Las Vegas, the most iconic gambling destination, is on a losing streak. The casinos on the Las Vegas Strip collectively saw a 16% decline in gambling revenue from last year. While a portion of the decline can be attributed to the Chinese anti- gambling regulations, the gambling industry is also facing the long term problem of a changing demographic in their customer base. The new customers rolling into Las Vegas are millennials: young tourists who are generally less enthusiastic about gambling than they are about visiting the lavish nightclubs, concerts, and other diversions the city has to offer. In 2015, gambling only accounts for less than 37% of revenue on the Strip, whereas gambling used to make up over half the revenue in 1984.
A New Player Joins the Game
Millennials are investing time into the world of eSports, an industry which has exploded in the past few years. Video games are no longer limited to just those at the controls; competitive video gaming is on the rise as a spectator sport. Games like StarCraft and League of Legends have filled stadiums with millennial fans, all cheering for their favourite players as they fight for the titles of World Champion in their respective games. Formerly limited to professional players, organized multiplayer video game competitions now attract over 134M regular viewers worldwide. Championed by corporate sponsorships, prize pools, and advertising, the market is currently estimated to be worth $72M in Europe, $143M in North America, and $374M in Asia. Growth is expected to continue in this industry, and revenue generated directly from the eSports industry is estimated to exceed $1.2B by 2020.
The Wheel of Fortune Turns
eSports has the potential to rival and surpass the popularity of many established professional sports, and its ascent can be accompanied by the growth of gambling on eSports. According to the gaming industry research firm Eilers Research, more than $250M will be wagered on the outcome of eSports events in 2015 – this amount is expected to exceed $23B by 2020 in the conservative estimate. It is estimated that about 32.5M bettors will wager $42.9B by 2020, generating $3.3B in revenue for operators whereas the Strip last year collectively only made $6.4B in revenue last year.
Further, many eSports viewers are already gambling. Unikrn, an eSports-only wagering site, believes it will double the number of eSports enthusiasts to 20M in the next year. However, in the US, where online gambling is illegal, participants can only bet with virtual currency holding no monetary value in the hope of winning prizes. This indicates that there is an untapped market of eSports enthusiasts who want to gamble money but cannot legally do so in the US. Gambling on eSports is a perfect fit for millennials, as it involves both a social aspect and an element of skill.
Bringing in eSports enthusiasts can provide casinos with gambling revenues as well as other spending such as lodging and shows. For every dollar spent on gambling, approximately $3.34 is spent on other casino amenities. Thus every millennial brought in by the casino will yield much more than just his or her gambling potential. The fast growing eSports market offers Las Vegas casinos the opportunity to capitalize on a ground-breaking industry which has been popularized by the millennial generation.
Perfect Pairs: eSports and the Cosmo
The Cosmopolitan Las Vegas (The Cosmo), a luxury resort casino located on the Strip, is a casino which is particularly fit to benefit from eSports gambling. The Cosmo is the perfect location to become a Las Vegas eSports hub based on its past events and managerial alignment with the idea of eSports. In 2012, IGN Entertainment, a games and entertainment media company, hosted two IGN Pro League (IPL) tournaments in the Cosmo. The tournament hosted Korea’s Global StarCraft Team Leagues (GSTL) and was one of the most anticipated eSports events of 2012. The event garnered 20,000 attendees with the online events capturing 300,000 concurrent broadcast views. Although the event was not profitable, it successfully captured the attention of many eSports enthusiasts. It was hosted to eclipse the viewership of traditional sports and bring a luxury experience to both players and fans. Through this event, the Cosmo became one step closer to successfully establishing itself as a casino fit for eSports. In addition to the 12 to 16 hours of programming offered for the tournament, IGN believed that a casino setting provided fans with exciting alternatives during breaks such as gambling, dining at top restaurants, and visiting popular nightclubs like the Marquee. This ultimately led to increased revenues for the Cosmo as well.
Despite the partnership coming to an end in 2013 due to IGN’s financial difficulties, the success of the 2012 events highlight the willingness and capability of the Cosmo to host eSports events in the future. Lisa Marchese, Chief Marketing Officer at the Cosmo, has also reinforced the property’s willingness to host eSports events: “The IGN Pro League tournaments are very unique and just another way in which we evolve our entertainment and guest experiences; The Cosmopolitan of Las Vegas is excited to be at the forefront of the eSports phenomenon and serve as its Las Vegas headquarters.”
Drafting a Game Plan
The Cosmo needs to once again host large-scale, high-profile events in order to build a presence for themselves in the eSports community. The key to building successful eSports events and tournaments is to select the right partner. DraftKings, a daily fantasy sports company for traditional sports, would be an ideal company with which to partner. With over 2M registered users and rising entry fees from $45M in 2013 to $304M in 2014, DraftKings is experiencing hypergrowth. In September 2015, DraftKings announced its entry into eSports. This announcement has positioned DraftKings as a competitor of incumbent eSports betting platforms such as Vulcun and Pinnacle.
Despite its strong brand awareness as a daily fantasy platform for traditional sports, DraftKings must find ways to differentiate itself in the world of eSports. Jason Robins, CEO of DraftKings, has expressed interest in casinos and would like to work with them to put on great events for players in this space. DraftKings’ new entry into the eSports market, its strong brand recognition, and management’s desire to partner with casinos makes it the perfect partner for the Cosmo.
There needs to be fixed attractions at the Cosmo which will attract the eSports enthusiast on a regular basis, outside of one- time events. The Cosmo should implement an eSports Bar and an eSports sportsbook.
An eSports Bar is similar to a sports bar where sports enthusiasts gather to watch games together and bond with a community of other fans. An eSports bar will be similar with an array of screens around the bar showing games of various types and opportunities to play in amateur tournaments. There are currently no existing eSports bars in Las Vegas, which will allow the Cosmo to entice eSports fans to its hotel. The concept of an eSports bar has already been tested in other geographies. For example, there is a successful chain of eSports Bars based in France called Meltdown, with locations in London, Berlin, and other cities throughout Europe.
Although eSports is a culture which largely developed online, people behind the screens have a shared experience and a shared passion. The existing eSports bars are lively and loud, with crowds cheering for players and teams as they appear on stage and in post-interviews. The constant buzz of people discussing games with vibrancy is impossible to replicate through a computer screen. Additionally, since millennials travel to Las Vegas for highly social and interactive environments, the eSports bar will lure millennial eSports fans in with the promise of extending the social online world into the physical world.
Most casinos already offer a sportsbook: a place where gamblers can wager on the outcomes of traditional sports such as football, hockey, and soccer. By incorporating eSports, the Cosmo could become the first casino in North America to offer an eSportsbook. The demand to gamble on eSports is clearly illustrated by the success of non-cash betting websites, such as Unikrn. Thus, the current US gambling laws which prohibit online gaming anywhere in the US but allows eSports gambling in person in Nevada, give Las Vegas a golden opportunity to capitalize on a phenomenon already popular with millennials.
In the eSports bar, active gaming tournaments could be displayed on multiple screens with betting lines clearly displayed, creating a unique environment where eSports enthusiasts could watch, socialize, and gamble on the outcome of their favourite eSports matches. Having an eSportsbook where gamblers and the house can bet on multiple outcomes throughout the game will further increase profitability of the existing sportsbook. It also aligns well with millennials’ preference for higher-skilled games rather than those based on chance.
Making the Right Bet
This is an ideal time for the Cosmo to make an investment because of their recent profitability and the availability of vacant space. Blackstone executives announced in early 2015 that they are looking to add new bars and restaurants in vacant spaces on the first three floors.
The initial investment to build the eSports bar and eSportsbook will take approximately $980,000. This figure includes software costs for the sportsbook and renovation costs for a 5,000 sq.ft bar and sportsbook area. On a per eSports visitors basis, profit of $477 is expected from lodging, food, entertainment, and the sportsbook revenues. Thus, the payback for the investment is 2,055 eSports visitors. It is highly likely that the Cosmo can profit from this investment given that the eSports event hosted by the Cosmo in 2012 attracted over 20,000 attendees and the Cosmo has a daily occupancy of 2,800 visitors.
Las Vegas is built on gaming – skill, strategy, and a touch of luck. In recent years, the Strip has strayed from its original path, relying on f lashy shows and entertainment for the majority of its revenues. The Cosmopolitan has the opportunity to not only revolutionize the Las Vegas Strip, but bring it back to its roots by providing a unique eSports gaming experience to millennials. By placing itself in the forefront of eSports, the Cosmo can position itself for an explosive growth in eSports gaming industry in the future. In other words, eSports is a gamble on which the Cosmo will not lose.