State of the iGaming union
The past three years has seen real-money and social gaming advancements in jurisdictions across the U.S., a trend that is expected to continue going forward
April 2016 marks the third anniversary of Nevada’s online poker market and the establishment of regulated, real-money iGaming in the U.S.
The evolution of U.S. iGaming over last three years has provided casinos in Nevada and New Jersey with important opportunities for revenue generation; and with new states set to regulate online gambling, the potential of Internet wagering is as relevant as ever. Even in jurisdictions where promulgation of real-money iGaming appears remote, free-play social casino products offer operators an avenue to exploit the growing popularity of online gaming.
The road to iGaming growth has not been without its obstacles however, as evidenced by the evolution of the marketplace since Ultimate Gaming, majority-owned by Las Vegas-based Stations Casinos, dealt its first hand of virtual poker in April 2013. Other Nevada-based operators soon followed suite with their own online poker sites—WSOP.com from Caesars Interactive and Real Gaming from South Point Casino are two leading examples—and by July 2014 the state’s iGaming market was generating $1.04 million per month in revenue. But lack of cash liquidity in Nevada operator online poker games—due in large part to the small, 2.8 million population of the state—has stunted overall market growth. According to Eilers & Krejcik Gaming, a California-based boutique research firm, combined Nevada online poker revenue averaged $750,000 per month in 2015, well below its 2014 high-water mark.
“We see little room for [Nevada online poker] growth in CY16 and beyond,” Eilers & Krejcik Gaming said in a prepared report.
If Nevada’s population and exclusive focus on online poker has constrained growth, neither factor limited New Jersey’s iGaming market when it went live in November 2013. With a population of 8.9 million, the state allows casinos to offer products in both the online casino and poker verticals.
The New Jersey Division of Gaming Enforcement (DGE)’s cross-vertical approach to iGaming helped the market enjoy significant growth. In 2015, revenue rose 21 percent year-over-year, and tellingly the online casino vertical, which grew by 33 percent annually, was a fundamental factor.
“For the online casino product in New Jersey, growth has been tremendous,” said Chris Grove, senior consultant at Eilers & Krejcik Gaming. “The product is relatively immature compared to European online casino products, so New Jersey could have a way to go before it reaches a ceiling for casino.”
Given that a new monthly revenue record of $14.6 million was reported by the DGE for January 2016, Grove’s forecast could well be right.
SPREADING THE WEALTH
It’s likely these improving iGaming results from New Jersey are influencing for-money Internet gaming legislation in other states. Indeed, Eilers & Krejcik Gaming predicts various form of legalized online wagering could soon exist in Pennsylvania, California and New York.
The Pennsylvania legislature is currently considering HB 649 which, if eventually passed, will reform state gaming laws and legalize online wagering. “In Pennsylvania it’s certainly plausible that legislation is enacted in 2016, and within 12 months its market goes live,” Grove said. Importantly, like the Garden State, Pennsylvania is looking to regulate online casinos as well as poker.
In contrast, California is only looking to regulate online poker. However, its population of over 38 million would likely overcome the liquidity issues experienced by Nevada. “There are scenarios that California passes online poker legislation in 2018,” Grove said.
Another highly populated state, New York, which has over 19.7 million residents, is expected to regulate online poker by 2019, according to Eilers & Krejcik Gaming. “We expect only incremental progress this year and next,” said Grove, who emphasized that the Empire State is currently focused on its land-based casino expansion.
Beyond New York, Eilers & Krejcik Gaming forecasts that Massachusetts’ and Connecticut’s iGaming markets could go live by 2020.
For casinos in these five states, the development of real-money iGaming products offers a number of benefits. These include an additional revenue stream, a new marketing and brand-building channel for the property as well as an engagement tool to increase customer lifetime values and acquire new patrons.
The issue of additional revenue was initially a concern for casinos, fearing that online growth would ‘cannibalize’ on-property revenue. “We’ve not seen anything in the numbers and anecdotes from casinos in New Jersey that online revenue comes at the expense of land-based casino revenue,” Grove said.
The Tropicana Atlantic City, which launched its real-money online casino TropicanaCasino.com in November 2013, is one such casino. “Our statistics show that TropicanaCasino.com has only served to support the growth of Tropicana Atlantic City,” said Luisa Woods, vice president of online and internet marketing at Tropicana Entertainment. She adds that the Tropicana integrated its Trop Advantage loyalty program with TropicanaCasino.com, so customers playing online slots and table games can also earn points redeemable on-property.
Since launch, the Tropicana Atlantic City’s online casino has generated standalone revenue of over $59 million. Vitally, a majority of this can be attributed to new customer acquisition. “We were surprised and delighted to learn that about 60 percent of our online players were new to the Tropicana family,” Woods said. Given the online brand’s integration with the property via its loyalty program, this also translated into increased revenue for the property itself.
Beyond the acquisition of new customers, an iGaming brand can also be used to reengage existing customers. Referring to the approximately 40 percent of TropicanaCasino.com players who were already in the casino’s customer database, Woods said, “Of those who had played with us in the past, many had not been to visit Tropicana Atlantic City for a year or longer.” She adds that the real-money online casino has served as “an easy and approachable way for players to return to our brand.”
An iGaming offering also allows land-based casinos to extend the brand’s presence beyond the physical confines of the property with a digital product that can be just as compelling as a real-world casino. For players who live in the same state but far from the casino itself, an online casino allows casinos to keep players constantly engaged between their infrequent property visits. “Those who are unable to travel to Atlantic City are now able to play with us remotely,” Woods said.
As more states regulate iGaming, compacts between states could allow a casino based in one jurisdiction to target players in another. Referring to the possibility of imminent regulation in Pennsylvania and New York, Woods said, “Expansion into new markets would enable us to serve fans of the Tropicana in these neighboring states.”
Gaming operators in states that are cold to iGaming legalization can instead pursue online social casino products to derive marketing and financial benefits from the Internet space.
The legal restrictions on real-money iGaming do not extend to social gaming, which is either free to play or involves a freemium model whereby players only pay to obtain extra virtual credits for the game. “With social casino there’s no need for compliance or regulation—it can be offered in all 50 states and has all the benefits of real-money iGaming, including revenue,” Grove said.
Alec Driscoll, director of gaming development at American Casinos & Entertainment Properties (ACEP), which operates the Stratosphere Casino, Hotel & Tower and three other properties in the Las Vegas area, agrees. “We initially launched acePLAYpoker.com [ACEP’s free-play poker brand] in February 2013 as a precursor to real-money iGaming,” he said. Despite acquiring a Nevada online gaming license, ACEP has yet to launch a real-money online poker offering. A major reason for this decision was that social poker provides the same marketing benefits the company sought in real-money play. “AcePLAYpoker.com was an extension of our properties and we used it to bring people through the properties’ doors,” Driscoll said.
The brand allowed players to win on-property prizes such as restaurant meals and hotel stays to drive customer visits to the Stratosphere and ACEP’s other properties. “We saw a high level of redemption of vouchers relating to our free-play poker brand,” Driscoll said. “We raised the value of our customers by segments, reactivating customers on the decline and our mature database.”
As well as customer retention, ACEP also used its social poker brand as a customer acquisition channel. “We’ve been able to prospect players and what we did see was that they had more value than our traditional players,” Driscoll said. Another major difference ACEP noted in these new online players was demographic. “We had 75 percent male and the 25-39 demographic was dominating, which is the opposite of our casinos,” Driscoll said.
To ensure their social brand was driving players that better corresponded with their core demographic, ACEP launched the social casino offering acePLAYcasino.com in December 2015. Its freemium model allows players to buy credits for the brand’s social slots and table games. “The strength of
the marketing is maintained but
we’re adding to the brand and raising the overall volume of our patrons,” Driscoll said.
While direct revenue wasn’t ACEP’s main objective for either acePLAYpoker.com or its successor, acePLAYcasino.com, both have achieved significant results for the company. “We’ve seen exponential growth month to month in revenue since the launch of our social products,” Driscoll said.
From revenue to reactivating and raising the lifetime value of existing customers as well as acquiring new ones, developing a social casino offers many advantages to casinos in all 50 states. For those casinos in any of the five states expected to regulate real-money iGaming by 2020, an online gambling product provides all these benefits and a revenue stream that can lead to even bigger business.