Las Vegas Sands cuts bait: Comps

By Liz Benston

Monday, Feb. 28, 2011 | 2 a.m.

Attracted to the resort’s elegant surroundings, hushed atmosphere and perks such as free hotel rooms and entertainment discounts, California resident Joy Kane was a regular at the Palazzo, gambling thousands of dollars per trip as frequently as once a month.

That three-year relationship ended two days before her scheduled arrival for a birthday getaway when her casino host called and said the resort wouldn’t honor the comped three-night stay she had reserved two months earlier. Instead, she could pay the regular hotel rate of $750 for those nights, the host said.

“That’s fine if they want to stop comping rooms, but to cancel 48 hours before our arrival is shocking,” said Kane, who owns a renewable energy company in Palm Springs, Calif. “I’ll never stay there again even if they start comping me a room.”

Late last year, parent company Las Vegas Sands boldly scrapped the promotional offers casinos typically mail to gamblers year-round to entice them to stay at their properties. The loyalty club still entitles players to free or reduced prices for amenities based on the number of points they accumulate gambling. But add-on promotions such as free hotel stays, gambling tournaments for prizes and discounts at restaurants and shows — key parts of the industry’s marketing machine — were gutted.

Las Vegas Sands CEO Sheldon Adelson told Wall Street analysts about his strategy this month: Fill more rooms with cash-paying tourists and conventiongoers rather than comped gamblers. Although the casinos’ biggest gamblers will still receive comps as enticements, everyone else — the vast majority of any casino’s customers — will have to earn their discounts by spending money at the resorts.

“No more comped rooms. No food and beverage. No showroom credits. We’re selling rooms,” Adelson said.

Industry experts say the move may make business sense for Sands, which isn’t as dependent on business from gamblers as other casinos. It was handled about as delicately as a ton of bricks, though.

It “could have done this quietly, without discussing it publicly,” said Randy Fine of casino consultants Fine Point Group in Las Vegas. “They basically gave the middle finger to their (customer) database.”

Sands also could get in hot water with casino regulators if it has revoked advertised promotions that have been redeemed with a reservation — a violation in many casino states, he added.

“Once an offer has been extended and redeemed, I don’t think you can welsh on it,” Fine said.

Behind the scenes, casinos frequently tighten and loosen comps based on business conditions. Competitors Wynn Resorts and MGM Resorts International say they have no plans to slash promotional offers across the board.

But some companies are starting to tighten up on comps after having loosened them to attract business in the recession, said Bill Lerner, an analyst and principal with Union Gaming Group in Las Vegas.

“The casino industry moves through these cycles of generosity on comps,” he said.

Sands isn’t your average casino company. It generates more than 80 percent of its earnings in Asia, where the gaming business is booming. Sands and Wynn Resorts, neighbors on the Strip and in China, are expected to hit new business records in Macau this year for Chinese New Year even as business lags in Las Vegas.

With only one U.S. casino outside of Nevada, Sands doesn’t need to use its Las Vegas hotel rooms to attract gamblers like some of its competitors, casino industry consultant Jeffrey Compton said.

“They don’t need a rewards system the same way that (Caesars Entertainment) needs a reward system,” said Compton, referring to a national casino chain that comps many of its rooms in Las Vegas for gamblers who frequent its regional casinos across the country.

Sands also books more rooms for convention groups than its Strip competitors because of the attached Sands Expo & Convention Center and extensive casino ballroom space. Adelson, who built his Las Vegas casino empire on the success of his once-dominant Comdex trade show, sold high-priced rooms to conventioneers before the concept became popular here. But conventiongoers don’t gamble, some casino bosses griped.

Although that may be true, conventiongoers pay significantly higher rates than tourists who typically reserve rooms through Internet discounters that might charge 40 percent less than advertised rates for rooms, said Patrick Bosworth of Duetto Consulting in Las Vegas. Catering banquets and other events for convention groups is a highly profitable side business for casinos, he added. Although some gamblers are quite profitable despite comped rooms, others were no doubt taking up the casino on a free room offer but not gambling much in return, Bosworth said.

“They saw their convention business (recovering) in October, sooner than others did, so they no longer needed that marginal casino customer,” he said.

Sands spokesman Ron Reese called the reduced comps a work in progress.

“In tough economic times we were comping rooms to people who wouldn’t necessarily have qualified. Looking back, we were probably too generous with our comps at certain levels. I think you can make the case, up and down the Strip, that operators have their hands on the dials to try and make sure their businesses are operated more efficiently and effectively in a challenging environment.”

Reese declined to discuss how the company implemented the cuts. “Valued” customers are receiving new offers, he said.

It’s a calculated risk, Fine said.

“At some point over the next 12 months, they’re going to need incremental sources of demand, whether in the depths of summer or Thanksgiving weekend,” he said. “Gamblers are proud of their loyalty and feel they’ve invested in the company. ... But they’re going to remember the company giving them the finger.”

Sands is likely the only exception to a casino culture of promotional comps that’s too ingrained to go away, Compton said.

He said an instructor told him in 1994 that all comps would vanish within three years because casinos can’t afford them. “But they’re too much a part of the picture,” Compton said

On paper, comp reductions appear to be working. Cutting expenses including comp offers contributed to a 42 percent earnings increase at Venetian and Palazzo in the fourth quarter of last year.

The savings will come at the expense of some repeat business, said Anthony Curtis, publisher of the Las Vegas Advisor newsletter.

“Gaming customers won’t stand for it — they’ll go elsewhere,” he said.

Kane and others have gone one further, flooding the Internet with complaints in gambling chat rooms and on the Venetian’s Facebook page, a “Boycott Palazzo and Venetian” Facebook page and Tripadvisor, a travel reservations website with a public comment section that’s become required reading for hotel operators nationwide.

Rather than pay for a room at Palazzo, Kane and her friends stayed at Aria, where she quickly signed up for MGM Resorts International’s loyalty program. Competitor Caesars Entertainment has also offered to comp her stay in Las Vegas.

“Casinos tighten up all the time ... and then give comps to people who complain,” Compton said. “At least (Las Vegas Sands) is being honest with people.”