By Published on .

Hotels as a loss leader for casino operations will be as common as a 15-round heavyweight bout now that some of the nation's biggest hoteliers are vacating the $14.1 billion gaming industry.

"Hotels [as part of casinos] now have to be profit centers. An empty room can't gamble," says Marc Grossman, senior VP-corporate affairs for Hilton Hotel Corp.

Casino/hotel operations traditionally use marketing as a means to fill beds, but they've done it by discounting or offering free rooms, food and drink. These promotional allowances, measured as a value of the giveaway at retail, are heady: Last year, Harrah's Entertainment Corp. gave away $127 million, equal to 10% of casino/hotel sales.

Hilton distributed $36.8 million in freebies (2.6% of sales) and Resorts International, $27 million (7.6% of sales).

Such marketing expenditures are in addition to media advertising, about $68 million being spent in national media by the industry and countless more at the regional level or in extensive direct mail.

Harrah's split from Promus Cos. in the last year; ITT Sheraton's gaming side was jettisoned, and Hilton's relatively small gaming unit is about to follow suit. By contrast, hotelier Hospital Franchise Systems just entered gaming. In general, Wall Street blessed these splits because casinos were seen as depressing share value of the hotel parents.

Casino costs, including promotional allowances, are a factor. Cost of capital requirements for casino development, for example, typically are much higher than for hotels.

Hoteliers could only expand casino operations into existing gaming jurisdictions in nine states. New areas are subject to the whims of courts, legislatures and electorate not to mention politicians using gambling as a foil for society's ills.

Marketing will drive these castoffs more than ever, but freebies and junkets will be more finely tuned to the "valued casino customer," according to an industry observer.

"Casino marketing has come a long way beyond just identifying frequent players..... it is determining needs, wants and playing habits," says Scott Renner, a casino analyst for Salomon Bros.

Marketing is particularly strong on the slot side.

"With slot technology, we can monitor players," says Jim Seagraves, VP-marketing and advertising for Stardust Hotel and Casino, Las Vegas. "You have to because everyone has a competitive playing system."

Just as hotels know which of its guests like a non-smoking room with king-sized bed on floors five through 10, casinos know from database files who plays which machine the most, for how long and for how much.

These data are collected on slot players who activate their club datafile when inserting plastic cards into slot machines. The customers build points (and amenities) based on their playing level; points earn gourmet meals, hotel rooms, trips, etc. A slot player's loyalty to a particular casino runs as deep as the amenities served up by the casino.

"Slot clubs compete by understanding their customer," says Karen Von Der Brugge, VP-strategic marketing for Harrah's, which gains profile data on customers when they apply for slot clubs. "You know to send them an invitation to a boxing match or golf tournament."

Hilton and others don't just target high rollers, but recognize the need to fill the casino hotel's beds with potential players. So they target the convention trade to fill in the gaps.

"But conventioneers aren't the best gamers," says Mr. Grossman, although noting that "several [types] are, like car dealers and home builders."

Apart from the differences between hotels and casinos on the operating level, cross promotion has been strong.

"We have 3 million Hilton Honors [hotel guests] members that we cross promote," says Mr. Grossman. "You can bet they know about the improvements at the Flamingo [Hilton's Las Vegas casino]." When Hilton's split is complete, the marketing relationship between hotels and casinos will continue, Mr. Grossman says.

Hotels nonetheless remain a bait for gaming tables at some casinos.

"To us, a hotel is an amenity. We promote like a hotel only to bring people into the casino," says Steve Rosen, VP-corporate marketing, Caesar's World. "We take table expertise to the hotel."

Most Popular
In this article: