Weekend Thoughts: The Unique Economic Model of Regional Casinos

Casinos and gambling have been on my mind a lot these days. This is partially due to Jacob Rubin’s podcast CZR proposal. Casinos have a unique vibe, especially regional ones, that intrigues me. I wanted to write about it because I can’t think of any other business quite like it.

Here’s the core idea: a regional casino mainly attracts visitors who live within roughly an hour’s drive. This is easiest to see on a map, so I’ll use my home state of Louisiana as an example. Baton Rouge sits right between Lafayette and New Orleans, about an hour from each. Think of Louisiana without casinos, with Lafayette and New Orleans as the only towns.

Picture a developer securing approval to build a casino in Baton Rouge. It’s in the middle of nowhere, far from any residents. That new casino would do incredibly well at first. It would pull from both Lafayette and New Orleans, much like how an online operator uses a casino reload bonus no deposit to attract players from many markets at once.

But the Baton Rouge casino is uniquely vulnerable. What if someone opens a similar casino near New Orleans? And what if another one pops up near Lafayette?

At that point, the Baton Rouge casino quickly starts to lose its competitive advantage. Time is valuable—here, it’s money. Players in Lafayette prefer to skip the drive and visit their new local casino. Residents of New Orleans react the same way—they’ll pick the closer option. Most people won’t spend an extra hour driving if a convenient option is nearby.

What interests me in this business is how it handles driving time. In other fields, the main solution is often to adjust the price. A hotel an hour from Disney World can attract guests. It’s much cheaper than hotels right next to Disney World.

You can’t discount the price at a casino. Gambling is a choice that often doesn’t make economic sense. A casino essentially admits, “Over time, the odds ensure we come out ahead.” But you’ll lose it a bit slower than at our competitors! It is unlikely to receive any marketing honors.

Although I don’t bet much, I occasionally go with my pals. “Oh, I guess the house edge is 2% here, but if we drive an hour, it’s just 1% there, so let’s do that” is not something we’ve ever stated.

Even without adjusting prices, a casino still has several strategic levers it can pull. My hypothetical Baton Rouge casino still has ways to attract more visitors. They can give people free game play, like $20 for slots. They also offer comped hotel rooms, inviting guests to stay and gamble.

Free dinners are another perk. They might pay for big-name acts, like a comedian, to draw in crowds. These crowds may gamble afterward.

But all of those gifts are expensive! Plus, the effects are indirect—if a comedian fills a room with 100 people, there’s no promise any of them will hit the gaming floor.

A free hotel room might not make someone gamble, but casinos can track guests likely to play. If you give everyone $20 in free slot play, many might visit, use it, and leave without spending any of their own money.

Meanwhile, the nearby casinos in Lafayette and New Orleans operate with lower costs. This means it will likely be much more profitable than the one farther away.

Anyway, I have no real takeaways from this for you. I found a fascinating aspect of the regional casino business. I can’t think of another industry with such a unique dynamic.

In casinos, a product like blackjack is nearly identical everywhere you go! without any way to directly price a discount to lure consumers (I’m sure there are some; I couldn’t think of any). It’s been stuck on my mind, so I figured I might as well get it out of my mind and into yours.

PS- the “build a new casino” dynamics can get even more fraught if you’re pulling across state lines. All three of the cities in my example—Baton Rouge, New Orleans, and Lafayette—are in Louisiana. Thus, via effective lobbying, the Baton Rouge casino might reduce competition.

They may claim that casino taxes benefit the state. Yet, more casinos could divide the funds, hurting other industries. They can request that Baton Rouge politicians not license any more casinos in other cities. If the casino is near the state line and attracts many people from a nearby state, politicians will take notice.

They might decide to build casinos on their side of the state line so they can realize some of the jobs and tax revenue. The out-of-state casino won’t have many lobbyists to defend it.

For example, many casinos in Oklahoma sit across the Texas border (see map below). I think these casinos are quite profitable.

If Texas allowed gambling, casinos would soon be in a tight spot. The good news for casinos is that Texas says it’s “one of the strictest states when it comes to gambling.”

So, they likely won’t face competition soon. If Texas decided to legalize casinos, it might impact many casinos in Oklahoma. A budget crisis could also lead to this change. A new one near Dallas would make a big impact.