Image Source: Getty Images. 

Yet there's a glaring problem with these and other efforts to go after the younger among us: Millennials aren't real.

-- Farhad Manjoo, The New York Times

The 2016 Global Gaming Expo (G2E) at the Sands Expo and Convention Center in Las Vegas is coming up later this month. And with millennials and millennial-aimed gaming products again to be the focus, now is a good time to make sure we are thinking about the "millennial problem" correctly.

If you’ve read enough about millennials and the gaming industry, you’ve probably noticed a pattern: Virtually every article notes that millennials aren’t into casino gambling; offers a cursory explanation why millennials so obviously aren’t into casino gambling; and then presents at least one of four magic bullets sure to save the gaming industry from “them”.

  1. Online poker and online/mobile gaming
  2. Daily fantasy sports (DFS)
  3. eSports wagering (wagering related to competitive video gaming)
  4. "Skill-based" gaming 

All of the above likely represent untapped potential for the legal gaming industry at large. But with particular regard to the subject of millennials, it's important that we think about this correctly -- because there's one pretty big detail that's been universally overlooked:

There is not a shred of objective evidence to support the idea that there's anything unusual about millennials in terms of their propensity for casino gambling.

If you wanted to demonstrate that millennials are to an unusual degree disinterested in casino gambling, it would make little sense to compare the gambling habits of millennials to those of baby boomers today. Rather, you'd want to compare data for 21- to 35-year-olds in 2015 to equivalent data about earlier groups of 21- to 35-year-olds in at least 15- or 20-year intervals. In other words, compare them to those who were in that demographic back in 2000 and 1985, or in 1995 and 1975.

There are two problems with that approach:

Firstly, that data doesn't exist. Harrah's Entertainment didn't launch Total Gold (now Total Rewards) -- and thus the first national player-tracking system -- until 1997. This means you'd have at most two generational data points (2000 and 2015) for any given statistic.

Secondly, even if that data did exist, it wouldn't be comparable. For one thing, the non-gambling-focused Las Vegas that drew a record 42.3 million visitors in 2015 is drastically different from the Las Vegas that drew 14.2 million visitors in 1985. For another, casinos weren't even legal outside Nevada and New Jersey in 1985. The widespread expansion of gaming throughout the United States in the 1990s and 2000s means that Las Vegas has a great deal of competition it didn't have in 1985. As a consequence, gambling is no longer a destination product, but an activity predominantly enjoyed by locals. In addition, the gambling product itself has changed drastically, both due to technology and house advantages that have been on the rise for two decades (the latter point which we discussed at this time last year -- see The Millennial Problem: Why We (Don't) Gamble).

And of course, that's not at all the approach that people writing about millennials' lack of interest in casino gambling have taken.

Image Source: Getty Images.

It's important to recognize that the prevailing argument that there is a millennial problem is based largely on what can best be described as hearsay. So far, literally the only actual statistic used to demonstrate that millennials aren't gambling as much is the fact that gaming revenue as a percentage of total revenue on the Las Vegas Strip has fallen to under 37% (in fact it was under 35% in 2015) -- down from 57.9% in 1985, while millennials have increasingly driven visitation. The average age of a Las Vegas Strip visitor dropped from 50 years old in 2009 to 45 in 2014 (before jumping to 48 in 2015).

But that is one of grossest misinterpretations of data going around.

It's like complaining that people aren't spending enough on movie tickets because they're spending too much at the overpriced concession stand, particularly when it's pretty clear in this case that non-gaming activities (concession sales) are driving visitation to the Las Vegas Strip, and ultimately gaming revenue (ticket sales).

These are the facts: 42.3 million visitors spent less than 35% of their Las Vegas Strip budgets on gambling in 2015 vs. 14.2 million visitors spending 57.9% of their budget on gambling in 1985. These numbers do not mean that millennials are less interested in gambling. They do mean that today's convention- and nightclub-enhanced version of Las Vegas, with its AAA Five Diamond hotels and celebrity chefs, is attracting people who might not otherwise have visited it.  

As such, to look at that 35% figure as a failure of the casinos rather than as a success of everything else is absurd.

Further overlooked is the fact that the Las Vegas Strip has always been a special place. Even in 1975, gaming only accounted for 58.3% of total revenues on the Strip. In contrast, there are few – if any – other gaming markets where the breakdown between gaming and non-gaming revenue is even discussed, because non-gaming revenue is often nominal compared to gaming revenue. This is especially true in regional markets where the casinos cater primarily to locals.

Let’s take a look at the breakdown between company-wide gaming and total revenue from some key operators for 2015 (for the companies who could explain their businesses in a single form 10-K) and Caesars Entertainment (NASDAQ:CZR) for 2014.



2015 Net Gaming Revenue

2015 Total Net Revenue

Gaming/Total %

Melco Crown Entertainment (NASDAQ:MLCO)




Pinnacle Entertainment 




Penn National Gaming 




Boyd Gaming 




Las Vegas Sands (NYSE:LVS)




Wynn Resorts (NASDAQ:WYNN)




Caesars Entertainment (2014)




MGM Resorts International (NYSE:MGM)




Sources: Company 10-Ks and earnings releases. 

It should be noted that the percentages for some of these companies are slightly understated because management fees (for managing casinos for other entities) are included in total net revenue but not factored into the gaming revenue column, but otherwise the figures are pretty representative. You will notice that among the companies operating in the U.S., that Pinnacle, Penn, and Boyd Gaming all generated north of 80% of revenue from gaming in 2015 while MGM is far away from the others and the only one under 50%.

Why do you suppose that is?

Do you think it’s because Pinnacle, Penn, and Boyd Gaming understand millennials better than everybody else? Or do you reckon it’s because these companies operate primarily in regional markets and cater primarily to locals, who show up to hang out and gamble more frequently, and don’t need a hotel room, to see a show, or pay for bottle service every time they go?

Meanwhile, over 75% of MGM’s total net revenue in 2015 came from Las Vegas. In contrast, Las Vegas only accounted for about 14% of Las Vegas Sands’ revenue, with gambling-heavy Macau accounting for the bulk of the rest. Melco Crown at 94.8% looks a lot like Macau, which – like Atlantic City – wants to look more like Las Vegas.

Millennials: 3 things we know for sure

  1. Thanks to gaming expansion and the Internet, millennials have more access to casino (and other) gambling than any previous generation in American history.
  2. Millennials are more knowledgeable about gambling than any previous generation in American history.
  3. The house advantage has been on the rise for two decades, such that the value of a gambling dollar has never been lower.

Unprecedented access

In 1985, casino gambling was legal in two states: Nevada and New Jersey.

In 2016, some form of either commercial or tribal casino gambling is legal to some degree in 40 states, not to mention the U.S. territories of Puerto Rico, the Northern Mariana Islands, and the U.S. Virgin Islands.

I think it's a safe bet that millennials (including myself) have gambled more in legal casinos than any previous generation at their age. Throw in the Internet, the poker boom of the 2000s, the ongoing DFS craze, and the rise of wagering on eSports, and it's clear that millennials have had unprecedented access to gambling, legal or otherwise.

Unprecedented gambling knowledge

Millennials are also more knowledgeable about gambling than any previous generation, as a function of:

  1. Unmatched access and experience with gambling
  2. Unparalleled access to information offered by the Internet
  3. Unprecedented computing power

This is fundamentally why -- almost category for category – the dominant poker strategy texts of the past decade have been written by guys now in our 30s, written largely when we were in our 20s. There is, in fact, an entire class of poker players who played millions of hands online before they were old enough to set foot in a casino.

Here's another stat: In the eight years since the World Series of Poker (WSOP) introduced the November Nine concept in 2008, all eight WSOP Main Event champions and six of the second-place finishers were born after 1980. In fact, the oldest among those champions – Peter Eastgate, the 2008 Main Event champion – was born in 1985. This year, six of the 2016 November Nine were born after 1980, and two of the other three are still in their 30s.

You get the point: Apparently, we are to believe that millennials hate gambling so much that they are better at it than everybody else.

Rising house advantage, declining gambling value

As I noted last year, the house advantage has been on the rise for two decades, such that its higher than ever before. The chart below from the Association of Gaming Equipment Manufacturers (AGEM) details the aggregate slot hold percentage for slot machines across 16 states (effectively the U.S. commercial gaming industry plus Connecticut), which rose steadily from 5.96% 1996 to 7.70% in 2014. That represents the actual percentage of every dollar wagered on slots that casinos earned as slot revenue.

Image Source: Association of Gaming Equipment Manufacturers

Again, combined with faster game speeds than ever before, what this means is that slot players are losing more money, faster than ever before.

Meanwhile, as we also discussed, table games players have not been safe either, as the house advantages for those have been on the rise too.*

The harsh reality of economics

What's really happening is that the gaming industry is facing the harsh reality that the market for casino gambling is, in fact, subject to economics. As it expanded through the mid-2000s, the rise in house advantage  was masked as untapped demand throughout the country.

Well, now that demand is tapped. Casino gambling is everywhere, and as a product has fundamentally matured. It's no longer novel. It's less often a destination product,  and more often driven largely by locals.

Consequently, we've reached a point where the rising house advantage and decline in gambling value is having a real effect -- as the price of gambling has risen, gambling volumes have fallen. People in general – not just millennials -- are gambling less, even as income levels have risen from their trough during the Great Recession.

Thus, to blame millennials for all of the industry's woes is nothing short of a cop out.

Solutions: On skill games and skill-based gaming

Millennials, it is agreed, are the most diverse generation ever. That is, unless we're talking about the millennials to whom commentators on the gambling industry refer. In that case, there seems to be only one type -- the one who hates traditional casino gambling and prefers skill games like poker, DFS, or eSports.

Image Source: Getty Images.

There are two problems with that narrative.

One is its tendency to wildly overgeneralize about millennials. I mean sure, millennials are into online poker – or at least some of them are. Sure, millennials are into DFS – or at least some of them are. Sure, millennials are into eSports – or at least some of them are. Some millennials are into one, two, or even all three of the categories above.

On the other hand, I suspect a material non-zero portion of the millennial population is into neither online poker, DFS, nor eSports wagering. Moreover, I suspect many such millennials likely project to become 55-year-old women (today’s “average” slot player) some day. 

Here's the thing: Few would disagree that all of the above opportunities present potential upside for the gaming industry. But it's important to step back and think about the fact that skill games like online poker, DFS, and eSports wagering are opportunities that didn't exist before the Internet, and which appeal largely to a portion of the population that happens to be millennials.

Demand for skill games

When it comes to the subject of the potential demand for skill games or skill-based gaming, there seems to be a bit of confusion as to what we are even talking about.

Let's take a look at some of the comments on the demand for such games that you can find among the many gaming articles on millennials:

  •  "The technologically savvy generation has no interest in games of chance."
  •  "Millennials are clearly less engaged by traditional casino gaming products. They are more attracted to social and skill games, daily fantasy sports, and eSports than the old reliable slot machine or blackjack table."
  • "Millennials expect immersive casino experiences, desire skill-based games, and want to connect to the real world digitally ... through fantasy everything."
  • "They are quickly bored by the randomness of slots, and seek games of skill over chance, as well as interactive, reward-oriented experiences."

Everybody seems to "agree" that millennials demand games of skill, but in reality, the arguments presented above actually come in two distinct flavors:

  1. Millennials demand skill games like poker, DFS, or eSports.
  2. Millennials demand games involving any element of skill, like the video games they grew up on.

These are two very different arguments.

Poker, DFS, and eSports wagering all have one very important thing in common -- they are all types of games of skill, in which a good player can conceivably have a positive impact on the outcome. This means that a good player can expect to win at an hourly rate in the same way that people with regular jobs may earn hourly wages, albeit with a bit more variance.

These games are beatable.

Thus a gambler's interest in poker, DFS, and eSports wagering is also driven by economics -- the player has an incentive to take the time to learn how to play these games at an advanced level by virtue of profit motive. And if you are a skilled gambler who plays such games for profit, there is no confusion about what the definition of a skill game is -- it is one that is beatable.

Conversely, the umbrella for what are being described as "skill-based" games includes potential casino gambling games featuring any element of skill, regardless of the chance for a positive expectation.

This is an extremely important distinction that's being completely glossed over.

Could introducing elements of skill into slot games attract millennials to slots? Sure. Is it as simple as introducing elements of skill into slot games, even if it means the gambler is guaranteed to lose the same or more than he or she would playing a neo-classic penny video slot?

 Only if you think millennials are stupid.

This is part of what makes the topic of the potential for "skill-based" gaming so complicated. Everybody talks about the demand for elements of skill, but almost nobody talks about the price to the player -- the house advantage -- which is at least equally fundamental.

The player needs to have an incentive to develop the skills. This means that at a minimum, a player who becomes proficient on a new skill-based game must be able to play at a lower house advantage -- that is, lose at a slower rate -- than the player would on a comparable skill-less slot machine at the same stakes.

The model for this is video poker. Again, as we discussed last year, the primary reason video poker is so prominent in locals casinos is because a player who plays well can reduce the house advantage compared to other slot games at comparable stakes.

People who gamble more frequently demand better value on their gamble, as do people with gambling skills. And so, if skill-based games are going to generate any meaningful volume, the price of gambling – the house advantage -- matters.

Thinking about gamblers correctly

The millennial problem is a loaded question unto itself.

It starts with the presumption that millennials fundamentally don’t like casino gambling as it exists today. It then asks the observer to explain why millennials don’t like casino gambling, without bothering to question whether the underlying presumption is true. As presented, the millennial problem then asks for definitive solutions to a problem which may or may not exist, with little to go on except questionable interpretations of wildly overgeneralized assumptions.

So that's where we are today.

The truth is, the gaming industry has evolved constantly in modern times, so regardless of whether or not there actually is a millennial problem, there's certainly room -- and probably a need -- for the industry to explore new opportunities, including online and mobile gaming in general; online poker, DFS and eSports; and potential skill-based applications. That said, if there is a millennial problem, it's probably not nearly as serious as it's being made out to be.

The real problem is not with millennials, but rather with the way the industry thinks about gamblers. And to address that, three things need to happen:

  1. The gaming industry needs to quit blaming millennials for all present and future problems.
  2. The industry needs to come to grips with the reality that the demand for casino gambling is not immune to basic economics.
  3. The industry needs to rethink the way it thinks about not just millennials, but gamblers in general.

The mere fact that house advantages have been rising steadily for two decades is a strong reflection of an overarching operating principle prevalent throughout the industry: Gamblers are too stupid to know the difference.

To me, that is the biggest problem with the approach of the gaming industry right now. As the house advantage has risen, the value of a gambling dollar has declined, and the industry has become increasingly reliant on gamblers not understanding this fact. And it's trying to make that work at a time when younger gamblers -- millennials -- are more knowledgeable about gambling than any generation to come before us.

More and more people are realizing how far the house advantage has risen. Word of mouth spreads the message that the gambling proposition is worse than ever before. This is particularly dangerous to the industry in the social-media-powered environment of today.

Thus, if you really want to appeal to millennials, what you really want to do is find a way to deliver gambling value, appeal to intelligent people, and let smart people sell their friends on your propositions.

For related gaming industry commentary from Jeff, check out:

Fool contributor Jeff Hwang is a game developer and President of High Variance Games LLC. Jeff is also the best-selling author of Pot-Limit Omaha Poker: The Big Play Strategy, the three-volume Advanced PLO series, and The Modern Baseball Card Investor. Follow Jeff on Twitter @RivalSchoolX.

 *Author's note: Some might argue that factoring "player reinvestment" – including the slot free play abomination -- the actual slot hold is more in line with historical hold percentages. However, the reality is that most people don't gamble enough to see such rewards.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.