Is There A Secret Sauce In The Microsoft Attention Span Study That Will Continue To Nourish Las Vegas Locals Casinos?

Summary

• In 2015, Microsoft studied the human attention span and found it shrinking below the levels of goldfish.
• Clear conclusion: Older people can sustain attention at repetitive tasks or leisure activities longer than the young.
• That's good news for Las Vegas locals casinos, especially Boyd Gaming's savvy management.

"Information consumes the attention of its recipients. Hence a wealth of information creates a poverty of attention." -- Herbert Simon, Nobel Economist, 1978

In 2015, Microsoft conducted a study, primarily for its advertisers, to track the trends in human attention span. Their objective was to impart guidance to online advertisers on how to best optimize their messages against a powerful trend of shrinking attention spans. The research was Canada-based but held many lessons for U.S. marketers nonetheless. The 54-page study, however, boiled down a few hard truths about 21 st century customers. So what did it have to do with the prospects for Las Vegas locals casinos and the public companies that owned them?

A few highlights of the study first.

Microsoft assembled a team of researchers, neurologists and psychologists to extract the data with a methodology that was tightly focused on the trends. Here's what they learned: The average human attention span in the year 2000 was 12 seconds. By 2013 it had shrunk to 8 seconds, one second less than the 9-second attention span of a goldfish. This startling comparison made headlines around the world-though nobody was surprised.

They broke attention down into three basic types:

a) Sustained attention is the capacity to maintain prolonged focus during repetitive activity. The highest percentage of the sample age groups with this level of patience were people 55 and older, at 35%. Much more dramatic was the spread between behavior patterns. While 77% of the sample group aged 18-24 said they reached for their phones when bored, that percentage plunged to 10% for people 65 and older. Over 52% of the younger group said they checked their smartphones on the average of every 30 minutes while only 6% of the folks over 65 checked their phones that often. While 79% of the young sample used other devices while watching TV, the percentage using other devices dropped to 42% among the older folks.

b) Selective attention is the ability to avoid distractions, maintaining attention despite competing stimuli. Again the numbers show a wide gap by age: The young people being easily distracted, the older folks, staying with repetitive activity it longer.

c) Alternating attention is switching between stimuli requiring different cognitive skills. Once more, the young proved far more willing to engage in multitasking than the older folks.

The conclusion of the study was as follows: Long-term focus erodes with increased digital consumption of social media, use of many tech devices and, finally, the unkindest blow of all to anyone pouring out information, entertainment or advertising online: Nearly 20% of all viewers of anything online don't linger or focus on the info for more than 20 seconds. And this, not surprisingly, is most predominant among millennials.

So, what are the distractions that steal human attention spans in alarmingly larger percentages? In brief the ability to remain focused depends on a person's consumption of media, technology and multi-screen behavior.

We also learn that persons 18-34 who can sustain attention in repetitive activities comprised 31% of the sample, opposed to 69% of people 35 to 55 who were more likely to stay focused. So, what's a sustained repetitive activity? How about sitting at a slot machine or a blackjack table?

At the same time that attention spans were shrinking, the Association of Gaming Equipment Manufacturers conducted a study of recent trends in slot machine hold and win. They learned that during the years when millennials began to mature into gaming age, slot machine hold in a geographically balanced number of gaming states had increased from an average of 5.96% in 1996 to 7.70% in 2014. In other words, machine payouts got a lot tighter. Is putting these two studies together necessarily causative of the national decline in total slot revenue? Not entirely, since we had experienced a major recession in 2007/2008 that had an impact.

But we can say with some authority that there is little that can keep a player's attention on sustained slot machine play, or for that matter, the blackjack table, more than wins. Winning tends to concentrate the attention and inject the endorphins rush in players while long periods of losses do tend to compress boredom and increase the walk away factor. That's where slot hold and shrinking attention spans orchestrate to produce lower gaming win.

Here Come the Skill-Based Gaming Machines

Casino operators have been understandably spooked for several years now by the relentless softening of slot win and the shrinking of gaming revenue in relation to non-gaming revenue it has produced. For the time being they've come to believe that, working with technology and gaming machine manufacturers, they need to reconfigure games to better adapt to the habit patterns and attention spans of millennials.

The result has been the beginning of tests of skill-based gaming machines in legacy Las Vegas casinos, like Planet Hollywood. These machines are nifty in many ways. They offer an element of skill, a social aspect in that one game can be played by several people. All this will attempt to address what the industry has come to believe could be the solution to the missing millennials on the casino floor. However, we have yet to see any massive rush to loosen slot machine holds on traditional machines to address the possible, we repeat, possible, decline of slot play rooted in tighter machine payouts.

While we're waiting, it's a good time to look at operators somewhat more immunized from these negative trends and why they present entry points worthy of consideration to the investor now.

Boyd Gaming: A Big Bet on the Las Vegas Locals Market With a Demo Less Worrisome Than Strip Operators

We've been fans of Boyd Gaming (NYSE:BYD) for years because we knew and were believers in the savvy, gutsy and ground rooted approach to making money in their properties. The company began as a brainchild of the legendary Sam Boyd who founded Sam's Town and extended his business model of loose slots, high value food and beverage and neighborhood warmth to other regional jurisdictions as they multiplied throughout the 1990s.

Yet when it came to a move in Atlantic City, they created a business model that was the exact reverse of the conventional wisdom: A.C. was a day-tripper, heavy bussing or drive-in town, focused on a hard core of high repeat visit, middle-aged to elderly slot players. Instead, they used their Marina parcel to build the Borgata, a super-luxury property. There would be no bussing, no heavy promotional comping to the exiting slot player over 50. They put the younger, more affluent millennial player in their crosshairs with entertainment, special events, dining options and superior amenities in their rooms. And they coined money for themselves and their 50% partners, MGM Resorts International (MGM). Last year, MGM bought out the Boyd piece for $900 million. So what did Boyd do? Take the money and run, bank it, pay down debt? Or mostly, try to replicate their success with millennials by creating a new Borgata-like property in another market?

Once More, Boyd Management Did a 180-Degree Turn

Demonstrating its facile vision again, Boyd turned its focus on the Las Vegas locals market. What it saw was a southern Nevada economy getting more diverse with new businesses in technology, construction, distribution, manufacturing, all adding jobs. On top of that, the rapid growth of in-migration from other states where early retirees or small business people flee high tax states to live in a place that was amenable to a relaxed life, minutes away from all the excitement in leisure activities anyone could want. And that's where Boyd's money went.

Last year, Boyd added to its Las Vegas locals market portfolio two properties for which they paid nearly $900 million: The Aliante and The Cannery. They projected a return of $62 million in normalized EBITDA that would further grow in the out years by another $40 million. That's a ton of confidence in the future of Clark County gaming properties and we believe it presents a demographic departure from the tourist base of the Las Vegas strip. On the main stem, the millennial business is robust and growing, almost entirely due to non-gaming amenities like night-clubbing, a staple of young singles coming from Southern California and the West in general.

The Las Vegas locals market demos trend older with more retiree business, more out and out elderly players. New arrivals into the town also comprise an important market segment. And they trend older, too. They likewise attract off duty casino employees of all age groups-but even there tend to cater to an older demo. Boyd's 8 casino properties from downtown to the suburb offer a total of 5,000 rooms. They get a ton of Hawaiian tourists downtown and family visitation overnighters springing from locals who have retired.

Over the last six months, the UNLV gaming statistics charts indicate that downtown Vegas showed a 4.8% increase in slot with the Boulder Strip showing a flat to 0.5% increase, vs. Boyd jurisdictions in the Midwest and South, which were down to flat. The Vegas locals market contributes over 40% to Boyd's overall profit. So it's a safe bet that their management will get their share of millennials but that their attention spans remain strongly focused on the more traditional demographic composition of play one tends to attract in locals properties.

As of this writing, Boyd is trading at $22.72. Its 52-week range is $16.77-$22.75. There is sentiment out there that Boyd may be toppy because its regional markets in the south and Midwest are kind of blah, just about holding their own or flat to slightly declining. We disagree. We think there's lots of good horse sense behind Boyd's strong move to expand in the Vegas locals market. If there is to be dilution of locals casinos gaming play triggered by the entry of the Las Vegas Raiders NFL team in 2020, we think it will not create a significant dent in earnings. The arrival of the NFL and NHL and probable entry of the NBA reinforces support for Boyd's bet on the town rising to a huge, mature, economically diverse metro area that will bring an ever increasing flow of population with money to spend.

At a P/E (ttm) of 11.07, we think Boyd is cheap even though it now sits at the high of its 52-week range. We like it to move to $30 by Q4. We see improving economic conditions in the Midwest contributing better results as well.

Overall, as is our strong inclination on all gaming operators, we start with a high conviction level that management knows what it is doing. In our view, Boyd knows all about shrinking attention spans and how to best set slot holds for the players it gets 24/7. And that's why it plunked down near $1 billion in what we believe will be a good bet for its shareholders as well.

Author note: My own gaming stocks are held in a blind trust for my children and grandchildren so as to avoid potential conflicts of interest with my consulting business and clients, past, present and future.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.