how much does a comped room cost the house?

When a casino offers a free hotel room to either reward or entice a gambler, it's not "free" for the casino. Expenses are incurred. Here are my uneducated assumptions, help me correct them:

1) Opportunity cost. This occurs when the room is removed from the hotel's inventory of vacant rooms, and the hotel loses revenue that could have been. This expense is much greater for high roller properties (Wynn, Venetian) than for low roller properties (Circus Circus, Imperial Palace). But this cost is only measurable on busy nights when the hotel is booked up. On slow nights with many vacant rooms, there is no opportunity cost, right?

2) Materials and supplies. Miniature soap bars, mini shampoo bottles, toilet paper, laundry detergent for the towels/sheets. I'm guessing that these expenses add up to less than $5.

3) Electricity usage and water. I'm guessing that in Vegas the water is much more expensive than the electricity. $1? $2?

4) Wear and tear. Eventually all those mattresses, TVs, and lightbulbs need to be replaced.

5) Labor. The reservation agent, the front desk clerk, maybe the maintenance guy to replace a lightbulb, and maybe the casino host, if the gambler's play warrants it. But I'm guessing that aside from the casino host, the maid devotes more time to a free room than any other employee. How many rooms can a maid clean in 1 hour? Are the maids at Circus Circus expected to clean more rooms per hour than the maids at Bellagio?

What other expenses am I missing? Excluding opportunity cost, what's the grand total? $10? $15?

The Casino Marketing Department pays for the room at an internal figure known as The Casino Rate.

In reality, the room is already reflected in interest payments and wage costs. The toiletries have already been purchased and the storage space already taken up by them. The Housekeeper is already on the payroll and her mop bucket is already paid for.

Its said that sixty percent of rooms are comped in which case it can more a question as to how much it would hurt a hotel to NOT comp a room. Some hotels are experimenting with late afternoon check ins and also with early morning checkins.

The casinos in Primm closed the hotels during the week rather than have them virtual ghosttowns. So obviously there is indeed some cost to a hotel room but I've long felt that once you get to sixty percent of the rooms being free, you might as well make them all free.

Quote: reno

1) Opportunity cost. This occurs when the room is removed from the hotel's inventory of vacant rooms, and the hotel loses revenue that could have been. This expense is much greater for high roller properties (Wynn, Venetian) than for low roller properties (Circus Circus, Imperial Palace). But this cost is only measurable on busy nights when the hotel is booked up. On slow nights with many vacant rooms, there is no opportunity cost, right?
What other expenses am I missing? Excluding opportunity cost, what's the grand total? $10? $15?

I suspect that the opportunity cost is rather minimal most of the year. If there is even one un-booked room in the same room grade, there is no opportunity cost. Also, I wonder if the higher end properties have higher vacancy just because of the price.

In the late 1980's, I worked in a night club that was part of a hotel.

The staff was offered rooms, after the club closed at 3:00am, at the rate of $6 for one night. This was a courtesy rate for any staffer that was truly tired, or got drunk during the clean-up period after closing.

If they had unsold rooms after the last customer left the club, the room wasn't gonna get sold.

The price of $6 was what they estimated it cost to send housecleaning in and wash the sheets & towels.


So, at that hotel, in the 1980's, not considering all those other soft costs, the cost was $6. I'm not sure if that helps to answer the question or not...

Quote: DJTeddyBear

In the late 1980's, I worked in a night club that was part of a hotel.

The staff was offered rooms, after the club closed at 3:00am, at the rate of $6 for one night. This was a courtesy rate for any staffer that was truly tired, or got drunk during the clean-up period after closing.

If they had unsold rooms after the last customer left the club, the room wasn't gonna get sold.

The price of $6 was what they estimated it cost to send housecleaning in and wash the sheets & towels.

So, at that hotel, in the 1980's, not considering all those other soft costs, the cost was $6. I'm not sure if that helps to answer the question or not...

I am sure that the fixed costs are higher than $6. Your night club didn't report those rooms to the IRS, it was just courtesy to the staff. What a boon to a Lothario on the staff.

When the downtown Vegas casino hotel rates were regularly going much below $30 they began to shut down the hotels, saying they couldn't afford to operate them.

Last fiscal year, we can look at the reports from the 23 casinos that made over $72 million per year individually in gaming revenue. I'll list those casinos at the bottom.
Together they had
25,935,123 rooms / 23 casinos = 1,127,614 rooms per casino /365 = 3,089 average available room per casino
23,343,511 rooms were either sold or comped for a 90.01% occupancy rate.

$2,150,807,736 value of the rooms sold ($2.1 billion)
$ 700,100,311 value of the rooms comped ($700 million)

The above ratio of the value of sold to comped rooms is roughly 3:1 . It would be interesting to see what is the actual ratio of sold to comped rooms. I would guess that the rooms that are comped are often of much higher value than the rooms sold. There is probably a battle with the IRS about the methods that a value is assigned to comped rooms, because the casino gets to deduct this as a business expense. I suspect that if the actual ratio of rooms is radically different than 3:1 then the IRS would have a big problem.

In any case, the average room cost was $122.13, and the average cost per available room would be $109.92 (including the vacancies).

I suspect if you added up the rooms listed for each of these casinos, you would get slightly more than an average of 3089. That is because if a wing is taken down for maintenance, it is not listed as an "available room". Once again it looks better on a balance sheet to have a higher occupancy percentage.

The 23 casinos that individually made over $72 million apiece in gaming revenue are:

	Las Vegas Strip
	MGM Resorts Inc
1	ARIA RESORT & CASINO
2	BELLAGIO
3	EXCALIBUR HOTEL AND CASINO
4	MANDALAY BAY RESORT & CASINO
5	MGM GRAND HOTEL/CASINO
6	MIRAGE, THE
7	MONTE CARLO RESORT & CASINO
8	NEW YORK - NEW YORK HOTEL & CASINO
9	LUXOR HOTEL AND CASINO
	Ceasars Inc
10	CAESARS PALACE
11	BALLY'S LAS VEGAS
12	FLAMINGO LAS VEGAS/O'SHEAS
13	HARRAH'S CASINO HOTEL LAS VEGAS
14	PARIS LAS VEGAS
15	PLANET HOLLYWOOD RESORT & CASINO
16	RIO SUITE HOTEL & CASINO
	Other Corporations
17	GOLD COAST HOTEL AND CASINO
18	LAS VEGAS HILTON
19	PALMS CASINO RESORT
20	TREASURE ISLAND
21	VENETIAN & PALAZZO
22	WYNN & ENCORE
23	PALACE STATION HOTEL

Notice that several high profile casino resorts like Hard Rock Casino are not on the list. Neither are some of the older casinos like Riviera, Circus Circus, Tropicana, and Imperial Palace.


Room expenses are listed as
$1,171,707,820 / 25,935,123 = $45.18

Note that I used the larger number of rooms including vacancies, because it seemed that most costs are there regardless if a room sits empty.

Then the departmental employee payroll is listed at $32.34 per day. I would use the $45 number since that would cover expendables and other costs like electricity and water.

I just got an email for a 49.00 room at SouthPoint with a 20.00 Resort Credit and one of thus Fun Book of discount and twofer coupons. So what is the room really going for particularly if there is something about a free automatic upgrade?

Quote: pacomartin

I am sure that the fixed costs are higher than $6. Your night club didn't report those rooms to the IRS, it was just courtesy to the staff. What a boon to a Lothario on the staff.

I did mention, twice, that it was in the 1980's.

And they based it on the actual costs of an occupied room vs a vacant room. They didn't include any of the costs of having the room in the first place.

Quote: DJTeddyBear

I did mention, twice, that it was in the 1980's.

And they based it on the actual costs of an occupied room vs a vacant room. They didn't include any of the costs of having the room in the first place.

Well maybe that estimate isn't that bad. The "room department" of a casino doesn't include the cost of financing the construction of the room either.

To follow my earlier post, the $45.18 that represents the average expense of the room can be further broken down.

$1.95	Payroll-Taxes
$6.65	Payroll-Employee Benefits
$0.12	Payroll-officers
$20.39	Payroll-Other Employees
$0.27	Bad Debt
$3.61	Complimentary Expenses
$12.19	Other Departmental Expenses
$45.18

I assume "complimentary expenses" refers to the chocolates, magazines, soap, shampoo, etc.
So, leaving out payroll expenses that is only $3.61+$12.19=$15.80 per room night. That is pretty much $6 adjusted for 30 years of inflation.

Either way, my guess is that the best answer to OP's question would be $45 if we consider the payroll for the staff.

Of course, the casino only gives the free room away thinking that they will get more on gambling eating or drinking.

The other way to look at the bottom line is that these 23 casinos have 26 million rooms for use in the fiscal year. They need to get people to spend $537.52 per available room night to break even. Considering that 10% of the rooms are empty, they need to get people to spend $597.20 per occupied room night.

It doesn't matter how it's done. You can pay for the room, or pay for it by gambling, or you can eat and drink, or go to shows, or buy stuff. But that is there break even point.