Current State and Future Prospects for the Casino Gambling Industry (or “What I Learned at G2E 2015)
Preface: This past week, I attended the 2015 Global Gaming Expo (G2E) in Las Vegas. This was my eighth time to attend what is the world’s largest annual casino and gambling conference. I’ve had the honor of speaking and appearing on two panel discussions in past years. However, this time I attended solely as a media representative with the intent to report on much of what I learned, and speculate on the direction this sector is headed. The opinions expressed here are entirely my own and do not reflect any of my past or present employers or associates.
[Gaming vs. Gambling: I do not use the terms gaming and gambling interchangeably. Gaming refers to interactive games not involving wagering. Gambling refers to games of chance which including wagering. Hence, when “gaming” is used herein any of my writings, it’s not a euphemism for “gambling.”]
Is the casino gambling industry in trouble?
Yes and no. The answer depends on who you ask, how honest the discussion is, and which sector of the gambling and casino industry we’re talking about. How we define “trouble” also matters.
Here are some key takeaways from my four days of seminars, panel discussions, assorted hallway and dinner conversations, and meetings with industry leaders. Note the first part of each entry is the premise, followed by my personal opinion of the subject, which is in italics:
(1) The two hottest topics at G2E this year were skill-based gaming and daily fantasy sports. Opinion: There were no less than six seminars on topics having to do with these subjects, and all generated nearly a full capacity of attendees.
(2) Poker is in the midst of a deep recession at the moment, at least in terms of its relevance within the much bigger casino picture. Opinion: There were zero seminars/panel discussions on poker, nor were any poker players asked to speak this year. Contrast this with the 2005-2008 “boom” period when poker was one of the hottest topics at the conference.
(3) Legalized sports gambling in the United States is widely seen as inevitable and has become viewed by many insiders as critical to retention and growth for the entire industry. Opinion: New Jersey must somehow win its case to get legalized sports gambling, which could lead to a revision of the federal law which prohibits sports gambling in almost all states. This first step will be necessary before serious progress is made on this initiative. Moreover, NBA Commissioner Adam Silver is probably the best proponent we have on this issue right now, since he favors consideration of legalized sports wagering.
(4) Attracting millennials is seen as the most critical challenge facing the industry within the next 5 to 10 years. Everyone agrees on this. Opinion: By and large casino patrons are aging, and are not being replaced by younger people, who tend not to share an interest in gambling activities.
(5) Slot manufacturers are going to be hard pressed to continue the growth curve they’ve enjoyed during the past two decades. This fragment of the market could even decline and customer demographics continue to shift. Opinion: If electronic devices wane in popularity, what will take its place? Many years ago, electronic gambling (slots and video poker) overtook table games and became the most profitable floor areas of the casino. However, gambling habits are now shifting. One key high-up executive privately told me he expects the amount of casino floor space on the Las Vegas Strip to be reduced in size over the next 5 to 10 years.
(6) Non-gambling (hotel, food and beverage, entertainment, retail, convention services) are the growth areas of the contemporary all-inclusive casino-resort. Gambling continues to decline as an overall percentage of casino industry profits. Opinion: Casinos continue to become less like gambling dens and more like town squares and shopping malls — with an increasing trend towards retail, dining, and entertainment. The bad news is — nightclubs (all of which I find intolerable) will continue to factor into future planning and growth.
(7) Casino gambling can (and must) reinvent itself. It happens all the time in other (successful) industries. It’s also happened in this sector before, particularly when customer habits shifted from live-action games to electronic devices and again when coin in technology gave way to printed tickets. Another reinvention will be necessary for this industry to both survive and thrive. Opinion : Starbucks made drinking coffee exciting, and even was able to charge three times the former price in reinventing a common product. The cell phone also was reinvented, from simply a talking device to an indispensable tool which provides entertainment and communication 24/7/365. Casinos will need to do something similar.
(8) Key word and concept — “interactive.” Opinion: Younger consumers want to engage and feel as though they have some measure of control over the outcome. The era of purely random outcomes in gambling will continue to wane as the new gambler tends to enjoy making decisions that affect the result.
(9) Despite casino proliferation, worldwide there is still probably more illegal than legal gambling. Illegal gambling and so-called gray market operators are filling a void, particularly in areas where the activity is illegal or betting options simply do not exist. Opinion: Legalize and regulate most forms of gambling wherever possible, which is not only wise and responsible public policy, but also reduces the profits from gambling sometimes used to finance other criminal activity. Moreover, gamblers are entitled to consumer protections (honest games, getting paid, etc.) that can only be provided by government oversight and regulators.
(10) Regulators are notoriously slow to react to changing and emerging technologies. At first, regulators tend to resist new technology, sometimes viewing it as a passing fad. Most gaming boards and personnel don’t know much about. There is also a fear of the unknown. Finally, sometimes legal challenges exist which keep regulators on the sidelines. Opinion: Even in the gambling epicenter of the world, which is the State of Nevada, regulators were pathetically slow to react to online poker back when leadership was most needed on this issue. NGB was slow to act, and initially when taking action often did so with no sense of consistency nor direction. Regulators (gaming boards) are hopelessly behind on most matters of technology and do a poor job adapting to inevitable shifts in the industry.
Here’s a more detailed breakdown by subjects, along with my views:
Daily Fantasy Sports (DFS)
— Fantasy sports has refueled a renaissance of viewing interest in sporting events. This has led to higher attendance, increased television ratings, tens of million of dollars in added media buys, and even changes in the way media covers the most popular sports. The greatest beneficiary of the boom in fantasy sports are second-tier teams and games, which now can generate just as much fan interest due to the component of fantasy rosters. Opinion: Whether we approve or not, no one can argue that fantasy sports hasn’t changed how we watch team sports. I’m personally not a fan and do not participate, but the popularity of spectator sports which was lagging a few years ago with younger consumers has returned largely thanks to the fan engagement provided by fantasy.
— 18 percent of all adult American males have engaged in some form of fantasy sports (mostly seasonal, although that’s now shifting). Even with a huge amount of advertising and promotion, daily fantasy sports constitute a much smaller portion of that number. Only about 17 percent of all fantasy players currently plays what’s called daily fantasy sports (DFS). Among this more dedicated subset, the average annual expenditure is $464 per player. 55 percent of this population is under age 35. Opinion: I’m not convinced DFS will grow as fast as some are projecting. I’m also skeptical that many of these DFS-oriented companies will be that profitable in the long run, after the curiosity boom wears off.
— Online gaming writer and journalist Chris Grove projects DFS has not reached anywhere near its potential peak. He states that by 2020, projections are there will be 18-20 million users, generating a $23 billion annual handle. Opinion: Grove knows far more about this industry than I do, so I’m admittedly reluctant to express an opinion and not at all confident with my skepticism. That said, I don’t understand how much more of an untapped market exists now, since it would seem just about everyone targeted has seen the hundreds of commercials and decided by now whether they’re interested in that kind of experience (and investment).
— DFS is legally defined as a skill game (and not gambling). However, its own messaging and advertising is clearly gambling-oriented based on visuals of big prizes and payouts (checks), lots of sweating, and the experience of excitement which mirrors a typical gambling experience. Opinion: Let’s not fool ourselves or lie. DFS is gambling. It’s also a game of skill. Rinse and repeat the debate about poker we’ve been having for the past 50 years.
— DFS will likely face growing scrutiny as its profile increases, including some calls of regulation among critics. Prompting government oversight and calls for regulation will be state governments, and specifically attorneys general in various states. Federal legal changes involving DFS are highly unlikely given this will be viewed as a states-rights issue. Keep a close eye on the Massachusetts Attorney General, who was elected on an anti-gambling platform, now has the authority to make waves, and is popular in a key state which could lead to other jurisdictions following suit. Opinion: DFS has already committed a number of strategic blunders. I wonder if this young industry is mature enough to handle the looming challenges it will have ahead.
Casino Resorts — The Big Picture
— Casinos spur economic development in virtually all markets, especially during the early phases. Casinos also link various districts together as an economic, social, and sometimes even a transportation bridge. Good examples of casinos in urban areas linking districts include New Orleans (French Quarter, Canal Street, Warehouse District, Convention Center) and Baltimore (Sports Complexes, Harbor Area, Downtown). Opinion: The economic benefits of casinos in most markets far outweigh the negatives.
— Too much casino development within a given region risks “maturation” becoming “saturation.” Let’s take California as an example. Saturated markets include San Diego and Sacramento (with too many Indian tribal gambling venues) versus underdeveloped markets in Los Angeles and San Francisco, which are limited to card clubs (poker) and some constrained forms of casino gambling. The most saturated market in the country at the moment is the 100-mile radius around Philadelphia, which has multiple casinos in Pennsylvania, Delaware, and New Jersey. The Las Vegas Strip is also viewed as “saturated” at the moment, given several unfinished developments and stagnant growth since 2011. Opinion: Unbridled casino development can be very bad for the long term and have negative impacts not just on the local economy but the overall perception of the casino industry as a stimulus.
— Attracting millennials (also known as “Generation Y”) will be absolutely critical to the survival and growth of the casino industry. The 18-35 age bracket range constitutes only about 10 percent of all slot and video poker play, and only 17 percent of table game play. In fact, millennials provide only about 10 percent of all gambling revenue. Naturally, the largest and most profitable casino demographic remains “Baby Boomers,” aged 50 and over. Opinion: Casinos risk becoming like racetracks within 20 years unless habits seriously change and more attention isn’t paid to what the future customer will demand.
Problem and Compulsive Gambling
— I attended a lengthy presentation by scholars and researchers at Harvard Medical School, who have studied the impact of gambling compulsion and addiction in countries where online gambling was introduced. The findings were surprising, even to those of us who tend to think opponents of online gambling are often exaggerating. The findings were reported to the National Council on Responsible Gaming.
— Online gambling is generally thought as being far more risky than land-based gambling because of three factors — convenience, accessibility, and anonymity.
— Data was taken from three countries where online gambling was legalized, including Iceland, Malta, and Australia. Researchers found that despite easier convenience, accessibility, and anonymity, there was no increase in addictive behavior. Fixed odds sports betting revealed that among those who gambled online: 1. Players wagered an average of 7 days a month 2. They averaged 2.5 bets per day, and 3. The average bet size was 4 euros. Researchers’ conclusion: This does not hypothesize that people will gamble more and higher when given the option to play online.
— It should be noted that those who have existing gambling problems were impacted (negatively) by the convenience, accessibility, and anonymity. However, this percentage of the population was found to be only .8 percent, and in virtually all cases they exhibited self-destructive behaviors already without the trigger of online gambling.
— In particular, the research findings in Iceland were expected to show a spike in problem gambling. This is due to a somewhat affluent nation, with near universal online access, yet also a sparse and somewhat isolated population. Yet once again, no real increases were discovered in Iceland, even with easy access to online gambling (including lottery ticket purchases).
Illegal and Gray Market Gambling and the (Alleged) Role of Organized Crime
The American Gaming Association (AGA) held a press conference exclusively for media at which a new initiative was announced. The AGA will not only full support, but will push for far more aggressive measures to combat so-called “illegal criminal activity.” I found this presentation with a panel packed with gaming agents and law enforcement officials to be not only less than convincing, but highly hypocritical. I will write separately about this topic, including a thorough review of the panel and their assertions, which were weak and didn’t appear to be fact-based. Moreover, I will discuss my question directed to AGA President and CEO Geoff Freeman, challenging the findings of the panel and questioning an initiative that seems purposeless and sanctimonious. Much more to come.