Adapting to rapid change in the gaming industry
• Technology is changing rapidly.
• Consumer demographics are changing rapidly, with emerging generations coming of age in a major way.
• The competitive landscape is changing rapidly, with new gaming outlets—as well as new, competitive outlets that target discretionary spending—emerging in a major way.
• Tax rates are very high, limiting the ability of operators to respond to major changes.
• Regulatory rules are slow to change, thus limiting the ability of operators to respond to major changes.
If you guessed that this refers to the market(s) in which your company operates, then you win the grand prize. You are right.
If you guessed that this refers to nearly every market in the United States and around the world, then pat yourself on the back. You are right. You also win a prize.
Rapid change requires thoughtful responses, but the key words here are “thoughtful” and “response.” I have been around long enough to remember the days when legislators and regulators had to overcome what had been a widespread view: Gaming was an unsavory activity, operated by people of questionable character, and it thus required strong oversight.
Strong oversight did come—in New Jersey and Nevada—and such oversight was also effective. Gaming operators passed stringent tests to ensure that they met the highest standards of good character, honesty and integrity. And those operators—along with their suppliers, financial sources and partners—have passed those tests again and again.
Gaming expanded from those early days, in part because more and more states and countries gained an ever-increasing comfort level with these proven licensees, thus opening a new phase in gaming’s expansion. Surely and certainly, gaming has since expanded to nearly every state, and has become a $60 billion annual industry in the United States alone, thanks to diligent work by commercial and tribal operators as well as their regulatory partners.
But there was a price to pay: Tax rates, particularly on slot machines, went from less than 9 percent in New Jersey and Nevada to 50 percent, 60 percent and more.
Operators gladly (or at least begrudgingly) paid these rates, in part because they were granted some geographic protection and in part because there were vast population centers throughout the United States that had not yet been penetrated by casinos, thus the growth upside was both apparent and significant.
Those were the rules that brought us, roughly, from the early 1990s through the present day. But what about the future? The view from my crystal ball is not as sanguine.
Spectrum Gaming Group—my longstanding partner in the development of the East Coast Gaming Congress & iGaming Institute, now in its 20th year (May 25 & 26 at Harrah’s AC) and whom I can count on to identify industry trends—has made it clear, from an analytical standpoint, that the old rules cannot be applied to the new reality.
Spectrum, which recently developed its “Spectrum Strategic for Government” service, argues quite effectively that certain factors must be taken into account by all regulatory agencies, legislatures and other stakeholders in charting the new reality.
My view is that governments and operators have long operated like partners—even if they don’t officially or outwardly acknowledge that partnership—and have to move forward in partnership. This requires a new paradigm in which rules are set up to do more than gain public confidence; they are set up to advance the public interest.
With that in mind, regulators and legislators need to face a harsh reality: They can either adapt, or they can wither away into irrelevance.