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IN-DEPTH 2 January 2019
Transatlantic investment: Legal concerns abound
James E. Havel, Associate at Bryan Cave Leighton Paisner, details legal challenges the likes of GVC could face investing in the US market
By Gambling Insider

MGM Resorts International (MGM), one of the US’ largest domestic gaming and casino operators, this year formed a joint venture with British gaming giant, GVC Holdings PLC (GVC), in an attempt to capture the newly expanding sports betting market in the US. GVC has been running sportsbooks across Europe for an extended period of time and expanded operations and expertise in that area through its March 2018 acquisition of Ladbrokes Coral.

The business opportunities for such joint ventures are numerous: non-US sports betting operators want access to the extremely large American sports betting market (an estimated $10bn was wagered on the NCAA’s March Madness college basketball tournament in March 2018 alone) and cannot acquire licenses to legally access it without incurring significant costs, due to the heavily regulated nature of the American gaming industry.

Outside Nevada, American gambling and sports betting operators lack the expertise in building sportsbooks and creating internet and other sports betting technology that non-US gaming operations have been perfecting for quite some time.

Jim Murren, MGM’s CEO, said the following about the joint venture during its early stages: “With MGM’s expertise and leading position in key markets across the US, this historic partnership will be positioned to become the instant leader in technology, market access, sports relationships and brands. We are excited to benefit from GVC’s proprietary, best-in-class technology, digital customer acquisition expertise.”

The details of the joint MGM-GVC joint venture include GVC receiving exclusive access to all of MGM’s US land-based and online sports betting operations. On its own, MGM has 13 properties across seven states. However, MGM and Boyd Gaming, another large US gaming operator, formed a partnership to “have the opportunity to offer online sports betting in jurisdictions where either Boyd Gaming or MGM Resorts operate physical casino resorts and online licenses are available.” This expands MGM’s and GVC’s joint venture to potentially operating in 15 states, with both operators receiving a straight 50/50 split of all takings.

LEGAL CHALLENGES

The Supreme Court’s Murphy vs NCAA ruling affords states the opportunity to legalise and regulate sports betting at the state level. While the federal government has, and may seize, the opportunity to regulate the sports betting market on a federal level, Congress has not shown much inclination to take action with respect to such regulation at this time. In addition, states have traditionally regulated gambling without much federal intervention.

It is important to understand some of the key issues states are facing when it comes to sports betting, such as taxation frameworks and the ability to place mobile sports bets.

TAXATION FRAMEWORKS

The joint venture will have to monitor the taxation framework in various states to determine whether it will be profitable to operate.

There is a widespread misconception in the US that sports betting will bring in potentially hundreds of millions of dollars to states in the form of increased revenue, due in no small part to the amount of money people wager on sports in a given year. Historically, and particularly relative to the amount wagered, sports betting has not resulted in overly significant tax revenues in Nevada (the one state that has been continuously running sports betting operations since 1949).

According to the Nevada Gaming Control Board, sports bettors wagered roughly $4.87bn in Nevada in 2017. Nevada, which taxes sports betting at a rate of 7% of the gross adjusted revenue, took in an estimated $16.8m in taxes in 2017.

Other states are contemplating different taxation frameworks to increase tax revenues, although higher taxation may inadvertently chill the sports betting market in any given state. West Virginia’s sports betting law requires sports betting operators to pay a weekly 10% tax on the adjusted gross sports betting receipts. Pennsylvania’s proposed law requires sports betting operators to pay a 36% tax on its daily gross sports betting revenue. Understanding varying tax treatment will have a profound impact on sports betting in the coming years.

To complicate matters, some professional sports leagues in the US have been lobbying various state legislatures for a portion of the handle (amount wagered) as a royalty for hosting the contests. In response, the American Gaming Association and its casino allies have been lobbying against the leagues’ proposals.

MOBILE SPORTS BETTING

While one of the stated goals of the MGM-GVC joint venture is to leverage GVC’s online/mobile sports betting technology, some states may not allow online/mobile sports betting. States will have to determine whether they allow mobile sports betting (phone apps and/or internet sports betting) or whether the states will mandate sports bettors must be physically present in a casino or sportsbook operating facility to place a bet. While states with struggling brick-and-mortar casino industries may prefer increased foot traffic at casinos, consumers presumably would prefer the flexibility of being able to place bets either at their local casino or via their phones and/or the internet. The state legislators will have to weigh these competing concerns.

Based on the above factors and the first few months since the Murphy decision, the timeline for mass regulation across the US may be slower than originally anticipated. Licensed gaming operators in the US, such as MGM, are preparing for authorisation in the various states through these joint ventures with experienced European sports betting operators. That means where the markets are now could be very different from where they are in three to five years.
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IN-DEPTH 4 September 2019
Virtual reality: Creating next-gen experiences for players

Singular CEO George Shamugia discusses a new revenue stream for casino operators

The competition in online gaming is intensifying, with players becoming more and more demanding. In some markets, single-customer acquisition costs can reach up to €400 ($440) alongside growing churn rates. Furthermore, the online gaming sector struggles to attract one of the most lucrative groups of players – millennials. The experience provided by casinos no longer appeals to the younger generation.

On  the other hand, the video gaming industry perfectly understands the needs of millennials and by introducing elements of luck in their games offers the best of both worlds. With the launch of loot box systems and Grand Theft Auto’s in-game casino, we have seen their first successful steps in targeting the online gaming sector. GTA V online, with 33 million active players, recently opened an in-game casino, where players gamble real money on games such as poker, roulette, slots, etc. As a result, churn users returned and GTA Online reached the highest number of active players since its launch in 2013.

The online gaming industry has almost fully utilised the potential of the mobile medium. The time has come to look for new, innovative ways of delivering a next-gen experience to customers.

The potential of VR

Could the next big thing for online gaming be a fully fledged virtual reality (VR) casino delivering an immersive experience and limitless new opportunities?

Although not widely adopted yet, VR has a sizable number of customers. Analysts predict it’s poised for explosive growth to become mainstream in about five years. According to market intelligence firms, the VR market will be worth $117bn by 2022, and according to Juniper Research bets made through VR will reach $520 billion by 2021. Upcoming 5G mobile network technology will propel VR’s mass adoption by allowing the development of fully portable untethered and affordable VR headsets.

Different level of social interaction

The captivating nature of gambling comes from its social aspect. Unfortunately, personal interaction is widely missing from online gambling sites. VR technology creates multiple opportunities to bring back and even enhance that social moment. The ability to connect with other players is one of the main reasons behind Fortnite’s popularity. This form of co-experience is the next generation of entertainment. Research conducted by Facebook has found participants spend more time on VR compared to any other medium. This directly translates into increased profits for casinos.

Pokerstars has made efforts in this direction by implementing Voice UI. Instead of using hand controllers to make a call, pass, or raise, players give voice commands.

Another opportunity for bringing in the social element are the players’ avatars. They enable players to build their identity reflected in the avatars’ appearance, but also the avatar's social, competitive and community status. For instance, players are willing to pay real money for virtual drinks at the bar. Operators can offer these social touchpoints for free to VIP customers as an act of appreciation.

VR also brings a new dimension to customer support. Customer support can also be represented with avatars to assist the player in person. The social moment increases the LTV of players and contributes towards lower churn rates.

Rethinking game design

VR is a way more capable medium than a 2D mobile or desktop screen. Instead of copying the existing online experience, games must be redesigned from the ground up for a competitive advantage with VR. For example, a VR slot game can become fully immersive by teleporting the user into the slots’ world of Ancient Egypt. Next, enrich the experience with high-fidelity graphics, realistic spatial sounds and animations. When betting on virtual race cars, the user can be teleported inside the car he/she made a bet on and experience the race firsthand.

New revenue streams

VR casino lobbies create new revenue stream opportunities: ad placement of brands on the venue walls, company logos decorating the bar etc. This kind of branding is not intrusive in the VR space and feels natural from the user's perspective. VR also gives users the ability to change venues from a Las Vegas casino today, to Macau or even Mars casino, the very next day. The dynamic and diverse experience increases retention rates.

The majority of profits for online gaming operators come from their high-roller players. Although they represent a small subset of active players, an operator can launch a separate VR casino brand for them. Providing exclusive VR gaming experiences to high rollers/VIPs, the operator can minimise churn and maximise VR efforts for these player demographics.

The catch with VR is to focus on quality, rather than scale. The target audience might be limited yet, once these players experience it, they will become ambassadors for your offering.

Surely, the opportunities and possibilities offered by the VR medium truly exceed anything offered by mobile and desktop. VR is a new frontier not just for gaming but for every industry, and it’s exciting to see where it takes the industry and what kind of innovation it brings upon us.

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