Dog Eat Dog

For U.S. gaming, the summer of 2018 was the summer of love. The Supreme Court’s repeal of the Professional and Amateur Sports Protection Act (PASPA) in May of that year served as the ultimate demarcation point for legislative expansion, as more than 35 new sports betting markets were legalized in the following six years.

Stakeholders had long anticipated that iGaming would follow suit, albeit at a slower pace, and there was plenty of optimism heading into the 2024 legislative sessions that at least one more major digital market would come online. After efforts in Illinois and New York went nowhere, Maryland quickly became the most realistic option and served as an indication as to where the relationship between the retail and online sectors currently stood.

The state would have become the fourth-largest market to pass iGaming by population, behind Pennsylvania, Michigan and New Jersey. All three of those markets have posted more than $180 million in online revenue each month since the start of the year.

But on April 8, the hopes for iGaming in the Old Line State petered out when its General Assembly adjourned without even considering HB1319, the enabling legislation. 2024 now seems to be the summer of what could have been.

Contrasting Views

The arguments for or against the expansion of iGaming are not new, as the debate has been hashed out in various states for more than a decade at this point. But the question that has sparked the most contentious debate, and the one that appears to have been reignited following the defeat in Maryland, is that of cannibalization.

A number of market studies analyzing this issue were released throughout the legislative process. The Maryland State Lottery and Gaming Control Agency commissioned a report from The Innovation Group that predicted the market could reach $904.9 million in annual iGaming revenue by 2029, but the impact on brick-and-mortar revenue could surpass $200 million in the same period.

Conversely, the Sports Betting Alliance (SBA), a trade group composed of top operators FanDuel, DraftKings, Fanatics and BetMGM, commissioned its own report on the subject from the research firm Analysis Group.

That report concluded that total gaming revenue for current iGaming states was 46 percent higher in 2023 than before the online market was added. In Maryland specifically, the Analysis Group asserted that total gaming revenue could double by 2029 if iGaming was introduced, including $224 million in additional revenue for land-based casinos.

Another study from Eilers & Krejcik Gaming from around the same time was also firmly opposed to the state-sponsored study, and even called its methodology “flawed.” In response, Brian Wyman, The Innovation Group’s senior vice president of operations and data analytics, took to LinkedIn to defend his firm’s stance.

“It’s a nice thought that online versions of real-money gaming are additive to their land-based competitors in aggregate,” Wyman wrote. “Unfortunately, even if that’s true for a specific company or set of companies that dominate the loyalty marketing or online gaming space, it’s just not what we’ve seen in the data across entire markets, inclusive of the “have-nots” of iGaming. Our analysis has been consistent: iGaming is overall additive but with some land-based cannibalization.”

Defending Territory

On the brick-and-mortar side, perhaps the biggest opponent of iGaming in Maryland was The Cordish Companies, which is headquartered in the state and operates the Live! Casino & Hotel Maryland in Hanover.

Cordish Global Gaming President Rob Norton told GGB at April’s East Coast Gaming Congress shortly after HB 1319 was defeated that the company first became wary of potential cannibalization when online sports betting was introduced in late 2022.

The previous year, when only retail betting was available, Norton said that it had an “unbelievable impact” as far as visitation and in-person spending.

“There was a lot of growth in table games and to a little bit lesser extent slots, but growth in both sides,” he said. “Poker as well. Food and beverage was up, and it really was kind of across the board, because it drove, on average, somewhere like 7,000 additional people across the state on average a day that came into the casinos. People bought a beer, they bought a burger. They dropped $20 on the table games when they walked by.”

But then when online sports betting came into the fray, Norton said, “the retail environment (was) down 65 percent across the whole state.” He lamented that “for the first time in 10 years, excluding Covid, we saw table games revenue decline and slot revenues go flat.”

The introduction of the digital side, he asserted, led to “an exodus of visitation” from the company’s casinos.

When iGaming started to become a real possibility, Norton said the company began to conduct its own research and “studied the iGaming market with no agenda,” given that it operates the PlayLive! online platform in Pennsylvania.

“As we studied it,” he said, “we kept coming back to there (being) a clear cannibalization that was happening” between the two verticals.

These findings reinforced the views of Cordish and other retail operators over the years as this fight has dragged on: the advancement of iGaming is not inherently positive for land-based gaming; the two cannot supplement each other or even coexist peacefully, a la Netflix versus Blockbuster or Amazon versus Borders.

“We create destinations that are centers for people to gather,” Norton opined. “We create community centers. We create opportunities for jobs and advancement, so we started to see that we think this type of business is detrimental to our core business. And the DNA and the reasons we do the core business are potentially at risk.”

Sign of the Times

Whereas Cordish and others may view the two sides as being total opposites, others would argue that that is not necessarily a bad thing.

By expanding the number of offerings, the number of players will inevitably increase, even if the demographics are potentially siloed and only interested in one type of play. The industry is also beholden to the consumers, who have come to expect the same level of convenience and access toward which nearly every other business has evolved.

Brendan Bussmann, managing partner at the Las Vegas-based consultancy B Global, notes that there have been countless examples of “industries that have failed to evolve to the current customer and attract new customers.” The argument that retail operators can’t compete with online counterparts, he says, is not enough to stifle progress.

“How many of you went to get the $3 movie for your VHS at Blockbuster on Friday night? Responsible operators put forward a responsible product that creates jobs, puts money into the economy, and creates additional tax revenue,” he argues.

Bussmann asserts that expansion in Maryland specifically “is not a question of if but when,” but overall, this most recent defeat is indicative of a larger trend. While the U.S. market was growing accustomed to “the sprint of sports betting,” iGaming by contrast “was always going to be a longer conversation.” Its future growth requires more dialogue among policymakers and the public at large.

“This continues to be about education,” he says. “Education about the benefits of iGaming. Education dispelling the myths about iGaming. And understanding how we can bring a product to the legal market while expanding the opportunity for today’s customer and attracting a new customer not captured today.”

Political Action

One legislator who has had success in persuading fellow policymakers about the benefits of adding iGaming to a market that also has retail gaming is Shawn Fluharty, minority whip in the West Virginia Legislature and president of the National Council of Legislators from Gaming States (NCLGS).

Fluharty, who championed iGaming legislation in his state in 2019, says that other states with existing retail markets might have success following West Virginia’s formula of tethering online licenses to casinos.

And now that both verticals have operated concurrently for multiple years, he says his constituents would tell him if the issue was as real as arguments suggest.

“I have a brick-and-mortar casino in my district,” he notes. “If there was cannibalization going on, they would pick up the phone and be screaming in my ear immediately.”

The dueling research on the topic reminds Fluharty of how trials unfold with testimonies from both sides. What happens over time, he says, is that the people who are deciding the issue start to “listen to the fact witnesses and not the expert witnesses.” In other words, those with direct experience tend to carry more weight.

“We have New Jersey and Pennsylvania and Michigan, and all the regulators in those areas will tell you there’s no cannibalization taking place,” he says. “In West Virginia, not only do we have brick-and-mortar casinos, we have (Limited Video Lottery machines) as well, so they were part of the fight. And what we usually discover is you bring in a new player.”

Even if the new players being brought in prefer online gaming to retail, Fluharty notes that legislation can be tailored in such a way to ensure “that the casino floor is getting constantly refreshed.” This is done by allotting a portion of revenue for modernization, so that properties can help bridge the technology gap and stay relevant to as many potential customers as possible.

Picks and Shovels

Perhaps the most neutral parties in the cannibalization dialogue are the suppliers, who now have the ability to create and adapt content for several platforms at once. By developing cross-compatible games, they also have the ability to help migrate players across verticals and help drive revenue in both places.

Yanis Tsombanidis, vice president of game design for Light & Wonder (L&W), reflects that before the advent of iGaming, the development process was much riskier and less sophisticated.

“Back in the day, you’d create a game and you just hoped people would find it,” he says. “It could just get lost in a casino. But now, having more mediums to play and experience games is great. The exposure you create, players may say, ‘Well, I can’t make it out to that casino, but I can experience it (online).’ I think that is the big change. Each game has a chance.”

Tsombanidis recalls one game in particular that took seven years to become successful in casinos. As iGaming becomes a more accessible option, companies like L&W “can compress that time” and see success a lot sooner, which in turn leads to better games, happier players and more revenue overall.

For Chris Kullman, L&W’s senior content director, Americas, there’s a lot of work to be done to try and adapt successful land-based titles onto the digital side, but the payoff is worth it if executed correctly.

“A very large percentage of our work is taking these successful land-based ports and putting them onto digital casinos because that’s what the player base is,” Kullman explains. “Whether they’re a land-based casino-goer or not, that familiarity between those products on the casino floor and products in a digital casino is much more impactful than games they have no idea about. There are very few of those that rise to the top, comparatively.”

He notes that some of the company’s biggest partners are operators who have both presences, and that synergy helps generate interest in new products with the help of “unified marketing plans, unified launch plans that help supplement the player experience.” Even if the amount of players who play both ways is relatively small, it’s an extremely valuable and loyal demographic that should be catered to anyway.

And, in the U.S. specifically, Kullman argues that the infancy of the online market makes it difficult to argue about cannibalization when both options are only accessible to a small segment of players.

“The United States (online market) is still very immature,” he says. “So to me, you’re widening your player base from, say, less than 20 percent of all people to 100 percent of all people of legal age to gamble. You’re in that group now. That to me is really where the cannibalization factor kind of loses weight, because the pool of people is just larger. And that’s really what the enticement is of digital gambling is—that accessibility.”

In the coming years, more states will continue to debate iGaming expansion and its relationship with land-based counterparts. But, as Tsombanidis notes, the players should be kept at the forefront. After all, they are the sole revenue generators, regardless of their preferred platform.

“We’re always trying to appeal to a different audience,” he explains. “How can we create brands, how can we tell stories that resonate with everyone? A really good story will always resonate with everyone. If you make that story something that everyone can empathize with, then I think whatever medium it’s on, it’ll work.”