Yesterday, at the annual J. P. Morgan Global High Yield & Leveraged Finance Conference in Miami Beach, Florida, Ifrah Law Founding Member Jeff Ifrah shared his predictions for the growing online gaming industry in the U.S. and in Europe. Susan Berliner, an analyst with J.P. Morgan who covers gaming and lodging, moderated the panel, which also included Marc Falcone, CFO of Fertitta Entertainment/Station Casinos, and Eamonn Toland, President of Paddy Power. The panelists addressed the potential for online gaming’s additional expansion in the states as well as payment and logistical issues.
J.P. Morgan’s conference attracted a crowd of over 1,000 CEOs, CFOs and other C-Suite executives from high-growth companies across an array of industries, including gaming, entertainment, energy, and transportation and institutional investors. Questions from attendees at Tuesday’s panel indicated that investors were most interested in the rollout of online gaming in the three states that presently permit it: Delaware, Nevada, and New Jersey.
Ifrah noted that one study predicts online gaming revenues in the U.S. to reach approximately $670 million. According to Ifrah, how online gaming grows depends on what the states do to permit gaming and their licensing processes and what other states come online in the near future. Ifrah shared that just a couple hours before, Delaware and Nevada announced an historic agreement to pool their liquidity to increase their prize pool, allowing poker players in those states (and any other states which may subsequently sign on to the agreement) to play online poker offered by operators in either state, and to play against players in the other state. Governor Sandoval of Nevada and Governor Markell of Delaware met in Wilmington yesterday to announce this exciting development. The State of Delaware, an Ifrah Law client, launched online gaming in November.
Marc Falone of Station Casinos observed that run rate revenues for online gaming are estimated at $150 million in 2014. While online gaming is still in the early stages, it has the potential to be a much larger business with significant long-term growth potential. Falcone pointed out five challenges to online gaming growth, about which the panel generally agreed:
* General awareness – many consumers still do not understand that online gaming is legal in Delaware, Nevada, and New Jersey, which hinders participation and growth.
* Payments – despite online poker’s legality in the three states, Mastercard, Visa and other payment processors nevertheless decline to make deposits on online gaming sites.
* Geolocation – the states utilize geolocation technology to confirm that only residents in those states play. Many individuals have found the geolocation confirmation process unwieldy and difficult with which to interact, causing them to choose another activity. Falcone, Ifrah and the other panelists agreed geolocation technology and ease would improve over time.
* Security – in the age of high profile data breaches at Target, Neiman Marcus and elsewhere, and a reported breach on the Sands website, consumers’ interest in online gaming may be chilled. New Jersey requires a player enter a social security number. Consumers are understandably reluctant to provide that type of sensitive personal information in a website form. Industry needs to continue to work on secure procedures that will boost consumer confidence.
* Offshore gaming – licensed operators in the three states still compete with offshore gaming sites.
Eamonn Toland of Paddy Power stressed that online gaming revenues are currently as anticipated; growth takes time as consumers become more aware and some of the “wrinkles” identified above are ironed out. He sees a significant revenue growth of 28% month-to-month. As to whether online gaming “cannibalizes” land-based casinos, Toland and the other panelists concurred that the online gaming player is an entirely different demographic and they did not see the cannibalism effect. Toland believes online gaming will grow significantly as states contract with each other like Delaware and Nevada just announced.
As to other states that may authorize online gaming, Ifrah and the other panelists mentioned California, Illinois, New York, and Pennsylvania as potential markets. The panel participants cautioned that while these are exciting developments at the state level, the federal government would be monitoring online gaming operations to see if there are any significant issues, such as consumer protection issues. However, at least one panelist believes that online gaming has extensive protections – such as age verification, protections for problem gamblers – that result in fewer losses for consumers than in land-based casinos.