This article is available in: PDF HTML Market Cannibalization Within and Between Gambling Industries: A Systematic Review

Journal Information
Journal ID (publisher-id): jgi
ISSN: 1910-7595
Publisher: Centre for Addiction and Mental Health
Article Information
Article Categories: review
Publication date: January 2018
Publisher Id: jgi.2018.37.1
DOI: 10.4309/jgi.2018.37.1

Market Cannibalization Within and Between Gambling Industries: A Systematic Review

Virve Marionneau Department of Social Research, University of Helsinki, Helsinki, Finland
Universite Paris Descartes, Paris, Île-de-France, France
Janne Nikkinen Department of Social Research, University of Helsinki, Helsinki, Finland

Abstract

In economics, cannibalization refers to a process in which a new product or service partly or completely substitutes for those in existing markets. This systematic review analyses the existing evidence on cannibalization within gambling markets to determine whether such substitution takes place between different types of gambling. The analysis shows that new gambling products substitute to a certain extent for existing gambling products. The sector in which the evidence is most convincing is the casino industry, which cannibalizes lotteries and pari-mutuel racing. There is also evidence that casinos substitute for other casinos and for non-casino electronic gaming machines. Lotteries substitute for casinos, other lotteries, sports betting, and pari-mutuel or racing industries. In other cases, the evidence is less conclusive and sometimes non-existent, or industry relationships are more complicated. This review also found that even in cases where substitution does occur, it is incomplete, and thus the introduction of new products tends to expand the overall gambling market. We discuss these market dynamics and identify gaps in the available research.

Keywords: gambling, cannibalization, substitutionary effects, economic impacts, review

Résumé

En économie, on entend par cannibalisation un processus par lequel un nouveau produit ou service se substitue partiellement ou complètement à des produits ou services existants. Cet examen systématique analyse les données dont on dispose sur la cannibalisation dans les marchés du jeu pour déterminer si une telle substitution a lieu entre différents types de jeux de hasard. L’analyse montre que les nouveaux produits de jeux de hasard remplacent, dans une certaine mesure, certains produits de jeu existants. La preuve la plus convaincante est celle portant sur le secteur du casino qui cannibalise les loteries et les courses de pari mutuel. Il est également prouvé que les casinos accaparent légèrement le marché d’autres casinos et d’appareils de jeu hors casino. Les loteries s’approprient une part de marché des casinos, d’autres loteries, de paris sportifs et mutuels ou des secteurs de la course. Dans d’autres cas, les preuves sont moins concluantes, voire inexistantes, ou les relations entre les divers secteurs sont plus compliquées. Cet examen a également révélé que, même dans les cas où il y a un accaparement du marché, il n’est pas total et, par conséquent, le lancement de nouveaux produits tend plutôt à élargir le marché global du jeu. Nous abordons ces dynamiques de marché et cernons les lacunes dans la recherche disponible.

Introduction

Several research papers have considered whether the introduction of new games or the expansion of existing games have a “substitutionary” or “complementary” relationship with other gambling markets. Although in economics these terms refer to cross-price elasticities (Farrell & Forrest, 2008), in the literature on market substitution, they are used to describe the level of replacement or reduction in sales or market share that occurs when a new commodity enters the market. Market substitution is also called displacement or cannibalization. This systematic review analyses the available evidence on whether substitution takes place in gambling markets. Cannibalization can occur between gambling products or between gambling and other industries. The focus of this paper is on the former, also known as intra-industry substitution.

Substitution in gambling markets can occur either between different gambling sectors or within the product range of the same gambling provider. Srinivasan, Ramakrishnan, and Grasman (2005) distinguished between intra-product cannibalization and inter-product cannibalization. In the case of intra-product cannibalization, two different products with similar functionalities compete for the same market share, as would be the case with two state lotteries competing for the same business. Inter-product cannibalization can occur when two products within the same product group compete for market share. This is the case when, for example, casino gambling competes with lotteries or pari-mutuel gambling.

There is currently no unanimity on whether cannibalization occurs in the gambling sector. The discussion is also coloured by ideological positions related to the potential economic benefits of gambling. Gambling can have benefits to societies as well as to individuals (e.g., American Gaming Association, 2014; Basham & Luik, 2011; Collins, 2003), but the economic benefits of all forms of gambling are not the same. Casinos and racing are labour intense, although the value for the economy of the often low-paid, part-time jobs that are associated with these industries has been questioned (Grinols, 2004; Kendall, 2011). Automated forms of gambling, such as electronic gaming machines (EGMs) or online gambling, require less personnel and do not have a positive impact on employment (Williams, Rehm, & Stevens, 2011). Lotteries are not major job providers, but increase government budgets and benefit charitable causes. In comparison, casinos, particularly Native American casinos, pay less or no tax to state governments, although they may reduce the need for state subsidies (Gordon, 2010).

Two previous reviews that have considered market substitution between and within gambling industries have also come to contradictory conclusions. The Swiss Institute of Comparative Law (2006) conducted a comprehensive review of the relationships between different gambling industries from existing empirical evidence at the time and found that most gambling sectors cannibalize each other. A more recent but less comprehensive review by Philander and Bernhard (2012) concluded that the available evidence does not support claims of cannibalization in the casino sector. The most comprehensive empirical study on the substitution effects between gambling products was conducted by Walker and Jackson (2008). The authors modelled gambling market relationships in all 50 U.S. states from 1985 to 2000. Results indicated that some industries do indeed cannibalize each other, whereas other industries have no impact on one another.

This finding suggests that gambling industry relationships are complicated and depend on several factors, which is why a systematic review of all intra-industry relationships is even more important. This is the research task of the current review. First, we introduce the methodology and inclusion criteria of studies considered for the systematic review. Second, we present detailed results of all forms of cannibalization within the gambling industries that have been addressed in previous research. Third and finally, we discuss these industry relationships and the issue of market expansion.

Method

The review was conducted by systematically searching scientific article databases. The keywords used were the following, as well as corresponding search words in French: gambling/gaming/lottery/casino/betting/poker/wager/pari-mutuel/online gambling AND substitution/cannibalisation/displacement/complementary.

We searched the following databases:

  • EBSCOhost
  • ProQuest
  • Scopus
  • Web of Science
  • Google Scholar
  • Cairn.info (for French-language references)

In addition, we searched Google for possible grey literature and reports, and we used a snowballing method by browsing the lists of references of all articles that we had found for possible additional papers.

Only articles that were consistent with our inclusion criteria were selected in this review. These criteria were as follows: (1) The article presented original empirical evidence on the topic of substitution between gambling industries. Previous reviews and articles that were hypothetical or theoretical were excluded from this review. (2) The article had to focus on inter-industry cannibalization between gambling types, not on substitution between gambling and other industries. This form of cannibalization will be analysed separately in another (forthcoming) paper. (3) The article had to be published between 1978 and 2017. Other researchers have noted that the bulk of research on the economic and social impacts of gambling dates back only to the 1990s (Walker & Sobel, 2016), but we hypothesized that the introduction of casinos in Atlantic City in 1978 may have drawn interest to the subject matter, at least in the United States. (4) The article had to be in English or French because of our linguistic limitations. Most references found were in English, and only two original empirical articles were found in French. (5) We had to be able to find the original text of the article for proper analysis. In particular, some studies from the 1980s and early 1990s were not available through our institutional channels or were out of print.

The final sample consisted of 61 articles, of which we were unable to locate the original research text of three, bringing the final sample to 58 articles. Of these, 20 studies considered two or more types of substitution between different types of gambling. The results of some studies were therefore included under several types of cannibalization analysed for this review, bringing the total number of observations to 102.

Table 1 details the frequencies of observations on different types of intra-industry substitution considered in this review.

Table 1 Frequencies of Study Observations Describing Types of Intra-Industry Cannibalization

We noted the following information about each paper: reference, gambling type analysed (the impact of gambling X on gambling Y), research context, research data, results, and quality of the study. The quality of each study was assessed from four metrics: First, we considered the quality of the statistical analysis, including whether the study considered other variables, conducted statistically robust checking, or controlled for bias. Second, we checked whether the study was longitudinal as opposed to cross-sectional, preference being given to longitudinal studies. Third, we looked at whether the study included comparative observations from locations with no change as opposed to a simple before/after analysis in one research context. Preference was given to comparative studies, rather than before/after models that cannot account for the counterfactual. Fourth, we considered generalizability, meaning whether the study included many states or countries, or focused on one location only. Preference here was given to studies with more locations that allowed wider generalizability of the results. The quality of the studies reviewed was given a score out of 4 points in the analysis.

In the following sections, the results of this review are presented, with more weight given to studies that were ranked as the best quality. We did not conduct a meta-analysis on the actual levels at which cannibalization takes place. Rather, we focused on the issue of whether studies found a substitution or not. This is because studies have used widely varying statistical methods that are not possible to compare within the scope of this review, although such a task would be of importance in future studies on the topic.

Results

The bulk of studies that considered intra-gambling industry cannibalization were conducted in the United States, but some evidence was also available from other contexts. Results were inconclusive and diverse, suggesting that the substitutionary effects between gambling products depend on the type of gambling and the socio-cultural and economic environment in which they are introduced (see Paton & Vaughan Williams, 2013).

Table 2 summarizes the available evidence on intra-gambling industry cannibalization. In most cases, gambling industries seemed to cannibalize each other and even themselves, but this does not mean that money simply transferred from one gambling sector to another. The gambling sector also has the potential to grow, and even though different types of gambling may cannibalize each other, the aggregate revenue of the industry and the aggregate tax revenue to governments can still grow.

Table 2 Summary of Relationships Between Gambling Sectors Based on Previous Research

Casinos

Market relationships between casinos and other types of gambling are relatively well researched, and there is plenty of evidence for possible intra-product and inter-product substitution. However, all existing evidence found for this review comes from the United States or Canada, and more studies are needed in other contexts. Table 3 summarizes the findings related to the impacts of casinos on other gambling services that were considered for this review.

Table 3 Substitution Impacts of Casinos on Other Gambling Products

Impact of casinos on casinos

The impact of new casinos on existing casino gambling is one of the best researched types of intra-industry cannibalization in gambling markets, although evidence comes only from the United States and might therefore not apply to other country contexts.

Seven of these 10 studies found that casinos substitute for other casinos, measured notably as decreases in gross gambling revenue (GGR), patronage, and admissions (Eadington, Wells, & Gossi, 2010; Gallagher, 2014; McGowan, 2009; Nichols, 1998; Shonkwiler, 1993; Thalheimer & Ali, 2003; Walker & Jackson, 2008; Walker & Nesbit, 2014). Three studies found either a complementary relationship or no impact (Geisler & Nichols, 2016; Hunsaker, 2001; Walker & Jackson, 2008). These contradictory results can be partly explained by the study method used. The two studies that found a complementary effect examined the impacts of casino development from a nationwide perspective, whereas the studies that reported market substitution focused on local-level markets. The results indicate that cannibalization occurs at the local level but substitution is only partial. Thus, as aggregate casino markets grow, there may be a complementary relationship at the nationwide level.

This analysis is in line with the results of a study conducted by Gallagher (2014), who showed that two processes of cannibalization in fact take place in situations where two casinos compete against one another: First, a patronage effect occurs when a competing casino influences the patronage levels of another casino, and second, a spending effect occurs when a competing casino influences the levels of spending at another casino. Gallagher (2014) found that new casinos tend to cannibalize existing casinos primarily through the patronage effect, but within a 25-mile (40-kilometre) radius. The spending effect was less significant. This finding indicates that although cannibalization takes place, overall spending on casino gambling rises following the introduction of new opportunities. Evidence would therefore suggest that market cannibalization between casinos occurs, but that it is only partial and mainly focused on the local level.

Impact of casinos on lotteries

The impact of casinos on lotteries can be of interest to national and state governments from a revenue perspective. A substitution for state lotteries has the potential to impact on state tax revenue if the declining and increasing forms of gambling are taxed at different levels. The evidence is conclusive, as studies on this topic have found that the introduction of casinos cannibalizes lottery revenue.

All eight studies found cannibalization of lottery products from casinos (Cummings, Walker, & Cotti, 2017; Economopoulos & Stolle, 2012; Elliott & Navin, 2002; Fink & Rork, 2003; Room, Turner & Ialomiteanu, 1999; Siegel & Anders, 2001; Steinnes, 1998; Walker & Jackson, 2008), but the estimated degree of this substitution varied. The highest figure was obtained by Elliott and Navin (2002), who found that the introduction of a casino corresponded to an 83-cent decline in state lottery revenues for each dollar played. The results of this study were later questioned by Fink and Rork (2003), whose calculations, based on a revised methodology, showed only a 56-cent decline in lottery revenue for each dollar increase in casino tax. More conservative estimations have landed at around a 5–10% decline (Economopoulos & Stolle, 2012; Walker & Jackson, 2008). Economopoulos and Stolle (2012) found that cannibalization of lottery revenues is mainly local, as half of this substitution takes place in counties in which a casino is located. A recent study by Cummings et al. (2017) noted that aggregate lottery sales decline when they occur closer to casinos. In this study, the impact was strongest on lotteries played on monitors, which resemble EGM play. It appears that the cannibalization of lotteries by casinos has an impact, particularly on state finances, because of the lower taxation of casinos, but the situation may be attenuated by the fact that the substitution is only partial, and aggregate gambling markets grow with new gambling opportunities.

Impact of casinos on pari-mutuel or race betting

Pari-mutuel betting has been declining in many Western contexts for a long time. Some authors have attributed this decline to the cannibalizing effects of the expansion of casino gambling and state lotteries since the 1980s (e.g., Thalheimer, 1998), and the available evidence seems to support this view.

We found seven studies that dealt directly with the issue of casinos cannibalizing horse racing and one study that dealt with the impacts of introducing casino games at the race tracks to create racinos (race tracks with casino games), four of which found substitution (Ali & Thalheimer, 1997; Ray, 2001; Thalheimer, 2012; Walker & Jackson, 2008). Evidence from New Jersey (Ali & Thalheimer, 1997) estimated that the level of cannibalization is about 32%, and a study on racinos (Thalheimer, 2012) estimated that pari-mutuel wagering fell by 16% after the introduction of casino table games at the venue. Two studies found no impact (Prybylski, Felsenstein, Freeman, & Littlepage, 1998; Siegel & Anders, 2001), but the study by Prybylski et al. (1998) concluded that there was no impact because the pari-mutuel industry financially benefits from riverboat casinos, not because casinos would not substitute for parimutuel markets. One study (Walker & Jackson, 2008) found a complementary relationship between casinos and horse racing but a negative relationship between casinos and greyhound racing.

It is likely that the decline of the racing industry cannot solely be attributed to cannibalization from casinos, but there appears to be an impact. From the available evidence, casinos seem to cannibalize the racing industries to some extent.

Impact of casinos on EGMs

Five studies considered the impacts of casinos on EGMs. We have included both non-casino EGMs and EGMs at the same venue as table games in this category.

Two of these studies focused on the impacts of casinos on video lottery terminals (VLTs, a type of non-casino EGM that resembles lotteries; Marfels, 1997; Room et al., 1999). The results appear contradictory: The study by Marfels (1997) found no impact, whereas Room et al. (1999) reported a relationship of substitution. However, according to Gallagher (2014), it is possible that cannibalization takes place through the patronage effect rather than through the spending effect. The study by Marfels (1997) considered only the spending effect, whereas that by Room et al. (1999) considered both effects and found that although there was no impact on GGR, the frequency of gambling on VLTs decreased. This result indicates that casinos cannibalize non-casino EGM gambling, but not revenue.

The three remaining studies considered the impact of EGMs on table games at the same venue (Thalheimer, 2012; Thalheimer & Ali, 2003, 2008). These studies found substitution in EGM revenue and wagering of about 10% following the introduction of or in the presence of table games. This evidence shows that other casino games partly cannibalize EGM gambling.

Impact of casinos on sports betting

Only one study considered the impact of casinos on sports betting. The results of the study by Room et al. (1999) indicated that casinos cannibalize both the GGR and the frequency of sports betting. Although this is a high-quality study, the finding was linked to only one location, and more studies are needed to confirm the result.

Impact of casinos on online gambling

The rise of online gambling is a relatively recent development in gambling markets, and there have not been many studies on its impact on the established gambling market, let alone the impact of land-based gambling on online forms of gambling. One study nevertheless considered the impact of land-based casinos on online gambling. The findings of this study by Philander and Fiedler (2012) suggest a small complementary relationship based on GGRs. More research is, however, needed to confirm the result.

Lotteries

Lotteries have received the most research attention of all the categories of gambling considered in this review. Most studies again come from the United States, but evidence is also available from other country contexts, particularly the United Kingdom. This is probably not a coincidence, because the expansion of state lotteries in the United States in the 1980s (first introduced in the state of New Hampshire in 1964) and in the United Kingdom in 1994 sparked interest in how they would impact on other gambling industries. The studies focusing on the impact of lotteries on other forms of gambling are detailed in Table 4.

Table 4 Substitution Impacts of Lotteries on Other Gambling Products

Impact of lotteries on casinos

Surprisingly little evidence is available on the impact of lotteries on casinos, with only two studies dealing directly with the question. Both studies were also conducted in the United States, leaving room for more analysis, particularly in other contexts. Results were nevertheless convincing. We have already noted that casinos appear to cannibalize lotteries, but the relationship seems to go both ways. Both studies (Shonkwiler, 1993; Walker & Jackson, 2008) found that state lotteries have a negative impact on casino revenues, although substitution is relatively small. This result suggests that although state lotteries may slightly cannibalize casino revenue, their introduction also significantly increases total GGR.

Impact of lotteries on lotteries

The impact of new lottery products, either cross-border or in the same jurisdiction, on existing lotteries has been the most widely researched type of cannibalization reported in the literature.

Of the 19 study observations analysed, 13 indicated substitution (Brown & Rork, 2005; Farrell & Forrest, 2008; Fink & Rork, 2003; Forrest, Gulley, & Simmons, 2004; Garrett & Marsh, 2002; Grote & Matheson, 2006; Mikesell & Zorn, 1987; Roger & Chabi, 2009; Stover, 1990; Tosun & Skidmore, 2004; Walker & Jackson, 2008), two found a complementary relationship (Forrest & McHale, 2007; Purfield & Waldron, 1999), and four found no impact (Farrell & Forrest, 2008; Forrest et al., 2004; Gulley & Scott, 1993; Lin & Lai, 2006). This result indicates that intra-product cannibalization (Srinivasan et al., 2005) is common in the lottery markets. However, the deconstruction of these results shows that certain types of lotteries may be more prone to cannibalization than others.

Three different types of substitution processes can take place between lottery products. First, cross-state lotteries can potentially cannibalize contiguous state lotteries. Six of the studies considered in this review had studied this type of substitution, and all of them found that cross-state lotteries substitute for state lotteries. Reasons for cross-border lottery purchases included lower prices of tickets, better jackpots, and convenience (Garrett & Marsh, 2002), but the introduction of new cross-state lotteries can also have a negative impact if a state or country loses its tourist players (Fink & Rork, 2003). There appears to be less substitution when the same products are available on both sides of the border.

Second, multistate or multinational lotteries may impact on national or state lotteries. Here the evidence is more contradictory, with some studies showing substitution and others claiming a complementary relationship. For example, the European multinational Euromillions lottery was found to be complementary to the National Lottery in the United Kingdom (Forrest & McHale, 2007), but substitutionary for the National Lottery in France (Roger & Chabi, 2009). Grote and Matheson (2006) suggested that multistate lotteries cannibalize some of the sales from state lotteries, but that the overall benefit for lottery companies is positive.

Third, a lottery provider’s own product range may include several types of lotteries, including instant lotteries, that may substitute sales for each other. Evidence regarding this type of substitution is inconclusive. It is likely that some level of cannibalization of older games by new games takes place, but only to a degree that is acceptable to the organization. This type of substitution is even necessary to keep up consumer interest in the product range (Mikesell & Zorn, 1987). It is possible that only certain types of lottery games substitute for others. For example, the comprehensive Australian study by Farrell and Forrest (2008) found that although other lotteries and a Keno game substituted for national lotteries, scratch cards did not. Similarly, Forrest et al. (2004) found that although scratch cards substituted for the National Lottery, they did not cannibalize the Thunderball lottery game. Hence, lottery providers design their product range carefully to maintain acceptable levels of substitution, while increasing overall sales and maximizing related tax revenue (see also Grote & Matheson, 2013; Gulley & Scott, 1993).

Impact of lotteries on pari-mutuel or race betting

The impact of lotteries on pari-mutuel or race betting is another well-documented type of substitution in previous research, with evidence available from the United States, the United Kingdom, and Canada.

As was the case with studies on the substitutionary impacts of casinos on pari-mutuel and race betting, lotteries have also been argued to be partially responsible for the decline of racing industries (Thalheimer, 1998). The available evidence seems to support this suggestion, as most studies have found that lotteries cannibalize pari-mutuel and racing wagers both by a patronage effect and by a spending effect (Gulley & Scott, 1989; Miers, 1996; Mobilla, 1992; Simmons & Sharp, 1987; Thalheimer & Ali, 1995a, 1995b; Vasche, 1990). Studies have reported losses in pari-mutuel GGR of around 10–20% following the introduction of lotteries (Gulley & Scott, 1989; Simmons & Sharp, 1987; Vasche, 1990), but despite this substitution, net state revenue is positive (Vasche, 1990).

Other studies have nevertheless found a complementary relationship or no impact (Forrest, Gulley, & Simmons, 2010; Kaplan, 1990; Walker & Jackson, 2008). It is therefore possible that there are direct local-level cannibalization effects between lotteries and the racing industry, but that at a national level, the rise of lotteries may not have more than a coincidental impact on the racing industry. The studies that have found no impact have tended to be those that analysed larger nationwide data sets. Kaplan (1990) suggested that the difficulties of the pari-mutuel industry are not a result of cannibalization, but of difficulties inherent in pari-mutuel betting itself and its governmental regulation. However, more research is needed to establish whether this is the case.

Impact of lotteries on sports betting

The impact of lotteries on sports betting has been studied in Europe, where attention has been paid to the substitution of a traditional form of gambling known as football pools. Football pools are a type of sports betting that flourished in Europe from around the 1940s to the 1980s, with little competition from other forms of gambling (Forrest, 1999). Higher quality studies (Forrest, 1999; Forrest & Perez, 2011) indicate that lotteries almost completely cannibalized football pools, whereas one lower quality study (Miers, 1996) found a smaller level of cannibalization. One study (Forrest et al., 2010) also considered the impact of lotteries on other sports betting and found a significant substitution. We therefore conclude that lotteries appear to cannibalize sports betting.

Impact of lotteries on online gambling

One study considered the impact of lotteries on online gambling, more specifically on online poker. The study, by Philander and Fiedler (2012), found no relationship between these two types of gambling. This is probably not surprising, as population surveys have shown that players of lottery and online poker tend to have different socio-demographic characteristics and therefore represent different population segments (e.g., Costes, Eroukmanoff, Richard, & Tovar, 2015; Wardle, Moody, Griffiths, Orford, & Volberg, 2011). However, more research is needed to establish this link.

Impact of lotteries on bingo

Finally, one study considered whether lotteries have a substitutionary impact on bingo (Miers, 1996). It found a complementary relationship, but the quality of the evidence was not ranked as high, and therefore these results should be interpreted with caution. There is a need for more research to verify the validity of this outcome.

Pari-Mutuel or Race Betting

The impact of pari-mutuel or race betting on other gambling industries has been less studied than have the impacts of other types of gambling on this form of wagering. This is not surprising, as pari-mutuel and race betting have been a declining form of gambling for some time, whereas new gambling opportunities, such as casinos, lotteries, and online games have been increasing. The decline of the racing industry appears to be a particular worry in the United States, where all the research evidence for this review originated. The studies on the impacts of the racing and pari-mutuel industries on other types of gambling are detailed in Table 5.

Table 5 Substitution Impacts of Pari-Mutuel/Race Betting on Other Gambling Products

Impact of pari-mutuel or race betting on casinos

Although the impact of casinos on pari-mutuel betting has been extensively studied, we found only one study that investigated the relationship in the opposite direction. Walker and Jackson (2008) found a complementary relationship, with horse racing increasing casino revenues, indicating an opposite relationship to the case of the negative impact of casinos on the horse racing industry, as discussed earlier. The result may also be due to the growth of racino markets in the United States at the time of the study. Although this is a high-quality study, more research is needed to confirm the result.

Impact of pari-mutuel or race betting on casinos

We found five studies that focused on whether pari-mutuel or race betting substitutes for lottery revenue. Results were contradictory, with some research studies reporting that the relationship is insignificant (Garrett & Marsh, 2002; Siegel & Anders, 2001) or complementary (Walker & Jackson, 2008) and others finding that the presence of pari-mutuel betting in a state diminishes the profitability of the lottery (Davis, Filer, & Moak, 1992; Elliott & Navin, 2002). The work by Elliott and Navin (2002) used cross-sectional time series dating from 1989 to 1995 to study the impacts that casinos and pari-mutuel betting have on state lottery revenue. Results suggested that pari-mutuel betting cannibalizes state lotteries so strongly that states may even suffer net revenue losses. As there is not much difference in the quality of these studies, we cannot reliably determine the impact of pari-mutuel or racing on lotteries from this evidence. In any case, states that have both lotteries and racetracks have been found to have a higher overall tax revenue (Gulley & Scott, 1989), suggesting that if there is substitution, it is only partial.

Impact of pari-mutuel or race betting on pari-mutuel or race betting

The pari-mutuel industry may also cannibalize itself. Inter-product (Srinivasan et al., 2005) cannibalization within the pari-mutuel or racing industries can take place through two different processes. First, different types of racing products or competition from other tracks may have an impact each other. Studies have found that horse racing and greyhound racing cannibalize each other (Ray, 2001; Walker & Jackson, 2008) and that competition from other tracks cannibalizes racing revenue (Thalheimer & Ali, 1992). The second process is related to new betting options. In the United States, the decline of pari-mutuel betting following competition from state lotteries and casinos has led legislators to allow the introduction of new wagering interfaces to draw in players. Evidence suggests that these new betting options, such as telephone betting and inter-track betting, can cannibalize older forms of betting, but tend to increase overall GGR (Thalheimer & Ali, 1992; 1995b, 1995c). We therefore conclude that inter-product relationships in the pari-mutuel industry can be both substitutionary and complementary depending on the type.

Impact of pari-mutuel or race betting on EGMs

The final type of impact that previous studies on pari-mutuel or race betting have researched is on EGMs. The four studies that we identified have notably focused on how the presence of pari-mutuel betting at racinos impacts on EGM gambling.

Like the new betting options described earlier, the introduction of EGMs at race tracks has been a way for tracks to boost visitation and revenue. Studies have been conclusive and evidence suggests that the presence of pari-mutuel racing, live or simulcast, increases EGM gambling (Thalheimer, 1998, 2008, 2012). One study (Thalheimer & Ali, 2003) found a negative impact on EGM revenue, but the relationship was statistically insignificant. We can therefore conclude that the impact of pari-mutuel or race betting on EGM gambling is complementary.

EGMs

This category includes the impacts of various types of non-casino EGMs or in-venue EGMs on other games in the same venue. Non-casino EGMs have been of particular interest outside the United States, more specifically in Australia and the United Kingdom, where EGM venues and convenience EGM gambling are common. In the United States, most research has examined the relationships between EGMs and other games at the same venues. Table 6 details the studies that were included in this section.

Table 6 Substitution Impacts of EGMs on Other Gambling Products

Impact of EGMs on casinos

We found only two studies that considered whether non-casino EGM gambling has an impact on casino GGR or whether in-casino EGMs have an impact on other casino games. Although results are preliminary, as both studies have a limited scope, there does not appear to be significant cannibalization.

In-casino EGMs substitute for other casino games (Levitzky, Assane, & Robinson, 2000), and this finding is in line with previous research showing that the importance of EGMs to casino revenue has steadily increased (see, e.g., Schüll, 2012; Young, Tyler, Lamb, & Stevens, 2008). Nevertheless, total casino GGR has risen despite this development, as casino corporations are careful to maintain their profits.

Marfels (1997) examined the relationship between casinos and VLTs in Canada and the United States and found no case in which casino revenue would have declined because of the introduction of VLTs. It would therefore appear that EGMs and casino gambling are complementary products.

Impact of EGMs on lotteries

Only one Australian study has considered the impacts of EGMs on lotteries. It found that EGMs are associated with a small negative impact on lottery GGR (Farrell & Forrest, 2008). The result seems reliable because although we were able to find only one study observation of this type of substitution, the result is in line with that reported by Siegel and Anders (2001), who found that the number of EGMs in casinos had a negative impact on lottery revenues.

Impact of EGMs on pari-mutuel or race betting

As racing tracks across the United States have become racinos, the impact of these new casino-type gambling opportunities on traditional race wagering has received some research attention.

All three studies on this topic found cannibalization (Thalheimer, 1998, 2008, 2012). According to this evidence, EGMs at race tracks reduced pari-mutuel betting by over 20% (Thalheimer, 1998, 2012), while the combined effects of various relaxations on EGM regulations at race tracks reduced the pari-mutuel handle by 49% (Thalheimer, 2008). However, despite these significant levels of substitution, the overall profits of race tracks increased, as the revenue from EGMs more than made up for any losses in race betting (Thalheimer, 1998, 2008).

Impact of EGMs on EGMs

One study investigated the possible substitution of older types of EGMs with new EGM models. In this UK study, Paton and Vaughan Williams (2013) investigated whether the introduction of fixed-odds betting terminals (FOBTs), a type of EGM found more often in betting shops than in casinos, affected the number of traditional non-casino gambling machines. They found that overall FOBT-type gambling increased the available gambling offer and spending, but in the case of licensed betting offices, FOBTs directly substituted for older machines.

Sports Betting

No studies have investigated the impacts of sports betting on other forms of gambling, and this is an area in need of future research attention.

Online Gambling

Online environments have created new threats to existing land-based businesses. Online gambling is particular in comparison to the more traditional gambling markets, as online environments often merely offer a new medium in which to gamble by using existing games. Research evidence is limited for the time being, and all relationships between offline and online gambling are not yet known. Some land-based gambling providers, such as the Las Vegas Sands Corporation and its founder and chairman, have been opposed to all online gambling and have feared that it would directly compete with established offline venues. However, empirical evidence has been less conclusive, and other gambling operators have been more open towards the online gambling market. Table 7 details the available research evidence on the impacts of online gambling on other forms of gambling.

Table 7 Substitution Impacts of Online Gambling on Other Gambling Products

Impact of online gambling on casinos

Three studies have focused on whether online gambling cannibalizes land-based casino gambling.

In one study, Philander (2011) used data on online gambling volumes in the United States before the Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA) was enforced. Results showed that online gambling was a gross substitute for offline casino gambling. The author further estimated that one dollar spent on online gambling cannibalizes around 27 to 30 cents of casino revenue. However, the author brings up concerns about the quality of the study in his paper, particularly the fact that it took place before the UIGEA. Two more recent studies (Philander, Abarbanel, & Repetti, 2015; Philander & Fiedler, 2012) instead found that participation in online and land-based casino gambling were complementary. The results of the study by Philander et al. (2015) were based on self-reported data from the British Gambling Prevalence Survey, which may not be completely reliable, but the Philander and Fiedler (2012) study is of high quality. We can therefore cautiously conclude that the relationship between online gambling and land-based casino gambling may be complementary, although more research is still needed.

Impact of online gambling on lotteries

Two studies evaluated the impact of online gambling on lotteries, neither of which found an interaction between these two forms of gambling (Philander & Fiedler, 2012; Trucy, 2011). Philander and Fiedler (2012) suggested that this is because the population groups participating in these two games are different, which appears to be true based on population surveys (e.g., Costes et al., 2015; Wardle et al., 2011). Studies have furthermore not found cannibalization of online gambling by lotteries, as discussed earlier.

Impact of online gambling on pari-mutuel or race betting

One French study considered the impact of online gambling on the French pari-mutuel industry (Trucy, 2011). It found no impact on pari-mutuel revenue after the introduction of online gambling markets. However, this result is based on only one country context, and the study did not present any statistical analysis of the relationship. Furthermore, it did not consider the fact that the opening of licensed online gambling markets also allowed the national pari-mutuel company to expand its operations online to new games, which may have had an impact on this result. It is therefore necessary to conduct more studies to confirm the result.

Impact of online gambling on EGMs

One study focused on whether online EGM play has an impact on land-based EGM gambling (Philander et al., 2015). It found a complementary relationship. However, this finding is again based on self-reported data obtained from the British Gambling Prevalence Survey, leaving room for more studies that use actual gambling data.

Impact of online gambling on bingo

Finally, one study focused on whether online bingo substitutes for land-based bingo. The study by Philander et al. (2015) found a complementary relationship from a positive correlation in participation rates. However, this study is again based on self-reported data, and the same caution applies to this finding as described earlier.

Bingo

Bingo is a form of gambling that has been largely ignored in previous gambling studies, perhaps because of its small-scale nature and history as a form of charity gambling (Bedford, Alvarez-Macotela, Casey, Kurban Jobin, & Williams, 2016). There is also a real paucity of research evidence on whether bingo gambling substitutes for other forms of gambling, and the only observation that we found for this review concerned the impacts of bingo on lotteries (see Table 8).

Table 8 Substitution Impacts of Bingo on Other Gambling Products

Impact of bingo on lotteries

One Australian study considered the relationship between bingo sales and lottery. The study (Farrell & Forrest, 2008) found a complementary relationship, with bingo sales correlating positively with lotto sales. However, although this is a high-quality study, little research has been done on the topic, which is understandable, given the nature of bingo as a charity game.

Discussion and Conclusion

In this study, we reviewed the available evidence on whether gambling games cannibalize other games. We can draw five conclusions from this analysis.

First, few examples of complete or near-complete substitution between gambling games exist. The only one that we could identify is the European football pool industry. This type of gambling was highly popular around Europe until the early 1990s (Forrest, 1999; Forrest & Perez, 2011), but by 2010, pools had become almost non-existent, with less than 3% of UK gamblers participating. The launch of FOBTs in the early 2000s and the UK National Lottery in 1994 are the likely cause (Forrest & Perez, 2011). This type of near-complete cannibalization, also called positive displacement (Farrell & Forrest, 2008), may be a sign of a normal market environment, in which less interesting products are replaced by new and more attractive gambling services. However, it may also be problematic in that new economic activity is created by substituting services from other sectors. This does not produce net economic benefits, particularly when less labour-intensive gambling sectors such as online gambling or EGMs substitute for sectors that provide more jobs or government revenue, such as casinos, racing tracks, or lotteries. Such a development can be seen in the case of EGMs substituting for traditional table games in casinos (Levitzky et al., 2000; Schüll, 2012, 2013). This type of substitution does not reduce the total win of casinos, but it may reduce employment opportunities in the industry.

Second, in most cases, there appears to be partial cannibalization, also known as negative displacement (Farrell & Forrest, 2008). In these situations, gambling industries substitute for each other and themselves, but not completely. Instead, the overall markets tend to grow. This appears to particularly true in wider national markets, whereas on the local level, impacts of cannibalization can be stronger. A so-called agglomeration effect (Philander & Bernhard, 2012) has taken place, which refers to a situation in which the presence of more gambling may cause some substitution, but leads to overall increases in activity in the entire sector. It is possible that there is a point of saturation for gambling markets, as was recently proposed by Barrow, Borges, and Meister (2016). However, the authors considered only inter-product cannibalization in casino markets, and it is possible that even if one type of gambling market is saturated, there is still room for other types of gambling products. The studies analysed in this review indicate that most gambling industries cannibalize themselves, but they can still be complementary to other forms of gambling.

Third, and as further evidence of the agglomeration effect, some industry relationships appear to be complementary. This is particularly the case with online gambling, which according to available evidence seems to be mainly complementary to existing gambling products. This leads to more overall growth for the gambling market. Increased gambling opportunities can offer advantages to consumers, governments, and businesses (Basham & Luik, 2011; Williams et al., 2011; Zheng & Wang, 2014), but they can also have negative social and individual consequences, including harm to families (Dowling, Rodda, Lubman, & Jackson, 2014), gambling-related crime (Williams et al., 2011), and socio-economic inequality (Bol, Lancee, & Steijn, 2014); they can also contribute to health inequalities (Barnes, 2013). According to total consumption theory, these problems increase with increased gambling participation (Fong, Fong, & Li, 2011; Govoni, 2000; Grun & McKeigue, 2000; Hansen & Rossow, 2008, 2012; Lund, 2008), and they affect not only problem gamblers, but also moderate and low-risk gamblers (Browne et al., 2016). Other authors have suggested that populations will adapt to an increased gambling offer (LaPlante & Shaffer, 2007; Shaffer, 2005), but there is currently no conclusive evidence that adaptation occurs (Abbott et al., 2015; Orford, 2012). Although these social consequences of gambling were not the main interest of this review, they are important to bear in mind when considering the overall impacts of the growth of the gambling market described herein.

The fourth conclusion that we draw is that the relationships between gambling sectors are not always straightforward and may be different even between two games, depending on which way around we consider them. For example, EGMs have a negative impact on pari-mutuel betting and casino gambling, whereas the presence of pari-mutuel or casino gambling has a positive impact on EGM gambling. Overall, horse race and pari-mutuel betting, as well as online gambling, appear to be complementary to other forms of gambling, whereas casinos, lotteries, and EGMs appear to cannibalize other sectors more strongly. Conversely, horse race betting, sports betting, and lotteries appear to be the victims of cannibalization more often than casinos, EGMs, and online gambling. This finding suggests that industry relationships also depend on the increasing form of gambling in the market.

Fifth, a significant number of inter-industry relationships are yet unknown. This is particularly the case with sports betting and bingo, which have been largely overshadowed by studies on other types of gambling. Research on these topics might offer other examples of both complete and partial substitution or complementary relationships and provide more insight into issues such as the agglomeration effect and saturation.

This study focused on reviewing the existing evidence on whether market cannibalization takes place. Its main weaknesses were that we searched only English and French references, leaving out a possibly large number of studies conducted in other languages. We also focused only on whether cannibalization takes place between types of gambling, leaving the possibility of conducting a meta-analysis for future studies. From the conclusions of this study, we recommend that future studies also consider the cannibalization impacts between industries that have received little or no attention in the literature and that more research be done on the relationships between cannibalization and adaptation, saturation, market growth, and the social impacts of gambling. There is also a need to review cannibalization between gambling and other industries to answer the question: At the expense of what other consumption does the gambling industry grow? This systematic review has nevertheless analysed a large body of literature and introduced a comprehensive analysis of gambling industry market relationships that will form the basis for further discussion on the topic.

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Submitted October 25, 2016; accepted July 8, 2017. This article was peer reviewed. All URLs were available at the time of submission.

For correspondence: Virve Marionneau, PhD, Department of Social Research, University of Helsinki, Unioninkatu 35 Helsinki, 00014, Finland. E-mail: virve.marionneau@helsinki.fi

Competing interests: None declared (all authors).

Ethics approval: Not required.

Acknowledgements: Work for this paper was funded by the Academy of Finland.

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