Followers of online gambling regulation will be familiar with the argument that there is only so much money to go round and that, by increasing the number of gambling opportunities, existing gambling vertical will suffer financially as a result. But how real is market cannibalization in the gambling industry?
The issue of “Market Cannibalization Between and Within Gambling Industries” (PDF) was the topic of a paper recently published by Virve Marionneau and Janne Nikkinen from the Department of Social Research at the University of Helsinki.
In order to analyze the issue thoroughly, Marrionneau and Nikkinen reviewed fifty previous papers from the past thirty years that had studied the impact of an expansion of gambling – or the introduction of a new gambling vertical – on the existing market.
The researchers covered every aspect of gambling from a local, regional, and national point of view; and although the majority of previous studies were U.S.-centric, Marrionneau and Nikkinen were also able to include data from Canada, Australia, Taiwan, and Europe in their review.
The Biggest Cause of Cannibalization is Casinos
Not surprisingly, the entities that protest the loudest about cannibalization whenever an expansion of gambling is discussed – brick-and-mortar casinos – are the hungriest cannibals of all. In most cases, the opening of a new casino negatively affects Gross Gaming Revenue (GGR) at other casinos, lottery revenues, pari-mutuel wagering, and betting volume on greyhounds.
The researchers also identified that when casinos introduce Electronic Gaming Machines (EGRs) it negatively impacted neighboring casinos without EGRs inasmuch as their GGR from table games suffers. Indeed, the only complimentary relationship casinos have is with online gambling – which, since being regulated in three U.S. states, has achieved a positive impact rating of 0.27%.
However, it is not just casino operators who are to blame for the worst cases of market cannibalization in the gambling industry. The researchers found several examples from the U.S. in which an increase in casino taxation resulted in a decline in net proceeds from lottery sales of between 56% and 83%. Casino regulators, it seems, are just as confused about market cannibalization as the entities they regulate.
Other Relationships Under the Microscope
Most other relationships get along fine. It´s only when new products are introduced into one segment of the market that existing products within the same segment of the market suffer – for example when cross-state lotteries with bigger jackpots cannibalize state-exclusive lotteries. However, the overall revenues for the segment do not suffer, and in many cases they increase.
The notable exceptions were all found in Europe, where the volume of sports betting declines when there is an enhanced jackpot in the UK´s National Lottery or the EU´s EuroMillions draw. It was noted that football pools sales declined by 86% when the UK´s National Lottery was introduced, but this was coincidental with High Street bookmakers being allowed to offer fixed odds betting on soccer matches.
With regard to online gambling, every study conducted since 2010 has found a complementary relationship or no impact relationship between online gambling and any other gambling vertical. The conclusion was that this is attributable to online gamblers having different socio-demographic characteristics from “live” gamblers, and therefore representing a different segment of the population.
The Researchers´ Conclusions are Inconclusive
Despite having analyzed a large body of literature, the researchers were not prepared to deliver a verdict on whether market cannibalization in the gambling industry is a “thing”, or a convenient argument used to dissuade politicians against further expansions of gambling. They did make five pertinent points at the end of the paper that are worth highlighting:
- Few examples of cannibalization or partial-cannibalization exist except for casino industry comparisons.
- Where non-casino examples of partial-cannibalization exist, in most cases markets tend to grow overall.
- Some inter-industry relationships are complimentary. This is especially true in the case of online gambling.
- However, the relationships between two gambling verticals can change with the introduction of new games.
- The relationship between the gambling industry growth and a consumption in other industries has never been determined.
What´s more noticeable than anything about this paper is that there is no mention of unregulated gambling. Many grey market sportsbooks, online casinos, online poker sites have exceptionally strong profiles – even within the regulated space – plus there are hundreds of agent systems enabling real money gambling on play money apps, and most grey market operators are easily accessible.
The significance of this in terms of market cannibalization is that proposed expansions of gambling are not expansions at all – just attempts to attract gamblers from unregulated markets to regulated (and taxed) markets. Therefore there should be no issue about market cannibalization in the gambling industry. It´s just a case of how the numbers are counted. But isn´t that what researchers do anyway?