Simon Liddle takes a look at the challenges of taking an established bricks and mortar casino brand into the online world.

The jurisdiction

Choosing a jurisdiction to call home can be a complicated process given the number of possibilities out there. Many are white listed by the UK government and therefore allow their licensees to advertise and attract British players. One such jurisdiction is the Isle of Man, which, upon first glance, may seem an unlikely location for a thriving egaming jurisdiction. On closer inspection though, it becomes apparent that the island’s links to banking and its close proximity to the UK make it a popular choice for offshore businesses. Like Alderney, Gibraltar and Malta, the island is among Europe’s prominent egaming jurisdictions.

As Garth Kimber, head of egaming development for the Isle of Man government, explains, ebusiness is a natural fit for the island.

"The history behind it is really down to Manx Telecom," he told InterGaming. "Manx Telecom was part of O2, which in turn was part of BT. BT chose the Isle of Man as a test platform and put in the first 3G network. Consequently, we have the most incredible telephonic infrastructure of any jurisdiction and we use less than one per cent of the available bandwidth of that infrastructure. Logic said ‘let’s look at ebusiness’."

Discussions with some of the largest US-based gaming operators resulted in five choosing to launch online businesses from the Isle of Man - with mixed results.

"As is often the way when you’re first into something, you’re feeling your way in the dark trying to make it happen," Kimber said. "It was pretty much the same for the operators as well and it went backwards and they retreated out of the online area at that time. That left a much better understanding than people had before and resulted in a new set of laws and regulations in 2006."

The Isle’s regulatory framework focuses on fairness and player protection, as well as tackling problem and underage gambling. Crucially, these regulations aim to encourage business growth, rather than stifling it.

"Fundamentally what we’ve done is put in a set of laws that really allow the company to concentrate on its activity and get regulated fairly in the core areas that matter," Kimber continued. "That’s really what allowed us, three years ago, to re-brand and re-engage with the industry. Hopefully we’ve grown a reputation that we’re quick, we’re not over-fussy and not over complicated, and simple to deal with."

The island presently has 25 licence holders and, according to Kimber, seven companies have been approved for licences and a further five have submitted applications. Additionally, several others are also preparing their applications. More than 600 people are employed in the sector, ensuring the Isle of Man benefits from strong technical, legal and financial expertise. Taking an office in central Douglas, Kimber said, means you’re just a short walk away from the people you need to see in the industry.

"It’s a whole package; a helpful government and a helpful regulator. We’re very competitive on bandwidth prices, so from the point of view of the major expense of a gaming company, we are the cheapest jurisdiction. We also give financial assistance in grants to companies that set up and create jobs on the island. We’re not looking for brass-plaque companies, we’re looking for people that become part of the community."

So how is the island adjusting to becoming a centre for egaming?

"You’ve always got people at both ends of the spectrum," he remarked. "The Isle of Man is a relatively religious place and there are people who feel that, morally, gaming is wrong. However, the majority of the population, including the majority of politicians, believe that what we’ve got to do is grow our economy in as many different sectors as possible so we’re expanding into areas, rather than being reliant as we have been to some degree on banking. When you look at it, we’ve got a vibrant space sector and manufacturing is also a major part of what we do on the island - ebusiness and egaming are just a part of that.

"We’re now looking at egaming being about five per cent of the economy and my personal feeling is that we’d have no problem taking that to 10 per cent if we were lucky enough to be able to do that. It’s all part of the overall strategy to make the island varied and not reliant on one or two sectors."

For land-based companies seeking to make the move into online operations, having an established brand may be an advantage, but as Kimber exlains, it does not guarantee success.

"There are some things that you’re going to have to have and that basically comes down to the strength of the brand," he said. "Liquidity is important in a lot of things - progressive jackpots require liquidity, poker requires liquidity - so if you’re already an established brand offline you’re already some of the way down the road to getting that core liquidity you need to survive. Everything to me with a start-up online operator is all about six months; you’ve got to hit a critical mass of people who want to be there and play there.

"The experience of the games is also important. It’s not necessary but it’s good, especially if you’re going into the same sector. Casinos will have an understanding of which games are important to people and which are the minority games. Anybody coming in totally fresh from the start hasn’t got that understanding of the business."

The online gaming sector is enormously competitive, with companies across the world potentially in a position to offer their services to players in every country where it is legal. Consequently, player acquisition and retention is crucial to making an online business a success.

"These days there are nearly 3,000 online gaming companies around. A number of sports betting, in particular, and a number of Asian companies have moved into the market - these guys are comfortable with operating in margins under 1.5 per cent," Kimber said. "Margins are thinner so you can’t muscle you’re way into the market anymore.

"My view is you have to have a quality marketing plan and the money to back it up but it does help to have a new angle or edge, or something different. Just trying to muscle your way into the sector simply by giving players a little bit more deposit money or marketing it in such a way by saying your rake is a little bit less, doesn’t cut it any more these days. The money isn’t there to do that profitably."

The B2B solutions provider

A major step in the convergence of land-based casinos and the online gaming sphere came in late 2009 when Harrah’s online arm, Harrah’s Interactive Entertainment, signed a deal with Dragonfish, the independent B2B division of 888 Holdings.

"Our proposition is built around Total Gaming Services, a flexible range of services that cover games and technology, operations, marketing and epayments," said head of sales and business development at Dragonfish, Stefan Hamann. "Land-based operators have the flexibility to either go for the full white label solution or cherry pick specific components that will complement their existing skills and resources."

Dragonfish aims to provide operators with the tools needed to create a successful online gaming operation.

"We work with them to develop a successful online gaming solution that mirrors the credibility and success of their land-based operation," Hamann continued. "As there is a significant difference between land-based and online gaming, the majority of land-based operators approach us for a full white label solution but with the caveat that they may wish to take greater control of specific services in the long term. For example, if you take the marketing function, we are experts at online acquisition and retention but understand that, in terms of offline marketing, we both have shared skills and resources. This makes total sense as ultimately, we want to provide them with a first-class online gaming experience that can be fully integrated with their land-based operation.

"We are also helping to develop the capabilities for integrating land-based CRM with the online gaming platform so promotional campaigns and the overall customer experience appear seamless."

Land-based operators prepared to make the leap into online gaming can have a bewildering number of issues to consider, so choosing a strong B2B partner is often an important move. Knowing the casino business inside-out doesn’t necessarily prepare you for the world of ebusiness, as Hamann explains.

"There are many considerations that come into play but you shouldn’t look too far beyond target markets, product categories, use of existing assets, level of marketing budget, speed to market, internal resource availability and, last but not least, a good honest evaluation of your online gaming knowledge.

"The majority of land-based companies that approach us have a wealth of knowledge in running casinos but are inexperienced in online gaming. It goes without saying that those that have started early, such as Harrah’s, will benefit significantly from learning how to run an online gaming operation and will be the best prepared for future market growth."

The challenges then can be considerable but the key is ensuring that a site is geared towards its target markets and offers the services that meet customer demands.

"Getting the right product mix and identifying the best markets is critical," Hamann said. "As we have been in the business for a while, we play a major part in assisting prospective partners where the low hanging fruit is.

"Once this has been determined, it is vital that a solution is created that achieves differentiation in a crowded marketplace. We are used to immersing ourselves into partners’ brands, ensuring they receive the level of customisation and product qualities that is a true reflection of their existing brand. In contrast we also have to help build new brands when we are approached by companies that may have great brand recognition in their local market but wish to expand overseas where they are unknown.

"Another major challenge is bridging the gap between online and offline CRM as this is the holy grail for any land-based operator wishing to go online. Ultimately the customer wants a platform where the customer can walk out of the casino, receive a text on their phone to continue playing the game on their mobile application, then have the opportunity to log on to their PC at home, all on the same account."

There is indeed strong synergy between a land-based gaming brand and an online one. Again, it isn’t necessary to have experience of the bricks and mortar casino business but it certainly provides a solid foundation.

"Players already have an affinity with a brand and what it stands for," said Hamann. "It gives you the platform for immediate trust, credibility and recognition. Furthermore, there will be many land-based operators that will look to utilise their premises as shop windows for marketing their online brand and this will dovetail well with a fully integrated marketing campaign."

The operator’s story

Casinos Austria International and its partners operate 39 land-based casinos in 17 countries, as well as five shipboard casinos, 15 slot parlours and a range of lottery products in Argentina. In April this year its international online gaming platform, CAIGAMES.com, officially went live.

Operated by its Intergame subsidiary in Malta, CAIGAMES.com offers a host of virtual table and slot machine games, with a view to adding a sportsbook and bingo at a later stage. The company stated at the time that it chose to base its online gaming activities in Malta because the island boasts a "clearly defined and strictly monitored" regulatory system. By choosing this white listed jurisdiction, CAI is able to market its gaming services to customers in the highly regulated UK market.

"We would not even consider offering online gambling services in a market that is not fully regulated or where we do not hold a licence to do so," said chief executive officer Paul Herzfield when unveiling the new site.

The company’s move into the online sector internationally followed the successful launch of its domestic online service, win2day.at in 2003.

"Casinos Austria runs the only licensed online casino in Austria, together with the Austrian Lotteries," Hermann Pamminger, head of marketing at CAI, told InterGaming. "Internationally, CAI has established a company in Malta and is tapping into the online gaming world."

With the success of these two online operations, CAI may consider launching additional gaming sites in the future - a move perhaps made all the more pressing following the launch of William Hill’s dedicated Austrian betting site this year.

"With this experience we might add one or more online casinos to existing live game operations, should national regulations permit such ventures in the future in Europe," Pamminger added.

The hugely beneficial crossover between bricks and mortar and the online world was highlighted in July when CAI announced the winner of an exclusive promotion between CAIGAMES.com and its newly opened Viage Entertainment Center in Brussels, Belgium. The company gave one lucky customer a luxury weekend for two at the city’s Marriot Hotel, prize chips to spend in the casino, fine dining at Viage’s rooftop restaurant and VIP tickets to a live performance of the casino’s own Latin big band.

CAIGAMES.com said it plans to offer similar exclusive prices to its player base over the coming months.

Garth Kimber of the Isle of Man suggested that these types of promotions are becoming increasingly important to land-based casinos’ growing online presence and developing player loyalty.

"There are crossovers," he said. "We’re working with a couple of casinos or casino chains that are seeing the potential now for added-value prizes.
"For example, if you’re running a tournament where you’re giving a flight for two, £300 pounds of chips and a weekend in the hotel, the perceived value to the players is a lot more than the cost of providing it for the operator, whereas if you’re running a tournament with £2,000 added prize money it costs you £2,000."

So, as Dragonfish’s Stefan Hamann claimed, it is a two-way street; land-based gaming can be an entry point into online gaming and the internet can be a "catalyst" for growth within the bricks and mortar industry.