INDUSTRY OPINION

Taking stock of the global casino industry

Sudhir H. Kalé*

What does the immediate future hold for the global gaming industry?

I see five important developments that will shape industry fortunes: (1) Continuing or growing restrictions on customers from Mainland China; (2) Overall depressed global economic outlook that will significantly curb travel and entertainment; (3) Continued restrictions on patron numbers and venue management in most jurisdictions; (4) Added capacity and competition in some jurisdictions; and (5) Deteriorating customer loyalty.

Chinese Government Restrictions

China’s stringent policing of currency outflow for gambling purposes and its proposed crackdown on Mainland Chinese traveling abroad for gambling could not have come at a more inopportune time. The Ministry of Culture and Tourism in China stated in late August that “casinos in overseas cities attract Chinese tourists to go abroad for gambling activities, disrupting the order of China’s outbound tourism market, and endangering the

personal and property safety of Chinese citizens.” China also wants to put a stop to the underground banking system that many of its citizens use for access to foreign currency for gambling.

It is no secret that most Asian and Asia-facing casinos rely heavily on Chinese clientele to make their business viable. The contribution of Chinese consumers to the global gaming industry is huge, both in customer numbers and in revenues. By choking the access to money flowing out of China and making it more difficult for Chinese punters to gamble overseas, the casino industry in most parts of the world could become perennially handicapped.

Depressed Economic Outlook

According to the International Monetary Fund (IMF), global economic growth is projected at minus 4.9 percent in 2020, 1.9 percentage points below the April 2020 World Economic Outlook (WEO) forecast. The COVID-19 pandemic has had a more negative impact on activity in the first half of 2020 than was anticipated, and the recovery is projected to be at a much slower rate than previously forecast. The IMF has estimated the global economy to grow at 5.4 percent in 2021. Overall, this would result in 2021 GDP some 6½ percentage points lower than in the pre-COVID-19 projections of January 2020.

Integrated resort casinos (IRCs) offer products that fall at the extreme end of consumer discretionary goods. “Consumer discretionary” is a term for classifying goods and services that are considered non-essential by consumers, desirable only if their available income is deemed sufficient to purchase them. Hotel facilities, entertainment, fine dining, and gambling together account for almost all the revenue of resort casinos, and spending on each of these products is totally discretionary. With the dismal economic outlook for the years 2020 and 2021, few can be optimistic about consumer spending in IRCs.

Pandemic-related Restrictions

Regardless of whether a vaccine for COVID-19 is found and made expeditiously available globally, restrictions on travel, entertainment, and gathering in public places are bound to remain in place in the foreseeable future. These restrictions limit the number of patrons in gambling areas, the social distance that needs to be adhered to by gamblers, and constraints on operating non-gaming facilities such as restaurants, bars, and nightclubs. Casino resorts will have to spend considerable amount of money on disinfecting the public areas, testing staff and customers for infection, and modifying their gaming facilities to minimize the chance of infection. Senior executives will continue to spend a lot of their time ensuring that their “COVID-19 plan” is up-to-date and rigorously implemented. While some capacity restrictions may be eased as the pandemic wanes, many other constraints such as masks and sanitization protocols are here to stay for quite some time.

These restrictions impact casinos’ top line as well as bottom line. Forced reduced patronage limits the revenues casinos can make while requirements such as facility sanitization, modification of gaming equipment, and patron health-check add to operating costs. Gone are the days when patrons in Macau could congregate around a baccarat table, three layers deep, and beg croupiers to accept their bets during a run on player or banker!

Added Capacity and Competition

Markets such as Macau, Sydney, and the Philippines are set to add additional gaming tables and slots despite poor demand, travel restrictions, and the current low capacity utilization. While new and renovated properties may draw initial high customer numbers due to the curiosity factor, the overall net impact will be further impoverished performance for the existing properties.

In 2019, Union Gaming reported that around US$65 will be invested in new casino properties in Asia between now and 2025. Thanks to COVID-19, while brakes will be applied to planned investments wherever possible, some properties are at advanced stages of construction and have little choice in the matter. The net impact of additional capacity during times of the pandemic and a severe economic downturn will be accentuated financial hardship for established properties.

Deteriorating Player Loyalty

In late April 2020, Synergy Blue carried out a survey of 1,000 regular gamblers in the United States. Of those surveyed, nearly twothirds (64%) said they gambled online or played mobile games (pay to play/free to play) during the pandemic, and of those, 93 percent said they will continue with online or mobile gambling once stay-at-home orders have lifted. Only 51% of those surveyed indicated that they will return to casinos upon reopening. Even more concerning is the finding that just 35% of those planning a return to casinos would go back to their usual casinos. These findings imply that consumers will spend a lower amount of their gambling dollar in land-based casinos and less than 18% will return to their pre-pandemic casinos of choice.

Worldwide, there exist around 7.5 million slot machines and 85,000 gaming tables. Billions of dollars are spent each year on loyalty programs, most designed along the ‘earn-andburn’ proposition. A huge dent in patron loyalty as suggested by the Synergy Blue research will induce casino companies to cut back on their player reinvestment percentages. When revenues are scarce, marketing activities are often the first to go under the guillotine. Unfortunately, such cost-cutting measures often end up in making an already bad situation even worse. Research evidence from other industries suggests that businesses who continue their consumer franchise-building activities during times of economic distress emerge stronger and more profitable on the other side.

A Time for Reckoning

By all accounts, the gaming industry is having to contend with headwinds it has never experienced before. Most operators have painted rosy pictures about their prospects for the immediate future. Virtually all properties have engaged in severe cost-cutting measures, regardless of location or jurisdiction. Operators are having to walk a tight rope while implementing strategies that incorporate the concerns of customers, shareholders, and governments.

Traversing the immediate short-term will not be easy. Trade-offs and unpalatable choices will be inevitable. As for the long-run, one thing is for sure. Casino companies that will overcome the crisis and thrive will be those that do not take their customers for granted during these difficult times.

*Sudhir H. Kalé, Ph.D., is the founder and CEO of GamePlan Consultants, a boutique consultancy that advises casino companies on matters of corporate culture and marketing. He has published around 150 articles on the marketing and management of casinos. You can write to Sudhir at skale@gameplanconsultants.com.