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Conversion or Collapse?

The online gaming connection.

Conversion or Collapse?

It’s always nice when someone walks in your door and drops a pile of cash on your table, and then tells you there’s more where that came from. And you don’t  have to do anything except let them play in your yard.

That’s what happened in a lot of cases in Atlantic City when online gaming companies made deals with the land-based casinos there. The valuable online gaming licenses that go along with the land-based casinos in Atlantic City were—and are—sought after by companies whose business it is to operate online gambling.

And land-based executives often have no clue—or desire—how to operate online gaming. So when the online gaming companies came calling with bags of cash and no requirement for participation, it was an easy decision.

But was it the right decision? People were shocked last month when a Caesars Entertainment disclosure statement warned that online gaming could harm land-based gaming. For those who were paying attention, however, this wasn’t a surprise. European casinos have experienced the downside of decreased business, so the Caesars warning was sensible.

Ironically, however, Caesars is the one U.S. company that is approaching online gaming in the most rational manner. Instead of partnering with a technology provider, Caesars has built its own technology and begun to operate its own online gaming properties.

Remember, in most cases, the online partner gets the bulk of the revenue from net betting. While the New Jersey Division of Gaming Enforcement won’t release details of the agreements between the casinos and their online partners, sources tell me that the casinos only get between 20 percent and 40 percent of the revenues. So while Caesars had to make a sizable investment in technology and personnel, the company will have access to all the revenue—and more importantly, all the players. This will also allow them to be more liberal in marketing their sites, already some of the most recognizable gambling brands on the planet.

But the big advantage to operating alone is the ability to completely blend the data from online players into Caesars’ Total Rewards program, the industry standard when it comes to customer loyalty. Caesars will be able to identify which online players could be converted to land-based players and determine what promotions would cause them to act.

While Caesars has this powerful vehicle, any land-based casino with a real-money online gambling presence (or even a “play for free” page now offered by many of the slot manufacturers) can design programs that will encourage your online customers to visit your bricks-and-mortar casinos. It takes a little expertise and an understanding of who is playing online and what motivates them, but it can be done.

Yes, Caesars’ earnings warning about the impact of online gaming should be taken seriously, because there is a real danger of creating a disconnect between the online casino and the land-based cousins. We’ve spent billions on these gambling palaces, and without the proper planning or forethought, players could just as easily stay home and play, or even worse, dispose of their disposable income without even venturing out their front doors.

There isn’t much data here, however. In Europe, online gaming got started before the land-based casinos could react. By the time they did, it was too late and the strong online brands dominated. There was and is no linkage between the two.

In the U.S., it will be different. In Nevada and New Jersey, only the established casinos can be participants in online gaming. Even in Delaware, where the state lottery runs online gaming, the casinos are the portals into the system. So the U.S. has the advantage of possibly changing the dynamic between the online gamblers and the land-based casinos.

And the games will be different as well. While poker has been the dominant player during the “Wild West” days of illegal online gaming, both Delaware and New Jersey offer full-blown casino gambling online (Nevada only offers poker for now). And like the land-based casinos, poker players don’t produce lots of revenue for the online casinos. But casino players, again like their land-based cousins, have a much higher lifetime value. In Europe, sports betting is king. But since it seems that kind of wager is far off in the U.S., I’d be willing to bet casino players will be the top earners.

So the U.S. is certainly the “brave new world” for online gaming—lots of challenges and opportunities. But even though some of us might prefer to do without it, that horse has already left the barn. Time to decide how you are going to approach legal iGaming.

Roger Gros is publisher of Global Gaming Business, the industry's leading gaming trade publication, and all its related publications. Prior to joining Global Gaming Business, Gros was president of Inlet Communications, an independent consulting firm. He was vice president of Casino Journal Publishing Group from 1984-2000, and held virtually every editorial title during his tenure. Gros was editor of Casino Journal, the National Gaming Summary and the Atlantic City Insider, and was the founding editor of Casino Player magazine. He was a co-founder of the American Gaming Summit and the Southern Gaming Summit conferences and trade shows. He is the author of the best-selling book, How to Win at Casino Gambling (Carlton Books, 1995), now in its fourth edition. Gros was named "Businessman of the Year" for 1998 by the Greater Atlantic City Chamber of Commerce, and received the Lifetime Achievement Award from the American Gaming Association in 2012.

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