January 3, 2019

In preparation for the new year, The Innovation Group (TIG) leadership team collaborated to identify and distill critical growth opportunities for the gaming industry in 2019. We hope you'll find these insights valuable as you plan for the year ahead. As always, we welcome the opportunity to discuss our intelligence further. Drop us a line or contact TIG Vice President of Business Development Allison McCoy to set up a conversation.
Expansion and Continued "Amenitization" in the U.S.
Niche opportunities are expected to continue in the United States over the next 12 months, largely in response to state-level politics and legislation. While Kentucky is progressing with specific development opportunities in the historic racing machines market, states like Virginia are getting closer to introducing new casino legislation. Other would-be gaming states, such as Georgia, have no clear path toward enabling legislation yet. Meanwhile, stabilization in Florida with the passage of Amendment 3, is likely to limit future competition; this may drive M&A and property expansion activity. Across the board, we expect the continued "amenitization" of gaming with traditional hotel and entertainment expansions at commercial and tribal properties as well as on-site and online sports betting (more below). TIG remains engaged in assessing potential in each of these markets and in measuring the potential ROI of property expansions.
Growth and Uncertainty in Tribal Markets
In tribal gaming specifically, several issues will continue to unfold in 2019. While statewide referendums in 2018 brought stability to Idaho (and Florida), compact discussions and efforts to protect gaming exclusivity are expected in Arizona, California, Connecticut, Massachusetts, Oregon, New York, and Texas. The trend of tribes expanding into commercial gaming should continue, most notably in Arkansas and Pennsylvania. In Virginia, the Pamunkey Tribe finds itself competing with the aforementioned push in the legislature for commercial gaming as well as implementation of historical horse racing. With the resignation of Secretary Ryan Zinke, tribes seeking approval for gaming from the U.S. Department of Interior should be monitoring the potential impacts of his replacement closely. Several trust applications have been advancing, but a new secretary could influence whether that progress will continue as well as the implementation of anticipated new rules.
Sports Betting - Five States We're Tracking
2018 was an amazing year for sports and sports wagering with the repeal of PASPA paving the way for states not named "Nevada" to begin to offer legal sports wagering. Operators in Delaware, Mississippi, New Jersey, New Mexico, Pennsylvania, Rhode Island, and West Virginia took bets in 2018, and we'll be following their continued growth in 2019. But where else will our attention be?

The Louisiana legislature killed a sports betting bill last year, but calls to reintroduce it in 2019 were immediate. With the New Orleans and Baton Rouge gaming markets battling Mississippi gulf coast properties for share and the Lake Charles market increasingly battling Las Vegas for Houston, we'll see how long Louisiana can hold out. Ex-Governor Snyder of Michigan vetoed a bipartisan bill that authorized sports betting and iGaming just days ago before leaving office. We expect to see a similar bill pass again this term, and we expect it to be signed into law in the early part of Governor Whitmer's tenure. New York already has legalized sports betting, but it hasn't defined implementation, in part due to the difficulty in balancing commercial and tribal interests. But everyone is ready: there's a bill in the State Senate to develop regulations, and the Oneida Nation just announced a sports betting deal with Caesars. We expect to see sports betting in New York in 2019 and we're watching the upcoming budget proposal to see if sports revenue is included. Tribal compact issues complicate the discussion in Oklahoma, but if the state and the tribes can get it done, we might see sports betting in Oklahoma in 2020. The density of casinos there would provide an interesting perspective into what a convenience store distribution might yield, and the sheer number of operators would likely produce opportunities for newer, smaller operating partners to enter the U.S. market. Finally, there's...Tennessee? Indeed, the Volunteer State has a pre-filed bill that - should it pass - allows local governments to put the sports betting question to voters via referendum. A thumbs-up in what is perhaps the second most anti-gaming state (looking at you, Utah) would certainly be a bellwether.
Potential Mega-Markets on Divergent Paths
The two most watched emerging markets of 2018 (and 2017, and 2016...), Japan and Brazil, will continue to be in the spotlight this year. The development process in Japan is now predictable in many respects. With legislative hurdles cleared, 2019 likely will usher in the practical side of implementation as the RFP process and prioritization of gaming locations are revealed. The industry is fully engaged in the metropolitan and outer regions; positioning projects and lining up local partners should be a priority this year. Conversely in Brazil, the fate of gaming has become more uncertain. While lottery and sports betting laws have made progress, legislation supporting destination resort and bingo hall development has stalled amidst the country's political strife. The timing for solid progress on casino legislation in Brazil will remain unpredictable for the foreseeable future.
Wallet Shifts and Diversification in the Asian Markets
Diversification is expected to continue across Asia. While integrated Resorts (IR) in emerging markets like Vietnam and Cambodia may continue to shift business from the established IR destinations of Macau and Singapore, contributions from the premium and mass segments should increase their weight in total GGR. This trend could help offset high volatility VIP business. TIG also expects greater diversification of non-gaming offerings in Asian IRs in 2019 with the rise of "super amenities."
Other Developments Percolating Worldwide
Less pronounced development themes will occupy the international gaming industry in 2019. Planned destination projects in Korea are poised to make meaningful progress and the first IR in Europe could emerge in Barcelona this year. Mid-sized resorts are planned in the Caribbean, where Jamaica may finally see a casino years after legalization and Baha Mar has demonstrated growth potential in the market. Ontario Lottery and Gaming Corporation's recent modernization initiatives, which came to fruition in 2018, will become redevelopment opportunities in 2019 in such locations as Toronto, Ottawa and Niagara Falls.
For more information, please contact:

Michael Soll
The Innovation Group

Thomas J. Zitt, Ph.D.
Executive Vice President
The Innovation Group

Michael Zhu
Senior Vice President
The Innovation Group

Brian Wyman, Ph.D.
Senior Vice President,
Operations & Data Analytics
The Innovation Group


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