Give 888 CEO Brian Mattingley credit for candor.
While other executives have downplayed the slow start to online gaming in the U.S., Mattingley recently told Bloomberg he has been absolutely shocked.
Nor have the dismal results been improving as expected for a young industry that, all conventional thinking would have it, is bound to ramp up.
In fact, the average number of poker players online in New Jersey, Nevada and Delaware has actually declined in recent weeks.
Delaware, with an average of six poker players online at any one time, doesn’t appear to have enough to justify operating.
Last month, New Jersey online operations took in just $11.4 million, which annualizes to $140 million compared to initial estimates that ranged as high as $1.2 billion.
Explanations for the slow start are now well- known—many banks won’t process gaming transactions, most New Jerseyans still don’t know online gaming is legal, unlicensed offshore books are poaching players, and player registration is intimidating and time-consuming.
Most of those issues will be resolved, and online gaming should grow.
But it is worth considering the possibility that online gaming will not reach the big numbers so many forecast.
Nor is iGaming assured of being profitable. Right now, online gaming operations in the U.S. are losing money. That is in part due to start-up costs, and in part to the low levels of play.
But many investors, wide-eyed over huge revenue projections, don’t appreciate the high cost of marketing and player acquisition that cuts deeply into that, and otherwise don’t have the expenses of brick-and-mortar properties such as housekeeping, slot machines and property maintenance and refurbishment.
Just use Sweden’s Cherry as one example. The company grew online revenue 43 percent in the first quarter to 39.1 million krona as it campaigned to grow its number of registered online players by 12 percent to 404,000.
But online earnings before interest and taxes fell from minus 900,000 krona ($135,000) last year to minus 5.6 million ($840,000) thanks to 20.2 million krona ($3 million) invested in marketing, most of that to acquire those players. Last year, Cherry spent only 400,000 krona in first quarter marketing.
Cherry’s conventional gaming business, meanwhile, continued to be profitable.
Another issue is whether online gaming is as appealing in the U.S. as it is in the U.K. and Europe.
American casinos are entertainment centers offering a full range of experiences that make them much more fun than their small, gambling-only European counterparts.
Sitting at home spinning a slot machine on your telephone just doesn’t have the same appeal as backslapping a friend who just hit a jackpot and then celebrating in a restaurant or nightclub.
Finally, social gaming has emerged to be a powerfully attractive form of interactive entertainment.
A social gamer can play his or her favorite slots on a cell phone and never have to worry about credit cards not being processed, geolocation glitches or registering with a state regulatory agency.
So, iGaming will have a growing future in the U.S., but it might not be a quick and easy bonanza.
Land-Based Blues
As disappointing as online gaming’s start in the U.S. has been, the existing land-based business hasn’t been lighting up the skies either.
American casinos had their best year-over-year comparison in April since the bottom fell out in December, and improvement has been steady so far this year, despite a wicked winter that affected virtually every market.
The improvements in national gaming revenue comparisons are illustrated here:
MONTH YOY
December -7.3 percent
January -3.1
February -4.8
March -0.7
April -0.9
The improving trend has been welcomed by some as evidence that customers are returning.
But there isn’t clear good news yet.
First of all, revenues are still down, despite more casinos being in operation than a year ago. On a same-store basis, revenues fell 4.34 percent in May, an improvement over the year-to-date decline of 7.1 percent heading into April, but still a decline.
Nor was there a big bounce back from pent-up demand from those weary of the long and severe winter.
The doldrums have continued despite an economy that has improved, albeit with some bumps in the road.
Time will tell whether this is a new normal that we have to accept, or whether it will correct if the economy continues to improve.
Meanwhile, another question might soon be worth some thought and analysis. Is the proliferation of various forms of electronic entertainment taking time—and therefore money—away from traditional brick-and-mortar providers of entertainment?
That could be another aspect of the new normal independent of the economy.
Indeed, the rise of social gaming has ramifications that are surely unforeseen and unappreciated. We may look back in several years and see an entirely different landscape for online and brick-and-mortar gaming based on how rapidly evolving social gaming turns out.
