The adoption of igaming is the best way to increase total gaming revenue, but states remain unlikely to rush toward it, a veteran industry analyst says.
The reluctance, said James Kilsby, chief analyst and vice president of the Americas for VIXIO GamblingCompliance in Washington, D.C., is due to online-casino gaming being a “different animal” from sports betting. While 36 states have legalized sports betting since a 2018 U.S. Supreme Court ruling, only five have approved online casino gaming since New Jersey became the first in 2013.
Kilsby spoke Wednesday during a panel discussion titled “iGaming and Retail Gaming: Friends or Foes?” during the Global Gaming Expo in Las Vegas. Andrew Gentile, general manager of Little River Casino Resort in Manistee, Mich., and Melissa Blau, founder of iGaming Capital, a consultancy for sports betting and igaming, also participated.
Moderator Gene Johnson, executive vice president of Victor Strategies, attributed igaming’s slow growth to fears that it would cannibalize customers from brick-and-mortar casinos. However, the opposite has happened. Total gaming revenue in the states with online gaming increased, with igaming numbers rising more as the states added sports betting.
Cannibalization fears still exist, Johnson said, but he found “zero evidence” of it before COVID. Based on revenues reported through the first six months of this year, New Jersey, Pennsylvania, and Michigan, the three most populous states with online casino gaming and sports betting, are on pace to surpass the record revenues they posted in 2021, his slides showed.
Blau sees a synergy between igaming and sports betting, both of which she said attract patrons who don’t necessarily go to a physical casino.
Gentile said his casino’s online players tend to be 25 to 51 years old and predominately female, while most brick-and-mortar customers are 60-plus.
In New Jersey, Kilsby said, “Sports betting has allowed operators to capture a large market of sports fans, then cross-sell a portion of them to online -casino gaming.” That accelerated in March 2020 when the pandemic shut down land-based casinos. Kilsby said the synergy between sports betting and igaming wasn’t seen before states outside Nevada could legalize sports betting.
Kilsby said that even with only six states offering online casinos, the United States ranks among the top five regulated jurisdictions around the world and is on track to surpass Britain as the top igaming revenue producer.
Gentile said operators make money from igaming, as opposed to sports betting, under current conditions. He lauded his casino’s online partner, Rush Street Interactive, for understanding the long-term importance of igaming, rather than concentrating on signing up sports bettors. The goal is “not moving players from one to another, but making both successful.”
Players can exhibit different betting levels among the types of games. Gentile said several patrons whose online play qualified them for free hotel rooms bet substantially less when playing in person.
About 25 percent of the revenue from a new sports bettor might go toward acquisition costs, putting operators “in a bad place,” Blau said. “I don’t think the brick-and-mortar casino would spend that kind of money.”
Gentile, acknowledging he’s not a fan of free play, said it can lead to a diminishing return. “We’re trying to make it a profitable business, not just buy business,” he said.
Kilsby said revenue figures show online betting is not causing “total displacement” of action from traditional casinos. Gaming markets in New Jersey, Pennsylvania, and Michigan are “enormously larger” than in pre-COVID 2019, he said, with Michigan “the fastest growing igaming market we’ve ever seen.” However, land-based casinos in those three states are underperforming in comparison with other states. Pennsylvania and New Jersey casinos saw single-digit growth, compared with double-digit rates elsewhere, and Michigan encountered “some displacement,” he said.
Blau said that when New Jersey launched igaming nearly 10 years ago, the fear was that each new operator would take customers from existing ones, “but the market continued to grow” with each addition.
Kilsby noted that operators and lawmakers have different views about the threat of cannibalization. While operators worry about a new competitor taking away customers, lawmakers worry that igaming might erode total revenue and are tempted to establish prohibitive tax rates.
Blau called igaming a “very expensive proposition,” due to KYC requirements, geolocation services, vendor expenses, and the like. The assumption that igaming providers should pay a higher tax rate because they have lower costs for physical facilities is a “misnomer,” she said.
“The way to grow gaming revenue is to add igaming,” Kilsby said. “We’re going to see expansion of igaming, but not like we did with sports betting.”