15 minute read
Big Question
How important is bricks and mortar for digital gaming growth in the US?
Mike Ciavarella
It is critical that bricks and mortar or “retail” distribution forms an integral component of the sports betting and gaming ecosystem for digital gaming growth in the US. Because gaming products – be it sports betting, casino or poker – are generally consumed in physical environments where players can gain a high degree of trust with the operator and have external stimulus to keep play time in perspective. The memory created in a public retail environment is encoded and stored in your brain and can be retrieved to influence future behaviour in a private digital environment. The drive, feeling and atmosphere that is created in bricks and mortar establishments, the physical interaction with other people, including senses like touch, smell and sound, simply cannot currently be created or replicated on a digital screen; and thus, bricks and mortar distribution serves as a reciprocal partner to digital growth.
Competition is part of daily human life. We compete with each other, we try to get the best deals on products we buy, we take chances on purchases we make, we meet people and compete with them every day in many social and work environments. Sports, in fact, are primarily a physical or mental competition between players, while casino games are enjoyed in a vibrant, exciting environment, and poker – despite being a card game – is played continuously in our daily lives, in almost every situation we face. This human-to-human interaction is why bricks and mortar establishments are so important to digital growth.
Since gaming is consumed mostly in physical environments, the concept of an ecosystem includes a digital experience that can best replicate a player’s experience at a physical location. The connection between the memory encoded by the physical experience will ultimately fade away in digital time, and thus, a recharge to refresh the memory will ultimately be needed.
Entertainment value to create the drive to play – which can only be generated in a physical venue, be it a sports arena, a casino or your favourite pub – is priceless. Take sports betting, for example. Players want digital velocity without the shackles of gaming accounts, payment systems, KYC and the nuances around online playing experience. A sports bet is simple; it’s a competition between two people that think they are choosing the right winner. In sports betting, there is nothing better than arguing with your pal as to who will sink the putt! That vibe currently doesn’t exist by betting against your mobile device, but can if sports betting occurs at a pub/sports bar while enjoying a meal and beverage with friends.
It is equally important that both channels exist cohesively within the engagement ecosystem because of the nature of our industry. After all, gaming is not so much about selling physical products, but rather the entertainment value of the games, relationships, and the thrill of the unknown outcome; whether that’s against a machine, or against a bookie. Despite technological advances for security, transparency and responsible gambling, many players don’t entirely trust digital operators not to rig games against them, so it’s difficult to get ultimate convenience. This gives brick and mortar operators the edge on trust and reliability in the ecosystem.
The digital channel is bringing a new
dimension to the industry and is growing rapidly, particularly with the widespread adoption of cutting-edge technology tools in our daily lives. A prime example is how the flow and availability of data on digital channels have transformed sports betting from meeting with a local bookie offering only local or regional events, to being able to bet on virtually any sport being played in any part of the globe 24/7.
Casinos, resorts, restaurant chains and every small venue operator you can think of around the world work very hard, spend a lot of money and create unique identities and differing environments, brand loyalty and continuity to attract and retain their customers. The intersection of retail and digital starts here with the crossover and connection between human nature, the need to compete and to be involved, and the convenience of having instant access and gratification that comes from gaming entertainment. While bricks and mortar creates the consequential memory and experience, the digital channel brings it all together in the palm of your hand instantly – and with more choices than ever before.
Mike Ciavarella is the Executive Chairman and Interim CEO of Elys Game Technology, Corp., a Nasdaq listed company with iGaming operations in Europe and the United States. Mr Ciavarella studied mining engineering and spent the greater part of his career in financial planning and business management. He also spent 20 years in the hockey coaching community where he authored several books that are followed by thousands of ice-hockey coaches around the world. These combined experiences were instrumental in bringing together the Elys group of companies and team to become a key contender in the rapidly growing US sports betting market.
Adam Noble, Co-founder and Chief Business Development Officer, PlayStar Casino
Adam Noble
On a level playing field, I believe the answer is a resounding – not important at all. In considering this statement let’s take a look at the retail book industry; did Amazon require bricks and mortar retail locations across the globe to form a part of their growth strategy? Absolutely not. If you look at Tesla, the world’s highest valued car manufacturer at the moment, does it have thousands of car yards scattered across the globe? No, it has gone for a very different business model to reach its consumers.
However, it is important to acknowledge when considering this question that this type of “free market” growth is not directly transferable to the online casino industry in the US, since one of the major factors the bricks and mortar casinos have up their sleeves is the control of market access. The fact the bricks and mortar industry controls market access will allow some clever operators a strategic advantage, in leveraging those assets into a dominant position for growth.
But for the purpose of debating this question, let’s leave that aside for the moment and consider what it means from the perspective of the brand – and product of the bricks and mortar casino. Let’s also consider how that translates to growth strategy of an online casino.
From this perspective let me just say nothing will replace the bricks and mortar casino experience that many casinos have to offer across the US; but I do not believe it is a critical part of an online growth strategy. The reason I believe this is that, in the first instance, they are very much different products; yes, the gambling aspect is consistent across both, but there are many factors that are different once you get past that.
What works well in a bricks and mortar casino doesn’t directly translate to what’s going to work well online and, in some instances, it actually hampers the bricks and mortar casino; as it struggles to find a way to replicate its brand and casino experience into its online offering. Therefore, a player may initially follow that familiar brand from bricks and mortar to online, but it may find they’re disappointed with the experience that is provided.
Of course, leveraging the strength of your brand is going to be important; however, tying it to the physical bricks and mortar casino is another thing. As an example, in New Jersey if you’re sitting on your couch in Hoboken, are you that interested in receiving an incentive that you need to travel to Atlantic City to recoup?
There is a definite advantage in leveraging your brand to attract players in the first instance, yet the acquisition strategies in the digital world are very different to the acquisition strategies in the bricks and mortar world. Therefore, aside from the initial brand familiarity, many online casinos are brought back to the pack when it comes to acquisition in the digital world.
Once a player starts to compare like-for-like online casino experiences, the strength of the bricks and mortar brand is diminished considerably, and the strength of its online experience needs to shine through. If you are playing on a site that has no ties to bricks and mortar and it’s offering a superior experience to the trusted bricks and mortar brand, your loyalties may quickly change.
There is no reason why the online casino industry in the US won’t follow a very similar trajectory to other transitioning industries into a digital environment, and that is that their bricks and mortar brands
will have less significance and the brand that is providing the highest levels of personalisation, customer experience and engagement will succeed in the end. I am not saying this is a winner takes all by any stretch. The bricks and mortar brands are still going to have a considerable share of the market, but I do not believe it will be as a result of being tied to bricks and mortar property; it will be because their online offering competes well in the market.
Irrespective of my opinion on this question, when you look at the data it is irrefutable that bricks and mortar is not a critical component of online casino growth in the US. Three of the top four market shareholders have minimal to no ties to brick and mortar properties.
Max Meltzer, CEO, Strive Gaming
Max Meltzer
In Post-PASPA 2018 everyone would likely be referring to bricks and mortar mainly as commercial and tribal nation casinos. That’s clearly one sector, it’s the one that in a lot of states some operators have to collaborate with to get a licence/access to a market; or those powerful brick and mortar locations and casinos may opt to operate themselves under their own brand. Fast forward to 2021, and bricks and mortar could easily also mean OTBs like Parx has, restaurants and bars; as we’ve seen more companies partnering with or with sports stadiums, particularly as leagues and sports teams are now growing their strength in this industry. The US is on a path to find ways of digitising while working with bricks and mortar locations in an innovative way like never seen before. This is where leading B2B technology offerings can help in converting physical on-property customers into digital ones without cannablising on-property revenues.
On-property experiences are a way of entertaining and understanding some of your most important customers, creating acquisition and retention strategies that will be imperative for long-term growth. to online is as authentic as possible and in keeping with your physical brand– which is imperative. If a customer is used to being able to go from one of your casinos or bars in one state, they’ll also want to be able to have access in the next state your brand is (where regulations permit).This is where regulation and digitalisation is going; the more this grows, the greater the digital and physical relationship can grow too as an entire experience.
I also want to be clear – it doesn’t matter whatever perspective you look at this, B2B or not, lots of tribal nations rely on their on-property revenues. Therefore, if the industry wants some key future states to regulate in a digitally approachable way, it’s imperative we find ways to use digital strategies to drive land-based revenues as well. What better way than being rewarded online with physical experiences and that enable you to bet or play casino games in your community?
These bricks and mortar locations have a great way of building genuinely loyal customer databases with a long history of their habits. There is so much casino content and there are so many games on-property that these customers play, and would love to play online if they had the chance. Many want to go online – now that’s powerful. As it pertains for sports wagering as a patron wanting to place a bet for effective digitalisation growth to occur, the platform a brand uses must be able to scale with the peaks and troughs of sports events quite unlike casino traffic.
Finally, you can see in M&A today that the industry clearly understands the importance of a powerful iGaming/player platform. It’s also clear having access to good databases is becoming one of the important battlefields among the leading US operators. Ignore the importance of bricks and mortar at our industry’s peril. Whether that’s a lack of understanding about how good some of these databases are, politically how important they are to companies and how that can impact your strategic objectives; or how much of a role they have to play in acquisition and retention.
System links like loyalty cards physical to/ from digital can help players transition to an online experience. Some casinos are using applications such as on-premise betting where regulation permits, or preparing betslips digitally and paying at cages – therefore educating and digitalising players. Sport stadium experiences are now including more betting experiences. Likewise, some casinos are digitising ahead of state regulation by running social casino or utilising other verticals, to enhance the ROI on those players and prepare for online transformation without diminishing their physical experiences.
Big physical locations, like casinos on tribal nations, rightly see their customers as their biggest asset and have found ways to evolve their strategy and futureproof their whole business, by building a digital brand to serve these customers. The pandemic has driven organisations across North America to seek a way to digitalise their customer database. Ultimately, having the right player platform is key; it’s the core to not just storing customer data but being intelligent enough to analyse data behaviours and realising what customers really want.
As part of that, technology as a flexible, rules based engine allows you to engage with customers in real-time, to meet their needs, ensuring the experience from offline
Elena Kvakova, Head of US Expansion, Internet Vikings
Elena Kvakova
The United States of America is going ‘all in’ as virtual gaming begins to rapidly spread around the US. All eyes are on the enormous potential it holds. However, the legal specifics can be somewhat confusing because every state in America has the right to effectuate and enforce their own regulations to the industry. Over and above having to abide by particular legal policies, any online gambling operator wishing to do business in the USA requires a lawful affiliation with a brick & mortar casino in most states.
While the brick & mortar casino affiliation rule can cause certain challenges, it should not be viewed in a negative way at any given point in time. To say the least, it provides clear structure and balance to a very complex industry in the newly established legal ecosystem. However, before evaluating the role this legislation plays in the development of the online gambling industry in the United States, it is important to understand the specifics of the market itself.
First and foremost, the US market is rather complicated on its own, especially when it comes to gambling. Under the current set of regulations, it should be viewed as 50 independent markets instead of a single one. Because of this, its development was not as fast and smooth as many would have liked it to be. Although the US opened its doors to online gambling back in 2013, only six states had iGaming legalised by 2019. After seeing the commercial success of iGaming in New Jersey, Pennsylvania and West Virginia, "As of today, there are 21 states where online betting is legal, with New Jersey leading the game after officially becoming one of the largest iGaming markets in the world, behind only Germany, the UK and few other major European players"
other states decided to join in. In addition to this, unprecedented events of 2020 have accelerated this process even more. Yet again, a gold rush has begun.
As of today, there are 21 states where online betting is legal, with New Jersey leading the game after officially becoming one of the largest iGaming markets in the world, behind only Germany, the UK and few other major European players. Due to an absence of brick & mortar casinos in certain territories, some new iGaming jurisdictions do not require lawful affiliation with land based casinos. But, in most established iGaming markets in the US, this rule is non-negotiable.
Moreover, if you are a service provider, like Internet Vikings, being attached to a local, physical casino is not critical. However, when it comes to casino and sports gambling operators, there is no way around it and the law is not likely to change in the foreseeable future. So when it comes to the question of how important is the bricks & mortar concept for the development of online gaming in the US the answer is ‘CRUCIAL’. While some operators may view it as a major setback, it’s important to understand that every state is simply trying to adjust to a newly created reality, allowing space for fair competition while trying to avoid discrimination.
Land-based casinos have been successfully operating in the United States for many decades, significantly adding to the country’s economy. Yet they may feel threatened by the rise of online gambling. Especially due to the changes in consumers behaviour caused by the Covid-19 pandemic. An emerging market of this magnitude requires some degree of control.
IGaming companies can also gain from brick & mortar affiliation law. One benefit is that it limits competition. For example, if there are only five physical casinos in the state, and the law allows only five online “skins” per casino, competition is limited to a maximum of 25 online gaming websites within the state.
The iGaming operators that are quick enough are guaranteed a good share of the market. Additionally, being attached to a well-established native casino has its perks too, such as improved marketing for lesser-known overseas online gambling brands.
Overall, there are of course both pros and cons when it comes to this concept. Brick and mortar should not be seen as a menace to online gaming. While it may be seen to limit accessibility to the market, it allows greater monitoring of the business. The idea furthermore maintains a degree of proportion relative to demand. As each state adapts and evolves its own sense of balance between the two, there is plenty of space and opportunities for both, enabling technology and a greater number of players to come to the table.
