New 2023 AGA ‘State of the Industry’ Review

The American Gaming Association (AGA) recently held their yearly State of the Industry presentation. It touched on a wide range of topics and had some interesting facts and statistics alongside their usual industry pitches and platitudes. I sat through it so you don’t have to, but it is worth watching just to get a better idea of how those at the AGA think and operate. So without further ado, let’s dive right in.

One of the earliest figures cited by the AGA is also perhaps the most important to pay attention to. The hold percentage (amount the house holds after paying out winners) went up from 6.9% in 2019, to 7.5% in 2021, to 8.1% in 2022. Keep this in mind as I’ll be referring back to it.

The AGA cites gray-area/illegal gambling as the greatest threat to the industry and estimates it at a staggering $510b total wagered in the US. They arrive at this number by polling bettors on how much of their action is at various sites and using those percentages along with the known legal gambling amounts to arrive at an estimate. It’s certainly not perfect, but it’s better than nothing.

From there, the AGA claims that it amounts to $13.3b in lost taxes – which is nearly 3% hold going directly to the government. A major problem with this simple logic is that if this extra cost was factored into the odds, there would most likely be a lot less bets being placed at those worse odds. For some comparison take Nevada, the state most experienced with gambling, where total hold is only slightly above 5%. States should be competing to get their hold lower, not succumbing to short-term greed and inflating it to unsustainable rates with high taxes and inefficient policies.

Continuing their tirade against unregulated gambling, the AGA tries to label these operators as predatory and claim they are taking advantage of new gamblers who don’t know any better. Except those who go through the trouble of accessing these sites typically are experienced gamblers looking for better odds and/or a wider selection. This isn’t the first time we’ve seen this language either, as covered here previously by us. And going back to the increasing hold rate of legal operators over the past few years, a strong case could be made that they are the predatory ones taking advantage of inexperienced bettors.

Having a high hold percentage is an existential threat for the gambling industry, and no amount of buzzword-filled presentations will make it go away. Whether the AGA likes it or not, the regulated networks are in direct competition with their unregulated counterparts when it comes to online gambling. Simply continuing the cat-and-mouse games with these unregulated networks isn’t working, as these networks tend to stay ahead in the arms race. Self-preservation is a very strong motivator, after all.

Also the high hold makes the AGA look very hypocritical when it comes to the issue of responsible gaming and sustainability. Adding invasive responsible gaming tracking software hasn’t shown to help much either – it just increases friction, creates security risks with all of the personal data, and increases costs. So in the end, one of the key additions for user safety is actually driving some bettors away towards the unregulated networks. Not to mention the extra costs of these features comes at the expense of worse odds and/or less promotions.

It’s not just the bettors being asked to take worse payouts either. In their boasting about the AGA’s commitment to responsible gambling, they slipped in a very telling question at the bottom of a slide – “How can we deepen collaboration with stakeholders to advance a sustainable marketplace?”. This is essentially a nice way of telling operators and their investors to get comfortable with earning less. Coupled with the bragging of increasing hold, it seems larger and larger amounts will be siphoned off to the government and various activist causes. And if you don’t play ball, you’ll risk being labeled unsustainable and unhealthy for society.

Around this time they also brag about the industry’s strong track record on DEI and claim the industry workforce is more diverse than the nation as a whole. Even if this is true, their executives and other highly-paid positions are far less diverse. So they force these extra requirements on their workers to compensate for their own issues and to provide some cover. At the very least, they’re certainly not practicing what they preach. To push the activism angle further they randomly mention they’re working to combat human trafficking. While nice, it comes off as oddly unrelated and simply pandering.

Along with the pandering and activism, the AGA touts the recent relaunch of the congressional Gaming Caucus now that Republicans control the House by a slim margin. The major priorities stated for this are to “drive modernization of AML regulations” and to “combat the illegal market”. So it is ultimately the bettors and investors who will be paying for all of the activism and policing, whether they agree with it or not. They’re also the ones who will fund attacks on offshore operators and even crypto, by association. Good to keep in mind.

However there were some good things also. Online sports betting and iGaming went from a lowly 3.3% share of commercial gaming revenue in 2019, to 15% in 2021, to 20% in 2022. This is just for the regulated market and doesn’t include things like tribal gaming, but it is still a clear sign that users’ expectations are evolving and expanding to a more digital world. After sports betting, iGaming is the next fastest-growing vertical.

Furthermore, 84 million Americans (34% of all adults) visited a casino in 2022 and 40% of all adults plan to visit a casino in 2023. The average age of these was nearly 50 in 2019 and it has gone down to 42 in 2022. These changing demographics are almost certainly behind the rise in online gambling, and highlight the fact that online gambling will play an increasingly important part in the overall industry. Competition matters much more for online operators as they are simply much less geographically bound.

Given the wide range of issues, even a few completely unrelated to gambling that the AGA felt necessary to cover, it is quite telling that they made no mention of crypto. Judging by previous statements regarding crypto, they see little to no benefits of it or at least as a net liability. They either aren’t aware of the significant advances in crypto, or are simply ignoring it willfully. Hopefully it is the former and collectively we can work to change their minds.

Either way, the AGA isn’t doing enough research in this area and their judgment is likely clouded by seeing operators use crypto to bypass financial roadblocks. However, they seem to be viewing it from the wrong angle. Perhaps they should be asking themselves if something is so powerful in the hands of a ragtag bunch of unregulated operators, then what could it be capable of in the hands of a major industry with the backing of the most powerful governments in the world? At some point in the near future they know that truly global solutions will be needed, and crypto has some of the best tools and blueprints to build it..

While it is good to listen to what the AGA is saying, it is even more important to watch what they do in the coming months. They have clearly demonstrated that they already have significant political support and this will only grow as the industry continues to grow. It is also clear that for as long as the AGA views crypto as a threat, crypto should also view the AGA as a threat. Both need to come together though as it is *very* mutually beneficial, and hopefully it is sooner rather than later – for the sake of both crypto and the gambling industry.

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