There has been a great deal of change in the news lately for the gaming world. After more than a decade as head of MGM Resorts, Jim Murren is stepping down. The Chinese coronavirus outbreak has sent Macau gaming revenues into a tailspin. On a happier note, a big brand name is returning to a Las Vegas casino, with the announcement that Hilton will be operating three hotels as part of the Genting Group’s Resorts World development. Change is in the air. But that’s nothing new, and nothing the industry shouldn’t be expecting.
Few industries can claim such a radical restructuring of their basic product as gaming. Today, slot machines are the main driver of casino win in most U.S. markets. That wasn’t the case before the 1980s—not that long ago. In Las Vegas and Reno, casinos built around table games expanded and renovated to reflect the shifting emphasis on slots and new casinos were built with the primacy of machines in mind.
Within the last 20 years, slot machines and their management systems have evolved considerably. Sure, you can still find stepper machines on the most floors, but the sophistication of slot product would amaze a slot-operations professional who retired only 20 years ago. Ticket in/ticket out swept the industry quickly. Casinos built to cater to quarter slot players adapted to feature lower denominations.
Within the past two years, sports betting has been hailed as the biggest change in the national gaming market. Certainly, the Supreme Court’s 2018 overturn of the Professional and Amateur Sports Protection Act broke the enforced stasis that had kept sporting wagering (mostly) confined to Nevada. We now see 14 states where sports betting is legal, with many more in the pipeline.
The thing is, the changes in slots far outstripped the financial impact of adding sports betting. In 2019, Nevada penny slots, which were negligible income producers in 1999 (they weren’t even tabulated on that year’s Gaming Revenue Report), brought in nearly $3.5 billion for the state’s casinos. That alone would make Nevada penny slots the second-biggest commercial gaming jurisdiction in the country. Sports betting, by contrast, increased from over $192 million in 1999 to just over $329 million in 2019—impressive, but at least an order of magnitude smaller than the penny slot revolution.
The denomination slide toward penny slots was largely unheralded, because it seemed too ordinary and obvious at the time. Major changes usually are. By the same token, both the penny slot shift and the national move toward sports betting were predictable. Given the chance to play games with greater variety and apparent choice, gamblers shifted their play. States need money, politicians don’t like raising taxes, and people like betting on sports. While Congress was able to delay the spread of sports betting, looking at larger trends, it appears to have been inevitable.
Events like the coronavirus outbreak, on the other hand, seem at first to be completely random “acts of God” that no one could have predicted. Yet that isn’t the case: SARS, MERS, and other viruses have flared into prominence in recent memory and no one who really thought about it would conclude that new diseases would stop appearing or that the increasing connectedness of the world wouldn’t amplify their destructive potential. You might want to leave guessing about the particulars of the next outbreak to a latter-day Nostradamus but anticipating disruptions in travel due to global health concerns should be a natural part of planning for the future.
Nassim Nicholas Taleb, the economist who popularized the term “black swan” to describe extremely rare events with disastrous consequences, wrote the 2014 book Antifragile: Things that Gain from Disorder, in which he argued that to prosper, people need to build systems that are not only robust in that they survive chaos, but also antifragile, or able to benefit from disorder.
Casinos should be ground zero for antifragility: They are, after all, literally built on chance. By structuring them correctly, casinos can steadily profit from the seemingly random outcomes of the games on their floors. But when thinking strategically about the future, casino executives may fall into the trap of not considering how disorder—both predictable and unpredictable—can render them suddenly vulnerable.
#commentary – Why change in the gaming industry should never surprise anyone. -David Schwartz, @DrDave702, CDC Gaming Reports. https://t.co/NH8UtMjTd3 #CDCgaming
— CDC Gaming Reports (@CDCNewswire) February 25, 2020
Historically, operators who have recognized changes in the “game”—and the rules of the game itself—have prospered, while those who don’t have fallen by the wayside. The Recession-era contraction of the domestic market in Las Vegas, for example, was mitigated by casinos limber enough to develop a pipeline of Asian high rollers, who produced an increasing share of Strip gaming win until 2013, when Chinese government policy led to a decline of this segment. Since then, a focus on domestic travelers spending more on non-gaming amenities has kept operators in the black. Good leaders will be prepared for the latest “disruption” and count on it not being the last one.
So look at the shifts happening in the gaming industry today as proof of the assertion in Rush’s “Tom Sawyer” that “changes aren’t permanent—but change is.”
Gaming historian David Schwartz, Ph.D., is the Associate Vice Provost for Faculty Affairs at UNLV
