This may come as a surprise to most casual gamblers, but the online casino industry is fast approaching its 25th anniversary.
While most of us associate online gambling with the “Poker Boom” of 2003-2006, or maybe the daily fantasy sports (DFS) craze from a few years back, players have been able to wager real money over the internet since 1994. That year, the island nation of Antigua and Barbuda authorized the Free Trade and Processing Act – a law allowing licensed companies to offer online gambling services worldwide.
That figure swelled to more than 100 sites within only a year, officially making the internet a new frontier for gambling industry stakeholders. Players, game designers, casino operators – everybody with an interest in gambling soon came to realize that the digital revolution would leave no stone unturned.
Chris Mohney – a regular contributor to the Unofficial Guide to Las Vegas – wrote an article entitled “The Casino of the Future” back in 2003. That was smack dab in the middle of the Poker Boom, an era of unprecedented online gambling growth – both in America and abroad – fueled largely by sites like PokerStars, Full Tilt Poker, and PartyPoker.
In his piece, Mohney pointed to the rapid pace of technological change within the casino industry while positing that gamblers two decades onward would have little reason to visit brick and mortar casinos:
“You might not drive up to the casino of the year 2020 in your flying car, but the differences will be unmistakable.
Themed properties may be unpopular in terms of new casino concepts, but as casinos become more generically interchangeable, it gets more difficult to persuade a guest to visit casino A versus casino B . . . or even worse, why a gambler shouldn’t just stay home and gamble online.”
This sentiment was hardly out of the mainstream 15 years ago, when the dawn of the internet age was rapidly advancing toward several social transformations. With companies like eBay replacing retail outlets, and Amazon usurping brick and mortar bookstores, it only made sense to view online options as a threat to land based gambling outlets.
And even today, you don’t have to look very far to find gambling industry experts who believe online gambling will eventually replace land based casinos, poker rooms, slot parlors, and more. This sentiment is on the rise too, what with two relative recent decisions paving the way for nationwide legalization of almost every form of online gambling.
But while those fears are certainly understandable, examining the issue from all angles makes it quite clear that brick and mortar casinos won’t be replaced by online alternatives anytime soon.
1. The Federal Government Has Hardly Seen the Light on Online Gambling
Back in December of 2011 – more than five years after Congress authorized the Unlawful Internet Gambling Enforcement Act (UIGEA) of 2006 – the Department of Justice (DOJ) made a stunning reversal in policy.
The UIGEA prohibited companies from offering online wagering of any sort, with the legal basis being the federal Wire Act of 1961, which restricted sports bettors from using the telephone to conduct business with bookmakers.
The Wire Act was loosely interpreted as applying to internet wagers too, so the UIGEA effectively banned online gambling throughout the United States.
At the time, massively popular sites like PartyPoker elected to pick up stakes and depart the American market, while rivals PokerStars and Full Tilt Poker stuck around and flouted the UIGEA. Other offshore platforms like Bovada sprung up to fill the void, as millions of American gamblers still preferred to place wagers online.
The fun ended on April 15, 2011 though, in a disaster now dubbed “Black Friday” by online poker enthusiasts. Indictments against the owners and operators of PokerStars and Full Tilt Poker were unsealed, and the sites themselves were immediately shut down.
For the time being, providing online gambling services was considered a criminal act, but everything changed just a few days before New Years Eve. The DOJ published a memo detailing the agency’s new stance on the Wire Act, which was now interpreted strictly as applying to sports betting only.
Just like that, individual states were now free to pass legislation and regulations to set up online gambling industries of their own. And over the interim, four states – Nevada, New Jersey, Delaware, and Pennsylvania – have successfully passed laws and launched online casinos, poker rooms, lottery sites, and other platforms.
Online sportsbooks were added to that list just a few months ago, when the U.S. Supreme Court issued a landmark ruling in a case raised by New Jersey. Beginning in 2011, the Garden State had made several attempts to make sports betting legal, a la Nevada’s regulated industry, but New Jersey faced lawsuits from the NCAA and the four major professional sports leagues.
These lawsuits eventually reached the Supreme Court, and on May 14 of this year, a 6-3 ruling found the PASPA to be an unconstitutional restriction on states’ rights.
Once again, an entirely new online gambling industry was created from scratch, and today you can place sports bets via the internet in New Jersey, Delaware, West Virginia, and Pennsylvania.
This preamble may sound like an argument in favor of online casino replacement, but in all actuality, it quite clearly shows why brick and mortar venues have nothing to worry about.
Regulated statewide online casino and poker operations are only five years old at this point, which is a drop in the bucket in terms of social transformation. An internal study conducted in 2014 by the Harrah’s chain revealed that the average age of casino gamblers is 46 years old – hardly the 20-something demographic that tech companies crave.
And furthermore, it took a tangled web of ballot propositions, bills passed through state legislatures, lawsuits and legal challenges, and DOJ policy changes just to approve online casino regulation in the first place.
With all of that hard work now put in, fewer than 10 percent of the nation has moved to adopt online casinos and poker rooms, leaving 46 other states as veritable “no-go” zones for the emerging industry.
Simply put, unless you happen to live in or near Nevada, New Jersey, Delaware, or Pennsylvania, you just don’t have access to online casinos like you do with their landbased rivals.
Finally, just as those were recently amended, repealed, or overturned to allow for online gambling, they can always be reversed back again.
Even today, powerful conservative donor and billionaire casino mogul Sheldon Adelson – owner of the Las Vegas Sands corporation that oversees the Venetian and other major worldwide casinos – is pouring his considerable resources into reviving the online gambling ban.
Adelson’s “Resort the Wire Act (RAWA)” lobbying hasn’t garnered much traction thus far, but all it takes is a conservative wave to sweep through Congress for the tables to turn.
Given the inherent instability of a newly legalized industry, it’s just not practical to view online casinos as an existential threat to brick and mortar gambling.
2. Land-Based Casino Operators Fear “Cannibalization” from Online Platforms
Before the Keystone State passed an expansive gambling expansion bill in October of last year, the Pennsylvania House Gaming Oversight Committee and the Senate Community, Economic, Recreational Development held hearings on the contentious subject.
Only two of Pennsylvania’s 12 licensed casino operators opposed the idea of online gambling, but those critics were quite vocal.
As part of testimony delivered during the hearing, Parx Casino’s chief executive officer Anthony Ricci rehashed a typical argument used when states explore online regulation. According to Ricci’s testimony, adding online casinos to Pennsylvania’s already crowded gambling marketplace would “cannibalize” revenues from venues like Parx:
“It is clear that the net effect of these proposals will be a reduction in gaming taxes for the Commonwealth, along with thousands of jobs and hundreds of millions of investment dollars by the brick and mortar operators.
Therefore, it is our view that the Commonwealth will lose revenue by implementing Internet gaming.
If you assume generously that we could generate $100 million in revenue through the internet, I am certain that 50% of that total would come at the expense of an existing casino.”
The concept of cannibalization – which holds that gamblers will stop visiting land based casinos when offered an online substitute – had been brought up before in Nevada, New Jersey, and Delaware. In each case, brick and mortar operators were convinced that increased competition – even from sites licensed and branded under their own corporate umbrella – would impact their bottom line.
“How can we reasonably assume that after Blockbuster video, Tower records, Borders, and now many major retailers like Macy’s, JC Penney and Sears are closing stores and eliminating jobs due to competition from online retailing, our industry is somehow different? Who else should we expect will gamble online but a person who has visited a casino?
It is even more important to note that the demise of brick-and mortar retail occurred with a level playing field; they all paid the same taxes. Given all these facts, I find it impossible to assume that a brick-and-mortar casino paying 59% in taxes will not lose significant business to an online operator paying 15% in an open, unprotected market.”
Pennsylvania eventually reached a compromise by increasing its tax rate for online slots to 54 percent, which is right on par with its brick and mortar casino taxation.
But all things considered, that move was unnecessary to say the least, thanks to neighboring New Jersey’s documented success in refuting cannibalization claims.
3. The Cannibalization Claim Has Already Been Debunked in New Jersey
New Jersey’s online casinos and poker rooms went live in 2013, and one year later, a research team consisting of Kahlil S. Philander, Brett L.L. Abarbanel, and Toni Repetti published a study entitled “Consumer Spending in the Gaming Industry: Evidence of Complementary Demand in Casino and Online Venues.”
That long-winded title is simply one way of stating the obvious – online casinos actually help land based venues attract new customers, rather than cannibalizing existing revenue.
The researchers concluded that gambling enthusiasts rely on two major factors to determine how they’ll approach a casino session.
Players that enjoy the social aspects of gambling invariably visit a brick and mortar establishment, where music, drinks, and human interaction add to the ambience. These gamblers don’t mind losing a little more thanks to higher table limits and an increased house edge, as they’re main motivator is having a good time.
On the other hand, some gamblers don’t pay any attention to the background activities offered by a good land based casino. They’re not here to hit the bowling alley or grab a plate at the buffet – they’re here to play.
Predictably, the casual gamblers looking to have a good time will almost always patronize a brick and mortar casino. After all, online casinos don’t have dealers to chat with, strangers to celebrate with after a big win, or any of the accoutrements that make the gaming floor such a unique space.
Conversely, the more serious players gravitate towards online gaming, where the streamlined interface allows for more bets and gameplay in a short span.
“The expansion of online gambling will lead to new (online) revenue sources and higher revenue within existing (complementary) products… local tourism dollars being generated by offline casinos are enhanced by the addition of online gambling legalization.”
But don’t take the research team’s word for it, just ask the biggest brick and mortar casino operators in Atlantic City.
During a 2017 hearing in front of the Pennsylvania Legislature, several companies with casinos in both New Jersey and Pennsylvania testified directly to the cannibalization claims.
Per the Golden Nugget Atlantic City, only 11 percent of players registered to their online casino also held Player’s Club cards from their land-based facility. And of that amount, just 8 percent had used their cards within the previous 12-month period. In other words, 92 percent of Golden Nugget’s online players came in “fresh off the street,” with no previous experience playing at the brick and mortar venue.
Caesars Entertainment provided similar findings during the hearing, telling lawmakers that over 80 percent of online registrations were new players. Furthermore, Caesars revealed that just 12 percent of its online patronage came from players considered to be “active customers” at any of its three Atlantic City properties.
As David Satz – who serves as senior vice president of government relations and development for Caesars – explained, his company experienced the same sort of player separation that Philander’s research study had initially suggested:
“We’re [Caesars land based casinos] in the business of providing entertainment, and the vast, vast majority of our customers… come for the social elements, they come for our restaurants, they come for our spas.
The person who is coming for the internet isn’t getting that.
It’s the customer and what they want that ultimately is going to drive whether they want to come to the casino or they want to go play [on the internet].”
When the higher ups at some of the most successful gaming operations in the world are actively defending online casinos, it becomes quite clear that cannibalization is a myth.
Rather than siphon precious revenue streams away from their land based cousins, online platforms actually do the opposite. By attracting a younger demographic, along with players who gamble on a more serious level, online casinos can then use promotional tools to bring them to the brick and mortar venue.
4. The Social Aspects of Casino Gambling Are Irreplaceable
The final reason why land based casinos are here to stay involves all of the added amenities and atmosphere found on the gaming floor.
Despite the best efforts made by online operators – including Live Dealer games that connect players to human dealers via live streaming – a computer simply can’t replace the sights and sounds of the table game pit.
Lively banter, boisterous celebrations, and back and forth exchanges with newfound friends help to elevate a basic game of blackjack into a social experience. You might be losing your shirt at the moment, but while you’re taking a trip down memory lane with a fellow player who just happened to attend school at your alma mater, the night can easily be written off as a wash.
Casino gambling is all about excitement, and the physical components help to accentuate that excitement at every turn. Cards whipped from the shoe and flipped over with a flourish, the agonizingly slow trip of a roulette ball as it makes its final trips around the wheel, and the tumble of dice while craps players shout for the “hard eight” – these seemingly minor touches go a long way.
Throw in a nice soundtrack courtesy of the casino’s audio system, bells and whistles blaring from nearby slot machines, and the general din that defines a gaming pit to complete the ambience.
All in all, a land based casino can tickle each and every one of the five senses as you stroll around the perimeter.
And that’s limiting the focus to gaming alone. As Satz of Caesars Entertainment pointed out in the quote above, casinos today are comprehensive entertainment outlets. You can shop at high-end retail outlets, grab a burger at the food court, or attend the latest show – all without wagering a single cent.
Take your action to an online casino, however, and almost all of those added perks disappear. The software designers may attempt to recreate the experience, using pixelated cards and chips combined with audio effects, but that’s far from a faithful recreation.
Instead of feeling like a trip to the casino, online gambling can often feel more akin to video games and other sedentary forms of escapism.
Just picture the following scene to get the idea…
There you are, clicking that mouse feverishly while the latest online slot game spins away. The game’s soundtrack is nothing but a running loop resembling a commercial jingle, and the sound effects are generic rings reminiscent of an old cellphone. The room is dimmed and dingy, and you haven’t said a word over the last hour of play.
Whether you’re winning or losing in this scenario, the scenario just doesn’t come close to the vitality and verve you’d find on a genuine casino floor.
Casual players will always want other entertainment options close at hand while they gamble, and until online casinos can offer Starbucks, waterslides, and star-studded concerts, they’ll never replace the classic casino atmosphere.
Fears over online improvements replacing their analogue predecessors are well-founded, but in the case of casino gaming, the online and land based realms can surely coexist. Grinding table games or slots online is definitely a niche market, one designed primarily for hardcore players who take their gambling seriously.
Brick and mortar casinos, on the other hand, are built to satisfy a smorgasbord of entertainment options, making them the perfect place for casual players to enjoy a night out on the town. And thanks to the ongoing synergy between casino operators and online providers in states like New Jersey, we now know just how beneficial internet integration can be for both parties.
Michael Stevens has been researching and writing topics involving the gambling industry for well over a decade now and is considered an expert on all things casino and sports betting. Michael has been writing for GamblingSites.org since early 2016. ...
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