External Analysis of the Casino Industry

8 August 2016

One of the top industries in the US is the casino industry, which is in the process of expanding into new states and increasing its market availability. There are many factors that play into the growth of the casino industry such as different rules and regulations from both the federal and state governments to go along with the business factors of technology, social acceptance and target demographic. The companies within the industry also have to look at Porters five forces to determine whether or not that the company they are in is a strong or weak one.

An industry consists of a group of companies that have similar products/services, and have a similar way of delivering them to the consumer. There are many companies that make up the casino industry. In 2012 the total revenue for the casino industry is $98. 4 billion. (Casinos & Gaming Industry Profile) The top five companies that make up the revenue are Marriott International, Las Vegas Sands, Caesars Entertainment Corporation, MGM Resorts International, and Starwood Hotels and Resorts. Marriott International brought in $12,317 million in revenue, Las Vegas Sands brought in $9,410.7 million dollars, Caesars Entertainment Corporations brought in $8,834. 5 million dollar in revenue, MGM Resorts International brought in $7,849. 3 million dollars in revenue, and Starwood Hotel and Resorts brought in $5,624. 0 million in revenue. (CNNMoney) The casino industry would be considered an oligopoly due to the fact that there are only a few strong companies within the industry. The company would be considered concentrated because the top five companies are containing fifty percent of the market value. The casino industry would is vertically integrated.

External Analysis of the Casino Industry Essay Example

The companies within the industry own the casinos, which are close to the customer making the industry forward vertically integrated. There are seven factors that can affect an industry. The casino industry, like every other industry, must take these factors into consideration when deciding whether they should expand, or where they should move towards in the future so they can strive. These seven factors are demographics, social forces, general economics, rules and regulations, natural environment, technological, and global forces. One factor that closely affects the casino industry is regulatory factor.

The casino industry doesn’t only have to follow state rules and regulations, but also federal rules and regulation. Currently there are casinos in 36 out of 50 states. Every time a casino decides to open up within a state they have to look at what laws and regulations each state has. For example in New York right now casinos can only open up with Video Lottery Terminals and Electronic Table Games currently. There are no casinos in the state of New York that have actual table games due to this law. A federal law that all casinos must abide by is the age for gambling.

The current age for gambling in casinos is 21 years old. In New Jersey the New Jersey Casino Control Act was signed in 1977, which restricted the issuance of casino licensing to major hotels. By doing this it ensured that the existing nature of hospitality in the state would be preserved. (New Jersey Casino Control Commission) While rules and regulations is the main factor of the seven factors of the casino industry, another factor that is important to the casino industry is the changes in technology. With technology changing everyday, the casino industry has to take that into effect.

More and more people don’t have to leave their homes anymore if they want to play the same games that they can find in the casinos. With online gaming starting to grow more and more the casinos within the industry have to think of new ways to get people back into their casinos. “Gambling in the U. S. is controlled by a few land-based casinos and some powerful Indian casinos,” said Chris Griffin, chief executive of Betable, a London gambling start-up that handles the gaming licenses and betting mechanics of the business for developers.

“What potentially becomes an interesting counterweight is all of a sudden thousands of developers in Silicon Valley making money overseas and wanting to turn their efforts inward and make money in the U. S. ” (The New York Times) By seeing how well this part of the industry is doing overseas, many states are trying to adapt this within their state to help raise tax revenue for their state. By introducing electronic slot and table games into the casinos, the industry has found a way to adapt the changes of technology.

Electronic slot machines and video games revolutionized the casino business, and the industry wants to exploit this cash cow to the fullest. One proposal gaining a lot of attention is the idea of a universally configurable game machine that downloads the gaming “software” — a new slots game, or pretty much anything else — thus eliminating the need to constantly bring in new machines and shuffle out the less popular ones. Variations on networked game play — locally, nationally and globally — will become more commonplace.

In addition, some table games are even getting mechanized, with automated versions of roulette and craps popping up in Europe and set to test soon in the United States. (TODAY. com) By having these new electronic slot machines and other electronic games, the casino industry is able to cut down cost on having to switch out the games every time one goes out of style. Even though technology is changing everyday and is keeping some people out of the casinos, the industry as a whole is taking advantage of these changes in order to cut down costs. Technology is also a driving force for the casino industry today.

With it always changing, it forces the industry to keep up with it to change as well. The natural environment is another factor that the casino industry has to take into consideration. Recently Hurricane Sandy wiped out part of the industry that is in New Jersey. Atlantic City has some of the top companies within the casino industry, and was destroyed when Hurricane Sandy hit. With this natural disaster hitting the casino industry has to see how much it would cost to rebuild and if it would be worth to rebuild once disaster hits. Another factor of the natural environment the casino industry takes into effect is the “going green” initiative.

Currently Las Vegas is soon to be home to the largest concentration of environmentally friendly hotel rooms. (American Gaming) By going green in their hotels, the casinos in Las Vegas are able to cut down costs while still being efficient. Another factor that always affects an industry is the general economic factor. Right now the country unemployment rate is at a high. This affects the casino industry because with people out of jobs, not many people can afford to go to the casinos and spend money. In some states they are using the casino industry to help lower their unemployment rates.

“In Mississippi, the Legislature legalized gambling, in part to promote development in the Mississippi delta. One county, Tunica, was the poorest county in Mississippi, the poorest state. Tunica was once called “America’s Ethiopia. ” Since gambling was made legal, the welfare rate was cut by a third and the proportion of people receiving food stamps has fallen. Unemployment is down to 4. 9 percent, its lowest rate in nearly two decades. ” (Economic Impacts of Gambling. ) Seeing how the casino industry helped Mississippi, other states are starting to introduce the casino industry into them to help the unemployment rate.

With the unemployment rate down helps the casino industry also, because it can drive people into coming back to the casinos. A social factor that may affect the casino industry is how some people do not want casinos within their city due to the way crime and gambling is related. “But the casinos also lead to a plethora of social ills, including increased substance abuse, mental illness and suicide, violent crime, auto theft and larceny, and bankruptcy. The latter three all increased by 10 percent in communities that allowed gambling. ” (Washingtonpost.com) Not only does this affect how the people see the casino industry not wanting them to be a part of their city, it also affects the casino industry because they are unable to expand. With serious social issues such as crime and suicide increasing once a casino is brought to their city, it can turn away other states from allowing the casino industry to emerge into theirs. The demographic factors that the casino industry has to deal with are what age they are presenting to, be they trying to loure in the males or the females of the household.

“The data suggested, for example, that women devote more of their spending to slot machines than to table games like blackjack, and that men have a higher level of skill at the gaming tables than women. ” (KnowledgeWharton) The casino industry can see how the demographics of the city are spread out to know whether or not to put more table games for the men or slot machines for the women. Also in states with older people, such as Florida, the casino industry would want to start to build in. Studies are showing that more and more senior citizens are going to casinos to gamble.

(CasinoWatch) Casinos in certain states are taking hold of this opportunity and gaining competitive edge over the others. This factor can be a key success factor for some of the casinos within the industry. The last factor the can affect the casino industry is global forces. Changes in the global market can affect how well the casino industry doesn’t just do in the United States, but all in the entire world. Global economic downturn impacted adversely the land-based casino markets in Canada, US, UK and Japan as the credit markets considerably tightened, and money inflows became a major concern.

A number of entertainment industries suffered losses as disposable income declined. Las Vegas and Atlantic City in the US were both severely affected by the recession. Las Vegas even offered lucrative deals for flights and hotel stays to attract casino gamblers as lesser people traveled during the slowdown period. However the online casino industry continued to display steady growth, even during the period of financial crisis, as they offered extended periods of entertainment for relatively lower stakes.

While large online casinos are expected to witness a healthy growth, the relatively smaller ones are projected to exhibit negative growth rates in the near future. (Global Industry Analysts) With the recession, the physical casinos in the United States have been losing customers because of the higher stakes people have to make while there. Unlike the online casino industry, which hasn’t really been affected by this recession because, its consumers do not have to bet as much as they would in the actual casino.

This factor can also be a driving force, because now the casino industry has to find ways to make its consumers to leave their house and come back into the physical casino at a lower cost to them. The five forces impact every industry on earth, either restricting or facilitating growth. The United States casino industry is no different. Porters’’ five forces help to determine whether the casino industry is a strong or weak one by looking at the buyer power, degree of rivalry, new entrants, substitutes, and supplier power.

Buyer power of the five forces consists of backwards integration, buyer independence, buyer size, financial muscle, low-cost switching, oligopsony threat, price sensitivity, product dispensability, tendency to switch, and undifferentiated product. In 2012 all but buyer independence was moderate to weak. Buyer independence was a strong force within the buyer power. The consumers of today have many different ways of being able to gamble. Whether it is by slot machines or card games, the buyer has the power to choose which medium it wants to be present in. Overall this sector of the five forces tends to be moderate.

(Casinos & Gaming Industry Profile) The degree of rivalry within the casino industry is a moderate one. The casino industry has a large number of faces within it. For the larger faces of the industry their casinos are their sole activity, making them maintain those revenues. Other companies within the industry have more than just their casinos bringing in their revenue which can weaken this sector of the industry because it makes exiting so easy. With exiting the industry so easily, the degree of rivalry will go down because there are fewer companies to compete against. (Casinos & Gaming Industry Profile)

The new entrants force of the five forces is an important one to focus on. If companies can just enter into an industry easily than the new entrants force would be a strong one. If it is hard, such as the casino industry is, than the force would be a weak one. The casino industry is a little tougher than most industries to just break in to. There are many laws and regulations, which every potential new casino must take into consideration before opening up. Also when opening up a new casino the potential casino owner must require a large amount of capital to establish it.

With these forces acting against the entrants of new casinos, this part of the five forces would be a moderate to weak force. (Casinos & Gaming Industry Profile) Threat of substitutes is a strong force within the casino industry. With technology growing everyday, online casinos threaten the casino industry. Technology can easily substitute anything for the consumer today. Today all we need is either a tablet or a smartphone and we can do virtually anything with it, among which is going online to an online casino.

This threat is strong do to that. Technology is making it cheaper for the consumer to gamble, and also making it more beneficial for the consumer since they don’t have to leave their house. (Casinos & Gaming Industry Profile) The supplier power of the casino industry varies along with the player. Most casinos today are positioning themselves with hospitality. They are looking to locate themselves where there is popular tourism along side with hotels. The larger casinos, but the machinery or services that they provide are

important to the success and functioning of the casinos, which they provide to, do not recognize the companies, which supply the equipment to these casinos. “Larger suppliers diversify geographically to guard against over-dependence on just one particular market; however, most manufacturers of gaming machines tend to specialize in this sector. Since the gaming industry is highly important to their survival, this weakens supplier power. ” (Casinos & Gaming Industry Profile) The supplier power for the casino industry would be considered at moderate to weak one with all of these different factors taken into affect.

The casino industry today is one of the top industries within the United States. With casinos spreading all over the country it is increasing its market availability. The industry is made up of many different companies that perform/serve the same duties to the consumer creating an oligopoly. The seven factors that every industry must look into to see how they should move towards the future also intertwine with the driving forces and they key success factors of the industry. Overall the casino industry would be a moderate one with the five forces ranking from weak to strong.

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