Online social gaming and mobile gaming might be the most profound changes to what we now call the real money gaming industry since the first riverboat casinos sailed the Mississippi River more than two decades ago.
Indeed, social gaming is something like the old Satchel Paige line: Don’t look back because something might be gaining on you.
While everybody was focused on online gaming, social gaming came out of nowhere—or maybe it was out of Farmville—to race ahead as the fastest-growing segment of the industry.
Consider the contrast: On the same day that long-struggling bwin.party confirmed that it is up for sale, Churchill Downs announced that it will spend up to $835 million buying social gamer Big Fish.
Turn the clock back just four years and bwin.party had created the largest publicly traded online gaming company out of the merger of bwin and PartyGaming in what appeared to be the model for the future.
Churchill Downs was a tradition-bound thoroughbred racing company still early in diversifying beyond the Sport of Kings.
It was online gaming that was supposed to change business models. Instead, it appears that it is social gaming that is, at least partly, disrupting the disruptor, with a big assist from mobile devices.
Online history is built on several principal truths:
• It is born-on-the-internet companies that thrive while even the best and most successful brick-and-mortar companies struggle to adapt. See Amazon vs. Borders.
• The internet empowers its users to be interactive. In gaming, think Betfair’s invention of exchange wagering.
• The new business models that emerge are unpredictable. Who would have dreamed that something called social gaming would be so important to gambling companies?
Interestingly, old brick-and-mortar companies don’t have to be left out of the action. Social gamers Playtika and DoubleDown are the fastest-growing parts of Caesars and IGT, for example.
And old-line betting companies like William Hill and Paddy Power have become international high-tech whizzes thanks to online betting and, most especially and most recently, mobile betting, which has sparked the explosion of in-game wagering.
CHDN’s purchase of Big Fish represents yet another trend—the blurring of distinctions between gambling and non-gambling gaming.
Like DoubleDown and Playtika, Big Fish customers play casino games for free and are incented to be monetized—meaning pay to play.
Big Fish has more than 4,000 such games, all casual, and promises a new game every day.
Big Fish also has the biggest online social casino with 1.85 million active daily users vs. DoubleDown’s 1.81 million.
And Big Fish represents the dramatic shift towards mobile devices.
That was one of Big Fish’s attractions, CHDN CEO Bill Carstanjen said on the company’s investor conference call to discuss the deal.
Big Fish started its operations on mobile devices, so it hasn’t had to deal with the volatility of trends on sites like Facebook, he said.
Big Fish also revolutionizes Churchill Downs. Cameron McKnight of Wells Fargo calculates that, on a trailing 12-month basis, adding in Big Fish means that 45 percent of CHDN’s EBITDA comes online.
Much of the rest of it comes from land-based casinos.
Thus horseracing is now one of three legs supporting CHDN, though the company continues to respect its racing heritage and grow its Kentucky Derby franchise.
Bill Evans, now chairman of CHDN, started that revolution when he became CEO nine years ago. Since then, CHDN has generated a compound annual growth rate of 12 percent while racing handle has fallen throughout America.
Evans has achieved one of the most remarkable transformations in the industry.
And the industry is experiencing a remarkable transformation thanks to social gaming and mobile devices.
