The Pennsylvania House Gaming Oversight Committee and the Senate Community, Economic, Recreational Development held a joint hearingLast week, to discuss legalizing online gambling in the state.
There was no shortage of takeaways from the four-hour hearing. But one point kept coming up with alarming regularity — cannibalization of land-based gaming revenue.
Cannibalization a topic of concern for PA lawmakers
It was phrased several different ways, but the gist of the argument was: “Why would a casino bother with land-based gaming if the tax rate for online gambling is so disproportionately low?” It was often stated at the hearings as 59 percent vs. 15 percent.”
The topic mostly came from a pair of state senators, Robert Tomlinson and Lisa Boscola. They harangued many witnesses about potential cannibalization, dismissing any testimony or evidence to the contrary.
Representatives of Parx Casino agreed, but put a slightly different spin on the line of attack that was coming from the two senators.
During his testimony, Parx CEO Anthony Ricci stated:
“I find it impossible to assume that a brick-and-mortar casino paying 59 percent in taxes will not lose significant business to an online operator paying 15 percent in an open, unprotected market.”
In Parx’s written testimony, it states:
“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.”
Boscola represents the district that houses Sands Bethlehem Resort. Tomlinson represents the district that houses Parx. These just happen to be the two casinos in Pennsylvania opposed to online gambling. The other 10 casino operators in the state support legalizing online gambling.
The assumption: gambling is gambling
For this argument to hold water, listeners have to believe online and land-based gambling are interchangeable; that the motivations for gambling online vs. in a physical casino line up 100 percent.
They must also ignore reality and come to the conclusion that land-based casinos would want to shift their current players online, even though online gambling accounts for only a small slice of total revenue where it’s offered in conjunction with land-based gaming.
The first problem with these assumptions is this: We don’t have to make them.
We have legal, regulated online gambling in three states and in multiple jurisdictions around the globe that we can turn to for cold, hard evidence.
Every shred of research, every data set, and every market with a combination of online and land-based gaming points to online customers and land-based gamblers being different consumers. There’s only a modest amount of crossover between the two groups.
Let’s look at three pieces of evidence from New Jersey and beyond that prove there is no reason to fear land-based cannibalization.
Exhibit A: What the experts say
A study published in 2014 by respected researchers Kahlil S. Philander, Brett L.L. Abarbanel, and Toni Repetti titled “Consumer spending in the gaming industry: evidence of complementary demand in casino and online venues” concludes that far from being cannibalistic, online gambling is complementary.
As the researchers note, where people choose to gamble comes down to two key factors:
- Whether they are choosing to partake in a social or private leisure activity.
- The amount of money they are willing to spend.
Those looking for a social activity go to the casino; those looking for a solitary escape where they can wager far less money gravitate toward online gambling.
As the study states:
“… 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.”
Demographic analysis in the study also points to online and land-based gamblers differing on far more things than motivations.
The researchers found online gamblers are:
- More likely to be male
- More likely to have a college education
- In better financial shape than casino gamblers. A 2011 Harvard study came to similar demographic conclusions and found online gamblers also play shorter, more frequent sessions and risk less on a per wager basis.
Exhibit B: Most online players don’t go to the casino
At the March 7 hearing in PA, several casinos with online operations in New Jersey testified about their experiences offering online and land-based gaming in the same market.
Golden Nugget Atlantic City testified that only 11 percent of its online signups were rated in its land-based VIP program. Furthermore, only eight percent were active in the 12 months prior to registering for an online account.
This means only eight percent of Golden Nugget’s online players were customers at the company’s land-based property prior to registering for an online account. Ninety-two percent were new or inactive customers.
Caesars submitted similar testimony at the hearing, noting that 80 percent of its online signups were new players. Only 12 percent of online players were active customers at one of the company’s three Atlantic City casinos.
Again, 88 percent of the company’s online signups were new or inactive customers.
As David Satz of Caesars noted at the hearing:
” … 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].”
[i15-table tableid=20717][i15-table tableid=20704]
Exhibit C: Customers who play live and online find them complementary
Where this becomes even more interesting is when we look at the online registrants that were already brick-and-mortar customers.
Per testimony at the recent hearing, Golden Nugget found these multi-channel customers — which represent eight percent of its online customers — increased their spend at Golden Nugget by 15 percent once they became online customers.
These numbers indicate players see them as complementary, not alternative, options. As one industry expert put it, “If you’re a land-based player, you’ll play online when you can’t go to a casino, not instead of.”
Rather than cannibalizing existing players, online gambling has given Atlantic City casinos a pipeline to a new, untapped player pool. Many of these people had never set foot inside a casino. Many will continue to exclusively play online.
At the same time, online gambling has also helped re-engage former customers and increased brand loyalty and spend with a small, but significant percentage of existing customers.
Takeaway: Online gambling helps casinos
Research shows online gambling doesn’t cannibalize land-based gaming at all. Data from New Jersey indicates only about 10 percent of online gamblers are active casino-goers.
The existing land-based players drawn to online gambling continue to visit land-based casinos. In fact, the available data shows they become more engaged, and their land-based spend increases.