Australian Casino Industry and Competitive Analysis

Executive Summary The purpose of this report was to gain a better understanding of the Casino Industry. It identifies the many contextual and diverse factors that influence this particular part of the gambling industry in terms of the type of customers they attract, how it is shaped by government policies, the impact of suppliers and buyers of the market, competitive rivalry, and organizational generic strategies. The Five Forces model revealed a highly dominated industry by two major competitors. Incumbents are forced to find new ways of improving their products and services but at the same time maintain high levels of efficiency.

Rivals have been forced to accept takeovers and mergers so as to remain a player in the industry. New entrants are forced to enter the industry with high capital investment or accept cost disadvantages. Government policies also control a tightly regulated market. Tobacco are the market leaders with ownership of five casinos across the nation and high stakes in wagering and gaming. They have chosen a differentiation strategy by offering a variety of products with medium levels of service. PL on the other hand, who owns Crown and Brushwood Casino, has taken this same generic strategy but offer premium levels of products and services.

Generic Strategies 4. 1 Crown Casino Table 2: Crown Casino Value Chain 4. 2 Tobacco 5. 1 Alternatives to compete with On-line Gaming/Rivals 5. 2 Corporate Restructuring 5. 3 Brand Building 6. 0 References 1. 0 Background The Casino Gaming Industry is made up of a number of competitors. Key players dominate the industry separating the them into two categories: large-scale and small scale casinos. All offer a range of products and services including Keno, other income-hospitality services, gamin/poker machines and casino gaming tables. Demand stems from the localized market and the overseas premium players market.

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High profits can be derived from the overseas market however dependent only on those losses suffered by players. The industry has experienced slow growth for the past 3 years due to environmental trends. Government regulation is high due to changes in socio-economic conditions such as problem gambling. It has seen a number of mergers and acquisitions take place to compensate for lack of growth and in turn maintain market share. The main competitors include: Tobacco who recently merged with Jupiter Ltd and own a total of five casinos who are also key players in the wagering and gaming industry, PL who owns Crown Casino and has a 15. Stake in Brushwood Casino, Sky City Entertainment group and Casinos Austria International Limited who operate a number of online casinos. 2. 0 Industry Structure Analysis ("Five Forces" Model) 2. 1 Entry Barriers The level of barriers to entry is high 2. 1. 1 Economies of Scale The rationalization of the casino industry has enabled major players to operate given economies of scale. This has lead to some degree of deterrence for any new entrant without gaming industry expertise, financial resources and/or access to distribution channels because they are otherwise forced to accept a cost disadvantage.

The main competitors include Tobacco Ltd. , who now own five casinos and are also involved in and have a 15% shareholding in Brushwood Casino (IBIS, 2004). As such, these multiple and similar operations allow them to increase cost efficiencies while maintain a high level of service and quality product offering to meet market demands. For example, PL has taken advantage of the digital technology used to produce the 'mines' network (one of Pal's core businesses), and televises 3 digital channels on the largest sports screen in the southern hemisphere 24 hours, 7 days week (Craggier, 2003).

The level of capital needed for investment in order to sustain a competitive position in the casino industry, is significantly high. New entrants should budget for a number of costs once positioning themselves in the industry. They include land costs related to property development, advertising and promotion expenses, labor costs, raw materials, operational equipment such as gaming tables and poker machines plus additional others. Labor costs in particular represent a large portion of overall costs, totaling 28. 2% for wages alone in 2002 (IBIS, 2004).

Casino tax rates are another significant cost involved when operating in the industry. They differ from state to state starting at 8% in the Northern Territory to approximately 22% for larger scale casinos such as Crown Casino in Victoria and the Sydney casino (IBIS, 2004). These tax rates can vary depending on the state governments reliance on gaming profits as form of revenue. For example, the Victorian government expects to haul in almost $1. 42 billion in gambling taxes in 2003-2004 (Dodd, Skulled and strut, 2003). There are also high costs associated with marketing/promotion in the industry.

Competitors not only need to capture the localized market, but importantly create wariness and attract those 'high rollers' as this is where sizeable profits are derived. Therefore, extensive financial resources are necessary to gain entry and prolong a competitive position in the industry. Legislation regulating the industry is high and rising. This is due to the increase of problem gamblers and actions to ban smoking in casinos. Smoking bans were introduced in September 2002 and has infant caused a downturn in gambling turnover (Dodd, Skulled and Strut, 2003).

Competitors also require gaming licenses to operate in the industry. Obtaining a license can create a barrier for entry due to legal and financial constraints. For example, the level of industry concentration can determine whether the government will actually grant a new license. Casinos such as Crown and Sydney are free from competition within certain proximity over their medium-term operations (IBIS, 2004). Internal auditing and inspection procedures by State Casino Authorities making entry even more challenging (IBIS, 2004). 2. Determinants of Supplier Power The bargaining of suppliers to the industry is medium to high. The gaming suppliers industry is fairly uncompetitive in that only a handful of companies manufacture these goods. They enjoy high bargaining power over casinos because of their differentiated products. However, this trend seems to be taking a turn with suppliers operating on a more competitive scale. They are offering broader lines of products, new competitors are entering the market and gaming components are available at more reasonable prices (PR Newswire, 2004).

Some suppliers however, offer products and services that are more unique and innovative in design, allowing them to dictate business deals on price, distribution and installation. Power such as this requires rivals to review their generic strategies in terms of cost dervish or differentiation and then search for efficient distribution channels and build long-term relationships with their suppliers. The government also acts as a supplier. They have absolute control over decisions to grant gaming licenses.

This is designed to limit their supply and in turn giving the government a high degree of power. 2. 3 Availability of Substitutes The threat of substitutes is low to medium. Commercial gaming can be separated into three classes: lotteries (e. G. Tattooists), casinos and pair-mutely (e. G. Sports-betting). Lotteries and pair-mutely act as bustiest to casino gambling as they can offer the same core benefit 'the thrill of winning'. Although gamblers may alternate between classes, it is likely they have a preference for one.

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