Investor Ira Lubert, the Philadelphia-based investor who heads the group that runs the Valley Forge Casino Resort, says he knows why Pennsylvanians aren’t gambling more: Gambler fatigue. " We’re just starting to see it."
State figures show slot machine revenues have been down for the past five months, slipping around 6 percent in March over last year’s bet. But at Valley Forge, slots revenue was up 18 percent. It’s also one of the minority of Pennsylvania casinos that registered higher table game revenues in February, the last month the state reported data.
“Customers want more out of the gaming experience,” Lubert says. His establishment, like the ailing Nemacolin resort south of Pittsburgh, has a restrictive license that makes it tougher to just walk in off the street and bet. Lubert’s team has tried to turn that to their advantage by recruiting wedding parties, corporate meetings and other hotel groups alongside events like an Off Broadway play, comedy and entertainment, the occasional mechanical-bull night. And USAirways: Lubert signed what he says is the airline’s first affinity deal, where customers can apply frequent-gambler points for frequent-flyer miles on Philadelphia’s dominant airline.
“People can use their award points for clothes, food, drinks, free overnight rooms. If they’re playing frequently over a (set time period), they’ll be able to earn enough dividend miles to fly. I believe this is a game changer," he said.
How’d Lubert come up with this? “I observed Richard Vague and Kevin Kleinschmidt.” Vague, a Texas banker, moved to Wilmington to set up First USA Bank in 1987 and grew it into the nation’s largest credit card bank after selling it to Jamie Dimon’s Bank One (now JPMorgan Chase & Co.) for $8 billion a decade later.
That marriage ended badly. But Vague and Kleinschmidt stayed together, building other card banks in Wilmington, where lenders have been collecting massive information on how we earn and spend for a generation, and finding ways to use it to sell us more stuff.
The pair were pioneers in “affinity marketing,” cutting deals with airlines, colleges and other enterprises to buy customer lists. In 2008, after moving to Philadelphia, they took the concept to their new retail-electricity firm, EnergyPlus. Among their most successful marketing deals was a partnership with Philadelphia’s dominant airline, USAir. “Kevin really creatd an exclusive in the retail energy arena for USA dividend miles,” said Lubert. “I observed how he built his company used that, and sold it for $190 million, to NRG, after just four years.”
Lubert wanted a USAir deal for Valley Forge. He asked Vague and Kleinschmidt to make introductions. The deal took seven months, and it’s exclusive “in a 50-mile radius.” Vague said he was happy to help: “Ira is one of Philadelphia’s true superstars.”
It’s easier than ever to make these deals work, with online marketing, with online marketing, says Kleinschmidt. “People continue to really value hotel and airline rewards programs. USAir has the dominant rewards program in this area. They struck a great deal with Valley Forge.”
Vague and Kleinschmidt have made enough founding and selling companies to retire from daily company management. Vague is, among his other projects, writing a book about how private debt drives economic cycles. They are both active in Gabriel Investments, which has recruited successful company founders to back new ventures in the area.
So what’s Kleinschmidt’s professional opinion: Can Lubert keep a casino growing in a mature market? “Ira knows what he’s doing,” he told me. “He’s got the Midas touch.”