For anyone following the legislative path of the expansion of legalized online poker and online gaming overall in the U.S. markets, might I recommend BENGAY® or any other muscle analgesic for one’s neck monitoring the ping pong back and forth of this “on-again, off-again” journey.

As a brief recap, New Jersey, Delaware and Nevada legalized online gaming, but projections were overinflated, numbers have been disappointing and many operators are pulling back or out altogether. In California (thought by many to be the big prize in online poker), Assemblyman Mike Gatto recently introduced a new online poker bill and subsequent amendments (AB 9) that are similar to the bill submitted, but ultimately withdrawn by Sen. Lou Correa in 2014. (Will this ever happen?) On the federal front, Sheldon Adelson, through his Coalition to Stop Internet Gambling, is committed to using vast resources to stop online gaming. Pennsylvania, Illinois and Massachusetts all seem to be considering online gaming but have land-based gaming issues bouncing around at the forefront politically.

Many tribal casino operators seeking new cutting-edge sources of revenue to augment their existing operations have nearly given up hope with the online gaming sector, since they realize the legislative wait may be excruciatingly long and/or as in the case of California—may not even include them if they are a smaller enterprise. And yet millions of dollars have been spent by casino management personnel researching, exploring, interviewing and reviewing online gaming data to determine if there is an immediate implementation that can augment casino revenues.

Chris Grove, online gaming expert and co-founder of Online Poker Report, believes for most tribal land-based casinos, the implementation of regulated online gaming today is just too expensive since it remains an uncertainty; the upfront costs are too large given the unclear size of the potential revenue opportunity and regulatory landscape.

Grove believes the path forward may be better approached by investigating the next form of innovative products based within two “quasi-wagering” sectors that are currently legal in more than 40 states and therefore don’t experience the political merry-go-round of regulatory requirements. These missed opportunities exist within two industries that experienced unparalleled growth in 2014 and don’t seem to be slowing down: social gaming and daily fantasy sports. “It is a flawed paradigm to view online gaming as a stand-alone product that is siloed,” Grove said. “It can be a great defense against all the other things competing for gaming customers’ entertainment. If you don’t give them a way to have that consumer experience, casinos will lose mind share and timeshare to competition they aren’t thinking about.” (The complete interview with Chris Grove can be heard at www.cemaudioedge.com/episode/native-american-gaming-0).

Adam Krejcik, managing director, Digital & Interactive Gaming, Eilers Research, LLC, presumably agrees with Grove, since Krejcik actively follows and frequently publishes research reports on both social gaming and daily fantasy sports (DFS). Social gaming is a larger industry in general; for 2014, Eilers research estimates the global social casino game market reached $2.8 billion, which was up +38 percent from last year. (Source: Eilers Research; Adam Krejcik: The Social Casino Gaming Tracker—4Q14 & 2014) Interesting highlights include the fact that gaming equipment and technology suppliers remain among the top players in the social casino game industry, largely due to their ability to bring premium land-based content online; mobile now accounts for 61 percent of all social casino game revenues generated worldwide, and Eilers projects the global social casino game market to reach $3.5 billion in 2015 and $4.4 billion by 2017.

Krejcik also follows DFS and presented a keynote in January for the Fantasy Sports Trade Association. Krejcik’s keynote provided a brief history as well as bold predictions. Some key takeaways:
• Daily fantasy sports is a subset of the broader fantasy sports industry and was formed largely due to a carve-out in the UIGEA of 2006. Essentially this carve-out ruled that DFS is a game of skill and therefore not subject to Internet gambling laws.
• You can now play in 45 states and recent partnerships/investments by the major professional sports associations are all strong endorsements and help reduce regulatory risk.
• DFS is still in its infancy with just about 2.5 percent penetration rate of players.
• DFS serves as a viable alternative for some players who do not have access to sports wagering.
• The underlying model for DFS is largely borrowed from the online poker world and ripe for innovation, which should lead to new successful entrants.
• How do you attract more female players? (If you can figure that out = $$$)

(Source: Eilers Research; Adam Krejcik: January 16, 2015—FSTA Winter Conference, Keynote: Bold Predictions on the Daily Fantasy Sports Market)

In its current form, DFS is still a small revenue market. The DFS market size for 2014 was approximately $90 million, which is up from $21.9 million in 2013. (Note: Eilers calculates the market size on a net basis i.e. after player payouts; gross entry fees for 2014 were $1 billion) Krejcik/ Eilers predict a conservative DFS market size of $1.18 billion (net) by 2020. Another source, IBISWorld, predicts fantasy will be a $4 billion business by 2017.

It appears that the excitement with both the social gaming and DFS markets is the potential to be used, perhaps in a new, innovative manner, within operating casinos to increase revenue, drive more customers, augment player data sources and provide additional entertainment for a new generation of consumers.

Wayne Schonfeld, CEO of Database Dynamics, a firm that supplies casinos with sports based promotions, including Fantasy Sports, a firm that supplies casinos with fantasy sports kiosks, must have been both savvy and clairvoyant as he requested and received an opinion from the National Indian Gaming Commission (NIGC) in October 1998 confirming that his fantasy sports game did not violate the Indian Gaming Regulatory Act (IGRA) and would be considered a marketing tool. (Complete context of the NIGC opinion letter to Schonfeld can be found at www.nigc.gov/Reading_Room/Game_Classification_Opinions-old/Non-gambling_…).

“Everyone can make money in this space,” Schonfeld said. “The key is size and bandwidth. All of the big fantasy sports companies are spending their profits right now on player acquisition; the advantage for the casinos is they already have customers.”

Grove is convinced that finding a way to offer exciting social games and DFS in casinos can be the game changer in the online space. For tribal casinos, Grove maintains the added benefit is that these games do not have to stay on the reservation gaming footprint because they are legal forms of online entertainment the players can also play offsite and still be connected to the casino brand. “Some form of online gaming can serve as a complement to a casino’s existing profile, adding more data, more efficient marketing and improved communication with customers,” he said. Overall, this appears to be an underappreciated and under-investigated opportunity.

A big question for casino operators is how to stay fresh and relevant and keep gaming product new and exciting—deliverable in both traditional format (i.e. slots) as well as contemporary formats (tablets, mobile). Given that the social casino game space and daily fantasy sports have launched impressive growth trajectories, demonstrating a proven track record for generating revenue and player retention in a legal online format, exploring forms of innovative casino offering possibilities seems a worthy exercise.

Analysts and other experts cited in this column may be reached at the following email addresses: Chris Grove, chris[at]onlinepokerreport.com; Adam Krejcik, akrejcik[at]eilersresearch.com; and Wayne Schonfeld, wayne[at]databasedynamics.net.

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