In AUSTRALIA – Online Gambling UP 142%!
Casino Games, alternative sports betting, eSports, Virtual Sports, Poker and other events like Politics, Television and even Covid-19 vaccine outcomes (as a consequence of the digital shift) seem to be winning the pandemic stakes when it comes to online gambling growth, participation and profits.
“In Australia, in the week April 27 -> May 3, online gambling was up 142%, a growth number only overshadowed by home food deliveries. ”
Elsewhere in the gambling world - in the UK, 64% of engaged players increased time or money spent and 41% opened a new betting account. In Pennsylvania, there was a 25% increase in online casino gaming revenue. In New Jersey, there was a 20% increase in new player sign-ups.
Worldwide, 59% of gamblers have reduced their spending, but 32% have looked for new types of betting.
Interestingly in Ontario, substance abuse is also up, noting 22% had gambled under the influence of a substance: -
· 40.7% alcohol
· 43% smoking
· 30.7% coffee
· 48.7% cannabis (note cannabis is legal in Canada)
This ‘factual’ information was recently shared in a presentation titled ‘COVID-19 pandemic is impacting gambling behaviour’ by the Responsible Gambling Council, which is based in Toronto Canada.
These stats might be alarming for governments and regulators, particularly when it comes to potential player harm, unregulated environments, tax revenue losses and importantly the potential ‘long term’ impact on land-based offers.
However, it is VERY alarming for land-based gambling operators here in Australia and world-wide, when contemplating viability, forecasting and profits. Why?
Generally, the public (and some in government) think gaming is overwhelmingly profitable. Increasingly however, as those in the delivery of this offer know, it is becoming a more challenging offer as I’ll endeavour to explain.
Using a gaming machine example - in Australia actual ‘Return to Player’ (RTP) is getting close to 92%. This means approx. 8% of turnover is retained by gambling venues (clubs, pubs & casinos). However, you can’t expect to receive 8 cents in every dollar that’s bet in a single gaming session, as the ‘return to player’ % is achieved over the life of the machine, which is usually 3 to 4 years. For operators this can be impacted daily when jackpots go off, for example and there are many other factors that affect the actual outcome.
Important to also note - the 8% retained by the venue is a gross amount (before costs), and therefore subject to significant overhead costs before a profit/surplus (what’s left) is achieved. For a gaming offer to be profitable, it requires considerable $$ volume throughput given the capital costs and overheads involved. In layman’s terms – it is like a McDonalds burger business, i.e. without significant volume the result does not deliver a trading profit/surplus and you can’t run a viable business.
Should we use this opportunity in time to “Blow up the Pokies” you might be thinking? – see my Vlog below on this point for context.
My experience confirms that many clubs and pubs with an on-premise gaming/gambling offer are not viable if their patron numbers/capacity are impacted (ongoing) by ‘social distancing’ requirements, which appears likely. Its comparable to a commercial cruise ship or an airline setting off at 30% full, the overheads eventually kill you and a trading loss is inevitable every time you depart, or in the case of on-premise offers (that are built for scale), the number of spending patrons through your doors.
Unsustainable right!
We’ve already seen Virgin Airlines impacted given their solvency position and need for volume, and there will be more Virgins to come.
As an overarching statement - I’m predicting in the hospitality sector (clubs, pubs, cafes, restaurants) a failure rate of between 20%-40% as a consequence of the pandemic, the implemented lock down measures, the slim margins and changed consumerism going forward. I acknowledge regional, and rural areas are impacted differently to major cities.
I say this as many of these businesses do not have significant cash reserves to provide the buffer required to ride out this period and/or new norm. To clarify, the failure rate predicted applies to the number of premises that will not reopen + those who reopen and then quickly fail, specifically due to changed consumerism and overheads that don’t work. Let’s hope I’m wrong, and if I am, I’m very happy with the alternate positive outcome.
“What this means for those with a gaming/gambling offer is you must rethink your offer and not simply reopen.” ”
Look at the stats again at the start of this article – people (your patrons) are enjoying the convenience and in some cases better returns associated with the digital world (RTP with online gambling offers can be as high as 98%). They can also buy their booze cheaper for at home consumption, they can smoke (legal and illegal substances), etc, etc, etc - which means their consumption patterns/habits have changed. For some this is surreal, maybe an erotic utopia?
“If you’re an operator however, expecting your reopening to deliver profits (however slim or fat) as was the case before being forced to close, respectfully you are delusional. ”
I say this whilst noting the tough pre-COVID trading environment, i.e. here in Australia for many the impact of an already soft retail economy, further impacted by bush fires, drought and floods.
I’ve never been a fan of discounting, so I ask you, does this crisis genuinely not offer you the opportunity to also reset your offer rather than continuing to discount or undersell your product value? And whilst at it, make sure all parts of your operation are relevant and profitable?
A foodie and social commentator who I respect and follow on Facebook, shared recently a post around restaurant booking ‘no shows’ and how that impacts the business. Particularly when at this point of time you’re only allowed 10 people in your premises at any one time here in Queensland. The question posed was should those no shows be named and shamed?
My response to this post was – “the ‘no show’ booking and the no show event guest (as another example) have been the forever downer when it comes to Hospitality and Events. It’s frustrating, lacks respect and impacts both atmosphere (no shows) and profit. I believe this is most often due to the fact - the patron or guest has not paid anything in advance for the experience, I.e. they are not invested. Maybe it is time for an ‘admission fee’ like many are doing overseas. E.G. To book, you pay say $100 per head admission/ticket fee, which is then available to you (as a credit) to spend in the venue per your booking. The fee might equal the ‘average spend per head’ the venue normally generates. If you don’t turn up, your credit is forfeited and the venue does not miss the profit outcome.”
Operators will have to develop new patronage out of this mandated change, if they are to survive and that means allparts of their business must be profitable. I’m aware of a very large club in Queensland that, not that long ago, was losing $500k annually from a gross food turnover of $8m. That’s a lot of money you might be thinking to yourself and you’d be right. What saved the day, was their strong gaming revenue at the time. However, as their gaming returns then started to soften, they had no response to their diminishing bottom line. In comparison, a smaller club (with no gaming) is netting $600k profit annually from their food business. This comparison proves significant food profits are achievable with the right focus and resources.
“Then there is the work from home culture that has been forced upon us, and what is being realised by many employers, is that having their employees working from home is more productive. Then you might have also seen this headline that has circumnavigated the globe many times now – “New Zealand Prime Minister Jacinda Ardern suggests 4-day work week to recover from pandemic.”
Again, there are many case studies and practical examples of this working for business, i.e. their workforce delivering 100% productivity previously achieved in 5 days at work, in just 4 days at home. Of course, I expect to hear many Aussies say they’re up for that. I’ll add that it would, however, be on the basis of actioning this with integrity i.e. for both management and staff, 4 days = 4 days, with employers not expecting the hours no longer worked from the 5thday being forced into 4 days.
An observation; I see many clubs and pubs renovating at this time, however the renovated (after shots) although new and refreshed still indicate sameness to me. So other than it being new, what has really changed in terms of the proposed offer to entice, and more importantly generate profits post COVID? If the capex expenditure was approved on the basis of business retention, I respectfully suggest that does not cut it either.
Back to ‘on-line’ offers, specifically in the gambling space and what’s the gambling solution for viability that also stimulates participation?
“On-premise operators (particularly our clubs and pubs Australia wide) need gaming/gambling product that competes with what their patrons have now been exposed to online.”
This requires governments and regulators to be nimble (if there is such a thing) i.e. endorse/approve product that’s currently not available on-premise. When it comes to harm minimization, an on-premise offer is the appropriate place for many to gamble because it is genuinely highly regulated as well as out in the open, and therefore safer. What our governments and regulators have to do, (given they already have the product wish lists and legislative change required from industry) is to move on many of the things that have been gathering dust on their desks for years.
Work with industry to pivot the offer NOW, to ensure attractiveness and relevance, otherwise the risk is that many patrons will not return (in frequency and spend) and the inevitable closures will be to the detriment of the community. Once these operators are lost, they will not come back.
Bottom line…
Covid-19 offers operators the opportunity to reset the terms of the patron relationship and their offer, so they must do it or endure the consequences. They must ensure all parts of the business are profitable and that the offer and overheads are appropriate.
Our local, state and federal governments must also step up and play their part for this to be realised as part of the much-needed economic recovery.
This point in time gives operators and governments the opportunity to do this for a viable future. If this opportunity is squandered, then the outcome as history will reflect is frankly perilous.
Final word - remove the word ‘discount’ from you vernacular. This ‘d’ word for me equals demise. More on this another day.
