Introduction
Over the long period of its history casino gambling has been an important source of entertainment, as well as a focus for the government’s regulatory activities, significantly influencing the competition within the industry. According to the information by the PwC, the revenue of the USA-based casinos accounts for 48.9 percent of the revenues of global casino industry. The casino gambling market is characterized with relative stability following the 2008-2010 decline. The major trends of the industry development are an expansion of regional casino markets (e.g., in Pennsylvania), a growing accessibility of gaming for different customer groups, as well as the launching of resort casinos in Florida and Massachusetts (PwC 2-3). The above trends tend to exert significant impact upon the competitive landscape of the industry.
Buyers in the casino gambling industry
Buyers can be defined as the consumers of a product or service. In case of the casino gambling industry wholesalers and retailers cannot be viewed as buyers. In their study Barsly and Tzolov managed to single out seven major types of casino buyers and unite them into three groups, dependent on the frequency of attending casinos (high, medium and low frequency). The most frequent visitors of casinos are called “Mr. High Roller”. These individuals spend the average of 28 nights in casinos, making up 4.1 percent of the industry share. These (predominantly male) persons are characterized as high spenders, who frequently travel on business or for pleasure (no less than ten trips per year). As they frequently travel and visit casinos at ever new locations, these individuals tend not to take part in casinos’ loyalty programs. The gambling industry makes significant profit due to the participation of so-called “elder elites”. Older individuals (also predominantly male) retain high income, are sufficiently satisfied and tend to make best use of elite loyalty programs, provided by the leading casinos. Regular loyalty members, who are most inclined to visiting the same casinos, allow the casinos to make one-third of their revenues. “Happy-go-Lucky” and “Ice Queens” visit casinos not so frequently and have totally different perceptions about the gambling industry and their success in games. Finally, more than 20 percent of the industry’s share comes from so-called “Accidental travelers”. Least frequent travelers, who are not members of gambling clubs, have average income and feel optimistic about going to a casino and testing their luck. In terms of consumer behavior analysis, the major characteristics of buyers include income, frequency of traveling, a degree of satisfaction by services within the gambling industry, perceptions about the gambling industry as a whole and membership in gambling clubs (Barsky&Tzolov 6-7).
The bargaining power of customers can be estimated as medium. On the one hand, the industry is dependent on customers, who frequently visit casinos and belong to the elite gambling clubs. Particularly these customers tend to secure over fifty percent of casinos’ revenues. On the other hand, there is still a broad range of customers, who do not visit the same casinos on the regular basis and are just accidental travelers. Among them are the ones, who choose resort casinos, while being on holidays and do not return to games. The development of the regional gambling market and resort casinos decreased the buyers’ concentration to firm concentration ration. Similar effect is attributed to the opening of Native American casinos. Furthermore, the buyers are not price sensitive, taken their income, and the products, provided by the industry, are unique and not easily substitutable.
Suppliers in the casino gambling industry
The bargaining power of suppliers can be estimated as medium. On the one hand, a lot of products, necessary to ensure the functioning of casino industry, are manufactured by a broad range of suppliers. Furthermore, casinos tend to rely on their internal resources, such as staff members, trained in different casino games. On the other hand, the essential element of casinos’ functioning deals with computerized gaming equipment systems and services. These systems tend to be manufactured by a highly limited number of suppliers due to a significant consolidation of the slot machine industry. Major suppliers of these systems at the U.S. market are the International Game Technology (IGT) company and Shuffle Master. Gaming machines are necessarily purchased by casinos and, consequently, the dependence on their suppliers, prevent the industry from being characterized with low bargaining power of suppliers. In this regard, it is worth mentioning that particularly gaming technology innovation plays a leading role in casino’s growth. The key reasons for that deal with the recovery of table games’ popularity and the introduction of multifaceted content delivery systems.
Barriers to entry in the casino gambling industry
The barriers to entry are high in casino industry. Firstly, the industry is highly regulated at both federal and state levels. Thus, there is a range of strict precise criteria that need to be met by the newly opened casinos. While in some states the functioning of casinos is prohibited as such, others may limit the types of gambling, allowed in casinos (e.g., betting on races only) or introduce zoning requirements. Secondly, it is crucial to ensure compliance with alcohol regulations and age-related restrictions. Special attention is to be dedicated to cash-on requirements that are required to cover the potential winnings. A range of regulations is also developed by the American Gaming Association. Apart from the compliance-related barriers to entry, there are also the ones, stemming from the need to obtain a lot of documentation to start up a casino (e.g., receiving the construction permit, gaming license, a health and safety license etc.).
A crucial barrier to entry deals with extremely high costs of establishing a casino. Apart from the need to be able to cover large winnings, a casino also needs to take special account of location of the site and transportation infrastructure. Constructing or leasing a building within the zone, where casinos are allowed to operate, can be highly costly due to the limitedness of the above zones and competition rates. Secondly, the owners of a casino need to secure liability and property insurance and hire qualified staff. As it was already mentioned, differentiating is crucial for attracting customers for casinos’ owners. Therefore, it is crucial to secure not only the availability of most modern slot machines, but modern interior, a good selection of drinks and food, as well as the provision of free stuff for customers.
Finally, casinos are much like clubs, and many consumers tend to visit the same casino instead of switching to new ones. Established reputation plays a crucial role in the industry. Thus, the need to comply with a variety of regulations, high costs of entry and reputation-related issues tend to prevent new players from entering the market.
Substitutes to casino gambling
There are several possible substitutes to casino gambling. Firstly, many individuals tend to get engaged into the Internet gambling that is unlawful in many countries, including the U.S. Following the introduction of the Unlawful Internet Gambling Enforcement Act of 2006 many online gambling websites (e.g., Bwin, Spotingbet, Cassava Enterprises) suspended their services for the U.S. customers. Despite some Internet-based gaming websites still function in the U.S. (e.g, Full Tilt Poker, PokerStars), accepting any kind of financial instruments in relation to the Internet gambling is unlawful in the USA. The above regulation makes the threat of Internet-based substitutes rather low for the casino gambling industry. Video games (including those that can be also played at home) are believed to threaten the casino gambling industry. However, it is important to remember that video games exclude the pleasures of monetary winnings, a large part of suspense, as well as communication aspects of real-life casino gambling. Finally, it is important to remember that prestigious casinos tend to have a very specific atmosphere of luxury that is provided with the help of interior, an offer of excellent drinks and food, as well as the way staff communicates guests. Therefore, it can be concluded that Internet gambling and video games pose an insignificant threat for the casino gambling industry, especially for most prestigious and luxury casinos.
Competitive landscape
The casino gambling industry is comprised of companies that are engaged in the implementation of casino and gambling operations. Enterprises that are addressed as casinos also tend to provide restaurant and hotel services. The industry includes a broad range of enterprises, such as standalone casinos, riverboat casinos, resort casinos, bingo halls etc. The industry does not include Internet gambling, as well as horse and dogs races (classified as apart to leisure industry) and cruise lines, providing ancillary gambling services (considered as a part to travel industry.
The 2014 U.S. leading casino companies by revenue include Las Vegas Sands (14.58 billion dollars), MGM Resorts (10.08 billion dollars), Caesar’s Entertainment (8.52 billion dollars) and Wynn Resorts (5.43 billion dollars) (Statista 1). Importantly, the level of casinos’ concentration is quite high (e.g., there are 274 functioning casinos only in one state of Nevada) due to the fact that casinos tend to be prohibited in many states and located within specific zones in the others. Therefore, the intensity of competition within the casino gambling industry can be estimated as high. It is also worth mentioning that the internal growth and a significant number of acquisitions led to the fact that the U.S. casino gambling industry has become more consolidated than before.
Conclusion
The industry analysis of casino gambling industry allows making the following conclusion. As only certain categories of buyers tend to exert significant impact upon service providers, the bargaining power of buyers within the industry can be characterized as medium. The bargaining power of suppliers is also medium, because only slot machines’ suppliers are capable of making pressure on casinos. The barriers to entry are high due to the need to comply to many regulations, high costs of entering the industry and the reputation-related issues. The threat of substitutes is low, because available substitutes do not allow reproducing a very specific atmosphere of real-life casinos. Furthermore, the prohibition of Internet gambling provides for a lowering threat of substitutes for casino gambling. Finally, the industry is characterized with intense competition due to the large number of casinos and their concentration rates.
Works cited
Barsky. J., Tzolov, T. “Critical behaviors and trends of casino customers: a new segmentation model for the North American gambling industry.”Marketing and Law 3 (2010): 1-11. Print.
PwC “Global gaming outlook”. PwC,2013. Web. 27 February 2016
Statista “Leading casino companies worldwide in 2014, by revenue (in billion U.S. dollars)”. Statista, Jan. 2016. Web. 27 February 2016
