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10 Trends for 2014

Trending issues in the gaming industry

10 Trends for 2014

The shorthand social media designation of this year’s “10 Trends for 2014” is very appropriate since the annual preview of issues to consider during the upcoming year is very tied to the online space.

Whether it is the burgeoning social media space, the conversion of online players to land-based casinos, or the role of tribal gaming in internet wagering, the next year will be full of online issues that are important to the gaming industry.

The changes in the gaming industry are clearly accelerating, and it can be disconcerting. But if you know what’s coming and how to prepare for it, you can capitalize on its impact with the right business plan, corporate adjustments and even a new attitude.

So here are 10 trends that you should be aware of as we enter the new year.

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1. That’s Entertainment
Showbiz on the slot floor

A good gauge of the trends facing the industry every year can be seen on the slot floor, or in particular, what the focus-group-enthusiast slot suppliers are creating to please the customers in their massive industry segment.

For several years, “volatility” was the buzzword in new slot machines, as program math and simple free-game bonus events were juggled to get the most out of the newly popular penny-denomination games. The low denomination allowed players to bankroll these games with the effectiveness that players reserve for high-end slots, only without the high-end price tag.

But if the 2013 edition of the Global Gaming Expo proved anything, it’s that players are ready for entertainment—brands from movies and TV, skill-style shooting games, community-style entertainment bonuses—more than ever.

The latest wave of entertainment brands eclipses even the first boom period of branded slots, the early 2000s, when slot-makers flocked to entertainment brands from game shows (Jeopardy!, The Price Is Right) to situation comedies (The Addams Family, The Beverly Hillbillies) to classic cartoons (Popeye, Betty Boop). Perhaps the biggest difference now is that the advanced technology and computer power of today’s games do each of the themes justice unimagined 10 years ago.

Back then, many of the entertainment slots involved simply placing a theme on top of the same basic bonus events. The reel symbols would use icons from the theme, and the characters of the show or movie would simply provide the context for a picking bonus or free-game event that was identical to the events in most slot games.

What advanced technology has done is empower game designers to build bonus events around the theme. Take “Michael Jackson Wanna Be Startin’ Somethin’,” the second slot by Bally Technologies based on the music of the late King of Pop. Results on the free-spin bonus feed right into the award-winning video Jackson released for the song “Billie Jean.” Jackson’s famous dance in which sidewalk bricks light up is modified so MJ is determining multipliers for free-spin wins. (The “Pro Sound Chair” takes care of the audio in grand fashion.)

Another new Bally slot this year was developed from the theme out. Game developer Jason Stage started with high-resolution footage of a recent concert by blues-rock legends ZZ Top in their home state of Texas and built a game around the live video to create the remarkable “ZZ Top Live from Texas” slot.

These joined other Bally entertainment-based slots like “The Magic of David Copperfield” and “Titanic”—plus a new take on the musical film Grease—as games that build features around the core entertainment theme, placing the manufacturer in the thick of the competition for this newly hot slot genre.

The “newly hot” status of the entertainment-based slot is confirmed this year by a company never traditionally known for high-profile entertainment brands, Aristocrat Technologies. That company’s new design whiz, former IGT legend Joe Kaminkow, put his familiar stamp on entertainment licenses Aristocrat had secured, resulting in entries like “Batman,” based on the classic 1960s TV series.

The Batman game, which shared the G2E stage with the famous Batmobile from the series, is presented on a new game format Kaminkow designed that is not unlike the “Center Stage” format he had created at IGT, but the bonus rounds are wrapped around the most memorable characters and scenes from the campy ’60s Batman series.

Kaminkow’s entries—which also included takes on the 1980s film Flashdance and the 1978 film Superman: The Movie—were accompanied by a masterpiece created by Ted Hase, developer of Aristocrat’s previous branded hit “Tarzan.” This time, Hase wrapped the sights and sounds of The Walking Dead, the hit AMC series about zombies invading a post-apocalyptic world, into a new game on the high-definition “Vervehd” cabinet.

Of course, International Game Technology—the slot manufacturer that first produced entertainment-based slots—is in the thick of the new entertainment trend as well. In 2014, players will see the amazing “James Cameron’s Avatar” slot machine. At an event during G2E week, the producer of the 2009 blockbuster Avatar revealed that it took four years to release a slot based on the movie simply because both partners were waiting for the technology to catch up to the task.

It did. The Avatar slot machine wowed attendees at G2E with its 3D effects and recreation of the movie, which itself was popular due to its merger of 3D animation and live action. It joined “Back to the Future,” “Bridesmaids” and “Jurassic Park” in a collection of movie-themed IGT games that again prove players want entertainment.

The latter game, a community-style offering on IGT’s Center Stage platform, has players selecting paths out of the Jurassic Park jungle to avoid the gargantuan roaming dinosaurs, in a wonderful reproduction of one of the film’s climactic scenes.

Movies and TV are also mainstays in the new games to be released in 2014 by WMS Gaming. The “Iron Man” game does a masterful job of weaving action from the film into the bonus rounds, and “Ferris Beuller’s Day Off” recalls the funniest scenes from that 1980s hit film. On the TV side, “I Love Lucy,” the first WMS take on the classic sitcom, uses mountains of series clips to inject entertainment into each bonus round.

The fact that there will be so many entertainment brands coming to the slot floor in 2014 does not mean the entertainment trend is restricted to licensed brands. Games like Konami’s “Gigantic Wheel of Winning” and its “Titan 360” format prove that. Titan 360, a gigantic bonus apparatus surrounded by play stations, looks more like an amusement ride than a slot machine.

Elsewhere, “Sinbad” from Aruze and “Zombie Outbreak” from Multimedia Games prove that brands are not needed to inject entertainment into the slot experience. Sinbad plays like a game board in its bonuses, and Zombie Outbreak plays like a first-person shooter video game in its sequence requiring the player to kill zombies before they overtake the screen.

Similarly, GTECH will release its own masterpiece of proprietary entertainment in 2014 with “Sphinx 3D,” with a 3D bonus sequence that engulfs the player in the game. GTECH officials say the bonus rounds were purposely made less frequent so payers can sit and experience them for a long time.

Skill games are another new addition to entertainment-style slots. “Are You Smarter Than a Fifth Grader?” from American Gaming Systems tests the player’s knowledge with trivia questions. IGT’s “Centipede” features a bonus that re-creates the arcade game Centipede with complete accuracy, right down to the use of a mounted joystick.

Games like these, of course, are designed attract the new generation of gamblers now in their 20s and 30s. This demographic, largely untapped by slot-makers because it is comprised of people who generally don’t go for the classic slot experience, is beginning to change how slots look.

But that’s a trend for another article.
—Frank Legato

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2. Tarnishing or Polishing?
Image is everything and gaming has a problem

If you’ve been in the gaming industry for any amount of time, you begin to resent the constant barrage of criticism that is  brought to bear on the industry from people who know no better. It’s now been decades since gaming shed its association with organized crime and established strict regulatory systems that keep it clean. But Hollywood continues to pump out movies and television programs that portray casinos as mob-infested.

But that’s only half the problem. The supposed “ills” of gaming go far beyond any criminal connections, say gaming opponents.

Fueled by bogus studies by disreputable academics about how the industry supposedly gets a majority of its revenue from a small percentage of addicted gamblers, or how crime soars once casinos are introduced into a community, or why bankruptcy is part and parcel for customers of casinos, these “facts” are quickly absorbed by the mainstream media and disseminated to readers/viewers/listeners unaware of the false premise of such information.

Thankfully, much of this information has been discredited by both official government data and peer-reviewed studies by credible academics. But it seems every time a gaming panel is established, these “facts” have to be defeated all over again. This has recently happened in Ohio and Massachusetts.

What is more troubling, however, is that the industry is sometimes its own worst enemy by not policing its own image. In Massachusetts last month, Caesars Entertainment was forced by its partners to withdraw its bid to get a license to operate a casino in Boston because of a negative report from the state’s gaming commission (compiled by a questionable outside consultant). While much of the report focused on Caesars’ woeful financial shape—not that it matters in Massachusetts because Caesars was going to own less than 5 percent of the project—other criticisms of Caesars in the report were either settled disputes, a big reach or not relevant to Massachusetts.

Another hurdle the gaming industry has to overcome is the spotty regulatory reputation in Macau, where Chinese triads once reigned supreme. Now, Macau says those days are gone, and the U.S. companies that operate there contend they only deal with licensed junket reps. But continued reporting by reputable news organizations has uncovered ongoing ties between some VIP operators and organized crime in China.

So which is it? Asians say critics are being short-sighted, that these things take time to accomplish—and it’s also a cultural difference about how to approach regulation—but U.S. regulators insist that any company that operates there needs to abide by a certain assurance that they are clean operations. U.S. companies active in Macau insist they only deal with licensed, reputable VIP operators, vetted by their compliance departments.

Again, a difference in perspective, but one that taints the industry just by association.

Another Caesars problem is charges about money laundering at the flagship Caesars Palace. Caesars is far from the first company to face such charges. Las Vegas Sands paid more than $45 million to satisfy similar charges just months ago. LVS claimed that its compliance structure was not robust enough, and that it has now established one that will prevent that from happening in the future. While casinos aren’t the only businesses that have had these kinds of problems, because it is casinos, the fallout—and publicity—is more serious.

All of the above incidents taint what we know is a reputable industry ready to prove that we’re clean and above any questionable activity. Image is everything, and gaming must be ready to go above and beyond what any other business must do. If casino companies want to be treated like any other business, there must be no lingering doubts about whether or not we’re doing the right things.
—Roger Gros

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3. Socially Acceptable
The growth of social gaming

Talk about planning ahead. In April 2012, two months before the new Maryland Live! Casino near Baltimore opened to the public, the property launched a virtual gaming site that allowed people to play non-cash online games.

Smart move. Myliveonlinecasino.com enabled the casino to enroll players in its loyalty program long before they ever set foot inside the property. It familiarized customers with the brand and allowed the operator to broadcast the wonders of a $500 million casino complex plunked down at a suburban shopping mall.

Developed by Aristocrat and available through its customizable nLive system, the website was the first of its kind: a play-for-fun solution fully integrated with a casino’s management system. And it continues to pay off for Maryland Live!

Player rewards are based on games played online as well as on-property; as of April, casino officials reported that 12 percent of its online player base eventually came to the casino and played for real money, and that moreover, those players visited 40 percent more often, spent 20 percent more per visit and stayed 10 percent longer than the average patron.

Will these sites easily transition to online cash wagers once they’re available beyond Nevada? Delaware hopes so. In August, the First State’s three casinos launched web portals for play-money slots, poker, blackjack and roulette. The Facebook-linked game platform DoubleDown Casino, operated by IGT, began testing real-cash online gambling in October, prior to going live in November. For Delaware, which has lost millions in gaming revenues to casinos in Maryland and Pennsylvania, the virtual games would be a welcome, if modest shot in the arm, generating an estimated $3.75 million in the first year.

New Jersey also is set to be online with real-cash wagers by year’s end; some analysts say California, Pennsylvania and New York will follow suit next year, with states like Iowa then falling in line. And technology providers are starting their engines now. Bally, which provides its iGaming platform to casinos around the country, should be well-positioned to advance to cash games as soon as state governments drop the flag.

Interestingly, San Francisco-based Zynga, the online gaming giant that brought us FarmVille, has opted not to pursue online gaming in the U.S. for now. But when Caesars Interactive launched its virtual World Series of Poker games in September, CEO Mitch Garber called it “a domino… the beginning of a very large online gaming business in America,” especially if providers are allowed to do business across state lines. In a recent report, the Wall Street Journal predicted global online gambling could be a $43.3 billion market as early as 2015.

Right now, gaming enthusiasts in most of the U.S. are waiting to place their bets. “With social games, players begin to put regular time aside at home for game play and they become more comfortable with the ins and outs of an online gaming experience,” says Ryan Leeds, vice president of strategy for Masterminds, an advertising agency that specializes in social media. “Both of these things will ease the transition to real online wagering.

“Social free-to-play casino games can definitely be a gateway for real online wagering,” says Leeds,?and if the casinos are really lucky, it will even get some of those couch-bound players out of the house and turn them into actual visitors.
Marjorie Preston

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4. Diversifying the Economy
E-Commerce and collaboration in Indian Country

One of the hot trends ahead in 2014 across Indian Country is collaboration in exercising tribal sovereignty through tribal government e-commerce initiatives. Historically, some tribes have viewed tribal sovereignty as a resource to be shared, a public good. The trend today is to view tribal sovereignty as an action, a verb; tribal governments are coming together in the belief that tribal sovereignty only becomes real in the act thereof.

The most visible example of collaboration for 2014 will be several groups of tribal governments exercising sovereignty in the wide-open field of tribal e-commerce. There are two critical drivers of the tribal e-commerce movement: 1) expanded economic development opportunities both across Indian Country and by tribes with gaming; and 2) extension of the concept and practice of tribal governments exporting goods and services to non-residents.

The first critical outcome of tribal e-commerce is the ability of tribal governments to expand beyond land-based gaming. Research shows that tribal government gaming’s social and economic gains in the 1980s-’90s have plateaued in the 2000s. Additionally, the economic challenges of the past five years have left many tribes with large debt service wherein their gaming revenues are directed at paying down debt rather than toward critical tribal government programs and services. Economists found that by 2010 nearly 93 percent of American Indians lived on reservations that were impacted by gaming, whether through a gaming facility, machine lease rights or revenue sharing. In spite of this nearly universal access to tribal gaming revenues, in 2010 American Indian per capita income remained at 45 percent of the U.S. average, American Indian unemployment is more than double the U.S. rate and college attainment among American Indians is less than one third the U.S. average.

The obvious challenge of land-based economic development of any kind is that it depends on attracting guests to reservation-based properties. Tribes made significant capital investments in their gaming facilities and added other impressive amenities in order to attract gamers and tourists alike. Counterintuitively, in the jargon of economics, attracting gaming action and tourism from off-reservation increases exports. In other words, gambling or entertainment services are “exported” to off-reservation consumers, since the casino guests and tourists themselves actually come from the surrounding region.

E-commerce expands this tradition of tribal exporting by providing access to a much larger pool of consumers through marketing products and services to non-residents of tribal reservations via the internet. Tribal governments are coming together to invest in the hardware, software, marketing and technical skills required to offer a range of online products and services.

A number of well-organized inter-tribal groups are launching online class II gaming businesses (both bingo and poker) in 2014. Others have developed online financial services, including various forms of lending. Still others are pursuing manufacturing and warehousing with online fulfillment services. E-commerce offers tribal governments a critical lifeline wherein they can export to consumers who can visit the reservation remotely via technology, creating a level playing field for all tribal communities regardless of their geographic location.

What these collaborative efforts have in common is the exercise of tribal sovereignty, acting on the truism that when it comes to tribal sovereignty, what has not been taken away remains.
—Dr. Katherine Spilde, Associate Professor, School of Hospitality and Tourism Management Endowed Chair, Sycuan Institute on Tribal Gaming, San Diego State University

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5.
iGaming: The Lottery Angle
Will state lotteries compete with casinos on the internet?

Most of the talk concerning who will be the near-term winners as internet gaming spreads across the U.S. has concentrated on experienced iGaming suppliers and operators, bricks-and-mortar casino operators and, to a lesser extent, Native American tribes.

The elephant in the room during all these discussions? State and provincial lotteries. While state legislatures and the U.S. Congress were debating the legalization of casino games over the internet, operators of state lotteries began to consider whether they already had the legal authority to offer casino games online.

In fact, in late 2010, the District of Columbia Lottery reached that very conclusion, passing an omnibus-spending bill containing a provision legalizing a full slate of games of chance and skill to be offered over the internet. The bill cleared the required 30-day review by the U.S. Congress, and it looked like D.C. residents were poised to become the first in the nation to legally gamble on the internet.

It was not to be. In February 2012, the D.C. Council repealed the law that had authorized internet games, due to criticism that it had been attached to a spending bill and thus had not been debated. Of course, by that time, the iGaming genie was out of the bottle, thanks to the December 2011 opinion from the U.S. Department of Justice that the federal Wire Act, which had been presented as the basis for iGaming’s illegality, did not prohibit any form of internet gaming outside of sports betting.

So far, the land rush for lottery-based iGaming has not happened, as state legislators have taken a very careful approach to introducing the internet—first as solely a means to sell electronic scratch-off tickets.

However, in 2014, this could change, as state officials gauge the success of the first three legal iGaming programs—one of which happens to be run by a state lottery. Delaware is one of the few states to run all gambling through the lottery. The state owns the slot machines in all the casinos (although that will change soon), and refers to them as video lottery terminals. When the state legislature legalized internet games, they were simply added to the stable of games already offered by the lottery.

Other states may view their lotteries as a perfect vehicle to add internet gaming quickly. Logical contenders would be West Virginia, New York and Washington, all of which run the games at bricks-and-mortar locations through the lottery.

If Delaware generates a decent amount of revenue through iGaming—a questionable proposition, to be sure—more lotteries may follow suit. At a recent regulatory conference in Philadelphia, Georgia Lottery COO Kurt Freedland commented that the multi-state lottery organizations that already exist—the Multi-State Lottery Association, which runs Powerball; and the Mega Millions organization—already provide a vehicle for interstate poker pools, to achieve the liquidity of players needed to be profitable.

Freedland also noted, though, that easy to add or not, the initiation of iGaming is subject to political realities. In Pennsylvania, for instance, there are two iGaming bills on tap—one to legalize and regulate internet gaming; the other to ban it completely.

And so far, other states seem to be going the legislative route, with few claiming they can simply add casino games to their lottery offerings with no new law. Bills to authorize intrastate iGaming can be found in states including California, Texas, Florida, Illinois, Iowa, Louisiana, Maryland… even Hawaii, one of two states with no legal gambling whatsoever.

Whether success in Delaware with iGaming through the lottery leads to an acceleration of lottery-based iGaming as one of 2014’s trends is something that time will tell.
—Frank Legato

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6. Power Structure
Are REITs the answer for a new casino company shape?

The year 2014 starts with an entirely new opportunity for gaming investors—the industry’s first real estate investment trust, Gaming & Leisure Properties Inc.

GLPI came into being on November 1 when Penn National spun off all its real estate holdings into the new publicly traded company that intends to apply for REIT status in January.

REITs have long existed in other industries, and the model has gained popularity in recent years in gaming’s sister industry, lodging.

A REIT owns real estate in a trust structure. It pays no income taxes, and must pass along at least 90 percent of its profits to its shareholders through dividends. They, in turn, pay income taxes on the dividends.

The REIT only is a property owner, and it leases out the properties to other companies to manage.

PENN had several motives for adopting the REIT structure. Among them:

• Unlock value. Stocks of regional casino companies trade at seven or eight times cash flow, while REITs commonly sell at 14 or 15 times.

As one company, all of PENN’s value was trapped in that 7-8 range. Now, at least the real estate portion trades higher.

• Create a new growth vehicle. GLPI can buy small casino properties and lease them back to their previous owners to operate, or sign management contracts with other companies.

• Develop an asset-light business mode for Penn National, which can pursue growth through management contracts or by acquiring new gaming licenses without having to pile up debt to finance purchases or construction.

• Create income for shareholders through the dividends that REITs must pay.

Initially, GLPI’s only tenant will be PENN, but over time, the new company can sign management contracts with other companies, lease back casinos to their former owners, and even buy real estate outside of gaming—say hotels or apartments or shopping centers.

Whether PENN is creating a new model that will become commonplace in gaming is subject to debate.

The bulls cite all of the motivations listed above, and note that gaming now will be attractive to a whole new category of investors who favor putting their money into REITs.

They note that the several hundred casino properties that can be bought by a REIT make for a lot of opportunity for GLPI.

And they cite the success of the asset-light model for hotel companies like Marriott and Starwood, and say PENN can be just as successful.

They also point out that, as the only gaming REIT, PENN will have the field to itself, at least initially.

Skeptics say that REIT investors might not like that GLPI has just one tenant initially in PENN.

Further, the idea of rolling up casinos into a REIT has not been tested. And casinos, they point out, are different from hotels because of the volatility of gaming revenues and the much greater risk of legislative, regulatory and tax changes in various jurisdictions.

Finally, GLPI could breed competition. Other gaming companies can spin off REITs. Other REITs can start buying casinos. Entirely new REITs can come into being to focus on gaming.

So, the success of the new model will be proven over time.

But, at least at the beginning, the optimists rule the day.

PENN stock sold under $38 when the restructuring was announced last November.

On its first day of trading after the restructuring took effect this November, the two stocks combined sold at $60. GLPI alone was over $46.
Frank Fantini, Editor and Publisher, Fantini Gaming Report

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7. New Gamers
Why attracting younger players is essential

Sometimes the numbers just don’t add up. In its 2013 State of the States report, the American Gaming Association reported that in the previous 12 months, 39 percent of people aged 21-35 patronized a casino, and nine out of 10 said they planned to return. Around the same time, a poll of 3,000 adults in 16 markets in the Northeast found that just 18 percent of people 35 and under had visited a casino in the past year.

The figures are contradictory, but one thing is certain: the ever-expanding gaming industry eventually will need to replace the middle-aged slot players who now pay the bills. The patron base historically has regenerated itself, but will it continue to do so?

Randall Fine, managing director of the Fine Point Group in Las Vegas, gives a qualified yes. “A dozen years ago the average casino patron was 65 years old; today the average age is 65,” says Fine. “Either the 65-year-old gamblers of 12 years ago have come up with a way to stop time, or they’ve been replaced with new people.”

That evolution should continue, he says, as Gen X, Gen Y and millennial consumers acquire more money and time for entertainment; the challenge for casinos is to give these nascent customers what they want—and they may not want slot machines, at least not the pull-lever/reel-spin slots that dominate the gaming floors of today. Accustomed to the flash, animation and immediacy of high-tech video and computer games, these potential patrons simply won’t be satisfied with newer incarnations of the one-armed bandit.

“Watching reels spin around isn’t going to get them excited. The slot industry needs to create a product that’s more like PlayStation, Grand Theft Auto, Golden Tee or Madden NFL,” says Fine. “Obviously the technology is there, but the creativity and the math models aren’t.”

In recent years young adults have shown a willingness to splurge on concert tickets and pricy nightclub bottle service, but have been less inclined to migrate to the casino floor. An oft-cited example is the Cosmopolitan in Las Vegas, which has a flourishing club scene but lags in gaming revenue and has yet to turn a profit. To that, Fine says casinos should make their money where they can, including non-gaming amenities like clubs, spas, shopping, dining and entertainment.

Unlike Cosmopolitan, says Fine, “Steve Wynn is making a ton of money on nightclubs because he hasn’t outsourced” his club and restaurant inventory. Furthermore, he adds, “I don’t know what you can do to make that 20-something nightclub patron stop at the table games, and I’m not sure you should try. Nightclubs are a very profitable business.”

As long as the money is green, it may not really matter where it’s spent.

But casinos in many jurisdictions don’t have the swanky nightclubs, day clubs, ultra-lounges and tropical pools that have partiers lining up in Sin City. Those casinos might want to take a cue from the Las Vegas playbook.

During his brief tenure as interim president of Revel, the Atlantic City casino still struggling to attract both diehard gamblers and the new generation of players, Jeffrey Hartmann noted that young patrons “are our future. So we have to know how to reach, attract and hold onto them as the ‘New Gamers.’”
Marjorie Preston

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8. The “S” Word
Is Saturation Creeping into the U.S. gaming industry

As recently as the late 1980s, there were only two legal gaming jurisdictions in the United States: Nevada and Atlantic City. Then the creep began.

First, the passage of IGRA in 1988 spurred a boom in tribal gaming that continues to this day. Once small (and large) bingo halls, tribal gaming now includes some of the largest casino resorts in the world.

Then, the states along the Mississippi River rediscovered the romance of the riverboat gambler (and usurious gaming tax rates), and floating casinos plied the rivers of middle America. In Mississippi, probably one of the most conservative of the Southern states, riverboats came ashore on barges, signaling a second stage that has done away completely with any cruising casinos.

Failing racetracks were the next into the act, introducing slot machines whose revenues would partially subsidize the various elements of the racing industry. The justification was that higher purses would attract better horses and more competitive races that would in turn bring bettors back to the track. Didn’t work, and the slot parlors soon morphed into full casinos that now far overshadow the racetracks they were designed to save.

Big cities have also gotten into the act. New Orleans and Detroit approved casinos in the 1990s, and today cities like New York, Cleveland, Baltimore, Cincinnati, St. Louis, Boston, Philadelphia, Pittsburgh and others have or will soon have large urban casinos. Will other cities have to get into the act to stay competitive?

With Massachusetts about to introduce four large casinos and a slot parlor, Maryland to approve a huge casino in suburban Washington, D.C., and Florida toying with the idea of integrated resorts in its tourist areas, there remain but a few regions of the U.S. that are underserved by casinos—Texas and parts of the Southeast remain about the only casino-free areas.

Revenues at existing casinos have largely stalled or declined all across the U.S. as more competition comes on. Booms in Oklahoma and Pennsylvania over the last few years are largely over. Casinos in Atlantic City, Connecticut and Delaware have been devastated by surrounding competition. Revenues at tribal casinos that were once money machines for tribes have leveled off or been in decline.

And the younger generations X, Y & Z have not taken to gambling as their elders did. Whether it’s the lack of skill games that are so popular among youth or a focus on the nightclubs, there has been no crossover to the casino floor.

So gaming has to figure out what saturation means, how to grow a stagnant market and what casinos will look like in the future. Is it a pretty picture or a grim vision of a bleak future?
Patrick Roberts

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9. Pay to Play
Coalitions of tribes ready to offer Class II online gaming

About a dozen American Indian tribes have announced plans to enter the for-pay online gambling market before the end of the year, but in the absence of federal internet legislation, progress has been slow.

Because tribal governments are apparently limited by the Indian Gaming Regulatory Act (IGRA) from accepting wagers from outside reservation lands, tribes are hampered by the lack of a federal bill from generating the player liquidity to create a profitable online venture.

But at least three ventures have been created, two of them seemingly attempting to test the legal prohibitions against off-reservation wagers.

The three tribal groups are hoping the electronic bingo games that led to a landmark 1987 U.S. Supreme Court decision and congressional legislation allowing Las Vegas-style casinos on American Indian reservations will enable them to enter the online gambling market.

The groups anticipate launching websites offering Class II, bingo-style gambling permitted under IGRA. The sites would be regulated by tribal commissions with oversight from the National Indian Gaming Commission (NIGC), the federal regulatory oversight agency for some 425 tribal government casinos in 28 states.

With an increasing number of states moving to legalize internet wagering, many tribal governments see Class II gambling as an option to confront emerging online competition to their land-based casinos.

About 40 tribes are operating free-play or social gambling websites.

Desert Rose Bingo, a partnership of Alturas Rancheria in Northern California and Great Luck LLC, is leading the way. The partnership launched a free-play, limited-access website September 29 with the goal of taking real-money wagers from off the reservation before year’s end.

The Tribal Internet Gaming Alliance (TIGA), a consortium of three Wisconsin tribes, also plans to launch its website before year’s end.

Tribes from the states of Washington, Wisconsin and Michigan have all expressed an interest in TIGA, according to Jeffrey Nelson, an attorney for the group. The Lac du Flambeau Band of Lake Superior Chippewa Indians in October became the first tribe to ratify an internet treaty it hopes will unite other Midwest tribes into an online alliance.

“Until state or federal e-gaming laws change, wagers will be taken only from people who are physically present within the member tribes’ collective jurisdictions,” Nelson says. 

The Inter-Tribal Online Gaming Alliance (ITOGA), a group of seven tribes in California, Oklahoma and Michigan, intends to operate a bingo website that, like TIGA, could be expanded to offer poker.

Desert Rose and ITOGA are looking to stretch the legal boundaries of IGRA, which generally restrict tribal gambling to Indian lands, by placing servers on the reservation and using a “proxy” process to accept off-reservation wagers.

Although IGRA and the NIGC generally permit the use of technological aids in offering Class II gambling such as bingo and poker, federal courts are divided on whether the wager occurs at the internet server or where the gambler is located.

Meanwhile, California tribes are pressing for intrastate internet poker legislation, hoping to capture the state’s potentially lucrative market of 38 million residents.
Dave Palermo

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10. Bringing It All Home
Will online gamblers become casino gamblers?

The advent of legal online gaming in the U.S. was fought for years by the land-based casino industry. Many casino executives still are opposed to the new way to bet because they believe that online gambling will simply give their customers another reason to stay home.

Many casino companies concluded, after looking at the numbers, that online gaming could provide substantial revenue that would be going to someone, so why shouldn’t it be them?  The data about online gaming’s impact on land-based casinos is far from complete, but the revenue numbers are not, so casino companies couldn’t ignore that fact.

Sheldon Adelson of Las Vegas Sands and Len Ainsworth, the founder of Aristocrat Technologies and Ainsworth Technologies, agree that online gaming is a terrible idea, not only because it makes it more difficult to bring someone to a casino, but also because they believe it’s bad for society. The notion of someone gambling in their underwear isn’t a pretty sight, but it is, undoubtedly, the reality.

So the argument goes from stopping online gaming to determining how land-based casinos can use it to bring more players to the casinos.

So far, we only have three examples of states with casinos and online wagering. Nevada has introduced only online poker, already just a small slice of the land-based casinos’ business. Delaware and New Jersey have just introduced full online gaming, but there just isn’t enough information about how their casinos have been impacted one way or another.

But let’s examine how the casinos have reacted. In Delaware, online gaming is run by the state lottery, so the casinos there have little input into how it is offered. In New Jersey, however, the Atlantic City casinos hold the licenses and have hired online gaming operators as partners. The level of cooperation between the two varies widely.

Some casinos are simply handing the keys over to the online operators for a pile of money, but keeping their customer data separate, fearful that their existing players will opt to stay home.

And let’s remember that the AC casinos are only getting a small percentage of the online gaming revenue, in most cases around 30 percent. So there is little incentive for them to encourage their players to participate online instead of coming to the casino.

Other casinos are incorporating their current customers with online gaming, offering web players similar benefits as they would earn at the casino, but redeemable only at the casino. Of course, the idea is to get the online players to the casino.

Let’s not forget that the connection between online gaming and the land-based casinos hasn’t really been duplicated in other parts of the world. In Europe, online gaming companies were separate entities, and by the time that the land-based casinos understood that they were losing business to the online casinos, it was too late. The online casinos had established brands, customer service, and popular games that the land-based casinos simply could not match when they finally got in the game, much too late.

But in the U.S., it’s logical to assume that the pattern set early on—land-based casinos operating online casinos—will continue. So the lessons learned in Nevada, Delaware and New Jersey will go a long way toward determining the impact of online gaming on land-based casinos.
Patrick Roberts