The term “iGaming” covers both online casino gaming and online sports wagering, each of which are spreading legally across the U.S. on a state-by-state basis. The pace of iCasino to market, however, has been and will undoubtedly continue to be slower than sports betting. Only six states currently offer legal online casino.
In those states where iCasino is allowed, there’s plenty of money to be made. But building such an entity as an operator is far more involved than simply buying a web domain and declaring “open for business.” There are laws, regulations, marketing agreements, vendors, suppliers, compliance offers — all of which have to be on the same page just to open the virtual doors to your gaming paradise, let alone turn a profit.
No two states are alike when it comes to laws and regulations, so “best practices” in one may not hold true in others. Beyond that, there are many steps involved, and failure to pay attention to specific parts of each step will make the difference between having a chance for success and profitability and failure.
This was the key takeaway from a day-long presentation by Itsik Akiva and Jason “Wolf” Rosenberg from American iGaming Solutions as part of the SBC North America Summit in New Jersey.
Ground rules and assumptions
One of the first things any potential operator has to do is choose what to offer. Will your iGaming site/app offer just online sports wagering, online casino gaming, or both?
For the purposes of this article, as we walk through the process with a new mythical iGaming company, let’s factor in the overlap in customer base and choose to maximize potential profit by offering both.
Additionally, let’s presume our company has the means to achieve launch after an internal assessment showed the economic feasibility to do so. In other words, we have the financial means to accept the potential not to be profitable for a period of time after opening. To make money, you have to spend money.
Now let’s grapple with the cold, hard reality of trying to turn a profit. Assume a $1 bill represents each vertical — one for sports wagering, one for casino gaming. The industry standard hold for online sports wagering is 7%, which means our company will gain one nickel and two pennies for every dollar wagered on a sporting event on our site.
For online casino gaming, the return-to-player rate (RTP) ranges from 90% to 99.5%. Because our company has the ability to spend money to offer a quality product, let us say the overall RTP is 94%. That means our company over the long haul will gain one nickel and one penny from every $1 wager on that side of the virtual casino.
We now have two nickels and three pennies, which constitute our increase via gross gaming revenue (GGR). Then the deductions begin, most notably in the form of state taxes, which vary from state to state, and supplier fees. Thus, our net gaming revenue (NGR) will be lower, perhaps notably so, compared to our GGR. If our company is catering to a state like Pennsylvania, that 36% tax rate for sports betting, 54% tax rate for slots, and 16% tax rate for table games will sting. If it is in New Jersey, the 15% rate is less “taxing.”
Since online gaming is regulated on a state-by-state basis, rules vary crossing state lines. But the universal fact is you must deal with a state regulatory agency that sets ground rules covering the organizational aspects of the company as well as technical and operational elements and responsible gaming standards.
The technical aspects of operation that states certify through testing involve the games themselves, which is somewhat out of an operator’s control unless the games are developed in-house. Most times, operators will team up with platform providers. Operators also have this option available for sports wagering, and there are platforms that provide both verticals.
Do the above right, and a state will award you the license that gives you the privilege of offering iGaming to the public in that state.
Getting to know the customer
KYC — “Know Your Customer” — has become sort of a catch-all phrase covering all facets of interaction with consumers. For online gaming, those facets include deposits and withdrawals, loyalty programs, and protections against fraud. In the online gaming world, fraud is the biggest worry for any company because the customer — now outside the brick-and-mortar location — starts as an anonymous person, and not everyone is as pure as the fallen snow.
The first steps for a customer are registering and opening an account, which requires that person to provide an identity. From there, the process of player account management (PAM) begins. The goal of PAM is to make the process as frictionless as possible, from the deposit of funds to the placement of an online wager — but this is also a challenge.
It starts with the basic proof of identification, which confirms the bettor is of legal age to wager. It may also include proof of residency and proof of payment method. It could also advance to providing a tax identifier in the form of a Social Security card. With the power of technology comes the convenience of sending a photo to an operator that confirms any of this information.
That is the primary component of KYC, but another of near-equal importance is the ability for bettors to self-impose responsible gaming limits. The velocity of online gaming is much faster than that of a brick-and-mortar casino.
There need to be controls in place to help players recognize their limits. Operators must show responsibility, though there are varying levels of permissiveness based on state regulations. It appears that those that are proactive in allowing players to set limits and which prominently display such tools for customers tend to have better long-term player retention.
Marketing for the online casino has to be a multi-prong effort — one that reaches out to everyone from the older brick-and-mortar casino patron to the younger generation that has a smartphone handy at almost all times. Social media engagement is now a key metric that portends success; if someone is looking at your content, that person is not looking elsewhere.
Because the online account collects and accumulates data — it will know the type of wagers made by a player and his deposit and withdrawal history — it is now possible to move beyond a one-size-fits-all marketing campaign to tailor offers and promotions for specific subsets of bettors.
That helps with the two-way migration process for sports bettors who want to dabble in online casino gaming and vice versa. This is part of an eventual evolution pattern of what could become a “super app” that becomes a one-stop shop for gaming and content.
Internal buy-in is imperative
The last key component is having an internal buy-in of employees.
If a brick-and-mortar operator is evolving to add an online casino product, there may be an understandable hesitancy on the part of a card dealer or a roulette runner to not want to promote the product because it could be viewed as a threat to employment. In reality, though, a quality online gaming product augments the physical location.
The internal marketing machinations of promoting the online gaming site at the physical location create a needed avenue of integration and onboarding. The first impression created by employees is critical for engagement.
Prepare for the worst, hope for the best
It only takes one thing to go sideways to create a ripple effect that could prove damaging in the long term. Something as simple as one slot game not operating correctly or failing to load will drive a customer away — potentially forever. And even if it is not your fault as an operator if that game fails to load, it is perceived as your fault. You want the buck to stop with you, which also means finding a way to bring that buck back when challenged.
But if you’ve done all these things, along with due diligence involving integration, regulation, contracting, and marketing, and you have a little bit of luck on your side, you too can be an online gaming success.