When New Jersey icasino (casino-style igaming) revenue doubled following the closure of brick-and-mortar casinos in Pennsylvania, New York, and New Jersey it caught Deutsche Bank Research analysts Carlo Santarelli and Steven Pizzella’s attention.
The team recently released a report iCasino Musings & the Impact of iCasino on Traditional Casinos after monitoring an “interesting dynamic stemming from the tremendous growth experienced in icasino trends during the COVID-19 period.”
With icasino being in its infancy in the U.S there is no historical data on which to base future forecasts and Deutsche Bank’s report clarifies that “definitive conclusions around the sustainability of current trends and cannibalization of brick-and-mortar facilities are difficult to support”.
The report caveats these early findings and compares them with the strong activity seen in regional casinos, but adds: “We believe these findings could be evidentiary of some cannibalization of brick and mortar revenue from the icasino vertical.”
In the past 12 months, New Jersey’s icasino GGR has grown 92% on an annual basis. In Pennsylvania, icasino GGR averaged around $10m monthly in the first seven pre-pandemic months after its July 2019 launch, a figure that has reached $65m in monthly GGR over the last 13 months post-pandemic.
The New Jersey market is highly seasonal; traditional casino GGR fell 17% in March and was down 9% in April relative to 2019. In Pennsylvania, March was down 12% and April up 1% relative to 2019, figures which would “appear reasonable in isolation” and in context of the pandemic. But when compared with a host of other states across the Northeast, Midwest, and Southeast, “they stand out a bit”.
To draw comparisons, Deutsche Bank created a seven-state regional subset of states without icasinos: Ohio, Iowa, Missouri, Louisiana, Indiana, Maryland, and Illinois. The regional subset grew 2% in March and 19% in April when compared to 2019, but New Jersey and Pennsylvania lagged, with GRR down 14% and 3% in March and April. Additionally, New Jersey and Pennsylvania results on a same-store basis were down 20% and 9% in March and April respectively when compared to 2019.
As a result, the analysts say “the presence of icasino in both New Jersey and Pennsylvania could be stunting their respective recoveries, in light of the overwhelmingly strong performance in other drive-to-market states.”
Loyalty builder
The value of online casino customers is higher than that of sports bettors and the latter are seldom comped. But with bonusing and rewarding far more likely and expected for icasino, the report says “the consolidation of play with the local brick and mortar facility is considerably more of a driver for the customer, especially when considering the lack of real diversification amongst the icasino products in the legalized markets.”
Therefore, operators whose bricks-and-mortar casinos are closest to large population centers are likely to preside in icasino revenue, a point illustrated perfectly by Rivers Philadelphia casino. “Despite having no DFS base, limited sports betting traction, and a less recognizable brand, (it) commands a healthy icasino market share, as the license represents skins linked to both Rivers Philadelphia and Borgata, which, like most Atlantic City casinos relies heavily on Philadelphia / Philadelphia Suburbs customers,” stated the report.
Icasino regulatory hurdles
These trends could also impact the pace of regulatory efforts for icasino, which has been one of the key arguments for future favorable legislation and industry growth. Michigan is the only state to have legalized icasino in pandemic times and actually approved the regulation prior to the pandemic.
As a result, Deutsche Bank says this makes “the theme of the pandemic making icasino legalization a likely source of funds for states, far less likely now, post bailouts,” noting the lack of progress in icasino legislation in Indiana and Illinois, states which filed igaming bills in January and February of this year, respectively.
Based on this, the report surmises that the icasino rollout will be “a lot more challenging than most expect” and “far more challenging than sports betting.”
