90.2K

Verified Solution

Link Copied!

Case 21 City Casino CACC TABLEA D OS Atlantic City Casino Several years ago the management of a large hotel chain, Hotel Corporation of American (HCA) purchased a casino in Las Vegas. Pleased with the results HCA constructed another casino in Atlantic City shortly after casino gaming was legalized in that city. At the time the proposal in this case arose (see below) there were 9 other casinos operating and 2 additional casinos under construction The casino is an independent operating unit within the hotel chain. For example, all financial and accounting services are provided in house. The casino has been profitable since the day it opened. However, the level of profits has not been satisfactory. Corporate management is well aware that HCA would have been better off if the huge sums involved in the construction of the casino had been Invested in certificates of deposit. The Proposal Management of the Atlantic City Casino has employed several consulting services to study the market and the casino's position in the market. Consumer surveys have shown that the casino is viewed as an average casino, with no distinguishing characteristics. Coupled with its location (several blocks from where most of the casinos are locaged) this perception of blandness seems to explain the casino's relatively small walk-in trade (most visitors to Atlantic City visit more than one casino: people staying at one casino who visit a second are considered walk-ins at the second casino). A proposal has been made to expand the casino and hotel (state law prescribes a fixed number of hotel rooms per square feet of casino space). As part of this expansion, the proposal includes the construction of a theme entertainment center. The center would be separate from, but attached to, the casino. The showpiece of the center would be a large Ferris wheel designed to look like a giant wheel of fortune. It would be visible from a large portion of the boardwalk. Additionally, the area would include a unique water slide, bumper cars, a space capsule ride and a fun house. Throughout the area would be a number of small souvenir and snack shops, push carts, tent shows and midway-type games to provide an old-fashioned style carnival atmosphere. An admission fee would be charged to enter the theme center and most of the rides and entertainment would be included in the admission fee. Management expects to be able to use free admission tickets to the center as a promotional item. There would be easy access from the center to the casino floor. It is anticipated that a large number of the visitors to the center would also visit the casino Although management is impressed by the plan and has already had detailed architectural plans prepared for the expansion, they are cautious. When the casino was first built, everyone was enthusiastic about the casino's potential, but the results have been disappointing. Management wants a thorough study made of the financial prospects for this expansion before committing funds to it Detailed financial data for every casino in Atlantic City are public information and are routinely exchanged. Thus, data such as that given in Tables A and B for the current year are readily available. TABLE A Selected Annual Financial Data (000s omitted) Revenues Property Atlantic City Casino Competitors Casino $ 220,183 Rooms $ 14,862 Food and Beverage $36,833 Net Income $ 23,921 254,753 224,077 237,700 158,602 210, 848 251, 675 147,037 121,581 123,947 17,604 14,836 15,787 9,897 13,870 17,665 10, 191 13,469 12,157 36, 457 34,493 35,168 18,788 35, 265 33,867 35,020 21,863 22,643 40,979 18,834 47,146 1,574 64,765 17,904 (9,075) 2,246 (1,176) * In operation in for only 6.5 months TABLE B Selected Statistics Casino Space (square feet) 50,850 Property Atlantic City Casino Competitors Number of Rooms 521 Number of Restaurants 727 645 59,857 59,296 59,439 49,639 52.083 40,814 50,516 34,408 60,000 512 501 750 504 500 504 612 Background Information Customer surveys indicated that a vast majority of the visitors to Atlantic City gambling casinos are middle-age adults who live within 150 miles of Atlantic City. Further, there are 2 distinct groups of visitors. Approximately 17 percent of the visitors are frequent visitors averaging 24 visits per year and accounting for 67 percent of all visits. The remaining 83 percent of the clientele are infrequent visitors averaging 2 to 3 visits per year and accounting for 33 percent of total visits. The firm found that approximately 11 percent of the people living within a 150 mile radius visit Atlantic City annually. This compares with 14 percent of the people living in Las Vegas primary marketing area who visit Las Vegas annually. Thus it appears that future market expansion is possible. The firm also noted that there has been a change in the mix of mode of transportation for visitors. Initially 92 percent of all visitors arrived by private car, now 44 percent arrive by bus. This change is significant as there is a difference in spending patterns. Auto travelers tend to spend a couple of days in the city. Hence they eat more meals and need lodging. Bus travelers are usually day trippers who come only to gamble. They do not need lodging and generally only eat lunch, some snacks and beverages Required: 1. Complete a value chain analysis. Describe your understanding of the competitive position of the Atlantic City Casino, Identity areas for potential cost reduction and/or value added for customers. 2. Should HCA make the investment in the theme entertainment center? Why? The firm also noted that there has been a change in the mix of mode of transportation for visitors. Initially 92 percent of all visitors arrived by private car, now 44 percent arrive by bus. This change is significant as there is a difference in spending patterns. Auto travelers tend to spend a couple of days in the city. Hence they eat more meals and need lodging. Bus travelers are usually day trippers who come only to gamble. They do not need lodging and generally only eat lunch, some snacks and beverages. Required: 1. Complete a value chain analysis. Describe your understanding of the competitive position of the Atlantic City Casino, Identify areas for potential cost reduction and/or value added for customers. ses 2. Should HCA make the investment in the theme entertainment center? Why? 3. HCA is considering a balanced Scorecard for the Atlantic City Casino. For each of the four areas within the balanced scorecard two or three examples of measurable critical success factors which should be included Case 21 City Casino CACC TABLEA D OS Atlantic City Casino Several years ago the management of a large hotel chain, Hotel Corporation of American (HCA) purchased a casino in Las Vegas. Pleased with the results HCA constructed another casino in Atlantic City shortly after casino gaming was legalized in that city. At the time the proposal in this case arose (see below) there were 9 other casinos operating and 2 additional casinos under construction The casino is an independent operating unit within the hotel chain. For example, all financial and accounting services are provided in house. The casino has been profitable since the day it opened. However, the level of profits has not been satisfactory. Corporate management is well aware that HCA would have been better off if the huge sums involved in the construction of the casino had been Invested in certificates of deposit. The Proposal Management of the Atlantic City Casino has employed several consulting services to study the market and the casino's position in the market. Consumer surveys have shown that the casino is viewed as an average casino, with no distinguishing characteristics. Coupled with its location (several blocks from where most of the casinos are locaged) this perception of blandness seems to explain the casino's relatively small walk-in trade (most visitors to Atlantic City visit more than one casino: people staying at one casino who visit a second are considered walk-ins at the second casino). A proposal has been made to expand the casino and hotel (state law prescribes a fixed number of hotel rooms per square feet of casino space). As part of this expansion, the proposal includes the construction of a theme entertainment center. The center would be separate from, but attached to, the casino. The showpiece of the center would be a large Ferris wheel designed to look like a giant wheel of fortune. It would be visible from a large portion of the boardwalk. Additionally, the area would include a unique water slide, bumper cars, a space capsule ride and a fun house. Throughout the area would be a number of small souvenir and snack shops, push carts, tent shows and midway-type games to provide an old-fashioned style carnival atmosphere. An admission fee would be charged to enter the theme center and most of the rides and entertainment would be included in the admission fee. Management expects to be able to use free admission tickets to the center as a promotional item. There would be easy access from the center to the casino floor. It is anticipated that a large number of the visitors to the center would also visit the casino Although management is impressed by the plan and has already had detailed architectural plans prepared for the expansion, they are cautious. When the casino was first built, everyone was enthusiastic about the casino's potential, but the results have been disappointing. Management wants a thorough study made of the financial prospects for this expansion before committing funds to it Detailed financial data for every casino in Atlantic City are public information and are routinely exchanged. Thus, data such as that given in Tables A and B for the current year are readily available. TABLE A Selected Annual Financial Data (000s omitted) Revenues Property Atlantic City Casino Competitors Casino $ 220,183 Rooms $ 14,862 Food and Beverage $36,833 Net Income $ 23,921 254,753 224,077 237,700 158,602 210, 848 251, 675 147,037 121,581 123,947 17,604 14,836 15,787 9,897 13,870 17,665 10, 191 13,469 12,157 36, 457 34,493 35,168 18,788 35, 265 33,867 35,020 21,863 22,643 40,979 18,834 47,146 1,574 64,765 17,904 (9,075) 2,246 (1,176) * In operation in for only 6.5 months TABLE B Selected Statistics Casino Space (square feet) 50,850 Property Atlantic City Casino Competitors Number of Rooms 521 Number of Restaurants 727 645 59,857 59,296 59,439 49,639 52.083 40,814 50,516 34,408 60,000 512 501 750 504 500 504 612 Background Information Customer surveys indicated that a vast majority of the visitors to Atlantic City gambling casinos are middle-age adults who live within 150 miles of Atlantic City. Further, there are 2 distinct groups of visitors. Approximately 17 percent of the visitors are frequent visitors averaging 24 visits per year and accounting for 67 percent of all visits. The remaining 83 percent of the clientele are infrequent visitors averaging 2 to 3 visits per year and accounting for 33 percent of total visits. The firm found that approximately 11 percent of the people living within a 150 mile radius visit Atlantic City annually. This compares with 14 percent of the people living in Las Vegas primary marketing area who visit Las Vegas annually. Thus it appears that future market expansion is possible. The firm also noted that there has been a change in the mix of mode of transportation for visitors. Initially 92 percent of all visitors arrived by private car, now 44 percent arrive by bus. This change is significant as there is a difference in spending patterns. Auto travelers tend to spend a couple of days in the city. Hence they eat more meals and need lodging. Bus travelers are usually day trippers who come only to gamble. They do not need lodging and generally only eat lunch, some snacks and beverages Required: 1. Complete a value chain analysis. Describe your understanding of the competitive position of the Atlantic City Casino, Identity areas for potential cost reduction and/or value added for customers. 2. Should HCA make the investment in the theme entertainment center? Why? The firm also noted that there has been a change in the mix of mode of transportation for visitors. Initially 92 percent of all visitors arrived by private car, now 44 percent arrive by bus. This change is significant as there is a difference in spending patterns. Auto travelers tend to spend a couple of days in the city. Hence they eat more meals and need lodging. Bus travelers are usually day trippers who come only to gamble. They do not need lodging and generally only eat lunch, some snacks and beverages. Required: 1. Complete a value chain analysis. Describe your understanding of the competitive position of the Atlantic City Casino, Identify areas for potential cost reduction and/or value added for customers. ses 2. Should HCA make the investment in the theme entertainment center? Why? 3. HCA is considering a balanced Scorecard for the Atlantic City Casino. For each of the four areas within the balanced scorecard two or three examples of measurable critical success factors which should be included

Answer & Explanation Solved by verified expert

See Answer