By Dan Waugh, Principal Consultant, Regulus Partners
When in 2003, the white tiger Mantecore sank his jaws into the neck of Roy Horn (of Siegfried & Roy) on stage at the Mirage Casino in Las Vegas, he unwittingly illustrated the problem with risk management in the gambling industry. A preoccupation with ‘on-model’ risks (such as security, high-rollers and cheats) can blind us to ‘off-model’ risks - such as losing the biggest draw in Vegas to a moment of feline displeasure (at an estimated cost of $100m).
The tale of ‘Mantecore & Roy’ was told by the author Nassim Nicholas Taleb in ‘The Black Swan’, as a parable for Big Data induced risk blindness in the banking industry; but it seems likely that what happens in Vegas must also have relevance for our gambling industry.
The application of technology to age-old games of chance has transformed our industry world-wide and the seductive new allure of Big Data is easy to understand in companies wishing to achieve greater operating efficiency (through reduced labour and expenditure more closely aligned with revenue). There is however a hidden danger that the more we come to believe that we can predict and control circumstances, the more likely we are to become blind to the possibility of alternative outcomes.
Indeed, it may well be that the serial inability of the industry to manage political risk effectively is a product of its obsession with ‘on-model’ risk management rather than a paradoxical anomaly – a fascination with statistical probability or form which causes us to lose sight of seemingly random events outside our direct control.
We have seen this most clearly in remote gambling where data omniscience and physical dislocation have resulted in the objectification of online gamblers, who are often classified as “accounts” rather than “customers”. The sector has been fascinated by the idea of “personalisation” (taking inspiration from Amazon amongst others) seemingly without noticing that the reduction of a human being to a series of clicks and transactions betrays a deeply impersonal outlook.
That traditional (land-based) gambling has been partly inured to this is down to an inherent culture of service (admittedly, not always good service), proximity to the customer and relative technological backwardness. Yet it is clear amongst the larger corporations in Great Britain that these are not badges of honour. Land-based operators want to be seen as ‘tech savvy’ too – and if that helps them to reduce labour costs (a perfectly natural preoccupation in a high-wage economy like ours) then so much the better. The push to multi-channel brands and the so-called ‘single view of the customer’ seems likely to accelerate this process.
The most obvious risk from all of this is to the consumer. Once the customer is objectified, the operative cares less about his happiness and well-being and may behave differently towards him (through marketing, use of bonuses, game design and simple duty of care). In its turn, this carries clear political dangers in terms of government intervention to address problem gambling (in terms of both perception and reality) but may also involve more fundamental commercial risks.
First, there is the danger that technology-driven change undermines the customer experience. It is not by chance that the betting shop’s fall from relative grace over the last decade has coincided with a decline in customer-employee interaction as machines have changed the economics and behavioural patterns of many shops.
Second, the more our business decisions are determined by algorithm rather than consideration, the more we erode our own abilities to learn and understand rather than simply perceive – or as Taleb writes, “Technology can degrade (and endanger) every aspect of a sucker’s life while convincing him that it is becoming more ‘efficient’”.
Above all, we should be aware that the seemingly endless possibilities of Big Data may blind us to opportunities and threats by offering the illusory comfort of precedence. After all, Siegfried & Roy performed their act more than 2,000 times before Mantecore brought the curtain down for good.