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Casino, online gambling converging, as Spectrum forecast 15 years ago

By Nick Sortal, CDC Gaming Reports

Land-based casino operators are embracing online gambling, learning that it will help attract a different audience and not cannibalize their existing business.

We’ve kind of known that from revenue figures compiled in recent months – especially in Atlantic City – but Spectrum Gaming, an independent research and professional services firm, spelled out the specifics in a recent white paper presented in Denver at the summer meeting of the National Council of Legislators from Gaming States.

Spectrum was providing an update of a report written 15 years ago – when the Internet was still young and before online gaming even existing. The report was titled SIGHT — Spectrum Internet Gaming Heuristic Theorem – and offered the firm’s views on how the emergence of the digital age would play out in the gambling world.

“The evolution of online presents real opportunities for providers and operators in both Europe and North America who are willing to embrace a new model, one that leverages the assets of an existing $70 billion gaming industry,” Managing Director Michael Pollock said in this year’s paper.

Looking back, Spectrum Gaming had it generally right, forecasting that the brick-and-mortar gaming industry would abandon its rejection of Internet gaming and ultimately embrace it. They also suggested the industry would harness the Internet as a major marketing tool.

“Indeed, the evidence indicates that existing land-based customers who also wager online will ultimately increase their land-based spend,” Pollock wrote in 2017. The firm notes that people are “hard-wired to enjoy games of chance and to take reasonable risk, regardless of the decade in which they were born.”

Here’s what else they found:

Data strongly supports that related online gaming enhances live casino action. The white paper quotes  Richard Schwartz, president of Rush Street Interactive, who testified before the Pennsylvania House Gaming Oversight Committee in March. He said the online gaming partner for PlaySugarHouse.com in New Jersey, the Golden Nugget, saw existing players who signed up for PlaySugarHouse.com increase their land-based spend by 15 percent. And players spent 33 percent more with the Golden Nugget in aggregate after they started playing at both online and brick-and-mortar properties. “So ultimately, having multiple channels, online and offline working together, will increase revenues generated from that brand and increase tax revenues for the Commonwealth,” he testified. “There are few other marketing programs in the industry that share the same capacity to generate both new players and grow the spend of existing players.”

Cannibalization fears from technology advances are nothing new, and they’re usually unfounded. The report reminds people that baseball owners had a similar concern back in the 1920s, with the onset of radio broadcasting. The owners feared that by having their games air on radio they were giving away their product, which would result in fewer ticket sales. The report indirectly quotes broadcaster Red Barber saying, “[Owners] did not realize at the time the beneficial effect of radio, that it would be making families of fans.”

The United Kingdom is an excellent example of how online gaming could work. Spectrum quoted Gideon Bierer, managing partner of consulting firm Partis Solutions, who noted the open licensing model has created a far larger market, which has generated a significant amount of tax revenue and employment. “If the UK had limited the iGaming market to the land-based operations, the market would be very constrained by comparison.”

Lotteries could be a pothole. As states develop their own instant online lottery games, there is a potential conflict with online slots. Spectrum projects lotteries will pursue online versions of instant games. “An electronic instant lottery ticket will effectively evolve into the same product as an online slot machine, and there will be competition between the two, unless policymakers encourage joint ventures or similar arrangements to boost convergence, rather than competition,” the report reads.

The report concludes with a spin toward the future:

“There are no assurances that such states understand the potential convergence, and competition between these forms of wagering. But we feel confident that the casino industry will continue to move along the SIGHT continuum. Whether all other stakeholders will accommodate that inevitable evolution remains an open question.”

Note to readers: Feel free to print out this column, store it somewhere safe, and re-visit it 15 years from now. Or do that with Spectrum’s white paper, which can be found here: http://www.spectrumgaming.com/whitepaper/?w=sight2017&action=full