The trends and challenges that will face the casino gaming industry in 2016

Peering into our crystal ball this year isn’t so difficult as it is complicated. The issues facing the gaming industry are complex and diverse. There won’t be many surprises in the topics identified in GGB’s Ten Trends for 2016, but our expert writers and commentators try to illustrate what the industry faces next year. We hope you concur, and will give us your feedback on how you see the new year progressing on these and other topics.
GGB Editors


1.
Content Is King

Slot manufacturers are teaming with third-party content providers to grab and hold new patrons

It’s become a truism of the U.S. gaming industry that slots will be in trouble if millennials don’t get in the game—and fast. Certainly, younger players are not likely to sit on a row of clanging one-armed bandits like their parents and grandparents. But slots can be maximized with the right product and delivery. Hence, the rise of third-party content providers. Their specialty: games built for the mobile generation.

“We’re talking about games that are more engaging straightaway, without the player having to play for two or three hours,” says Matt Davey, CEO of Las Vegas-based NYX Gaming Group, a global content provider with a library of more than 300 games. “Once you move out of the analog hardware side of the business into the digital software side, you have a lot more power to deploy games that are more appropriate” for up-and-coming players.

In Europe, Davey says, millennials “are just as well represented as any other segment” when it comes to slot play. “We see massive growth of the mobile consumption, but as for the slot games themselves, they’re the same games we have in the U.S. We’ve fine-tuned them, bringing out and emphasizing the entertainment side, making the small wins, medium wins and large wins a lot more attractive. We make the hit rates and the frequency of those wins a little higher, so the players can get a feel for and sense of the game more quickly than they can from a land-based game.” Otherwise, “it’s the same product.”

For the millennial generation, it’s all about entertainment, connectivity and immediacy, says Kent Young, game designer and founder of Reno-based Spin Games. “For pre-millennials, the social component wasn’t as important. But these kids are used to jumping on their phones and playing on Xbox; they don’t have the patience to put $10 worth of coins in a slot machine. Their experience needs to be seamless, quick and easy.”

Independent content providers who cater to this population “are definitely on the rise,” says Young, especially in Europe, with its lower barriers to entry and fewer licensing requirements. “With the consolidation on the manufacturing side, a lot of people are going out and starting their own third-party studios. From a distribution perspective, as manufacturers try to diversify their product portfolios, we’re seeing a lot of demand for outsourced content.” That demand will undoubtedly spike with the introduction of skill-based games in Nevada and New Jersey.

With innovative presentation, easy access and a few other bells and whistles, slots might just be around for the long haul.

“We’ve got to do a lot better job improving the entertainment value,” says Davey. “But once you’ve got players comfortable with it, it’s very sticky. The product itself delivers great value. Look at the big social casino operators: Caesars with Playtika, IGT with Double Down, Churchill Downs with Big Fish. They have very large, sustainable businesses where players have logged on and spent years being customers. You’ve got to focus on the entertainment side to get long-term customers.”

And how about new technologies? Can players look forward to immersive Avatar? Virtual-reality Boomanji? Holographic Kitty Glitter?

“We don’t know,” says Davey, “and people have lost a lot of money claiming they do know. They talked about 3D poker, for instance, but it never took hold.

“That doesn’t mean 3D or virtual reality slots won’t work. You have to experiment and let the market give you the feedback. You have to build great product and understand the needs of the customers. They’re the final arbiters.”
Marjorie Preston

2. Tangled Together
DFS and eSports are two industries tangentially connected

Daily fantasy sports has dominated the conversation in the gaming world over the past year, but with the industry facing its first real crisis, its continued growth is now less certain than it was just a couple of months ago. But another emerging market appears ready to swoop in and assume the mantle of the next big thing in gaming if DFS falters: eSports wagering.

eSports have been around for a very long time, as the first recognized eSports contest, the 1990 Nintendo World Champions, predated all forms of online gambling by a good five years. But it was the emergence of multi-player, internet-based video games that caused the current surge in eSports’ popularity.

Consider the following: Two hundred five million people either watched or played eSports in 2014. eSports competitions have mainstream sponsors like Red Bull and Coke. Championship events boast multimillion-dollar prize pools, and these events effortlessly sell out arenas with tens of thousands of seats. This growth is likely to continue in 2016, as both ESPN and Turner Sports have signed deals with eSports leagues and will be televising eSports tournaments.

Is it any wonder Chris Grove titled his white paper on eSports wagering markets for Eilers Research, eSports Betting: It’s Real, and Bigger Than You Think?

As with all high-level competitions, the ability to wager on eSports has flourished alongside eSports, and this is where the eSports industry and the daily fantasy sports have intersected. Because the two industries are blossoming at the same time, they have found a way to harmonize their products through daily fantasy eSports (DFeS) contests.

DFeS contests first appeared in January 2015 with the creation of Vulcun and AlphaDraft, the latter of which was purchased by FanDuel in September, just weeks after rival DraftKings launched its own DFeS contests. DFeS will generate $20 million in wagers in its first year, according to Grove’s estimates, and with the two power players now involved, these numbers are expected to grow exponentially in the coming years, as the two industries seem to be tailor-made for one another. 

But there are also storm clouds on the horizon. The decision by the Nevada Gaming Control Board to classify DFS contests as gambling and require operators to be licensed by the state could slow the DFS industry as well as the maturation of DFeS contests. However, even with the increased regulatory constraints and calls for further investigations into the industry, DFeS revenue will almost assuredly experience significant growth in 2016.

Additionally, wagering on eSports isn’t limited to the nascent DFeS industry. Game-mediated betting (the wagering of virtual items with a real-world value found within games) is already a $2 billion-a-year industry, according to Grove’s analysis, with eSports book wagering accounting for an additional $300 million in handle every year.

With or without DFeS, the U.S. eSports industry is going to soar in 2016, and eSports wagering options will likely soar along with it.
Steve Ruddock

 
3. Analyze This
Big Data takes deep-dive analytics

Arthur Conan Doyle’s fictional sleuth Sherlock Holmes once said, “The temptation to form premature theories upon insufficient data is the bane of our profession.”

The man in the deerstalker hat was only half right. Today, there’s more than enough data—mountains and megabytes of data, packed with detail about customer likes, dislikes, behavior and buying patterns. But data on its own has little power to drive business. It takes data + analysis + strategic application (and maybe a little trial and error) to equal positive results.

Even the multibillion-dollar casino industry doesn’t make the most of information-gathering technologies, says Angie Dobney of the Rainmaker Group, which helps resorts set prices for maximum profitability.

“Let me put it this way—I still walk into casinos that do 30 percent to as much as 50 percent of their (marketing) by direct mail: they send a flier to your mailbox, and you call in to make a hotel reservation. There’s no way to go online, no portal to log in to to check your rewards. Technology-wise,” she says, “we need to do some work.”

It’s a big job not only to mine all that data, but interpret it and turn it into an actionable business strategy. But it’s vital for operators who want to reach their most valuable customers, discover their entertainment preferences, and win and retain their patronage. Rory Fagan, director of casino sales at San Francisco-based Duetto Research, says many casinos leave money on the table by “not looking beyond the gaming floor.”

“For decades, casinos have incented the biggest gamblers with special deals and comps. But many consumers today are spending their time—and money—on food, fun and retail outlets, not the gaming floor. As gaming revenue has declined, and casinos become ‘integrated casino resorts,’ they realize these other amenities are critical to attracting today’s guests.”

Despite that realization, Fagan adds, many marketing decisions and offers are still based solely on gaming spend. “A customer spending $10,000 at a nightclub can be more valuable than many gamblers, and without the chance of the house losing money. Casino resorts must find ways to drill down into consumer spend across the entire resort and use this data to better segment and market to their most valuable guests.”

The biggest data bucket—a casino’s loyalty program—can be supplemented by purchased data that identifies potentially valuable customers based on geographic location and other factors. But again, says Dobney, “Analytics make sure those customers are really profitable to the resort. It’s one of the industry’s biggest challenges: you have all this great data from multiple sources, but you have to understand it to identify that this is a new trend, and this is where we should mine for profit.”

Loyalty programs can also be made to work harder. “Customers love deals and discounts,” says Fagan. “If clearly communicated to and properly incented, they will use a loyalty or player’s card throughout a resort,” especially if they get those extra perks. “By mixing great customer service with high-touch technology that can track consumer spend, casinos can use back-of-house systems to better reward their top customers and increase total revenue. It’s a mutually beneficial value proposition.”

The challenge, he notes, is developing integrated technology systems that work together across departments, along with a “smart hub” to evaluate the data. “As resorts get better at this, and layer in customer spend beyond the gaming floor, marketers and managers will have a full 360-degree view of the customer,” Fagan says. Ideally, using this data, casino resorts can better serve their customers, win more of their wallet, earn their loyalty, and optimize revenues throughout the property. Elementary.
Marjorie Preston

4. The Skill Debate
The rush toward skill-based games is not quite a rush— yet

Ever since regulators in New Jersey and Nevada called upon slot manufacturers to submit games using an element of skill—a move aimed at luring the millennial generation to the slot floor to make up for sagging revenues—industry pundits and the mainstream media have been addressing the issue with what has approached obsession.

Millennials—those born since 1980—don’t generally flock to the slot machines. They do like table games, because they like to interact with one another, and tables provide a social experience. But as far as electronic gaming devices, the prevailing wisdom has been that gamblers among the 80 million millennials, to become slot players, will need slots that resemble the games they already play on their mobile devices.

Manufacturers are brainstorming with officials to draft permanent regulations regarding skill games, but those who are sounding the alarm of the end of the slot floor as we know it may be a bit ahead of themselves. The first thing to be determined in creating a skill-based game will be what, precisely, can be monetized for casino play in a practical fashion.

Young players like Candy Crush-style video games on which they can achieve high levels through skillful play. They like shooter games that pit them against each other in a competition. They like games that reward good hand-eye coordination and dexterity. They like eSports, in which they are actually a spectator in a fantasy video battle between two other players—a skill game and spectator sport in one.

And the millennials love to communicate with each other in real time on their smartphones, and would probably appreciate being able to do that during any skill-based contest.

The industry is just now beginning to figure out how to incorporate all these unique preferences into casino games. Casinos like MGM Grand are already experimenting with millennial-friendly environments that could be the prototype for at least a section of a casino floor that will be designed for skill games. The InteractivePro tables at the MGM include slot games and internet access, and they are in a lounge that could be a model for spaces where young players could gather to play competitive skill games in the kind of social, club-like setting to which they already gravitate.

As far as the nature of the skill games themselves, at one end are pioneering content suppliers such as Gamblit, with its Candy-Crush-like “Smoothie Blast.” At the other end are the traditional slot suppliers, which have already introduced skill-based gaming in the form of bonus games on traditional-style slots, from Scientific Games’ “Space Invaders” to IGT’s “Centipede,” which both offer player the chance to play the traditional skill-based arcade game or choose a pure chance bonus.

Other manufacturers are easing into the new way of play with games that feature “perceived skill”—including games like Konami’s “Frogger,” which could some day be converted to pure skill.

There is still time for this to develop. For one thing, the baby boomers who love traditional slots are still a dominant demographic in casinos—and they have much, much more disposable income with which to gamble on a 10 percent-house-edge game than millennials have to compete with each other on games that may or may not monetize well for the casinos.

Also, the industry will need to ascertain just how much of its bottom line it will be willing to risk to skilled video gamers. If millennials feel they will be able to massacre skill-based video games to beat casinos, they have yet to learn that age-old adage of our industry: In the end, the house always has the edge.

The exact nature of skill-based slots is yet to be determined. In the meantime, there are already thousands of skill games on casino floors.

They are called video poker.
Frank Legato

5. The Right Choice
Guests, not operators, driving food and beverage venues

As the world continues to go more and more casual, in many aspects of life, we are seeing this quite significantly impact upon food and beverage decisions and destinations, and now on the casino F&B environment. Your guests want what they want, when they want it, and in a setting they are comfortable in—basically the ultimate a la carte dining, drinking and enjoying venue. The idea of choice.

Time is a tremendous factor in this as well; guests want to make sure they maximize their dollars and experiences, with food and drink included in that, most times with a mobile device in their hand. It is not enough to just have a food court or a collection of quick-service operations for guests to walk up to, as they are expecting more and a better selection based on quality, price, value and speed.

The restaurant world outside of casinos provides that choice, so it is expected that you will too. Our guests have become extremely discerning, which is implicitly based upon their experiences and their ability to research food and locations via the internet (either through their computer or instantly via their hand-held devices), when they have not enjoyed something directly.

We live in an instantaneous society, and guest demand for food and beverage is right in line with that. While we as operators are the ones running these restaurants and providing service, our guests are the ones who are making the decisions based upon dietary restrictions, food aversions, past experiences, time and location and perhaps, most importantly, what suits their individual tastes. Guests want to come as they are, not having to worry about “dressing up” or thinking too much about the dining experience.

Moving forward, restaurants in casinos and casino operators need to better take into account what the guest is not only expecting, but demanding out of their food and beverage experiences. This should be taken into account for any and all F&B venues, be they be in a grab-and-go setting, at a pool, music venue, casino floor or full-service restaurant. Speed of service and choice are the keys at this point, with guests sometimes desiring what they want 24 hours a day. The further rise of F&B delivery services will also continue, which has been embraced by many casino and free-standing restaurants.

As the disposable income that guests have to spend dwindles or is divided, gaming, while important, is not the only reason we see our guests in casinos and on properties. They are going to continue spending, but will be more cognizant of the spend and where it is going, for their overall enjoyment and customization with a personal touch.
Corey Nyman, founder and managing partner, Grazing Pig Food Group in Las Vegas

6. The Skill Debate
The rush toward skill-based games is not quite a rush—yet

Ever since regulators in New Jersey and Nevada called upon slot manufacturers to submit games using an element of skill—a move aimed at luring the millennial generation to the slot floor to make up for sagging revenues—industry pundits and the mainstream media have been addressing the issue with what has approached obsession.

Millennials—those born since 1980—don’t generally flock to the slot machines. They do like table games, because they like to interact with one another, and tables provide a social experience. But as far as electronic gaming devices, the prevailing wisdom has been that gamblers among the 80 million millennials, to become slot players, will need slots that resemble the games they already play on their mobile devices.

Manufacturers are brainstorming with officials to draft permanent regulations regarding skill games, but those who are sounding the alarm of the end of the slot floor as we know it may be a bit ahead of themselves. The first thing to be determined in creating a skill-based game will be what, precisely, can be monetized for casino play in a practical fashion.

Young players like Candy Crush-style video games on which they can achieve high levels through skillful play. They like shooter games that pit them against each other in a competition. They like games that reward good hand-eye coordination and dexterity. They like eSports, in which they are actually a spectator in a fantasy video battle between two other players—a skill game and spectator sport in one.

And the millennials love to communicate with each other in real time on their smartphones, and would probably appreciate being able to do that during any skill-based contest.

The industry is just now beginning to figure out how to incorporate all these unique preferences into casino games. Casinos like MGM Grand are already experimenting with millennial-friendly environments that could be the prototype for at least a section of a casino floor that will be designed for skill games. The InteractivePro tables at the MGM include slot games and internet access, and they are in a lounge that could be a model for spaces where young players could gather to play competitive skill games in the kind of social, club-like setting to which they already gravitate.

As far as the nature of the skill games themselves, at one end are pioneering content suppliers such as Gamblit, with its Candy-Crush-like “Smoothie Blast.” At the other end are the traditional slot suppliers, which have already introduced skill-based gaming in the form of bonus games on traditional-style slots, from Scientific Games’ “Space Invaders” to IGT’s “Centipede,” which both offer player the chance to play the traditional skill-based arcade game or choose a pure chance bonus.

Other manufacturers are easing into the new way of play with games that feature “perceived skill”—including games like Konami’s “Frogger,” which could some day be converted to pure skill.

There is still time for this to develop. For one thing, the baby boomers who love traditional slots are still a dominant demographic in casinos—and they have much, much more disposable income with which to gamble on a 10 percent-house-edge game than millennials have to compete with each other on games that may or may not monetize well for the casinos.

Also, the industry will need to ascertain just how much of its bottom line it will be willing to risk to skilled video gamers. If millennials feel they will be able to massacre skill-based video games to beat casinos, they have yet to learn that age-old adage of our industry: In the end, the house always has the edge.

The exact nature of skill-based slots is yet to be determined. In the meantime, there are already thousands of skill games on casino floors.

They are called video poker.
Frank Legato

7. The Right Choice
Guests, not operators, driving food and beverage venues

As the world continues to go more and more casual, in many aspects of life, we are seeing this quite significantly impact upon food and beverage decisions and destinations, and now on the casino F&B environment. Your guests want what they want, when they want it, and in a setting they are comfortable in—basically the ultimate a la carte dining, drinking and enjoying venue. The idea of choice.

Time is a tremendous factor in this as well; guests want to make sure they maximize their dollars and experiences, with food and drink included in that, most times with a mobile device in their hand. It is not enough to just have a food court or a collection of quick-service operations for guests to walk up to, as they are expecting more and a better selection based on quality, price, value and speed.

The restaurant world outside of casinos provides that choice, so it is expected that you will too. Our guests have become extremely discerning, which is implicitly based upon their experiences and their ability to research food and locations via the internet (either through their computer or instantly via their hand-held devices), when they have not enjoyed something directly.

We live in an instantaneous society, and guest demand for food and beverage is right in line with that. While we as operators are the ones running these restaurants and providing service, our guests are the ones who are making the decisions based upon dietary restrictions, food aversions, past experiences, time and location and perhaps, most importantly, what suits their individual tastes. Guests want to come as they are, not having to worry about “dressing up” or thinking too much about the dining experience.

Moving forward, restaurants in casinos and casino operators need to better take into account what the guest is not only expecting, but demanding out of their food and beverage experiences. This should be taken into account for any and all F&B venues, be they be in a grab-and-go setting, at a pool, music venue, casino floor or full-service restaurant. Speed of service and choice are the keys at this point, with guests sometimes desiring what they want 24 hours a day. The further rise of F&B delivery services will also continue, which has been embraced by many casino and free-standing restaurants.

As the disposable income that guests have to spend dwindles or is divided, gaming, while important, is not the only reason we see our guests in casinos and on properties. They are going to continue spending, but will be more cognizant of the spend and where it is going, for their overall enjoyment and customization with a personal touch.
Corey Nyman, founder and managing partner, Grazing Pig Food Group in Las Vegas

8. Here and Now
The trend that never was

There’s been a lot of panic over the past year about the aging of the casino population and who is going to replace them. In the past, that hasn’t been much of an issue, because once a person reached 40 or so, they slowly began to ramp up their casino play and eventually became robust casino gamblers, because they become empty-nesters and their disposable income increases. In addition, they’ve always enjoyed the entertainment and camaraderie they’d find at casinos.

Over the last six months or so, there’s been a lot of chatter about attracting millennials to casinos/slots and the introduction of skill games to smooth that entry. Although by definition the oldest of the millennials right now is only 35, casino executives have convinced themselves that no millennial in his or her right mind would ever play the slot machines we are offering these days.

This may be true, but since there are at least five years before we see the first millennial pass 40 and consider using a casino for what it’s intended, rather than just a grand hallway on the way to the nightclub, casino executives would be well advised to concentrate on what’s in front of them right now rather than the hazy future.

“I feel like the decline of gambling is simply causing concern and an act of desperation to make it up somewhere, and the millennials are an easy target because they are the future,” says Paul McCune, the slot director at Riverside Casino & Golf Resort in Iowa. “But how far out is that future from where we are today?”

Mark Birtha, vice president and general manager at the Hard Rock Northfield Rocksino in Ohio, says that the attention being paid to millennials if often at the expense of today’s players.

“As a fairly new regional casino in a young casino jurisdiction,” he explains, “we have a core of customers who are familiar with gaming, but also another set of potential customers with little or no gaming experience. We use our non-gaming entertainment and food and beverage to get them in the door and introduce them to the product. It’s a true growth opportunity for us.”

At the top of the list of issues that need to be confronted today is the declining numbers of today’s slot players who are finding other ways to entertain themselves that include gambling but do not include casinos. Take the social casinos, for example. The very companies that are supplying slot machines to casino executives are operating very lucrative social casinos that may not technically be gambling, but certainly are producing revenue. Casinos need to get into the game in a hurry, but finding a partner that isn’t competing with them could prove difficult.

“We see that people are leaning toward entertainment in the way of shows and things like that more today than they are toward gaming, but why is that?” asks McCune. “Is it because they want to gamble but they figure they won’t win so they spend it somewhere else to get some anticipated satisfaction for their money? Is there no desire to gamble at all by the millennials? Or is it that that they just don’t find the games appealing?”

And then we come back to one of last year’s trends, the payback percentage argument. Manufacturers say that casinos are setting the slot hold so high that players aren’t getting to experience all the great entertainment features they build into their machines, because the players go broke more quickly. Operators say the manufacturers aren’t inventive enough to give players a true entertainment experience without hitting the bonus features. That discussion is ongoing, and was highlighted by an AGEM study released in August that correlated decreasing slot revenue with increased hold percentages.

“This is a very complicated conversation,” says Birtha. “While manufacturers might have a point about higher hold percentages, for years they’ve been pushing lower denoms, licensed brands and participation games, so we naturally have to have a higher hold percentage to pay for those additional costs. So let’s not throw either side under the bus here. Hopefully, we can all get together and have a rational discussion about how to solve these problems.”

Things out of our control also impact casino revenue. The local and regional economies can be a big boost or drag to the fortunes of any casino serving those markets. Innovative marketing and non-gaming offerings can outweigh those issues, but sometimes, there is simply nothing an operator can do.

“I think the decline of gambling has a lot to do with the economy,” says

McCune. There are a number of contributing factors that seem to be dismissed often: lack of jobs, inflation, issues with foreclosures and bankruptcies, health care costs, gas prices affecting costs of goods and people having to cut back on traveling, food costs due to droughts, weather disasters, threats of a market crash… I think available funds and disposable income becomes a real issue.”

Birtha says a good operator must figure out how to make the most of any economic circumstance.

“As an operator, we’re always cognizant of the economy,” Birtha says. “As such, we must offer a value proposition that includes great entertainment and reasonable prices, whether it’s the games or a restaurant. It’s all about the entertainment.”—Roger Gros

9. Stalled But Not Forgotten
U.S. online gaming expansion still on track

State legislatures were presented with a roadmap for legalizing and regulating online gaming following a September 2011 opinion rendered by the Department of Justice that limited the 1961 Wire Act to sports betting. In the two years following the ruling, several states were quick to take advantage of the opinion.

Nevada preemptively legalized online poker in June of 2011, and with the DOJ’s removing federal uncertainty, launched the country’s first legal online poker site on April 30, 2013. New Jersey and Delaware legalized online poker and online casino games in June 2012 and February 2013 respectively, with both states launching their iGaming industries in the fall of 2013. Minnesota (2011), Illinois (2011) and Georgia (2012) all took their lotteries online.

However, after this early rush, the spread of legalized online gaming has slowed to a trickle, as only a single state, Michigan, has legalized online lottery sales. It’s been even slower on the online casino and online poker front, where no state has joined Nevada, Delaware and New Jersey, and only a single state, Pennsylvania, appears poised to pass an online gaming bill in the foreseeable future.

There are several reasons states have backed off online gaming expansion. There are the disappointing revenue numbers from the current legalized markets. There is also the Sword of Damocles known as the Restoration of America’s Wire Act that should the single horse’s hair fail, would wipe out state-sponsored online gaming in one fell swoop. The smaller-than-anticipated revenue coupled with the federal uncertainty brought about by RAWA has tamped down calls for online gaming expansion in state houses.

That being said, this is a fluid situation capable of hitting a tipping point at a moment’s notice, and there are a number of states where online gambling expansion is not only possible, but expected in the coming years. This summer, Gambling Compliance targeted seven states as potential candidates for iPoker and/or iCasino expansion by 2020:

%image_alt%Pennsylvania (2015-2016)
California (2016-2017)
New York (2016-2017)
Connecticut (2018-2020)
Rhode Island (2018-2020)
Illinois (2018-2020)
Ohio (2018-2020)

Several other states including Massachusetts and Washington are also candidates, but with 2016 being a presidential election year, unless a state is on the cusp of passing an online gaming bill, a la Pennsylvania, iGaming expansion talks are unlikely to move past the exploratory phase. Which is why many are looking forward to 2017, with the hope that Pennsylvania serves as the linchpin.

If online gaming expansion stalls in Pennsylvania, there will be less urgency in New York, Massachusetts and other state houses. If Pennsylvania can pass an online gaming bill in late 2015 or early 2016 and launch its iGaming industry by late 2016, it could open the proverbial floodgates, and light a fire in neighboring legislatures to get an online gaming bill passed.—Steve Ruddock

 
8. India: The Next Great Opportunity
A more stable, capitalist nation could be gaming’s new frontier

As Macau can attest, relying on the Chinese gamer is both extremely rewarding and volatile. While operators in all Asian markets continue to enjoy the fruits of Chinese patronage and work to grow this segment, savvy operators are always looking for the next big casino development opportunity. The next new opportunity could in fact be a sleeping giant: India.

India, China’s capitalistic and democratic neighbor, boasts the world’s second largest population (1.3 billion), a robust economy (with the IMF estimating the economy is worth $2.2 trillion) and a sizeable and growing middle-class population. According to India’s National Council of Applied Economic Research (NCAER), the middle-class population is expected to reach 267 million in five years.

Indians have a proclivity to gamble. Although the only proximate gaming destinations are a flight or more away, Indian gamers frequent the available legal Indian casinos in the Indian states of Goa and Sikkim. Currently, Goa offers four offshore casinos that look and feel like Midwestern American riverboats, and 10 land-based casinos that are limited to electronic gaming by law, but often feature electronic table games with a live dealer.

After flying into Siliguri, West Bengal and driving five hours to Gangtok, Sikkim, Indian gamers have access to two more land-based casinos which feature a full array of table games. Indian gamers also find their way to foreign casinos in Nepal, Sri Lanka, Macau and Las Vegas. With a few exceptions, many of the nearby facilities (in Goa and Sikkim) offer a largely underwhelming gaming experience. Despite this unappealing facility offering, Indian patronage of these facilities continues.

Indian gamers overwhelmingly prefer table games, with a strong preference for familiar card games like roulette and baccarat and traditional Indian games like flush (Teen Patti) and mini-flush. Outside of legalized casino gaming, Indians find other ways to game. Cash card games are available at private clubs, illegal gambling halls on the outskirts of metro areas, and in many homes.

During large holidays, like Diwali, Indians often gamble with family and friends, playing cash games, such as flush and rummy. Indians also wager frequently on sporting events, namely cricket. Even without proximate gaming options, Indian gamers are finding a way to enjoy gaming entertainment.

With a proclivity to gamble and an appropriate offering of convenient, attractive gaming facilities, the Indian gaming market has serious potential. To illustrate the magnitude of its potential, consider the following example: If 10 percent of the projected middle-class population were to game five times a year and spend $50 a visit, the gaming market would be worth $6.7 billion. With this potential, it will be hard for the existing Indian operators to keep this market to themselves for very long.
Kit Szybala, director of analysis, Global Market Advisors (He can be reached at kszybala@globalmarketadvisors.com)

9. Bigger and Better
Social gaming gets lost in the iGaming shuffle

Daily fantasy sports and the legalization of online gambling are dominating iGaming industry news these days, yet there is another industry that produces 15-20-times as much revenue as DFS and New Jersey’s online gaming industry combined, that remarkably receives 15-20-times less exposure.

That product is social gaming.

In Q1 of 2015, Caesars Interactive generated $167.6 million in revenue from its social gaming products. Caesars (Playtika) is the market leader, accounting for 21 percent of the overall social gaming market share, which is expected to reach $3.3 billion in revenue in 2015, and as much as $4 billion in 2016, according to Eilers Research Senior Analyst Adam Krejcik.

Comparatively, FanDuel’s Q1 revenue for 2015 (yet to be released) is projected to be around $14 million, and the New Jersey online gaming industry tallied $35.7 million in revenue during Q1 of 2015. Social gaming generated well over $800 million in revenue in Q1 of 2015.

What makes social gaming an extremely intriguing product is its malleability. Social games can be used to bolster existing brick-and-mortar or online products as a marketing tool, or can be launched as a stand-alone product capable of becoming its own viable and significant revenue stream.

Social games can be completely free to play or they can be “freemium” games, where users can purchase in-game items, spins or add-ons. And since social games don’t fall under the umbrella of regulators, they can also be used to test new games before putting them on the casino floor or online.

With all of these uses, brick-and-mortar casinos no longer view social gaming as a competitor, they see it as synergistic product that can enhance their current offerings. It’s no wonder that brick-and-mortar casinos from Foxwoods and Mohegan Sun to Maryland Live and Parx Casino, to San Manuel and Pala, are increasingly incorporating social games into their websites, a trend that will certainly continue in 2016.

At Global Gaming Expo 2015, Brett Calapp of Pala Interactive detailed one of the benefits of social for brick-and-mortar casinos—filling out the player profile. “You know everything about them when they are in your casino,” Calapp says. “But when they walk out the casino door, you know nothing about them,” and social gaming can fill in those blanks.

All that being said, social gaming is not without potential pitfalls.

Beyond the “is it gambling?” question, social games could potentially fall under regulatory scrutiny in the future for several reasons. Presently, social gaming leaves age requirements up to operators, which on Facebook is all of 13. This may not seem important, since the games are free to play and players can’t win anything. However, they can spend a lot of money on “freemium” games. Couple this with the fact that these games don’t have to conform to fairness rules (social slots games can vary the payouts of their games to different players in different situations as they please) and you can start to see the potential for issues, and potential need for regulation of some kind.
Steve Ruddock

10. Technology and Regulations
Tribes seeking to generate more from casino floor

With American Indian gaming expanding at an annual post-recession growth rate of less than 3 percent, tribes in the coming years will be looking to improve slot machine technology and profitability in an effort to generate more government revenue from the casino floor.

Much of the emphasis will be on continued advancement in Class II, bingo-style machines, which under the Indian Gaming Regulatory Act (IGRA) most tribes can operate free from state oversight and taxation.

The Class II market has steadily increased, in part because of increasing state efforts to extract additional revenue from Class III, casino-style gambling, which under IGRA requires tribal-state regulatory agreements, or compacts.

Tribes also will be monitoring the development of skilled and interactive games intended to appeal to millennial players who, according to studies, are not satisfied with traditional slots.

Indian Country has historically been a proving ground for machine innovations such as cashless gambling and multi-denomination devices.

“Indian Country is a great base for the testing of new products,” says Knute Knudson, vice president of global development for International Game Technology. “It has been. It will continue to be.”

Increased profitability from the gambling floor is a priority for tribes seeking to ensure a sustainable source of government revenue.

The win from 459 gambling establishments operated by 242 tribes in 28 states totaled $28.5 billion in 2014, a mere 1.5 percent jump over the previous year, according to the National Indian Gaming Commission (NIGC).

There were only 10 more gambling facilities than the previous year, according to NIGC figures, evidence of a mature, if not saturated, gambling market.

With compacts coming up for renewal in a number of states—California, Arizona, Oklahoma, Michigan and Arizona, to name a few—tribes are weighing the benefits of Class II machines versus the taxes and regulatory issues tied to Class III gambling.

“We’re seeing a couple of trends in Class II that are keeping it viable, alive and even growing,” says Gary Green, senior consultant to the president of Ortiz Gaming. “First of all is the tax situation. Then you have the compact renegotiations.

“Then you have the tremendous improvement in the product. If you look at anybody’s Class II product today and compare them to the same titles from 10 years ago—five years ago—you’re going to see a different kind of performance in those games.”

“With the flattening of gaming revenues and the saturation of the markets, operators have to be more creative,” says Richard Williamson, VGT senior vice president of compliance. “How do you lower costs? You change products.

“Tribes have an option, where commercial casinos don’t. Tribes have an edge in that they are able to put in a Class II product, which is getting much better all the time.”

Some estimates put Class II machines at 12 percent of the 350,000 slot machines in Indian Country. Of the 61,000 machines in Oklahoma, 42 percent are Class II devices, up from 34 percent in 2008.

The NIGC has enacted regulations and technical specifications to enhance bingo machine innovations and ensure tribal primacy in regulating Class II devices.

Tribes not able to secure Class III compacts in California, Alabama and elsewhere may find it beneficial from a regulatory and economic standpoint to stick with Class II machines.

“Tribes may have to make a decision, depending on their markets, whether their ability to offer Class II gaming outweighs the benefits of having a compact with the state,” says Kevin Quigley, an attorney with Gray Plant Mooty of Minneapolis, Minnesota. “With the advancements in Class II, the economic matrix may have shifted.

“Not having a compact with the state that waives your sovereign immunity might be the way to go.”
Dave Palermo

Author: GGB Staff

Staff writers for Global Gaming Business magazine, Las Vegas, Nevada.