INTERNET GAMING

The Internet might be the most disruptive tech-nology in the modern era of commerce and its

disrupting force is definitely comparable to the disruption caused by the Industrial Revolution centuries ago. No business or industry has escapedhaving to adjust to the game-changing role that theInternet plays in consumer spending. Casinos andtheir owners and operators have had the specter ofa future with widely available Internet Gaming(iGaming) hanging over their heads for a few yearsnow. The question has been just what would thefuture look like for brick-and-mortar casinos ifiGaming is available in most local areas?

Today, there are nearly three years of gaming datafrom the State of Delaware where the residents ofthe state have both iGaming and brick-and-mortarcasinos to choose from. This data can be analyzedto determine how people will spend their gamingdollars whenever they have a choice of both iGaming and traditional brick-and-mortar casinos.

Delaware provides an excellent opportunity to discoverhow players will wager – when they have a choice of iGamingor brick-and-mortar casinos – because of the following attrib-utes that make for a near perfect “test market” whose resultscan confidently be extrapolated across the entire United States.

State: DelawarePopulation: 945,000Median income: $50,152 (12th highest in U.S.)Internet casinos: 3Brick-and-mortar casinos: 3

When Delaware started iGaming in November of 2013, theresponse from the public – especially with poker, was verystrong. However after the first few months there was a substan-tial decrease in play in both table games and poker. Slots thoughcontinued to grow modestly in play. Then in May 2015, an Internet Gaming app was introduced for the Apple iPhone andplay took off immediately – especially in slots.

Chart 1 shows a near three-year history by month of theamount wagered for iGaming video lottery (slots). The growthin Internet slots in 2016 is remarkable. The blue wall in the chartrepresents the amount played in 2016 and is dwarfing theother two years. It would appear that the introduction of themobile app in May 2015 had a significant positive impact oniGaming play.

Looking at this chart of iGaming slot play and its remark-able growth some people might conclude that the future of gaming will be on the Internet. Not so fast. While iGamingwill be an important component in the future of gaming,brick-and-mortar casinos will still be a viable – and as the following results indicate – the preferred choice for the consumer gaming dollar.

Brick-and-Mortar vs. iGaming Table GamesWhich do the gaming public choose when both are available?

Thanks to the Delaware test market, there is an early indication as to how much iGaming will penetrate the brick-and-mortar casinos’ market share. The following charts (on page 28) present data compiled from the State of Delaware.Chart 2 presents the total amount of money wagered and netwin in table games for both iGaming and brick-and-mortar casinos for a near three year period of time. Please note that2016 is only for the first 9 months of the year. 2016 for the mostpart is tracking very close to 2014 year to date. This analysisshow exactly how much of the total amount wagered in tablegames – around 19% – is being wagered online. However thenet win for iGaming is significantly less – around 2.5% – thanthe brick-and-mortar casinos.

Since access to internal information is not available, we canonly speculate as to why the hold % is so much less for iGaming than brick-and-mortar casinos. Those reasons couldbe electronic table games will more accurately measure the true hold and play amounts than table games played in the

iGaming Results: Internet Gaming Performance in aBrick-and-Mortar World

by John Patrick Bray

26 Indian Gaming 2017 Buyer’s Guide & Directory

Chart 1

28 Indian Gaming 2017 Buyer’s Guide & Directory

brick-and-mortar casinos. Another reason could be that theInternet table game hold percentages are lower and payout ratiosare higher because of “promotional pricing” (lower hold rates)to get interest generated in these games since they are new tothe market.

Brick-and-Mortar vs. iGaming SlotsWhich do the gaming public choose when both are available?

Refering back to the iGaming video lottery (slots) wager-ing in Chart 1, it shows the remarkable growth of iGaming slot play, and it would appear that a future of iGaming slots dominating brick-and-mortar slot play could be a real possibility. However this will not necessarily be true. Becauseof the test market – the State of Delaware – we have bothiGaming slot play and brick-and-mortar slot play to compareagainst each other for a near three year period of time.

Chart 3 presents the total amount of money wageredand net win in slots for both iGaming and brick-and-mortar casino’s for a near three year period of time.

The results of this table are surprising. When review-ing the performance of iGaming slot play in the Stateof Delaware, it has been a remarkable success – up over140% in 2016 from the prior year. However, when youlook at iGaming % of total slot play, it is less than 1%while brick-and-mortar casinos total share of slot playis over 99% – and this is three years into the launch ofiGaming in the State of Delaware.

Delaware shows that the brick-and-mortar casinoswill continue to exist and prosper even when iGamingis widely available. The analysis shows that when people have a choice of a quality brick-and-mortarcasino “experience” or an on-line computer gamingexperience, they overwhelmingly choose brick-and-mortar casinos. However, iGaming were broadly avail-

able, it would most likely have much higher year over yeargrowth rates on a percentage basis than the brick-and-mortarcasinos.

Retail Experience with E-Commerce Confirms Brick-and-Mortar is the Preferred Experience

Back in the year 2000, many experts were predicting the endof shopping malls and physical stores because of the Internetand e-commerce. The retail situation is very similar to casinoexperience and a future with iGaming widely available. Both e-commerce and iGaming involve consumers with discretionary money and a choice on how to spend it – eitheronline or inside a physical brick-and-mortar store.

So how have traditional retail brick-and-mortar stores performed against their ecommerce challengers? Chart 4 is a16-year chart that shows the total e-commerce sales as a % oftotal retail sales in the U.S.

It took e-commerce sales six years to exceed just 2%of total retail sales and nearly 20 years to exceed 8%.While the growth in e-commerce is impressive, the vastmajority of shopping malls are still in business despitemany experts’ opinions 16 years ago. Most consumersstill prefer a good quality brick-and-mortar experi-ence than an online experience as our analysis of theDelaware gaming data and this 16-year e-commercechart clearly shows. It is also important to realize thatwhat the retail industry is evolving to is that nearly all-major retailers are now offering both an Internetshopping experience along with a brick-and-mortarshopping experience.

How Do You Prepare for iGaming if it Becomes Available in Your Area?

The first answer is the obvious one – create the most excellent customer experience for your patrons

INTERNET GAMING

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2017 Buyer’s Guide & Directory Indian Gaming 29

each time they visit your casino. Second, start the planning and preparations soon - assum-

ing that iGaming will one day be widely available. Create

and build a strategy to keep your customers playing at yourcasino both in person and also over the Internet. Integrat-ing Internet gaming with each patron’s player club card

would incentivize your patrons to always play at your casino and earn players club points whenever they decided to play over the Interneton a mobile device. This strategy – if iGamingbecomes widely available - will help to preventyour customers from spending their gaming dollars at a national pure play iGaming com-petitor while keeping gaming dollars and theirloyalty where they belong – with you and at yourcasino. ®

John Patrick Bray is President of Reliance Investment Management LLC. His is also theExecutive Director of Finance for one of thelargest college systems in the USA. He can bereached by calling (425) 681-0110 or emailjohn@relianceria.com.

Chart 4