When someone starts working at a Pennsylvania casino, they learn about a concept called “Gross Terminal Revenue,” which replaces the traditional definition of slot revenue used in most states. It’s ubiquitous because it’s the revenue figure that is reported to the state regulators, and against which revenue taxes are calculated. Casinos in Maryland and West Virginia use this measure as well. So what exactly is GTR? Simply put, GTR = Revenue minus Promotional Play. Revenue is calculated the traditional way — wagers less payouts, or (coin-in − (coin-out + hand-pays)) — but then we also subtract Promo Play (free play, e-play, bonus dollars, etc).
As an example, traditionally, if a casino collects $1,000,000 in coin-in and pays out 92% (or holds 8%), it records $80,000 in slot revenue. But in a GTR state, we’d take this a step further and also subtract the promotional play. If that is, say, $16,000, then GTR is $80,000 − $16,000 = $64,000. This is the GTR number reported to the state and more importantly, the base for revenue taxes. When you’re paying 50%, 60%, or higher, as in Pennsylvania and Maryland, every dollar counts!
But why does this even matter to anyone (except accountants of course)? What are the implications for marketing? Surprisingly, I’ve found that many colleagues haven’t realized how the impact of a promotion may differ in a GTR state, as opposed to a traditional revenue one. Plenty of marketers and executives come to Pennsylvania or Maryland from New Jersey, Nevada, Connecticut, or other traditional revenue states without reconsidering certain promotional strategies.
The most obvious, is that all things being equal, promotional slot credit becomes far less expensive to give away than gifts or free food. In the above example, distributing $16,000 of promo play would reduce revenue taxes owed by approximately $8,800 (55%) in PA. If you gave away $16,000 in food comps, or in gift cards, or as 1600 $10 waffle irons, there would be no tax relief. (edit: in 2014, the PA Supreme Court reversed rulings by lower courts that these types of gifts should not be included in the “promotional expense” that is subtracted. So going forward, it may turn out that these expenses do provide the same tax benefits as promotional play).
Internally, EBITDA should be unaffected, whether promotional expenses are deducted from the top line or subtracted below as one of many expense items. But in reality, many management teams are (at least partially) incented on revenue or market share. Traditional revenue can be increased by giving away more promotional play. If a player visits with nothing but $100 of promo dollars, and leaves with $80 in cash, this is recorded as +$20 in traditional revenue, but it’s -$80 in GTR. So over-comping is much more detrimental to GTR than to traditional revenue. Bottom line, the GTR calculation subtracts promotional play, therefore reducing promotional play will increase GTR, all other things being equal. Yep, I buried the lede.
GTR also impacts the way we rate individual players, distinguishing between those who play mostly with their own money, and those who take advantage of every dollar of “free” money available to them. More on that in a future post.
