Millennials Spending Less Money ‘On The Casino Floor’

Gambling-related online technology and casinos’ non-gaming amenities are garnering a greater share of consumers’ discretionary entertainment dollars

Fitch
Fitch
Jun 30, 2016 · 4 min read

By Alex Bumazhny

May 2015

Gamblers will continue to frequent casinos in face of the nascent online gaming industry in U.S. So why do we see pressure on the horizon for casino revenues? It’s because gambling-related online technology and casinos’ non-gaming amenities are garnering a greater share of consumers’ discretionary entertainment dollars. This could be notable over time as the millennials’ wallets become a more meaningful contributor to U.S.’s total discretionary spending.

Though still largely illegal in U.S., online gaming was a $6 billion industry by some estimates. However, it still represents only one-tenth the size of land-based gaming. The Unlawful Internet Gambling Enforcement Act of 2006 banned online gaming but left the door open for states to pass intrastate online gaming laws. Since UIGEA, efforts to legalize online gaming on both the federal level and on state-by-state basis have come in fits and starts. To date, only three states — Nevada, New Jersey and Delaware — legalized intrastate online gaming and Pennsylvania and California are now considering it as well. At the federal level sentiment for legalization has gone the other way with some lawmakers pushing to ban even intrastate online gaming.

Even when legalized on state level results have not lived up to the lawmakers’ and analysts’ expectations, including our own conservative forecasts. In the first full year of operations online gaming in the three states that legalized it was only about $130 million, below Fitch’s initial forecast of $200 million — $300 million for New Jersey alone. Several factors contributed to this underperformance chief amongst which is a lack of sizeable poker player pools in these states and that some financial institutions refused to process online gaming payments.

New Jersey, the most promising state out of the three due to its population size, has some potential for improvement albeit from a small base. More credit cards are being accepted now, online operators are rolling out mobile apps, and technological glitches such as geolocation false negatives are worked out. Persistent marketing by the operators also started to gain traction. New Jersey’s online gaming revenues exceeded $12 million per month since March, an improvement from around $10 million per month since inception in late 2013. Still this is barely 5% of the state’s total gaming revenue.

The regulatory constraints and the apparent preference of land-based casinos in U.S. make online gaming only a modest threat to land-based operators in the near-to-medium term. What could be more paramount to land-based operators over time, however, is the growth of casino-themed social games and daily fantasy sports. Since they are technically not gambling, they remain unregulated in U.S. They also appeal to the millennial generation.

According to BEA data, Americans spent 27% of their recreational spending on gambling in 2013 compared to 30% in 2006. Spending on internet access tripled during this time. FanDuel, a daily fantasy sports site, reported more than a million users in 4Q’14 and $370 million of entry fees, of which it keeps 10%. Casino social games available on iOS and Droid devices are a multi-billion dollar industry. Two more successful social casino developers are a slot machine supplier — IGT — and a casino operator — Caesars Entertainment. The two companies generated $80 million and $167 million in 1Q’15 at their respective social gaming divisions.

Millennials still enjoy going to casinos but they spend less on the casino floor (the bread-and-butter for casino operators). Instead, more of their money is going to less profitable amenities such food & beverage and entertainment. Of those 35 years old and younger, 39% visited casinos in 2012. This is more than any other age group, according to a survey conducted on behalf of AGA, an industry group. However, less of these young people will be frequent visitors. According to the same survey, the young cohort is more interested in skill-based games such as fantasy sports and poker and is more familiar with online gaming. When in a casino, the 35 and younger demographic are much more likely to take part in non-gaming activities and may not necessarily gamble and prefer blackjack over slots if they do gamble.

Online gaming may become big in U.S. again. Less than 30 years ago casinos could only be found in New Jersey and Nevada and now only a handful of states do not have a casino. Increasing social acceptance, technological advancements and political pressures to fill budget gaps will likely spur more states to adopt online gaming eventually. But this will take time and may come in limited form as is the case in California, which has been considering for the past several years legalization of online poker only. In the mean-time the casino loving baby boomers are aging out of their peak earnings stage and millennials are spreading out their chips.

Originally published at thewhyforum.com.

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