Travel, leisure and entertainment industries always are affected in the earliest stages of global socio-economic crises like the Covid-19 pandemic, as they are among the first areas constrained by individuals, businesses and governments.
Less predictably, as the gaming industry searched for a sustainable route to recovery throughout 2020, the pace of change within it became dramatic. Changes under way before the pandemic dovetailed with adaptations made during the early stages of recovery, resulting in a frenzy of activity and several industry-changing outcomes: (1) Dominance of online play and acceleration in the rollout of sports betting (primarily in North America); (2) revenue management and marketing refinements; (3) modifications to the use and availability of amenities; (4) operational efficiencies and reciprocal margin growth; and, (5) continued consolidation driven by real estate and private equity acquisitions.
The Innovation Group has tracked market impacts and recovery patterns since the onset of the pandemic in early 2020. In this article, we shift our focus to examine the characteristics expected of the post-Covid era in the areas of revenue management and marketing, amenities offerings, operational efficiencies and margin impacts, and online gaming (iGaming). We also will consider unique impact and recovery trends within the Native American segment of the gaming industry and in international markets, particularly in the Asia Pacific region, where the long-term effects of Covid-19 could be more prevalent.
Arguably of foremost interest is how online gaming can affect traditional bricks-and-mortar casino operations. Since the onset of the pandemic in early 2020, iGaming operators collectively have achieved substantial growth and dramatically outpaced their traditional counterparts and the S&P 500 index, as shown in the chart above.
The pandemic also has forced traditional casino operators to embrace online gaming and sports betting when possible. In jurisdictions where online gaming is legal, such as Atlantic City, casinos have seen online gaming revenue more than double (the city’s online GGR achieved $970.3 million in 2020 versus $482.7 million in 2019, representing a year-over-year increase of 101 percent), underscoring its potential as a viable, supplemental revenue stream for the industry. Additionally, as online gaming platforms begin to accept decentralized cryptocurrency, an increase in security, anonymity, and the gaming industry’s ability to cater to younger, more tech-savvy players is expected.
A surge in mergers and acquisitions between online and land-based gaming operators also is likely, as traditional bricks-and-mortar operators seek new revenue streams after the chaos wreaked by Covid-19. Once the pandemic eases, more companies are anticipated to seek economies of scale, and those with stronger balance sheets will look to take advantage of more attractive valuations.
As states seek alternative revenue sources to offset significant declines in tax revenues due to the protracted pandemic, state leaders are becoming more receptive to legalized sports gambling across the country. Sports betting efficiently expands a casino’s player population, both online and within bricks-and-mortar locations. States that have legalized sports betting, such as New Jersey and Colorado, have seen revenue increase dramatically.
In the post-Covid era, we anticipate that the popularity of sports betting will continue to climb, especially as more states take steps to supplement their revenue streams by legalizing it online. More importantly, in addition to increasing the base player population, sports betting contributes to the casino’s broader entertainment ecosystems on-site.
How sports betting is programmed and consumed will have strong influences on converting less gambling-minded millennials and Gen Zers, both demographic segments of increasing value, to more active casino patrons. Through digital platforms, sports betting can well mimic the digital distribution of filmed entertainment models, making sports betting available via PC or mobile device.
Since younger patrons can be most efficiently reached on digital platforms, the “consumer push” dynamics of these channels can effectively support deployment of appealing sports betting environments on-site at bricks-and-mortar casinos. For example, the new Circa Resort & Casino in Las Vegas cross-leverages its large, three-story sportsbook with Stadium Swim, the property’s innovative pool deck, to provide a unique fusion of pool party environment with sports program viewing that has great potential to drive sports betting activities.
Sports and Media Industries
Alongside the promising outlook of sports betting, we also have seen casinos, media and sports entities converging to create powerful partnerships that are poised to grow viewership and fan engagement, and to drive higher market values.
A large number of deals between the sports betting and media industries has been struck over the past two years, including Bally’s and Sinclair Broadcasting, Flutter Entertainment and FOX, PointsBet and NBC, William Hill and CBS, DraftKings and Caesars Entertainment with ESPN, Penn National and Barstool Sports, BetMGM and Yahoo, and Turner Sports’ deals with FanDuel and DraftKings.
Casino companies have been looking to grow revenues by expanding into new forms of gaming for some time, and the expansion of legalized sports betting is proving to be the once-in-a-generation shift this mature industry sought.
For media companies, participating in sports betting works as a solid part of revenue diversification for advertising, transactions and subscriptions. More importantly, through sports betting, media can actually get to participate in the entire consumer life cycle—by engaging consumers at the top of the funnel with content, including publishing odds, and keeping them engaged as they build their fantasy sports teams and place bets on fantasy games and live events.
Casino Operators and REITs
Despite temporary closures and dramatically reduced usage of casino properties throughout the pandemic, one of the top performing property sectors in 2020 was casino real estate development trusts, which delivered a surprisingly steady performance last year. The three publicly traded casino REITs, Gaming & Leisure Properties, MGM Growth Properties, and VICI Properties, offered a resilient business model at a time when hotel and office real estate sectors languished.
Unlike hotel REITs, casino REITs typically own properties under a long-term, triple-net master lease structure, leaving most of the financial and operational risks to casino operators. Due to this structure, rent collection and occupancy rates have remained essentially spotless throughout the pandemic.
This represents a compelling “win-win” model. REITs help casino operators fund better development opportunities, as witnessed in Las Vegas Sands’ recent $6.25 billion sale of its Nevada properties to Apollo Global Management and VICI Properties in order to refocus on the company’s successful Asian resorts and other developing opportunities in the U.S.—as well as optimize operations and expand into new revenue streams like online gaming and sports betting. In turn, land-based casino operators provide near- to medium-term benefits back to the REITs through enhanced profitability and the robust ability to pay rent.
Technology and Digital Adoption
The pandemic has accelerated digital adoption within casino and leisure operations by prioritizing safety for in-person guest experiences, streamlining operating procedures, and expanding contactless interactions.
In the hotel industry, allowing customers to have control over their stay with mobile check-in and check-out has greatly reduced the need for physical interactions. Some surveys have found that up to 90 percent of hotel guests prefer mobile check-in to eliminate unnecessary in-person encounters, coinciding with the trend of keyless check-in, which allows guests to use their mobile phones as the key to access their hotel room.
Trends like contactless payment and mobile bookings also are extending to the casino floor. Jamul Casino in San Diego is working with Konami Gaming to introduce cutting-edge cashless slot markers to its slot and video poker games. Players can sign up online or on-site via an app that provides account balance and billing information. The guest can then access funds from the account at any slot or video poker machine.
Account balances will adjust automatically to issue cash-out tickets for winnings. Casino operators have been focusing on high-tech/low-touch solutions using smartphones, and it is likely this technology will become commonplace in the years to come.
In response to the Covid-19 threat to tribal public health, many tribal casinos in the U.S. closed their doors for the first time since opening in the late 1980s and early 1990s. This, however, did not stop tribes from looking for opportunities beyond reservation lands, a momentum we expect to continue in the post-Covid era.
The Foxwoods Resort Casino has been looking for opportunities to expand since 2008. More than a decade later, the Mashantucket Pequot Tribal Nation announced in January the formation of a partnership with LionGrove LLC, a private equity firm, to reopen the historic and iconic El San Juan Casino in Puerto Rico as the Foxwoods El San Juan Casino. The new casino, set to open by the end of this year, will be fueled by a total of $150 million in resort renovation and enhancements to bring incremental economic benefits and new jobs to the region. The partners also will reopen the renowned Tropicana entertainment venue to welcome back performers, artists and live entertainment, a move that has been highly praised by the local government as a key part of Puerto Rico’s economic recovery.
The Mohegan Tribal Gaming Authority recently has been granted additional development time for Inspire Entertainment Resort, its integrated resort project in Incheon, South Korea, which aims to bring the tribe’s name and expertise to the global stage. Mohegan Gaming also has reportedly teamed with its international partner for a casino resort in the Kyushu Region of Japan, which if realized, would further strengthen the tribe’s international footprint.
On the domestic front, as tribes across the country work to leverage gaming resources into economic diversification projects, great progress has been made by economic development corporations like Mille Lacs Corporate Ventures of the Mille Lacs Band of Ojibwe, Ho-Chunk, Inc. of the Winnebago Tribe of Nebraska, S&K Technologies, Inc. of the Confederated Salish and Kootenai Tribes, and Siyeh Corporation of the Blackfeet Nation. And it was recently announced that the San Manuel Band of Mission Indians purchased the Palms casino from Red Rock Resorts, which will become the first Native American-owned casino resort in Las Vegas.
Tribal economic development entities typically are governed by a board of directors appointed by the tribal council. Ideally, the council serves to approve overall strategic plans, and levels of capitalization and dividend policies, leaving day-to-day operations, including personnel matters and investment decisions, to the corporate board and staff. When properly structured and strategically developed, Native American economic development entities have successfully overcome financial challenges, even for tribes in remote locations with limited resources and a locals’ market.
Historically, tribal nations have not always garnered the best possible deals when leveraging their natural resources and assets against federal, state, industrial, agricultural or other commercial activities. The “Native-to-Native” movement presents one opportunity to overcome this disadvantage by dealing directly with other tribes in the buying and selling of products and resources, and to establish Native trading and business networks, which are poised to play a significant role in the post-Covid era.
The Asian Markets
Like others globally, Asian casino operators have been presented with a number of challenges as a result of the pandemic and its subsequent lockdowns and travel restrictions. Pandemic-related closures at land-based casinos highlighted the need to provide a well-diversified offering that could make up for the losses.
From a global perspective, convergence of online and land-based gaming is an initiative that casino operators around the world have been following closely, and the lockdowns only helped to prove such convergence is a desirable form of entertainment and social interaction.
The Philippine Amusement and Gaming Corporation (PAGCOR, the national gaming regulatory entity) recently has authorized Okada Manila to provide online gaming services, making it the first among the four major integrated resorts comprising Entertainment City in Metro Manila to defeat the negative impacts of the pandemic and, more importantly, significantly diversify its gaming offerings.
Setting aside impacts of the pandemic, there also have been significant changes to customer demographics. There is now a growing and increasingly wealthy generation of players who frequent online casinos, and casino operators that can best attract and retain this (often younger) generation will be the most successful moving forward. Even in a post-Covid era when players return to casinos, the residual uplift from a well-balanced convergence is likely to stay.
On the regulatory front, with online platforms and the rise of virtual currencies, there has been an increase in potential concerns about money laundering. Over the next several years, online gaming operations in Asia are likely to continue to attract the attention of AML regulators and policymakers, which presents a challenge for compliance teams who must ensure that different regulations are covered on a global basis.
To be sure, the Covid-19 pandemic turned the gaming industry upside down. Just as they were for our counterparts in the hotel, cruise ship, meetings and F&B industries, initial closures proved devastating for gaming companies and staff. But through persistence and by leveraging local markets as well as operational and technological advantages, gaming has not only survived, but positioned itself to move beyond recovery as a leaner, more focused and more productive industry.
After more than three decades of modern, regulated gaming—marked by diversification, innovation, and globalization—we see a new industry ecosystem emerging. Continued growth in online gaming and sports betting in North America, and a handful of international markets, is a given. Further consolidation between verticals and the disaggregation of operating and real estate assets could lead to greater efficiency and profitability, while maintaining certain Covid-era practices may also boost margins.
Digital technologies should be value-added to operations and the customer experience across bricks-and-mortar and online destinations. Tribal organizations are bound to gain influence through expansion and investment in commercial ventures. And, as Asia finds its way through recovery, a new generation of players is poised to be the most powerful mass market in the world—growth to look forward to for years to come.