12 May

Cannibalization from Online Casinos not the Problem

Online Casinos not to blame for Casino DemiseOnline casinos have only been around for about two decades now, while the land-based variety have enjoyed centuries of growth worldwide. In recent years, brick-and-mortar casinos have seen great decline in revenue. However, their claim that internet gambling is bringing them down holds little merit.

In reality, it would certainly appear that brick-and-mortar gambling establishments – especially the world’s largest operators – are doing it to themselves. A lot of businesses take out loans to expand their services and, hopefully, increase overall revenue. But there aren’t many with debt ratios so high as today’s biggest casino corporations.

Close Call for Caesars Entertainment

Caesars Palace Las VegasCaesars Entertainment is probably the best example of all. A few years ago, the company appeared to be doing well. From 2010 to 2014, they boasted steady annual revenue of $8 billion. But in the deeper recesses of their reporting documents, there was a much darker story unfolding.

Caesars was in terrible debt. The company had taken out many loans over the years to renovate its existing properties and build new ones. The revenue they were generating wasn’t nearly enough to pay off creditors, and the interest on those liens was building rapidly.

Executives seemingly ignored the problem, instead pouring more and more cash into their operations. They launched a new division, Caesars Interactive Entertainment, to host online casinos in New Jersey, and acquired the rights to the World Series of Poker to launch WSOP.com in their home base of Nevada.

All the while, this company (and many others) proclaimed fears that the online gambling sector would inevitably cannibalize land-based operations. Based on the results in New Jersey since iGaming went live in late 2013, that clearly has not been the case.

However, many land-based casinos continue to see their profits fall, and their debts rise. In 2015, the situation became so perilous, Caesars was forced to file for Chapter 11 bankruptcy protection. Last year, the company finally managed to assuage creditors with a lien restructuring deal that may very well have saved the world-famous gaming and entertainment brand from imminent demise.

Situation No Better in Australia

Crown Resorts AustraliaEven on our home turf, the Australian gaming group, Crown Resorts, is struggling. Just last week, Crown elected to sell off the last remnants of its stake in Macau’s Melco Resort (formerly Melco Crown). The company is projected to earn about AUD $1.34 billion from the sale.

Crown has already filed its intent with the Australian Securities Exchange, stating it will use the revenue from the sale to pay down debt. However, like their American colleagues at Caesars, Crown’s current debt exceeds $2 billion; far more than the $1.34 billion they have to work with.

Online Casinos Not to Blame

There are only two valid excuses for the incredible amount of debt these (and many other) casino companies are in, and cannibalization from online casinos is not one of them.

Economic decline is an obvious one. Many people simply don’t have the extra money lying around to spend at integrated resorts. And those who do aren’t gambling as much as they used to. Today’s younger generation of casino goers – Millennials, as they’re known – are more inclined to spend money on entertainment, night life and other amenities. Which brings us to our second reason.

Land-based casinos are spending billions of dollars (that they don’t have) to accommodate Millennials. They are renovating these massive, luxury properties, eliminating portions of the gaming floor to usher in new entertainment and upscale night clubs.

They are working so hard to compete with one another, especially in larger gambling meccas like Las Vegas and Macau, that they are digging their own money-pit graves.