National Survey of Internet Users and Gaming Behavior

Overview of Major Findings and Their Implications

The analysis of the data from the survey elicited a variety of major conclusion or themes which themselves have implications for the development of internet gaming in the US.

• The most significant finding of this analysis is that there is significant overlap between free play, online real money gaming, and landbased gamers. For example, we know that a certain proportion of landbased gamers already play online either in the form of free play or real money gaming. We also know that a significant number of real money online gamers also visit landbased casinos. It is therefore imperative to understand these relationships to be able to predict the effect that legalization of online gaming would have and to develop a strategy to profit from it. Many of a casino’s existing customers are already online playing either free play or real money games.

By ignoring this fact, operators are failing to take advantage of all the benefits that could accrue from a well thought out online strategy designed to not only generate revenue in and of itself but to drive more visitation and revenue to the landbased casino. Even where real money gaming is not legal, operators should be determining a strategy whereby free play sites can be implemented to support their landbased operation. It should be noted that “free play” does not necessarily imply zero revenue.

Free play online sites can be monetized through the purchase of chips or credits and advertising can bring additional revenue sources. By acting quickly to develop a free play site the operator not only gains the platform but also the knowledge base and an online database which will better position the operator for the possible eventual legalization of real money online gaming. The same argument applies equally for real money gaming.

• Confirming last year’s data, landbased gamers are noticeably older than with those that play real money games or free play games online. However, this year’s analysis also indicates that those that visit landbased casinos but who also play casino games online, whether for free play or real money, are also younger than the overall landbased gamer. This suggests that iGaming – whether for free play or for real money – offers the potential to reach a younger audience which is typically wealthier than the average landbased gamer. With an aging clientele at existing land-based casinos, iGaming offers the opportunity to infuse the casino with a younger clientele. Operators should begin to consider what changes in its land-based offerings should be made to address this younger demographic and to cement these potential patrons as they are induced into the casino via online gaming web sites.

• Some operators remain wary of the impact of real money gaming, and some also harbor doubts about the efficacy of free play games. However, as this data shows, iGaming – whether for real money or as a free play site – can help brick and mortar casinos expand their markets. Many existing land-based casino players are already online playing games for real money or otherwise, and the data shows that iGaming offers casinos an avenue to encourage more visitation from existing players and to attract more players who are younger and generally wealthier than their existing customer base.

By linking a landbased casino and the typical benefits it can offer to players (such as free or discounted hotel rooms, concert tickets, and free play points) to a gaming web site, online gamers can be enticed to visit or increase visitation to the landbased casino. Even those that are already visiting a landbased casino report that their visitation frequency would increase if they could play online for points or complimentaries, or if their real money online play could be linked to the existing casino’s player rewards program in a seamless fashion.

This implies that operators looking to develop online casino websites should view its customers through the lens of a “single wallet”, whether it is online or offline, and that the online and offline databases and rewards should be integrated to encourage such cross-pollination. In a broader sense, this also implies that fears of online gaming cannibalizing landbased casinos are largely unjustified and that the upsides of free play sites and real money sites are significant from the perspective of landbased casino revenues. Online offerings also offer the potential for a new revenue stream, whether it be from the monetization (i.e. purchasing of chips) of free play sites or real money casino sites.

• Those who currently play casino games online for free represent a potentially significant market for landbased casinos. Free play casino gamers are comparatively underrepresented at landbased casinos. Therefore a free play website associated with a landbased casino coupled with a well-defined reward and inducement strategy could result in significant new visitation from this segment. In developing an online strategy, operators should pay close attention to their marketing and players club programs to ensure that these are maximizing potential play from this segment. In this digital age, casinos must move to revamp and improve upon their digital marketing efforts.

• The data shows that there is substantial interest in playing casino games on free play sites and that an association with a land-based casino would strongly influence their choice of which site to play on. For this reason and those cited above operators should be making haste to develop a free play site linked to their land-based casino. Many progressive operators are already moving aggressively in that direction; those that are not may be ceding an advantage to their competitors.

• In relation to real money and free play sites, the landbased casino has a number of singular advantages. First, it has a physical location which can be used to induce play on web sites (and vice-versa). Second, it has a database which can be used to “seed” play on its real money web site. In fact, the data shows that landbased customers wager significantly more than other groups when they play online. Third, it is a physical facility that is not going to disappear in the Ethernet as some online casinos have been known to do. Fourth, landbased casinos are highly regulated and have a level of trust associated with them. Finally, because of their highly regulated nature, there is already in place a process to address complaints and disagreements through the regulating agency if disagreements arise. All these factors explain why the association with a landbased casino has so strong an appeal to those surveyed in this effort.

• As to game types, it is clear that slots, poker and Blackjack dominate online. The data also suggests that both slot and table players tend to play a wider variety of games online lending credence to the concept that online gaming can be an incubator for table play at landbased casinos. This is true especially for those who are unfamiliar with the rules and strategies for table games and who do not want to be embarrassed in a live environment as they learn the games. Online they develop their skills and knowledge of the game in a low-risk setting and can feel confident in their abilities when they visit the land-based casino.

• The role of social media in gaming has been widely debated. The data shows that social media sites have a role to play whether it is in actually offering casino games or as a conduit to finding other sites to play on. The research also indicates that this is especially true for the younger demographic. Operators should consider social media sites in their overall iGaming strategy either in the role of a network or as an affiliate.

• The most significant finding in our survey related to Native American casinos was that responses to the questions varied little from other landbased casinos. In other words, Native American casinos and the behaviors of their customers is no different in relation to either their landbased or online play or to the value of association of a Native American casino with either a free play or real money gaming web site, than any other land-based casino. It can be concluded that a Native American casino developing a real money web site would not be at a competitive disadvantage to other landbased casinos. In many states, Native Americans are the only providers of land-based gaming. In the online realm Native American casinos in states such as these will be primarily competing among themselves and potentially with the State Lottery. Ironically, as states look to the legalization of online gaming the interests of Tribes and Lottery’s may coalesce to pass legislation, while thereafter each would compete with the other.

• As it relates to web site design or things people want to see in a web site, there are a number of “must haves”, these generally include safety and security, ease of navigation, ease of transaction processing, trust, and privacy. These are integrity and ease of use issues that appear to translate across all levels of players. There is another set of “should haves” which includes such factors as a variety of games, favorite games, bonuses, and promotions. These are followed by other features such as technical and visual factors, avatars, 3D, chat rooms and other similar features. All sites are expected to have the “must haves”; the differentiating factors between web sites will be the “should haves” and how well these are executed along with the other technical and visual features of the web site that will make it attractive, interesting, rewarding, exciting and pleasant to play on.

• The higher the frequency of an online gamer of any group, the greater the likelihood that they can be induced to visit an associated landbased casino.

• There has been a startling growth in the use of tablets and cell phones for online gaming. Operators entering the online space should ensure that they also have a strategy for mobile gaming though support and development of appropriate apps.

• On the lottery side, there is no doubt that online games will increase lottery sales, however, the data suggest that this will come at a price with existing brick and mortar retailers seeing sales declines. This is likely to become an issue of some importance as more state lotteries go online, suggesting there will need for some mechanism that induces the support of existing lottery retailers.

This survey was conducted in February 2012 over a one week period. The survey panel was internet-based. Respondents were first screened for age (>21 years old) and then asked if they had participated in a variety of forms of gaming in the last 12 months.

To facilitate the analysis, the survey was broken down into the following groups:

• Played at Landbased Casinos
• Played Online For Real Money
• Played Online for Free – This category includes ALL free online gaming, ALL Social Media
Games where players may have paid for online currency, and ALL games where you can earn points for prizes

If a respondent played both at a landbased casino and online, their responses were captured in both categories. This was done deliberately to assess more closely the normative patterns of all gamers in each category and not just those that participate in these sectors predominantly or entirely. It was also done to obtain a clearer picture of the variety of gaming activities respondents participate in. The reader can then compare and contrast these results with those from our 2010 analysis where the defined groups were based on exclusivity and/or predominance of play. In addition, subsequent sections of this report redefine these categories based upon higher than average participation which, while retaining overlaps among categories (although to a reduced extent) allowing differences between groups to become better defined, therefore allowing comparison to the overall responses.

To accomplish this, respondents who indicated that they had not participated in gaming in the last 12 months were terminated. A total of 900 valid surveys were obtained. Approximately 300 responses were obtained for each category of player (online free play, landbased, and online for real money). In each case, individuals in a group also participated in other forms of gaming and therefore the percentages in the following charts do not always add up to 100%.

About The Innovation Group

Throughout the past two decades, The Innovation Group of Companies has evolved into a multi-disciplined team that provides financial, management, investment banking, development, marketing, and diversification advisory services to a signature, worldwide client base. The organization is now comprised of five complementary affiliates – The Innovation Group, Innovation Capital, Innovation Project Development, Innovation Marketing, and Innovation Management Services – and two specialty advisory divisions – Innovation Food & Beverage and Innovation Sports & Entertainment. Together, the entities evaluate operational and development opportunities, make strategic recommendations and offer the tactical tools to help clients implement them.

The Innovation Group of Companies has been associated with more than $60 billion in investment decisions specific to the gaming, entertainment, hospitality and leisure sectors throughout the past 20 years. Additionally, the firm’s areas of specialization have naturally expanded into such related disciplines as F&B, mixed-use retail, convention centers, sports/performance venues, social media, online gaming and other offerings that define the ever-changing world of leisure and entertainment.

The Innovation leadership has helped bring many of the world’s largest entertainment and hospitality developments to fruition and has been exposed to industry best practices across six continents and 78 countries. Multi-billion dollar organizations, government entities, global financial institutions, professional associations, and private equity investors are just a few of the client segments that have made prudent economic, financial, social and political decisions based on The Innovation Group of Companies’ analysis, advice and support.