At last, it would seem that the reality of virtual gambling has dawned on the hitherto physical – and proud of it – land-based casinos. In March, Caesar’s Palace had its request to allow the world’s biggest casino organization to join forces with an online gambling company, located off shore, approved by the gambling regulators in Nevada. A couple of years ago Harrah’s also recruited Mitch Garber, the former Party Gaming CEO, to launch an online proposition through Dragon Fish, notwithstanding that gambling on the internet is still an illegal activity in the US. In France, where regulation has happened, the four main casino operators – Groupe Partouche, Lucien Barriere, Joa and Trenchant-have all set up online gambling sites. Indeed, it is a move that is accelerating throughout the world as the prospect of regulation becomes ever more imminent.
Indeed, within the industry, it has become a major talking point; and, to me, this prompts one big question. Why is the move of land-based operators into the online space deemed to be so surprising? Both markets offer roulette, blackjack, slots, poker and bingo and, increasingly, the suite of games it offers is the same in both. Surely, common sense would dictate that a company, whose core business is casinos, would view the arrival of the casinos on the internet as an additional sales channel – in much the same way as have, for example, the airline industry – and a gilt-edged opportunity to grow their revenues and their franchise.
But no. In the main, they all resisted it. Seemingly, they had forgotten along the way that their brands were about gambling and not just about buildings. They saw the freedom of the internet, which would allow people – God forbid – to gamble in the comfort of their homes whenever they wanted with the minimum of effort, expense and time as a direct attack on their business. Until very recently, indeed, the policy of most land-based casino companies was steadfastly to oppose any legalization of online gambling in any form. Perhaps, common sense, as Voltaire once remarked, is not so common.
And it is not as though there were no pioneers for online gambling amongst the land-based fraternity. The Rank Group, one of the largest operators of land-based casinos in the UK, began its online operations over 10 years ago in late 2001, albeit aimed at its 5 million Mecca Bingo member base, as well as acquiring the already successful Blue Square online sports, betting and telephone betting business in 2003. What’s more, in the UK, the established betting business in the form of the high street bookies weren’t slow to move either. Over the last eight years, the percentage of their business that was online has risen from under ten per cent in 2003 to just under 25 per cent this year, while Paddy Power’s gross gaming revenues have risen from £117.7 million in 2009 to £214.2m last year. It is arguable that some of bookmakers could have embraced the online more assiduously than they did at first, but it illustrates their capacity to view the glass as half full and see in new technology the opportunity to widen their reach and customer base and extend their content to ensure that their customers can gamble with them as often and in as many ways as they wish. Land-based casinos, on the other hand, for whom many make greater revenues from the hotel/dining/entertainment activities that accompany the casinos, chose to see the glass as half empty: a threat on their customer base, a threat on their reputation and a threat on their ‘cosy’ way of doing things.
So what has caused this Damascene conversion? What has transformed these implacable enemies of online gaming to a point where they are now advertising their online gaming sites on TV and in the US Newspapers, as Harrah’s has been doing?
Two things, mainly: money and regulation. The recession has undoubtedly hurt the land-based casinos. Conventional wisdom has always held that gambling is recession proof; and conventional wisdom is, even in these testing times, still not far off the mark. When gambling could only be done in certain fixed physical locations, the price of gambling included the price of visiting these places. Online gambling can dispense with the travel, the hotels, the food and so on associated with being in a certain place and, consequently, it becomes a much cheaper place to gamble, which is handy in a recession. And this is borne out by the facts. Last year’s Mintel International report showed clearly that the online casino industry is a major cause of the decline in land based revenue. Their report concludes that Americans claiming to visit a land based casino in 2009 is fiver per cent less than what it was in previous years while 12 per cent of Americans have visited an online casino in the last year, notwithstanding the legal challenges from the DOJ and UIGEA.
As Sherman Bradley, online Casino Advisory’s senior gaming analyst says “Land Casinos are unable to come up with the credit needed to continue their excessive building sprees, and budget conscious customers are no longer travelling to fill their hotel rooms. Using their brand power at online gambling sites is a potential way for them to bring financial health back to their companies”. Online gambling revenues are growing, land based ones are not. It wasn’t difficult for them to conclude that with their brands still being synonymous with gambling and with regulation state by state, country by country coming soon and, with it, legality and probity, that there was nothing to stop them, given their connections and reputation, from cleaning up?
On being asked in a interview with Gambling Online magazine what he thought were the advantages that a land based operator with his experience would have when it came to online, Tobin Prior of Sun International replied that it was because “it has an established brand and an established customer franchise” to which it can market. “Moreover,” he continued, “it has established credentials and a reputation which is more evident than most of the operators in this space.” And, herein, lies the nub. How many of his current customers also play online? Rank, for example, even after 10 years, has revealed that only 20 per cent of its land based casino clients also play online. If the same were true for Sun City, everyone else they needed to market to would probably not have the brand associations that Tobin Prior seems to assume they will. As Kevin Flood, CEO of www.gameinlane.com writes on his blog: “Branding a land based casino as an online brand can be as challenging as branding a completely new business. Just because you have a ‘great’ offline gambling brand does not necessarily entice players to use your online property. This is especially true if the space is already occupied by well-known online gaming brands”. At Virgin Bingo, for example, recent research revealed that 69 per cent of our players said that playing bingo online had replaced going to land based bingo halls. The truth, however, for land-based casinos is that if they are to re-establish their gambling heritage successfully, then they have few other options.
The second reason for the land-based volte face is, of course, regulation. It legalizes the business of online gambling, subject, of course, to getting the necessary licenses, and, thus, presents no threat to the necessary licenses they receive for their existing land based business.
This is why the approval by Nevada of the Caesar’s Palace and 888 tie up was so important and why Wynn moved so fast after Black Friday to disassociate themselves from its putative partners. More than that, however, the way the regulatory landscape looks at the moment – at least in the US – is for a state by state approach to licenses. This potentially gives the land-based casinos with their fixed perspective two positive attributes. Firstly, it negates their instinctive fear of the borderless nature of the internet itself, whereby a business is free to go after customers anywhere in the world and, as Rich Gellar, European Editor of Global Gaming business points out, “narrows the pool to the legal residents or citizens of a given nation”; an option they feel inherently more comfortable with . Secondly, it also points to a business model which, superficially at least, they are also more comfortable with, although the bulk of the upfront investment will now be needed for marketing rather than building. The sums involved are less and the returns potentially more rewarding.
However, herein lives another worry for the land-based marketers. The whole relationship with an on-line player is fundamentally different. They are more promiscuous in the number of sites they use. They are in the main different types of people and players whose profitability rests with the regularity of their logging on to the site rather than the crescendo of their visit to Vegas or Atlantic City. The offers, the promotions, the language, the motivation and the process of both acquisition and retention are also significantly distinct.
Common sense would indicate that their capacity to succeed online will be in direct proportion to the amount they are willing to spend on marketing. And we know what Voltaire said about common sense.