Unpacking the cannibalization riddle

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Originally published in SBC Leaders, SBC Americas Editor Jessica Welman takes a deep dive into all sides of the cannibalization debate.

It was a moot point until it wasn’t.

Prior to 2024, members of the gambling industry would speak about the online cannibalization debate in past tense. It emerged in 2013 when New Jersey considered legalizing online casinos. At the time, save for overseas data, there was nothing that demonstrated whether or not online expansion would negatively impact Atlantic City casinos.

To be fair, Atlantic City casinos were already in a steep decline. Four properties closed up shop in the span of a year, including the massive luxury property Revel.

Once online casinos entered the picture, things started turning around. Retail casino revenues leveled out while online revenues provided an additional $122 million to operator bottom lines in the first full year of operation.

From that point, New Jersey proved to be the sterling example of what online casinos could do for a market. Since then, five more states legalized online sports betting and the discussion of cannibalization was barely a blip on the radar.

Yet, in 2024, the debate roared back to life. At the heart of the arguments were a series of studies reaching a range of conclusions about the impact online casinos have had on existing iGaming states and forecasts on the impact iGaming expansion could have on other states.

Studies from Eilers & Krejcik Gaming and Analysis Group commissioned by pro-iGaming entities IDEA Growth and Sports Betting Alliance (SBA) used different methodologies to reach roughly the same conclusion, which is that markets with online and retail casinos have seen a roughly 2% increase in retail revenues.

A study commissioned by an anti-gambling group in New Jersey drew different conclusions and warned of job loss in addition to lost revenue.

The study that drew the most attention and debate was research done by The Innovation Group (TIG) on behalf of the state of Maryland. The study covered a wide range of topics, including frameworks and potential tax schemes but it was the small section on cannibalization that ruffled feathers on both sides.

The methodology behind the madness

TIG’s research concluded that Maryland could lose as much as 10% of its retail casino revenue with online gambling expansion, but additional revenue and tax revenue would result in massive growth for the overall. The report even couched that number numerous times over and suggested a more realistic rate was 8%, but opponents were quick to grab the most alarmist stats while critics questioned the methodology.

The task of ballparking the universal impact of online casino on retail is a bit of a fool’s errand. The only thing the states with iGaming have in common is iGaming. The framework varies from state to state, as does the retail landscape. Throw in a pandemic ripping a hole through results and coming up with a methodology becomes a very fraught process.

For TIG, the answer was to look at the same time period across all iGaming states in addition to a handful of states considering iGaming expansion.

TIG Partner Brian Wyman defended that approach.

“Our view was, let’s take a blend of states that launched iGaming, a blend of states that didn’t launch iGaming, and let’s compare their performances against one another. And what we presented in the report was 2019 versus 2022. You know, people have made arguments that well, this is COVID impacted. And, of course, it’s COVID impacted. It’s when the iGaming growth happened.”

Critics of the approach pointed out that for several markets, these were the starting years of iGaming, while numbers were more mature for New Jersey and Deleware. The iDEA Growth study opted to look at the periods immediately before and after launch in states, while the SBA approach combined revenue projections with survey data from patrons in states with and without iGaming.

The media pulled the numbers to make headlines, but as iDEA Growth Founder Jeff Ifrah noted, not all approaches are necessarily created equally.

“I think it’s all a question of where are you getting your data from. Everyone is making assumptions based on data or maybe conducting an analysis based on the data they have. So I think the question should always be how good is the data that’s being relied on?” 

The iDEA study drew on comments from premier iGaming and casino CEOs whose companies benefitted from iGaming. While the insight may have been biased, the information they provided about player profiles and cross-over was crucial.

The study formalized what has always been conventional wisdom in the industry, namely, that the American online casino audience is not the same cohort as the American land-based casino audience. On average, online players have skewed a decade younger and slightly more male than their retail counterparts. But unless operators fully open up their database and show the overlap, the problem remains that there is no concrete data to rely on.

The politicization of casino cannibalization

Land-based casinos protecting their interests have always been part of the casino cannibalization debate. What has changed is the battle lines. In the era of uncertainty, plenty of operators like Parx and Cordish Companies were skeptical of iGaming. However, once the laws started passing, they inevitably started inking access deals and launched online sites. During the pandemic, as states scrambled to add new revenue wherever they could, even the smaller operators were thrilled to push things through legislatures during the gold rush. More states equaled more opportunity. 

Now that we are approaching a second straight year with no major movement on the front, operators are becoming more discerning. Churchill Downs pulled out of online sports betting and casino altogether in 2022 and, while the operator pushed for sports betting in its home state of Kentucky, it has generally been anti-online casino expansion. In Maryland, several Churchill properties appeared to speak against expansion. The Cordish Companies remain opposed to casinos as well.

The opposition gets to the heart of what all these studies problematically assume: That all casinos would potentially benefit from the omnichannel cross-promotion of a brand’s land-based and online offerings.

It is clear that some operators, like BetMGM and Caesars, are executing this omnichannel approach well. It is also clear that brands like Boyd, that have longstanding market access deals with FanDuel are well-poised to maximize the opportunity. What the studies don’t address is what the changes could mean for everyone else.

Wynn Resorts CEO Craig Billings said as much in a recent LinkedIn post where he labeled the cannibalization debate “reductive”. The post came not long after the company effectively shuttered its interactive division.

With the introduction of online casino, you are allowing the entry of many new and capable competitors, oftentimes into states that have had a very stable competitive dynamic for many years.  So, no matter which side of the ‘cannibalization vs. no cannibalization’ debate you are on, assuming that the (positive or negative) impact will be uniformly shared by all regional casinos is pretty naïve,” Billings said.

Ifrah pushed back at Billings’s categorization of the debate, namely the idea that expansion would open up something new rather than regulate something that is already happening.

“Billings talks about this as if it’s just a binary option…That we’re either going to introduce this competing business that lives overseas and doesn’t create jobs and, doesn’t have a good place in the marketplace and isn’t supporting our towns and our casinos or we’re not, but that’s not the decision,” Ifrah countered.

“It’s you’re either going to take market share away and protect your consumers who currently have access to offshore sites where they’re not protected, where they lose their money where they can develop addictions, and where there’s no responsible gaming tools. And of course, from a state coffer perspective, there’s no tax revenue.”

When did tax revenue stop being enough?

Before now, offering up the new tax revenue online casinos offered was about all it took to get legislation across the finish line. 

Certainly jobs have always been a part of the conversation, but what has changed is both how much jobs are getting talked about and who is participating in the conversation. What was once an argument of family foundations has now been embraced by two more powerful voices: unions and small businesses.

The emergence of union reps at debates on online gambling expansion is a new development, but not something that caught the industry off guard. Many pieces of iGaming legislation this year preemptively addressed the jobs issue by writing live dealer studio commitments and live dealer contracts into the bill. 

Despite these efforts, the concern around retail casino job loss grew. 

A study by the Ann Arundel County Chamber of Commerce took the highest cannibalization numbers from the TIG report and extrapolated potential job loss based on that number. The work concluded the state would lose 1,215 jobs not just at casinos but at other businesses as well.

TIG acknowledged the potential for job loss but did not offer specific numbers. Nonetheless, Wyman thinks the question around job loss is fair game.

“The way that operators staff their properties is often metric-based. And one of the metrics is going to be gaming revenue. And so a declining gaming revenue would lead to a decline in labor. So I don’t think the labor piece is actually that controversial,” Wyman said.

What is often the problem in these debates though is that metrics and methodology can often go out the window.

“Don’t expect the unions, particularly in blue states, to just sit back and let online casino happen.  They will take a position, because that’s their job. They’re not going to pore over analyst reports on cannibalization to form an opinion on the topic. They’re going to act preemptively,” Billings noted in his post.

Speaking with Roxie Herbekian of UNITE HERE Local 7, a union representing many Maryland casino workers, the union has taken a position defined by three prongs.

“Our goal is good jobs and strong communities,” Herbekian explained, noting that previously the union has welcomed gambling expansion because it contributed to that goal.

UNITE HERE leadership opposes online casino cannibalization because of what it claims is the proven loss of brick-and-mortar revenue which translates into fewer tips for staff and potentially fewer jobs. Herbekian also noted that in many states including Maryland casino sites are specifically selected to foster economic development so the impact extends beyond the casinos to their surrounding neighborhoods. Finally, the union is concerned that widespread proliferation of online gambling could have a negative impact when it comes to addiction and problem gambling.

When speaking with the Maryland Retailers Alliance VP of Membership and Government Affairs Sarah Price, she explained that a vote of membership determined the group’s stance on an issue like online casinos and, while they are on the same side as the labor unions on this particular issue, they are not working together.

As retailers though, Price pointed out that experience with e-tail has taught the group that what seems fine in the short-term could have long-term repercussions.

”We’ve tried to look at things through a very careful lens of even if it looks like something is going to be great in five years, that doesn’t mean that it’s still going to be great in 10 or 15 years.”

When it came to ballparking the tertiary impact of online casinos on other businesses, the group’s methodology amounted to polling businesses near casinos on what they thought the impact might be.

There are no exact metrics or publicly available material on the job loss issue, in particular, which makes personal testimony from union members and small business owners all the more impactful. 

Ifrah spoke about what he claimed were “paid protestors” showing up in Maryland claiming their jobs were at risk. Unions in Maryland, New York and Michigan have all spoken publicly against the expansion, but Ifrah also questioned why union members in existing iGaming states are not coming forward to talk about losing their jobs if that is actually taking place.

Say what you will about these union representatives and their testimony, but it is difficult to argue that they did not make a huge impact on shutting down iGaming progress in 2024.

The internal debate over methodology may have dominated industry debate in 2024, but come 2025 the real fight is going to be how the industry responds to the growing number of local business owners and voters telling a very compelling story about what they think online casinos will do to them. And it’s a story they are doing without math, without studies and without the promise of billions of dollars of tax revenue.