Tuesday, September 29, 2009

How Long Will it Last?

When I was at the gaming summit this year in Windsor I spoke with a gambler who said that 'casino revenues, especially slot revenues have a shelf life'. He expected that slots especially will fall off the cliff sometime in the next 20 years. When we discussed it, I was swayed. The demographics are poor, and really how much money can one lose day after day sitting behind a machine before it gets old?

Vegas and destinations have weathered the storm because they offer so much more. There is a reason to go there, but slots in every state and every province? I am convinced we will see that drop-off. From a recent report:

“The historical tendency for revenues from existing gambling operations to grow at a significantly slower pace than other state revenues may hold important lessons for states as policymakers consider further expansion of casinos, racinos, and other gambling activities,” Institute Deputy Director Robert B. Ward and Institute Senior Policy Analyst Lucy Dadayan wrote in the report. “Expenditures on education and other programs will generally grow more rapidly than gambling revenue over time. Thus, new gambling operations that are intended to pay for normal increases in general state spending may add to, rather than ease, long-term budget imbalances.


That is a dire warning to spend-drunk politicos that the gravy train does not last forever, and gaining revenue in the long run from slots is not something that is solid public policy.

The problem with this for racing is that after slots get saturated and bring in less and less revenue (should that happen) to governments, they tend not to change; they simply look for new avenues to fund their programs. What will they do? I believe, like in British Columbia, they will move online.

Right now horse wagering has a virtual monopoly on online gambling. But it is used like most things in racing - poorly and with little foresight. Go to a horseman group, or a state, or a track and mention online gambling and you will get three different answers, all of which depend on keeping their slices. We all know the problems with "home market areas" and "states regulations on what, when, how much and where someone can wager".

Are we not completely blowing this silver platter opportunity?

In 1930 we were the only legal game in town. We had attendance, we had revenues, we had 10% takeouts, we had gamblers playing racing full-time. Over the years we did not take advantage of it; in fact we might even say we sabotaged it. We raised takeouts by over 100%, thinking that a bigger cut will make us more money. We did not listen to the droves of people who left us, thinking that people loved the horses and would always love the horses. We made it harder and harder to be a customer, thinking that half-ass customer service was an acceptable business practice. We made it harder and harder to make this a worthwhile gambling game to play.

Online blackjack, poker and slots will be a reality in the coming years and that is not an opinion, with BC poised to do it, it is empirical. We have only a short window to not repeat history and blow this again. Will we make the necessary changes to compete before the competition comes, or will we do what we always do - wait for it to hurt us, then go cap in hand to the government begging them to save us? If we do the latter, I think that this time, we will find that no one is there to answer the door.

1 comment:

The_Knight_Sky said...

A very good piece.

Those racetracks and states that were fortunate to be the first ones in line with the "Racino" concept are the ones who benefited the most.

Once regional saturation of slots sets in, the VLT revenues will continue to get smaller and smaller.
It's obvious the Pennsylvanians will not travel to Delaware Park if they can pull handles closer to home. The same will hold true for Buckeyes who now travel to West Virginia.

The Slots-as-Savior concept seems to have its days numbered. Racing missed the boat long ago by not rolling back the takeout if they were blessed with slots revenue.

Now they will have to deal with a depleted customer base from both revenue sources.