Boyd CEO Demolishes Myth That Regulated Online Gambling Will Cannibalize Land-Based Casino Revenue

Wrecking Ball

Keith Smith, President and Chief Executive Officer of Boyd Gaming, has a simple message for those who argue that regulated online gambling revenue will cannibalize (i.e., come directly at the expense of) land-based casino revenue.

You’re wrong.

That’s the takeaway from Smith’s comments on the performance of the Borgata’s online gambling properties in the New Jersey market for regulated online poker and casino play.

“These results also once again demonstrate online gaming’s potential to expand our business,” Smith said in a statement. “About 85 percent of our online players have not had rated play at Borgata in at least two years, showing there is little overlap with our land-based business.”

“Online gaming is growing our database,” Smith continued, “creating a long-term opportunity to market Borgata to an entirely new group of customers.”

Smith only one of a chorus of voices rejecting the cannibalization argument

Smith’s analysis echoes Borgata COO Tom Ballance’s comments on CNBC in early January, where Ballance flatly asserted that the online customer is “a different customer.”

And it’s not just Borgata executives making the case.

  • The Golden Nugget’s Thomas Winter told reporters that his company expects 60 to 70 percent of online players to be made up of customers who infrequently or never visit the Golden Nugget.
  • In Delaware, Dover Downs CEO Ed Sutor has publicly dismissed fears of cannibalization, noting that his existing customer base is “not going to go to the internet. You’re talking about a new market, a new demographic. Some of them may try just for fun, but they’ve been used to coming here and they love the personal touch, the customer service. They’re still going to go for the spa treatments.”
  • Caesars Acquisition head Mitch Garber told CNBC back in November that “It’s been proved for a long time, in the U.K. and Australia, that online gaming does not cannibalize offline gaming.”

But what about the Sheldon Adelson-backed Coalition to Stop Internet Gambling’s recent claim that online gambling will “cannibalize $25 million to $50 million of land-based revenues at the state’s land based casinos”? After all, they say that claim is backed by an analyst’s projection.

It is. But, as per their typical approach, CSIG cherry picked what they wanted from the analyst – Chad Beynon of Macquarie Capital - at the expense of the truth. Here’s the whole quote:

“With 7 million adults in New Jersey, and others who may ‘stop in,’ we estimate the market to grow to $200 million to $300m by 2015, cannibalizing $25 million to $50 million of land-based revenues”

You can see why CSIG would leave that first part out, as it clearly argues that online gambling is additive. Some revenue will be drawn off of land-based casinos. But that amount is dwarfed by the new amount of revenue generated.

The net impact of regulated online gambling is a dramatic increase in casino revenue, tax revenue and ancillary benefits such as increased employment, capital investment and so on.

The evidence is clear: online gambling compliments land-based revenue

Moving beyond the analysis of casino executives, it’s not hard to find additional support for the position that regulated online gambling compliments land-based casino revenue:

  • A majority of experts surveyed by the AGA in 2012 agreed that online gambling would help to grow land-based revenues.
  • The most recent quantitative research study by Philander and Fiedler (2012) concerning the North American market concluded that “the presence of online poker may increase demand of offline gambling overall. These findings suggest that the offline gambling industry should not generally be adverse to the expansion of Internet poker.”
  • A 2011 study by Philander found that unregulated online gambling – the type of activity regulated gambling puts an end tocosts the land-based gambling industry a substantial amount of revenue.
  • Over a decade of regulated online gambling in international markets prove conclusively that cannibalization is a myth. Consider Europe: a 2013 article in the print edition of EGR North America noted that “Paddy Power’s website and mobile offerings have made the bookmaker one of the most popular in Europe, but this has not come at the expense of its retail business” and detailed a similar outcome for William Hill, Gala Coral and UK lottery operator Camelot.
  • Nevada has seen no evidence of cannibalization since launching online poker almost a year ago.
  • A 2012 survey of American poker players found that “The vast majority of respondents indicated that they would not change their lottery or terrestrial casino play if online poker was legalized. In fact, more respondents indicated they would increase their lottery or land-based casino play than those who would decrease it.”
  • A 2013 survey of gamblers in the tri-state area concluded that “From the results of this poll, residents in New Jersey and other U.S. states do not indicate that the impending online gaming will cannibalize land-based casino interests or revenue and will possibly mildly increase it.”

Now that’s what I call a growing body of evidence.

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Chris Grove
Chris Grove - Chris is the co-founder and an editor of OnlinePokerReport.com. He's written for dozens of gambling publications and has been involved with various aspects of the online poker industry since 2004.