How video games could be the salvation of the modern casino

How video games could be the salvation of the modern casino

Far from the distant din of electronic slot machines, Rahul Sood sat in a Las Vegas hotel conference room, listening to experts mull over the future of gambling.

But what left an impression on the former Chief Technology Officer for Hewlett Packard’s gaming division is that one of the speakers failed to see the how the empire built in Nevada’s desert has been built on sand.

The speaker was questioning the sector’s increased focus on attracting younger generations to their supposed palaces of glitz, glamour and gambling, and argued that casinos shouldn’t bother with them since they don’t have money and they don’t like to gamble.

“I was thinking to myself when watching him, ‘Who employs this guy? And which one of these casinos employs him? Because if you do, you should probably fire him,” Sood recalled in an interview with Yahoo Finance Canada.

“That’s the kind of thinking that has put [casinos] in the position that they’re in right now, [because] I think you create really inviting environments and experiences for those customers then they’re going to come, they’re going to spend time in the space and they have plenty of money for this type of activity.”

Data released by the Gaming Control Board earlier this year showed that gambling’s cut, as a percentage of overall revenues from the Strip, reached a historic low of just under 35 per cent.

That number represents a 0.2 per cent drop from the year prior. In the grand scheme of things, the figures look even worse. Gambling revenue from Las Vegas hasn’t crossed the threshold of 50 per cent of the overall total since 1998.

And unless the industry is willing to innovate, Sood – who cofounded the eSports gambling startup Unikrn, which has attracted star investors such as Dallas Mavericks owner Mark Cuban and actor Ashton Kutcher – the next generation of potential gamblers will take their money elsewhere.

“What young people tend to do when they go to Vegas is they tend to walk straight through the casino and go straight to the nightclub,” said Sood.

“(Afterwards), they go back to their hotel … they don’t spend any time on the slot machines (their biggest money generators) at all or in the casino.”

In eyes of many young people, the image of casinos is not the glitz and glam of high-rollers playing craps and sipping martinis, but rather Grandma sitting at the penny slots with a glass of cranberry juice.

But the Seattle-based Unikrn is hoping to change that. The startup currently offers its users in Australia and the United Kingdom  where online gambling laws are more clear than the United States or Canada  the opportunity to watch and bet online on massively popular online games such as "League of Legends," "Counter-Strike: Global Offensive," "Call of Duty" and "Starcraft 2."

However, the eSports company wants to take the idea further and Sood, who considers himself an “anomaly” as a gamer in his early 40s, realizes that casinos will need to capitalize on the younger generations’ familiarity and affinity for video games.

“There’s definitely a massive opportunity there,” he said, calling eSports the future of entertainment and saying it will displace traditional sports.

“In the next five, ten years, everybody who matters is a gamer. Any sort of decision maker, anyone who grew up in the developed world is growing up playing video games and this is part of their lifestyle.”

Sood said Unikrn has been approached by every major operator in the world and is building model experiences around the idea of betting on skill-based and spectator-based video games in casinos.

That could mean viewing parties for eSports events on par with those thrown for UFC events.

Despite the positive response, Sood many operators have been unwilling to trade in their cards just yet.

“They’re very slow; they don’t understand the landscape; they don’t understand the customer and they’re typically are run by people that are very numbers-driven who just don’t understand the space and don’t understand it is a long-term bet … that they have to bet on in order make the change that they need to make,” he said.

However, Sood is hopeful regulation on eSports gambling is rolled out in the U.S. and Canada and hopes to put together a partnership with a casino “to do it right” within the next few years.

To make the increasingly pressing transition happen, Sood said casinos will have to reimagine the millions of square feet occupied by its aging occupants who sit at flash slot machines and table games.

This is a sentiment shared by Roberto Coppola, a Las Vegas-based gaming industry consultant.

Like Sood, Coppola, has experienced first-hand a reluctance to move on from the stale layout and environment of casinos, which he said have not changed in more than 40 years.

Last year, Coppola was presenting at the Oklahoma Indian Gaming Association Conference when he was interrupted by a representative for the slot and gaming manufacturer Aristocrat, who said young people “have never been important to the gaming industry,” didn’t understand the need for change.

“I don’t know if this attitude comes from being very rooted. Maybe if you have your whole career staked in one thing it is just hard to admit it is going a different way,” Coppola told Yahoo Finance Canada, reflecting on the incident.

“These companies get arrogant, the industries get arrogant. They don’t see what’s coming. They rest on their laurels and they’re just killed when the market moves a different way,” Coppola said, pointing to the past dominance and steep decline of tech giants such as Nokia and Blackberry.

Coppola said that he recently conducted a survey that showed 90 per cent of millennials planned to visit a casino within the next 12 months.

While they may be going to casinos, they’re not gambling – at least on old-fashioned games and slots, even those that have been branded for younger audiences.

He said his research has indicated that young people don’t think they’re cool, they’re “for Grandma,” or are boring.

“It’s illogical to think that someone who grew up with the functionality, interactivity and connectivity that video games, the Internet and smartphones come with will wake up one day and morph into a traditional slot player – it’s not going to happen,” he said.

In order to bring this new generation of gamblers back to the table, Coppola believes casinos will have to move away from the labyrinth-like layouts of lights and games, and instead create more distinct “micro” spaces dedicated to different types of environments, such as showrooms of hundreds of people betting eSports games like League of Legends, lounges where guests play head-to-head and bet on sports games like "Madden," "NHL," "Call of Duty" or fighting games, as well as rooms filled with old-school table games and slots.

“Imagine being able to play a video game with or against your friends for money, and having the game be broadcast up on the big 4K HD TVs at the casino’s sports book,” he said.

“You’ll just have more distinct differentiation amongst the spaces rather than having everything jumbled all together in a very confusing way.”

Other areas might have new games, like those developed by Gamblit and others, which add elements of social games, in the same vein as Angry Birds, for example.

Coppola said casinos will likely roll out more electronic table games, too.

And, he said, the casinos seem to be warming to these changes, despite many in the industry initially being dismissive of eSports because they believed it attracts an undesirable demographic of younger, male “nerds."

Part of the appeal of innovating the spaces through these “next-gen zones” is the fact that allows casino operators to ease the transition between the generation of gamblers.

While many have been intrigued by the opening of the Downtown Grand  which bills itself as the home of eSports in Las Vegas and is home to game rooms and tournaments  they’re also not ready to completely fold their hands on traditional forms of gambling.

Coppola said he recently spoke to representatives from MGM Resorts who said they didn’t want to “turn this into a millennial casino” because they were still getting a lot of revenue from slots.

“You don’t have to carve up the floor right now, maybe you just have a millennial-skewed environment within an environment,” he said.

“So that way you’re appealing to a new demographic. You’re trying to tap into that incremental revenue, but you’re not disrupting the flow of your bread-and-butter customer.”

Kevin Hovdestad, the director of marketing and communications at Catalyst eSports Solutions, which works on the branding and growth of eSports companies, told Yahoo Finance Canada that while  millennials may not have the disposable income to be gamblers now, the size of the demographic and their eventual purchasing power will matter “enormously” over the course of the next decade and have “knock-on effects beyond that.”

“They'll find that these people are absolutely thrilled with the idea of going out and spending money to support establishments that give their preferred interest space and legitimacy,” he said, noting that 20- and 30-somethings grew up playing video games and would love the idea of attempting to best their friends on massive screens at a casino.

“eSports revenues continue to climb rapidly every year, and fans are honestly trying to spend their money in ways to help see the industry stabilize and succeed - but they often lack outlets to do so.”

Paul Burns, the vice-president of the Canadian Gaming Association, told Yahoo Finance Canada that the industry has noticed the shift in the preferences of younger demographics and operators are looking at a host of ways to make sure they remain relevant.

He said the key is developing casinos that aren’t solely a gaming environment, but also provide a “complete entertainment package,” which includes food, beverages, shopping, hotels and other activities.

“You’re creating a regional entertainment centre, not just four walls of slot machines,” he said, noting that the casinos in B.C.’s lower mainland have succeeded in doing so.

And while Burns said the core casino player remains over 40, he said younger people are gambling, albeit more so online through games such as fantasy sports, and are looking for a more social atmosphere at casinos.

“We’re looking at our customers, and our future customers, and they won’t always be young, so we're hoping as any other industry to meet the needs the consumer tastes and preferences,” he said.

One of the issues slowing the transition, said Burns, is that casinos in Canada and the U.S. are operating under decades-old gambling laws, so products need to go through regulatory testing before manufacturers can develop new games based on rules that are created to ensure fairness and that consumers are protected.

However, he stressed that the industry wants to remain “relevant” and wants to make sure “we get it right.”

And as Coppola emphasized, the stakes are high; failing to make the right bet, or any bet at all, and casino gambling could be it eliminated from the game altogether.

“What’s at stake is the very industry itself,” said Coppola.

“If it cannot innovate it risks never becoming something that resonates with today’s young adults and becoming increasingly irrelevant to the general population, which every day is being marketed some new and competitive thing that more accurately taps into who they are and what they want.”