It is our hypothesis that the slot machine gaming market reaches saturation when the number of people per slot machine, which we will refer to as the people-per-slot (PPS) ratio, approaches 100 in the population. Once this number is reached, the addition of more gaming machines will no longer result in additional revenue. We do not have sufficient data to prove this statistically, but the available data from both the Australian and U.S. gaming markets seems to support our hypothesis.
The Australian Market
Commercial gambling in Australia started in 1973 with the opening of Wrest Point Hotel Casino in Hobart, Tasmania. Table 1 shows a brief timeline of casino openings in Australia.
The Australian market saw massive and continued growth in the late ’90s, and there are now 197,107 gaming machines for 20,625,651 people.1
That is one gaming machine for every 105 men, women and children. This level of gaming supply has changed the market to the point that the addition of a gaming machine no longer generates additional revenue. Chart 1 shows the declining net proceeds from gambling revenues of hotels and licensed clubs in Australia, and Chart 2 shows the negative percent change in their gambling revenues.
The gambling revenues of hotels and licensed clubs in Australia is 77.6 percent of total gambling revenue; the remaining 22.4 percent comes from casino gambling.2
In other words, a graph of the percentage of change in total gambling revenue in the Australian market would resemble Chart 2, which indicates a decline in total gambling revenue.
The U.S. Market
The U.S. market has continued to grow, as can be seen in Charts 3 and 4. A total of 37 states have some form of gaming, with 467 casinos, 41 racinos, 424 Indian gaming establishments and 707 card rooms. (See Table 2.)
There are a total of 770,408 slot machines in the United States for 298,399,775 people. This amounts to a PPS ratio of 387. Chart 3 shows the gross gaming revenue (GGR) of U.S. casinos from 1995–2007. Chart 4 shows the percentage change in GGR from previous year for U.S. casinos for the same period.
The data from Australia (PPS = 105, growth < 0) and the United States (PPS = 387, growth > 0) clearly supports our hypothesis, but this only gives us two data points. We have also collected GGR and PPS data from 10 gaming jurisdictions in the United States, shown in Table 3. The percent change column of Table 3 shows the change in GGR from the previous year; the last column of Table 3 identifies positive and negative change in GGR from the previous year.
Table 4 shows the descriptive statistics of PPS by this last column.
It can be seen that the states with negative growth have mean PPS of 155 and the states with positive growth have a mean PPS of 354, which supports our hypothesis.
Other Factors to Consider
Limitations of Data
The data for this analysis came from multiple sources, including the Australian Bureau of
Statistics, the American Gaming Association and pokiemagic.com. We are using numbers from different time periods, such as the population census from 2005, and comparing them with growth in gaming revenue in different years.
Minimum PPS Ratio
There is a significant amount of research showing the overall growth in the gaming industry, and these numbers typically show that the addition of new gaming products or casinos has generated additional revenue. If our hypothesis is correct, this growth may be more accurately characterized as a provision of product for market demand and that the growth is a one-time—although often significant—expansion.
Maximum Gaming Revenue
This minimum PPS ratio also indicates that there is a maximum revenue per slot per day; our numbers indicate that this number is about $100. The rule of thumb for assessing market potential is to look at the revenue of gaming machines, and if it is approaching $100 per machine per day, the market is saturated. This makes markets like Atlantic City quite interesting, as they appear to have reached their maximum slots per person.
Global Gaming Potential
When considering the global population and high GDP growth of nations such as China and India (see Table 5), the potential for global gaming expansion is significant. It is, however, out of scope to analyze the potential for the global market in this article, as other factors such as economic development and cultural tendencies would need to be modeled.
The Untapped Potential of North America
If both our hypotheses are correct and the North American gaming market exhibits similar tendencies as the Australian market (or as states such as Mississippi, where the gaming revenue is showing low growth), then the total market potential for gaming revenue in the United States will be a little more than three times what it is today, or more than $100 billion for commercial casinos. This maximum would be reached if about 3 million gaming machines were placed.
Responsible Gaming
In Australia a strong anti-gaming political force has developed. While it is impossible to forecast the social response if a similar number of gaming devices were introduced into the United States, we suggest that responsible gaming programs would come under strong scrutiny as the market size expands. The 2003 American Gaming Association Code of Conduct for Responsible Gaming is an industry pledge to employees, patrons and the public to integrate responsible gaming practices into every aspect of daily operations.
Tax Implications
Gaming taxes are often seen as a key part of the regulatory approval process. The compacts in California are a good example of how a government body will work with operators to enable growth in the number of gaming devices. Other markets, such as Illinois, have illustrated the complexity of the situation and the potential for massive tax contributions from operators.
Employment Implications
The gaming industry employs large numbers of people. According to the American Gaming Association’s 2007 State of the States Report, commercial casinos in the United States employed 366,197 people, paid wages of $13.3 billion, and had GGR of $32.42 billion in 2006. Australia, with its population of 20,625,651, has a total gambling revenue of $1.8 billion per quarter, or $7.2 billion per year, which amounts to an average expenditure of $349.10 per person in Australia. The population of the United States is 14.47 times that of Australia, so if we applied the Australian numbers to the U.S. market, the total GGR in the United States would reach $104 billion, a threefold increase in GGR; the total number of employees would reach 1.2 million.
Can the U.S. Slots Market Reach $100 Billion?
If Australia is an indication of potential in the United States, then yes, it can be done. If the response from the government is an indication, then the answer is still in the affirmative. After careful consideration of the available data, we believe that the gross gaming revenue of commercial casinos in the United States will reach $100 billion, but at present we do not have an estimate of when it will happen.
Footnotes
1 http://www.pokiemagic.com/blog/2006/03/29/gaming-expansion-in-usa/
2 http://www.ausstats.abs.gov.au/ausstats/subscriber.nsf/0/5FB8C34CE7A4897...
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Dr. Ashok K. Singh has taught statistics, mathematics and operations research courses at New Mexico Tech, Socorro, N.M., and statistics and mathematics courses at University of Nevada, Las Vegas. He has over 75 publications in theoretical and applied statistics.
Andrew Cardno has more than 16 years of experience in business analytics, ranging from modeling healthcare drive times to casino gaming floor analytics. He often presents on the future of analytics across the world and has spent the last seven years living in the United States and working with corporations around the world.
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