Anybody who has been in our industry more than fifteen minutes understands we’re facing the most critical crossroads in the modern history of gaming as a legit business. And for those who don’t, its time to stop hiding behind a kiddy blankey of happy talk and understand that whether we’ve recognized it or not, gaming 2.0 is here, sitting, arms crossed waiting for us to answer the call: Its time to recognize our basic conception of our true product or die. No alarm bells will ring, no clarion calls will echo, no chicken little sky is falling rhetoric accompanied the arrival of 2.0.
Our true and only product is gaming. Non-gaming revenues have immeasurably helped overcome what appears to be a slackening public appetite for our product, particularly among younger population cadres—not exactly news but its worth examining the economic realities that propelled us for decades:
1. The World War II generation came home to a burgeoning consumer economy and a hearty appetite for fun. That created what we know today as Las Vegas. Their main dish though was horse racing. We all know what happened to that business. Casinos were in one place reserved for special visitation: early Las Vegas success.
2. The Silent Generation of people born from the late 1930s through the World War spread the gospel of gaming and went at it full bore. But as a cadre, they were too small to make a dramatic difference in how the industry would grow.
3. The explosive growth came with the maturation of the baby boomers who took up the slack beginning in the late ‘80s when legal gaming had started to spread but still seemed exotic. It presented a very special kind of entertainment not available outside gaming jurisdictions. The tailwind: Again an economy bursting with real GNP year in and year out.
4. Gen Xers still fueled expansion but needed an extra nudge from themes on slot machine glass, diverse dining and entertainment skewed toward their tastes.
5. Millennials came of age when technology and slowing economic growth transformed attitudes about gaming. Their spend potential dragged down by college loans, a rocky job market and attention spans that had dramatically shrunk. The nice, zombie-like trance we’d grown accustomed to see at slot machines was replaced by yawns, by tapping IPhones, by a preference for nightclubbing social rituals. In their world gaming psychology just doesn’t work anymore because let’s face it, the rush is gone. But is it?
Its been going on over 50 years to be precise, ever since the first tower of Caesars Palace punctured the skies above the strip and changed the gaming world for good. Since then we’ve had the technology revolution in equipment and databases, the massive expansion of jurisdictions to virtually every state through the fig leaf legalizations of river boats, racinos and tribal properties,: all manifestations of a moral timidity of state legislators to take on what they erroneously believed to be a massive public rejection of commercialized sin.
But as usual, politicians lag far behind the curve of the publics they serve. Americans have embraced gaming, as have citizens of most every other nation in the world to create what is forecasted to become by 2025, a nearly a $375 billion international industry. Publics all over the globe have voted with their wallets not their moral judgments.
There’s no need for us as an industry to continually embark on apology tours every time a new jurisdiction is proposed and politicians make executives put on Kabuki dances to call attention to diverse non-gaming “entertainment” elements of what is being proposed when everyone knows the hard truth: We want slot machines and table games where they yet don’t exist period. Right now globally consumers spend is $182 billion annually in casinos. Of that $73 billion right here in the US. And the vast bulk of growth going forward will be coming from the Asia Pacific area.
With this in mind here’s the world of gaming at a crossroads, challenges, opportunities and headwinds and he gut issues I see that need serious debate. if we are to stay healthy for our investors, our employees and customers that debate has to end in action not happy talk.
1. Saturation.
Right now there are between 1,000 and 1,100 commercial and tribal casino establishments in the US, virtually blanketing every state. Access to a table game or slot machine isn’t a problem for anyone anymore. The total gaming spend is about $73 billion and has been on a slowing trend for years. Of all the properties in action there are probably at least 20 percent by our calculation, that operate in marginal or out and out zombie markets. That’s too many.
That’s because whereas once developers had to sniff out possible new jurisdictions, kiss the rings of state legislators, pour millions into campaign war chests, lobbyist fees and promise a new dawning of jobs and economic growth, wait out years and finally, getting a green light, built wherever they could.
Those days should be gone at a time when the proliferation of casino product is so widespread that properties new and old have started a game o bumper cars, smashing into one another and going around in circles. Now where is this more apparent in two new jurisdictions: Massachusetts and Maryland.
In Massachusetts you have both commercial and tribal operators and developers going head to head. Penn National’s slot parlor is open, as if it’s a tribal property in in the state. Coming soon is MGM’s Springfield property, originally set for 2017 now pushed back to 2018. On top of that the huge Everett (Boston) project by Wynn, after navigating the choppy waters of political greed and bumbling legislative policies, it is due to open its mega-property in 2018. While all this is going on the two tribal properties in Connecticut, Mohegan Sun and Foxwoods, scared to death of the injury the MGM property could inflict on their Hartford/New Haven and Boston core markets, are planning an outpost property just over the state line minutes from Massachusetts as a fighting brand.
If you think this will not result in too many gaming positions for too few players, I have a bridge I’d like to sell you. Its an utterly ludicrous state of affairs that in the end will result in one or more closed properties lost jobs, accusations of political hanky-panky and an ugly outcome.
All the fine work of the American Gaming Association to spread the gospel of our very real economic accomplishments crashes into a perception of blind greed and incompetence in the regulatory system, which by any measure bears the principal responsibility for allowing the mess to begin with.
In Maryland, as MGM’s new National Harbor property gets ready to open, the Maryland Live! operator in Ann Arundel County is already claiming foul, accusing MGM employee presumptives of customer list theft. So now in addition to Horseshoe Baltimore and Maryland Live! we have a major glamour property poised to challenge for the customer base of the Baltimore/Washington metroplex—plus a treble property in that state. Anyone wan to make book on which domino will be first to fall and issue tearful layoff notices by 2019?
Now let’s turn our eyes north. Here we have Atlantic City, having experienced the loss of 5 properties and still under the gun to survive, facing the absurd prospect of a statewide referendum this November that would authorize 2 new casinos in the North Jersey Meadowlands. The presumed rationale here works out this way if you are given to 1984 Orwellian thinking: We want to save Atlantic City by killing it. Was there ever a dumber idea? As of this writing it appears that the no vote has an edge. One would hope this ill-timed, ill designed, utterly insipid idea does go down in flames. If it does perhaps AC has a chance to get to its new normal and ultimately thrive. But what if this mass delusion doe pass?
Well that’s easy to envision. New York State and Pennsylvania seeing this shot across their respective bows, will act. Bet on it. New York’s Governor Andrew Cuomo has one authorized casino license left in his quiver that remains unissued. Two Meadowlands Casinos threaten not only the two existing metro area racinos, but the billion-dollar Montreign Catskills property now being built. You can almost guess where Cuomo and an angry legislature can decide to plop a casino. The geography is clear: Just on the other side of the New York/New Jersey state line, minutes away from the metro center, effectively blunting the Meadowlands move. This isn’t any chess game, its Russian Roulette.
Now count me among the most militant free enterprise, limited government guys in the known world. But in this instance it seems to me that casino developers need to get their heads screwed on right. Its no longer the eighties or the nineties where you ran anywhere you smelled a possible new jurisdiction whisper coming from the mouths of politicians with outstretched palms.
My sense: Resist such temptations. It’s a new world out there. There’s no shortage of jurisdictional opportunities. Use your capital resources to improve what you already have, build amenities and offerings to further delight your customers, get better at what you do now where you are now.
2. Let’s press hard for tax relief in jurisdictions where government’s share of the win is far too high. We’re providing jobs, direct and indirect. We’re producing a good gaming product that is on any balance scale a plus to the community. Accepting astronomical gaming tax burdens is a form of apology from the industry begging for tolerance. Read AGA research, understand the immense economic contribution the industry makes and don’t apologize.
Don’t depend on lobbyists. Organize your employee base and the indirect employees who benefit from you presence and press hard on legislatures by convincing them that a lower tax burden strengthens the long-term prospects of secure jobs and economic growth. There is no better example than New Jersey which only acted on gaming tax relief long after it was too late to help.
3. Online gaming is no panacea for now. It’s coming, it has potential but there are much lower barriers to entry for it than there are for brick and mortar casino projects. If and when online legalization efforts begin to show results you can be certain it will spawn dozens upon dozens of competitors crowding to share the same online gaming buck and not have enough for all. So we’ll have survival of the fittest competition. That’s fine, no problem, but almost by definition it could well invite less than competent operators, whose fumbles could spoil the market for all. For the moment we need to see online gaming as a slow, patient growth engine for new customers that currently sits in a distant galaxy. We’ll get there but we can’t hide behind its coming to solve the of excessive supply of brick-and-mortar casinos.
4. The great millennial delusion. Okay we know all too much already about how the millennial generation’s population bulge is turning away in droves from standard slot machines and table games. We hear lots about so-called skill based games as a way to tackle the short attention span and ho-humming of the young. All true, all valid to be certain. But against that let’s not forget the rest of humankind.
Here’s a single startling stat that popped out to me from a study issued several month ago by the Association of Gaming Equipment Manufacturers:
While wisely pointing out that correlation is not necessarily causation, AGEM’s study still revealed:
That over the 10-year period studied using a cross section of US regional casinos, AGEM found that hold percentages on slots had risen 14.5 percent while slot revenues have grown only 1.1 percent.
So may we suggest, repeat suggest, that we not blame everything on the disinclination of millennials to play slots, or even games. Nor does it seem to us an exercise of common sense to assume that tight skill-based games will triumph and bring slot business back into a runway of healthy revenue growth. Such games take longer to achieve so many decisions an hour, and like the ups and downs of video game themselves, seem to have a short lifetime relative to the good old fruit and standard symbol machines.
Integrated resorts are a powerful solution to the gaming growth dilemma. If millennials prefer to toss away hundreds on fancy bottles of booze or cover charges to pool parties, God bless them. But they aren’t the solution to the longer-term challenges facing our industry.
Better than more nightclubs and fancy burger and fries joints let’s consider this:
1. Instituting loosey goosey slot zones with a discernably better average number of hits for the patron. I know it sounds simplistic but lets remember too the Pew Research Foundation’s study of millennial issued early this year. The central conclusion I found heartening was this:
Pew concluded that as millennials age their habit patterns in life get closer and closer to baby boomers, eventually becoming pretty much undistinguishable, save the generational pop culture nuances that have accompanied aging for decades.
This means that with slot machines and table games that are more giving in hit percentages and odds, perhaps the twain shall meet. Perhaps sooner rather than later we’ll see the streaks of grey in millennial heads seated in slot zones punching away as did their grandparents and parents. It should be remembered that culturally nothing ever really dies. What’s a mad fad in one generation can go into hiding a while but somehow always returns, in a different form for certain, but it returns. Its called the retro phenomenon. I see young people today wearing sneakers like the old US Keds I wore 50 years ago as a kid myself. That was long before Nike was a gleam in the eye of Phil Knight.
There is no reason to chase millennials desperately. They’ve got their own set of problems to work through. But by in large they’re a great generation. They’ll figure it out. And as they age and overcome the economic headwinds we all face, we’ll see them flooding back onto our casino floors enjoying our product assuring our future as an industry.
And this final thought for what its worth:
1. We are in the gambling business, of which entertainment is a key byproduct not the other way around. Otherwise our brick and mortar casinos are essentially dry-docked cruise ships where gaming is just another shrinking amenity.
2. Here’s a thought experiment. For those who believe we are in the entertainment business first, consider this. Suppose by some crazy mandate, gaming machines and tables were suddenly banned from Las Vegas, for example. What would be left would be rooms, dining, clubs, showrooms, garages, shopping. In other words all the amenities anyone could find in any large US city 12 months a year.
Vegas is on track to host 43 million visitors this year. Imagine that number if all casino floors were closed and not a single slot, game or wheel was anywhere to be found.
The thought experiment eerily echoes October 10,1985 when we at Caesars were commanded by the commission to close the casino for a day as punishment for regulatory violations. Obviously we probably lost over $1 million on the casino floor but also our occupancy, dining area and showrooms were ghost towns. Another time another place for sure. A different world perhaps.
Facing all our challenges we need to reconsider what no amount of euphemistic redefinitions of our business suggest is just another form of entertainment. It is not just that. It is gambling and gambling is what we sell. Everything else we do is focused on that basic recognition. So instead of worrying ourselves about what surrounds that casino floor, what we need is to rethink the casino floor from the bottom up: odds, configuration, productive zones dead zone, yes. But above all what kind of VALUE are we delivering on the casino floor to the generations more and more conscious of value and while loving the fabulous non-gaming amenities we create. They need to be ushered back onto the floor where the core justification for being in a casino, not your average metro downtown exists.
