As we head towards a post-COVID world, casinos must follow the lead of other gaming and entertainment sectors by diversifying their offerings and exploring new verticals.
As the millennia’s third decade arrives, (that’s right – it starts in January 2021 not 2020) we examine what’s in store for Asia’s casino gaming space and its potential evolution. Some of the questions I’m interested in exploring include technological advancement, the changing competitive landscape, digital currency adoption and regulatory oversight. My view is that to successfully recover business, the industry should offer a variety of differentiated products to address a market that has experienced a fundamental shift in consumer behavior.
One of management’s highest priorities is finding a sustainable path to profitability. However, conducting normal operations amid the need for advanced security and surveillance routines while monitoring large groups of people has proved difficult in essentially a bio-hazard environment where everyone is required to field personal protective equipment. This has led to reduced customer traffic and considerably lower revenue.
The deployment of PPE has created an environment where customers and employees can at least feel relatively safe, allowing the casinos to maintain a minimum level of commerce as opposed to ceasing operations altogether. Yet these stopgap measures are unlikely to be enduring, ultimately leading to further declining turnover and requiring market participants to adopt innovative approaches in order to stem the declines.
As work-from-home trends depress demand for office space in major cities’ commercial business districts, similar dynamics might be observed in the large casino halls of Asia’s integrated resorts. It is clear that enterprises relying on the aggregation of large numbers of people as the foundation of their respective business models are at risk of floundering in a post-pandemic world where doing almost everything remotely is now en vogue.
Professional sports leagues though, despite limitations on attendance, have been spared the carnage of extensive lost revenue, primarily because of the big bucks they generate from their online and TV broadcast partners. It’s the reason most major leagues have been able to play through the pandemic – avoiding the business interruptions that have plagued so many other consumer industries including airlines, hotels, movie cinemas and retail malls, not to mention IRs. This begs the question of whether demand for entertainment activities that do not have an online or media angle can ever recover to a pre-pandemic level.
To be sure, commerce in the USA was already trending in a direction that favored more immersive online experiences even before the pandemic exacerbated the shift. Virtual reality and multi-player video game industries have already disintermediated traditional entertainment and large mass-media conglomerates have taken note. As a response, companies such as Disney and Universal Studios have massively diversified, offering a variety of products and streaming services that leverage and not just rely on theme park content.
In that regard, at least one sector of the gaming business has capitalized from the incredible shift to online commerce. Sports wagering in the USA is experiencing tremendous growth and is utilizing technological advances in streaming and digital networking to effectively alter the casino gaming sector’s supply-and-demand fundamentals. Its extraordinary evolution made possible by the Supreme Court’s removal of restrictions in 2018 has been supercharged by the increased amount of free time people have had as a consequence of the lockdown, leading to huge increases in betting turnover. Publications previously focused solely on fantasy sports including FanDuel, DraftKings and even BarStool now operate proprietary sportsbooks with a majority of transactions occurring online. Enlargement of this sector is likely to continue as traditional casinos seek to market online sports gaming products to their legions of customers that are less willing to journey to the resorts for their amusement amid health safety concerns.
We can also expect a greater number of M&A transactions in this space, as formerly staid casino owners seek future growth in an online world. Applying some of the lessons that have benefited sports gaming in the USA, how then could technology and a shift to online product offerings play a greater role in helping to shape the future of casino gaming in Asia?
With online and streaming content capturing a larger portion of people’s idle attention, competition for consumer discretionary spend is increasing in intensity. In this environment, IRs will need to develop new and innovative products that take into account changing customer preferences in order to remain competitive. Most critical is the idea that all casino transactional activity takes place solely on the gaming floor. Historically this was practical given regulatory requirements and need for operating procedures designed to maximize security. Also, there was sufficient customer demand such that it wasn’t necessary to take the playing experience outside of the casino area.
However, in today’s environment, creating an atmosphere where customers can engage on a number of fronts including outside the gaming floor will be important in ensuring the industry keeps pace with customers’ fickle and fast-changing preferences. Allowing patrons, for example, to place bets from their hotel rooms, from restaurants on property or throughout the IR’s operating jurisdictions could help IRs offset some of the demand lost as a consequence of the contagion. Increasing regulatory flexibility trending toward greater liberalization of gaming products will likely generate additional betting turnover and profits. Keno is a good example of a low impact, high margin game of chance that extends gaming activity outside of the casino area. Having online versions could also prove popular.
Certainly, companies will need to develop the technology and obtain regulatory approval in order to propose such unique offerings. Yet these concepts still have the potential to spur additional demand in the same way that removal of “barriers to entry” has done with sports betting. However, gaining authorities’ approval will be a key hurdle and will require open-minded governments to think progressively and not rest on their laurels.
In fairness, Asia’s casino gaming regulators are pretty good. They have presided over an industry that at its peak generated more than US$50 billion of gross gaming revenue per year, and they generally allow licensees to operate with minimal interference. But a significant portion of that revenue is at risk if officials do not adopt a visionary approach and an ability to quickly respond to changing market trends. Allowing IRs, for example, to enable digital currencies to facilitate commerce on mobile betting platforms could be a key catalyst in spurring increased customer interaction and as a result greater betting turnover.
While a majority of attention is paid to Bitcoin due to its amazing price movement, the development and utilization of either a national or central bank endorsed digital currency product could unlock tremendous liquidity – providing much-needed sector stimulus. China’s savings rate of 45% is one of the highest in the world, and having a conduit to access even a small portion of that wealth would be a benefit to businesses that can utilize it.
Digital currencies are likely to facilitate a more efficient, lower-cost casino operating environment enabling higher business volumes with greater security that would be able to service non-gaming businesses as well. Adopting this form of payment solution may also reduce the need for antiquated and bloated compliance programs that are mostly reactive in nature rather than proactive in preventing nefarious activity. Blockchain and distributed ledger technologies have the ability to provide regulators with secure, effective and incontrovertible audit trails along with a full transaction history. Smart-contract technology products have also proven to work well in supply chain structures, increasing efficiency while reducing costs, and I believe they could have a similar impact in our industry.
For those who think digital currency adoption may not take hold in the casino business, just ask yourself what is more likely – a rebound in junket turnover where business dynamics are generally opaque, or migration to a more digital world where sources of funds and corresponding wagers are immediately verifiable? In my view, we are entering an era of increased transparency and greater oversight. And these potential developments could provide innumerable possibilities for how to more efficiently operate a casino business with the chance through increasing digitization and automation to significantly increase profitability.
While the industry has experienced tough times as a result of the epidemic, it appears we are through the worst of this episode and incredible prospects await as consumer demand for entertainment products rebounds and flourishes. Ideally vaccines, social distancing and ultimately some sort of shared immunity will enable people to again safely experience the exhilarating entertainment that IRs uniquely offer. Yet companies will need to develop newer, flexible and more differentiated market-oriented products that keep up with their customers’ fast-changing preferences in order to capitalize on the opportunity.