WHY FREE CASINO CONCERTS IN 2021 IS BAD BUSINESS
THE COST OF CASINO ENTERTAINMENT – BEFORE COVID-19
It’s the 20th of June in 2020 and the pandemic still has a stronghold on the entertainment industry. And even Live Nation is begging for a better entertainment deal. Now I know everyone is hungry for human interaction, but I want to talk about the entertainment business. Before we dig and feast, realize that live concerts and casino entertainment are one of the biggest financial components within the Tribal Gaming Industry. In no way should casino entertainment be considered a small portion of, well anything. And based on what I have seen over the last 4 months, to call it vital or essential may be a stretch as well. Fiscally, pre-COVID a lot of tribal casino venues were spending $2,000,000 to $3,000,000 or more per calendar year on talent alone. If you don’t own any of your own production assets, then we cannot forget the hard production costs such as backline, sound equipment, lights, staging, and labor. Oh, and how could we not mention the internal costs such as power, staffing levels for the venue/box office, sales tools for printing or selling tickets, and more. Live entertainment is as much of the casino business as the hopefully occupied slot machine pre or post-concert. Looking at production specifically, it is not uncommon to rent $15,000 or $20,000 in equipment for a single show.
To further illustrate our point, let’s take a look at the financial impact of the cost of doing 10 shows after the common casino talent buyer gets involved. If the average talent fee for these 10 shows is $70,000 and you average $22,500 in production costs, then you will have $925,000 in these two hard costs alone. Did we forget something? Definitely, we didn’t even look at the internal expenses that are just as important or in some cases even more so. To make it easy, we can assume that the ushers, ticket scanners, event coordinators, entertainment manager, security, and unsaid event staff will cost about $10,000 or so per show. It’s probably actually closer to $15,000 (or more) after all is said and done with benefits, uniforms, and 401k contributions included. Let’s blend those figures for ease sake and call it $12,500 per show in internal manpower. Finally, if we multiply that by 10 for all of the shows in our example, we end up with a total of $125,00 in internal labor costs. That’s right, these figures are real! As a side note, casino concerts and casino entertainment should be viewed as a business (like any other part of your casino), not an empty whole you continuously throw money into without considering the financial burden. The only other expenses remaining are hospitality-related items like, hotels, transportation, and ticket scanning/printing equipment which is amortized over time. For that, let’s say on average each show has 8 guys who need their own hotel room, two of them want their own vehicle for the duration and they all are okay with the same $500 if food costs as requested hospitality items from the rider. Presumably, the artists and crew aren’t staying at the Motel 6. This means a room is going to be at least $125 per person per day and most tours require at least two days. Now the shuttle/limo service will be roughly $90 a run and most shows have at least a dozen runs from beginning to end. To sum it all up, the estimated hospitality and transportation cost for the assumed 10 shows will add another $35,800 to the deficit. In total for 10 shows, we are looking at $1,085,800 in expense.
That is no small bite to chew! Is that the real cost of producing 10 shows though? Not exactly. We as operators do get to see some of that come back in ticket revenue. This is what we are going to talk about next but before we do let’s continue to dissect the actual cost of doing business in casino entertainment. Now, you thought I was done piling on the expense gravy, but I am actually saving the best for last. The talent buyer fee. That’s right we are not done yet! Nowadays casino talent buyers are paid 7.5% to 10% of the artist’s fee. So if we are going to be conservative, we can assume that the buyer of these two shows is receiving 7.5%. In short, the casino talent buyer could be making as much as $52,500 for the 10 shows. This brings our total to a cool $1,138,300. Are you ready for dessert yet, or have you lost your appetite? Do even you think you will be able to return to selling full capacity anytime soon?
CONCERT TICKETS IN TRIBAL CASINOS
This is where things get interesting. And for me, also a bit fun. I enjoy talking ticketing strategy, metrics, and the occasional industry disruption. After all the three go hand in hand. All that aside, event ticketing is the lynchpin in casino concerts and entertainment operations across Indian Country. The sad part is though, many operators are stuck in lengthy and expensive Ticketmaster contracts. Not only is that approach killing their bottom line, but it is also causing them to lose control over so many important elements that could help their venue be more successful. Instead of revealing all of my secrets to using a better ticketing platform to be more successful while event planning, I am going to touch back on the financial impacts of the 10 shows on the aforesaid paragraph. This summary will help you further understand the cost of casino entertainment and what is happening in tribal casinos. In regards to the 10 shows, let’s assume your venue has 1,000 seats. That’s great right?! You open all 1,000 seats and they sell out the day you announce. Not the case, hardly ever. In fact, unless you are on the cutting edge of what is happening in the entertainment world, your shows are likely to have a less than lackluster sales velocity. And even then, if you catch someone like Jo Koy and hire him right before his Netflix special airs, you will be paying a premium. Regardless, let’s say 3 out of the 10 shows are a total slam dunk and are sold out the first week. That is great right? You have made back roughly 3/10ths of your $1,138,300 expense, right. Not really, nice try though. Let’s dig in a little deeper here. Let’s pretend that all 3 shows were of higher value and more popular so they cost $100,000 apiece. From there we can assume the rest were lower to help balance out the $70,000 average we mentioned. Now since tribal casinos are overpaying the artists almost 100% of the time, these $100,000 acts are groups like Jeff Foxworthy and The Beach Boys. Those are fairly recognizable acts, right? Sure, but how high of a premium are you willing to pay for a front-row seat to see him?
Take a look at example #1
This is the type of scaling tool that we provide our clients at SEG. Here you can see a fairly priced ticket in the P1 category that is listed at $69.99 with about $13 in fees tacked onto it. For Jeff Foxworthy at this point in his career, that’s about as much as you are going to get. In fact, that might be a little high considering what you could go see with the same amount at a different venue. Now it is important to also note that if you are using any other company than Ticketmaster, the service and delivery fees are all yours. That isn’t the important part though. Here we are looking at the results from a sellout situation. When we say sell out, that’s what we mean. We aren’t talking about a show that didn’t sell that well so we piled a bunch of lower-tiered players in the room to fill seats, because that my friend, will severely impact your entertainment program and you can bet that those same guests will not want to buy tickets moving forward. In fact, what you will have started is a chain reaction and a cycle that is near impossible to break.
If you fill the room with COMPS every time a show doesn’t sell, you will set the standard that all you have to do is wait until the event gets closer and the COMP will come to you due to low sales. I have seen it many times, and many casinos still adopt that strategy. Sure a full room looks nice and full, but the play is anything but substantial. Any of the perceived lift is likely robbed from their play earlier in the week. After all, a player only has so much money to play with most of the time. This is why incremental gaming revenue is like the golden ticket, it’s tough to acquire. Regardless, the show sold out here. Great job! Now all these retail customers are going to hit the slot machines, right? Not really. If you sold that many tickets to that many new customers, it is very likely that the gaming revenue generated would be in the hundreds, not the thousands. Don’t believe me? Well, that’s okay, because you probably aren’t going to be able to sell 1,000 seats to Jeff Foxworhty anyway. That wouldn’t make good business sense either since you are a casino and the only two reasons you should host a concert is to reward your current high-level players or to acquire new players. Anyway, you are looking at a loss of nearly $20,000 just from not recouping the talent fee in ticket sales. This is what I am talking about. Talent buyers and agents love to pretend like they know what they are talking about but the reality is, we are in the concert business. The event has to be profitable on the front end in ticket sales, otherwise, your venue will have a massive deficit at the end of the year and I guarantee you that no amount of gaming revenue will make up for it. If you can’t make a $100,000 act pencil, what makes you think you can quantify the $1,000,000 loss in your entertainment program at the end of the year?
Take a look at example #2
In the second scenario, we have allotted the perfect amount for COMPS and assumed they added a pretty sizable lift to the night. 15% of 1000 seats are 150 COMPS and that is perfect if you want to maximize your ticket revenue (which is guaranteed). You can work with that ratio too and add more if it makes sense and higher level players are wanting seats to the show. It is also important to note that the show wasn’t sold out and the venue did not fill the empty seats with additional COMPs. This is closer to what should be happening in casino venues. Although $30,000 would be an amazing night for actual COMP revenue on 150 guests. You are more likely to see $10,000 or $15,000 or so. It depends on the group of players, the time of year and day of the month. Other factors like politics, stock market swings, and other regional factors come into play as well.
Also, if a show has been there more than once or the type of show only appeals to a certain type of person, you could be missing out on the real gamers. Many high-level players avoid the casino on concert night due to the sheer increase in volume. Most nights you will see a mass exodus as retail concert-goers tend to leave directly after the concert. There is some value in having them present in the venue since it helps reinforce the brand and could eventually foster a new player after enough visits. I mean they dressed up nice, bought the ticket and drove all the way to your property so, in essence, they are halfway there to being a gambler. But the reality is, they just want to go home usually. In the end, you still are missing $12,000 of your talent fee here, and if you spent $100,000 you would want to recoup that in any other venue. If your talent buyer was getting paid off the door or had skin in the game, the results would be much different. For example, you might see the casino talent buyer haggle for a better price. Or they might actually help advertise. Additionally, the buyer could offer a lower guarantee, with a back door bonus based on a threshold of sales.
There are all types of ways to spread the risk across multiple parties, but in casino entertainment, most buyers focus on a flat deal because they are paid the same no matter what. They may not get to keep their job at your particular venue forever, but they sure will make a killing in the process. If you repeat the loss over the course of all 10 shows you can see how the loss starts to add up. Now to be clear, a $10,000 loss isn’t that bad. We are seeing much worse on a per-show basis all across Indian country. Don’t forget we didn’t even consider the other hard costs we spoke about. The other $200,000 + in production, talent buying fees, and internal labor costs almost never get recouped in a lot of properties. Some chalk it up as the cost of promoting their brand or doing shows in general. This is the number one reason you hear entertainment programs at casinos referred to as loss leaders, and also a good reason why more free shows are simply not a good idea.
WHAT DOES THIS MEAN FOR THE FUTURE OF CASINO CONCERTS?
I manage a casino entertainment program for my tribe in Washington state. This means I am present, onsite, and as involved in an entertainment program as you can get. Sure buying talent for other venues allows you to also be involved (kind of) but in that role you are mostly shuffling papers, updating your calendar, and managing expectations for agents and venue representatives. Unfortunately, nearly all casino talent buyers have never worked directly for a casino or on the casino floor. With this level of disconnect outside of the industry, of course, we are going to hear some new and interesting concepts for casino entertainment in 2021 coming from buyers. If you cannot comfortably speak to the core objectives and understand what really drives business, then it is very unlikely that you possess the ability to speak to the common gaming metrics used to define such an industry. This is especially true in the era of the COVID 19. Unless you have reopened a casino or concert venue during this time, you can only guess what the results will be and will be on the offense until the options present themselves. My guess is that most of 2021 will be impacted severely based on current sales velocities. Some of the shows that we had on sale before the pandemic were rescheduled, yes, but then they were rescheduled again.
This is a weird trend to continue and will start to get old quickly. Patrons need their money more than ever, and even Ticketmaster is offering refunds. To assume things will pick up in less than 12 months is ignorant and it really gives us an inside peek at the way people think. It is one thing to remain hopeful, it is another to navigate through life oblivious to what is happening outside of your immediate line of vision. If you are a business owner that pays a handful of employees, you are for sure thinking about what is going to take to keep things afloat. I mean, we all know the extra $600 unemployment benefit isn’t going to last forever so it will be challenging for those who are relying on it after it is exhausted. If a casino can’t keep its doors open and sustain business at the right levels, then they will have to start cutting ties. During these times they for sure aren’t thinking about how to throw elaborate promotions or huge concerts either. As the world started to close down due to the deadly COVID-19 pandemic we saw a significant drop in ticket sales. We also processed refunds for cash ticket sales while the entire casino was closed because we knew the importance of taking care of our faithful concert-goers. Of course, rescheduling a concert, the first time makes sense, but after two or three times it has confused and irritated the ticket holder. And this is especially true if the show they purchased tickets for is now 13 months away from the original date of purchase. Additionally, we saw a fierce demand for refunds almost immediately.
We even still get requests for refunds and process them happily, because as much as we want the money, we want a stable community more. And that means refunds are part of that stability. If one couple less comes to the Criss Angel show but gets to eat dinner for a week, I am all for it. The fact remains, it isn’t about continuing entertainment to get paid. It is a matter of helping humanity regain control of their lives and providing a safe place for them to enjoy themselves when it is appropriate for everyone. In fact, I read an article recently from an unnamed publication. The author mentioned doing more “free shows” to help drive traffic and stimulate gaming. First of all, we all know value begets value so a free show is only going to amplify the deficit we talked about previously. Throwing money on the whole only makes the hole bigger. It also has that ripple effect we mentioned where people eventually don’t come because they wait for the freebie. Maybe the author should read the first paragraph of this post and revise his copy? Sure casinos could drop the caliber of the type of artists they book down 50% but all casinos are already overpaying for B, C, and D level acts who are running the casino circuit like a hamster on an infinity wheel. And we are still losing money! Remember tribal casinos saved these heritage acts from complete extinction. I will leave names out, but some agent(s) floated the idea of a “casino price” and casino talent buyers then took it and ran like a thief in the night knowing that most tribes aren’t aware of the fair prices other non-casino venues are charged. This created the pig pile effect. Instead of casino talent buyers trying to change it, and working together for the common good if Indian country and the tribes within, they continued the onslaught of gouging.