Casino Accounting and Financial Management: Second Edition

Chapter 11: Casino Credit Accounting

Recognition of the role that credit extension plays in casino operations is important in developing a proper understanding and appreciation of the necessary internal controls and procedures for credit accounting. The availability of casino credit is a crucial element of a casino’s marketing and operating strategy. While the importance of credit is indisputable, the necessity of maintaining controls over the credit procedures is equally important. This chapter discusses the accounting and procedural controls over casino credit.1 Credit in the casino has been most commonly called marker credit. Other minor forms of credit include deposits in advance of playing in the casino, the use of casino scrip or other restricted types of casino chips, and liberal check cashing policies. credit play and dollar amounts Casino credit in its purest form—marker credit—is restricted to only the largest casino operations, and generally only within certain specific markets. The most established markets for casino credit are the Las Vegas Strip and Atlantic City. Tribal locations with considerable credit play include Connecticut tribal casinos and tribal casinos in parts of Wisconsin, Minnesota, and the San Diego, California, area. The importance of casino credit on the dollar volume of casino activity is not easily documented. However, prior research has tracked the credit activity in Atlantic City casinos.2 During the research period, about $1.47 billion worth of markers were granted. If we assume the casino win averages in the range of 15%–20% of the total gaming activity, the total betting activity would be in the range of $7.5 billion to $9.9 billion. Thus, the gaming done with c h a p t e r 1 1 Casino Credit Accounting Credit Accounting 299 credit represents between 15% and 19% of the total play in the casino. This is a very significant amount. Out of all the total marker credit issued, close to 80% of the amount was redeemed before the patron left the casino and before the marker was processed through the banking system for payment. This calculation is consistent with the long-term hold percentage on most table games of about 20%. Of the remaining 20%, which was processed through the banking system, 87% was collected, with 13% being written off as bad debt. Bad Debt Amounts: Recent statewide Nevada data indicates that of total games revenue, about 6.9% is written off as bad debt expense. For the largest casinos on the Las Vegas Strip, about 9.6% of games revenue represents bad debt expense. The Las Vegas bad debt numbers are a few percentage points lower than Atlantic City. These differences could be explained by different credit policies, different credit administration, and even different volumes of play on credit. o ther forms of casino credit The discussion of casino credit should also recognize that in the absence of a formal credit granting policy, the existence of a liberal check cashing policy for personal checks in the casino will in fact present a form of credit granting. The check cashing procedures should mimic the credit granting procedures and be subject to similar collection policies as regular marker credit. In addition to internal credit administration, a number of independent third party services have been established that grant credit usually based on regular credit card cash advances or other lending. These services are independent of the casino, and assume the responsibility for credit granting, repayment , and collection outside of the casino operation itself. The only role the casino plays in these systems is to advance the funds from the cage on approval by the third party. The casino then is reimbursed by the third party, with a commission paid to the casino based on the amounts advanced to the customer. There are also a number of third party check cashing services which operate in largely the same manner. c redit control and abuses The need to control the losses incurred, as well as to prevent improper writeoff of the credit, has given credit control a very large and important role in modern casino operations. The actual process of credit extension and the skills and talents necessary to evaluate casino credit are more properly discussed elsewhere.3 The present concern is the accounting and financially related controls over credit. Credit extension in a casino is essential to effective marketing. The avail- 300 Accounting ability of credit, as in traditional retail or consumer markets, results in more...