What Ails Us?

Now that we are in the post-G2E time period, we at CEM are hearing various assessments of the health of the gambling business. This happens throughout the year, but it always intensifies after the gaming industry’s largest trade event, G2E. These opinions can and do run the gamut, but the most vociferous groups are polar opposites.

The first camp speaks as if the gaming industry is experiencing the best of times and often utters comments like, “Business is great; hell, it’s never been better!”

The other camp speaks as though the gaming industry is experiencing the absolute worst of times and will never get much better. Their commentary usually goes something like this: “We will never see prosperous times like we had in the 1990s. This is the new normal and you better get used to it!”

So which group is seeing things correctly? They are both partly right, but both viewpoints have major shortcomings. Neither is looking at the big picture and both are making their commentaries based on snippets of firsthand experience and strong emotional positions.
The more pessimistic of the two groups is really just lowering their expectations and building a consensus. They feel that they are far less likely to be disappointed, and disappointment is something the whole industry has experienced over the last four years of this debilitating recession.

The optimistic group dons a nice set of rose-colored glasses, partly because they can’t bear facing a continuation of our tough economy and are acting on the assumption that what you think about you bring about. They need to have denial in order to make it through. They are consensus builders too.

These two opposite opinions remind me of a story that I’m sure you’ve heard at least one variation of before. It’s the story of three blind men, an elephant and an emperor who tasked the men with examining the animal and describing it after just one minute of investigation.

The point of the story is that each of the three blind men examined a different part of the elephant and so each of them had an entirely different experience.

Were any of the three blind men wrong? No. They were each correct, based on their limited information and perspective.

We are all forced to make observations based on incomplete information. In fact, there is no such thing as complete information. It’s where we draw the line with our predictive modeling that makes things interesting.

There are two thought leaders in the gaming industry for whom I have tremendous respect. Both have an uncanny track record of very insightful analysis and accurate predictions. For now, these gentlemen will go unnamed. Through detailed examinations year after year, we have been the benefactors of their spot-on predictions.

Over the several last years, both have cast light on dilemmas they feel the gaming industry must face and tackle. One of these fellows sees what he considers an enormous problem with a lack of understanding of our maturing markets here in the United States. He points to a limited number of players available to each casino and explains that with an oversaturation of new properties opening, we will begin to see casinos cannibalize their regional customer bases. He adds that the fight for customers will, through a simple supply and demand mechanism, cause prices for casino entertainment, including gaming, to fall, and thus drive down the bottom line.

The other gentleman sees a demographic time bomb ticking for American casinos. He cites the fact that only a small fraction of the American public actually visits and gambles at a casino and that a good part of our revenue is derived from the senior segment of our customer base. He adds that nothing very successful has been done to develop a gaming experience that appeals to the vast greater numbers of non-traditional potential gamblers.

So which is it—market maturation and restrictions to prevent oversaturation, or do we need to start building better mouse traps?

That’s a complicated question, but the answer is probably both. The time frame to develop and deploy new forms of gaming is going to be longer than the time frame it takes to deploy population sensitive regulations. Neither will come quickly. Perhaps the correct course of action involves something that is already unfolding here in America. It’s online gambling of course, but there are many questions and answers with that are still to be determined. Could hybrid land-online casinos be the magic bullet that will make all this worrisome speculation go away? I’d be very interested in hearing your thoughts on that.

Peter Mead,
Casino Enterprise Management

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