How AI Can Secretly Drive Massive Profits for the Casino Industry
The casino sector might be lagging behind in the adoption of artificial intelligence (AI), yet its gradual acceptance of this technology is paving the way for a significant win in future profits.
Clayton Peister from Differential Labs, a firm that collaborates with both physical casinos and online gaming operators to implement AI, recently met with Truist Securities analyst Barry Jonas to examine AI developments within the gaming field.
Two key insights emerged from their discussion: the convergence of AI and gaming is still in its early stages, but once it develops further, it has the potential to drive substantial growth 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.”
Realizing the potential for earnings growth presents its own challenges.
Casino Sector Must Address AI Disparities
Businesses in the gaming sector have various options for utilizing AI, and although this flexibility is beneficial, the field must address existing gaps to fully leverage the advantages offered by this technology.
As Peister mentioned in the discussion with Truist, the application of AI within the casino sector primarily depends on machine learning techniques, but this reliance limits the ability to fully utilize the advantages of generative AI (GenAI) and large language models (LLMs).
“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.”
The Differential Labs has stated that LLMs have the potential to enhance the capabilities of casino operators in areas such as real-time marketing, risk management, optimizing assets, developing strategies at the patron level, and meeting reinvestment goals — all of which could lead to higher EBITDA.
Legacy Systems Impede Casino AI Initiatives
Various asset-light gaming firms, such as DraftKings (NASDAQ: DKNG) and Flutter Entertainment, which owns FanDuel (NYSE: FLUT), are emerging as frontrunners in AI integration, and there is proof that certain casino operators in Asia are also advancing in AI technology.
In the United States, achieving increased profit margins and other advantages from AI greatly appeals to land-based operators; however, they are facing challenges due to outdated 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 currently primarily focusing on AI as a labor cost-saving tool, but that could change in the future as those businesses employ cloud computing technologies more and more.
