LATIN AMERICA’S SLEEPING JAGUAR? Millennials & Gambling in the age of entertainment
LATIN AMERICA’S SLEEPING JAGUAR? Millennials & Gambling in the age of entertainment
There has been a great deal of speculation and conjecture over the past year about what the future holds for the gaming industry. Quite a bit of the dialogue has focused on changing consumer demographics and the broader impact of technology on leisure and socialization within environments such as casinos.
Are slot machines an endangered species or will today’s 30 year olds eventually gravitate toward products that they have shown little interest in to date? Is it really a question of economics and an over-emphasis on dissecting the preferences of populations that have historically never gambled significantly anyway? Should we be scrambling for solutions or should we patiently wait for the pendulum to swing back to something more comfortable and familiar?
To quote the catchphrase from a voice of reason from my own childhood, Mr. Belding of Saved By The Bell, “What’s going on here?”
If Las Vegas is indicative of a broader trend coming soon to a gaming environment near you, the core activity of gambling, as we have known it to be for the past fifty years, is in the midst of a profound transformation. This not only includes how people gamble, but it also includes a twist on why people gamble (and why more and more don’t) that must be considered if we are to understand what’s taking place in plain sight, so as to adapt and thrive in this new world order of leisure entertainment redefined.
Though it’s correct to point out that Las Vegas is unique, the evolution of the town is the road everyone in our industry follows. Many black-market slot parlors throughout the world, for example, are quite reminiscent of the first casinos in Nevada that were run by gangsters. Small, dingy and totally one-dimensional operations – these Nevada slot parlors over time evolved. Different markets travel at different speeds but the histories and lessons Las Vegas has to offer would be wise for anyone in our industry to be aware of and apply according to his/her own market realities and point along their own evolutionary line.
It has been a full fifteen years since gaming revenues were greater than non-gaming in Las Vegas. Fifteen years of steady growth for non-gaming and decline for gaming. Despite a record 42.3 million visitors to Las Vegas in 2015 alone, gaming revenue actually declined slightly. Emerging non-gaming initiatives such as hotels, nightclubs, restaurants, entertainment spaces and a fully recovered conventions segment (which was up more than 13% year-over-year) have been the headline grabbing stories of success of late.
A few weeks ago MGM Resorts opened a 20,000 seat arena on the strip. Las Vegas Sands and others have rolled out formal plans for a $1.2 billion domed stadium behind MGM Grand. There is talk of the NFL and NHL strongly considering Las Vegas based teams – something that would have been an incomprehensible consideration just five years ago because of the negative perception of gambling among the uber-conservative stakeholders within those organizations.
Of the record $16.7 billion in total revenue at Strip casinos in 2015 only $5.8 billion (less than 35%) was gaming revenue. There is more to this story than just the influence of younger consumers who don’t want to gamble. Hakkasan, a nightclub at MGM Grand that cost $100m to build has grossed about that amount in revenue ($100m) each of its first two years in business. Almost all of that is “millennial” spend. There is more to it as well than just saying younger people don’t have enough money to gamble when they clearly are spending money in other ways on the Strip. By some estimates, Millennials spend $500m annually in Las Vegas at MGM properties and less than 1% of that spend is on gaming. This is a telling statistic if true.
The elephant in the room can be summarized by one word: psychographics. How people generally perceive gambling is changing. The ubiquity of gambling in the United States and throughout much of the world means that more people live in close proximity to a gambling establishment than ever before. Because gambling in the same forms is no longer a unique component of an experience, destination markets like Las Vegas have been forced to innovate. To date, the vast majority of that innovation has taken place on non-gaming amenities that strive to create differentiated experiences that cannot be easily replicated by competitors.
And competition exists in more forms than ever. Not only casino operators competing against their peers, they are also increasingly competing against advancements in mobile and web-based entertainment. Recognizing the role of the physical casino environment is an important consideration. Casino floors have been largely unchanged over the past fifty years. Slots, which the data shows younger people consider to be “something for grandma”, “boring”, “confusing” and “antisocial” are facing a critical crossroads in that their very design evokes “staring at a wall” and runs counter to what consumers are increasingly looking for in a gaming experience.
Lotteries are seeing rapidly dwindling revenues, except for instances of huge jackpots, in large part because of the instant-gratification more and more consumers (millennials especially) have come to expect and demand. Imagine telling a 25 year old today that they can spend their money picking numbers and then have to wait three days to know if they won. When they can simultaneously win or lose instantly on their phones, the proposition of a traditional lotto drawing is laughable.
Millennials are the story because they are the largest generation in history and they grew up with the internet, 9/11 and the great recession as formative in defining who they are and what they value – but the truth is the roads they pave we all eventually travel at our own speed. Want proof? Quick, what is the fastest growing demographic of active monthly Facebook users? The answer: 60-70 year olds.
Diversification beyond gambling halls is a movement that is spreading. In regional markets, casino operators are beginning to evaluate their businesses in different ways. Whereas the question once was “What slot themes would my customers be interested in? How can I increase gaming?" - increasingly I am hearing “What amenities would the people who live within 30 miles of my property be interested in? How can I increase visitation?” Forward thinking operators in markets like this recognize the days where they can operate a non-diversified “box of slots” likely have a looming expiration date. They want to get in front of it.
Globally, we are also seeing similar stories. Macau, the world’s largest gaming market (which just a few years ago was seeing annual revenues in excess of seven times the Las Vegas Strip) is looking at diversification, away from a singular focus on VIP gamblers and toward families and the broader mass market, as a potential savior against a backdrop of lengthy declines in gaming revenue. New properties such as Studio City - a $3.2 billion integrated resort that opened this past October – feature large kids zones and Batman themed roller coasters, in an effort to broaden their appeal to a wide audience. Galaxy Macau – another multi billion dollar integrated resort on the Cotai Strip – features a 4,000 square meter wave pool edged by 150 meters of sand. Macau is a good example of a market totally saturated with very similar product offerings, the winners will be the properties that are able to truly differentiate themselves by creating unique experiences that consumers will be willing to pay a premium for.
The gaming floor of the future, both in destination and regional markets, will similarly emphasize the experiential components of consumption as both points of differentiation and barriers for competition.
When I worked at IGT, I spent the better part of a year travelling to countries in Latin America were the company does business. Everywhere from Mexico to Uruguay and everything in between. It wasn’t long before my floor-walks (which would number over 100 that year throughout the region) began to blend into each other – the properties were for the most part not well-differentiated experiences that capitalized on some unique aspect of their location, a theme or some other environmental hook to make them memorable and desirable places to go.
With some notable exceptions, the customers tended to be high frequency locals and the operations were slots focused. One of the key differentiators from casino to casino was a heavy emphasis on providing a level of customer service that old Vegas would recognize and new Vegas now longs for. Players often commented to me that the casino was like “a second home” and members of the staff were like “family.” If a staff member loves your mother and she loves them, it’s unlikely you’re going to go across the street.
As Latin America prepares to court a new generation of consumers, who will bring with them greater demands and more complex expectations, it will be important to build upon that foundation (perhaps with strategic partnerships that can be found in places like Tribal Gaming) and appropriately apply lessons learned from other markets. The opportunity for Latin American gaming operators to diversify into broader leisure, entertainment and hospitality verticals could yield significant revenue opportunities. Clearly, a different approach to the physical environments and how operators segment spaces is going to play a considerable role.
On June 2 at Juegos Miami, I will be making a presentation to Latin American gaming industry stakeholders on trends that are shaping the gaming floor of the future, with the hope that lessons learned from other markets can be applied over time in their unique markets. I will post a follow up blog after the conference.