Experts: Land-Based Casino Revenue “Enhanced By The Addition Of Online Gambling”

That’s one takeaway from a recently published study entitled “Consumer spending in the gaming industry: evidence of complementary demand in casino and online venues” penned by gambling experts Kahlil S. Philander, Brett Abarbanel and Toni Repetti for International Gambling Studies. 

A summary follows. An overview of the study, as well as full access options, can be found here.

US casino operators advised to embrace online gambling

The authors advise that “US operators should recognize the positive value that online gambling can have with relation to their online operations,” suggesting that operators are best served integrating online gambling as part of their overall offering, as opposed to “resisting change.”

Philander, Aberbanel and Repetti’s findings are the latest in what has become a string of mounting evidence that online gambling has a complementary relationship with offline gambling:

• In February 2014, President and CEO of Boyd Gaming Kevin Smith stated in a press release that “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.”
• David Satz, senior vice president of government relations and development for Caesars Entertainment Corp., echoed these sentiments several months later, stating “91% of the players that we have derived in our New Jersey experience are customers who we did not know” and of the remainder “that we did know, we’ve actually seen increased play and increased visitation to our sites.”
• A 2012 research study by Philander and Fiedler focused on online poker in North America found that “the presence of online poker may increase demand of offline gambling overall.”

Little overlap between online and offline player demographics

Online gamblers, assert the study, come from a different stock than their brick & mortar counterparts. Namely, online gamblers tend to be:

• Part of younger age groups
• Predominantly male
• Wealthier and more likely to possess advanced degrees
• Single

Conversely, the average physical casino frequenter is more likely to be female, is often unemployed or part of a lower income bracket, and of a more variable age range.

That being said, online gamblers represent a valuable subset of brick & mortar casino players, as their higher budgets allow them to freely participate in both mediums, creating a complimentary impact.

Online gambling opens doors for would-be-gamblers

The ability of online gambling operators to cost-effectively host smaller stakes games opens up a bevy of new avenues, for both players and operators alike.

Per the study, online gambling is “more attractive for people who previously had not been able to afford higher stakes gambling at offline venues.”

Consider the implications of this statement:

In a bear case scenario, this new subset of the gambling community never steps foot in a land-based casino, yet still generates substantial revenue for online operators and state coffers via their online play – revenue that would have never existed otherwise, seeing as though these players do not possess the budgetary means to frequent brick & mortar casinos.

However, the bear case neglects the fact that the average online operator will often offer players a multitude of cross-promotional opportunities, either via sweepstakes, comps or in the case of online poker, qualifiers, all of which render it more cost effective for online players to frequent their land-based brands.

To wit, not only can online and offline gambling coexist, but valuable synergistic opportunities exist.

Different analytic models, same results: Online gambling is complementary

The authors analyzed the results of a 2010 British Gambling Prevalence Survey, which questioned nearly 7,800 adults living in England, Scotland and Wales about their gambling tendencies.

It is noted that the UK is “a useful market in which to analyze the potential association between gamblers’ behavior in online and offline gambling products,” primarily due to its status as a regulated market, “numerous game types and varieties in online and offline settings and the large prevalence of gambling.”

Notice the parallels between the UK and US regulated markets, the most notable difference being that the US includes “integrated resorts.”

A few noteworthy findings:

• It was established that there is a positive relationship between online and offline casino, slot and bingo playing frequency.
• The strongest relationship was found between slot terminal players, with one model suggesting that a small increase in online slot playing frequency correlates to a change in offline slot playing frequency from about “once a month” to “once a week.”
• As per the study: “In no model did we find evidence of a cannibalistic relationship among the gambling modes.”

Interestingly, the study does refer to one analysis where a negative relationship between online and offline gambling revenue was present in the United States.

That impact was observed in the relationship between U.S. land-based casino revenue and unregulated, offshore online gambling sites.

Research especially relevant for Pennsylvania

The implications of these findings are particularly significant for states currently weighing the pros and cons of online gambling in the context of its impact on commercial casino revenue.

A perfect example is Pennsylvania, a state that generates substantial gross revenue from its land-based casinos ($3.05 billion in fiscal 2013/14), yet faces a crippling budget deficit ($2.3 billion).

Proof that an online gambling roll out will not only generate revenue on its own, but also support revenue at land-based casinos, will go a long way toward convincing legislators that change should be embraced.

Read more here.

Image credit: Filipe Frazao / Shutterstock.com.

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