US Land Based Casino's Taking Very Different Views On Online Gambling And Social Casino Gaming

We have seen a flurry of announcements and proclamations recently related to the US online gaming and gambling positioning of the large Vegas based casinos.  The Sands, Wynn, Caesars and MGM have all publicly announced their views or interest in the online game space. The evidence unfolding is that there is very little online strategic gaming consensus amongst the top tier US land based operators.   What is this all all about, how does the discord impact US focused Internet gambling and is there any common ground amongst the US land based casino operators?

The Sands And Sheldon Adelson - There has been much press about Mr. Adelson's public proclamation that legalized online gambling in the US is "bad" for the land based casino business. He is opposing it and is going to lobby US states and  the federal government to stop the expansion of legalization. Why is Mr. Adelson so worried about online gaming in the US? 

Contrary to most other US land based operators the Sands has not taken the  online gaming space seriously or initiated any online initiatives. The assumption is that they have not because their primary focus has been in  land based casino development. Based on the public details of Mr Adleson's business he is indeed doing very well around the world with his land based operations. However, does he  believe that online gaming is now going to be a threat to his core business? If he does this a very controversial position because it is unclear that  online gambling  will take business away from  land based casino operations. In fact, some would argue that it drives traffic to the land based operation. Is the Sands just too late to the market and not prepared for online gaming? Conversely, is there something fundamentally anti competitive about US online gambling law or is the law too competitive not allowing US casino monopolies to own the space? Essentially, the reason or reasons  for Mr. Adelson's public opposition are difficult to quantify or qualify without knowing  the cause for his concerns.

Caesars and Gary Loveman - Caesars has taken a very proactive approach to online gaming in the US,  assuming  "real" money online gambling will be slow to roll out in the US the company has invested in social gaming/social casino properties. This preemptive, and perhaps an adjunct strategy to "real" money online gambling,  has resulted in the purchase of Playtika and Pacific Interactive. These  acquisitions are well documented. 

However, most people are unaware that Mr Loveman, as CEO of Harrahs,  launched a UK based casual/social gambling site called Luckyme about 10 years ago offering a number of casual games such as bingo, Yahtzee, etc. in a subscription service model similar to EA's Pogo property in the US.  Clearly, Mr. Loveman believes that social/freemium games have a place in the pantheon of gaming options offered by land based operators. The cost of acquiring gambling players in the UK made this model unworkable. However, lessons were learned about the popularity of this style of online gaming.  It also indicates that Caesars may be a believer in the convergence argument that espouses a close relationship between social/freemium games and "real" money gaming. However, their strategy could also indicate that  Caesars  is investing in social casino because it is unrestricted, legal, ubiquitous, has a lower operating cost relative to "real" money online gambling  and it  monetizes at an impressive rate.

Wynn And Steve Wynn - The Wynn's online gaming strategy has never been fully developed although Mr. Wynn has indicated that given the right "conditions" he would enter the space. He was rumored to want to buy  Zynga at one time. However, for some reason that deal was not consummated.  Perhaps this was a good thing given Zynga's fall from grace.  He has recently been quoted as being interested in operating an online casino in the US. However, he feels that at this time he does not believe that either the market and or the US regulatory online gambling regime will lead to a positive business "entrepreneurial" environment for online gambling in the US.   Much can be read into this assessment. However, it appears that the combination of the cost of licensing, restricted state populations and game content does not add up for Wynn. Unlike Caesars, Wynn has not commented on their current social casino strategy. This could mean that they may take another look at this sector given their earlier interest in Zynga. 

MGM and Jim Murren - MGM has been in and out of the online gambling space having launched an online gambling operation in the UK tens years ago. They closed the site due to the highly competitive UK market and the lack of brand awareness for MGM in the UK. They have also been in the social casino space with the funding of MyVegas and integration of the social game into their land based property. Essentially, they have the most well integrated online/offline game strategy  driving players to their land based operations. They are also busy exploring "real" money online gambling licenses in various states. We do not hear a lot about them in the press as it relates to online gambling, however, they may in fact be one of the biggest winners in the space if they have a combined offline, real money and social casino gaming implementation strategy.

Other Casinos - Stations Casino purchased the poker platform provider  Cyberarts  which runs the Nevada Ultimate Poker property. A number of other regional US casinos have been actively exploring the online gaming space and we will see what they implement in terms of social or  "real" money gaming. The smaller regional properties  will probably wait until online gambling legislation opens in the  states they are operating in  before they make a serious entry into the online gaming space.

It is clear that the some of the US Vegas land based casino's have been actively involved in the online gaming space for some time. The roll out of legal online gambling  in the US is now occurring and the early signs are indicating that the nature of the introduction  is causing some land based operators to think twice about entering the legal US online gambling market while others are steaming ahead.  

 Freemium/social casino continues to interest the land based casino operators as an alternative to or complement to their land based and perhaps real money online gambling  businesses. It is very interesting to see IGT become an "operator" of social casino as opposed to being exclusively focused on  a supplier of services to land based operators. Although their  earlier purchase of the Wagerworks online gambling platform and operation of that service in Europe did  indicate that they may have more  "operational" ambitions.  Will the other land based casino platform and game content suppliers follow the lead of IGT?

   The states may have to rethink their online gambling strategy and licensing structure having relied too heavily on the European online gambling model where large casinos are not present and social casino has not necessarily been exploited as a proxy for real money gambling. The US land based casinos need to have a stake in US online gambling for political and economic reasons. Without land based casino buy-in US online gambling could find itself facing some serious headwinds.  Freemium/Social gaming could be the big winner in all of this if legal US online gambling falters.

Kevin Flood is the CEO of Gameinlane, Inc. Kevin writes  about online games and their impact and integration into iGaming and E-commerce environments. Kevin is a frequent speaker at online game events and conferences in Asia, Europe and the US. Kevin and his Gameinlane team are currently working with online gambling, social gaming and e-commerce companies integrating social gaming with online gaming operations and integrate game mechanics into e-commerce applications.

         

Step 3 - Preparing For US Internet Gambling - Buy, Build Or Partner?

The US casino operators and Indian tribes have all been banned from exploring and experimenting with  US Internet gambling and the European Internet gambling businesses have all been prohibited from taking US wagers. So what do this companies do to prepare for and enter the impending opening of the US Internet gambling market?

Many of these companies have already announced partnerships and acquisitions to accelerate entrance into the space. What are the consequences of these decisions and are there any other options for both parties to work together and gain a foothold in the newly emerging market?

Answers to this question can be narrowed down to a few general options, with vastly different consequences, advantages, disadvantages and  hybrids that blend and offset the potential risk of any one course of action.  So what makes sense and why? 

Buy - The buy decision can be an extreme decision because it can involve large sums of money and a single commitment to potentially a  single offering and single company.  However, the buy decision can mean an instant capability to host an Internet gambling property and to take wagers immediately once Internet gambling legislation is approved. Some of the casino oriented companies have purchased social/casual gambling companies to understand the US market as it exists today and in anticipation that this sector will act as a bridge between freemium and "real" Internet gambling.

On the positive side a casino operator that purchases an Internet focused gambling company may or may not have to immediately integrate its operation with an Internet offering and each of the entities could remain focused on their particular silos. The down side of this decision is that knowledge transfer and integration across the land based and Internet divide may be hard to bridge, if at all, and decisions/strategy  that require a knowledge of both business may be difficult to scope properly.

After purchasing an Internet gambling company a plan must immediately put into place to retain employees of the purchased company. The purchased company may loose staff leaving the purchasing company with an asset that fails to meet its potential and does require the parent company to build expertise anyway. 

Partner - The partner or joint venture approach has become popular with a number of casino companies announcing proposed partnerships with Internet gambling  companies in Europe. This is a quick way to enter the US Internet gambling market with product and operational expertise leaving each party to focus on their respective business expertise. 

However, the partner approach  has the same issues that any joint venture has. Who is in charge? What entity creates the overall strategy? Who needs whom and for what purpose?  How is the cost and profit distributed? And does either entity learn the business of the other?

The fact of the mater is that if Internet gambling does occur in the US and it sticks then a joint venture will be hard to maintain and only one of the entities will actually have benefited from the partnership.  Also, the casino companies can not escape the requirement to become experts in Internet gambling. Eventually, this bill will become due and they will have to invest to stay in the game. 

Build -  In a perfect world building your own Internet business from the ground up would be idle. The company would own its IP and have the ability to change the platform based on market conditions. Unfortunately time may not be on your side and speed to market will be important.  The build option might be an answer if the company where to build some components and licence others.

The positive side of building is that one company owns it, drives the strategy and can decide to use other vendors as needs arrive. The challenge is that the company that builds the business does take on the expense of building and maintaining the business on all levels, i.e. marketing, technology, personnel, etc. It also means the company must come up to speed really quickly in a business sector they know little about.

Hybrids - I am sure we will see hybrids combining build, buy and partner to address the overall US Internet consumer gambling space. It is unlikely that a US casino will find a social, casual, mobile, casino, poker, sportsbook. back end processing, etc. solution under one roof. This of course will make things complicated for everyone involved and raise the stakes, cost and risk of success in the US Internet gambling space even higher. However, it is inevitable if a casino wants to offer a complete product offering for its players.

In conclusion, there is a proper solution for a company and most likely no one solution is the right one for all casino companies. There will be hybrids and there will be changes to the mix of solutions. The key takeaway is that whatever solution chosen understand what the pros and cons of those solutions are for your company. A company may be able to recover from a bad decision. However, given how fast things may unfold it is unlikely that a bad decision will not have adverse consequences and perhaps loss of market share. Understand your organization; its strengths, weaknesses, expectations and aspirations. Mix and match based on that understanding.

Kevin Flood is the CEO of Gameinlane, Inc. Kevin writes  about online games and their impact and integration into iGaming and E-commerce environments. Kevin is a frequent speaker at online game events and conferences in Asia, Europe and the US. Kevin and his Gameinlane team are currently working with online gambling, social gaming and e-commerce companies integrating social gaming with online gaming operations and integrate game mechanics into e-commerce applications.  

  

Step 1 - US Land Based Casino's Prepare For US Legalized Internet Gambling

The march to the  legalization of  US Internet gambling has begun with states and the federal government grappling with how it will be legalized. It is no longer a matter of, if Internet gambling will be legalized in the US, it is a question of when and how will the legislation unfold. During this interim period of uncertainly many casino businesses interested in taking advantage of the new gambling law are pondering what they should do now to prepare for the eventual passage of Internet gambling legislation. The US land based casino industry is one sector that could benefit the most from the change in gambling law or potentially miss the greatest business opportunity of the industry's lifetime. Given the historical constraints imposed on land based casinos by legislatures and consumer groups the casino operators have done very little in the Internet space relying heavily on snail mail marketing, TV ads and the promotion of their entertainment venues to entice consumers to come to their properties.  This leaves them at a strategic disadvantage relative to other business sectors that have sophisticated Internet marketing teams that understand the online space , conversation rates, cost of acquisition, consumer behaviour, etc.  So what are the first steps they should take to explore the Internet space, preparing themselves and consumers for the big day?

Will Land Based Casino Patrons Gamble Online? - Clearly the answer to this question will significantly impact a casino's online gambling strategy. Speculating about the answer to this question  is a big gamble in and of itself and should be  answered prior to any investment in Internet gambling platforms, strategic gambling partnerships, etc. 

E-mail Capture - Before a casino can assess their land based customers propensity to gamble online they need to able to communicate with them online. E-mail is the good old fashion way to do this. Most people have an account and will provide that to a business. Capturing that e-mail address at hotel registration time or perhaps at the cashier counter would be a good way to build a database of marketable consumers. 

Survey - With the e-mail database underway an online survey would be a great way  to connect online with the existing land based gambling consumer to ask them what their propensity to gamble would be and what a casino operator would have to offer to get them to gamble online with them.

Build An Online Marketing Team And Expertise - Much of the success of online gambling operations is dependent on how well the properties will be  marketed online. In many cases the game content that will be offered by Internet gambling operators will be  identical with marketing  being the only differentiation between casinos. 

Social Media - It is no secret that Facebook and Twitter rule the online world with just about everyone on the planet in Facebook or on twitter. Facebook will also be a strategic battle ground for US Internet gambling.  Gambling will be hosted in Facebook. In preparation for Facebook gambling, to understand how to build community in Facebook ant to effectively market within Facebook requires an expertise different from standard Internet marketing. How do you build an effective Facebook page? How do you build a robust Facebook community, how do you advertise in Facebook and on other Facebook properties? How do you communicate with your installed base through Twitter?

Consumer Profiling - Profiling Internet gamblers is a sophisticated process that relies heavily on a number of data points such as Facebook activity, Twitter posts and communication, search characteristics, game play;  social, casual and  real gambling online and offline, E-commerce transactions, etc. Casino gambling operators should begin to determine how they will combine the profiling gathered from their land based operations with their online properties. This will provide them with an information data source that will help to optimize Online gambling operations.

These are some of the obvious and necessary first steps in the march to launch and manage a successful online gambling operation. In the next installment of this series we will address the question of buy, build, partner, etc. to obtain and manage online gambling games and content. That will be followed by the question should I launch a freemium, Facebook game and or mobile gambling games.  

Kevin Flood is the CEO of Gameinlane, Inc. Kevin writes extensively about online games and their impact and integration into iGaming and E-commerce environments. Kevin is a frequent speaker at online game events and conferences in Asia, Europe and the US. Kevin and his Gameinlane team are currently working with online gambling, social gaming and e-commerce companies integrating social gaming with online gaming operations and integrate game mechanics into e-commerce applications.