The US casino market is fast approaching its saturation point.
With new casinos popping up all the time, existing casinos are finding it difficult to survive in these increasingly crowded markets. It also makes it difficult for states to find a home for new casinos (and the thousands of jobs they bring) without the real risk that they bankrupt existing operators.
But perhaps there’s a way to make room for more land-based casinos (and those jobs) by propping up the gaming industry in another way: online.
It seems counterintuitive, but online gambling may very well be the key to unlocking more land-based casinos.
The US casino industry is big business
According to the American Gaming Association, commercial casinos account for $40 billion in direct revenue and 1.8 million jobs in the US.
And then there’s tribal gaming. Tribal gaming accounts for close to $100 billion and 635,000 jobs, according to the AGA.
That’s the definition of big industry, and unsurprisingly, states are always on the lookout for ways to increase gambling revenue. The problem is there can only be so many land-based casinos.
With that in mind, states are starting to get creative. And a number of states are turning to other gambling expansions such as online sports betting, online casino and online poker.
And that’s a smart place to look.
The benefits of online gambling
Despite claims to the contrary, online gambling products don’t cannibalize land-based revenue.
Instead, NJ online casinos have:
- Attracted new, younger customers.
- Re-engaged with lapsed customers.
- Increased the value of existing customers.
A June 2017 white paper published by the trade group iDEA Growth (full disclosure, PlayNJ’s parent company is a member of iDEA), puts online gambling’s economic impact in New Jersey at nearly $1 billion from November 2013 to March 2017. The group linked 3,300 jobs to the online gambling industry.
And it could be even more than that.
Online gambling creates land-based casinos?
Online gambling is not only providing casinos with new revenue streams capable of overcoming a saturated market, but there’s a very good possibility that online gambling creates an opportunity for new casinos to open without bankrupting existing operators.
If there’s a tipping point for retail casinos in a market, the additional revenue from online gambling could be enough to increase the number of retail locations a jurisdiction can possess. At the very least, it can save some casinos from closing their doors by stabilizing a declining market.
Rather than killing land-based casinos, online gambling is likely creating them.
Case study: New Jersey
New Jersey provides a clear example of what can happen when a market is overrun with casinos.
Spoiler alert: Pretty much everyone loses.
Following the Great Recession in 2008, AC casino operators struggled to keep their heads above water. With 12 casino properties, there simply wasn’t enough gaming revenue to go around.
Borgata and some of the other top-tier casinos got a full piece of the pie. But for the most part, the casinos were forced to share, and no one was getting enough to eat.
That led to price reductions as the casinos competed for the market’s shrinking customer base. Then this was followed by low or nonexistent profit margins, which led to increasingly rundown properties.
And that’s when the fit hit the shan.
AC casinos close their doors
But there was also a glimmer of light at the end of the tunnel. The properties that survived the casino purge (some just barely) started doing a lot better. The market had right-sized.
Almost overnight, the remaining casinos started:
- Operating profitability.
- Reinvesting in their properties.
- Watching room rates and occupancy skyrocket.
Unfortunately, with the market shrinking from 12 to seven casinos, a lot of jobs were lost. The remaining casino properties were doing well, but Atlantic City’s job market wasn’t.
An opportunity to upgrade
Something else happened, too.
With the market correcting itself, people started to view the Atlantic City casino market as an opportunity. Two shuttered casinos were purchased and had since reopened:
- Revel became Ocean Resort Casino
- Trump Taj Mahal became Hard Rock Atlantic City
The new casinos brought back thousands of jobs, but they also brought new concerns that Atlantic City is simply repeating its past mistakes.
Or is it?
This time around there’s something else to consider: online gambling.
Online gambling was too new to be of any assistance to the city’s casinos back in 2014 (NJ online casinos launched in November 2013). On the other hand, online gambling is an integral part of Atlantic City casino revenue in 2018.
And as I’m about to explain, it played a major role in the reopening of the two casinos.
Online is creating room for more physical casinos
On the surface, the two new casinos seem to be having a positive effect on the New Jersey gambling market.
Retail casino revenue has experienced a nice increase since the near-simultaneous openings of Hard Rock AC and Ocean Resort in late June.
The problem is, other than in August, retail casinos’ revenue growth has been modest. The Atlantic City casino market can’t support these new properties if growth continues to come in under 10 percent.
In that scenario, the revenue from the new casinos is coming almost exclusively at the expense of existing casino properties. However, unlike the situation that led to the first casino purge, Atlantic City casinos are no longer 100 percent reliant on land-based revenue.
Industry-wide, more than 10 percent of all revenue is now generated online.
For some casinos, the breakdown is even higher. For instance, Golden Nugget generates roughly one-third of all revenue from online gambling. It’s no stretch to say that Golden Nugget AC might not exist without Golden Nugget online casino.
When we look beyond AC casino revenue, a different picture of a strong casino market emerges. Total casino revenue (NJ sports betting, online gambling and retail gambling) has grown by double digits every month.
What does it all mean?
The new casinos would have decimated the market of pre-online gambling and the sports betting world. But because Atlantic City has modernized its gambling industry, the impact of the two new properties on existing operators has been minimal.
Rather than giving everyone a smaller piece, Atlantic City has increased the size of the pie with online gambling and sports betting.
Without sports betting and online gambling, it’s doubtful anyone would have taken a swing at opening a new casino in the market, let alone two.
And because of the existence of online gambling and sports betting, the current casinos have a fighting chance of surviving. That means several thousand jobs that the city so desperately needs, both in the casino sector, as well as construction and vendor jobs.
What happened in New Jersey should be a lesson to other states. If you’re going to expand retail casino locations, it makes all the sense in the world to legalize sports betting and online gambling.