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Online Poker doesn’t seem to be harming the revenue of land-based casinos, as Barnaby Page reports
It’s easy for land-based casino operators to see online as a threat. After all, consider the range of businesses – from newspapers to bookstores – which have been devastated by the emergence of credible Internet competition. Don’t bricks-and-mortar casinos have the same bleak future to look forward to when their jurisdictions legalise e-gaming?
It ain’t necessarily so, according to a paper by Kahlil Simeon Philander of the University of Nevada and Ingo Fielder of the University of Hamburg. They used the German institution’s database that tracks most online Poker activity in the US and Canada, and drew casino revenue data from sources such as the American Gaming Association and Canadian Gambling Digest, to answer the question: are land-based revenues lower where online Poker is popular?
Often, they acknowledge, the arrival of what appears to be a replacement for an older product or service can diminish demand for the latter: “The overall impact is generally the balance of stimulated growth in the market from the new medium [i.e. online] less the loss of the incumbents’ share in the old medium [i.e. offline]. Much in the way that the automobile replaced the horse and buggy, many industry observers feel that growth in online gaming may come at the expense of offline casinos.”
However, in the case of Internet Poker, the numbers suggested that wasn’t the case. In economists’ terms, it seems that online Poker and offline casino gambling could be what are called “complementary goods” – things like toothpaste and toothbrushes, where consumption of one positively stimulates consumption of the other.
“The presence of online Poker may increase demand for offline gambling overall. These findings suggest that the offline gambling industry should not generally be adverse to the expansion of Internet Poker,” the researchers said.
This is, incidentally, contrary to research conducted earlier by Philander on the relationship between online and offline revenues where other casino games and sports betting are concerned, so it may be that there is something special about Poker in particular.
But why isn’t online harming offline revenues, anyway? We mustn’t jump to the apparently obvious conclusions, for example that the thrill of e-Poker is driving novice players to their nearest casino, or that frequent casino customers are using it to complement their real-world play when they’re stuck at home.
For example, speculate the researchers, “it may be the case that the presence of increased advertising from online Poker operators caused an increase in demand for all gaming. Alternatively (or in addition) it may be the case that residents in states with widespread offline gaming will be more receptive to online Poker gaming, thereby producing the positive association.”
Indeed, the biggest mistake to avoid here is the old confusion of correlation with causation. (All dogs that like cheese have tails; but they don’t like cheese BECAUSE they have tails.)
After all, there may be one or more causative factors unrelated to the gambling industry that serve to encourage, or discourage, both online Poker and bricks-and-mortar casino playing in certain areas: consumer affluence, for instance, or the different moral attitudes of religious and demographic groups, or even something as distant from the question as the landscape and climate. (Residents of an outdoorsy paradise might be disinclined to shut themselves inside, at a casino table or their laptop, as often as those in a grimmer location. But note that these are my speculations, not the researchers’, and they’re only examples rather than suggestions you need to take seriously.)
The bottom line for regulators, in the US especially, is that they shouldn’t worry too much about cannibalising state casino revenues by legalising Poker. However, they may want to consider the impact on problem gambling. As the researchers put it: “There should be fewer direct economic concerns about the spread of online Poker, but more focus on the epidemiological risks of more gambling through both mediums. In support of legalisation is the incentive to accrue the benefits of tax revenue on this product as well as increased taxes on offline gaming. Conversely, legalisation leads to higher availibility of this product and and a larger market size, which may lead to more gambling problems.”
For operators, meanwhile, there are a number of points to take away. First and most glaringly: don’t panic; online Poker, at least, may not affect your bricks-and-mortar business much. The corollary of this is that you don’t have to rush online to protect existing revenue, although of course there remains a multitude of good reasons for going online. And when you do, you just could find that there’s a lot of potential crossover between your Internet and gaming floor markets, with all that that implies for cross-promotion and cross-selling.
(If economist-talk of “least squares regression models” and the like floats your boat, you can find the full paper at papers.ssrn.com/sol3/papers.cfm?abstract_id=2021993.)