The online-offline casino cannibalisation debate rumbles on in the U.S. and as it does it is bringing in more commentators into the conversation.
The only certainty one can glean about the discussion is that it is unlikely to quiet down anytime soon and, as it continues to develop, it is taking on a life of its own, bringing more issues, ideas and contributors into the discourse.
The subject is important for the online gambling industry and the stakes are high for all the parties involved (excuse the pun), for reasons that are as obvious as they are logical. From a commercial perspective, there are no operators who wouldn’t want more, near-guaranteed profits – and a recent article about the impact online casino has had on Michigan-licensed operators bears out the strong revenue growth the vertical is generating for the brands licensed in the Great Lake State.
As for arguments for online regulation, one of the stronger ones is that U.S. jurisdictions are seeing millions of tax dollars go to unregulated operators. And as those websites enjoy substantial profits, they are under no regulatory supervision and offer nothing by way of player safety or social responsibility measures.
On the negative side, the potential public health risks associated with regulating products that are considered to be more addictive than sports wagering cannot be discounted. Meanwhile the idea of hearing and seeing large numbers of adverts for online casinos on the radio, TV or billboards is one that even industry executives balk at, although of course that is also one of the key benefits of working in regulated markets.
The amount that individual jurisdictions lose out on when it comes to tax revenues is understood to be vast and has been estimated by the American Gaming Association to come to $13.3bn, based on figures from a study the U.S. gambling trade body published in November 2022. That figure compared with the $11.7bn the regulated industry generated at the time.
However, for all the strength of these arguments, they get little traction among a number of key U.S. stakeholders such as tribal operators and casino workers’ unions, although this is a situation that to different degrees is replicated in other countries.
Expanding the focus
As the debate rumbles on, Craig Billings, CEO of Wynn Resorts, was one notable addition to the discussion; and he chimed in with some good arguments on LinkedIn last week.
He described the whole debate as somewhat “reductive”, with the focus primarily “on the impact to the total addressable market (TAM) and the tax base”, which he said was “a pretty narrow focus when considering the much broader set of implications”.
For Billings, online regulation will have an impact on jobs in land-based resorts. Regardless of where one stands on the cannibalization debate, “assuming the (positive or negative) impact will be uniformly shared by all regional casinos is pretty naïve”, he wrote.
He added that with almost 1,000 commercial and tribal casinos in the U.S., only 100-150 of them could say with any confidence that they would benefit from an omni-channel strategy and will tend to be “owned by the large national gaming operators”.
On top of the reputational risks that “putting a casino in everyone’s pocket” could lead to, major pushback from consumers could be another unwelcome result of further regulation. Billings added that “the biggest online operators in the U.S. employ between one to two people per million dollars of revenue”, while “the biggest land-based gaming operators employ (close to) five people per million dollars of revenue” and would pass on any market share loss from online by shedding labor.
It’s hard to know how accurate such statements are, but the recent news that New York State had decided against including Senator’s Joseph Addabo’s online casino bill in its budget without doubt was influenced by strong opposition from the New York Hotel and Gaming Trades Council.
The union’s fears that online regulations would lead to job losses at brick-and-mortar casinos were not assuaged by Addabbo including a $25m fund for casino workers as part of his proposal. On that note, Billing made this point in his article: “Don’t expect the unions, particularly in blue states, to just sit back and let online casino happen.”
Vertical importance
Returning to Michigan, the segment’s worth to the industry is undeniable. It generated revenues of $188m in February, a 27% rise on the previous year, and as the link included at the start of this article shows, the vertical has grown 20% annually since it was legalized in Michigan in 2021.
On the corporate front, Caesars Entertainment’s acquisition of Wynn’s online casino operations in Michigan is a show of its intent and how important the vertical is to the group’s prospects. And as the Deutsche Bank team commented recently, the launch of the Caesars Palace iCasino brand has enabled the group “to focus on core slot customer(s), with more games, branded content and the ability for players to customize their lobby”.
Caesars has forecast $500m of digital EBITDA by 2025, and if future results show them as being on the right track – Deutsche Bank noted that its current “2025 digital segment EBITDAR forecast stands at $322m” – then investors should benefit from “upside in shares”.
Ever-present
Cannibalisation is an ever-present topic in all the countries where online casino regulation is being discussed and brings into its orbit sub-topics such as channelisation (the percentage of players who actually play on regulated sites vs. unregulated ones).
That is also the case in regulated markets; in other words, even where there is regulation, unregulated operators are able to easily target and recruit players in those markets, especially if they are highly restrictive with regard to marketing measures or product settings (i.e. no live casino, limited spins or deposit limits) that can be offered to players.
This can be seen in France’s unregulated iCasino market, but also in regulated Germany, Belgium or the Netherlands, where such restrictions are pushing players towards illegal sites and affiliates are also accepting advertising from unregulated operators.
States with regulated online casino sectors have commented that their land-based casinos have endured little to no cannibalization, but then it would have been surprising to read anything different from them. In the end, amid all the claims and counter-claims about online-offline casino cannibalization, the only certainty is that the arguments are set to continue long into the night.
