The COVID-19 pandemic has left the global gaming industry bruised and maimed and there are five key factors to suggest the recovery for casinos may face significant headwinds.
The decline in revenues from pre-pandemic times to the post-reopening period shows dramatic variations across jurisdictions. Macau casino operators experienced a prolonged year-on-year decline in revenues of over 90 percent. But some regional casinos in the United States and some clubs in the New South Wales state of Australia quickly rebounded post reopening. Worldwide, casinos are expected to gather only half of the revenue that was expected in the upcoming year
What does the immediate future hold for the global gaming industry? I see five important developments that will shape industry fortunes:
(1) Continuing or growing restrictions on customers from Mainland China.
(2) An overall depressed global economic outlook that will significantly curb travel and entertainment.
(3) Continued restrictions on patron numbers and venue management in most jurisdictions.
(4) Added capacity and competition in some jurisdictions.
(5) Deteriorating customer loyalty.
Chinese Government Restrictions
China’s stringent policing of currency outflows for gambling purposes and its proposed crackdown on Mainland Chinese traveling abroad for gambling could not have come at a more inopportune time. China also wants to put a stop to the underground banking system that many of its citizens use to access foreign currency for gambling.
Most Asian and Asia-facing casinos rely heavily on Chinese clientele to make their business viable. The contribution of Chinese consumers to the global gaming industry is huge, both in customer numbers and in revenues. By choking the access to money flowing out of China and making it more difficult for Chinese punters to gamble overseas, the casino industry in most parts of the world could become perennially handicapped.
Depressed Economic Outlook
The International Monetary Fund (IMF) projects global economic growth at minus 4.9 percent in 2020. That’s 1.9 percentage points below the April 2020 World Economic Outlook (WEO) forecast. The COVID-19 pandemic has had a more negative impact on activity in the first half of 2020 than was anticipated, and the recovery is projected to be at a much slower rate than previously forecast. The IMF has estimated the global economy will grow at 5.4 percent in 2021. This would result in 2021 GDP some 6½ percentage points lower than in the pre- COVID-19 projections of January 2020.
Integrated resort casinos (IRCs) offer products that fall at the extreme end of consumer discretionary goods. Hotel facilities, entertainment, fine dining, and gambling together account for almost all the revenue of resort casinos, and spending on each of these products is totally discretionary. With the dismal economic outlook for the years 2020 and 2021, few can be optimistic about consumer spending in IRCs.
Restrictions on travel, entertainment, and gathering are bound to remain in place in the foreseeable future regardless if a Covid-19 vaccine is found. These restrictions limit the number of patrons in gambling areas and the social distance that needs to be adhered to by gamblers. There are also constraints on operating non-gaming facilities such as restaurants, bars, and nightclubs.
Casino resorts will have to spend a considerable amount of money on disinfecting the public areas, testing staff and customers for infection, and modifying their gaming facilities to minimize the chance of infection. Senior executives will continue to spend a lot of their time ensuring that their “COVID-19 plan” is up-to-date and rigorously implemented. Some capacity restrictions may be eased as the pandemic wanes. But many other constraints such as masks and sanitization protocols are here to stay and may impact recovery.
These restrictions impact casinos’ top line as well as bottom line. Forced reduction of patronage limits revenues, while requirements such as facility sanitization add to operating costs. Gone are the days when patrons in Macau could congregate around a baccarat table, three layers deep, and beg croupiers to accept their bets during a run on player or banker!
Added Capacity and Competition
Markets such as Macau, Sydney, and the Philippines are set to add additional gaming tables and slots despite the current restrictions. New and renovated properties may draw initial high customer numbers due to the curiosity factor, but the overall net impact will be further impoverished performance for the existing properties.
In 2019, Union Gaming reported that around US$65 billion will be invested in new casino properties in Asia between now and 2025. Brakes will be applied to planned investments wherever possible, however, some properties are at advanced stages of construction and have little choice in the matter.
Deteriorating Player Loyalty
In late April 2020, Synergy Blue carried out a survey of 1,000 regular gamblers in the United States. Nearly two-thirds (64 percent) said they gambled online or played mobile games (pay to play/free to play) during Covid-19. Some 93 percent of those said they will continue with online or mobile gambling once stay-at-home orders have lifted.
Only 51 percent indicated that they will return to casinos upon reopening. Even more concerning is the finding that just 35 percent of those planning a return would go back to their usual casinos. These findings imply that consumers will spend a lower amount of their gambling dollar in land-based casinos and less than 18 percent will return to their pre-pandemic casinos of choice.
Worldwide, there exist around 7.5 million slot machines and 85,000 gaming tables. Billions of dollars are spent each year on loyalty programs, most designed along the ‘earn-and-burn’ proposition. A huge dent in patron loyalty as suggested by the Synergy Blue research will induce casino companies to cut back on their player reinvestment percentages.
When revenues are scarce, marketing activities are often the first to go under the guillotine. Unfortunately, such cost-cutting measures often end up in making an already difficult recovery even worse. Research evidence from other industries suggests that businesses who continue their consumer franchise-building activities during times of economic distress emerge stronger and more profitable on the other side.
A Time for Reckoning
By all accounts, the gaming industry is having to contend with headwinds it has never experienced before. Most operators have painted rosy pictures about their prospects for the immediate future. Virtually all properties have engaged in severe cost-cutting measures, regardless of location or jurisdiction. Operators are having to walk a tightrope while implementing strategies that incorporate the concerns of customers, shareholders, and governments.
Traversing the immediate short-term will not be easy. Trade-offs and unpalatable choices will be inevitable. As for the long-run, one thing is for sure. Casino companies that overcome the Covid-19 crisis and thrive will be those that do not take their customers for granted during these difficult times.
* Sudhir H. Kalé, Ph.D., is the founder and CEO of GamePlan Consultants, a boutique consultancy that advises casino companies on matters of corporate culture and marketing. He has published around 150 articles on the marketing and management of casinos. You can write to Sudhir at [email protected]