How AI Can Secretly Drive Massive Profits for the Casino Industry
Despite being a latecomer to the artificial intelligence (AI) revolution, the casino industry's delayed adoption of the technology is paving the way for enormous long-term gains.
Truist Securities analyst Barry Jonas recently spoke with Clayton Peister of Differential Labs, a business that assists land-based casinos and iGaming operators in adopting AI, about AI trends in the gaming sector.
Two key conclusions from the discussion were that, although the AI/gaming junction is still in its early stages, it has the potential to drive significant increase in earnings before interest, taxes, depreciation, and amortization (EBITDA).
"Net-net, most early AI initiatives haven’t yet reached their potential as operators have focused largely on technical wiring rather than vision,” observes Jonas. “Over time, Mr. Peister sees a real opportunity for AI to unlock ~20-30% EBITDA upside for both land-based and digital casinos.”
It's another matter entirely to unleash that potential for earnings growth.
The Casino Sector Must Close AI Gaps
AI may be used in a variety of ways by gaming companies, and while this flexibility is advantageous, the sector still needs to bridge several gaps in order to fully utilize the technology.
The gambling sector now uses a lot of machine learning technology, as Peister pointed out in the Truist chat. However, this overuse prevents generative AI (GenAI) and large language models (LLMs) from reaching their full potential.
“Peister stated that the industry has tried and failed to adopt AI by forcing the line-level team to radically change process, but through LLMs, Differential Labs are adapting the AI to the existing processes,” notes Jonas. “Net-net, LLMs working with machine learning brings the 10-20% EBITDA uplift within reach.”
According to a Differential Labs executive, LLMs can enhance the real-time marketing, risk management, asset optimization, patron-level strategy, and reinvestment goals of casino operators, all of which can lead to higher EBITDA.
Casino AI Efforts Are Hindered by Legacy Systems
A few asset-light gaming firms, such as DraftKings (NASDAQ: DKNG) and Flutter Entertainment (NYSE: FLUT), the owner of FanDuel, are already becoming pioneers in the deployment of AI, and there is indication that certain Asian casino operators are also making progress.
Land-based operators in the US are clearly drawn to realizing profitability upside and other AI benefits, but they are facing challenges brought on by old management systems.
“A significant implementation moat exists due to legacy Casino Management Systems (CMS) and market-specific regulatory constraints. Existing CMS frameworks are frequently static and highly regulated, forcing innovative operators to build an ecosystem of applications around the core to bypass data bottlenecks,” notes Jonas.
Peister mentioned in the Truist debate that US-based casino operators are presently primarily focusing on AI as a labor cost-saving tool, but that could change in the future as those businesses employ cloud computing technology more and more.
