Tangam releases a new article: Baccarat Revenue Management

May 14, 2013

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Yield-management strategies to drive Baccarat performance

By Tangam Systems,

Executive Summary

With the global rise of the Baccarat family of games, maximizing the game’s performance through yield management seems to be on every table games executive’s agenda. The term “optimum table games utilization” is used widely but due to its complex relationship with revenue and expenses – has often been misunderstood or misinterpreted - causing detrimental effects on the game’s profitability. Common questions in the area of Baccarat yield management strategy include:

(1) What is the optimal utilization model?

(2) How does one account for the unique gaming behavior of Baccarat patrons including run-chasing, hot/cold table action and social dynamics?

(3) What factors impact patron net contribution (profit per patron)?

Tangam Systems analyzed data from 19 casinos across four geographic markets. The analysis revealed insights which include the impact of utilization on player seating distribution, unoccupied tables, play-time, game speed, and ultimately their combined impact on profit. This article illustrates some of the insights in the context of a specific casino, based on head-count and player ratings data representing over 51,000 player visits equivalent to a $500 (HKD) minimum bet mass-market Baccarat segment. Patron data reveals that the distribution of patron seating plays a unique role in the determination of optimal utilization. For example, when the average utilization for the patron segment is 5 patrons per table, the actual seating distribution of players shows that 42% of players are playing at tables with occupancies 9 or higher, and only 27% of players experience a table occupancy of 4-6 patrons per table, while 9% of tables are unoccupied. The negative effects of table occupancy on game speed have been well documented; this study also demonstrates that increases in table occupancy beyond a certain point result in measureable reductions in patron play-time of up to 15%. For the dataset in question, the combined result of these variables translated to per-patron net contribution (profit) peaking at $268 (HKD) per visit, at an optimal target average utilization of 5 – inclusive of labor rates and tax reductions. There is a 22% decline in net contribution going from average utilization level of 5 to 8 – a situation that can occur on a gaming floor during peak demand periods if spreads or limits are not managed diligently. Conversely, there is a 13% decline in net contribution going from utilization level of 5 to 3, as revenue gains are not enough to offset the increased labor expense consumed per patron. Applying the impact of optimal utilization for this patron segment into financial terms, a minor utilization level correction from 8 to 5 players results in an additional $5.9 million HKD in profit for every 100,000 patron visits – a 22% improvement in profits. Conversely a departure from the optimal utilization from 5 to 3 leads to a $3.5 million HKD reduction in profit, an opportunity loss of 13%.In the development of an effective yield management strategy casino operators must include the following activities:

(1) Segment the patron base and measure/analyze the impact of utilization on play time, actual distribution of player occupancy, unoccupied tables and game speed.

(2) Build net contribution models incorporating the multiple dimensions subject to utilization, for each patron segment.

(3) Apply these net contribution models to manage the game mix, table spread and table limits in order to maximize overall net contribution.

When player supply exceeds table or labor availability, these net contribution models can be used to quantify opportunity costs with respect to each patron segment, and to adjust spreads/pricing to cater to the most valuable patron segments at the appropriate utilization levels. For further insights into the data and strategy see the complete publication by Tangam Systems below. Full Publication

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