Give 888 CEO Brian Mattingley credit for candor.
While other executives have downplayed the slow start to online gaming in the U.S., Mattingley recently told Bloomberg he has been absolutely shocked.
Nor have the dismal results been improving as expected for a young industry that, all conventional thinking would have it, is bound to ramp up.
In fact, the average number of poker players online in New Jersey, Nevada and Delaware has actually declined in recent weeks.
Delaware, with an average of six poker players online at any one time, doesn’t appear to be enough to justify operating.
Last month, New Jersey online operations took in just $11.4 million, which annualizes to $140 million compared to initial estimates that ranged as high as $1.2 billion.
Explanations for the slow start are now well known—many banks won’t process gaming transactions, most New Jerseyans still doesn’t know online gaming is legal, unlicensed off-shore books are poaching players, and player registration is intimidating and time-consuming.
Most of those issues will be resolved, and online gaming should grow.
But it is worth considering the possibility that online gaming will not reach the big numbers so many forecast.
Nor is iGaming assured of being profitable. Right now, online gaming operations in the US are losing money. That is in part to start-up costs, and in part to the low levels of play.
But many investors, wide-eyed over huge revenue projections, don’t appreciate the high cost of marketing and player acquisitions that cuts deeply into that, and otherwise don’t have the expenses of brick-and-mortar properties such as house maids, slot machines and property maintenance and refurbishment.
Just use Sweden’s Cherry as one example. The company grew online revenue 43 percent in the first quarter to 39.1 million krona as it campaigned to grow its number of registered online players by 12 percent to 404,000.
But online earnings before interest and taxes fell from minus 900,000 krona last year to minus 5.6 million thanks to 20.2 million krona invested in marketing, most of that to acquire those players. Last year, Cherry spent only 400,000 krona in first quarter marketing.
Cherry’s conventional gaming business, meanwhile, continued profitable.
Another issue is whether online gaming is as appealing in the U.S. as it is in the UK and Europe.
American casinos are entertainment centers offering a full range of experiences that make them much more fun than their small, gambling-only European counterparts.
Sitting at home spinning a slot machine on your telephone just doesn’t have the same appeal as back-slapping a friend who just hit a jackpot and then celebrating in a restaurant or night club.
Finally, social gaming has emerged to be a powerfully attractive form of interactive entertainment.
A social gamer can play his or her favorite slots on a cell phone and never have to worry about credit cards not being processed, geo location glitches, or registering with a state regulatory agency.
So, iGaming will have a growing future in the U.S., but it might not be a quick and easy bonanza.