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The Power of Loyalty

Insight | Analysis

Loyalty programs could be an untapped goldmine for casinos as they take greater control of their online destinies. However, successfully leveraging these player databases is far from simple, and there is no clear strategy for doing so. By Robin Harrison

In 1995, Caesars Entertainment conducted an experiment where a busload of players were given $20 to spend at one of the operator’s Atlantic City casinos, and a green sombrero.

Using the distinctive headgear to monitor players in the venue, the operator was able to ascertain that those given the perk of $20 spending money gambled enough to make their visit profitable.

This example, as reported by CDC Gaming Reports and recounted in 2018 by then-Caesars vice president of marketing operations Marilyn Janssen, aims to show how far the industry has come in how it tracks and analyzes player behavior.

But it could easily be argued that casino operators are still not making full use of the data available to them. Nor have they had the opportunity to do so.

At a time when the likes of FanDuel and DraftKings have successfully leveraged their daily fantasy databases to carve out early leads in most states, the casinos have tended to operate as licensing partners for third party igaming brands. This means few have brought their loyalty programs into play.

Like the daily fantasy databases, casino loyalty programs comprise largely of engaged customers that have spent money gambling with the operators. Unlike the daily fantasy databases, loyalty data gives much greater insights into player habits beyond gambling, including eating and entertainment preferences. This could be leveraged to acquire and engage players online, rather than just in-venue.

Yet, according to Corey Padveen of t2 Marketing International, the way this data is being used is largely superficial.

“[Operators], especially land-based casinos, are sitting on mountains of under- or entirely unused data, and they have been collecting it for years, with little implementation beyond some superficial offers or deals,” Padveen says.

As American iGaming Solutions’ Jason Rosenberg adds, only the market leaders can segment that database into the most valuable clients. Smaller casinos simply don’t have the skills or the resource to drill down and extract value from their data. For these businesses, physical mail is often the extent of their engagement and retention efforts.

In short, things have perhaps not moved as far from the green sombreros as the industry may hope.

Rewarding, not creating, loyalty

Even in the land-based setting, for an audience primarily composed of slot players, the programs appear to be focused on rewarding loyalty, rather than creating it.

“A lot of effort has been put into nurturing so-called whales, but loyalty, ironically, has never seemed to be as much of a focus with smaller scale players, and non-gamblers,” Padveen points out. “If data were being housed in a single database with key segmentations and correlations being audited on a running basis, operators would see a significant rise in visitor loyalty and revenue per visitor.

“By expanding the customization and personalization of each player’s visit to the property through this strategic use of data, even marginal increases in revenue per visitor would have a major impact on the bottom line.”

As outlined above, many operators often lack the know-how and resource to effectively segment their database. And the focus on the land-based high spenders means the core igaming demographics of Generation X and millennials are often overlooked, according to Padveen.

Does this mean loyalty programs, despite having tens of millions of names—more than 60 million in Caesars’ case—are perhaps not overlooked so much as they are not as useful or costly to leverage?

Not in Rosenberg’s eyes: “Even though the majority will be slot players, some of them will have been betting on sports from offshore for the past 10 years. They’re also going to have some crossover, such as the guy who plays blackjack while his wife is playing slots, so you can cross sell some people.

“It’s definitely the first place you want to start. They play with you, they know your brand, they are going to be by far the easiest players to capture in a new vertical.”

But it’s a place to start, rather than finish. Social media campaigns, pay-per-click buys, convergence marketing and promotions will all be necessary to extend the brand’s reach.

It’s this additional investment that often ramps up marketing spend to the levels seen in the early years of the US gaming expansion, he continues. “As soon as you go beyond [your database], that is where these [brands] are playing all that money for acquisition. You have a database who know your brand and have expressly signed up for it. It’s much easier for an established US brand to acquire those players.

“If I am operating in Topeka, Kansas, but I want to go across the whole state, I am going to see acquisition spend soar,” he adds. “There is huge value in the database, but it’s how it’s marketed and how far it goes.”

Sitting on the Sidelines

While there is value in the loyalty program, they have not yet been thrown into the action.

BetMGM, the joint venture between MGM Resorts and GVC Holdings, is one of the few to do so, though its integration with the M life Rewards program was only completed in August this year.

GVC has been particularly bullish about what this can achieve, saying the deal would position the “BetMGM brand in front of over 34 million loyalty customers and providing them with unique rewards as a part of their betting and online gaming experience.”

Through that integration, complemented by its partnership with Yahoo Sports, GVC believes it can cut cost per acquisition to the range of $0-150, compared to a $200-550 CPA for customers acquired directly and through affiliate partnerships.

Aside from BetMGM, examples of land-based operators going all-in are few and far between. Penn National Gaming’s deal with Barstool is probably the most striking example, while other outliers, such as Rush Street Interactive or Golden Nugget Online Gaming, are also notable for carving out (to date) highly localized rather than national market share.

As operators have tended to allow online brands to launch under their master licenses, rather than launching proprietary brands, loyalty program access appears limited, though Padveen says that data sharing and syncing in partnerships is “not uncommon”.

“[Too] often, those insights are segmented and siloed in distinct containers,” he adds, however. “As such, any insights that could be gleaned by looking at the data as a cohesive whole is largely lost, and inferences have to be made with what the data tells the operator as opposed to identifying statistically significant opportunities.”

For the online operators that partner the land-based venues for market access, they only gain access to a small percentage of the loyalty database which, as Padveen says, limits the value of the data it contains.

Even rivalry between suppliers can limit the view of each player. Rosenberg points out that the major technology providers “do not play well in the sandbox together”.

He says it’s similar to the early 2000s in Europe, when the major suppliers often gated their platforms, meaning that each site only had content from one partner.

“But those guys figured out that players will gamble across multiple providers on one platform,” he adds. “That hasn’t happened here yet.”

An online platform will often have no connection to a casino’s land-based technology, he explains. Therefore, if a separate supplier provides the loyalty technology for the brick-and-mortar business, the online platform provider may not have access to any of this data, further reducing the view of each customer. This means that a one-off fee—often “a ridiculous amount of money”—will be required for a proper integration, not to mention a six-month development phase.

“So it is absolutely prohibitive for the operator to understand what the player does when they gamble online, and what they do in the brick and mortar,” Rosenberg says. “This is a key area; how do they get a 360-degree view of the player, when your providers are not fully integrated?”

Hard Rock’s senior vice president of online gaming Kresimir Spajic has previously told iGB North America that most of the deals are only done for access to databases and consumers, rather than from any major desire to enhance and grow.

“I think currently the focus is a land-grab for consumers, rather than doing partnerships based on what each brand represents,” he said earlier this year.

Rosenberg seems to concur, noting that half of American iGaming Solutions clients are “operators that want to get it right at the beginning”. The other half? “Operators that thought they could do it alone, and now need us to clean it up.”

He says that if an operator’s only tactic is to act as a licensing partner to allow online brands into the market, they are creating a new challenger to their brand. One that may quickly swallow up any proprietary branded product’s market share.

“So the only option is to funnel the loyalty database with some unique identifier and take a certain percentage brought in from the database, plus a small percentage of revenue share—that’s how they’re going to get paid in Pennsylvania,” he explains. “It’s extremely short sighted, because in two to three years, you will only see one or two [land-based operator brands], as they are going to be crushed by the online providers.”

Rosenberg notes that many venues struck agreements years before they could be executed, as in, before legislation was passed or enacted. And a partnership that sees an online provider paying a chunk of the land-based operator’s online license fee and contributing to the cost of constructing a retail sportsbook may even appear a masterstroke at the time.

“The executive that does that deal is going to look great and everyone is going to be happy with them until four years later, when they are managing a different venue and that property is stuck with a product no one plays.”

Total Control

It’s having a direct ownership of both the data and how it is used that appears to be key for land-based operators. In the case of Penn National Gaming, its chief executive Jay Snowden has been very bullish about the value of its mychoice program as it launches its proprietary Barstool Sportsbook.

“We believe that’s going to be the strongest loyalty program in the space because it’s going to be the only program that is wholly owned by the operator and [that] we deploy on a wholly owned channel of business,” he said following the company’s first half results.

“Mychoice is already connected to our social gaming product, it’s already connected to our online casino real money wagering in Pennsylvania and by the end of this calendar year, we’re going to have it also part of our Barstool Sportsbook app,” Snowden said.

“So as you think about how that program evolves, it’s not going to be maybe as most loyalty programs in the casino space have been for many, many decades where it gets you freebies, the free buffet or cashback at the machine. I think you’re going to see the offering and the experiences that we’re allowing people to redeem their points on are going to be tied in very well.”

Penn National believes that by converting 5% of Barstool’s 66 million readers into bettors, and 5% of the five million mychoice members to sports betting and igaming, it can achieve annual revenue of $2.6bn, and earnings of $800m at maturity. This would equate to a 13% share of the US market.

Snowden even claimed that the operator was seeing a younger demographic sign up for mychoice, even before it was integrated with Barstool.

Penn National’s approach may indicate the start of a wider trend—especially if it taps into that younger demographic—in which operators look to ‘close the circle’ by bringing online betting and gaming assets in-house. This is certainly evidenced by Caesars Entertainment’s £2.9bn ($3.7bn) bid to acquire William Hill.

This would make the British operator Caesars’ betting and igaming brand, and one which it believes could generate $600m-700m in net revenue in 2021. Key to this would be the brand being granted “new and complete access” to the Caesars Rewards program, and its 60 million members.

“We believe this synergistic relationship will benefit all customers with integrated benefits across various elements of gaming and entertainment, allowing customers to earn tier status and Caesars Rewards that can be used at all of Caesars’ land-based and online properties, helping to improve customer experience, reducing churn and increasing customer wallet share.”

Such is the opportunity that Caesars is effectively buying to sell. While it said William Hill’s non-US businesses “have a strong future”, Caesars said that should the deal be agreed it would then “seek suitable partners or owners” for the non-US operations.

This may be influenced by online becoming an increasingly important element of casino operators’ overall entertainment experience, especially in the post-pandemic reality. Increased ownership may allow loyalty programs to be leveraged more extensively in the online channel, bringing in a wave of innovation in how they are connected to the wider entertainment experience offered by operators.

“We are at an inflection point right now as it relates to the future landscape of gambling, casinos, and, as a result, loyalty programs,” Padveen says. “If we can expect loyalty programs to increase in value, then the data they comprise needs to be used in an effort to extend the casino experience beyond the brick-and-mortar locations.

“Communication and player engagement are essential, but personalization holds far more power in terms of building loyalty. The potential to tie loyalty programs into Artificial Intelligence-powered engagement platforms is a fast and relatively simple way to begin to extract their value, but the outlook as it stands needs to be long-term and transformative.”

This, he says will largely hinge on the loyalty brands providing value for players through more channels than on the casino floor alone.

It could be that Boyd Gaming’s B Connected sportsbook in Nevada is an early example of this, in that it is a real-money betting product branded for its loyalty program. The argument is solid; if customers increasingly use an app for more and more elements of the post-Covid casino experience, from ordering food, to unlocking rooms, why not add real-money gambling?

Rosenberg, for one, is unconvinced: “Here in Las Vegas, everyone knows what B Connected means. You go next door to California, and no one will know what B Connected means.”

He argues that the major operators, brand recognition for loyalty programs is lacking.

“With the exception of Caesars and MGM, there’s not really a lot of shared loyalty clubs where somebody would recognize what another’s is called. Everyone knows Caesars is Caesars Rewards, and MGM’s is M life, but what’s San Manuel’s? Or what is Pechanga’s? I don’t see that being as big of a play; maybe for the major [operators], but I think they will separate the loyalty brand.”

Padveen, on the other hand, argues that now is the time to test these initiatives, arguing that they could potentially serve as the focal point of an omnichannel approach.

“By integrating the loyalty system into social media and digital content strategies, there are opportunities that exist today that can help operators build loyalty both within the brick-and-mortar establishment as well as online and on mobile,” he explains.

“Connecting with players and visitors wherever they are and whenever they want to engage is crucial to firming up loyalty to a brand, and with the tools and resources that currently exist, it can be used by brands much more immediately than they might think.”