupo pointed to the nongaming amenities that casinos have been adding recently to spruce up Atlantic City’s appearance. He said those improvements show that casino spending is not just limited to comp dollars.
“Atlantic City properties are also spending millions of dollars of capital to enhance our products and stay competitive through room renovations, the addition of new bars and restaurants and new entertainment offerings,” Lupo said.
The goal of the casino industry, Lupo continued, is to promote the city and create new events so that visitors will enjoy “unique experiences beyond gaming in Atlantic City.”
In the meantime, comping is expected to continue at a furious pace to help draw those visitors. Perkins said competitive pressures and comp-savvy customers simply will not allow casinos to let up on the giveaways.
“If you were the only casino in the United States, yes, you wouldn’t have to do that because of supply and demand,” he said. “But as gaming supply has increased in the last 33 years across the United States and continues to proliferate, customers expect a reward and feel entitled.”
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