Innovation Group with Brian Wyman

Good morning, Dan. How are things in Vegas today?

Wonderful, Nick. Good to see you.

Likewise. Well, here we are in late September and in roughly one week's time, the industry will be converging on Vegas for G2E. It's been a weird year in the slot industry, to say the least. We had some policy chaos in DC surrounding tariffs and immigration has created quite a bit of confusion. And at least in the first half of the year we saw a lot of can kicking and purchasing deferrals, things of this nature, which put many vendors, especially the smaller guys, under quite a bit of financial pressure. So we saw some delayed launches, cancellation of a few annual events, regional trade shows with weak attendance numbers, and over the past couple of weeks some pretty heavy workforce reductions associated with the IGT and Everi merger.

So it'll be interesting to take the temp on this year's event and see how people are feeling. I'm hoping that we'll see some cool launch activity, perhaps some stuff that vendors have had a bit more time to bake, and perhaps hear some reports about things picking up generally. In any event, it's certain to be a very busy and productive week. So how about you, Dan? Any big plans for this year's G2E, or specific products or categories of products in which you're interested this year?

Yeah, I actually just wrapped up with some folks a full week of pre-G2E meetings this week. So kind of got to do a little test run for the real thing next week. And it was great. Saw some really good product, everyone showed really well. So I know some people kind of are so-so that hey, there's nothing revolutionary out there, but frankly I think it's going to be a great show. The big boys always present very well, but the smaller suppliers actually this year I think are really bringing their A-game, some new product and everyone's really stepping it up on the slot side. And I think you have at least four suppliers that are under new ownership this year, in some shape or form that have either gone private or merged. So it will be exciting to see what people bring. And you're getting ready in a few days to make the long pilgrimage out west as well, right?

Yeah, and I'll tell you what, on the immigration stuff that we discussed and the falling numbers from international, I have never paid this much for a plane ticket to G2E. They have really slashed capacity and you can really see it. It was just incredibly difficult to get tickets this year and not cheap, but anyway. But I was curious, Dan and all the pre-G2Es, do you get a sense of that? Do you feel that there were some things that let's say weren't launched early in the year that are getting launched now? Is that the type of thing that you-

I mean you have a few new cabinets. I think all in all, most of the suppliers seem to have done a really good job of adjusting supply chains where they've needed to, to maintain the product quality, but also stay competitive on price. I don't think you're seeing major pricing pressure there. It's interesting, actually, one of the hot topics out there right now is potential impending taxable limit increase that folks are waiting for guidance from the IRS on what that's going to look like. And then obviously once that guidance comes out exactly how that's going to be implemented, and it seems like there's going to be a mad scramble in some shape or form to figure out how to make all those adjustments on the slot floor. So a lot of questions from operators to suppliers about that in particular.

Right, right, right. Okay. Well cool. I think what we can expect is it's going to be a busy wild week as it always is, so be it. So let's see. Time to turn to this month's listener questions. So before I dive in, let me say that we love to tackle any questions that anybody listening may have. So if you have a question about what we're presenting or something you'd like us to present, please drop us an email at reelcast@reelmetrics.com. Again, that's R-E-E-L-C-A-S-T @reelmetrics.com. Our policy is to keep all questions anonymous, so please speak directly and don't worry about us revealing your identity. That is not something we do.

So Dan, let's see. The Anthony Lucas interview generated a lot of listener feedback. I won't say that they're really questions as much as they are commentary and predictably, quite spirited. We see a lot of all caps activity and a decent smattering of profanity in there. But truthfully, there was no email that I felt really placed the crosshairs on the right thing. And I feel it's actually fairly illustrative of how the industry debates Anthony's work generally. So they don't really address the arguments per se, but caricatures of those arguments. And it puts us in this weird place where people are effectively accusing Anthony of drawing conclusions that he's not in fact drawing. And for me anyway, it kind of takes us back to that first question Anthony asks when somebody comes at him and it's, have you actually read the study?

And honestly, Dan of the, I think eight or so emails that I received in response to that episode, I'm not convinced that any of those listeners actually did read the study. So I don't know, is this just cynicism on my part, or do you largely feel kind of the same way when you listen to this stuff?

I don't know. I mean, I think there's a ton of passion obviously, about this topic, right?

Yeah, for sure. Yeah.

And it can make it a little challenging to have informal discussions with folks. Anyone who's talked to me knows that I have strong opinions about this topic, but I felt that our role on the podcast with Professor Lucas was really to let him share his study and let the listeners make their own informed decisions and hopefully start debate. My viewpoint in this has really been twofold. One is I'm laser focused always on product and experience. So when I come from that standpoint, non-analytical, I tend to believe in any industry that you have to deliver a quality experience and consumers are savvy. So for me, especially in an atmosphere where VIP is becoming more and more important, those people are going to give you their money at the end of the day. So I'm just focused on how do we deliver the best product? And I think that's most important.

From a data standpoint, I think it's great, and I think there's opportunity to share viewpoints. I mean, I know you don't tout your product on this podcast, but you have some great tools in ReelMetrics where I think what you found is there's no one size fits all. And different configuration settings are more profitable on different games, and there's some nuance there. I've been fortunate in my career to work for organizations that have had 20, 30, even 50,000 slot machines, and we've been able to look at that data. I never know why, and I think this could be debated, but I think there's a lot of evidence out there that in many cases, looser or moderate is either more profitable from a product standpoint, or at least means you're going to have longer product lifecycle.

But at the end of the day, it's difficult to change people's minds on this, and I just hope there's opportunity to have a more data-driven debate about this, and at the end of the day, people's opinions will evolve and hopefully get to the right place. But we talked a lot about just unwillingness to disclose, or unwillingness to share data, and if we can get past that, I think the industry will develop some kind of consensus. But as it's been, it's been really small scale studies that everybody hasn't necessarily had access to, and hopefully there's opportunities to change that.

Yeah. And I think that's where I zero in on this, so I am always looking at it and asking, well, okay, well what are his conclusions exactly? So it's kind of as though he is being accused of this inductive fallacy where he's arguing from this very specific case to the general, but I don't think he's actually doing that. What I've always looked at when I look at his studies is say, I have an answer here to this specific thing, this control setup in this way, utilizing this methodology, and it's an answer, it's not the answer. So that's kind of where, as it pertains to Anthony's specific work, that's where I feel it does get mischaracterized and kind of attacked and caricatured in this stuff where I don't think it's actually hitting head on what he's saying. That's really my only point.

Yeah, there's always nuance, right?

A hundred percent.

The more studies are done that are looking at different elements of, there's different slot machines or different kinds of people, right? There's time [inaudible 00:09:31] games, fewer than there were before.

Right, for sure.

There's bonus chasing games, there's large jackpot chasing games, different rides, and the answer may be different for those different kinds of games. And the more and more we're willing to be objective and look at these kinds of things, we may find some of that nuance and become better operators.

A hundred percent. And one of the things that you mentioned there, which Anthony agreed with instantly was pay-loading isn't as straightforward as it used to be, right? You have these pays tucked into various bonusing events and all this kind of stuff, and so it's even more complex now with the way game design has evolved than it used to be. So these are all incredibly interesting things, and what I really like about what Anthony's doing is he's contributing so much science to the mix. And that's, yeah, I'm into that, for sure.

Okay, Dan, well, it's time to introduce today's guest. So this gentleman, Dan, put in some serious time at school yields a BS in Mathematics and Computer Science from the University of Richmond and a PhD in Mathematics from the University of Michigan. I'm not sure that nerd street cred gets any more legit than that. So he entered the industry roughly 11 years ago, starting as Director of Gaming and Marketing Analytics at Pinnacle Entertainment. Then in early 2017, moved to the Innovation Group where he now serves as its President and Chief Executive Officer. I'm referring of course to Mr. Brian Wyman.

Hello, Brian. How are you today?

Good morning from Las Vegas. I'm doing quite well. Always good to see you and see Dan, both of whom I met right around that 11 year ago mark at Pinnacle Entertainment.

That's exactly right.

So it's nice to be [inaudible 00:11:23]. Yeah.

Okay, cool. Well, let's see. Brian, let's get started and just tell us a bit about yourself. So kind of the situation that brought you into the industry, the path that took you to your present role, and yeah, whatever personal tidbits you have there about your life and family and hobbies, et cetera.

Yeah, happy to. Thanks for the opportunity to be here today. I tell people I ended up in Las Vegas accidentally. After finishing in Michigan, went to New Jersey and worked on Wall Street, in air quotes, in the finance industry with a group that was doing systematic trading. So I ended up doing algorithm development and all the data work associated with that for a few years. And tried very hard when I left that role to move to Los Angeles, but the magnet of Vegas was just too strong.

The funny story there is the day that I resigned from my job at the hedge fund, I had my first call with the gentleman who I knew from the poker community, but who ended up being my first boss in Las Vegas. Two weeks later I was out here interviewing, and then I started with him a month later, and the rest is history.

Okay.

So yeah, I mean, I've been in the industry for, as you mentioned, 11 years, and thank you for the kind introduction there. I just recently assumed the role of President and CEO here at the Innovation Group. I've been with these guys since about 2017 when I left Pinnacle. My partner Michael, just reduced his role at the firm pretty dramatically and took on a really important role as President of the International Center for Responsible Gaming. And so he's doing great work leading, I know you guys were just talking about Anthony Lucas and research on Slot Hold, but he's sort of sitting between the industry and the academic folks doing research on responsible gaming, which as we all know is a crucial topic right now. And so he's doing that, and that left a spot for me to take on the leadership role here, and I'm grateful for everything he's taught me. And yeah, no, I live in Las Vegas. I'm married. I've been married to my wife for now 12 years, and we're actually, today is our anniversary.

Oh, hey. Happy anniversary, man.

Thank you for the friendly reminder and keeping me out of the dog house here. I looked and said, ah, have we had that this year? No. So that's today. So 12 years today, we've been married and we've been together for more than 20. And we got two boys, nine and seven as of two days ago.

Okay.

And yeah, no, we love travel and food and cooking and wine, and these days, baseball with the boys and that sort of thing. So yeah. Thank you for the opportunity to share a little bit about myself.

You bet. Cool. Well, and so now Innovation Group is a gaming advisory firm that's involved really in a lot of different stuff. So can you give us a quick overview of the company, and just the overall service portfolio?

Sure, yeah, thanks. We are a boutique advisory firm. We've been around for more than 30 years. We were born out of an urban planning firm, so those guys, if you need a mental model of what that means, sent folks out to intersections with little clickers to count cars passing through the intersection. And they used this traffic data to size retail developments, malls and airport parking garages and airports themselves and those kinds of things. And the gaming aspect of the company came around that time, again 30 years ago as riverboat casinos and as tribal casinos were starting to develop as regional gaming really grew up in the US.

And you were putting these casinos, which were unlike ordinary retail developments, really all we had to go on was Vegas and Atlantic City, which aren't really model markets for most regional markets. And so at that time, we did some of the initial modeling to build these demand programs, these demand models. To say, hey, if you build a casino here, here's how big you could build it. And if you did, this is how many people would show up. This is the revenue generation potential. This is how many food and beverage seats you need, hotel rooms you need, parking spaces, you need those types of things. And that was really the original support that the firm provided to the industry.

Over time, we've developed our expertise and industry knowledge, and along with that, the service lines we have. We do economic impact analysis. So it's not just how big should I build this now, it's how do I talk about this project with legislatures? And how do I let them know that in Northern Virginia, a lot of Northern Virginians are crossing the border into Maryland to go to casinos? And if you were to build a casino here, yes, it would generate this much revenue, but a lot of that revenue is already in existence. It's just going to Maryland and paying Maryland taxes, and we're going to create this many jobs and provide this much tax revenue.

And by the way, those jobs are people that live locally and spend their money in the community. So that revenue isn't just income revenue, it's income revenue, and then it's income revenue for the people at the grocery store and people at the Best Buy and those types of things. So we do economic impact modeling. We do operations support, marketing support, policy and regulatory support. Lately we've spent a lot of time with folks that are interested in building out their amenities portfolios. If you've followed Vegas over the past 20 years, you've sort of seen a shift from the dominance of gaming revenue at the resorts out here, to dominance of non-gaming revenue.

People come out here because they want to see the chefs and dine at great restaurants. They want to go to night clubs, or maybe that's 10, 15 years ago, today they want to go to day clubs. And so there's all of this what amenity program makes the most sense for my property? And that's becoming a conversation more and more in regional markets as well. And so we're spending a lot of time on food and beverage programs, entertainment programs, and what can we do to maximize that kind of ROI for folks?

Yeah, RFP support, I mean, we've been very involved for the last three years in the project that, well, the news hasn't been great this week, but the project in Coney Island. So you have this New York RFP process for new casinos that's coming to a close probably by the end of the year here. But yeah, we supported those guys and market studies. And again, food and beverage programming and sizing and all sorts of work with them. So we do a pretty range of things. And we're global, not just domestic. So a small but mighty group of us here.

Hey, Brian, pretty timely. So 40 Under 40 list always comes out a week before G2E, and it's kind of become a big thing in the industry and real source of pride, and people are waiting to see the emerging leaders who are making that list. So correct me if I'm wrong, but I believe Innovation Group played a major role in founding that program. So curious if maybe you can share the goal and what that's all about, maybe beyond just the list that people are familiar with.

Yeah, thanks for the opportunity to talk about this, Dan. What a great program. We founded this program more than a decade ago with Global Gaming Business Magazine. And I think everyone knows the 40 Under 40 list that comes out every year. And that list just gets more and more impressive every year. And now that we've got more than a decade of folks to kind of track through their rise through the industry, we've got people leading major organizations that are alums of that program. And so it's really great to watch them and follow their kind of thought leadership and actual leadership through their careers.

I'll say though that the Emerging Leaders program is more than just the 40 Under 40 list. It's a webinar series. It's a series of events and education programs throughout the year. So 40 Under 40 gets top billing, and certainly it gets most of our time and attention, but there is a bit more going on there under the hood. And we love being a part of it, and GGB was acquired last year by Clarion, and so one of the most exciting things going on right now with ELG is kind of ironing out how this partnership will continue between the Innovation Group and Clarion going forward. Because they obviously have this massive global reach.

And so we view this as just an amazing opportunity to expand the program and its footprint and its reach. So yeah, very exciting times for that.

Yeah, that's amazing. I know we're going to talk a little bit about, I think consumer demand here in a minute, but I'm just curious, you listened to the conversation at the top of the discussion about the last session with Professor Lucas, and I think you listened to the whole podcast last time. There's a lot of crossover there between some of the topics that he talks about and some of the things that you all work on. So I was just curious if there was anything, whether it's hold or any of the other work he's working on that resonated with you.

Yeah, look, I have a ton of respect for these guys and I'm really glad that there are academics taking a look at some of these questions. And if nothing else, they're providing an approach to studying these questions that folks that maybe have more access to data that don't share that data with academics, can start to build off of. I think it's really important to establish that framework. Look, my reaction, and I don't have access anymore to tons and tons of data, but this was certainly something that we studied at Pinnacle back when I started my career. I think that the work that Professor Lucas and his colleagues have done is, it's not flawed, it's exactly right.

But I think one of the things that, maybe it was Nick at the top of the program mentioned, he's asking very specific questions and providing answers to those very specific questions. And I think really the conversation going on around is he right? Is he wrong? It's like, well, he is right for the very specific narrow question that he asks. And I think the conversation needs to be, well, what's the right question to ask here? Because I think, look, if we're asking can a player feel the difference between an 8% hold game and a 12% hold game if they go to the casino for an afternoon and play the game? Probably not. And in fact, almost certainly not because we can try to get a computer to track all of these outcomes and then guess which is the 8% game and the 12% game? And the computer can't do that with any kind of accuracy.

So if a player somehow believes that they know the answer to that question, they're just seeing ghosts, they know the outcomes that they saw and they know whether they won or lost, but they have no idea whether they played a high or low hold game.

But that's not really the question that we want to answer when we ask are high hold games better or low hold games better? So then it's like, okay, well in that case maybe I'll put a high hold game and a low hold game next to each other and see which one makes more money. And they've shown, and we've reproduced this in tons of casinos with tons of different types of games, the high hold game and the low hold game next to each other, the high hold game will make more money. This is in regional casinos, destination casinos, just the high hold game will make more money.

And we go, okay, but was that the right question to ask either? Because now I want to know, well, did the players that lost their money on the high hold game, did they just get frustrated and leave? Right? And did the players that lost slowly or won on the low hold game, if that's even what happened? Because volatility on these things is so high. What happened the rest of their session? Did the people that won or lost slow, did they go and lose even more on other games throughout the casino? So you really want to know, does the casino make more money or less money?

And then you go, okay, well maybe the casino made more money that day, or was that the right question to ask? Because what we want to know really is like, okay, we made more money that day, but do people come back at the same clip because we've just given them a bad experience maybe, or maybe we didn't give them a bad experience. I mean, the question here is well over the long term, what do we do? Do we want to try to optimize taking a consumer's wallet today? Is that the goal here? Because it feels to me like we're walking down that path, we're getting really good at making all the money today, but we could crank all the Slot Holds to a hundred percent and make all the money today, but what would that do tomorrow and the next day and the next day as a very extreme example.

So I think we're in the kind of infancy of this type of research. So I have nothing disparaging to say at all about any of the research that these guys are doing. But I mean it's really nuanced, right? Dan said different rides earlier on talking about different slot machines or different hold percentages, and that really resonated with me. Is there a particular thing when you go to an amusement park, some people will ride roller coasters all day and other people want the carousel or the Tilt-A-Whirl or whatever rides we're talking about here. On top of that, there's so many different ways to raise and lower hold. When people talk about it was high hold better or low hold better? Look, we could increase the hold of every game by just halving the top award. And anybody that hits the top award, whether it's what it's at today or half of what it's at today, anybody that hits that top award is going to have a great experience and everybody else has the same experience.

So there you go. We've just raised hold and haven't touched guest experience really at all. So again, are we asking the right question here? Because if you raise hold by lowering the frequency of hitting bonus games, maybe that's not such a good thing, and maybe that is something actually that a player can feel because if something happens once out of every 50 spins versus once out of every 100 spins, well, I'm pretty sure a computer can distinguish that on an afternoon's worth of spins. So excuse me. Anyway, maybe I'm just rambling here. But the point is this is a really nuanced set of questions, and so it's good that we're working on it in major companies that operate these games, and it's good that we're working on it at colleges and universities, but I think we're really in our infancy here.

No, it's fascinating. I think you make some really good points and you're always bringing everything back to the player and you say, what's the goal? And it is not just what's the goal? How are we thinking about and how we're evolving our thinking on different player segments and even how is time changing? We went from this post-pandemic world where it was kind of open the doors and they will come, to the sense that things are evolving a little bit, and not just this topic, but a lot of topics, it's becoming a little harder to operate and we got to think about things potentially a little differently. And it sounds like that's a lot of what you all are focused on.

We think about things always going back to the player perspective. I mean, if nothing else, we're supposed to be a hospitality industry. We're not a private equity, grind out every penny today and then split the business up into 10 different smaller businesses and sell them off. This is all how do we engage with our guests over a long-term, whether our guests are gaming guests or hotel guests or spa guests, or whether they're nightclub guests on the strip. And look, I'll really quick, which I think I'll actually segue way into some of what we're going to talk about later, but also I think it goes back to are we asking the right questions? I think there's not a one size fits all solution, even if we have all of the right answers to all of our academic questions here.

It's totally rational to me that Caesars and MGM on the strip would adopt a high hold slot strategy. Since guests to Las Vegas are coming with food budgets and gaming budgets and all of these other budgets for their week out here. And it happens maybe once a year or a weekend out here. It happens maybe once or twice a year. For those guests you'd love to give them a great experience, but you can do that in 10 different ways. On the gaming floor though, you just kind of want to maximize your share of their gaming wallet before they go to next door operated by the other big company, and they lose their gaming wallet over there.

So it kind of feels like the right thing to do when you've got a one-time customer is value extraction. And you can give them experience in other different ways that aren't the gaming floor. But in regional markets where you depend on that repeat visitation weekly, a couple of times a month, whatever that looks like there, you have to be much more cautious. Because if you're too aggressive with hold strategy, for example, you may just turn off customers. And again, I don't know the answer to that question beyond the research I've done myself, but I think those are the types of things that markets are very different. And so there may be multiple hold strategies, depending on what market you're in. Is it a competitive market? Is it a non-competitive market, regional destination, et cetera.

So anyway, sorry. Lots of things to talk about in this conversation, I guess.

Well, and I think what's at the heart of it all is a topic that well in which the three of us are deeply, deeply interested, and that is consumer demand just generally. So one thing I want to do is just kind of start, let's start in terms of understanding consumer demand. Let's start and just assume that we have, let's say an organization that is, excuse me, contemplating opening their very first casino. And then you guys are brought in to do, let's say a market feasibility study to look at this. So can you just give us a general sense of how these studies are produced, as well as an understanding of what are the key metrics that you're looking at and analyzing when you're producing these studies?

Yeah, absolutely. The first thing that we do, if you came to us and said, hey, I'd like to build a casino and I want to build it here, and you give me a pin. And that's a pretty typical use case for us. It's a pretty typical request that we get, hey, we've got land here and we want to build the casino. We think we want to build it this size, but help us out. The first thing that we'll do is we will try to understand the population that lives within a few hours of that pin. And the idea here is you segment the folks that are going to visit your casino. By and large, in most markets, most of your revenue will come from your drive-in market. These are people that will come for a day and drive home that night, or come for an afternoon, drive home that evening.

Less of your market, although a meaningful portion of it will be from overnight guests. And then you'll have visitors to town that'll come in. You'll have, there's a highway nearby, you'll have folks getting off the highway to visit your casino. Those kinds of things happen as well. And so we'll treat those as separate little segments of the market. But the first thing that we do is we look at the drive-in market, which is folks that live within a couple of hours. And we go zip code by zip code and we figure out how many people live there, what types of people from a behavioral standpoint, from a demographic standpoint live there. And basically then we overlay onto this map, what are all of their other gaming options?

So within two hours or three hours of them, what are their other options and how is what we're going to build going to stack up to their other options here? And we build what's called the gravity model, which you can think of the casinos all as little magnets. And if you're a guest, a potential guest, sitting in your house, in your zip code, we kind of evaluate what's the pull of each of those magnets on you? You decide, I'm going to go to a casino today, how likely are you to pick casino A versus B versus the putative casino that we're contemplating being developed?

And so that helps us figure out what's the potential market look like in terms of overall visits, and then based on how far people are coming, we can overlay how much revenue they spend. If you're only going five minutes to the casino, you likely spend less per trip than somebody that's driving two hours to visit that casino because they're not going to stay for only a few minutes and then turn around and go home. They're going to stay for the afternoon or they're going to plan an overnight or something like that. So that's really the broad-based approach that we take. And then we aggregate over all those zip codes in that market and we come up with a revenue number. And we've spent a lot of time over the three decades of business that we've done really tuning those parameters so that our predictions are pretty darn close in most cases.

Yeah. So you've opened the casino or you've built the casino and now it's time to open it, right? It's like you've planned out your amenities and all that kind of stuff, but it's time to probably build a marketing program and a loyalty program. Can you talk a little bit about the work that goes into you helping operators design what that looks like? And then once you've opened, as data starts coming in, I'm assuming it's a process of constantly refining that and coming back and revisiting your assumptions?

For sure. And we've done, recently even, we've done a lot of work on reworking loyalty programs. It's actually a pretty common request that we get, that's hey, we've had our loyalty program, it's been in place for however long, a decade, it just feels like it's time for a refresh. Can you let us know how much work it's doing? And if we could refine it. Ditto for direct marketing, but I think there's a little bit more consternation about messing with people's mail, so to speak. When you're used to getting an offer and you really haven't changed that matrix in a long time. I think people really... And this is something that Professor Lucas also studies, is what happens when you change people's mail? And we can talk about that a little bit.

But on the loyalty marketing side, we're so exposed to so many different loyalty programs. I mean, I got my Starbucks this morning and earned and redeemed stars. And Southwest Airline points or Delta Airline points. And I think, again, different folks want different things out of their loyalty programs. Some people like to strive for higher tiers and they like that carrot dangling out in front of them. And, oh, if I earn this many more stars, I'll be a platinum instead of a lowly silver. And other people I talked to, I had this conversation just a couple of months ago actually over the July 4th holiday with somebody who said, I don't want to think about anything like that. I just like going into the places I usually go into, and sometimes I open my app and I have something free and it feels good. And that's not me at all.

And so to me, it was like eye-opening to hear someone actually vocalize that and go, oh yeah, okay so we have different types of people out there that care about different things with loyalty marketing. And as we approach a casino's loyalty program, I think it's important to understand what work do you want the loyalty card to do? And what work do you want direct mail to do? Because you have goals for your players, and the goals are maybe it's to increase their trip frequency, drive one extra trip out of them. And that's the Bed Bath & Beyond coupon, potentially. The one that they have this thing sitting there that says 20% off on your next visit or $20 of free play on your next visit, and it expires on Friday. And you go, oh, man, I better spend that before it expires or else I've wasted that $20. So that creates one feeling for your players.

And then on the other hand, you have this tier-based marketing, which is, oh, if I become a black card holder instead of a red or a gold card holder, then I get these benefits. And that's really more about consolidating one's play within a market. And we know that our guests are not strictly loyal to us at any casino. They play at multiple casinos. If you play, you almost certainly play at every casino in your market on occasion unless you harbor a grudge or something. But the loyalty program can really help provide an incentive to concentrate your play at one place.

And so when we evaluate a loyalty program or build one from scratch, again, we start with gathering data, and we go, what else is out there? What other offers are my potential guests receiving? And what do I have to compete against?

And I don't want to just say, oh, here's what Caesars is doing, let's just reproduce that. Or, here's what the casino next door is doing, let's reproduce that. It's really going, what types of guests do I have? What do they care about? How can I differentiate myself? And how can I give them the incentive that they require to come here, rather than go there every time they make that decision to come out of their home? And we're not going to hit it out of the park for every single person in the market, but I think a lot of the time you can build these kind of customer personas and really speak to each of those, and they represent a really big portion of your database there.

And so that's kind of our approach to loyalty marketing. We want something that's unique, but we really want to try to consolidate their play to our property. And then we let direct mail do the work on the appointment-based side. At any given week, we say, hey, we want these type of people to be in here Thursday, Friday. We want to give these guys an incentive on Monday and Tuesday. To me, that's a direct mail thing. But you can kind of dice this any way you so choose.

And I think as we start looking at tiers and target groups and this kind of stuff, so the three of us we've been chatting recently about a phenomenon that's impacting travel and hospitality generally. That's this shift to targeting higher income segments. In discussing this, we referred to an excellent New York Times story that the three of us had read. It was called Disney and the Decline of the Middle Class. It's something that we would strongly recommend everybody look up and read about, but in it they profile two travelers. So there was this first middle income budget traveler who went with three companions and does Disneyland on the cheap. So it's offsite lodging, offsite F&B, standard lines for the rides, just no frills in general.

And then the second traveler profiled is a higher income traveler with one companion who goes the premium route. So on-site lodging and F&B, express line for the rides, all these bolt-on resort amenities, et cetera. So the budget traveler goes out and it's an eight-day trip at 285 bucks a head with a lot of the products and services consumed offsite. And then you look at the other guy and we see it is spending closer to 1200 per head and is wholly captive within the resort.

So the story then goes on to explain that with modern analytics, it's becoming increasingly obvious to travel and hospitality stakeholders that the most rational marketing expenditures are those aimed at the luxury and aspiring luxury segments. That's kind of where everything's getting pointed. And they're growing, they're more easily and captured, and their trips generate profits that are multiples higher than the middle-income equivalents.

So it's pretty much what we're seeing in the casino sector these days. So let's take a look at this and talk about it, Brian. So can you describe really what you're seeing on this front then and how Innovation Group is responding to this?

Yeah, I mean, well, first and foremost, I certainly see it as a consumer. I don't think that any of our listeners is really surprised by the idea that Disney is targeting the high end and adding all of these opportunities for them to grab just a little bit more value out of those folks. And when you've already exhausted somebody's budget, it's hard to squeeze that little bit extra out of them.

For sure.

And so they're seeing these revenue opportunities at the high end because there's more discretionary spend at the high end. And so I don't know that it's Disney wants to squeeze the high end, it's that they just can't squeeze anything more out of the low end. They've already brought their base price. I mean, I think it was funny, we talked about this, you said something in the lead up to this question, which was they were the budget traveler. They did this on the cheap, I think is what you said.

Yeah, yeah, yeah.

And I don't recall the numbers exactly right now, but I don't remember reading the article and thinking that it was that cheap. [inaudible 00:46:03] do it.

Yeah, yeah, yeah. I think it was for a family of four, I think it was eight grand was what she put out for that. Yeah, it was 15% of her annual salary, right?

Right. And that's not a cheap vacation.

It isn't.

A cheap Vacation has put everybody in the car and you drive down to the beach and you Airbnb a few blocks away and you walk to the beach with your boogie board, and that's a... So anyway, I don't know. But in any case, I think we see the same thing in gaming that you see in the Disney article. But I guess first I can tell you that having looked at direct mail programs for more than a decade now, when you've got $100 player, there's just not that much margin on someone who, and I say $100 player, what I mean is someone who when they walk in the door of a casino, is worth about $100 of revenue to you.

When you start to take out things like gaming tax and the rewards that they're earning on their player's card and the fact that there's labor and maybe you have a buffet as a loss-leader, even though those are kind of falling out of favor these days. Whatever it is, there's really not that much left at the end of the day out of that hundred bucks. And so sending them something in the mail that's more than five bucks, 10 bucks as an incentive to come into the casino is really difficult. And honestly, if I'm sitting at home and you send me something and it's like, oh, you can get $5 if you drive to this casino instead of wherever you were going to go, am I really going to change my mind for $5? Probably not.

So it's like you can't afford to do that much meaningful for that segment of player. And look, $100 is still a lot of money. And if you're coming especially weekly or several times a month or something like that, you're a meaningful contributor to the casino. But again, on any given trip, I just can't afford to give you more than five bucks, maybe 10, and you're just not changing your behavior there. So then you get this reality for the marketers, which is, hey, we've got a lot more to work with if we look at the high end. There's much more margin, there's much more profit that we can play with, and we can start to ask what are the right ways to give a portion of that profit back to try to incent future visits or more loyalty, or things like that.

So it's almost out of necessity that we're focusing on the high end with changes to our marketing programs. And there's this big question, and again, going back to this work that Anthony Lucas and his cohort are doing about what should we be doing with the low end? And I think frequency, or sorry... So again, at the low end, cutting free play from them is almost certainly profitable, but also cutting free play from them... Because you're not going to change their behavior. The reason it's profitable is the free play is not changing their behavior. So taking it away is also not going to change their behavior, but they complain about it being taken away.

And so you have to deal with the sort of guest experience question here. And one of the things that we look at a lot when we do surveys or those types of things like, well, the guests all say they want this, but do they actually change their behavior as a result of getting or not getting it? So there's these sort of stated preferences versus revealed preferences in their actions. And so sussing those out, it makes surveys very difficult because you actually need to go back and say, okay, they told us this thing, but their behaviors tell us something completely different. And so we've always found that reducing free play at the low end of the database is profitable.

And then so the question becomes like, okay, now have a little bit more profit out of the low end of the database. Do we take that profit and just put it in our pockets, or do we take that profit and redeploy it in some way that's very appealing to that portion of the database. Whether that's entertainment that we kind of eat the cost of and provide it on the casino floor, or whether it's amenities, or whatever it is, we want, actively want those guests to still be loyal to our property.

We still want them to visit, we still want to engage with them. We still want volume on the casino floor. Because all those high end guests we're trying to convince to come in aren't going to come in if they're the only people there. They come in and they walk into a completely open warehouse casino. You can't have that. You need the energy, you need the excitement, you need the sound of the slot machines and the music. Dead is not good for a casino. So yeah, I think it's complicated to figure out what to do with low margin, low revenue per visit type of players. And I think that's really changing the marketer's approach. It's much easier to drive an extra trip out of somebody that's worth a thousand dollars because you just have more profit.

Well, I would think also it's just a question of practicality, right? Because when you get into that, just look at how concentrated the play is. So you get your upper segments that are really coming in, hitting it hard, et cetera, and they have pretty, you can kind of isolate their preferences relatively easy, but just because it's a smaller group of people. And so you get into the lower end, it gets so much broader. The interest are so much more dispersed over that population. I think it's just, that's part of it too, is your marketing, it has to be so much broader to those lower end segments.

A hundred percent agree. And I think, look, there's a lot of different ways to provide value to our guests. And one way to do that is to give them a free play offer. Another way to do that is to take an $8 beer and make it $6. So I think figuring out that right mix, and actually I heard Bill Hornbuckle on with Contessa Brewer the other day, and he was saying, look, we're taking this approach at MGM. We realized that we've gone just a little bit too far. And I don't know, he exaggerated whatever it was, but he was like, we have $9 hotel rooms and $20 Starbucks. There's a mismatch there somewhere.

And don't quote me on that. I don't know if those were the exact numbers, but the idea was you can stay at the Luxor or the Excalibur relatively inexpensively, but you still have to pay strip prices for a lot of these amenities, and it just kills the value proposition even of having a cheap hotel room. And so taking a more holistic look at that is something that's happening right now, at least according to Bill Hornbuckle, and I think that's really happening in marketing programs across the country. I think what's the value proposition is a really good question. And if you ask the player, what would you like to see our marketing look like? They're all going to say, we want more free play, right?

Of course.

And when you give them points on their card that they can redeem anywhere, food and beverage outlet in the machine for free play, they all redeem them for free play. They do want that. But I also think that having accessible food and beverage and not having it cost $100s or more for two people to have a meal when they're already playing on the gaming floor, I think that matters. And we're seeing that matter with players. They're responding to that, even if it's not what they say in a survey before it happens.

Hey, Brian, if you think about this long-term, what's the moral of the story here? It sounds like it's part cautionary tale, right? Part saying, hey, ride the wave and get rich doing it. This is what you should focus on as an industry. But is there some kind of risk here? Whether it's economic downturn or anything else that potentially we've relied on the segment, they're not there for us and we've alienated others. Or I think what you're saying is just we really don't have a choice. You can only afford to cater to the segments that you can cater to. It doesn't sound like it's good for consumers, or at least most consumers, probably most people won't disagree. It's probably not great for society. But for the industry, is there some risk here or something you think we should be thinking about long-term? Or is it just something that we don't care about?

Great question, and I'm going to steer clear of the question about what's best for society, but I will give you my thoughts on what's best for the industry. Look, I mean, I think all of these things come kind of cyclically. We move a little bit too far in one direction, and then there's some sort of force pushing back. And then I'm sure we'll move too far in a different direction and then we'll have to push back on that. And I always think of it like an oven. It heats, heats, heats, and then it goes, whoa, you heated too much, cool down a little bit. Then whoa, you've cooled down too much, let's heat back up again.

I mean, I think you're right in terms of direct mail marketing, we almost don't have a choice. If you're going to rationally market with direct mail, you have to change consumer behavior, otherwise you're just spending money. And so when you ask the question of what changes consumer behavior, again, you have to offer them something that's meaningful, otherwise you don't see the behavior change. And so almost you're pigeonholed into focusing most of your efforts and energy at the high end. But that doesn't mean that all of your reinvestment has to be through direct mail. You have so many different ways to market yourself. And you can do that with direct mail, you can do that with loyalty, but you can also do that with how nice your casino looks, and how much guest service training goes to your staff, or how staffed you are.

How easy is it to get a beverage? If you cut all your cocktail servers, that's a problem. But you can reinvest in having great experiences for players on the floor. What's your hotel product look like? What's your restaurant portfolio? Free valet or $50 valet, right? I mean, there's just so many different ways that you can speak to your guests, and finding that right mix... I don't think we have to just focus on the high end in order to get this right. I don't have a magic bullet. I don't know if it's, look, there's casinos downtown that have a hot dog and a beer specials. They put the hot dog cart right on the gaming floor, and you can just go pick up a hot dog and a beer. And I'm going to butcher this with apologies to Seth Shore in the Downtown Grand here, but how much money it costs for the hot dog and the beer.

But the point is, it's relatively affordable just to go into a casino there and get that. And maybe that's not exactly the right answer. But beyond free play and over reinvesting in guests that aren't doing anything differently, you can take that extra budget and put it toward things that actually matter and provide unique experiences. Which I think we're seeing in the data and we're hearing also are what people are looking for if they're casual to mid-range players.

I'd be remiss if I didn't throw in one thing here, which is inventory is also huge. So when we look at this and we took... Where are you making your money and what kind of inventory do you have on your floor? We find so many problematic imbalances there where you just simply do not have capacity for that play that's coming, that kind of demand. And we find that by far the best returns anybody gets is when they alter those. Or when they go in and treat those imbalances, we find that these are just incredible windfalls and have the added bonus that they make the players really happy. So they're coming in and they're saying, well, now I can play what I want to play. So yeah, got to throw that one in there too.

[inaudible 00:59:35] is certainly a form of marketing, right?

No question.

You guys were talking about G2E earlier, and I'm pretty excited to see what the new product is. But somebody at the earliest part of my career said, "What's the best slot floor you've ever been on?" And I said, "I don't know." And they said, "No, you've been on it. It's the G2E slot floor." They've got the best product, and it's all merchandised and it hypes you up and you just feel great on the G2E slot floor. And so again, the moral of the story here is just like you can provide value to your players in so many different ways here. Again, whether that's a development program or product or free play. And so finding that right mix is really what's what people are focused on right now or they're starting to refocus on.

So Brian G2E, I think looks very different for all three of us. So I'm running around the show floor, looking at all the games. Nick and his team are up in their fancy suite on couches, having visitors, having a nice respite from the floor. What's G2E look for you? And then if you care to make one prediction, so either what's the post-show buzz going to be about? Or if we're sitting here a year from now, what's one topic the industry is focused on?

Okay, two questions there. The first is, what's my G2E look like? I am hopeful to get some time on the G2E floor by Thursday. I am somewhere in between you guys. So I spend most of my time having catch-up meetings with folks. I have the most 15 to 30 minute coffee meetings of my year during G2E week. And then occasionally I have folks from out of town that are on a little bit more of a vacation than I feel like I am who want to meet for beer at 11:30 or one in the afternoon. And so I have to carefully meter my coffee/beer ratio throughout G2E week.

But no, I mean G2E week for me is catching up with old friends, with clients, colleagues, people that I want to collaborate with over the rest of the year. We don't ever have enough time to really focus on a real project, but it's always just nice to catch up and see what's going on, what people are thinking about. And then the real work starts the week afterwards with all the follow-up when we get some pointed time. G2E is like, hey, we should really do something together. Yeah, we should. Let's catch up. And so again, it's a lot of coffee, a lot of running around, but I don't know how early in the week I'm going to make it to that show floor. So Thursday for sure, I'll be there. I guess your second question, which took me a second to recall, so-

Prediction.

Prediction, yeah.

Yeah, predictions. Okay. So my G2E I think is probably going to talk a lot about things we've already talked about. Amenity programs, developments like arenas. A lot of folks in regional markets are really trying to focus on entertainment. And again, providing value beyond the gaming floor. So I think that's going to be a lot of, I think I'll spend a lot of time at G2E talking with people about their marketing programs. Because I think there's a general sense that people feel like they're spending all this money and they don't know that they're doing something inefficient, but they want to just ask the question, are we doing the right thing? Could we be doing something smarter? And we're having a lot of those conversations, or engaged in some projects like that.

I think iGaming is going to be a huge topic. We did some work earlier for a group of land-based casinos that was fighting iGaming expansion, and basically answered the question for them, does I gaming affect land-based casinos? And I think most folks out there believe that iGaming has some impact on the gaming demand at land-based casinos at this point, certainly Wall Street does. And I think there's questions like, what does that mean for states that are contemplating iGaming or expansion of gaming into the online realm. Fiscally, what does that mean? What does it mean for jobs? And so I think there's going to be a lot of discussion at G2E about, well, we have this industry and what's our message need to be over the next year to start to win hearts and minds?

Because again, we're not me personally or us as a firm, we're not anti iGaming, and I think most people in the industry generally aren't. But hey, we have land-based casinos that contribute a lot back to the communities and they provide a lot of jobs. And do we just want to leave them in the lurch here? Especially ones you've got all these tribal markets where you've got a single property, they can't build an online platform to compete with FanDuel and DraftKings and even Caesars and MGM. And so there's really a question of how do the land-based entities out there marry with the iGaming industry to create something that doesn't leave anybody behind?

But the topic I'm most excited about, I think coming into this G2E and hearing what people are saying is kind of a niche one. So I won't belabor it, but I'm interested in blockchain. I've been looking at some products and starting to work with one group and discussions with another about some blockchain products. And this isn't like crypto gambling, turn your Bitcoin into whatever. This is really picks and shovels for the industry about how to do this in really a regulated way. Right now when you think about, both of you guys, if you think about blockchain casino, you probably think black market, gray market, it's out there. It's probably operating without a whole bunch of regulation. Maybe it's scary, maybe it's totally fine, I don't know.

But in the US you probably have this reaction, like this is ages away from something that could possibly be implemented. And I feel like regulators with some understanding probably would get behind the idea of it's gambling, but we record literally everything. So you can go back and see exactly what the outcome was of every card that's pulled out of the shoe, every roulette, spin, every slot pull, everything. Again, not that blockchain's required for that, but that's a technology that can help us record everything. And if we had a regulated environment for blockchain, I'm really interested in seeing how that evolves. Both from conversations with a regulator's perspective, as well as whether we get excitement and adoption from the current iGaming industry, or whether we get pushback from that industry. So I'm kind of eager to see how those conversations go. They're just kind of starting right now.

I guess maybe the last thing is I think there's some entertainment stuff that's pretty interesting out there. I mean, I'm leaning to my right, you guys can see that because on camera with you, but our listeners probably can't. But I'm leaning to my right to look out my office window and look at the Sphere. And the Sphere or somebody told me it's not the Sphere, it's just Sphere. So Sphere is this amazing entertainment venue that we have in Las Vegas and there's companies like Cosm out there that are doing small-scale versions of this immersive entertainment. And yeah, I'm sort of excited to see what's on display at G2E from an entertainment perspective. So that's my long-winded answer to your short question.

All right, well let's get a coffee at the show and catch up.

I love that. Let's absolutely do that.

And then Brian, do you have any upcoming events or initiatives that you'd like to promote here?

Upcoming events or initiatives? No, I think it would be great for anybody listening if you're hearing this before the show, come to the show floor Wednesday afternoon and celebrate our new 40 Under 40 class. We have 40 incredible young people that are already making their mark in gaming, and we're going to have a quick toast and a meet and greet to celebrate them. So feel free to reach out. And I don't have the details of that in front of me, but I know it's Wednesday afternoon on the show floor. So look for that. And then yeah, well if you're around, I'm more than happy to chat with anybody that wants to talk about marketing or emerging leaders or any global markets. You name it.

Okay, cool.

Nothing else to pitch, guys.

And Dan, how about you, any upcoming events you want to push here?

No, we're just focused on G2E, right? And then the long-term planning of what's to come. So excited for the next few weeks.

Okay, cool. I have one shameless plug here that I have to make. Okay. So this year's show, I'll be speaking on a panel on the topic of optimizing floor mix strategies for revenue and engagement. This is going to be moderated by Buddy Frank and I'll be joined on stage by fellow panelists, Andrew Cardno of QCI, Stephanie Lau from Konami, and Ryan Scott from Aristocrat. So that's going to be on Wednesday the 8th of October, starting at 10:30 in Titian 2205. That's the ballroom number there, there in Venetian. So I guess that's about it for today, guys. Thank you so much, Brian, for joining us today. It was lovely to speak with you. And yeah, I think I'll be seeing your two mugs here in a week and a half or so.

Can't wait. Thanks for having me guys.

Okay, thanks so much, gents. Have a lovely day.

Okay guys, I think-

Brian was trying for a two-part podcast as well, I think.

I was rooting for it, you know? I'm not a short-winded fella. I don't know.

So hold on just a second here guys. I'm looking for-

We're testing Nick's editing skills here is what we're-

Some of this-

How much can he cut it down?