Nobody's Right If Everybody's Wrong

Wynn Resorts CEO Craig Billings has jumped into the online casino cannibalization debate and is speaking hard truths.

In the very first Straight to the Point newsletter, I Eat Cannibals, I offered some of my topline thoughts on the topic of online gambling cannibalizing land-based gambling.

Apropos of a LinkedIn post by Wynn Resorts CEO Craig Billings, I will explore the topic in more depth today.

To start, the Billings post does not convey the message online gambling advocates want to hear. However, it is what they need to hear.

Most arguments I encounter in the gambling space zoom too far in (and sometimes too far out), always missing the Goldilocks zone, which is precisely where Billings’ post falls.

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The Cannibalization Debate

Before I get into Billings’ points, the backdrop is a slew of competing research that proves or disproves cannibalization, which I’ve reported on here, here, here, and here.

This is in addition to recent comments by Deutsche Bank, which, as Jake Pollard reports, said some “appear to (be) doing mathematical acrobatics to arrive at a certain conclusion; we believe the data speaks for itself.” 

Deutsche Bank went on to say:

“Let us again be very clear on another point. The aggregate pie is growing, no one is, or has ever, disputed this. Thus, states are benefitting from the incremental aggregate tax dollars.”

Pollard has also reported on a debate over cannibalization in France, where “gambling regulator ANJ said land-based casinos would suffer a 30% hit to their revenues in the event of online regulation.”

Philippe Bon, CEO of Casinos de France, a trade group representing casino interests, pointed to Belgium as a cautionary tale, noting disparities in casino performance since the introduction of online gambling.

“Boosting land-based casinos with online (casinos) only works if there is a strong link between online and land-based,” Bon said. “Land-based casinos’ GGR fell initially, (and) they recovered (the revenue) online. But some also recovered some of that growth because they had clever marketing strategies to attract online customers to their establishments.” 

That (the nuance) is the crux of the debate and Billings’ post, which I will now return to.

TAM vs. Market Share

Billings leads off his post by calling the current discussion “reductive.” He highlights the pro-online side’s focus on the total addressable market (TAM) while ignoring the potential impact on individual casino properties.

As Billings said, “As an operator, the TAM doesn’t pay my bills, my share of it does…”

This is the often-overlooked point in the cannibalization debate. Most land-based markets are mature, with established pecking orders and fragile ecosystems. When you introduce something as significant as online casinos, the ecosystem and pecking order will change. Not everyone will benefit, and many casinos fear they will be on the losing end.

“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,” Billings said. “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 “omnichannel” strategy?” 

According to Billings, the number is likely no more than 100 to 150.

Market-wide cannibalization might be a trivial issue, but it’s a serious and legitimate concern at the individual operator level.

As Chris Grove noted, cannibalization “is still a very powerful issue with local operators and politicians. The question of whether or not it should be is not persuasive to them. Nor are they especially inclined to consider a 10+ year horizon.”

The question I often get is, but what about sports betting? Why were so many casinos silent when online sports betting spread nationwide?

The key difference between mobile sports betting and mobile casinos is that land-based sports betting didn’t exist outside of Nevada in 2018, so there was no existing ecosystem to disrupt.