978-1259278211 Case 19 Solution Manual

subject Type Homework Help
subject Pages 9
subject Words 4579
subject Authors Alan Eisner, Gerry McNamara, Gregory Dess

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Teaching Note: Case 19 – The Global Casino Industry
Case Objectives
1. To examine industry dynamics and how the structure of an industry has implications for
competition.
See the table below to determine where to use this case:
Chapter Use Key Concepts Additional Readings or
Exercises
2: External
Environment
Porters five forces model; strategic
groups
NOTE additional web linked
reading, view embedded videos
Case Synopsis
For well over 50 years the casino business had been on a roll, on its way to becoming a $160
billion–a-year global industry. For much of that period, the United States had been leading the
charge, accounting for nearly half of the global gambling revenues as recently as 2010. Most of
these revenues came from Las Vegas and Atlantic City, which had become magnets for gamblers
In the U.S. there was a growing tendency to regard casino gambling as an acceptable form of
entertainment for a night out. A large part of the growth in casino revenues came from the
growing popularity of slot machines, yet facilities in Las Vegas, especially, had spent billions on
extravagant and luxurious properties meant to attract the “high rollers” who came often and spent
Teaching Plan
Most students know what a casino is, and they probably haven’t thought much about the industry
beyond the glitz and the gambling. Therefore, this case becomes a good way to introduce the
importance of defining the industry, and examining the dynamics of competition in the industry
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from the point of view of certain clusters of companies – companies that are part of “strategic
groups” who compete in the same way for the same customers. The structure of the casino
industry has changed in recent years due to new forms of competition and the presence of
substitutes. Students may have not considered this. Therefore, this case can be positioned early in
the course, right after discussion of the strategic concept, to alert students to these issues. Since
companies are not passive as far as industry structure goes, but can take steps to influence the
structure to their advantage, this case can be reintroduced during the discussion of competitive
strategy, later in the course, to remind students how external environmental analysis is very
relevant to strategic formulation.
ICEBREAKER
This case can start with an icebreaker. Starting from the perspective of a customer may make it
easier for students to transition to a strategic analysis.
Have you ever visited a casino? If so, where was it located, and what type of casino was it? Why
were you there? What did you think of the casino experience?
It is possible that some students may have visited a Las Vegas or an Atlantic City casino, perhaps
on a family vacation. Others may have been to a riverboat or Native American casino venue. It
might be interesting to see students’ responses regarding the purpose of their visit to a casino
The instructor may want to put a chart on the board: Where the casino was, and Why the visit was
made. If there is diversity among responses, it may make it easier for the instructor to then ask:
Before engaging in discussion, you might want to test students’ basic knowledge regarding the
Which statement is most true?
a. A large part of growth in casino revenues comes from slot machines.
b. In the U.S., Las Vegas and Atlantic casinos generate more revenue than all other
c. Macau, the gambling “capital” of Asia, is located in Malaysia.
d. At some Las Vegas casinos, revenue from non-gaming activities could account for over
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ANSWER: a. A large part of the growth in casino revenues came from the
growing popularity of slot machines. Coin-operated slot machines typically
accounted for almost two-thirds of all casino gaming revenues. When
Worldwide, the U.S. generates more casino revenue than anywhere else.
a. Yes
b. No
ANSWER: b. At $48 billion, Macau generates more casino revenue than the U.S. does at $35
Summary of Discussion Questions
Here is a list of the suggested discussion questions. You can decide which questions to assign,
and also which additional readings or exercises to include to augment each discussion. Refer
Discussion Questions:
1. Examine the structure of the casino industry. What has been the effect of the changing
industry structure on U.S. casinos?
Discussion Questions and Responses
1. Examine the structure of the casino industry.
Referencing Chapter 2: Analyzing the External Environment of the Firm
If you recall, strategy is all about the ideas, decisions, and actions that enable a firm to succeed.
See Chapter 1, Exhibit 01: Strategic management consists of the analyses, decisions, and actions
an organization undertakes in order to create and sustain competitive advantages:
strategy directs the organization toward overall goals and objectives;
includes multiple stakeholders in decision making;
The basic question strategic management tries to answer is: How can we create a sustainable
competitive advantage in the marketplace that is not only unique and valuable but also difficult
for competitors to copy or substitute?
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However, an interesting and fundamental question is How do we define the “marketplace”? Just
what business are we in? Ask students to fill in the blank: Casinos are in the ________________
During strategic analysis, the firm does “advance work” through external scanning and
monitoring of the external environment to anticipate unforeseen environmental developments,
In order to formulate a competitive strategy, it’s necessary to assess the segments of the external
competitive environment that include competitors, customers or buyers, and suppliers,
substitutes and new entrants. Porters five forces model allows strategists to anticipate where the
industry might be most vulnerable to competition. The model also helps decide where profits
might be best made, or whether there is any chance of further dividing up the profit pie: how
attractive is this industry?
To answer this question, it is very important to correctly define the industry even further. If we
define the casino industry broadly to include any organization that allows people to wager money
on events of chance, then we must include Native American casinos, waterborne casinos, and
Help students apply Porters Five Forces of competition by drawing a diagram on the board
similar to the following, and having students fill in the details:
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The following key points emerge from a structural analysis of the casino industry:
There was industry growth in the U.S. up until 2010. This should typically decrease the
intensity of rivalry as the potential profit pie grows larger. However, intensity of rivalry
Industry players realized that, typically, customer switching cost was low, in that a
gambler could switch from one casino to another and shop for the “best” deal. This would
Native American casinos had a distinct advantage over traditional casinos in that they
were exempt from federal taxes, even though they paid a percentage of their winnings to
Rivalry
High
Substitutes’
Threat
Buyers’
Suppliers’
Power
Low
Suggested: New casinos
increase the fight for
customers’ dollars. Also, the
switching costs
despite attempts by
suppliers for casino
Suggested: If
gambling is a form of
leisure time
Suggested: For
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Internet gambling was a growing major threat because it was a low-cost business model
and therefore did not face the same entry barriers as traditional casinos did. In addition, it
Waterborne casinos provided significant competition in the regions where they were
located. They received the benefit of legislative protection after Hurricane Katrina, and
The international rivalry from places such as Macau was muted among the big players
such as MGM and Wynn, as they used this as an opportunity for international expansion.
All of Asia-Pacific was under development, with multiple firms hoping to grab a share of
Based on the external environmental factor analysis, the casino business is not that attractive an
industry, although opportunities for diversification into other forms of entertainment and tourism
may be a way to increase profits among the larger players.
NOTE - ADDITIONAL READING, VIDEO VIEWING:
Regarding sociocultural and demographic trends affecting the industry, read this article about the
“what happens here” advertising campaign for Las Vegas, first launched in 2003:
http://www.usatoday.com/money/advertising/adtrack/2005-04-11-track-vegas_x.htm
What are the positives and negatives of the campaign for Las Vegas casinos? If you were the
manager of a Las Vegas casino, would you be in favor of the campaign? Why or why not?
Gaming continues to be big business, as explained in a recent report from the American Gaming
Association: a 2014 study measures the economic impact of every facet of the casino gaming
industry – commercial casinos and manufacturers and Native American casinos – as well as the
industry’s significant ripple effect on the supply chain, including local businesses. The Oxford
Economics’ study found that the U.S. gaming industry:
Contributes $240 billion – nearly a quarter-trillion – to the U.S. economy, which is
Supports more than 1.7 million jobs – more than double Washington, D.C.’s total
Generates $38 billion in tax revenues to local, state and federal governments – enough to
This research is being used to encourage policymakers to work with the industry as partners for
more economic growth for all.
See http://www.gettoknowgaming.org/news/groundbreaking-new-research-reveals-impressive-
magnitude-us-casino-gaming-industry
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And consultants have suggestions for firms, from 2007:
http://urbino.net/bright.cfm?specificBright=Five%20Indomitable%20Trends%20for%20the
%20Casino%20Industry%20%E2%80%93%202007%20and%20Beyond%2E
Increasingly, it appears that the industry doesn’t get its revenue from gaming – from a report in
2010, much of industry revenue comes from non-gaming activity such as lodging, food, retail
What implications might that have for the “players” in this industry? Where should they expect
real profits to come from?
More information on the industry is available at https://www.americangaming.org/
With information from 2010, here’s a 2-minute video naming Macau as the gaming capital of the
world: https://www.youtube.com/watch?v=8pUDCXtop_k
And in 2014 a video report explains the macroeconomic environment of the Asia-Pacific gaming
As of 2013 the biggest competitors, MGM, Wynn Resorts, and Sands, have all created very
successful operations in Macau (Caesars did not enter the market initially, and has now been
frozen out due to the lack of available gaming licenses). Although there are widespread
allegations of fraud and connections to Chinese organized crime, the financial benefits from this
global expansion means these major competitors won’t back off. According to I. Nelson Rose, a
professor at Whittier Law School in California who writes a blog called Gambling and the Law,
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How can you use the above information to do an analysis of the industry? If you were in the
casino business, wouldn’t you want to keep abreast of this kind of information?
1. Continued: What has been the effect of the changing industry structure on U.S.
casinos?
The concept of Strategic Groups involves two unassailable assumptions in industry analysis,
based on the belief that no two firms are totally different, and no two firms are exactly the same.
Strategic groups are clusters of firms that share similar strategies in their
Breadth of product and geographic scope
Price/quality
The value of strategic groups as an analytical tool is that they identify barriers to mobility that
protect a group from attacks by other groups; identify groups whose competitive position may be
The casino industry can be used to illustrate the existence of strategic groups. To begin with,
casino firms that had a large presence in Las Vegas or Atlantic City were more likely to compete
with each other. These firms operated larger resorts, which offered a broad range of
What might Las Vegas casinos do to craft a sustainable competitive advantage, given the
industry they’re in?
In general, the gambling companies in Las Vegas embarked on an aggressive strategy in light of
the competition from various sources. They did a number of things:
Promoted Las Vegas as the destination gambling city – in contrast to Atlantic City where
gamblers made day trips from cities in the northeast. Las Vegas positioned itself as a
Casinos in Las Vegas positioned themselves as resorts for families by offering circus
performances, etc. However, casinos in Las Vegas did continue to conform to their
Las Vegas casinos constantly invested in refitting and renewal to continue to offer new
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attractions to customers. This meant that Las Vegas convention facilities competed
By differentiating its properties, the Las Vegas casinos attracted visitors and retained their
business.
On the other hand, casinos in Atlantic City played catch-up with Las Vegas casinos partly
because LV did have a head start – gambling was legalized in New Jersey a full 45 years after
Nevada. From the start, Atlantic City casinos realized that they could not compete with Las
Vegas’s broad range of dining, shopping, and entertainment choices. In addition, AC’s location
right in the Northeast highway corridor meant that the majority of customers could easily come
The main threats Atlantic City casinos faced (as did Las Vegas casinos) were Native American
casinos, slot machines at local racetracks, and Internet gambling. Two of the biggest Native
American casinos were in Connecticut, within driving distance of Atlantic City. In addition,
several states had passed legislation allowing racetracks to provide slot machines for their
There remain challenges AND opportunities for all major competitors. See the additional reading
and updates below. The major question is which of these firms, and which of these locations or
strategic groups do you believe is better positioned for the future?
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NOTE – ADDITIONAL READING AND VIDEO VIEWING:
The 2006 expansion of the worldwide casino industry into Macau has opened up opportunity for
U.S. casino moguls, as explained in this 4-minute video from the summer of 2011:
http://www.bloomberg.com/video/73108050/
With an estimated 70 percent of Macau gamblers coming from China, this opportunity might
now be curtailed as the Chinese government may allow travelers to visit Macau on visa only
once every six months, compared with the previous restriction of three months. In addition, the
2008 economic downturn in the U.S. economy has hit the casino industry hard, but some regions
and types of gambling are fairing better than others:
http://www.businessweek.com/investor/content/aug2008/pi20080820_845946.htm
Wynn Resorts, Las Vegas Sands, and MGM are some of the major players mentioned. Does their
diversification into Macao and other world markets give them an edge?
In addition, the move to legalize online gaming offers another challenge AND opportunity to the
big casino competitors. Online gambling will be licensed state by state, with New Jersey one of
the first to allow this in 2013. As one analyst reported, “Casinos are already positioned to
From 2015 here’s a report and video about mobile gaming. Although not truly gambling, this is
becoming a big business, with the heaviest users spending up to $400 per person per transaction
on these online games: http://www.cnbc.com/2015/08/03/the-shocking-truth-about-mobile-
gaming.html
Regarding the major competitors, on January 28, 2008, Harrah’s Entertainment was acquired by
affiliates of private-equity firms TPG Capital and Apollo Global Management. As the article
below points out, this was a bad time to go private. Harrah’s is now “drowning in debt”:
http://www.fool.com/investing/general/2009/06/24/for-casino-companies-this-is-no-panacea.aspx
Harrah’s resurfaced as the public company Caesars Entertainment Group (CZR) in 2010. It
operated over 50 casinos, hotels and 7 gold courses under several brands, and held rights to the
World Series of Poker tournament activity. See more at http://caesarscorporate.com/about-
caesars/
Compare the financial status of competitors MGM (MGM), Las Vegas Sands (LVS), Penn
National Gaming (PENN), Wynn Resorts (WYNN), Boyd Gaming (BYD), and Caesars
Entertainment (CZR) using these links:
http://finance.yahoo.com/q?s=mgm
http://finance.yahoo.com/q?s=lvs
http://finance.yahoo.com/q?s=PENN
http://finance.yahoo.com/q?s=wynn
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http://finance.yahoo.com/q?s=BYD
http://finance.yahoo.com/q?s=CZR&ql=0
See the financial comparison and stock performance of these firms:
http://finance.yahoo.com/q/co?s=WYNN+Competitors
From April of 2013 here is a report on the gaming revenues for the last 10 years for Las Vegas
and Nevada. Revenues have slowly rebounded from the 2007 high of $12,739M, but, at $9,213M
still have a long way to go. Report from http://www.bloomberg.com/news/2013-06-10/gaming-

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