I have been drawn over the past few months by aspects of various articles, blogs and posts regarding the disappointment surrounding the launch of online gaming in New Jersey, particularly with respect to revenues. In part, as I have shared previously, I can’t imagine anyone is all that surprised that the dollar potential was overestimated to enact policy change; but also, because with initial annual estimates varying low to high by nearly a billion dollars, dissatisfaction for some based on the disparity alone was inevitable… wasn’t it?
From my perspective, though, the launch has actually followed a more expected path. My firm is known throughout the industry for its conservative (and accurate) forecasting, and we have taken a different approach than most when it comes to assessing the financial potential of this new segment.
As a strategic adviser, we have worked diligently to prepare, position and caution our clients about many of the very trends now being witnessed in New Jersey. We have talked through issues like cannibalization, what we have termed “the convenience factor,” the inherent responsibility that falls on the operation’s marketing team to take advantage of the growing player database, and the launch advantage that the market leaders from a land-based perspective have.
While it is has only been a few months in New Jersey, most of these trends seem to be ringing true, and even those in “free play only” zones should be paying close attention.
This isn’t the first article I have penned discussing cannibalization and the convenience factor as both potential risks and false alarms related to online gaming. As co-manager of the Innovation Group’s interactive practice, I have had the opportunity to work with market leaders in states like Oregon, California, Washington, New Mexico and Oklahoma who were extremely interested in maintaining or advancing the success of their existing casino operations through what they saw as a natural extension of their brand into the digital space. Although sometimes the messaging has been difficult for clients to first absorb, we have been successful at helping them understand the cumulative impacts and considerations.
With all the trend observation and research we have conducted, it would be difficult for anyone to convince me that there isn’t a clear demographic of people who enjoy online gaming. Some of those individuals are land-based players and some are not, and existing casino operators can decide if they want to capture and retain those players with an offering or allow someone else to do the same. This is just one aspect of cannibalization.
One hope for all land-based-turned-online operators is that new players that were not in the database or visiting before may now be part of their revenue stream. How could this be a bad thing?
Another facet of the online experience, though, may be the “convenience factor,” a term we coined at The Innovation Group to guide our discussion with clients to explain that a percentage of existing players may, from time to time, opt for an online experience instead of visiting the casino, and along with that, may bring impacts to F&B, entertainment and other amenity spend.
We have conducted extensive quantitative and qualitative research to show these clients that while some members of their existing database say they may not attend as often, there are also many who state that incentives from online gaming are likely to bring them in more often. This offset is important if it can be exploited.
These same patrons responded that typically, their entertainment budget is fixed, so while they may have spent $100 on gaming and $100 on dinner if they visited a casino, they may just spend $200 gaming online.
All this, of course, lends itself back to the emphasis on marketing. We advise our clients that the convenience factor needs to be assumed, and that marketing departments have advanced expectations on them offset this potential loss by maximizing the benefits of the expanded player outreach, from the perspective of attracting the new players to the new product, as well as leveraging them when possible to visit the land-based operation.
The very thought of this can be intimidating to operators who believe their marketing resources were already stressed just for the land-based casino, but also incredibly appealing as a running start for the operators who already dominate their markets. And so we have seen with Borgata and Caesars in New Jersey.
Outcomes from these viewpoints should help explain what I mean that the rollout of online gaming in New Jersey wasn’t all that surprising. The two operators that dominate the land-based space have quickly assumed the leadership position online, and while I expect there to be some leveling-out in the marketplace, it is going to take a great deal of effort for any other providers to better capitalize on the appreciation these two operators obviously have for how these two segments can reinforce one another.
This isn’t to say that innovative and emerging online operators can’t establish themselves as well, but the operators who see the solution in tandem, as reinforcing elements, have a running start that makes it difficult for others to compete with.