According to data from Rutgers University, the proportion of New Jersey gamblers indulging online rose over five years from 2016 to 2021, while retail saw a corresponding decline. At first glance, that shift in preference seems to contradict online gambling operators’ claims that their products don’t pull players or money away from retail casinos. And yet, Atlantic City casino revenue has matched the national growth rate step-for-step over the same period.
So, do online casinos cannibalize retail casino gambling or not? It’s an interesting question that warrants a closer look at the data.
Rutgers released its second Prevalence of Online and Land-Based Gambling in New Jersey last week. Like the previous report in 2017, university researchers prepared it on behalf of the New Jersey Division of Gaming Enforcement.
The report’s executive summary—and, consequently, most media coverage—focuses on the rate of problem gambling in the state. This dropped between the first and second surveys, yet is still considerably higher than estimates of the national average.
However, there’s a veritable treasure trove of data in the report, with many tidbits that didn’t make it into the summary.
The study uses data collected in 2021 when researchers surveyed 3,512 respondents—1,502 over the phone and 2,010 online. Of those, 2,149 said they’d gambled in the past year. That equates to a 61% gambling rate, down from 70% of respondents in the previous study, based on a survey conducted in late 2016.
The researchers hypothesize that the drop resulted from the residual effects of the COVID-19 casino shutdowns the year before. The gambling rate was pretty similar across the state but slightly higher in the southern regions close to Atlantic City. Conversely, the online-only gambling rate was somewhat higher further away from the retail casinos, as one might expect.
Women & Seniors Catching Up With Early Adopters
Online gambling was still very new in 2016. New Jersey was the first state to have created a competitive market for legal online casinos but had only done so in late 2013.
The 2016 survey found that only 24% of those who gambled did so online. Only 5% gambled online exclusively. The newly released data shows that by 2021, just over half (51%) of gamblers were now doing so online at least some of the time. Meanwhile, the percentage doing so exclusively had tripled to 15%.
Young men made up a disproportionate number of the early adopters. However, one of the study’s findings is that these demographics are starting to even out.
Among women gamblers, the percentage gambling online exclusively has more than quadrupled, from 3.1% to 12.9%. The number doing so at all has risen from 15.7% to 39.7%. Although they still prefer retail to a larger extent than men, the gap is narrowing.
Similarly, those over 65 have been grudgingly coming around to the newfangled technology. The rate of online use among those who gamble has more than tripled from 7.5% to 24.0%, and there are even 7.5% who gamble online exclusively, up from 2.4%.
This also looks superficially like bad news for retail casinos. The traditional retail casino gambling demographic skews slightly female and middle-aged-to-senior. In the early days of online gambling, one likely reason for the lack of cannibalization was the difference in demographics. So, seeing the traditional retail casino crowd coming around to online gambling might seem worrisome.
Atlantic City Casino Revenue Keeps Pace With US Total
All that said, the Rutgers study is looking at the big picture of gambling in the state, not just online casinos versus retail casinos. And not every gambler is of equal value as a casino customer.
At the end of the day, casino operators care more about their gross gaming revenue (GGR), while gambling prevalence rates are of primarily sociological interest.
Atlantic City’s retail casinos have been doing just fine on the revenue front. Or, given the problems caused by COVID-19, perhaps we should say they’re not doing any worse than their counterparts in states without online gambling.
The American Gaming Association’s State of the States report says that commercial casino revenue amounted to $38.96 billion in 2016, the year of the first survey. In 2021, the year of the more recent survey, its Commercial Gaming Revenue Tracker puts combined retail slots and table games revenue at $41.31 billion, for 6.0% growth over five years.
Compared to online gambling’s double-digit annual growth rate, that seems almost flat, but the pandemic shutdowns were a significant setback. More importantly, that growth matches the Atlantic City casinos’ rate almost exactly: their full-year total in 2016 was $2.41 billion, rising to $2.55 billion in 2021, an increase of 5.8%.
New Forms of Gambling Explain the Difference
So, falling prevalence rates for retail gambling tell a very different story from GGR growth. But it isn’t simply a matter of online gambling bringing in new players without reducing retail gambling.
After all, the 2021 survey showed that the overall gambling prevalence rate had dropped by nine percentage points, while New Jersey’s population only grew 4.4% over the same period. And retail gamblers make up a smaller share of what’s left.
But casino games are only one of many forms of gambling the survey considers. Lottery tickets remain the most popular gambling product, but the prevalence rate of draw ticket purchases among gamblers dropped from 79.6% in 2016 to 73.0% in 2021. Scratch-offs fell from 63.9% to 59.1%. Other traditional retail gambling products like bingo and horse racing also dropped.
That alone may explain a lot of the drop in retail gambling prevalence since many lottery players don’t engage in other forms of gambling, and New Jersey lacks an online lottery (though it’s getting one next year).
Meanwhile, the adoption of newer forms of gambling may explain much of the rise of online gambling. Almost all sports betting in New Jersey is done online, but it was illegal in 2016. Meanwhile, the study considers high-risk stock trading to be a gambling activity, and its prevalence jumped from 5% in 2016 to 25% in 2021 due mainly to the proliferation of gamified investment apps.
Meanwhile, esports wagering (10.9%) and cryptocurrency trading (15.9%) weren’t even included as categories for the 2016 survey.
So, it doesn’t look like online casino games pull players one-for-one from retail casino games. But newer, mostly online forms of gambling do seem to be impacting the popularity of older, mostly retail ones.
The Real Danger is Missing the Boat
So, does that mean that retail casinos have nothing at all to fear from online gambling?
The evidence seems to suggest that online casinos don’t pull players away from equivalent games at retail properties on a one-to-one basis. But we live in a time when companies that fail to keep up with technology tend to get left behind. And the casino industry is well aware that it has had a hard time getting attempts at innovation to stick.
Novel products like esports wagering and online skill gaming have relatively low adoption rates and aren’t a threat to casinos. The most significant threat may come from something that hasn’t been invented yet. Whatever that might be, it will probably threaten online casinos just as much as retail ones.
Meanwhile, the retail casino companies that arguably suffered most from the arrival of legal online gambling are those whose resistance made them late to the party. Wynn Interactive has dialed back its efforts because it has struggled to find a toehold. Las Vegas Sands has turned away from the US entirely.
Perhaps the takeaway is that shifting tides can lead to self-inflicted injuries for those who try to paddle against the current but opportunities for those who embrace them. That’s something for gambling regulators, lawmakers and industry figures to keep in mind when the next big thing comes along.