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Us Against Them?

How will online casinos affect bricks-and-mortar operations?

Us Against Them?

As casinos eye the possibilities of online gaming—or should we say online poker, with gaming most likely following—they are enthralled by its possibilities. Of course, while the revenue that possibly can come from online poker is attractive (see the comments from LV Sands Chairman Sheldon Adelson in our cover story), it’s the ancillary benefits that really interest casino executives.

The ability to market their land-based casinos to online gamblers in a way that would induce those players to visit has been touted as a real benefit. In addition, the ability to keep a land-based player’s wallet within the walls of a virtual casino when they don’t want to take the trip to the bricks-and-mortar casino is obviously a benefit. Who would slog through an icy rain in mid-February to go to a casino if you could enjoy your favorite games by your fireside? So, the casino executives love the idea of “touching” their players on a daily basis.

With Congress seemingly at the end of the road in considering legalized online gaming at the federal level, the future is a bit ominous for the casino industry. With prospects for reconsideration next year very remote due to the presidential elections, the states are poised to jump in to legalize intrastate online gaming/poker, which means we’ll potentially have 50 different kinds of online gaming legalization under consideration.

Actually, that number is 51, because the first jurisdiction to consider legal online gaming has been Washington, D.C. And most problematic for the casino industry is that the publicly owned lottery organization in D.C. is taking the lead.

This is a trend that the industry has been ignoring, at its own peril. Now that legalization at the state level will proceed, it is very likely that the state lotteries will want to get into the game in a big way.

Now, lotteries and casinos have had a very tenuous relationship over the years. In Nevada, it’s more than tenuous; it’s confrontational. Nevada remains one of the few states in the U.S. without a lottery. That’s because the casino industry was legalized first and has consistently opposed the introduction of a state lottery in Nevada. In most other states, it’s the other way around. But the conflicts remain and the wounds are real. So the potential for renewed conflict over online gaming is also real.

The main reason most states will consider the legalization of online gaming is the potential for tax revenue. But to be successful, states will have to cap tax revenues at 20 percent or they won’t get the critical mass of players that will make it feasible.

So states will quickly realize that they will make more money by allowing the lotteries to run online gaming than if they simply approve casino companies with a 20 percent tax rate to do the job. After all, the states will understand that they are already in the gaming industry via the lottery organizations that they own. So why not simply extend the lotteries’ ability to accept bets within their states and keep all the profits? Certainly, the lottery directors will be pushing for this because it means more power and revenue for their organizations.

Remember, in many states, lotteries already operate VLTs—South Dakota, New York, Delaware, Louisiana, West Virginia and others—which we know are just slot machines in disguise. So it’s just a small jump from those gaming pieces to online gaming.

Fair Play USA, the online poker advocate of the U.S. gaming industry, recently released a self-serving study that said online gaming would not affect lottery sales. Maybe not now, because there are currently only a few states that permit the online purchase of lottery tickets. But once online gaming is legal, the lotteries will want a piece of the action. But the action they’ll be looking for is operating all online gaming within their states.

What’s the solution? I’m not really sure, but maybe an agreement to allow the lotteries to sell their tickets online, while casino operators run the online poker rooms. Possibly creating an online portal that would steer players to either the poker room or the lottery store?

It’s a difficult issue, but the casino industry had better pay attention to it, because there are likely to be many different discussions in all the different states. The industry needs to be aware and ready to respond to the proposals the lotteries are sure to bring to the table.

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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