The online casino cannibalization debate is reductive (thus far)

I have watched the recent debate regarding online casino’s potential cannibalization of land-based gaming closely.  For the record, I am neutral on the topic since we no longer have an online business and we don’t have a large portfolio of regional casinos to sweat.  That being said, I have found the discussion so far to be a bit reductive.

The analysis and debate always seem to focus on the impact to the total addressable market (TAM) and the tax base.  A pretty narrow focus when considering the much broader set of implications.

Market share will no doubt shift – Sure, analysis of online casino’s impact on the land-based gaming TAM is important.  But, with the introduction of online casino, you are allowing the entry of many new and capable competitors, often times into states that have had a very stable competitive dynamic for many years.  So, no matter which side of the “cannibalization vs. no cannibalization” debate you are on, assuming that the (positive or negative) impact will be uniformly shared by all regional casinos is pretty naïve.  There are almost 1,000 commercial and tribal casinos in the U.S.  How many of them can actually avail themselves of the often-touted benefits of an “omni-channel” strategy?  100? 150?  The properties that might actually be able to compete with the digital native online gaming providers are those that are owned by the large national gaming operators.  What about everyone else?  Market share will shift.  In land-based gaming, there will be market share winners and losers.  No doubt in my mind.  As an operator, the TAM doesn’t pay my bills, my share of it does…

And speaking of those large national gaming operators, how are they competing against the digital native companies right now?  I think it’s fair to say it’s mixed.  If they themselves are pushing for legalization, they better be pretty confident that they can compete with all the new market entrants they will invite into their land-based gaming states with legalization and either a) grow both land-based and digital or at least b) offset any land-based EBITDA losses with digital gains…  The stakes here are higher than one might think.

Taxes, eh?  What about labor? – Analysis on the tax base is great, but what about the impact on labor?  Land-based gaming employs a lot of people, far more per dollar of revenue than online gaming.  In fact, the biggest online operators in the US employ between one to two people per million dollars of revenue.  The biggest land-based gaming operators by contrast employ a multiple of that – approaching five people per million dollars of revenue…. And for the market share losers from online gaming, do you expect them to just pass the revenue loss on to their shareholders / tribes?  No, they will shed labor.

So, don’t expect the unions, particularly in blue states, to just sit back and let online casino happen.  They will take a position, because that’s their job.  They’re not going to pore over analyst reports on cannibalization to form an opinion on the topic.  They’re going to act preemptively.  And, like it or not, in many states legislators listen to unions.  After all, their membership votes, early and often….

The risk of regulatory pushback – Putting a casino in everyone’s pocket is great for the TAM, no doubt.  And all CEOs love TAM expansion.  But there comes a point when TAM expansion pushes up against societal acceptance.  In 1988, just before the riverboat gaming wave of the 1990s, casino gross gaming revenue (GGR) in the US divided by GDP was 14 basis points.  In 2022, it was 42 basis points.  So, for much of the time in between, gaming was a greater than GDP growth business – a good time to be in the industry.  In Australia, one of the most saturated gaming markets in the world, recent official statistics indicate GGR divided by GDP was approaching 80 basis points.  Those of you who follow global regulatory trends will know that Australia has, over the past several years, enacted some reasonably stiff consumer protection requirements – from advertising curtailments to trials of mandatory pre-commitment schemes, all of which have impacted the industry.  See a relationship here?  Whether right or wrong, perception or reality, when casino gaming starts reaching every corner of society (including in peoples’ pockets), there is a reaction.

I grew up in Las Vegas, I’ve been working in and around the industry since 1997.  I think about the broad arc of the industry a lot.  If we’re going to debate the impact of online casino, let’s look at all the implications and not just the headlines of TAM and taxes.  For me, it is absolutely affecting my thought process with respect to where and how we at Wynn will deploy capital in the US.