Speaking at the East Coast Gaming Congress earlier this year, Caesars Entertainment Chairman and CEO Gary Loveman criticized how the casino industry tends to break down revenue into two categories: gaming and nongaming. Loveman suggested there is a problem with the industry’s mindset when something is defined by what it is not, rather than by what it is. He noted, for example, that we don’t divide people into two genders: women and nonwomen.
His point was that how we view something will guide how we deal with it.
This is a very telling observation that has implications for the evolution of online gaming in the United States. A number of professionals whose experience is steeped in the online world tend to break the gaming industry into two groups: online gaming and offline gaming.
When you view the $60-plus billion casino industry in the United States as offline gaming, thus defining it by what it is not, it’s more than peculiar and a little off-putting. That description provides a window into a mindset that views the future of online gaming in the United States as an extension, if not a repeat performance, of how online gaming evolved in Europe. Call it Europe 2.0.
In Europe, brick-and-mortar casinos are indeed offline wagering, a stepsister to the real thing. At Spectrum Gaming Group, we suggest that the future of online gaming in the U.S. should be viewed as something different and something new. Call it U.S. online gaming 1.0: A new mindset and new business model, one that simply does not exist right now anywhere in the world.
In numerous forums over the years, we have been asked how online gaming should be treated by lawmakers, regulators and casino operators. Our answer has been consistent: Online gaming should not be viewed as it is in Europe, as primarily a new revenue stream.
I testified before the U.S. Senate Indian Affairs Committee in 2011 and made this point: “If Internet gaming is allowed to develop as simply a revenue stream, then I suggest the United States has squandered a once-in-a-century opportunity.”
Online gaming should be viewed as a new revenue stream to be sure, but it is also a cost-effective marketing tool, one that allows casino operators to identify, cultivate and reward new customers from a new demographic.
Spectrum’s view has not changed one iota since then, but our view is hardly universal. At an online gaming conference held that same year, four CEOs from online gaming operators in Europe were asked what they can do for U.S. casino operators, their potential future clients. All four gave precisely the same answer in the same way: They can help their U.S. casino customers migrate online.
I do not know a single casino operator for whom that is a goal. Thus, the dividing line between future winners and losers in this country is becoming clear: Those who want to transport the European model to these shores by enabling offline casinos to migrate their customers online will lose.
Those who are willing to create something new—who will develop a new business model that allows casino operators to gain market share in the online world while enhancing their brick-and-mortar revenue stream—will win.
The Internet is to casinos what broadcasting is to professional sports. In one basic sense, it is an alternative to the core experience, presenting consumers with a choice to either stay home or have a night out. It is also a new source of revenue and, most importantly, a new way to cultivate customers. It is no coincidence that attendance at sports arenas grew as sports broadcasting evolved. You can attribute that to the development of a new business model.
The same opportunity exists here, but there are wild cards. Lotteries are moving online, but with some exceptions; they do not have brick-and-mortar counterparts. The answer is that lottery operators will have to adopt new mindsets as well if they want to maximize the opportunities presented by online gaming.
So, the bottom line is that we know how the future should evolve, and we know the winners will be separated from the also-rans, but that future is anything but assured.
Michael Pollack, managing director of Spectrum Gaming Group, oversees all economic studies performed by Spectrum, including broad-scale impact studies for country, state and local governments, and feasibility studies for private-sector clients. Pollock’s award-winning Gaming Industry Observer newsletter has evolved into Spectrumetrix™, a suite of enhanced, web-based, dynamic gaming industry reports.