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Among Dave & Buster's screen-lit aisles and makeshift arenas, it's not uncommon to see groups of friends competing with each other. At any of the arcade chain's more than 222 franchises across the country, you can master virtually every type of friendly physical and virtual game—Hot Shots basketball, Skee-Ball, air hockey, billiards, virtual car racing and shooting. And that's just the beginning. ATS.io charted how gambling is invading arcades in the United States and the implications for these two industries.

In partnership with technology company Lucra, Dave & Buster's announced in April 2024 that it plans to let customers bet on its arcade games through a social betting channel in its app. The gamification software will enable peer-to-peer digital cash betting on 'skill-based' games, also defined as 'recreational activities whose outcome depends largely or entirely on the knowledge, ability, strength, speed, endurance and the intelligence of the participants and is subject to the control of those participants,” said Michael Madding, CEO of Lucra told the New York Times.

In addition, loyalty members can digitally bet on each other's recreational skills, earn various rewards and unlock exclusive benefits, effectively merging sports betting and arcade fandom. “This new partnership gives our loyalty members real-time, unparalleled gaming experiences and reinforces our commitment to continue improving our customer experience through innovative, cutting-edge technology,” said Simon Murray, senior vice president of entertainment and attractions at Dave & Buster's, it said. the company's first press release.

The fates of gambling and gamification are intertwined

The decision to enter the gambling 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, nearly 40 states have legalized sports betting, which achieved record revenue ($10.9 billion) in 2023, according to the American Gaming Association, thanks to maturation in existing and newer markets such as Massachusetts and Ohio. In the same year, more traditional and regulated casino slot machines and table games in brick-and-mortar establishments generated record revenues of $49.4 billion. That doesn't even mention the rising expectations for the fantasy sports market reaching $56.36 billion by 2030according to a report from Grand View Research.

“Many of these new games of skill are riding the wave of the sports betting and fantasy sports boom,” Daniel Wallach, a gaming 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 countless other games of skill. That's what Dave & Buster's is counting on.”

Still, there are potential consequences and uphill battles. Over the past few years, numerous “adult slot machines” that try to circumvent state gambling laws have been raided by authorities, especially in Florida, where slot machines are illegal unless they are in casinos or pari-mutuels. Depending on the state and how Dave & Buster plans to operate its social betting business, the chain could also face legal hurdles. But according to Wallach, the peer-to-peer product is legally the path of least resistance in most jurisdictions, as long as an arcade doesn't act as “the house” and determine the odds.

An attempt to stay relevant

In a post-pandemic world, finding new ways to attract and retain customers has become critical for major entertainment venues. Until about a decade ago, publications were still delivering paeans to the arcade, which was struggling to compete with home video game consoles. In a 2013 story for The Vergeargued author Laura June, “The economy is gone, the community support has never been there, and of course gaming companies are making a killing in the homes, hardly anyone even produces cabinets anymore.”

To reinvent themselves, many arcades have introduced more hospitality elements and virtual/augmented reality capabilities, hoping that newer social technology could lure customers back. In addition to casinos installing slot machines that incorporate video game elements such as storytelling and competition, they have also taken cues from sports betting companies like DraftKings and FanDuel, gaming their mobile experiences by presenting different “challenges,” “missions” or “bonuses” which encourage players to stay active in an app and increase their chances of winning prizes.

Some arcades, like Galloping Ghost Arcade, based in Brookfield, Illinois, have gone the other way, leaning on nostalgia to fuel their niche customer base. According to owner Doc Mack, the venue, which hosts about 80,000 customers annually, does not provide food or drinks, has nearly 900 different games and charges a flat rate of $25 so customers don't have to squeeze into their rooms. “We tried to take a really old-school approach to it. Our games 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, he says, which is phasing out old games, Galloping Ghost prides itself on its classic arcade options that don't cater to online capabilities. Given the scope and intent of his business, gamification only makes sense for companies of a certain size that want to attract more casual customers. “I love trying to innovate and add new things to it,” Mack said. “If you're operating at such a large scale right now, you might just be trying to do whatever you can to discover a new revenue opportunity.”

The family-friendly dilemma

Since Dave & Buster's is one of many arcade entertainment franchises aimed at families, underage gambling has become a problem. Lawmakers like Illinois State Rep. Daniel Didech have done just that talked about the lack of guarantees prevent children and teenagers from gambling themselves.

Lucra says its betting services are only intended for adults aged 18 and over, and the average match size is around $5 or $10. But for no reason the American Gaming Association declined to comment for this story, the chain is opening itself up to more scrutiny. “Government regulation can provide an important element of consumer protection that would otherwise be missing from unregulated, albeit legal, activities,” Wallach said. “Maybe the answer is to regulate rather than ban.”

Whether or not it finds initial success, Wallach believes this venture into arcade peer-to-peer betting will likely find imitators. Consider venues like Topgolf and PingPod (a fully automated table tennis room), which have already gamified some of their experiences and include inherent head-to-head competitions. Meanwhile, Lucra's client list includes a pickleball rating system and a tennis app that lets players compete against each other for real money. According to Lucra, the app has hosted 1 million unique contests and collected more than $20 million in revenue. It seems like just the beginning.

“There's a lot more skill gaming in commercial venues than you might even realize,” Wallach said. “There is no reason why this concept cannot be imported into these types of recreational activities.”

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

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