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Change Is Good

Things are looking up for gaming, but where is the ceiling?

Change Is Good

The more things change, the more they stay the same.—Jean-Baptiste Alphonse Karr

There is a great deal of noise and commotion today about change, and the threats and opportunities it represents.

And, no doubt, there is plenty of change. The internet has radically altered business models and social interaction. It has accelerated the pace of globalization. Big data is revolutionizing marketing.

Indeed, the pace of all change is accelerating.

Equally no doubt, the gaming industry will have to adapt to this constant swirl of change.

Industry Status

However, before we sell all our stocks in brick-and-mortar casinos and rush out to buy virtual reality companies, let’s take a look around.

Commercial brick-and-mortar casinos in the U.S. last calendar year generated $42 billion in revenue, 5 percent more than the pre-Great Recession peak in 2007. Tribal gaming grew even more at 19 percent to $31 billion in the fiscal year ended June 30. Combined, U.S. casino gaming revenues reached a record $74 billion, up 12 percent.

Now, those aren’t stunning numbers, but they represent steady growth. Indeed, if you look after the Great Recession, U.S. casino revenue has risen 18 percent from the nadir.

New Forms Of Gaming

Every industry has risks and must adapt, but the shiny new forms of gaming that grab the headlines aren’t going to upset the casino apple cart anytime soon.

Daily fantasy sports is variously estimated to be a $3 billion business growing to over $5 billion by 2020.

The latest new-game du jour, eSports, is estimated by NewZoo to be a $696 million “economy” growing to $1.5 billion by 2020 with a gambling component of equal size. About half of that is in the U.S.

Online gaming in New Jersey is running at an annual rate of $243 million and, while still growing, growth is slowing. If all 50 states offered full-blown iGaming like New Jersey—and we know that isn’t going to happen—the U.S. market would be $8.4 billion.

So, add up all the new gaming and, at best, it would total $15 billion in 2020, or one-fifth of the size of the conventional casino industry today. The reality is these new forms of gaming will more likely generate $5 billion to $10 billion.

Social casino is growing with second-quarter revenues up 16 percent to $1.1 billion, according to Eilers & Krejcik Gaming.

However, social casino has two drawbacks: about 85 percent of the business is owned by 15 publishers, such as Zynga, DoubleDown and Playtika; and marketing costs eat heavily into profitability.

Further, social casinos may be more a benefit to casinos than a competitor, as more casinos launch sites providing a way to grow an enterprise’s database of players and to cross-market their brick-and-mortar operations.

The same effect has been seen in New Jersey in real-money online gaming, where many players are new to the casinos and represent cross-marketing opportunities.

Casinos will take part in the new forms of gaming, as they are doing in New Jersey, Nevada and Delaware. One reason is that casinos, which were outsiders trying to get in over the past 20 to 25 years, are now established industries that employ thousands of voters.

When new forms of gambling are approved, you can bet that in many cases, such as online gaming in New Jersey and Delaware, legislators will make sure the operations are run through already-licensed casinos.

Millennials, Technology And Fun

The reason that casinos will remain strong businesses is because of the quote that begins this column—things are changing, but more so, they remain the same.

The millennial generation that so many obsess over has its differences, but unless human nature changes, they are more like previous generations than not. They want to gamble, play and compete.

Consider these myths:

  • Millennials are the first generation poorer than their parents. Pew Research found adult millennials have household incomes averaging $61,000. That is $1,000 better than baby boomers at the same age, and just $2,000 under Generation X.
  • They are independent and don’t want to do what employers say. A survey published in The Economist shows 41 percent of millennials believe employees should do as instructed, even if they don’t understand the reasons. The comparable figure for boomers and Gen Xers is 30 percent.
  • Millennials aren’t motivated to succeed. Another survey reported in The Economist shows 59 percent of millennials are motivated by competition. For boomers, the figure is 50 percent.

So, maybe millennials aren’t so much different. More likely, the older generations—as they have throughout modern history—think the younger generation is different.

Then there is the role of technology.

In his famed book Mega Trends, James Nesbitt said that the more technology makes us remote from each other, the more we will want to reach out and touch each other. Maybe that explains the continuing growth in convention and meeting business despite the ever-greater capabilities of electronic communications.

Gambling is also a natural human activity. It is the entertainment form of an essential human quality and need—risk-taking. Gambling is not going away.

Finally, casinos are evolving into entertainment centers where gambling is a central activity, but just one of many. In brief, casinos are built around having fun… and having fun will never go out of style.

In conclusion, we are living in a world of fast-paced change, but an industry based on risk-taking as entertainment, providing the place for people to socialize and reach out to each other, and that is always catching the latest entertainment wave, is an industry that can continue to prosper.

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