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Cannibalization Debate and the Future of Online Casinos

Cannibalization debate surrounding online casinos in battleground states like Maryland and New York divided the industry in 2024. While some argue it could reduce brick-and-mortar casino revenues, others see it as an inevitable evolution. Explore key arguments and insights from industry leaders.
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Branimir Ivanov | Senior News Contributor

Updated: May 10, 2024

What does the future hold

In 2024, a heated debate emerged in battleground states like Maryland and New York over the concept of “cannibalization” in online gambling. Cannibalization, the notion that online gaming might reduce revenues at traditional brick-and-mortar casinos, became a central point of contention between proponents and opponents of iGaming expansion.

Opponents of online gaming, often backed by sponsored studies, argued strongly that introducing online casinos would lead to a significant decrease in revenue for physical casinos. On the other side, proponents of iGaming countered with their own studies, arguing that no cannibalization effect existed.

 

Key Movements

  1. Cannibalization Debate in Online Gambling: The debate over “cannibalization” in online gambling, particularly its impact on traditional brick-and-mortar casinos, was central in the 2024 discussions regarding the legalization of online casinos in battleground states like Maryland and New York. Proponents and opponents presented conflicting studies about whether online gaming would reduce revenues at physical casinos.
  2. Industry Division and Challenges: The debate divided the gambling industry, making it difficult to convince legislators to legalize online casinos. Brick-and-mortar casino operators, like Cordish Cos., often opposed online gaming due to concerns about its impact on their business models, while larger corporations like Bally's Corp. invested heavily in iGaming. This divide reflected differing views among casino operators, regional companies, and casino workers.
  3. Inevitability and Adaptation: Despite the debate, the inevitability of online gaming's expansion was recognized. Casino operators, regardless of their stance on cannibalization, were exploring ways to integrate online gaming into their business models. The potential revenue from online gaming was seen as an opportunity for states facing budgetary pressures, as seen in states like New Jersey, Pennsylvania, and Michigan, which had already legalized iGaming and experienced significant revenue growth. Ultimately, the industry's ability to adapt to technological change and shifting consumer preferences will determine its long-term success.

 

This clash over cannibalization has not only divided the gambling industry but also made it challenging to convince legislators to legalize online casinos. Consequently, no states moved to legalize online casinos in 2024, and the debate is expected to continue affecting legalization efforts in 2025 and beyond.

Despite the fervent arguments in 2024, the significance of the cannibalization debate may ultimately diminish in the long run. Even if cannibalization were to occur, it's unlikely to halt the evolution of the industry, driven by consumer demand and state revenue considerations.

At the East Coast Gaming Congress in Atlantic City, New Jersey, executives from prominent casino operators expressed divergent views on cannibalization. Mohegan Gaming CEO Ray Pineault acknowledged the concerns but emphasized the need for brick-and-mortar operators to embrace digital gaming rather than cede ground to online-only operators.

The stance on cannibalization often depends on the business model of the casino operator. Companies like Cordish Cos., which focus on developing entertainment districts around casinos, view online gaming as a threat to their business model and oppose its expansion. However, others see iGaming as a means of acquiring new customers and keeping their properties relevant.

For instance, Bally's Corp. Chairman Soo Kim highlighted that while individual operators may resist online gaming due to cannibalization fears, the industry as a whole benefits from its expansion. This divide pits online gaming operators and larger casino corporations against regional operators and casino workers, along with their unions.

The argument against cannibalization extends to concerns about losing customers to online giants like FanDuel and DraftKings, who dominate the online gaming market. However, proponents of iGaming argue that physical operators possess a natural advantage with their existing customer databases, which they can leverage to draw players to their online platforms.

The inevitability of online gaming's expansion is recognized even by those who oppose it. As Caesars Entertainment CEO Tom Reeg noted, while regional casinos may fear cannibalization, the growth of iGaming is undeniable.

The changing landscape of the gambling industry, driven by technological advancements and shifting consumer preferences, necessitates adaptation. This sentiment was echoed by Hard Rock International CEO Jim Allen, who emphasized the need to anticipate the future preferences of younger generations.

Despite resistance, the appeal of iGaming remains strong for many casino operators. Reeg highlighted the extraordinary growth of the iGaming industry compared to the stagnation of brick-and-mortar casinos.

However, the resistance to iGaming, particularly from casino worker unions and casinos aiming to maintain the status quo, underscores the challenge of implementing change in the industry. Yet, history shows that progress cannot be halted indefinitely. Companies that resist online innovation may ultimately fade away, along with the jobs they provide.

To remain relevant, casino operators are exploring ways to integrate online gaming into their existing offerings. Pineault emphasized the importance of an omnichannel approach to engage both physical and digital customers effectively.

 

“Whether there is or is not cannibalization happening, digital gaming is happening, whether you like it or not. Your competitors, whether they be the FanDuels, the DraftKings, the Fanatics of the world or the other casinos down the street, they’re seeking legislation to expand gaming in the digital space. So I think what we have to do is be prepared for it.”

 

Conclusions

The potential revenue from online gaming presents an enticing prospect for states, especially as they face budgetary pressures. States that have already legalized iGaming, like New Jersey, Pennsylvania, and Michigan, have seen significant revenue growth, offsetting declines in traditional casino revenue.

Ultimately, the debate over cannibalization reflects broader tensions within the gambling industry as it grapples with technological change and shifting consumer behaviors. While the future of iGaming remains uncertain, its inevitability suggests that industry players must adapt or risk being left behind. As the gambling landscape continues to evolve, the ability to navigate these changes will determine the long-term success of casino operators and the industry as a whole.

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