Cast your mind back to July 2019. Macau casinos had just posted a 6% annual growth in June revenue, while Nevada’s casinos generated an 11% rise. Combined, the two gambling hubs took $4bn in revenue for the month alone, while sportsbooks were gearing up for a new football season and major tennis tournaments in Europe, and were fresh off the NBA Playoffs in the US. The phrase ‘how times change’ has never felt more cliché yet, at the same time, never more apt. With the world gripped by the coronavirus pandemic, no one in the gaming industry could have foreseen the downturn in revenue that has befallen numerous areas in the sector.
But there is industry-wide hope following the most unprecedented period in gaming’s history. Online casino, poker, esports and virtuals have capitalised on a growth opportunity, with increased interest from stay-at-home players. With major sports also returning and casinos beginning to reopen around the world, the gaming industry will be hopeful it’s on the road to recovery – without any second waves of COVID-19 cases. Analysts at an ICE Asia panel in June, for instance, discussed the possibility of Macau returning to 2019 revenue levels in H1 2021; New Zealand casinos are also now able to function with no domestic restrictions whatsoever. (The country has declared itself free of COVID-19 but still has travel limitations in place.)
In the US, the road to recovery looks far longer – and far more socially distanced – with bond credit rating agency Moody’s projecting a 70% reduction in EBITDA for Las Vegas firms in 2020 and Fitch Ratings saying pre-COVID levels would only be re-attained by 2023. Moody’s analyst Adam McLaren told Gambling Insider levels could rise in 2021, however, and there will be a genuine buzz pervading the Las Vegas Strip if operators can get the requisite safety measures in place. In other words, things will be very different for gaming in the coming months – but there is reason to be hopeful. Peering over from what is hopefully the summit of what the sector has been presented with, a new landscape is coming into view.
The online sphere
The coronavirus has affected the land-based and online sectors very differently. While sports betting organisations have taken a hit, online casino has taken in the bulk of new players looking to take their business elsewhere. So much so, in fact, jurisdictions such as Sweden and Finland have imposed new player limits during the pandemic. While there have been increases in online volumes (as much as 140% in Australia, according to its regulator), the industry maintains there is little data to suggest overall gambling levels have surged uncontrollably, or that problem gambling has risen to levels higher than pre-pandemic. But the fact remains verticals such as online casino, poker and live casino have coped far better than betting shops, casino hotels and the like.
A prime example is Evolution Gaming. The live casino provider has been “unaffected” by land-based closures, although this is something CEO Martin Carlesund is not particularly pleased to announce, given the circumstances. In April, the supplier reported a 45% year-on-year rise in Q1 revenue to €115.1m ($124.2m), primarily crediting the growth to the absence of sports betting. Even during the pandemic, Evolution has done “very well”, as Carlesund tells Gambling Insider, wary though he is of benefiting from the “horrible situation in the world”.
From a neutral perspective, the executive has inevitably witnessed changes in player behaviour during a period of extended lockdown, describing a “paradigm shift” for the industry. Carlesund explains: “Of course it won’t change as drastically; it will revert a little bit to what it was before, at first. If you take travelling, for example, we had a peak for travel where people were flying everywhere. But, coming out of this pandemic, we’ll be a little more cautious, not travelling as much as before. If it does return to its pre-pandemic rate, it will take a long time.”
Travel is one example of enforced change, while another is inevitably a greater focus on digital gaming. Land-based companies may have always seen online as the enemy, as discussed at an industry conference earlier this year, but the pandemic may have helped persuade both businesses and regulators to see online as less of a threat. Carlesund says: “Of course, I see a growth in the player numbers that I think will be persistent after the pandemic. We will return to some kind of business as usual or as it was, but not really to 100%. It will change the view of online, player behaviour and regulation.”
Regardless of – but at the same time driven by – the pandemic, the Evolution Gaming CEO believes the majority of casino revenue will become digital in the future, warning the “online evolution has just started”. While as much as 90% of pre-pandemic casino revenue remained offline, according to the executive, he projects the landscape will be significantly different in the long run. “The biggest changes will be in markets that are heavily dependent on land-based,” he explains. “Now they’ll see that, if they would have had online, they would actually have some revenue. New Jersey, for example, is doing a lot better than Nevada. In total, 90% of revenue in casino is still land-based, 10% is online and 2 to 3% is live. So really the online evolution has just started. In the future, I think 50 to 70% of casino will be online. Maybe this [pandemic] has increased the speed a bit but the potential has always been there for online casino in general.”
While he reiterates his hesitance to discuss what live casino has gained from the situation, Carlesund feels the industry will have benefited from being forced to think in greater terms about long-term sustainability. He says: “I do like that the world is a bit shook up, and maybe thinking one step further: What does this mean? How do we address the future? Should we travel as much? This is good for a lot of business, I think. Where are we going with this? How will the world look? Many people are looking at this right now, a bit distressed, but I think those thoughts are good.”
The land-based view
Where online has been fortunate, however, the land-based sector has suffered hugely due to the coronavirus. In the US, 100% of land-casinos were closed, as operators and suppliers began to see revenue, EBITDA and profits plummet. The aforementioned monthly figures in Macau and Nevada sum up a bleak picture, although they were far from the only jurisdictions to be afflicted. Even after reopenings in Macau – casinos resumed operations in February after two weeks of closure – travel restrictions have significantly reduced financial projections. Wynn Macau, for example, expects adjusted EBITDA for April and May to fall somewhere between $118.8m and $126.1m, representing a 157% drop.
Hope is returning, though, with optimism generated by the June reopening of the Las Vegas Strip, the Hard Rock Seminole in Florida and many other iconic properties, not just in the US but globally. Yet the pandemic’s effect has left a large vacuum for the casino sector. Thousands have either lost their jobs or been furloughed. Executives across the board have taken pay cuts, forgone salaries completely or donated them to furloughed workers, and reopened casinos will have a completely different look post-pandemic to anything that had ever gone before.
Offering analysis from a land-based point of view, Lightning Box Games CEO Peter Causley sees long-lasting effects on the make-up of the industry. A slot games studio, Lightning Box works with both online and land-based operators. With clients in UK, Greece, Latin America and the US, Causley admits the least the supplier can expect is the delay of new game launches. The company’s partners have had to furlough a large percentage of staff, with fewer redundancies. Indeed, there’s no denying the “diminished” revenue potential of the casino floor in the coming months, chiefly due to social distancing measures.
Causley tells Gambling Insider: “With social distancing being with us from now and into the next 12 months or more, leading to every second slot machine in a bank disabled, obviously you’d think the purchasing of new games by venues will be diminished. Casino estimates are around a 40% reduction in slot offerings (since not all machines are in a bank), but possibly only a 25% reduction in revenue due to greater utilisation of remaining slots. Pair the above with lost revenue for casinos over the past three months and it becomes an inevitable downturn in sales for suppliers. Only the greatest optimist could see otherwise.”
The executive does see a silver lining in the potential resurgence of leased games, which will not eat into a casino’s diminished capital expenditure budgets. He adds: “If we were initially expecting 10 of our ‘for sale’ games to be launched over the next 12 months, that may change to four ‘for sale’ games and one leased product.” Like Carlesund, the Lightning Box CEO also sees the post-pandemic world acting as a catalyst.
More specifically, he foresees changing attitudes towards revenue-sharing products in light of reduced budgets on American and Australian gaming floors, along with potentially improved sharing rates for suppliers in the ultra-competitive UK retail sector. “This will culminate in more of a partnership between the manufacturer and venue operator, wherein they both share in the ups and downs of game performance,” he theorises. “So there will be less risk for casinos, shrinking their capital expenditure, while still giving them access to new content and providing incentive for suppliers to keep innovating.”
Perhaps the most pertinent way of assessing gaming’s new landscape is not by viewing online and land-based separately, but rather evaluating acceleration in the convergence of the two. Carlesund’s point, regarding online being perceived as less of a “threat” is poignant here. While the land-based sector was at a standstill, the state of New Jersey best exemplified the divide, with the Garden State’s main headline being a record fall in overall revenue for April, and online revenue more than doubling to a record $80m. The Evolution CEO remarks: “The Las Vegas Strip was dark and shut down – billions of dollars have been invested and there was nothing happening. Each of these casinos could have been operating online. If I were there, I would think about that.”
Faced with a choice between online revenue and none at all, therefore, land-based properties can no longer afford to take a judgemental view. This is especially true of the period ahead where, as Causley has pointed out, casinos can expect reduced handle. In fact, the Lightning Box CEO believes the next 12 months could see staggering levels of progress in this area. “We had already seen great convergence of slot design for land-based and online a few years ago,” he explains. “Now we will definitely see those largely retail-operating businesses accelerating towards getting into digital or growing their existing digital revenues, even if only to balance up their risk profiles. We could see growth towards this outcome in the next 12 months that we would have previously expected to take 10 years. This of course will just mirror what we see in the general business community.”
A new horizon
While the last issue of Gambling Insider examined the immediate impact of a pandemic, the scale of which the industry had simply never seen before, our current issue is filled with optimism. Providing there are no second waves of the virus, gaming has hopefully seen the worst of the crisis and we’re looking at a new horizon. Online companies have been able to adapt, helping weather the storm. But for land-based casinos, this new horizon will inevitably offer a period of downturn – even if it's nowhere near the absolute zero of the pandemic’s peak. Progress will be slow and, initially, results far below pre-pandemic levels.
As we move towards this new landscape, involving an ever-increasing intertwining of the online and retail spheres, it’s important to note we’re not out of the woods just yet. With guests in Las Vegas always seeking the ultimate tourist experience, genuinely maintaining social distancing will be tough. Measures are in place, with properties around the world making a concerted effort to prepare for a safe reopening. And, with the industry pulling together more than ever, there is much to look forward to. But with gaming only just setting off on the long road to recovery, the hard work is just beginning.