NEW YORK (TheStreet) -- The biggest threat to the casino business my not be the threatened rise of online gambling -- it could actually be the rise of the millennials, suggests one expert.
"Millennials seem like they are a little bit less interested in gambling in the casinos," said Alex Bumazhny, a director at Fitch Ratings. "They'll still go to casinos quite a bit, but they spend their money on food, beverages, nightclubs and entertainment, and less so on the slot machines."
Bumazhny noted that millennials do enjoy playing table games like poker, but those games are less profitable for casinos than slots. The big problem for the casinos is that millennials prefer casino-themed social games and daily fantasy sports. The casino industry is reacting to this challenge by investing in the sorts of games Gen Y gravitates toward: Caesers Entertainment (CZR) has purchased social gaming businesses and International Game Technology (IGT), which makes slot machines, bought the social gaming company Double Down Interactive a few years ago. IGT and Caesers Entertainment generated $80 million and $167 million in the first quarter from their respective social gaming divisions.
Bumazhny also said the casinos are introducing more skill-based elements into slot machines -- such as a bonus rounds where you have to 'blow up UFOs or shoot at a deer -- to try to appeal to the younger crowd. But Bumazhny said trying to engage Gen Y is an uphill battle for the casinos.
One factor that still plays in the casinos favor -- at least in the short term -- is that online gaming is still largely illegal in the U.S.: Only three states -- Nevada, New Jersey, and Delaware -- have approved it. In the first full year of operations, online gaming revenues in those three states were only about $130 million, significantly below Fitch's initial forecasts of $200 million to $300 million. In New Jersey, home of East Coast gaming mecca Atlantic City, online gaming revenues account for only 5% of total gaming revenue.