Quick viewing(Text Mode)

Coin and Currency in the Casino Industry

Coin and Currency in the Casino Industry

FINAL 11/15 Design.ps - 11/15/2005 4:25 PM

Coin and in theCasino Industry FINAL 11/15 Design.ps - 11/15/2005 4:25 PM FINAL 11/15 Design.ps - 11/15/2005 4:25 PM

big business – or parts of bigger business- an accommodating home in by Bright blinking es. is still the main draw, but the the 1930s. has remained the nexus industry is seeking to broaden its appeal of gambling in the , but casi- lights. Flashy floor and attract more people with big-name nos have emerged in other areas across shows. entertainment, high-end shopping and the country, notably in Atlantic City, N.J., celebrity chef restaurants. Casino opera- and along the Gulf Coast of Mississippi. The whirring wheels of a slot , the tors want to bring in new customers, a click of chips on a table and the younger and hipper crowd lured by Since is the business of the Federal rattle of a ball it skips round and round vibrant nightlife. At the same time, the Reserve, what do the changes in the casi- on a spinning wheel. games are changing. has emerged as no industry mean for the Fed? This report a popular part of the casino experience seeks to understand the use of currency The sights and sounds bring to mind the and new electronic games are incorporat- and by the casino gaming industry. stereotypical image of an American casino ing innovative that relies on We will discuss growth in the casino – bustling, loud and exciting. And central the latest ways to manage money. industry, examine the impact of techno- to it all is money – the spilling from logical advances on the casino industry’s a slots jackpot, the chips piled up by card- Gambling’s history in the United States use of currency and coin and seek to players and the every gambler wants dates to Colonial times and has evolved understand the impact these topics will to walk out the door with. along with the country, affected by have on financial institutions and the changes in political, social and geographi- Federal Reserve Districts that service the But that classic picture is changing. Just as cal boundaries. Over the centuries, various industry. the iconic Hollywood vision of Vegas has forms of gaming have seen their populari- been updated – with a new “Ocean’s ty rise and fall, including , race- Change has already occurred. The coins Eleven”crew replacing the Rat Pack of the tracks, casinos and riverboat gambling. that fed slot are rapidly being 1960s – the gambling industry is undergo- Once centered in the East, and later along replaced by bills. And the winnings from ing a remake. Casinos are no longer just a the Mississippi River, gambling moved hitting the jackpot are paid out first on a place to come to bet. They have become westward with the Rush and found bar-coded slip of paper, not with the FINAL 11/15 Design.ps - 11/15/2005 4:25 PM

rattling jingle of coins falling into a hopper. Since that time, the industry has explod- A study that analyzed discretionary The money is the same, but the payout is ed. Commercial casinos now number spending showed that, for Americans, different, both symbolically and in reality. more than 445 and are found in 11 states. casino gambling ranked fourth, following And, Native American tribes have opened the amounts spent on fast food, Internet A rapidly growing more than 400 gaming establishments and cellular phone services, and cable industry. in 28 states since Congress first approved television. In 2004, commercial casinos tribal gaming in 1988. Five states allow and Native American casinos generated In recent years, the gambling industry has “convenience gambling” in places other more than $47 billion in gambling undergone phenomenal growth in the than casinos, such as bars, restaurants, revenue. Over the past decade, commer- United States. Looking back only as far as convenience stores and racetracks. Poker cial casinos reported an increase in this 1978, the landscape of gambling appeared is enjoying new popularity and there are benchmark figure – known in the industry lonely. The only places with legal casinos more than 446 card rooms in five states as gross gaming revenue – from $16 were Las Vegas and Atlantic City, which that have no commercial casinos. Forty- billion in 1995 to $28.9 billion at the end began operating its casinos that year in an one states operate lotteries and 43 states of 2004. At Native American casinos, effort to revitalize its seaside . There allow pari-mutuel wagering. Another the growth was even more dramatic, was no Native American gambling and 11 states have approved legislation to although the numbers were not as large. only a couple of states operated lotteries. A permit , racetracks with electronic During the same period, gross gaming few states allowed pari-mutuel gaming, gaming devices. Just two states – Utah revenue at those establishments more where the winner’s share is paid from the and Hawaii – do not allow any form of than tripled, from $5.5 billion in 1995 pooled wagers. gambling. to $18.5 billion in 2004.

The days of coin as king in the casinos are gone and while cash may be king for now, it won’t be long, maybe 5-10 years, before and other forms of electronic currency become the dominant form of exchange. FINAL 11/15 Design.ps - 11/15/2005 4:25 PM

With such an increase in gambling The economic boom experienced by opportunities and venues, the number of casinos makes it plain that gambling has Gambling markets people taking part in various forms of been transformed into a major American gambling is growing at a rapid pace, too. industry, generating revenue for the Of the three areas that lead the nation The American Gaming Association report- companies that own casinos, jobs for in gambling activity – Las Vegas, ed more than 51 million casino visitors in the employees and a very substantial – and Atlantic City and the Gulf Coast of 2004, each one averaging about six visits. welcome – tax base for state and local Mississippi – the most popular is Overall, 35 percent of Americans took part governments. But the same money that Las Vegas. The city is home to 14 of the in casino gaming that year, which was lures gamblers looking for a bonanza 15 largest in the United States nearly one-third more than the previous payday also prompts some to worry about and they average a 92 percent occupancy year. Interest in poker increased, too, from a potential downside to gambling’s growth. rate. In all of Nevada, more than 12 percent of Americans betting on a hand Opponents of gambling characterize it as 180,000 electronic gaming devices and of casino poker in 2003 to 18 percent in the a vice that contributes to deviant social 5,300 table games are in operation, following year. And the most popular form and criminal behaviors. Others see value contributing more than $10 billion in of gambling in the in gambling as a gross gaming revenue in 2004. Nearly country, the , Percentage of Americans Participating way for people to 200,000 people work in the state’s casino showed growth as in Gambling socialize, be enter- industry with an annual payroll of 60% well. In 2004, the tained and try to win $7.3 billion. What lies ahead for 50% 2003 2004 study showed that money. This report Nevada is likely to be further mergers 40% 53 percent of does not attempt to among leading casino corporations, 30% Americans played a explore any real or an increased emphasis on poker and 20% lottery game, which perceived social or other card games, and the development 10% was up from the economic impacts of of broader-based casino “comm- 0% unities” that include hotels, residential 2003 figure of 46 Lottery Casino PokerPari-mutuel Internet gambling on prob- percent. Gaming wagering wagering lem or pathological units, shopping and entertainment. Source: The AGA gamblers. FINAL 11/15 Design.ps - 11/15/2005 4:25 PM FINAL 11/15 Design.ps - 11/15/2005 4:25 PM

Atlantic City is the second-largest caused by Hurricane Katrina in August commercial casino gaming center in 2005. The research and interviews The movement of the country. The city is home to conducted for this report occurred earlier currency 14 commercial casinos, including a in the year. At that time, Mississippi Bally’s complex that takes in three had 29 commercial casinos, 11 of Understanding the volume of currency that separate casinos. More than 41,000 elec- which were located in the area of flows through casinos and the amount that tronic gaming devices and 1,700 table Biloxi and Gulfport. Patrons could is recirculated is vitally important to the games operate in Atlantic City, where choose from nearly 40,000 electronic Federal Reserve System. This dynamic can casinos employ 45,000 people and pay games or more than 1,000 table games. be hard to track, given the scarcity of - wages of $1.3 billion a year. Just as the More than 29,000 people were employed lic information on the subject. But the initial casino openings in the late 1970s by the casino industry, earning total magnitude of the currency used for gam- were meant as an economic spark for wages of about $1 billion a year. At bling can be assessed based on an under- the city, a new revitalization is in the time of the hurricane, plans were standing of the way money passes through progress. Casino companies are expand- in place to construct and open six casinos. One such indicator is what is ing their operations with restaurants, new casino projects in the coming years. known as the “currency drop” – the total shopping, nightclubs, luxury After Katrina, state officials enacted amount of currency, coin, tokens and chips and music venues. legislation allowing casinos to be built collected from electronic gaming devices on dry land, undoing the restrictions and table games. In Nevada, that figure for Mississippi’s Gulf Coast is in a period of that placed Mississippi casinos on the 2004 was nearly $54 billion, according to transition following the devastation water. the Nevada .

Casino Patron

Ethnicity M/F Age Profession HHI per year

Caucasian Male 46 College White Collar $55,322

NOTE: The median household income of the typical casino patron is 17% higher than the average American earnings. FINAL 11/15 Design.ps - 11/15/2005 4:25 PM

In general, the path currency follows the cage and other places where cash is operating expense, prompting the between casinos, their financial institu- needed for payouts, but increasingly to industry to reevaluate the use of coin, tions and the Federal Reserve is very simi- supply currency to other operations, such especially for electronic gaming devices, lar to the process flow of currency in many as entertainment and retail venues. such as slot machines and other businesses. Orders for currency games. Contributing to the high cost of placed by casinos with their financial insti- Technology a key managing coin were expenses such as tutions are evaluated to determine to change staff to fill and empty game machines, the whether the bank can meet the request. maintenance of coin inventory, equip- If additional currency is needed, the As the casino industry continues to look ment costs associated with machine financial institution places an order with for new ways to grow and become more malfunctions, the lost opportunity cost the Fed and then fills the request from profitable and efficient, technology has of money idly sitting in machines waiting the casino. The volume of currency used been the answer. The most significant for jackpot payouts, coin transportation in casinos can affect the level of currency technological that have costs and workmen’s compensation a financial institution has available to impacted the casino industry’s use of claims. A less-obvious cost to casinos was meet the needs of its other customers. coin and currency are the bill acceptor, the the downtime associated with electronic Ty pically, large deposits made by casinos adoption of “Ticket-In Ticket-Out” tech- games, which translated into lost revenue. will provide enough currency for banks to nology and the self-service kiosk. service their other customers. Casinos The casino industry’s answer was to begin also recirculate a large amount of By the late 1990s, the cost of managing retrofitting gaming devices to accept bills currency, not only to meet the needs of coin inventories had become a major – sometimes in addition to the coin slot,

Eight Major Categories for Legalized Gambling Commercial Casinos Lotteries Pari-mutuel Wagering Bookmaking Native American Gambling Racinos Card Rooms Charitable Games/ FINAL 11/15 Design.ps - 11/15/2005 4:25 PM

so a player could use either form of huge volumes of currency generated efforts to ensure that the appropriate money. While this arrangement reduced within the casinos. amount of currency is on hand.The type of the amount of coin played and associated gaming at a particular casino determines operating expenses, the machines still With the reported success of TITO, it could the amount of currency needed. For paid out winnings with coins. As a way be assumed that new casinos, as they instance, table games make up a smaller to further decrease operating expenses, open for business, would immediately percentage of revenue in most casinos and many casino operators began adopting implement the technology and be are not as currency-intensive as electronic “Ticket-In Ticket-Out” – or TITO – essentially coinless, as did the gaming devices. But casinos that rely more technology. Casino and and the Wynn Hotel heavily on electronic gaming revenue Casino. Though the volume of currency require more currency to bankroll the Casino officials say TITO has drastically money needed will be less than when coin gaming devices, and to supply the cage, reduced their need for coin. In addition, was delivered by 18-wheelers, banks and TITO kiosks and bill-breaker machines. the denominations ordered and - casinos still will need to coordinate their Finally, the number of ATMs in a casino ed have changed. Prior to TITO, casinos ordered millions of dollars of coin per week – predominantly , quarters and half-dollars – placing a substantial strain on banks. Now, casinos very sel- dom order coin and when they do, it is generally and dimes to make change. While the advent of TITO has decreased coin usage, it has significantly increased the amount of currency used in by casinos. As a result, casino owners have invested in sophisticated currency- processing equipment to recirculate the FINAL 11/15 Design.ps - 11/15/2005 4:26 PM FINAL 11/15 Design.ps - 11/15/2005 4:26 PM

increases the amount of currency needed, other wireless, handheld communica- Before these new could although the ATMs and the cash in them tions devices to place bets from off the become part of the gambling environment, is managed by a third party. casino floor, but from elsewhere on the certain regulatory approvals from gaming casino property. authorities would be required. The industry More change is on the way. In the is approaching these technologies with coming years, additional technological Technology has been developed to caution, given the that gambling crit- advances are expected to bring to the facilitate the electronic transfer of funds ics would loudly oppose changes that could casino floor new ways to bet and to from personal bank accounts or credit give problem gamblers greater access to account for a gambler’s funds. Among card accounts at electronic gaming their money in casinos. Nonetheless, tech- these are so-called “cashless” wagering, devices or specially designed casino nology vendors and casino owners antici- which involves the deposit of funds on kiosks. One such product is a combina- pate approval of these technologies over account at a casino, and the use of a tion ATM and ticket kiosk, allowing a the next five years, with implementation in “player’s card” for gambling. Casino gambler to access funds from a bank the next seven to 10 years. patrons soon may be able to carry their account while playing electronic games. gambling money on stored-value cards, Another similar product would be sepa- The implementation of these techno- which can have funds added to them, or rate from the gaming device and would logical advances, if and when they occur, “smart cards,” which would retain allow a gambler to transfer funds from a likely would result in a gradual decrease account data on embedded microchips. bank account, transferring funds to a in the flow of currency from the casinos to Also coming is wireless gaming, which ticket or plastic card that would be used financial institutions and, therefore, to the would allow the use of cell-phones or for wagering. Federal Reserve.

We all think of casinos as being this industry that generates huge volumes of cash activity between the banks and the Fed but, with all the internal recirculation they do, it’s much less than initially perceived. In fact, there may be more growth in cash activity in the large casino markets as a result of the tremendous economic growth that has come with casinos. FINAL 11/15 Design.ps - 11/15/2005 4:26 PM

The excess currency in casino markets, and which is boosted by the separate and opportunities ahead independent operation of ATMs in casinos, allows financial institutions to meet The booming success of the casino the currency demands of other industries industry would seem to project continued within those areas. If the processing of casi- growth.There have been huge increases in no currency and ATM currency in casinos gaming revenue over the last decade, were managed by the same entity, recircula- but lately, that pace has begun to slow.The tion within the casinos would increase even key to success in recent years has been more dramatically, resulting in the amount not expansion, but innovation. New of currency flowing back to financial institu- technology has been introduced to tions and Federal Reserve Banks being revolutionize, revitalize and to reduce the reduced. At that time, financial institutions industry’s costs, and to generate higher may become more dependent on the profits. The impact for financial institu- Federal Reserve as a source of currency. tions and Federal Reserve Banks has been a significant decrease in coin orders, an The trend of slower growth in the casino influx of excess coin and a sizable increase industry is not expected to reverse itself, in currency volumes needed to support though a few Federal Reserve Districts will and sustain this industry. be impacted by traditional expansion.

Vegas has already been billed by many as the “Disneyland for Adults” so it’s going to be interesting to watch it continue to evolve as the Casino’s invest heavily in trying to become the entertainment capital of the . FINAL 11/15 Design.ps - 11/15/2005 4:26 PM

Specifically, racinos will be opening in industry is well suited for consolidation the Florida, Maine, Maryland and and expansion into international mar- Oklahoma markets. Las Vegas has several kets, both of which are occurring. The large hotel expansion projects scheduled, casino industry also will focus on increas- just to keep up with the increasing ing its percentage of non-casino revenues demand. And in Pennsylvania, the open- and becoming a more comprehensive ing of 14 electronic gaming casino venues entertainment provider by catering to has been approved. These will be new younger crowds, increasing restaurant gambling operations, which is likely to and retail shopping spaces, and seeking pose some challenges. Because casino to provide more alternatives for business gambling is brand new in the state, travelers and families. As long as the it seems likely that a number of operators industry continues to renew, revitalize, will seek to be first in the market, resulting reinvest its capital and find niche prod- in a number of venues probably opening ucts to attract gamblers, it will have more within the same time frame. The currency- to rely on than just good luck. intensive nature of electronic gaming machines will present an increased demand for currency.

The future business imperative and longevity of the casino industry is dependent on consolidation, reinvention and non-casino revenue. The maturing of the casino industry has brought with it the same forces that affect retail, travel and other industries. As a result, this FINAL 11/15 Design.ps - 11/15/2005 4:26 PM

The Federal Reserve Bank of Richmond acknowledges contributions to this report from: Federal Reserve Bank of | Federal Reserve Bank of | Federal Reserve Bank of Atlanta

Las Vegas, Nevada Atlantic City, , and Biloxi and Gulfport, Mississippi Bank of America Philadelphia, Pennsylvania Hancock Bank Wells Fargo Bank of America The Peoples Bank Hotel and Casino Commerce Bank Beau Rivage Hotel and Casino Harrah’s Entertainment and Harrah’s Rio PNC Bank Palms Wachovia Silverton Casino Borgata Hotel Casino & Spa Boyd Gaming Corporation Dover Downs Gaming & Entertainment Giesecke & Devrient Harrah’s Atlantic City Global Cash Access Inc. Resorts Atlantic City International Game Technology Trump Taj Mahal Casino Resort Nevada Gaming Commission and State Gaming Control Board

Photography: Getty Images | TITO Ticket/Booth courtesy of Giesecke & Devrient

This report was produced by the Federal Reserve Bank of Richmond Bill Ahern | Margaretta Blackwell | Jennifer Everett | Yolanda Ferguson | Margaret Furr James Gregory | Jeff Kane | Ailsa Long | Jim Strader

© 2005 Federal Reserve Bank of Richmond FINAL 11/15 Design.ps - 11/15/2005 4:26 PM FINAL 11/15 Design.ps - 11/15/2005 4:26 PM

The Federal Reserve Bank of Richmond Fifth District Cash Function 530 E. Trade Street | Charlotte | North Carolina | 28202 (704) 358 2100

Top View