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CASINO AND GAMING INDUSTRY PORTER FIVE FORCES ANALYSIS

Land-based, the riverboat and the Native American gambling are the most prevalent forms of casino gambling in the USA. The commercial casino was once regarded one of the biggest industries in the USA as it was providing employment to more than 37500 people earning about $13 billion in wages during the year 2009.  The actual entertainment industry of the USA drives a bigger share from the commercial casinos as around 25% of the total US adult population’s spending goes to them at least once a year. In addition, it contributes to a major portion of GDP in the USA with total revenues about $32.5 billion in 2009.  The states, in fact, enjoy their expansion and settlements as they not only provide employment opportunities for their inhabitants but also create a lot of businesses for local vendors and producers. The economies of more than twenty state of the USA are now much dependent on the entertainment and gambling as it has increased the business diversity by employing minorities and bought around $631 million products and services form producers and sellers and provided direct taxes of more than $5 billion (Howard S., ( 2010).

Overview of the CASINO AND GAMING INDUSTRY:

The global gaming and casino industry, that once in the era of 2005-7 was booming with double digits growth momentum and when global gaming revenues were about $87 billion, is now facing dwindling future prospects and uncertain growth. In fact, the Great Recession, which emerged with the subprime and credit crisis throughout the world, forced the gaming and casino revenues to shrink down to 4.7% in 2008.  The year 2009 was even worse as it saw the adverse pattern and growth was lower by 2.8% than that in 2008. The US witnessed fall by 3.4%, EMEA by 12.2% and Canada by 1.4% in 2009. In fact, these two crises of sheer fall in consumer spending and credit crunch have left huge pessimist signs on the future growth and profitability of the overall industry (Palenik M. L, (2011).

Michael Porter’s Five Forces Model:

The five forces model was developed in order to study the impact of these forces on an organization and particularly, gain competitive advantage leveraging these forces in a particular industry.  These models and ideas were developed during the period from 1979 to the mid-1980s so that organizations can better earn the return on investment than in order to gain a competitive edge in the industry sector (Thurlby, 1998).

The Porter’ five force model determines the current competitiveness and likely profitability in an industry by analyzing the factors inside the microenvironment of that industry. As the business dynamics of industries and markets keep on changing and thus they ultimately create varying scenarios of the competitive landscape. In fact, the five forces with their relative strengths determine the intensity of competition in an industry and further their interaction create a competitive environment (Porter, M.E. (1998).

Organizations whether small or big can formulate appropriate strategies to win the competitive edge in the relatively intensifying market by better understating the nature of each of these forces (Thurlby, 1998).

It must be noted that fragmented markets such as casinos don present healthy prospects as compared to concentrated industries where organizations can compete less fiercely and earn bigger margins. However, the competitive behavior of an industry also reacts to the changing histories and cultures of organizations in the industry; hence this model requires timely adjustments to harness the five forces (Porter, M.E. (1980).

 

Porter’ Five Forces Model of Casino Industry:

Here is the Porter’s Five Forces Model that gives a glimpse of shrinking revenues and profitability of casino and gaming industry particularly in the USA. It includes:

  1. Competitive Rivalry among the existing companies:
  2. Bargaining Power of Buyers in the Industry:
  3. Bargaining Power of Suppliers in the Industry:
  4. Potential Threat of New Entrants:
  5. Potential Threat of Substitutes in the Industry:

 

Competitive Rivalry among the existing companies:

The tremendous changes in the business landscape of the USA after the recessionary period, the Casino and gaming sector of the economy has become much competitive where the bigger companies are trying to take over small rivals in order to reduce this intensified competition. The deregulation of gambling activities such as increasing legalization and emergence of new internet-based gambling, entertainments options, and waterborne casinos are some of these changes.

Potential Threat of New Entrants:

The legalization of various forms of gambling activities has opened new doors of entrance for many companies to enter the casino & gaming sector and thus intensified the competitive rivalry in the casino industry.  Thus the lower law restrictions have increased threats of new entrants in the industry.  However, larger capital requirement and rapid technological obsolescence present certain issues for new entrants and thus maintains the threats of new entrants at a relatively medium.

Bargaining Power of Buyers in the Industry:

In the casino and gaming industry of the USA, the bargaining power of buyers also seems to be medium in the presences of rising gambling alternatives such as land-based, riverboat, New York, Orlando, and Native American casinos. However, the target market of these casinos is different and thus they serve the different types of customers.  In addition, pricing of the casinos does not allow the visitors to switch to another one. Hence the bargaining power of the buyers can be considered comparatively medium as discretionary income of the consumers has much reduced at present.

Bargaining Power of Suppliers in the Industry:

The analysis shows a low bargaining power of suppliers in the casino, gaming industry because casinos often require furnishing and food supplies. In fact, big casinos still exert much pressure over a large array of small suppliers to take advantages of pricing. However, as internet-based gambling is gaining importance, the developers of innovative technology solutions can increase this power to some extent in the new future.

Potential Threat of Substitutes in the Industry:

As compared to other forces, the threats of substitutes are increasing day by day as low law restrictions have allowed many forms of gambling activities to come on to the legal business platform to operate. Furthermore, flourishing range of other forms of gambling such as tribal lands, Internet-based casinos, waterborne casinos has attracted plenty of new visitors.

Porter’s ForcesFactors Strength
The threat of New EntrantsLow law restriction, declining casino industry growth, declining revenues, larger capital requirements, and rapid technological advancements have maintained the entry to the industry at the medium level.Medium
Competitive RivalryA large array of small internet based and big land-based and waterborne casino and gaming companies. Expansion in exurban areas from Las Vegas and New York. Competitors are entering into other forms of gambling to leverage the resources and their core competencies. Acquisition and takeovers of small casinos by big guns of the industry.High
Threat of SubstitutesNon-Indian styles, Indian Casinos, waterborne, are some of the casino gaming options that are increasing rapidly.

Other forms of entertainment activities and internet based gambling options are also becoming popular.

High
Bargaining Power of BuyersDecreasing no of visitors due to the decrease in disposable income. They have many alternative gambling options to avail. No say in the pricing of casinos.Medium
Bargaining Power of SuppliersCommoditizing of hospitality, a large array of gambling machines and other technological solutions providersLow

Future Outlook:

casino, the gaming industry was once known as the recession-proof entertainment industry has taken a dismal look for the last few years. The raw figures present the industry that is not resilient to the economic shocks that often have global reaching effects. It constantly moves with the changing patterns in consumer spending, their abilities and employment rates.  The US casino and gaming industry were much profitable and beneficial before the recession when consumer confidence in the housing industry was on the higher side. This allowed much spending on gaming destination vacation and other fun activities. At that time the unemployment rate was just 4.95%.  In addition, Las Vegas, the top casino-destination location in the world got attracted a large number of international visitors (William R. E., (1999).

Have you read this:

The changes in the casino industry are common now as many big and small companies looking for existing by off-loading low performing assets and seeking restructuring to recover from high debts emerged due to the subprime crisis. Furthermore, alternative entertainments that are exploding daily have lured a large gaming clientele forcing the existing companies to replace, renovate to present competitive gaming offerings in the market. At present, the present rivals will have to embrace new technological solutions to keep them current and develop new casino product to entice new visitors whose preference are changing very rapidly

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