AGORACOM Small-cap Investor Relations Blog

• eSports may be the thing to bring millennials back to the casinos.
• Industry, both operators and regulators, need to take hold of the new opportunities – skill gaming, sports, social games and eSports – and present them in novel ways in order to survive

It seems that every year before the Global Gaming Expo (G2E), as the gaming industry spends some time self-reflecting, executives and marketing professionals focus on developing strategies to attract the ever-elusive “millennial.” As a member of that confusing young generation, and as someone who has spent over a decade in the industry, I wanted to offer a few thoughts as everyone heads to Las Vegas this year.

The gaming industry is at a dramatic turning point. From a legal and regulatory perspective, the country has never been more open to legalized gambling, as reflected in the increasing number of jurisdictions that have authorized casino gaming in the past decade. Daily fantasy sports are finding a regulated path in light of initial legal challenges. New Jersey is tirelessly and ceaselessly — though not necessarily successfully — thumbing its nose at federal bans on sports wagering, causing many former skeptics to at least consider the idea of legalized sports gaming. Legislatures across the country considering gaming expansion opportunities are increasingly concerned about that once-unthinkable phenomenon — “market saturation.

“So where has the demand gone? I’ll spare you the well-worn statistics about how millennials now outnumber baby boomers and are the nation’s largest generational group. And, as you are well aware, we aren’t necessarily thrilled about traditional casino gaming.At industry panels and discussions — often solely featuring older generations — there has been plenty of talk about opening up the casino floor, placing “lounge” areas throughout a property, incorporating more nongaming amenities throughout the gaming space, and other cosmetic changes to better draw in younger crowds. I’ve seen many an executive wring his hands over the fact that young men and women will gladly drop hundreds on bottle service but won’t sit down at those fancy new “Big Bang Theory” slot machines designed to attract them.

“New colors, sounds and themes aimed at the customer’s existing preferences have always worked! What’s wrong with kids these days?”

I am not a marketing expert, and I am certainly not claiming to speak for everyone in my increasingly diverse generation, but the industry seems to miss some key points in its attempts to adapt to a new demographic.

After spending considerable time thinking about why casinos seem unappealing, I think all of the issues boil down to this:

We simply don’t have the economic security to take blind risks with our leisure time.

First, and most obviously, we are under a level of financial stress and uncertainty unfamiliar to many except those who lived through the Great Depression. After being encouraged by well-meaning parents to take out exorbitant student loans so that we could “find a good job,” we enter the real world with few employment prospects and massive, non-dischargeable debt. Not only do we not have a large budget to put down at the tables, but we have delayed major life decisions (marriage, home ownership, etc.) because of unemployment, underemployment or lack of faith that our existing position won’t be cut tomorrow. Studies have shown a lack of trust in established brands, corporations and other major economic players as we have seen quality sacrificed for growth. In essence, although we have great optimism in ourselves and our social group, we have a deep-seated skepticism of large institutions, as we have seen our parents, friends and personal prospects largely left behind.

It is much easier to spend a set amount of our money on a night of booze and dancing, where we can truly escape ourselves for a few hours, than to watch our chips slowly transfer across the table just like our meager salaries are transferred back to student loan collectors. Sure, it’s possible to walk away a winner, but we all know the odds are more likely that we walk away with just a story of the grumpy old-timer who got angry that we “took his card” through non-optimal blackjack strategy.

But table games are not the true threat to gaming’s continued growth. At least millennials will consider a few games of blackjack, poker or craps. Slots, the bedrock of gaming revenue for decades, simply have no appeal to younger generations. Here, we have absolutely no say in the outcome, no way to try to grow our initial gaming investment beyond the press of a button. And we have vastly more interactive and exciting gameplay opportunities on our phones, many of them free. We are also, as is well documented, a social generation, for whom the idea of engaging with a single, personal screen with no contact with others is unappealing. The small prospect of winning, let alone the infinitesimal prospect of winning a jackpot, isn’t appealing as entertainment in and of itself.

Despite all this, I am still hopeful that the industry will adapt to new entertainment options. I can’t place the blame on casino operators, as laws and regulations strictly dictate the products they can offer in a way unseen in the rest of the corporate world. Thankfully, through the efforts of AGEM, the AGA and their state-level partners, skill-based gaming has been authorized and may offer an opportunity to truly revolutionize the industry. These games may allow the industry to address the concerns noted above, letting younger players have greater control over the outcome of the game, create a more social atmosphere, and bring gaming technology into line with the most current video and mobile games. This type of regulatory reinvention is necessary to drive gaming entertainment into the current leisure activity options for younger demographics.

Sports wagering offers a much more interactive opportunity and control over our betting — so much so that daily fantasy operators have tried to argue that their games are purely skill-based. Here, we can also engage with some of the few major brands that have appeal: professional and college sports teams and athletes. eSports is an entirely new opportunity that has an incredibly dedicated and engaged fan base that is entirely dependent on the video games and technologies that millennials grew up enjoying. There is already a massive gray market where gaming fans wager in-game skins and other virtual items on matches between professional Counter Strike, DOTA and League of Legends events. Many would more than happily throw down cash at the opportunity to play a similar type of game in a casino atmosphere against a few other competitors for a prize.

There is a change coming, and it will need to be dramatic for modern casinos to compete with other entertainment options. This goes well beyond moving a few chairs around the gaming floor, pumping in loud music or changing the themes of slot machines. The industry, both operators and regulators, need to take hold of the new opportunities – skill gaming, sports, social games and eSports – and present them in novel ways in order to survive.