Online Gaming in the U.S.: Finding the optimal solution for states, land-operators | Yogonet International
By Michael J. Pollock (*)

Online Gaming in the U.S.: Finding the optimal solution for states, land-operators


Pollock began analyzing the casino industry in 1978 and served as spokesman for the New Jersey Casino Control Commission from 1991 through 1996. He was a close advisor to the chairman, and oversaw the Office of Legislative Liaison. During this period of rapid deregulation, his charge was to maintain public confidence in the integrity of the regulatory system. 
Pollock is the author of the award-winning book, Hostage to Fortune: Atlantic City and Casino Gambling, published by the Center for Analysis of Public Issues in Princeton. This book examines the impact of casinos on Atlantic City and New Jersey. He has testified before the International Tribunal at The Hague, the World Bank in Washington, DC, the U.S. Senate Indian Affairs Committee and the U.S. Senate Select Committee on Indian Gaming, and has been a featured speaker at the Congressional Gaming Caucus, a group of U.S. House of Representatives members from gaming jurisdictions. He has also testified before several legislative committees in the United States.
He has led Spectrum economic analyses in markets ranging from various locations in Europe to Pennsylvania, Louisiana and Indiana to Guam, Korea, Massachusetts, Illinois, Florida and Connecticut. 
Pollock has won 20 journalism awards, and is the former editorial page editor of The Press of Atlantic City. Pollock is often cited by national media outlets, including The New York Times, Star-Ledger, BBC, ABC News and National Public Radio.
Pollock earned his MBA, with high honors, from Rutgers University, and has served as a member of the adjunct faculty of New York University, Rutgers University and Richard Stockton College of New Jersey.

United States
Reading time 4:10 min
Naturally, the birth of the Internet portended enormous changes for the gaming industry, and why not? Every industry – from dining to diapers – has seen its business model upended by this new way of conducting commerce in the 21st century. So why should the casino industry be any different?

Some of the changes were predictable and necessary, most notably this credo: The gaming industry would someday have to sell its core product online.

Other changes were predictable but hardly necessary. The most vivid example of that is the notion that the United States would have to adopt the online gaming model already in place in Europe. After all, according to conventional wisdom, if you want to do something well, learn from those who are already doing it.

A decade ago, the first rumblings of legal online gaming in the US spurred the largest European invasion since the Beatles first appeared on the Ed Sullivan show. Speaker after speaker – sometimes in heavy accents and sometimes using the King’s English – spoke at conferences and wrote articles in trade journals espousing a single theme: We know online gaming, and we can do it best.

However, Spectrum Gaming Group – speaking a version of English learned in the hardscrabble urban jungles of New Jersey – offered a different message: Online gaming in the United States would have to create a new business model, one that would rest on the foundation of a land-based, brick-and-mortar gaming industry that today boasts more than 1,000 casinos generating more than $70 billion in annual revenue.

New technologies would indeed demand a new business model, but new technologies would not overrule two critical laws of human nature that were carved in granite long before Google became a verb:

• People are hard-wired to enjoy games of chance and to take reasonable risk, regardless of the decade in which they were born.

• People are also hard-wired to enjoy social settings, and to seek entertainment experiences with other adults.

With those precepts in mind, we raised the argument that online gaming in the United States would develop differently, not simply as a new revenue stream, but as a marketing tool that would reach new demographics in a new way that would increase both online and land-based revenue.

In plain English, the reality is: We have been vindicated.

The model established in New Jersey allows online wagering to be conducted by – and for – Atlantic City casino licensees to adults living in the state. That model has clearly demonstrated that online and land-based gaming should be linked at the proverbial hip to engender mutual benefit and to best advance public policy in the state.

Earlier this year, Caesars Entertainment – the largest operator in Atlantic City – offered the following facts to support the notion that online gaming can be an important marketing channel to support land-based gaming:

• “(The) poker market in land-based casinos has grown since the onset of online poker.

• Offline poker revenues have grown since the inception of online poker.”
Caesars – which hosts the highly successful Total Rewards marketing program – also noted that:

• 80 percent of its online players are new customers.

• Of the players in its Total Rewards database, 42 percent of those who played online were inactive prior to the offering of online play and then reactivated after signing up online.

The ability to leverage online play to generate land-based activity is hardly unique to Caesars.

Tropicana Entertainment, which operates the Tropicana Casino & Resort Atlantic City, reports a quite similar experience.

According to Luisa Woods, Vice President, Online and Internet Marketing at Tropicana Entertainment Inc.:

• Approximately 60 percent of the players who signed on to play online were “new acquisitions,” i.e., they were not previously enrolled in the Tropicana’s customer database.

• Of the remaining 40 percent, about half were inactive or “lapsed,” meaning that they had not generated any tracked play at the Tropicana during the previous 12 months.

On one level, those data points appear to portend profound implications for a critical question: Does online play cannibalize land-based play?

The basic data would indicate that one out of every five online players – half of the online players who were in the Tropicana database – were existing land-based customers, and the initial assumption would be that such online play would cannibalize the land-based spending by these customers.

Not so, according to Woods.

Those customers who played in multiple channels – online and land-based – increased their total land-based spend, as well as their frequency of visitation.

Woods summarized it thusly: “Not only was their online spend completely incremental, but they also grew their land-based spend.”

If you assume that humans are rational, the reasons for that phenomenon are easy to glean: Adults earn rewards online, which supplement their rewards at land-based casinos, so they have an added incentive to increase their visitation to the host casino where they can redeem the rewards they have earned.

These observations raise several critical questions, including:

1. Why are online sites that are tied to land-based brands likely to gain more play than would free-standing brands – such as those that predominate in Europe?

2. What are the public policy implications for states that seek to pursue online gaming?

Land-based casinos have inherent advantages that players are acutely aware, and that free-standing online brands would find difficult to match or replicate.

These advantages include:

• Well-known brands that are associated with an entertainment experience, as well as with gaming integrity, i.e., players know intuitively that their games are honestly run.

• Established player-loyalty programs that can be easily redeemed for entertainment options, including free rooms, show tickets and dining experiences.

Woods points out another advantage for land-based operators that is less obvious, but still critically important.

“Land-based casinos already have an existing compliance process that is tailored to the US regulatory environment,” she said, noting that such a compliance-focused culture “gives transparency to regulators, and (ensures that operators) have an understanding of the procedural requirements.”

For example, land-based operators have implemented various responsible-gaming procedures that must be transferred from a terrestrial to an online environment, including the requirement to ensure that their players are not on any exclusion lists.

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