New entries to the industry threaten to limit the profitability of established competitors (Porter, 2008, p.3). One luxury that commercial casinos have is that there are significant barriers to entry, namely high capital requirements. Because of this, threats to the industry have historically been few and far between. But thanks in large part to increasing popularity and technological advancement, new competition in the gambling industry has emerged in the form of Native American casinos and a rapidly growing online gambling market.
Since 1988, with the passing of the Indian Gaming Regulatory Act, Native American casinos have been growing in popularity and opening all over the United States. There are currently 473 federally recognized Native American casinos located in 28 of the 50 states (National Indian Gaming Commission, 2011), and these casinos have reported impressive growth in the last 15 years. According to Schaap (2010), between 1997 and 2001, revenues increased 73% from $7.4 billion to $12.8 billion, and from 2001 to 2005, revenues went up 77% to $22.6 billion (pp.368-369). Despite the downturn of the entire U.S. economy, Native American casinos still reported significant growth between 2005 and 2011, generating a 20% increase in revenues to $27.2 billion (National Indian Gaming Commission, 2011, Figure 15&16). In comparison, the American Gaming Association reported that commercial casinos generated $35.64 billion in revenues in 2011 (American Gaming Association, 2012a), and as figures 15 & 16 below illustrate, the difference in revenue between Native American and commercial casinos has been shrinking for the last decade. As Native American casinos become increasingly popular and frequented by more patrons, the profitability of commercial casinos stands to be seriously threatened.