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? on casino revenue model
Posted by: Tedro (12.37.136.---) Date: May 14, 2002 09:35AM
I have a question on the revenue model for online casinos. Obviously gaming is built around the assumption of 98% payback (or whatever), which means you keep 2 or 3% as profit. Presumably online casinos have similar payback % as do Vegas casinos.
- Is this marginal percentage difference substantial enough to be a viable profit source? Obviously so given the number of online casinos popping up...but what is the experience you all have seen? Do I need to have $1mm per month in gaming bets in order to cover $20k in revenue profits?
- How much profit as a percentage of gross revenue (not including commissions or costs) should I plan as a normal course of business?
- For most licensing deals, is the commissions paid based on Gross revenue (total amount bet) or the profits realized after paying winnings?
Your experience welcome. Thx.
Re: ? on casino revenue model
Posted by: FeCityMavi (---.143.120.24.lvcm.com) Date: May 14, 2002 10:04AM
First off, licensing deals go both ways. Some are paid on Net WIN(After Expenses and Taxes) and some are paid on GROSS WIN(Before Expenses and Taxes).
As for the %, a lot of factors go into this number. Many, and I mean many, of people play until they are OUT. Its the whole 24 hour thing and human nature. When is enough enough. You also have to consider the amount. If you have a few $100 LOSERS and a few $5 WINNERS, you are going to be in GREAT shape. It also works the other way and you may get caught a few times. However, you are the bank, or house, and you have the overall edge and will NOT LOSE in the end. Someone who plays just a few hands and wins them all is getting huge %. Someone will make upthis difference to retain the OVERALL % rate.
I hope this helps and I hope I'm correct. I by know means am an expert. I have worked in land based casinos and have come to realize that the house always wins in the end!
Agree with FeCityMavi ...but....
Posted by: Webmaster (---.ny5030.east.verizon.net) Date: May 15, 2002 04:05PM
Certainly what FeCityMavi said is true and that applies to an online casino. But there are also other factors.
For example an online sportsbook is entirely another animal. AcesGold.com got caught with his pants down for Superbowl and offered a spread of 14 1/2 points when everyone else was offering a spread of 14 points. He lost so many millions he went out of business.
There are also times when Sporsbooks clean house (ex: 2002 March Madness).
Then there's poker, where a %age of the ante is taken as a "service fee." In this case, you NEVER lose and always make $$ as long as you have players. Poker.com licenses casinos on this principal.
Your largest concern is not the royalty, its the Cost Per Acquisition (CPA) of a player. That's where the real costs are. I heard Casino On Net has a CPA of $350 to $500 per player. Newer online operations have a CPA of about $80-120. If the player gambles (an loses) less than this amount (not including costs for a bonus), it is a losing operation.
Its certainly profitable if MARKETED right. Marketed wrong, you lose bog bucks on marketing and there is no need to worry about royalty, because it would be inconsequential in the scheme of things.
Hope that helped.
Webmaster
StartCasino.@#$%&
CPA???
Posted by: FeCityMavi (---.143.120.24.lvcm.com) Date: May 16, 2002 02:22AM
Is CPA (Cost Per Acquisition) an actual fee or is it the formula of marketing money divided by the number of players you have? This is very important and I didn't know the actual name. This is the ultimate tool for marketing. The lower the CPA the better!!!
Marketing WILL be the biggest expense you'll encounter. You shouldn't really worry to much about royalty. Everyone does it and its part of the game.
Re: CPA???
Posted by: Webmaster (151.202.169.---) Date: May 16, 2002 06:23AM
Correct....A low CPA is better for an online casino.
You are incorrect in the formula. The CPA is normally paid to a portal or a website for each player they refer that actually starts an account.
I chose the wrong acronym. Lets call it Marketing Cost Per Player Acquisition (MCPPA). That formulae is as follows:
[ Total cost for all marketing campaigns
+ Incidental Costs
+ E-Commerce costs ]
Divided by ( / ) [ Total number of players acquired ]
So, say you spent $100,000 this month on marketing and got 200 new player accounts. Thats a MCPPA of $500 per player. Unless each player loses more than $500, you just lost $$ on that campaign.
Re: CPA???
Posted by: Tedro (---.lax1.dsl.speakeasy.net) Date: May 16, 2002 06:46AM
Excellent feedback all. I was aware of the importance of thinking thru the marketing/ROI issue - but your thread helps give more insight into that. I'm also assuming that I have the basic mechanics of the revenue required correct: e.g.
- $1,000,000 per month in gambling 'bets' or revenue
- should result in approx $20,000 gross profit (if you followed a standard vegas payout of 98% on average).
The difficulty for me is that any marketing costs, commissions, overhead, etc. should properly be taken out of the gross profit amount - which means marketing cost would completely annhiliate your 20k in 'profit' - thereby increasing the amount you need in 'bets' in order to actually turn a revenue positive cash flow.
This is really my question. Given the need to pay winners, and the fact that your margin is only 2-3% (we'll use 2% conservative), how much overall gross gaming amount do you need to see per month in order to actually have a viable income? Presumably larger co's like Casino on Net will spend millions on marketing, which means they do tens to hundreds of millions per month on gaming revenue. For smaller players, what amount do you market towards in your model? Do you assume having >$1m per month in gaming revenue?
Just trying to get a handle on the scale of economics involved.
Thanks again for the feedback.
Casino Results / Marketing
Posted by: Webmaster (---.dyn.optonline.net) Date: May 17, 2002 02:52PM
If an online casino does $1 million + a month in wagers ("handle"), they are most likely doing well better than $20,000 in profit ("drop").
Marketing costs change the scope of the picture entirely. The companies that do the marketing keep their secrets - very secret. Obviously, you want the biggest bang (most players) for the least bucks. That's the trick. And its a complicated one these days.
When starting a casino, expect to spend an absolute minimum of $20,000 per month on marketing. The more you spend, the better you do. And it has to be spent smartly. Alot of companies waste marketing dollars on useless campaigns. There is also competition. I hear Casino On Net is spending $27 million a month on marketing. That's right! $27 million EACH MONTH! That's tough to compete with. So you just want a piece of the market, not the lion's share.
Affiliate Programs - Conference Sept 25-27 in Vancouver
Posted by: Webmaster (---.dyn.optonline.net) Date: May 17, 2002 02:57PM
I forgot to add that Affiliate Marketing is the big push with online casinos. Why? NO MARKETING COSTS. Advertisig is free and you pay for results.
That's why the @#$%& going on September 25-27 in Vancouver is so important. It allows a casino operator to meet as many portal webmasters (affiliates) in one room at one time. People who run gaming portals (ie; they get traffic) will be there. An online casino would attend to sign up as many of these affiliates as possible. It also creates loyaly.
Consider that in your program.
[ www.casinoaffiliateconference.com]
Webmaster
StartCasino.@#$%&
Re: Casino Results / Marketing
Posted by: Russell (---.dialup.cl.spb.ru) Date: May 19, 2002 07:24AM
... Alot of companies waste marketing dollars on useless campaigns.
Could you give some examples of this "useless campaigns"?
Thanks..
Re: Casino Results / Marketing
Posted by: Webmaster (---.ny5030.east.verizon.net) Date: May 19, 2002 08:37AM
OK....Here's two old classics (names are changed to protect the innocent - and the guilty ;-)
Marketing company X took a budget of $75,000 per month from the management of internet casino Z.
1) Marketing company X would place a media buy for banner ad placements of $2000 on a web site. They would charge their client (internet casino Z) $8000 for the same media buy - which is a markup of 400 %! (15 % is standard in the industry - not 400%).
2) Marketing company X would charge internet casino Z for banner ad placements on portals which Marketing company X owns and operates. While that is acceptable, the client shouldn't pay a premium rate for ad/banner space on the portal, as they are a client. Marketing company X would never inform internet casino Z that the portal was in fact their property.
There are many other examples. Overpromise and under-deliver, using an excuse that the artwork ("creatives") for the banner were not effective. On the other hand, I've seen cases where this excuse IS actually true.
I once met an "online marketing expert" that was "handling 5 casinos." I tried to help the guy out with some contacts. Turns out he didn't know the industry at all and knew even less about online marketing.
Trust is very important in this industry. Not just with the software provider, but with the marketing company you use.
There are trustworthy companies out there. Your name and your reputation makes your mark in this industry. When someone goes back on their word with me, they are "out," which is the last place on earth I would want to be in this business.
Re: Casino Results / Marketing
Posted by: bebe (62.90.13.---) Date: May 29, 2002 08:50PM
Finally somebody say the truth about most of the so called "marketing companies in this industry.
Re: Casino Results / Marketing
Posted by: Webmaster (---.ny5030.east.verizon.net) Date: May 30, 2002 04:41PM
Thanks Bebe....I tell it like it is.
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