And then what? And then he shot himself in the foot


In 1980, Michael Porter published Competitive Strategy; unlike the majority of business books published in the 80s, Porter’s book is still valid, applicable and still provides a useful model for understanding business – any business, including casinos.  In his book, Porter lists five competitive forces – entry, threat of substitution, bargaining power of suppliers, bargaining power of buyers and rivalry among current competitors.  Of course to apply those terms to gaming requires some adjustment of the definitions, but with minor changes it is as applicable to gaming as to the manufacturing of cars or tooth paste; Porter was talking about the industries of the 1970s when he wrote his book, and gaming was certainly not on his radar screen.

Most of the popular business books of the times dealt with success models built around one, two or a handful of successful companies – and one of the reason those books have lost their relevance is those companies have lost their industry leadership and often their profitability – that is if they survived at all.   Porter on the other hand looked at industries, not companies, and tried to describe the forces or factors that were relevant in understanding an industry phenomenon – and his analysis could be used by business leaders to develop business strategies.

Porter suggested that understanding the costs of entry (and exit) and regulation, were very important, as was understanding the power of the customer – does the customer have multiple choices or is he forced to buy your product  – think vegetables versus Viagra.   But probably the most important thing to understand, Porter thought, is the competition – and the cost of competing in any given industry; and the biggie, how easy is it for a new competitor to enter the market.   Porter had one simple rule for the entry of new competitors, each new competitor will reduce the profits of each of the existing companies operating in an industry.

Of course, all of that assumes a national industry and market – as in the car industry.  It is a very familiar story; what has been the impact of each new car company that entered the United States on the existing car companies?  Every car Toyota, Honda, KIA, Subaru and Hyundai sold to Americans since the book was written was one less car that General Motors, Ford and Chrysler have sold.  It is that simple.  The rules did not seem to apply to casino gaming for most of the 30 years since Porter wrote that book; after all each new state was different and separate from the others and had its own unique market, or so we thought.  But as the industry has expanded to more and more states it is clear that the market for gamblers is in fact one market and all casinos compete for the same customers.  Generally, customers stayed close to home when there was a close to home gambling option or traveled to the closest casino destination.  Now, the casinos even though they are in different states are so close together that they fight over each and every potential gambler.

In 2012, it has become very clear that Michael Porter’ s analysis was right for the casino industry, too; every new casino takes some of the revenue and profits from the existing ones, just a Porter said.  However, there is one more principle in Porter’s book that is really important in 2012 for understanding the casino industry; Porter said we should understand the cost of competition and we should understand the nature of competition.   He said that whatever competitive move one company might make, it should expect its competitors to cover the move and probably raise it.  Okay, he did not really use poker terminology, but it makes for convenient paraphrasing.

Look at New York, for example, New York is bent on expanding its gaming industry to match the gambling options in other states – New York wants to keep the money at home.  The latest move is indicative of just how competitive this is going to get – New York is going to put lottery terminals, slot machines in bars – 500 locations in the first round.  The reason is to give gamblers a convenient choice and eliminate the need to travel. In this is specific case the state is competing with the Indian casinos in the state; it will also be competing with its own state-sponsored racinos; and of course over time that will mean that New York is competing not just against Indian nations and other states, but against itself.

 Bars Add Gambling Terminals After Cuomo Pushes Law Change: “Customers get the same thrill of gambling without having to drive to the casino,” said Richard Keeler, owner of Side.  Bar patrons in New York can now win their fortunes while drowning their sorrows. Neighborhood taverns are adding bingo-style terminals run by the state lottery under a law pushed through the Legislature this year by Governor Andrew Cuomo. New York Lottery, the largest in the U.S. by sales, has put 92 of the terminals in bars since April, when a restriction designed to keep the machines out of taverns was lifted as part of Cuomo’s budget…About 500 pubs are being targeted for the Quick Draw video terminals…The expansion of Quick Draw to bars that don’t serve food is projected to raise $11 million this fiscal year and $22 million every year …In the fiscal year ended March 31, the lottery took in $8.44 billion from its games and the racetrack casinos. Freeman Klopott, Bloomberg, 6-29-12

 And here, I must insert my favorite question?  And then what?  A question that most be asked over and over again, because each answer implies a new question; life and business are processes, not singular events, each event is followed by something else and that something by something new again.  New York’s move is one that other states, Michigan, Illinois and Nevada have already made, take the gambling out of casinos and put it someplace convenient – it is a move that will be covered by other states.   In fact, the first state to cover the move has already covered that bet and raised it.  The boldest move to make gambling more convenient (and making in the process turning it into a commodity) came from Delaware.

Delaware has just authorized online gambling in the state – lottery, slot machines, sports betting, keno – the whole shebang.  A daring move some will say, a visionary move others may think, but Porter would offer a word of caution.  Whatever move you make, expect your competitors to cover your move and quite possibly raise you.  The game is on – and for the players that cannot think more than one move ahead, it may appear that New York and Delaware have scored huge victories.  But for those accustomed to thinking ahead five, ten or twenty moves into the future New York and Delaware have just shot their own casino industry in the foot.

 Lawmakers Clear Online Gambling; It could also spur legislatures and lotteries in other states to legalize online gambling, a long-predicted change that is taking more time to materialize than some experts expected. “Passage of Internet gaming in that region is likely to see a domino effect,” said Jennifer Webb. Delaware’s legislature on Wednesday became the first to pass a bill to establish online gambling in the wake of a decision late last year from the Justice Department that allows states to authorize Internet gambling within their borders. The bill, which is expected to be signed by the state’s Democratic governor, could create—starting early next year—gambling online ranging from blackjack to poker to slot games accessible only by people within Delaware. Alexandra Berzon, Wall Street Journal, 6-28-12

 State Senate OKs gambling expansion measure; “I’m grateful to the members of the General Assembly for doing what they’ve done to help protect the jobs of an important industry,” said Gov. Markell. “We’re talking about a couple thousand jobs in this industry and that’s what this is about.”Legislation expanding the scope of gambling in Delaware is on its way to Governor Jack Markell’s (D) desk …The Delaware Gaming Competitiveness Act of 2012 allows online versions of slots and table games to be played within the state’s border, as well as online sale of Delaware Lottery tickets. It also authorizes up to 100 new sites to offer Keno and 20 to 30 new outlets for parlay betting on NFL games. Tom Byrne, Delaware First, 6-28-12

 

Advertisements

0 Responses to “And then what? And then he shot himself in the foot”



  1. Leave a Comment

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s




Disclaimer

This is a personal blog and the information in articles posted here represents my personal views. It does not necessarily represent the views of people, institutions or organizations that I may or may not be related with, and is not sponsored or endorsed by them unless stated explicitly. Comments and other public postings are the sole responsibility of their authors, and I shall not take any responsibility and liability for any libel or litigation that results from information written in or as a direct result of information written in a comment. All trademarks, copyrights, and registered names used or cited by this website are the property of their respective owners. I am not responsible for the contents or the reliability of any articles excerpted herein or linked websites and do not necessarily endorse the views expressed within them. I cannot guarantee that these links will work all of the time and have no control over the availability of the linked pages.

Pages

June 2012
M T W T F S S
« May   Jul »
 123
45678910
11121314151617
18192021222324
252627282930  

%d bloggers like this: