Las Vegas

Slot Machine Economics

You can't get a decent meal on the strip in Las Vegas. You can get a very good meal. Or you can eat at McDonald's. There's nothing in-between. Here's why.

Consider a gambler playing a dollar slot machine. If the machine has a 95% payout, then on average, she loses a nickel each time she pulls the handle. If she pulls the handle every 10 seconds, then she loses 6 nickels per minute, or $20 per hour.

This means that it doesn't make sense for the casino to offer any other product or service unless that product can generate $20/hour/gambler in revenue. If dinner takes a gambler off the casino floor for 90 minutes, end-to-end, then dinner for two has to cost at least $60. Tickets for a 2-hour show have to cost at least $40. And an in-room movie for $10 is obviously a non-starter.

But what about McDonald's?

More to the point, what about those $5.95 ALL-U-CAN-EAT buffets that the casinos run? Buffets represent a complementary strategy. They aren't designed to maximize revenue, but to minimize the time that the gamblers are off the floor. Casinos herd gamblers into buffets by the hundreds, pump them full of food, and send them right back out to gamble some more.

Tethered to the machine

Casinos like to track how much gamblers wager. Among other things, they use this information to decide how much to comp them.

If you go to Las Vegas, you'll find that most of the floor space in the casinos is now given over to slot machines. To track slot machine wagers, casinos encourage gamblers to join slot clubs.

When you join a slot club, the casino gives you a card with a magnetic stripe on it. Before playing a slot machine, you insert the card into a slot in the front of the machine. The magnetic stripe on the card identifies you, and allows the casino to record how much you wager.

Now, you wouldn't want to lose your slot card, so many gamblers wear them on cords around their necks. When they sit down in front of a slot machine, they just insert their slot card and start gambling. So the casino floor is filled with gamblers, each tethered to their own machine, feeding it money...

People Movers

Las Vegas is big. The streets are big, the hotels are big, the casinos are big. Big, Big, Big. Huge. Gargantuan. It's part of the image, it's part of the attraction—and, of course, it's part of the profit. The more gamblers a casino can fit inside, the more money it can make.

Casinos currently being built on the strip aren't just casinos. They are hotel/casino/shopping/entertainment complexes. The buildings are many stories high, with a footprint of many acres and hundreds of meters of frontage.

When you build something that big, you can't site it right on the street. It would look out of proportion, and there wouldn't be room for the landscaping. To look right, these buildings need a setback of least 100 meters.

But 100 meters is a long way to walk, especially for the old and infirm. So the newer casinos install people movers to carry people between the sidewalk and their entrances.


very good
or, at any rate, very expensive
The casinos effectively control the strip, if only by owning most of the land.
complementary strategy
in addition, buffets
comp is short for complementary. Casinos give gamblers free things—drinks, meals, show tickets, hotel rooms—in order to attract their business. Casinos typically try to provide comps equal in value to half of the gambler's losses.
record how much you wager
in just the way that "discount" or "preferred customer" cards allow retailers to record what you purchase
lose your slot card
for example, by leaving it in a slot machine
old and infirm
who constitute a significant portion of the casinos' customers
people movers
long, horizontal conveyer belts, like the ones that carry passengers in airport terminals

Steven W. McDougall / resume / / 2001 Jun 05