There are two definitions for the word “affinity” within the dictionary—having a spontaneous liking for somebody or something and a similarity of characteristics suggesting a relationship. Both these meanings are apropos in terms of describing the business means of Affinity Gaming, the Las Vegas-based diversified casino company with 11 brick-and-mortar properties in Nevada, Colorado, Missouri and Iowa.

Under the leadership of CEO Michael Silberling, Affinity Gaming has scored marketing gold with a campaign emphasizing slot, food and fun, making a hyper-friendly atmosphere within their properties comparable to the old television series Cheers; to the purpose where the show’s old catchphrase is the root for ongoing branding campaigns at certain facilities (at Affinity’s Mark Twain Casino in Missouri, it’s “Come to the Mark Twain, where we all know your game.”)  Meanwhile, despite the assorted regional locations and demographics of Affinity’s property portfolio, each facility squarely appeals to the mid-market gaming consumer, which has allowed Silberling and his management team to implement operating efficiencies that experience created industry-leading EBITDA along with revenue growth.

Indeed, Affinity has performed so well during the last couple of years that part owner Z Capital Partners entered right into a definitive agreement to obtain Affinity and become sole owner in an all-cash transaction that values the corporate at $580 million.

Prior to the announcement of the acquisition, Silberling took a while to speak about Affinity Gaming with Casino Journal Editor Paul Doocey. What follows are some excerpts from that conversation. 

How did Affinity Gaming come about?

Silberling:  Affinity Gaming is the successor of Herbst Gaming. Herbst was founded in 1987 and lasted until 2011, when it went into Chapter 11.  The corporate was renamed Affinity Gaming when it emerged from bankruptcy.

What does Affinity Gaming include now?

Silberling:  Now we have 11 casinos in four states—five in Nevada, three in Colorado, two in Missouri and one in Iowa. Certainly the flagship and the most important properties are in Stateline between California and Nevada. If you're driving from L. a. to Las Vegas, we'd be the primary Nevada casinos you come back across right at Stateline with Primm Valley Resort & Casino, Whiskey Pete’s Hotel & Casino and Buffalo Bill’s Resort & Casino, where we have the rollercoaster, outlet mall and all of the rest.

All of our other casinos are somewhat smaller and include Silver Sevens Hotel & Casino in Las Vegas, on the corner of Flamingo and Paradise, probably the most busiest intersections within the city. We even have Rail City Casino up within the Reno/Sparks area, Lakeside Hotel Casino in Osceola, Iowa, Mark Twain Casino in Lagrange, Mo., St Jo Frontier Casino in St Joseph’s, Mo., and in Blackhawk, Colo., we've got the Mardi Gras Casino, Golden Gates Casino and Golden Gulch Casino.

Where does the corporate stand now on the subject of revenue?

Silberling: We’re a mid-market casino company. If I rounded the numbers, I'D say we do $400 million in revenue. That may be up a tad from what we generated in 2015. What I'M really happy with is that we had 30 percent EBITDA growth in 2015. I'M REALLY NOT conscious about another brick-and-mortar casino company within the U.S. or worldwide that exceeds our profitability growth.

How did you become involved with Affinity Gaming? What do you are feeling you bring to the company?

Silberling:  I USED TO BE recruited. The board of directors hired a search firm to fill the post they usually came knocking on my door in 2014. I had a goal of being a CEO… I have been with Harrah’s and Caesars throughout my career, had actually managed business units with more casinos over a much broader geographic area, but always as a general manager or division president, never as a CEO.  I appealed to them because I had previously managed properties in Affinity’s markets—northern and southern Nevada, in addition to a stint as president of Midwest operations for Harrah’s Entertainment. So, the truth that I had experience in these markets and had managed an organization of this scale convinced the board to offer me the job.

My experience at Harrah’s/Caesars was solid training for running Affinity. Harrah’s certainly taught me the worth of information in decision making and making informed decisions. I FEEL it was a very good company when it comes to corporate governance; in doing business the fitting way, in being committed to the employees, customers and native communities, all of which helped drive financial performance. It was solid grounding for my role here.

Affinity is a geographically diverse company with 11 casinos in four states, in both urban and rural areas. Was this diversity all a part of the plan? What are the challenges of operating in such a lot of different markets?

Silberling: The portfolio was given to me after I arrived in 2014, I DIDN'T develop it. While we will have different demographics for every property, I MIGHT say that there are some constants throughout all our properties and markets. In any respect our casinos, we deal with the client that attracts $200 out in their wallet per visit. A LARGE NUMBER OF properties ignore this customer, but at our facilities they will be treated like an overly big deal.

Except for the Primm-based properties, the size, scale and profitability levels are similar throughout all our resorts, so as to bring the similar set of operating efficiencies to all. Operating our properties in an an increasing number of efficient manner is resulting in our EDITDA growth.

Will Affinity ever consider ground-up development? Are there specific parts of the rustic or world the corporate is targeting for future expansion?

Silberling: Within the two years that I'VE BEEN here, growth has come from same store sales… the aforementioned 30 percent increase in EBITDA, as an example. During my tenure, we haven't developed or acquired casinos. That said, the strategic options for the corporate do include acquisition and development, and that's something that the board is discussing. We only recently had an overly successful debt restructuring that took our interest payments from roughly $30 million right down to $15 million, along side a revolver. So we have now good free cash flow and a powerful balance sheet that might allow the board to judge the strategic opportunities.     

It’s no secret that the U.S... casino gaming marketplace is becoming increasingly competitive. How is Affinity trying to stick out from the crowd?  What makes an Affinity Gaming experience unique?

Silberling: The driving marketing mantra for us is “slots, food and fun.” Now we have high-visitation properties; our average patron isn't the once-a-year customer going to a megaresort. Our casino business profitability model is driven by slots, so we have to have good products, good service and compelling promotions. We also spend numerous time seeking to get our food right. The joys will depend on what the valuables can handle. At Primm, we were written up within the The big apple Times for our Hispanic marketing… we've got Hispanic concerts that absolutely fill where. We also host mainstream entertainers equivalent to Gladys Knight and Jeff Foxworthy. Other properties have entertainment because the facilities allow; we just had 38 Special in Iowa, for example.

When I joined the casino business within the 1990s, the mentality was just “shut up and deal.” That may be certainty not our business philosophy. It is crucial for us to have a Cheers mentality, where “everybody knows you name.”  In fact, we use that as a marketing slogan... in Missouri, it is, “come to Mark Twain Casino, where everybody knows your game.” 

That is how we strive to place ourselves, even if now we have different demographics, what still hold true is “slots, food and fun.”     

How would you describe the Affinity Gaming customer? Are they locals, regional customers or a mixture of both?

Silberling: Our customers are overwhelmingly local. In a few of our markets, now we have quasi-monopolies since customers must drive greater than an hour to get to a different casino. That may be very true in Osceola and Lagrange… all of our Midwest businesses, for that matter. But our Las Vegas and Colorado properties are very different—they are hyper competitive markets that cater to very high frequency players. Primm is slightly of an outlier… it requires more appointment-type marketing since customers want to drive past California Indian casinos and avoiding the Laughlin-based options. We have to emphasize entertainment, promotions, golf weekends and people varieties of things to maintain the shoppers coming.

What are one of the marketing steps Affinity is taking to both maintain and grow its traffic and customer base in an increasingly competitive marketplace?       

Silberling: At the marketing side, now we have become a more data-driven company. We've become a lot more sophisticated in our junk mail efforts and on or customer relationship management (CRM). After I came on board, we had no CRM system whatsoever; we have one installed to be able to tell when a customer’s birthday is, in the event that they like boxing, if their play is declining, etc. This permits us to higher manage that higher-worth customer on a way more personal level. We're really seeking to take our marketing from mass marketing to one-on-one and personalized marketing.

Another aspect of running a business in a competitive market is finding how you can improve operational efficiency. How has Affinity Gaming accomplished this goal?

Silberling: While you have a look at a business that has slight revenue gains and large profitability gains, I'M sensitive in that I DON'T wish to be called a “cost cutter.” Nobody gets a memo from me saying “take 10 percent of the fee out of the business.”

Instead, we have now tried to become a lot more efficient in how we do business. For example, at our Silver Sevens hotel, we used to take greater than six minutes to test someone into the hotel. Now we have got that right down to two minutes and are closing in on one minute. We did that by taking a look at the ergonomics of our setup and making simple corrections and adjustments.

We now schedule to demand besides. We used to have dealers standing around at empty tables, we don’t do this anymore, because of this I’m spending less money and dealers have higher tips per hour because there are less people around to divide the cash. It was once we'd lose dealers to greater resorts because they might get higher tips… now that we will offer comparable high tip percentages, our turnover is less.

Most of our efficiencies have actually been at the marketing side. We've got really checked out customer elasticity of demand, and located that during many cases we were too “layered” with our marketing and promotions offers. We were giving a lot of these discounts to customers that we didn't need to… including enough free-play coupons to verify they never needed to open their wallets on the property. Those are customers we had a negative and unprofitable relationship with, and our data was so poor we didn’t understand it. We now have significantly better data, and may be able to determine which customers should get nothing, which deserve a proposal and which should get multiple offers.

That have been the substantive a part of our growth in 2015. We glance for profit, not revenue. There has been a term I coined called “profitless prosperity.” Anyone can drive revenue… give me a bus and a few buffet and free play coupons and that i can have an entire bus and can increase the revenue of the casino, but I CANNOT make any money. I call that profitless prosperity, and we're out of that business.

How did you find these efficiencies? What data systems did you use?

Silberling: Another mantra of mine is “people, profit and technology.” I NEED to present a shout out to the team and leaders Walter Bogumil, our CFO, and Vincent Lentini our CMO. They came in, similar to I did, distasteful of inefficiency, decisions not driven by logic and knowledge. We set to work with the technology we had in addition to putting on additional technology platforms like Duetto, a hotel yield system we didn't have before. Using this technology, we have 98 percent occupancy at Silver Sevens… your yield occupancy is far better if in case you have more demand than rooms and we were capable of sell the rooms in place of dumping them.

We also added a CRM system and feature approved out BI systems and we have now the fitting people around the board taking a look at processes we will improve, like hotel sign in and room occupancy. 

Our focus have been on getting the fundamentals right first after which seeking to improve from there. I REALLY LIKE to have the issue of scale and growth within the future, but at the moment I FEEL we're a sufficiently small business to be nimble and will make these decisions and move quickly. I REALLY LIKE that. If there may be stuff in the market that may be industry-leading, I WOULD LIKE to be nimble enough to adopt it.

Read More... [Source: Gaming Industry News]