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All businesses take risks, including companies that make their money from gambling. One such risk is expanding operations.
Boyd Gaming recently rolled the dice on such an expansion, taking over the operations of two additional online casino brands in New Jersey. The expansion is sure to increase Boyd’s market share.
However, such expansion comes with costs as much as it comes with benefits. Whether that is a net win for Boyd will remain to be seen.
Scale is a challenge for any business
One of the simplest business concepts is that turning a profit requires revenue to exceed expenses. Reaching that point on a sustainable level is difficult, however, and most businesses never get there.
When it comes to the economics of New Jersey online casinos, revenue comes in the form of players risking their money on the platform. Costs include revenue-sharing payments to land-based casinos, taxes, digital infrastructure, and staff.
To exceed those costs, online casino platforms must have sufficient depositing players who regularly risk their funds on the apps/websites. There are a few paths to that scale.
Acquisition can be a costly but quick way to scale
A couple of ways to increase revenue for online casino operators is to build a customer base and get existing customers to risk more funds. Such methods can bear costs, though, like bonuses and marketing.
Another path is to simply acquire the competition. Doing so instantly increases a gambling company’s monthly active user base and, in theory, market share.
The downsides to acquisition are all about cost. It can represent an outsized upfront cost, as most parties exiting the space will demand a multiple of their existing revenue as well as compensation for the business’ assets.
There are also ongoing costs, as the buyer assumes responsibility for supporting the operations of the acquired properties. Boyd has recently taken this approach to increasing its expenses and potential revenue in New Jersey.
Boyd’s takeover increases its New Jersey footprint
Boyd is taking over the operations of the Resorts and Mohegan online casino brands in New Jersey, giving it three brands in the state. It already operates the Stardust online casino there.
There are some fringe benefits to having multiple brands in a market like New Jersey. That diversity can make Boyd’s business more resilient and improve the company’s cash flow, potentially giving it greater ability to secure funding when it wants.
Boyd can also share existing resources across the three brands, such as digital infrastructure and staff, which may allow for cost savings to some extent.
There is still much about this situation that is unknown, though. Boyd is under no obligation to disclose how much it spends operating its online casino products, and that data is crucial to analysis.
With the three brands combined, Boyd’s presence in the New Jersey market now represents about a 2% share on average. The big question is whether that is sufficient to make the company’s New Jersey online casino operations profitable.
Without any idea of what it costs Boyd to run those platforms, including the cost of the acquisition, it’s impossible to truly make a judgment. The context suggests that might not be the case.
Could Boyd still be running at a loss in New Jersey?
In selling Mohegan and Resorts, the parent company of the physical Resorts Atlantic City casino (DGMB Casino) likely made the decision out of at least one of a few possible motivations. One possibility is that the company simply wanted the cash and the decision to exit the business of running online casino platforms was merely a convenient path to that end.
Such a decision may have been short-sighted, though, and seems unlikely on its own. More probable is that DGMB looked at the offer from Boyd, looked at its long-term projections for its online casino brands, and the math supported taking the money and running.
If that is the case, it suggests that the combination of Mohegan and Resorts online casinos in New Jersey is not profitable at present. That doesn’t necessarily mean that Boyd can’t change that situation, but there is still risk.
Can Boyd make its three NJ brands a net gain?
It’s unclear whether Boyd will alter its two new online casino platforms in New Jersey right now. It’s also unclear whether Boyd will commit further capital to boost marketing for its brands in the state or spend more on product development.
With each further investment, the need to build revenue increases. Wrestling market share away from other parties in the state could prove costly and difficult, so the immediate question is whether Boyd’s online casino business in New Jersey is sustainable at this scale.
Without a look at the books, the only certain factor is risk. To whatever fate, Boyd has put its cards on the table.
