The gamification wave: How gambling is entering arcades across the US

ATS.io mapped how gambling is entering arcades across the United States and the potential implications for each respective industry.

Jake Kring-Schreifels
Posted

Group of friends playing with a claw machine.

Jacob Lund // Shutterstock

In between Dave & Buster's screen-lit aisles and makeshift arenas, it's not unusual to see groups of friends competing with each other. At each of the arcade chain's more than 222 franchises throughout the country, there's just about every kind of friendly physical and virtual game—Hot Shots basketball, Skee-Ball, air hockey, billiards, virtual car racing, and shooting—to master. And that is just the beginning. ATS.io mapped how gambling is entering arcades across the United States and the implications for these two industries.

In a partnership with technology company Lucra, Dave & Buster's announced in April 2024 that it plans to allow customers to bet on its arcade games through a social wagering channel on its app. The gamification software will accommodate peer-to-peer digital cash bets on "skill-based" games, otherwise defined as "recreational activities for which the outcome is largely or entirely dependent on the knowledge, ability, strength, speed, endurance, intelligence of the participants and is subject to the control of those participants," Lucra chief operating officer Michael Madding told the New York Times.

In the process, loyalty members will be able to digitally wager on each other's recreational abilities, earn various rewards, and unlock exclusive perks, effectively merging sports betting and arcade fandom together. "This new partnership gives our loyalty members real-time, unrivaled gaming experiences, and reinforces our commitment to continuing to elevate our customer experience through innovative, cutting-edge technology," Simon Murray, senior vice president of entertainment and attractions at Dave & Buster's, said in the company's initial press release.
 

Gambling and gamification's intertwined fates

The decision to enter the betting fray is the latest example of an arcade or casino investing in gamification to capitalize on the exponential growth of gambling. As of May 2024, close to 40 states have legalized sports betting, which achieved record revenues ($10.9 billion) in 2023, according to the American Gaming Association, thanks to maturation across existing and newer markets, such as Massachusetts and Ohio. In the same year, more traditional and regulated casino slots and table games at brick-and-mortar establishments grossed a record $49.4 billion in revenue. That doesn't even mention the soaring estimations for the fantasy sports market, which projects to reach $56.36 billion in 2030, according to a report by Grand View Research.

"A lot of these new skill games are riding the wave of the sports betting and fantasy sports boom," Daniel Wallach, a gaming law and sports betting attorney, told ATS.io. "If fantasy sports is a legal game of skill, and it falls outside the gambling prohibitions under state law, then that could potentially apply to myriad other skill games. That's what Dave & Buster's is banking on."

Still, there are potential consequences and uphill battles. Over the last couple of years, numerous "adult arcades" attempting to circumvent state laws with gambling games have been raided by authorities—namely in Florida, where slot machines are illegal unless they're at casinos or pari-mutuels. Depending on the state and how Dave & Buster's plans to operate its social wagering, the chain may also face legal hurdles. But according to Wallach, as long as an arcade isn't acting as "the house" and setting odds, "in most jurisdictions, the peer-to-peer product is, legally, the path of least resistance."
 

A bid to remain relevant

In a post-pandemic world, finding new ways to attract and retain customers has become paramount for big entertainment venues. Until about a decade ago, publications were still delivering eulogies for the arcade, which struggled to compete with home video game consoles. In a 2013 story for The Verge, author Laura June argued: "The economics aren't there anymore, the community support never was, and, of course, gaming companies make a killing in the home—almost none are even producing cabinets anymore."

To reinvent themselves, many arcades have introduced more hospitality elements and virtual/augmented reality opportunities, hoping newer social technology might lure customers back. Along with casinos installing slots that incorporate video game elements like storytelling and competition, they've also taken hints from sports betting companies like DraftKings and FanDuel, gamifying their mobile experiences by presenting various "challenges" or "missions" or "bonuses" that can incentivize players to stay active on an app and increase their chances to win prizes.

Some arcades, like Galloping Ghost Arcade, based in Brookfield, Illinois, have pivoted the other direction, leaning into nostalgia to fuel their niche customer base. According to owner Doc Mack, the venue—which hosts about 80,000 customers a year—doesn't supply any food or beverage service, has close to 900 different games, and charges a $25 flat rate so customers don't pinch their quarters. "We have tried to really go with an old-school approach to it. Our games kind of speak for themselves," Mack told ATS.io. "You don't have to pitch anything else to make these games iconic or make people want to play them."

Unlike Dave & Buster's, he says, which phases old games out, Galloping Ghost prides itself on classic arcade options that don't cater to online opportunities. Considering the scope and intention of his business, gamification only makes sense for a certain size operation looking to draw in more casual customers. "I think it's great to try to innovate and bring new things to it," Mack said. "If you operate that big at this point, maybe you just try to do anything you can to figure out a new revenue opportunity."
 

The family-friendly quandary

Considering Dave & Buster's is one of many arcade entertainment franchises that cater to families, underage gambling has become a concern. Legislators such as Illinois state Rep. Daniel Didech have spoken out about the lack of safeguards preventing kids and teenagers from betting themselves.

Lucra says its betting services are only intended for adults 18 and up, and that the average contest size is around $5 or $10. But without being regulated—a reason the American Gaming Association declined to comment for this story—the chain opens itself up to more scrutiny. "State regulation can provide an important consumer protection element that would otherwise be missing from unregulated albeit legal activity," Wallach said. "Maybe the answer is to regulate rather than prohibit."

Whether or not it finds initial success, Wallach believes this venture into arcade peer-to-peer betting is likely to gain imitators. Consider venues such as Topgolf and PingPod (a fully automated table tennis space), which have already gamified some of their experiences and contain inherent head-to-head competitions. Meanwhile, on Lucra's list of clients is a pickleball ratings system and a tennis app that allows players to compete against each other for real money. According to Lucra, its app has created 1 million unique contests and collected more than $20 million of handle. It seems like just the beginning.

"There's much more skill gaming out there at commercial venues than you may even realize," Wallach said. "There's no reason why this concept can't be imported to those types of recreational activities."

Story editing by Carren Jao. Copy editing by Tim Bruns.

This story originally appeared on ATS.io and was produced and distributed in partnership with Stacker Studio.