May 23rd, 2014
Via Global Gaming Business Magazine, a review of online gaming:
Since Nevada legalized real-money online poker in February 2013, land-based casino operators have been debating the effects, pro and con, of what Governor Brian Sandoval called “the next frontier” of gaming: the internet.
Now online and legal in three jurisdictions including Nevada, New Jersey and Delaware, internet gaming lets gamblers play whenever they want, at the kitchen table or in the man cave, in their PJs or in the altogether, as long as they stay inside state lines.
Elusive JackpotSo far, online gaming has not been the windfall the states hoped for. Within weeks of its November 2013 launch, New Jersey generated $8.4 million in online gaming revenues. That’s far short of the amount it would need to reach Governor Chris Christie’s forecast of $1.2 billion (including $180 million in taxes) by the end of fiscal 2013.
While revenues in the state are on the rise—they spiked to $9.5 million in January, $10.5 million in February, and $11.9 million in March—projections for Year One have been drastically revised downward. New Jersey now predicts it will take in $35 million in taxes from online bettors by June 30.
Compared to New Jersey, the numbers in Delaware have been downright anemic; online gaming in the First State brought in just $253,000 in November and December, and $145,200 in January. The numbers were slightly up in February, but online poker dropped 16 percent that month. Time magazine called the outcome “pathetic.” Eilers Gaming Research analyst Adam Krejcik told investors the results were “nothing short of a disaster.” As more states legalize online gaming and the player pool expands, those figures will likely increase. Nevada and Delaware have made the first step in that direction, signing the nation’s first interstate gaming agreement. But the games have yet to go live.
Nevada’s figures have likewise been underwhelming. Its online poker rooms have generated $8.52 million during the first 10 months of operations.
Growing Pains“The doors haven’t been blown off” by online gaming, says Larry DeGaris, professor of marketing at the University of Indianapolis and an expert in internet culture and sports betting. But that doesn’t mean the idea is a dud.
“Expectations were higher that this was going to be a big boon to the industry, and there hasn’t been a radical shift,” acknowledges DeGaris. “I think a lot of that is a function of having to build a new audience for the digital format, and even bringing the younger people into gaming in general. It’s still early.”
“There’s always a progression,” agrees Ethan Tower, protocol director for the Gaming Standards Association. “It’s taken 20 years for almost every state in the country to legalize some form of gambling. It will be matter of time for more consumers to demand (online gaming), for politicians and regulators to respond to that, and then for the operations to actually get under way.”
Get Off of My Cloud
There are plenty of reasons iGaming has stumbled out of the gate. Some U.S. banks have put a kink in the system by refusing to process payments for internet gambling. Unregulated sites are still in play and commanding player loyalty. And many players may be slow to return to legal virtual gaming after being booted off the cloud casino a few years back. On April 15, 2011, the gaming industry’s “Black Friday,” the FBI cracked down on online poker, not only shutting down offshore sites but freezing millions of dollars in U.S. players’ funds. It took more than a year for those players to cash out.
“It will take some time for players to re-adopt real-money online gaming as a form of entertainment,” says Dana Takrudtong, vice president of sales for GameAccount Network North America.
The revenues generated by social casinos show “a clear desire by players” for high-quality online gaming. The market will grow “as players get more comfortable with the fact that the business isn’t going to be turned off,” Takrudtong says. “There will be a time where they’re comfortable re-engaging online.”
Meanwhile, operators who get into the space early “through the deployment of monetized social casinos, white-labeled or customized for their brand, will have a leg up when real-money gaming is introduced.”
Despite the bumpy rollout, tepid revenues, and South Carolina Senator Lindsey Graham’s new push for a ban on online betting (at the behest of anti-online gaming mogul Sheldon Adelson of Las Vegas Sands), nine states in the U.S. have online gaming legislation in the works. Pennsylvania is teetering on the brink, but California could be quicker to tumble. Some analysts say the state’s powerful tribal gaming industry could push through an internet poker bill by summer.
And back in New Jersey, state Treasurer Andrew Sidamon-Eristoff says he’s not discouraged by the nascent industry’s weak numbers.
“Clearly, this hasn’t met our expectations for the first fiscal year,” he recently said. “But we’re pretty bullish on this in the medium-to-long term.”
Buying InInstant jackpot or not, online gaming may have some operators feeling jittery. All they have to do is look at how online retail has affected bricks-and-mortar operations, and how online communications have decimated centuries-old industries, from print publishing to the daily mail. While they talk about the promise of online play, some may secretly be concerned that it will ultimately hijack land-based operations. Could the casino of today (heaven forbid) become the mall of tomorrow?
Kevin Mullally, vice president of government relations and general counsel at Gaming Laboratories International, suggests those fears may be groundless. From a purely technical standpoint, he says, online is simply another distribution channel for the games we already play. “When Zappos went online and started selling shoes and Amazon created an online department store, it was simply the modernization of a delivery mechanism for an activity we already had,” he says.
“When banks began allowing customers to use their phones to take a picture of a check in order to deposit it, no one suggested an expansion of the banking industry. It was simply the modernization of the delivery mechanism for an activity that already existed. Online gaming is no different.
“So you have a choice: you can compete and try to do it better or well enough to also profit from the efficiencies of the online marketplace, or because it’s a little different from a retail product and requires an intricate system for compliance and licensing, policymakers can make the decision to tie online licenses to land-based investments.”
Of course, the latter is already true in the three legal jurisdictions, and other states will likely follow that framework as iGaming becomes more prevalent. If they do, iGaming “could be a tremendous asset to land-based casinos, and protect those capital investments,” says Mullally.
This Is How We Do ItFor the best-case scenario, look to a mature jurisdiction such as the United Kingdom, where mobile betting more than doubled in 2013, and the market could reach revenues of £2.5 billion this year. The bonanza is attributed to a rise in smart-phone and tablet use, and full buy-in among gaming operators, who have made a major investment in the mobile side since the industry was deregulated, including a massive advertising push.
According to a November report in the Guardian, the number of gaming commercials on British TV―including sports betting, online casinos and poker―has grown from 234,000 a year in 2005 to nearly 1.4 million in 2013. That’s an increase of nearly 600 percent. Gambling ads now account for more than 4 percent of all television advertising, the report noted.
Of course, mobile connections allow the casino to be constantly accessible. “You also have ability to engage more often and more seamlessly to players versus direct mail or billboard or traditional advertising,” says Bob Hays, vice president of North American operations for Williams Interactive. “You’re doing it in real time, in the fashion that people now choose to engage.”
Add, Subtract or Divide?Done right, says Hays, online has the potential to add to the player base, not subtract players from existing casino operations or simply shift them from one sector to another.
“It’s not just the same players at land-based going online, though a high percentage of them do. It expands the option to those who don’t traditionally visit a casino at all, or don’t visit often. By introducing their brands online with compelling content, operators have the option to acquire additional players that may not traditionally visit land-based casinos.”
Operators may also expect players to migrate from the virtual casino to the bricks-and-mortar property, and vice versa. According to WMS’ Active Gambler Profile, “a semi-regular research report measuring the evolving tastes and preferences of North American casino players,” 54 percent of North American casino players played social games online in 2010; in 2013, that number surpassed 72 percent.
The company’s research also showed that:
• Social casino players are also land-based casino players.
• 25 percent of social casino players have visited casinos in the past 30 days.
• 45 percent of social casino players have visited casinos in the past 90 days.
• 82 percent of social casino players visited a casino in the past year.
• One-third of social casino slot players visit a land-based casino at least once a week.In addition, the report states, social casino players are multi-generational, with 52 percent under 40 years old, and 68 percent under 50.
“Americans across multiple demographics spend hours a day online, meaning that I don’t believe online casinos are a pastime of only the Technorati,” adds Takrudtong. “For example, the explosion of social casinos and other social games funded by micro-transactions in recent years has been driven by the play of females in their mid-50s and males in their upper 40s. Yes, the online gambler is younger than the average land-based player, but not by generations.”
That said, DeGaris says there is a huge untapped pool of “young guys under 35” who would be a natural fit for the virtual casino. “They grew up with video games and Xbox, playing ‘Call to Duty,’ and it’s not a big switch to play online poker. But a lot of those young guys are not in the pipeline yet.”
And while the online gamer may have been stereotyped as a solitary 20-something, alone in his parent’s basement and gaping at a screen, these players also welcome community, and are building communities that will grow as the industry grows.
“Community will always be important, online and offline,” Takrudtong says. Smart iGaming platforms “provide casino operators tools, from game themes to chat portals, for increased engagement with their players, essentially extending the land-based community to their online real estate.”
Rules of EngagementSo how do stateside, land-based operators in pre-legal states find and engage online gaming customers, entice them to play socially, keep them playing, and reap the benefits as online legal games become more widespread?
• Get in the Game Early. “Every time an operator delivers a valuable experience to a player, the operator builds on that player’s trust with the brand,” says Takrudtong. “By getting players to open their wallets today to game online for fun, operators may be able to influence how quickly they reach the ‘tipping point’ of player acceptance of real-money gaming when it’s introduced in their respective jurisdictions.”
• Keep in Touch. “The overall growth of mobile adoption and social game play affords land-based operators a very dynamic way to stay front-of-mind with their players, providing these desired mobile social gaming experiences to players under their brand,” says Hays. Online components allow increased engagement with players, “up to four times a day,” he adds. “If a player is logged on 20 minutes per session, that gives you 80 minutes more a day to engage with the player than you would have had otherwise.” Williams’ Play4Fun Network, for example, was expressly designed for land-based operators to “build an engaged online community in jurisdictions where online wagering is not yet allowed,” and keep players visiting via desktop, tablet and mobile devices.
• Keep It Simple. “Online channels should be easy to navigate, provide a gaming opportunity, and drive revenues across the enterprise via real-time marketing and promotional offers,” says Takrudtong. “With a limited number of operations effectively providing all three online pillars, there’s ample opportunity for those operators who do engage to reap the benefits of being an early adopter to the space for years to come.” Operators should take steps today to ensure they have “a meaningful presence across the web, improving their desktop and mobile real estate to ensure the experience with the brand online delivers the same value as the bricks-and-mortar property.”
• Emphasize the Safe Bet. With regulation comes greater assurance among the public and the powers-that-be that online gaming will not create a nation of compulsive gamblers. “It’s already being demonstrated that many of the boogie men that were foreshadowed by some of the critics have not really emerged,” says Mullally. “In many ways this is a much safer, better product than any land-based environment, because it gives regulators and operators many more tools for compliance. It also gives gamblers tools to manage their behavior and experience that don’t exist in the land-based world.”
• Support Standardization. Establishing standards for online gaming will “drive down costs, improve efficiencies, and make it easier to integrate platforms, bring products to market more quickly, and get into new markets faster,” says the GSA’s Tower. “One of the real differences with online now is that most of the systems are constructed as monolithic systems; they’re not broken down into independently testable components. That’s one of the biggest hurdles in online gaming for the manufacturer, to break down the system into independently testable and verifiable modules so they don’t have to go through huge end-to-end tests on online gaming platforms any time they want to do an upgrade.”
The Final FrontierIn December, Geoff Freeman, president and CEO of the American Gaming Association, appealed to Congress to stop any attempts to curtail legal online gaming.
“The internet cannot be forced back into the bottle, nor can market demand,” Freeman said. In 2012, he added, “before a single state authorized legal online gaming, Americans spent nearly $3 billion” on mobile gaming. U.S.-based players constituted about one-tenth of a $33 billion global industry, enriching operators of illegal, unregulated offshore sites instead of bringing the jobs and revenue home, Freeman said.
“You need to legalize it so you can regulate it,” says DeGaris. “Then you can catch the cheats.”
If the history of gaming is any indication, legalization will eventually accelerate and the player base will multiply. Then the revenues will follow suit.
“I think to a certain extent we’ve seen this movie before,” says Mullally. “Look at the lottery. Originally you had a few lotteries in the Northeast that existed for years, and gradually there was a domino effect that picked up speed to the point where almost every state now has a lottery. You saw the same phenomenon with regional gambling or riverboat gambling.”
The pace of online gaming for cash will pick up “once it has been more widely passed and rolled out and implemented,” says Mullally.
Now’s the time to get ready. “Nearly two decades ago, the introduction of e-commerce was terrifying to both small and established brick-and-mortar retailers,” says Takrudtong. “The best of businesses embraced emerging technologies to better the brand experience and drive incremental revenues. Expanding into online gaming is the next evolutionary phase, and one that deeply aligns with the heart of our industry: providing entertaining game content in a well-designed environment available to players 24/7.”
“It’s a wide-open market out there for online gaming,” says Tower. “You’ve got to put together a product, get it out in front of the consumer and try to sell it. In doing that, you may open up a new market for yourself.”
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