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Tribal casino operators need to be creative in 2023

Jan 17, 2023

A hot streak may be over for tribal casino operators, but they’re not tapping out.

Over the past two years, casinos experienced record-high revenue and profit. Once COVID-19-related restrictions eased up, consumers were eager to get back into the game. Plus, they had stimulus money to spend.

But now, consumers are pulling back. Traffic and revenue are softening because of record inflation and economic uncertainty. Everything costs more, from food to fuel, so consumers are spending more of their discretionary budgets on necessities.

Casinos are hurting from higher prices, too. Labor shortages continue, which drive up the cost to recruit and keep qualified staff. Finance and accounting staff have been especially hard for casinos to hire — just as new lease and subscription regulations are rolling out (such as GASB 87 and 96).

Food and beverage prices are also up, and higher interest rates increase the cost of capital projects. Contractors are backlogged from supply chain and worker shortages, too, so casinos have to put down more cash to secure projects.

2023 tribal gaming priorities

So, what’s the best bet? Should tribal casino operators hold and ride out the storm?

Inaction could be a risky bet. Instead, casino operators can look for new ways to win guests — and fight equally as hard to attract and retain employees.

These five strategic priorities can help casinos improve financial performance, even during a downturn:

1. Design compelling player promotions

The right incentives will get people in the door, even during a slowdown. Leverage all the data you collect about players and guests to develop compelling offers and incentives.

Customer segmentation is especially important since marketing budgets may contract in 2023 (or be affected by inflated costs). Some casinos could stop marketing to lower-tier customers in favor of more profitable segments. Make sure you understand who your most valuable customers are and how to engage them.

Tribal casinos also need to stay on top of gaming trends. There’s still time to be an early adopter of cashless gaming (even ahead of Las Vegas, in some instances). Sports betting or online gaming may be viable options in some states. Old marketing tools might work, too (e.g., concierge services, guest comps and events). Be creative. And measure efforts to ensure that they’re effective.

2. Strengthen business relationships

Strong relationships with partners and suppliers can create optionality. Even if your casino hasn’t seen dips in traffic or revenue yet, it’s still smart to revisit contracts and terms.

To shore up the supply chain, order materials earlier or work with vendors to identify substitutions. Local sourcing is another way to reduce lag time and cost since transportation expenses are high.

It’s also a good time to focus on banking relationships and to review lines of credit and loan terms. Use forecasting tools to track impacts to loans, credit worthiness and risk. Even small rate changes can tilt a deal out of balance.

3. Win the war for talent

Labor remains a key issue in the casino industry — and everywhere else. It’s time to get creative.

To win employees, tribal casinos have provided transportation, issued gas vouchers, hired homeless citizens and restructured jobs. Tip-sharing, off-site training, remote work and tenure awards are on the table, too.

Like customer segmentation, casinos need to identify the types of employees they need. For example, those who can fill certain positions, have particular technical or soft skills, or have specific availability. Then, casinos can create workforce plans to match.

Organizations that use data and technology to drive staffing plans have an advantage. For example, salary studies can offer objective feedback on wages. Then, casinos can see if they’re competitive at every level, or how wage compression affects attrition.

Casinos that use talent management software can onboard employees faster and before someone else scoops them up. Talent management tools can also provide metrics around openings, candidates and retention. And employee data can be broken down by department, manager or day part. With more information, casinos can spot problem areas early and recruit or intervene proactively.

4. Prepare for new audit requirements

GASB 87 and 96 can have a substantial impact on your casino’s financial statements, depending on the number and terms of contracts you hold.

Tax and accounting partners can help — but it’s best to start early. It can be tricky to match contracts to master agreements and purchase orders, especially if some or all of your processes are manual. The new standards apply to lease expenses and lease income, so casinos need to consider both sides of their transactions. As part of the audit process, CFOs need to identify affected leases, select appropriate discount rates and install internal controls for future monitoring and measurement.

Revenue from sports betting, internet gaming and mobile platforms may be subject to different reporting and accounting rules, too. Investigate the impacts of new revenue streams and revisit audit requirements regularly.

5. Plan bold and conservative futures

Organizations that are in good financial health have more opportunities. Prepare for bold and exciting projects by planning conservatively.

What does that mean? It means using conservative benchmarks for budgeting and planning. If 2021 and 2022 were blockbuster years, maybe they aren’t the best starting points for 2023 projections. Some casinos might want to draw from 2019 or earlier years to build realistic budgets.

Furthermore, one budget isn’t enough. Tribal casinos need the ability to adjust budgets and operating plans quickly — not annually or semiannually. Plan for multiple scenarios and watch conditions carefully. When economic factors or traffic patterns change, leaders should already know how to respond.

How Wipfli can help

Looking to jump on some of 2023’s top trends for tribal gaming? Our team of tribal gaming specialists sees opportunities instead of obstacles. We can help you improve your revenue and fuel your growth while meeting regulations. From financial solutions and digital transformation to strategy and cybersecurity, we can help.Learn more about our tribal gaming services.

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Author(s)

Barnaby Allen, CPA
Partner
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