Where does the casino industry go from here ?
This article was first published in CDC Gaming Reports
Reading the annual results of some betting and gaming operators, you’d think the picture was quite rosy, with a whole world still out there waiting to be conquered, with virgin territory aplenty, and no clouds on the horizon. In reality the challenges outnumber the opportunities. With new options thinning out, the looming spectre of tougher responsible gaming regulation (as highlighted by the recent Panorama and Ross Kemp TV shows in the UK), and the AML landscape only getting harder, who’d want to be a development director in a betting / gaming company today?
There’s a nagging question facing European betting and gaming executives, both online and offline, which doesn’t get talked about too much but is starting to rumble louder and louder in the background – what’s next?
With shareholder expectations based on continuous growth, fueled by the gigantic strides made over the last few years, particularly online, everyone is looking for a way to grow the top line, but the opportunities so to do are increasingly difficult to identify. So I’ve looked, below, at a four areas where development teams might be trying to squeeze some growth out of their business – geographical diversification, innovation, niche operation and legislative change.
Geographical diversification has always seemed like an easy way to generate growth, but this isn’t exactly a secret, and the list of genuine greenfield opportunities is dwindling very rapidly. The investment in marketing necessary to become established in a new country is considerable. In many regions the law relating to online and retail betting is fluid, to say the least, with more than one nascent operation being strangled at birth as a slightly grey set of laws regulates the operation into either non-existence, a tax money pit, or a competitive situation very much in favour of home-grown operators.
There’s hardly a betting operator anywhere who isn’t at least privately wondering how the opportunities in the US will take shape. With state-by-state legislative decisions, there are at least bite-sized territories to take on. Still, plenty of bigger operators will be dreaming of a national brand to dominate all markets, but trying to achieve that and failing would be financially catastrophic. There’s also a cultural piece to consider, with the US market having had a wildly different history from all European markets; coming into that from outside will be a considerable challenge.
The primary alternative to geographical diversification is innovation. Looking at the European market, it’s tough to identify much in the way of really significant change in the last few years. The best global example would probably be the growth in Daily Fantasy Sports, although terrifying marketing budgets are required to really underline the appeal to the consumer. There’s also a distinctly poker-like feel to the real chances of sustained player success (sharks get paid, fish get eaten). That means that it’s an open question as to the long-term longevity of what is admittedly a fun activity, given that most players are facing such a negative expected return on their money.
Alternative innovation options are bound to appear in due course, although in a marketplace as competitive as the current one, the speed of me-too adoption is dizzying. Consider the advent in the UK of bet request services. I can’t remember who was first to offer bets built by the customer, primarily because every other major bookie saw a new shiny option and put their own in place in what seemed like a few days. The next major innovation will surely be in differentiated marketing techniques as opposed to the betting offer itself – and if I knew a few workable options I’d not be telling you here!
Niche operation is an interesting area, in the sense that right now the bigger operators are thinking strategically, with whole countries in their sights and medium to long term opportunities on their minds. As newer markets settle down – or in some cases as the dust settles after new entrants launch into older markets – one imagines there will be opportunities for smaller operators to make a living from distinct sectors, whether they be VIP services, a specialist marketing opportunity, or something more obscure.
Legislative change is listed here as a possible growth opportunity, but few people in the industry are likely to see it as one. Yes, there will be territories (besides the US) where the law will open up to allow serious money to be made by new market entrants, but they’re few and far between. Far more likely are changes that will hamstring territories one by one – a rise in tax rates, Responsible Gambling (RG) initiatives, and of course the ever-present money laundering concerns.
The biggest factor of all, longer term, is likely to be responsible gambling rules. The longevity of the industry in any particular location depends on striking the right balance between making money and keeping losses affordable to players, so there are difficult decisions to make. That’s if the regulatory change isn’t so severe as to make the discussion moot. The future is only going to drive all businesses down the more responsible route.
I’ve seen commentators talk about the initial rumblings of an RG backlash in a territory like the US within two or three years, with serious action only four or five years behind that. If there really is a limited window to make serious money before the hammer falls and some measure of play based on affordability sets maximum losses at an unfamiliarly low level, then there are going to be a lot of burnt fingers. I expect that there’ll be European territories where what today feels like a little over-restriction by the authorities will seem like a pain-free nirvana in five years’ time. As for the US, I’m sure we can all think of political forces so powerful in the US that they can perpetuate a patently ludicrous situation, flying in the face of all logic ….
With all the above in mind, it’s instructive to look at my particular area of speciality, UK offline casinos. There was a time 15-20 years ago when there was unbridled optimism, from the Budd report through to the 2005 Gambling Act, when everyone in the business expected the sector to open up and start generating revenues on a par (per head) with other countries at the same stage of development. While this may never have been realistic, given the number of other gambling options available to the average Brit, it’s fair to say that the UK offline casino sector is now in some trouble. There may be a small bounce in slot and ER business in reaction to the recent restriction in the prize levels for FOBT machines, but few believe the sector has a long-term positive prognosis. The perfect storm of AML legislation, Responsible Gambling restrictions, competition from other sectors, and Brexit uncertainty has hammered the sector. As for growth – well, not too many casino execs are forecasting that. If expected development is anything to go by, then while over the next year a couple of brave, independent operators plan to open new sites, and a long overdue additional casino will arrive in a major city centre, I’d still back long odds-on that more casinos will close in the next three years than will open.
To recap: many an annual report will be talking about the potential for growth across the betting and gaming sector, but with most European markets now fairly fully exploited and legislation and public concern only getting tighter, looking further afield has less impact because everyone’s doing it. So where will that growth be coming from?
