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ISSN 1940-204X TallTree2 Hotel Casino John R. Mills University of Nevada at Reno Jeffrey Wong University of Nevada, Reno Background could be...

Hello,

I see you have an analysis for the case and there are many percentage statistics. You do not show any explanation or calculation on how you came up with those statistics though. Can you please provide a more analytic answer on how you calculated those statistics.

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BACKGROUND The TallTree2 Hotel Casino is a 640-room resort complex featuring a full range of Nevada-style gaming: slot machines, table games (twenty-one, craps, poker, roulette, baccarat, and keno). Besides the hotel and casino, it also has four separate restaurants, two entertainment showrooms, and three gift shops. It is located in the extremely competitive Reno, Nevada, market that includes 25 other hotel casino properties within a 10-mile radius. Given the competitive market, the casino management uses a wide range of marketing promotions to attract customers to the casino facilities where, it is hoped, they will try their luck at the slots or table games. Casinos are designed in such a way that customers must walk through or past the gaming area to get to the restaurants or the hotel registration area. The primary objective of a hotel casino property is to keep a gaming customer in the complex. The casino industry is a unique service industry that has created gaming odds that over a period of time will result in the casino generating revenues from its customers. For example, in northern Nevada, the house normally keeps 2.1% of every dollar that a player puts into a slot machine. Other states and Indian properties can retain up to 12% of each dollar played. For table games the normal return is 12% of drop (money lost by players). To maximize the casino profits, the key is to provide services within the property in order to keep the player gambling in the property. Thus, if players are in need of a drink, get them one. If players are hungry, make sure that they eat at one of the casino restaurants. If players want a rest, give them a room. Each of these services is provided at a minimal cost to guests compared with the revenues that could be generated by the players gambling. Thus, room prices as well as food and drink prices were set very low to get the customer in the door and keep them there with the notion that these reduced costs would be recouped with casino customer play. But, as the hotel casino structure expanded into luxury hotel complexes with upscale shopping centers (substantially increasing capital expenditures), management now wants these departments to operate more like profit centers. Whereas 20 years ago the casino department generated over 90% of total property revenues, current property revenues are more spread over a range of departments. The current income statement (Worksheet #1) for TallTree2 Hotel Casino shows that 64% of revenues are generated by gaming while rooms (14%), food (12%), beverage (6%), and other (4%) make up the remaining 36%. Northern Nevada casino operations are cyclical, with peak demands occurring on Friday and Saturday (100% hotel occupancy) and during July, August, September, and October. Hotel room rates can change substantially, with rates during the slow period as low as $49 but the same room selling during the Hot August Night Special event for $350 per night. Special holidays such as Thanksgiving and Christmas have traditionally been very slow for casinos, whereas for holidays such as the Fourth of July, the hotels and casinos are packed. To compensate for the slow periods, casinos have developed a series of special events. Special events are typically more likely to be offered during midweek or in slow months in order to generate incremental gaming revenues. Any weekend or holiday special events are normally reserved for the “high rollers.” IMA EDUCATIONAL CASE JOURNAL VOL. 2, NO. 1, ART. 2 MARCH 2009 1 ISSN 1940-204X TallTree2 Hotel Casino John R. Mills University of Nevada at Reno Jeffrey Wong University of Nevada, Reno
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SPECIAL EVENTS TallTree2 offers a range of special events at its property. These have included golf tournaments, boxing matches, New Year parties, and a series of pit, keno, and slot tournaments. The special events may be offered to all customers or to a select group of customers. An event such as the New Year party is normally reserved for select preferred customers who are rated as “high roller” players and who spend large sums of money. In the past Judy Fitch, the vice president of marketing, always had free rein in offering special casino programs. Increasing competition has caused profit margins to drop. Terrence Wei, the new property president, has just implemented a new policy requiring that all special events and promotions now be looked at in terms of contributions to overall property income. Mr. Wei has indicated that if a specific special event cannot generate a positive net income, it will be discontinued. Special events in the future will have to be approved by the Casino Marketing Committee. For each special event, a proposed event budget of estimated revenues and costs will be submitted using the format devised by the controller, Bill Martino. A performance report comparing actual results with the original budget figures must be filed within 14 days after the event ends. Analysis of the results will be used to make a decision about whether to continue holding the special event. Mr. Wei wanted to use the Stars and Stripes Slot Tournament as the basis for defining what types of cost and revenue information should be included in the evaluation of future special events. He asked his controller, Bill Martino, to provide a schedule with the relevant information. Evaluating the profitability of an event such as the Stars and Stripes tournament requires casino, hotel, restaurant, and beverage segments to charge their costs separately to the special event. The resulting Work Sheet #2 was prepared by Martino for the Stars and Stripes event. STARS AND STRIPES SLOT TOURNAMENT SPECIAL EVENT The Stars and Stripes Slot Tournament was held on the Sunday and Monday following the Fourth of July, 2009, at the end of a long holiday weekend when the hotel was running at 100% occupancy. Some of the special event players arrived early and rented rooms that could have been sold to regular customers. The tournament used 171 slot machines that normally would have been available to regular players. These were roped off and converted into tournament machines. Tournament machines do not accept any currency or coin, nor do they pay out any currency or coin. Players push the “play” button as quickly as possible during the allotted time period and cumulate points based on the winning combinations of the slot machines. The player who has accumulated the most points is declared the winner and paid a cash prize. STARS AND STRIPES WORKSHEET CALCULATIONS Direct revenues of a special event consist of the entry fees (A) plus room revenues (B) for players not provided complimentary rooms. Marketing’s Judyº Fitch expected that 100 customers would pay the fee of $129 to play in the tournament. She also expected that these customers would bring additional guests and she therefore projected having 240 room nights for the event. She thought that 194 of the room nights would be paid for by players, while 40 regular room nights (D) and 6 suites (C) would be complimentary (“comped”). The players who paid for their rooms would get the discounted casino rate of $45 per night. The normal rack rate 1 for rooms being charged over this holiday period is $55. Any player who obtained a suite would be charged the discounted casino rate of $125 per night. The normal rack rate for a suite is $137. When the Stars and Stripes Slot Tournament was completed, Ms. Fitch found that the tournament actually generated entry fee revenue of $129 per player for 171 participants. Only 168 rooms were paid for by the players. Four suites were also paid for (that is, 168 rooms at $45 per room plus 4 suites at $125 per suite). Ninety-seven rooms were comped. (Worksheet #2 (C+D) Some costs can be traced directly to a special event and do not pose the problems inherent in arbitrary allocations. Such cost items include usage tax, operating supplies, printing and stationery, postage and freight, gifts, and prize money (F) (at approximately 83% of entry fees). Complimentary costs and allocated overhead costs included in the direct costs pose more of a problem in determining the amount to allocate. IMA EDUCATIONAL CASE JOURNAL VOL. 2, NO. 1, ART. 2 MARCH 2009 2 1 The rack rate is the price a hotel charges for a room as opposed to a discounted raate that would be charged in conjunction with a special event.
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See file "Calculations TallTree2" for an analysis of the critical calculations... View the full answer

Calculations TallTree2.pptx

D. Evaluation of STARS AND STRIPES Two types of special events
Slow periods Busy seasons During midweek / in slow months At weekend / on holidays To all customers To “high roller” Attract...

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