Interesting post. What is especially interesting is the parallel between the decline of VP and the 2008 financial crisis, because, whether intended or not, you have highlighted, but not fully explained, the root cause of both.
Like the casino business, Wall Street firms were once restricted to partnerships or single owners. Each had their own money directly invested in the business, and their earnings - profits - depended directly on the decisions they made. Whether it was to raise the limits for a particular whale on a holiday weekend, or whether to invest in the stocks or bonds of a particular company, the outcome of that decision hit directly to the bottom line.
Once corporate ownership was allowed, however, the capital belonging to the directly affected owners was withdrawn, replaced by the capital that was raised from public offerings. Instead of an entrepreneurial owner, with skin in the game, the running of the corporation was left in the hands of the management class, typically protected from downside (personal) risk by a multi-year contract, which specified not only the base salary and various perks to which the manager was entitled, but also the structure of the bonuses that could be paid.
Limited to the length of the contract, say 3-5 years, these bonuses necessarily were short-term in nature. Instead of looking at the long-term health and growth of the enterprise, these bonuses were generally dependent on annual revenues, earnings per share or some other narrowly defined targets. There was no risk (personal risk, that is) because there was the guaranteed base salary. But risk to the enterprise could certainly be taken, with no personal risk involved, because if the risk that was taken paid off, then bonuses were triggered. If the risk went south, oh well, sorry about that shareholders, that sucks for you, but if you don't like it, then just trigger my golden parachute.
On the promotions side, to wrap up, cutting back on expenses just makes the per share earnings look better, again triggering the bonuses. If players didn't come back or come back as often, that was more of a longer term effect, not impacting next years bonus to any great extent.
Certainly the game is rigged. Don't let that stop you; if you don't bet, you can't win. -Lazarus Long
In theory, there is no difference between theory and practice. But, in practice, there is. -Yogi Berra
There is no such thing as luck. There is only adequate or inadequate preparation to cope with a statistical universe. -Robert Heinlein
Why can't we all go back in time before the late bastard billionaire, Howard Hughes, and his good bud, H. Parry Thomas (of Thomas & Mack fame) were the catalysts to convince our Nevada Legislature to change the rules to permit corporations to own a casino? If you really want to make a good guestimate as to an initial detriment point for all Nevada gamblers in our fair state, then you would really have to give this time period some serious thought. Since the emergence of corporate casino ownership, with a myriad of bean counting departments included, most of these executive pinheads have erroneously adopted the business plans of a fortune 500 type business plan. Wrong, Wrong, Wrong!! Think it through. These real corporate concerns, some publicly traded and some not, offer to their customers products and/or services. When you consider a gambling entity at it's basic core, without fluff and frill, casinos do not offer either. Damn, I actually miss the mob. This was when "Theo" was only a character on the Cosby show.
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Posted by: GURU PERF <guruperf@att.net>
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