978-1259278211 Case 19 Solution Manual

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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

Porter’s 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

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

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?

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. Porter’s 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 Porter’s Five Forces of competition by drawing a diagram on the board

similar to the following, and having students fill in the details:

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

●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

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,

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

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?

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 Caesar’s

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

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-