Up until 2008 it was widely believed that the gambling
industry was recession-proof. Investors flocked to massive public companies like
Wynn and Las Vegas Sands, purchasing stock in those companies at prices that
reflected their invulnerability: €144.15 a share in the case of Las Vegas Sands
as recently as November 2007. That must seem a lot longer than 16 months ago to
those shareholders still hanging in there now as the stock trades at around €2.
The logical argument is that gambling has succumbed to the
same economic contagion that has devastated other luxury businesses from
property developers to automakers. But that argument is in fact false, and one
can prove it by looking at the online gambling industry, which continues to
thrive in the face of global recession.
Land-based gambling companies are failing because they got
greedy and shifted away from their core business - providing punters with
casinos where they could gamble away money. They still offer those buildings
along with massive structures designed to provide other forms of entertainment
and leisure. Those gambling companies became property developers, restaurateurs,
and hoteliers. They gambled on turning Las Vegas into a family destination, a
luxury destination, and a gambling destination all in one and their reach
exceeded their grasp. They have lost and, what's worse they committed the
cardinal sin of gambling: they wagered on credit. Those markers are outstanding
and in a pleasant twist it is now the major casino groups who must come hat in
hand to avoid any unpleasant outcomes.
Online gambling businesses, by contrast, have had to narrow
their focus over the past three years. Harassed by protectionist governments in
various regions, most notably the USA, they have had to target their products to
specific consumers. They have not diverged from the original model, namely to
provide casino-style gambling to their clients. The overheads are lower, so
those operators not blinded by greed can also offer higher percentage payouts.
They don't house the latest Baloud restaurant on the premises or sport a hotel
with 3000 suites, so there is no need for thousands of employees, and when they
want to expand the brand they build a new website in a foreign language as
opposed to borrowing billions of dollars to build skyscrapers in Macao that then
The old saw is nearly accurate, it only requires a slight
modification to still ring as true as ever: The online gambling industry is
recession-proof. Gamblers are still out there in droves, but they don't want
fancy dining, cavernous suites, and overpriced entertainment to get in the way
of that experience. If Las Vegas brought back 99c shrimp cocktails, topless
revues, and comped hotel rooms then they'd bring back those billion dollar
profits. But in the mean time those who seek value will always find it online.