Revenue growth was slow across many gaming segments in 2016, but the signs point to a more robust marketplace going forward.
For purposes of this annual analysis, the U.S. gaming industry includes the following four segments: commercial casinos, tribal gaming, limited stakes gaming and iGaming. The U.S. gaming industry represents over 1,000 brick-and-mortar casinos located across 40 states, over 15,000 bars, restaurants and truck stops offering limited stakes gaming across six states, and nine iGaming operators.
During 2016, the overall gaming industry’s growth rate fell below the national inflation rate of 2.1 percent; however, three of the four industry segments produced growth in excess of inflation. Commercial casinos continue to be the industry’s leading segment, as it represents more than 50 percent of both the annual revenues and number of casinos. The slow growth produced within the commercial casino segment ultimately lowered the collective industry’s growth rate below the national inflation rate.
The following summarizes the performance of each of the gaming segment during 2016 and what can be expected in the near term.
During 2016, the commercial gaming segment generated $38.7 billion, growing at a rate of 0.9 percent. Overall the industry segment represents 24 states and 572 casinos. The low growth seen within the commercial casino segment was driven by weak economic conditions in key markets, limited expansion activities and increased competition from other gaming segments.
Specific to Louisiana (the third largest commercial gaming state), depressed energy prices initially led to weak economic conditions which were further compounded with the devastation brought by the August flooding within the Baton Rouge and Interstate 10 markets. The impact of these external factors changed Louisiana’s gaming fortunes as revenue declined by $110.9 million or 4.2 percent in 2016.
Unlike prior years, where poor regional performances were offset through new market expansion efforts, there was limited expansion in 2016. The most noteworthy new casino development was the opening of MGM’s National Harbor Casino; however, the opening had minimal impact on revenues given its December 2016 opening date.
Further compounding the challenges facing commercial gaming was the increased competition from the limited stakes industry segment. Illinois’ commercial casinos continue to see year-over-year declines in revenues, dropping 1.7 percent in 2016, as the state’s casinos adapt to the introduction of almost 24,000 limited stakes gaming machines.
Even though the growth produced in 2016 was modest, the commercial casino segment is expected to see a resurgence in growth. The growth will be led by the Northeast region, as new casinos in New York and Maryland will provide additional revenues to the overall industry. Beyond the 2017 casino opening, continued expansion in Massachusetts during 2018 and 2019 will further boost gaming revenues (and competition) for the Northeast region.
In 2016, the tribal gaming industry segment generated an estimated $30.7 billion, growing at a rate of 2.6 percent. The continued growth marks the seventh consecutive year of expansion for the industry segment. The industry segment represents over 240 independent sovereign nations which operate over 480 casinos.
The tribal gaming segment will continue its increased growth trend for the foreseeable future as more tribal nations look to benefit from gaming expansion. For those nations with casinos, continued expansion will come from the development of resort-destination casinos, purchase of new lands or acquisition of commercial gaming entities.
LIMITED STAKES GAMING
In 2016, the limited stakes gaming industry segment generated $3.5 billion, an increase of 7.1 percent when compared to 2015 revenues. The increase in gaming revenues was primarily driven by the continued proliferation of limited stakes gaming throughout Illinois, which saw limited stakes gaming revenues increase by $194.6 million or 21.3 percent.
Future growth within the segment will be limited, as the Illinois expansion efforts are beginning to reach a point of market saturation. In the past four years, Illinois has seen the introduction of almost 24,000 gaming machines across 5,700 locations. The ability to sustain the recent growth seen within the limited stakes gaming segment will remain contingent on continued expansion and legalization. At this point, the prospects for expansion appear most promising in Pennsylvania; however, competing interests makes the prospects of expansion less than a sure bet.
The iGaming industry segment completed its third full year of operations in 2016 and generated an estimated $212.2 million, growing at a rate of 32.1 percent. The growth in the online gaming segment was primarily attributed to increased player adoption and wagering within New Jersey. Most notably, the traditional brick-and-mortar New Jersey casino operators have seen iGaming as a complimentary form of gaming increasing the overall revenue base for the state.
While double digit growth is expected to continue for the New Jersey market, the ability to sustain long-term growth will remain contingent on the expansion of iGaming. Similar to limited stakes gaming, Pennsylvania appears to be the jurisdiction most likely to legalize iGaming. The state has the support of an existing operator Rush Street Gaming (owners of Rivers Casino in Pittsburgh and Sugar House Casino in Philadelphia), which will go a long way in appeasing the various constituents involved in passing a gaming expansion law.
OVERALL GAMING INDUSTRY
Collectively, the U.S. gaming industry is poised for a year of growth. Recent expansion efforts and new casinos opening throughout Indian Country, New York and Massachusetts will yield positive growth for the industry. Looking beyond existing casino projects, the efforts to further legalize gaming are being debated throughout state governments nationwide with the most notable expansion efforts being debated in Georgia, Florida and Pennsylvania.
Beyond traditional gaming expansion, the industry is witnessing a surge in innovation and product development. The expansion of eSports onto casino floors (Downtown Grand in Las Vegas), emergence of regulated fantasy sports wagering (FanDual and Draft Kings) and the introduction of skill-based games (Gamblit Gaming) all bring new complimentary forms of wagering to casinos. The ability for casinos to keep pace with the speed of innovation will be critical for the continued long-term success of the industry.