Market cannibalisation within and between gambling industries

Dr. Virve Marionneau, Dr. Janne Nikkinen

Monday, 28. August 2023

Market cannibalisation, or substitution, refers to a phenomenon where the consumption of one product is partly or entirely replaced by another. In the gambling field, this can happen when new products are introduced in the market (new products substituting existing offer) or when the availability of one product is restricted (other products substituting its consumption).

Cannibalisation can occur across similar products, such as lottery-type gambling substituting other lottery-type gambling. Cannibalisation can also occur across different products. This is for example the case when casino-type gambling substitutes lotteries or sports betting, or when online formats substitute land-based formats of gambling.

Cannibalisation can take different forms across gambling products. Some products may be complementary. In this case, they do not substitute each other, but increase total consumption. Other products can be partially or even fully substitutionary.

We investigated these substitution effects within and between gambling industries in a systematic review study published in the Journal of Gambling Issues (Marionneau & Nikkinen, 2017). The review included empirical research on cases where new gambling products were introduced in the market. Included papers were published between 1978 and 2017. The final corpus consisted of 58 research papers that included in total 102 observations of different substitution effects.

Overall, the results of the review showed that most new gambling products tend to substitute existing offer to some extent. Particularly, the introduction of new casinos does cannibalise consumption on lotteries and pari-mutuel racing, as well as other casinos. New lotteries also cannibalise other lotteries, as well as sports betting and racing. However, even in cases where substitution does occur, this is rarely complete. New products tend to grow the overall market.

The review also found that evidence exploring possible substitution effects was still missing in many product groups. Notably, there was very little evidence on the substitution effects pertaining to online gambling formats or sports betting. Furthermore, as the review was already conducted in 2017, we were not able to capture trends related to new and emerging forms of gambling and more recent trends.

We concluded that there would be a need to update this review with more recent evidence on new products that have been introduced in the market after 2017. In addition, there is now a growing body of evidence on the possible substitution effects in cases where the availability of products has been restricted. The COVID-19 pandemic, in particular, has offered a natural experiment to explore what happened when the availability of land-based gambling was restricted. Did this result in growth in the consumption of other products, and notably online gambling?

Availability restrictions are often opposed on grounds that these will lead to consumption transferring to other products. Increasing evidence on the impacts of COVID-19 nevertheless suggest that, in most cases, availability restrictions resulted in reduced total consumption of gambling. Land-based gambling was not substituted (at least fully) by online alternatives although some subgroups of gamblers did increase their online gambling.

During our presentation in the Institute for Gambling and Society (GLÜG), we also presented some results from a new study by Virve Marionneau together with colleagues from the Finnish National Institute for Health and Welfare (THL), Jani Selin, Antti Impinen, and Tomi Roukka. This study used product group-level sales data provided by the gambling monopoly in Mainland Finland, Veikkaus (2019-2022).

The Finnish gambling landscape has undergone several important policy changes in recent years. COVID-19-related restrictions temporarily reduced the availability of land-based gambling. In addition, the monopoly has introduced mandatory identification and pre-commitment schemes to land-based non-casino EGMs (electronic gambling machines, or slot machines) and casino gambling in 2021. The study explored whether these changes have reduced total consumption and whether any reductions in land-based gambling have been offset by online alternatives.

The results show that there has been a trend towards increased digitalisation of gambling during 2019-2022, and this trend was boosted by COVID-19. The Finnish reforms that have reduced the availability and accessibility of land-based gambling have, nevertheless, translated into a decline in the total consumption of gambling. This decline is mainly due to reduced consumption of land-based EGMs in non-casino locations. The results also show that declines in land-based EGM sales have not been offset by online alternatives.

The only substitution effects that were visible in the data were observed during the first COVID-19 wave. These concerned a slight substitution of land-based table games by online table games as well as a substitution of land-based horse betting and sports betting by online horse betting. These substitution effects were not maintained in the long term, although the sale of online horse betting has remained at a higher level also after the pandemic.

Overall, the two studies together show that, on the one hand, new gambling products tend to grow the overall market. This may be particularly true of fast-paced and intensive products. On the other hand, restrictions on gambling availability are a viable option to reduce total consumption.

These findings suggest that public health-oriented interventions that target full populations (such as mandatory precommitment and availability restrictions) are effective policies also from a harm prevention perspective.