With all eyes on igaming, Chloe Paul, manager of data analytics at The Innovation Group, speaks about opportunities for all parties to cash in.
In 2020, igaming was a bright spot in an otherwise dark year for our industry. While brick-and-mortar casinos closed as part of coronavirus mitigation measures, igaming revenues set records in mature markets like New Jersey and Delaware, as well as in new markets like Pennsylvania and Michigan, which exploded onto the scene. Despite its rapid growth in the last year, igaming is still a nascent legal gambling form in the United States. Only six states allow legal, regulated online casino gaming, though that number is expected to grow. As it expands, brick-and-mortar operators must decide on their online strategy, find ways to integrate their online and brick-and-mortar experiences, and set realistic future growth expectations.
Simulated, Real-Money or Both?
One relevant lesson learned from the rollout of sports betting in the US is how quickly a new form of gaming can spread. As the chart below shows, in four years we went from single-event sports wagering in Nevada to more than half the country legalizing sports betting.
It took an external stimulus, namely the Supreme Court repeal of PAPSA, to spark rapid expansion of sports betting, and the coronavirus pandemic may prove to serve as a similar catalyst for igaming expansion. States are looking to fill budget deficits caused by economic slowdowns, brick-and-mortar operators are warming up to igaming as a means of diversifying revenue after seeing in-person businesses shuttered, and many tribes are actively renegotiating gaming compacts to allow for new forms of gaming.
To prepare for the legalization of igaming, operators in non-legal markets can launch simulated gaming. These free-to-play products supply users with a limited bankroll of virtual currency to play casino games and allow players to purchase additional virtual currency through real-money transactions. These real-money purchases of virtual items can add up to a substantial income source. For example, social casino publisher Playtika generated upwards of $2 billion of revenue in 2020.
In addition to building a real-money revenue stream, simulated gaming can be a learning tool. Igaming platform providers build their simulated and real money products on the same technology stack, so operations teams can learn the platform, market dynamics and customer all before real-money wagering formally launches. Marcus Yoder, senior VP of sales at GAN, notes the importance of simulated gaming as a customer database builder. “You can start building a relationship with players and cement their brand loyalty long before real-money gaming launches.”
Once a market allows online casinos, the question becomes what to do with your social gaming offering. Yoder’s advice: keep it. “Many of our clients have found success offering real-money and social gaming products side-by-side in the same market.”
A successful igaming implementation, whether real-money or simulated, not only provides an additional revenue stream to an operator but also integrates with their existing marketing program. All the traditional marketing elements present in a brick-and-mortar environment have a place in an internet casino, from branded table felts and casino chips to VIP lounges and loyalty program earnings. It's important to note integration is not a one-way street, and marketers should seek out ways to bring online experiences to the brick-and-mortar environment.
Achieving this level of integration requires action across all participants of our industry. Gaming suppliers must create online gaming content that makes a player feel like they’re in a casino (think live dealer games), technology suppliers must support loyalty program point earnings regardless of gaming medium, and marketers must dream up ways to bridge the divide between brick-and-mortar and online experiences. To justify this level of action, we need to know if the recent igaming gains are simply a pandemic-related blip or a permanent shift in player behavior. Unfortunately, this is a complicated issue. Looking at state-level revenue numbers, evidence supporting the sustainability of recent igaming gains exists alongside counter examples.
In 2020, the most mature igaming markets in the country, New Jersey and Delaware, both doubled in size, and New Jersey finished the year just $30 million short of hitting the $1 billion GGR mark. For context, New Jersey’s statewide brick-and-mortar GGR was $2.7 billion in 2019. As the monthly igaming revenue graphs for New Jersey and Delaware found below illustrate, both states experienced a rise in igaming volumes during the months brick-and-mortar casinos were closed. However, New Jersey revenues continued growing despite casinos reopening, while Delaware revenues saw an immediate decline with the return of in-person gaming.
Shifting our focus to new markets, three states recently launched igaming: Pennsylvania in July 2019, West Virginia in July 2020 and Michigan in January 2021. Both the Pennsylvania and Michigan markets have ramped up at breakneck speeds, while the West Virginia market has grown at a slower rate. In its first full year of igaming operations, Pennsylvania generated a half-billion dollars in GGR, a milestone that took New Jersey six full years of operations to reach, and Michigan already is nearing the half-billion-dollar GGR milestone after its first six months. In contrast, West Virginia’s market size is a fraction of Pennsylvania’s or Michigan’s.
Lower average spend among West Virginia residents could be a byproduct of a rocky mobile sports betting deployment: supplier issues left the state without a mobile sports betting option just months after launch and may have permanently weakened West Virginians’ confidence across all forms of online wagering. Regardless, West Virginia serves as a cautionary tale that not all igaming markets are benefiting from the pandemic-related rise in popularity.
Brick-and-mortar casino closures during the coronavirus pandemic sparked rapid growth in igaming revenue. But only a handful of states benefited from this growth as online casino gaming isn’t widely legal. While not conclusive, there’s strong evidence to suggest the recent igaming revenue gains are sustainable.
The stage is set for potentially rapid igaming legalization nationwide, and operators can start preparing by building a digital player database and experimenting with integrating online and brick-and-mortar marketing strategy through simulated gaming platforms.