Politics and gambling have always had at least one thing in common: both are a game of chance. Even though the US gambling industry has always had a large presence in Washington, the politics of gambling policy are not always clear.
Much of the industry voice has come from a small group of highly profitable casinos on both coasts – principally Las Vegas in the west and Atlantic City in the east. Yet, united as that front has been, it is now fracturing and as a result its influence on Capitol Hill is beginning to decline. This is due in part to an over-supply of smaller regional casino hotels, and now online gaming is starting to make its presence felt.
Currently, each state can decide whether to allow any form of gambling – bricks and mortar betting facilities, lotteries, horse racing and online gambling amongst others. To date, only three US states – Delaware, Nevada and New Jersey – have fully legalised Internet gambling, and the expectation is for a further twelve states to pass similar legislation by 2015.
On the casino front, many of the well-established organisations have already seen their market share eroded as a result of new gambling facilities being built on Indian reservations and the recent introduction of gaming in states such as Maryland, New York and Pennsylvania. The last thing some of the old guard want now is legalised Internet gambling.
That said, however, not everyone in the ‘bricks ‘n mortar’ sector is against online gaming. Forward-looking casino operators believe that Internet gambling is an inevitability and that not only will they be able to extend their physical brand on the world wide web, but they can also make financial gains in the process.
With vast sums of money being donated by opponents of online gambling to sympathetic politicians, it’s difficult to make a clear-cut prediction of where the future lies. For the moment, donors lining up on both sides of the debate are ‘investing’ heavily in support of their cause. Whether the issue remains at a State level or reverts to federal government is anyone’s guess.
Politics aside, global online gambling is predicted to generate in excess of $US22 billion in gross revenues over the next three to five years, and this figure does not include revenues generated by ancillary services such as geolocation, adaptive behavioural analytics, gaming software, payment solutions and others. It’s little wonder then that companies both inside and outside the single biggest untapped market are very keen to establish a presence in the US.
And therein lays a conundrum. It’s one thing to establish a presence in a juvenile market, it’s quite another to have experienced staff in sufficient numbers to capitalise on the opportunities that lie ahead. As additional states gain online gaming approval and land-based casinos ramp up their activities in a bid to fend off competition, there is mounting concern in the gaming industry that there is already a shortage of experienced, domestic management talent.
That’s the situation facing both US-based companies and the foreign organisations looking to start up on their own or merge with existing land-based companies. Senior corporate executives readily accept that if they are to gain a sustainable foothold in the developing US market, they need to be acting now not only to identify the talent their organisations require but also to identify what it takes to secure these people, particularly if they are from outside the US.
Land-based casinos may have a strong position in the developing online market in the US – certainly those who are proponents of Internet gambling – but the management skills of the two are poles apart. The expertise required to effectively run an Internet casino is very different from the expertise required to operate a bricks and mortar casino. This is one of the reasons why some organisations are already looking at Europe as a source of management talent.
One of the reasons that the UK and Continental Europe are on the radar of US gambling organisations is the maturity of these markets. The US has fallen at least eight years behind Europe due to the Unlawful Internet Gambling Enforcement Act (UIGEA) that was passed in 2006, effectively killing off the American virtual casino industry.
Earlier this year it was reported that the Tropicana Resort in Atlantic City had teamed up with UK entrepreneur Sir Richard Branson’s Virgin Group and online game maker Gamesys to bring Internet poker, blackjack and slots back to New Jersey. Canadian company Amaya Gaming Group reportedly purchased Oldford Group (headquartered in the Isle of Man), adding 85 million PokerStars and Full Tilt Poker registered players to its database and making it the world’s largest publicly traded online gaming company. Other North American companies are rumoured to be following similar collaborations with non-US firms.
Yet even though US firms are in a position to offer very lucrative packages to secure the vital management talent they require, the American market is not overly attractive to European executives. One of the overriding reasons is that the regulatory framework is not yet stabilised. This is not helped by the degree of infighting within the gaming industry. Whilst these situations continue, it will remain difficult to attract executives from overseas to join a still-fledging US online gambling industry.
Another reason why US firms may struggle to procure the required executive talent is the growing Asian market. Singapore, in particular, a relatively new entrant into the casino gaming world, has seen revenues grow from zero in 2010, to more than $8 billion in 2014.
That said, whilst politicians in the US work on the Internet gambling regulatory issues and the industry sorts itself out, companies need to be looking now at creating a strong brand in order to gain any possible first-mover advantage when online markets do finally open up.
To address this, senior executives must have a solid understanding of the pace at which technology is evolving and the pace at which the market will expand. Creating a technological edge over competitors in the online sector is crucial. It is widely accepted that better opportunities trigger consumer spending. Therefore, disruptive technology expertise will certainly play a vital role in human capital strategies given the huge emphasis being placed on data and social engagement.
European executives have an advantage over their US colleagues in that they have had more time to accumulate and master the required technical knowledge in a real-time setting. They know what management skills are required and how to retain that talent, they are experienced in developing mutually beneficial agreements with key suppliers (effectively locking competitors out), and they are very familiar with what it takes to create an early base of online customers and how to prevent those customers from jumping ship to competitor operations.
But there are many other skills managers need to have to capitalise on the nascent US online gambling market. The growth potential from smartphones and tablet PCs is enormous and will be a defining point for gaming organisations in all markets. Through high-quality live streaming video, players on the move will be able to gain instant access to their favourite table games, interacting with experienced dealers in real-time.
Additionally, having significant experience in online marketing and social media networks is crucial. A number of IT research companies are predicting that social networking services will rapidly become the primary vehicle for interpersonal communications.
Internet gambling might be virtual, but the players are real and so is the money. Not all game players are the same and being able to cater for many different needs gives online gambling organisations an advantage over land-based companies. It’s also not possible for land-based casinos to have the vast number of games that online operators can provide.
Existing casinos aren’t about to go under as a result, however. Particularly with poker, there is a groundswell gaining momentum that says that people who begin playing in a virtual casino may well start playing in the physical environment. This is a view definitely taken by casino operators in the UK.
Land-based casinos, therefore, need to ensure they have the right management talent on board that is able to grow an existing business, at the same time taking advantage of an online gaming trend that is not about to fizzle out any time soon.
UK and other European gaming companies are aware of the looming changes in the US and the possibilities of a management ‘brain drain’. Their cause has certainly not been helped by the UK government’s introduction of the Point of Consumption (POC) tax (effective 1 December 2014), which some experts believe will have a major impact on the online gaming industry. Current operators in reputable jurisdictions such as Gibraltar and Malta argue that the POC tax is not sensitive to market forces, and that it will simply reduce the revenue and profits of licensed operators to a point where they cannot compete with unlicensed operators in the extremely competitive online environment. Those companies unable to profitably compete will face an uncertain future, as will their executive teams.
There is no doubt that the global online gaming sector is a dynamic and rapidly changing business. As the popularity of both gambling and online entertainment grows, companies will face unquestionable consumer demand that will require appropriate management expertise to capitalise on.
Despite the unpredictable political hurdles facing the industry, investment in the sector remains attractive for all concerned; not just the operators but software and technology companies and many others. Everyone will be keenly watching how the industry develops, particularly in the US.