This is a paradigm shift in the way supporters are advocating for online poker and online gambling regulation.
What Schwartz is implying is that online gambling’s impact cannot and should not be measured by mere revenue dollars and cents alone.
Instead, online gambling’s impact has to be looked at with a much wider lens to see the full impact it can have, and what benefits it can bring to land-based properties and the gaming industry as a whole.
Schwartz wasn’t the only representative on the panel making the case for online gambling’s potential advantages for brick and mortar gambling. Melissa Richards from Harrah’s cited iGaming’s ability to grow total revenue and create cross-marketing opportunities.
Interestingly, these “online gambling is beneficial” arguments are corroborated by recent research from gaming researcher Kahlil Philander, who concluded that far from cannibalizing brick and mortar casinos, online gambling would benefit its land-based counterparts.
As crazy as it sounds, telling potential operators that they may lose money running an online poker or online casino site could be a winning argument.
The reason? First and foremost, casino operators are interested in protecting and strengthening their brick and mortar establishments.
During the hearing in Pennsylvania, Schwartz was selling online gambling as something resembling a loss leader – a way for the state’s casinos to improve their brick and mortar businesses while at the same time opening up a potential revenue stream.
He made some strong points that should resonate with casinos interested in online gambling as well as casinos that are apprehensive about it.
And Schwartz isn’t alone in Pennsylvania. Eric Shippers, SVP for Public Affairs and Govt Relations at Penn National, told PA lawmakers at a May 6 House Gaming Oversight Committee hearing that Internet gaming “is another vital tool to enable our industry to continue to evolve and protect what we’ve built here.”
According to Golden Nugget’s Head of Online Gambling, Thomas Winters, New Jersey online gambling operators spent in the neighborhood of $50-$60 million in marketing in 2014.
So, what did they get for their $50 million?
According to the New Jersey Division of Gaming Enforcement, over 660,000 iGaming accounts have been created since November of 2013 (these are total accounts and not unique accounts), and the industry generated $123 million in gross gaming revenue in 2014.
But that is only half of the profit and loss story, as all New Jersey operators also have land-based casinos – land-based casinos that benefitted from online gambling.
Based on on-the-record and off-the-record information from several New Jersey operators, around 75% of online gaming accounts were created by players who were either:
According to Michael Cohen of Caesars, data suggests 80% of Caesars online players were new or inactive players, AND 15% of those players THEN visited one of the company’s New Jersey casinos.
What this seems to indicate is that online gaming introduced/reintroduced these players to casino gambling.
Even if we reduce these numbers, using 66% as the percentage of new/inactive players, and 10% of these players then visited land-based casinos, this equates to 13,200 new customers if just 200,000 of the online gambling accounts created are unique.
Using the higher-end figures of Cohen, and assuming half of the 530,000 accounts created are unique, around 32,000 new or inactive customers have visited an Atlantic City brick and mortar casinos thanks to iGaming.
This factor alone would allow casinos to operate online gambling at a negative margin and still profit from iGaming, as even casinos losing money on their online gaming platforms are reaping massive rewards from the new visitors to their property.
I wonder what it would cost a casino to conduct a marketing blitz that resulted in 13,000 to 32,000 new patrons and adding five times as many names to its marketing database? My guess is it would cost a lot more than New Jersey’s casinos lost on online gambling in 2014.
And keep in mind Borgata’s online gaming site is already in the black and generating additional revenue for the company. The same will hold true for most other operators as the industry continues to mature.
Looking at online gambling from this point of view, online gambling is essentially one of the most effective marketing campaigns a casino can run.
In addition to being a cheap marketing tool, online gambling is also landing the right type of player for Atlantic City’s casinos.
Over 60 percent of online players are 21 to 39, according to Cohen, a demographic that accounts for less than 30 percent of players in the company’s brick and mortar casinos.
This isn’t surprising as research has shown online gamblers tend to be younger, predominately male, well-educated, and well-heeled.
In conclusion, not only does online gambling have the potential to be a profitable revenue stream in its own right, but it also brings new people to the parent company’s brick and mortar casino.
Furthermore, online gambling brings in a demographic casinos have struggled to appeal to through traditional marketing campaigns.
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