It is indisputable that the COVID-19 pandemic presents an existential threat both to the physical and fiscal viability of nations, such as we have never seen outside a world war in our lifetimes.
Unlike earlier iterations of coronavirus pathogens, such as SARS (2002-2004) and MERS (2012-2014), COVID-19 threatens to provide an epitaph for the passing of globalisation and connectedness as we have known it. Infections have now been reported in more than 200 countries. Borders are sealed, tourism is virtually non-existent, freedom of movement has been severely curtailed and equity markets are highly volatile.
The implications for the casino industry globally are profound, and I see no likelihood of a snap-back to the way things were when the virus disappears, or is eradicated by mass vaccinations.
COVID-19 has laid bare the serious distributional disadvantage associated with bricks-and-mortar casinos in an online world.
The oft-quoted mantra supporting the Integrated Resort arms’ race globally has been “Build it and they will come”. The underpinning assumption is that people can come, and that it is safe for them to do so. Events of the past couple months suggest that the assumption is not immutable. Pandemic risk needs to be factored into financial sensitivity analyses. So too does the risk of massive patron and revenue leakage to online gambling sites, and to social gaming platforms.
The flip side of crisis is opportunity, and the rising volume of spam hitting my inbox for every conceivable form of online betting or social play suggests that those operators are enjoying a substantial uptick in business.
Migration to online gaming, both hard and soft, will be difficult to reverse. Regulated sites generally provide reasonable to high levels of game integrity and cyber protection for personal data and monetary transactions. Of course not all countries allow their residents to access or play online games, but rapid cycle technological developments, and the sheer inventiveness of players and operators alike makes it extremely difficult to effectively enforce such prohibitions. For many years, banking transactions were only conducted over-the-counter. Banks, casinos close cousins, have been abandoning branch networks across the globe in favour of electronic and online platforms.
I anticipate that online social gaming will be looked at afresh by governments to see whether, and how it should be regulated. Operators argue that it is not gaming, because no prizes are ever paid out. However, many sites offer simulated casino gaming, using virtual coins. Successful platforms, like Double Down and High 5 reportedly enrol thousands of new players daily, and generate revenues in excess of US$50 million annually. Given their low cost structure, broad range of games, both stand alone and tournament, and accessibility, these are comparatively high margin businesses, when compared with terrestrial casinos. Without regulation, there is no certainty that the games are fair, that payment mechanisms (sometimes activated through social media) are secure, or that players exhibiting disordered gaming are identified and supported.
I expect fresh impetus for the elimination of cash entirely in casinos. Contactless, card-enabled payments have become the new norm for consumers, as evidence of the longevity of the virus on metallic surfaces has emerged. While there has been an inexorable trend towards cashless gaming, and the adoption of either pre-paid “dumb” or smart, incremented-value cards to enable play, and to link to loyalty programs, constraints are often encountered.
These include the cost and development time of back-end systems needed to support cards, such as loading value into cards, whether by electronic funds transfer, credit or debit card, transferring money from the cards to patron accounts and providing adequate cyber security to prevent hacking attacks.
Moreover, who should regulate such cards? If banking-style transactions are involved, then it may be inappropriate for a gaming regulator to be the primary regulator of the transactions and systems which support them. Smart cards have significant benefits. Biographical data can be captured and stored, and used to generate AML reports, without the need for supplementary ID checks. Customers can be barred simply by having their player card cancelled or suspended. All play is digitally recorded, without the need to agglomerate information from multiple sources. And cages and count rooms could be consigned to history, just as catwalks were when camera surveillance was adopted.
There are ramifications also for the concession re-tender process which is expected to get underway within the next 12 months in Macau. How will concessionaires and prospective new participants dimension the risk that a new pathogen may emerge to decimate their business? Is the government ready to make allowances for the likelihood and magnitude of this risk in setting its own expectations for what tenderers should pay for new concessions?
Beyond Macau, will we now see a US$10 billion integrated resort developed in Japan?
It is hard to see investor sentiment being as supportive now as it may have been before COVID-19. And who will be left standing anyway among major casino operators? Like the virus itself, so many questions, so few answers!
* David Green is a principal at Newpage Consulting, experts in gambling regulation. The company advises in the three key areas of regulatory frameworks, market analysis, and taxation regimes.
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