More and more guests in European casinos are rebelling against the unwritten rule of having to tip when experiencing a winning streak. I recently wandered into one of the more successful casinos in Switzerland and could not help overhearing a conversation between a customer and a dealer.
The ‘lucky’ client had just won a straight-up on roulette and, despite already having lost a significant part of his bankroll, was asked to give ‘one piece for the boys?’ This was meant as a rhetorical question rather than intending to give the customer a real option - the dealer already held the chip in his hand and shortly thereafter deposited it into the tip box - without waiting for the customers’ reply. Obviously, this experience neither delighted nor convinced the patron of having received excellent customer service.

Payroll Systems in European Casinos
Contrary to their North-American counterparts, the majority of European casinos (with the exception of the UK) manage their payroll by pooling their tips and distributing them according to a seniority based point-system. This system was conceived decades ago without much thought for behavioral aspects or congruence with the organisation’s strategy. Given the exposure to high taxation of European casinos, which can amount up to 80% in some countries, avoiding a fixed salary structure and thereby eliminating a big chunk of overhead costs is evidently a rational approach. Or is it really?

A recent article in the Financial Times described an economist’s view on tipping as anomalous behavior that challenges fundamental assumptions about the rationality of the economic man. This is because tipping after a service has been provided cannot affect the quality of service, thereby contradicting the arguments of many casinos that tipping is a necessary evil if one wants to receive good customer service.

So if it does not have anything to do with improving the quality aspects of the customer’s casino experience, why should anybody in their right mind part with some of their winnings?

One of the major downfalls of this system is that it creates a clear divide between the front-line staff’s and the company’s financial objectives. Aiming at maximising their full earning-potential, employees are likely to favor paying out as many times and as much as possible to receive their share of the pie. Conversely, for the company to survive in the long-run, the majority of customers have to loose increasingly more to be able make up for lost tip revenues – in particular when you pay such an exorbitant tax-rate.

Customer Service Nightmare
From a customer’s point of view this is particularly bad news since whilst not offered a genuine choice to tip or not, the actual house advantage is tilted dramatically towards the clients’ detriment. For example, gaming staff at a single-zero roulette table would expect customers to part with at least of one piece of their winnings when hitting a straight-up, disregarding the current state of the player’s bankroll. By doing so, the customer will be exposed to the same house advantage as on a double-zero wheel, namely 5.4%. Logically, the risk of ruin is much higher and chances of having a positive gaming experience are drastically dampened, mainly since the perceived value for money (i.e. time on table) is shortened considerably. Apart from the customer, the house is also dealt a bad hand since it has to virtually split its revenues with their employees – with the difference being that once deposited into the tip box the money is out of reach for either, the customer and the company.

Numerous casino customers, in particular of the younger generation, attempt to break with this tradition and refuse to give tips when experiencing a bad run. Given that many European casinos operate under near monopolistic conditions, many of their front-line employees were so far successful in maintaining the status-quo of this incumbent tipping-system. However, declining attendance figures and an overall downturn in macro economic conditions has led to a tangible decrease in real-term casino wages in recent years, highlighting a need for a long-term alternative solution.

What about the future?
Feeling the downturn in the economy and competitive pressures from newly created gaming jurisdictions such as Switzerland, has forced some of the border casinos to have a close look at their current strategy. Some have figured out that if market growth rates continue to stagnate, the resulting reduction in business levels have a considerable negative impact on people’s willingness to tip. Consequently, more and more European casinos experience a leveling off or even see tangible decreases in their tip-pools, thereby increasing employee’s willingness for structural changes.

Some of the casinos in Switzerland experimented with alternative payroll systems that aligned the employee’s and company’s objectives by only paying out a small percentage of the accumulated tips and use the rest to support a fixed base-salary structure with a variable performance component. In addition, the basis for the distribution of the tip-pot has been changed to induce more accountability and focuses on fostering and rewarding customer service oriented behavior – rather than merely using seniority.

Time will tell how European casinos will tackle this problem and improve their customer service record. My guess is that this will happen rather sooner than later.

Date Posted: 21-Apr-2005

PETER KLUGSBERGER has worked in executive positions with one of the largest international casino operators. His assignments included projects in countries such as Australia, Canada, Denmark, Switzerland, and Venezuela. He is currently finishing his Global Executive MBA degree with the IESE Business School in Barcelona. Peter's interests lie in emerging markets, casino marketing strategy, CRM and RFID technologies and their potential impact on premium-player segments. He can be contacted at pklugs@yahoo.com.