Casino & Gaming International: Issue 4 by Casino & Gaming International

2006 ISSUE 3

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Woodland Place, Hurricane Way Wickford Business Park, Wickford Essex SS11 8YB. United Kingdom Telephone: +44 (0)1268 766 515 Facsimile: +44 (0)1268 766 516 Annual Subscription (4 issues): £107 UK £117 Europe & Middle East £127 USA & Canada £137 Rest of the World Please make cheques payable to ‘CGI’ and send to: Casino & Gaming International, Subscriptions Dept., Woodland Place, Hurricane Way, Wickford Business Park, Wickford, Essex SS11 8YB. United Kingdom. Photography © 2006 Casino & Gaming International Limited and it’s licensors. All rights reserved. © 2006 Casino & Gaming International Limited (except where otherwise stated). All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written permission of Casino & Gaming International Limited. ISBN 190200335 7 www.casinoandgaming.net

othing reveals the omnipresent power and durability of the casino world more than the sharply contrasting circumstances of expansion in Macau and recovery in the United States’ Gulf Coast after Hurricane Katrina. That disaster reaches its first anniversary on 29th August. Equally, nothing quite so confidently epitomises the competitive excitement and maturity of the industry than the most recent move by the Global Gaming Expo (G2E) into the Asian gaming scene, building on the growth of AGE to become G2E Asia. However, there is sudden disquiet that prohibition of the online gaming sector in the US is beginning to bite yet again. While crunch time arrived for BetOnSports in July with what appeared to be a shot across the bows beyond sports book operators, it could actually prove to be a parting shot before regulatory wisdom begins to prevail. It seems unlikely that the US authorities will continue for too long to risk a long-term revenue and market disadvantage, when so much can be gained through responsible, verifiable legalisation. Nevertheless, the grey area has in some ways amounted to a loophole, so how that is closed matters above all. The global virtual media explosion militates against anachronistic laws rooted in a bygone era, notwithstanding social and moral campaigns or concerns. As we all know, the inexorable advance of technology – and the increased mobility associated with it – can never be undone. Invariably, as is clear in other business sectors, legislative instruments evolve after the fact. Online gaming, though to a lesser degree, is no exception. With a proven level of business presence pointing firmly skyward, in many operators’ and regulators’ eyes that is qualification enough to encourage the beginning of the end of US ambiguities. This tightrope has long influenced some companies’ cautious commitment to the US, leading to a professed primary focus on European and Asian market potential. Clearly, it is very difficult to turn resolutely from the American market when so much business, real and potential, depends upon it. The burgeoning AsiaEuropean gaming supplier and e-commerce expectations (online, interactive, mobile) are running high and offer tantalising opportunities. Even so, a long term commanding US-Asia casino gaming relationship is already a fact, along with Australia’s strong involvement. Macau and Singapore are being thrust into the forefront, effectively heading up the gradual Asia-wide pressure for jurisdictional change. The experimental nature of a ‘forced-pace’ Las Vegas of the East in Macau will provide a ready basis, over coming years, for much of south east Asia to consider what new international casino developments are compatible with national aims. This lends significance to the idea of a historical birthplace, as it were, of the modern casino industry represented by Las Vegas. This is not simply a case of re-branding or even reinvention, but essentially an emerging perception that a full-fledged city needs to evolve as the outer limits of gaming potential are reached. Global cities develop broader international economic, social and cultural connections. As communication difficulties with Asia slowly dissolve, the intriguing prospect is to discover whether the heritage attraction defining Macau as a huge destination resort will remain sufficiently intact. What Las Vegas protects now is its necessary ability to renew with only recent history to assist. The fact there is no lineage of past infrastructure providing support is in some respects an obvious explanation for the forward driving, almost pioneer dynamic. Internal competition, quite apart from new international casino gaming hubs, serves to reinforce that impulse. In time this will provide the means, in part, to create a depth of life to the city as a whole, thereby assuring a second breath for the future. The ancient traditions of China and, to a more varied extent, the wider AsiaPacific region, are likely to remain a guiding force in the break-neck modernisation currently underway. Differentiation and integration, as mutually supportive approaches to balanced casino development, are gaining ground as they have in Las Vegas. Dr Ricardo Siu pointed out at the recent Asian Gaming Expo in Macau that 25 of its historic locations were UNESCO heritage site listed last July. With Macau, a former Portuguese colony, reverting fully to the PRC mid-century, the casino industry’s future depends on how vigilantly the human centre is protected.

Stephen Lawton is editor of Casino & Gaming International Silver Sponsor

Casino & Gaming International ■ 1

CONTENTS

FEATURES 7

PARADIGM SHIFT: COMING OF AGE AMONG DRAGONS BY ROSS FERRAR

MOVING FAST TO REGULATE THE MACAU DRAGONHEAD BY JORGE GODINHO

THE SOCIALISING POWER OF GAMBLING IN ‘LAS VEGAS OF THE EAST’ BY SOO-MAY CHENG

WINNING NUMBERS ARE IN BUT SUSTAINABILITY ISSUES LOOM BY CATHY HSU

MACAU: A MIRACLE IN THE MAKING?

CITY, CASINO, COMMUNITY: A VISION UNDER CONSTRUCTION INTERVIEW WITH FRED CLARKE

BY DAVID GREEN

Casino & Gaming International ■ 3

CONTENTS

FEATURES 55

BEWARE OF THE BLACK HATS! BY BRIAN CULLINGWORTH

UNIFYING INDUSTRY INTERESTS TO SECURE A LEVEL PLAYING FIELD BY CLIVE HAWKSWOOD

STRATEGIC eGAMING CENTRE: ISLAND BUSINESS HUB WITH GLOBAL REACH INTERVIEW WITH BILL MUMMERY

IS EMERGENCY MANAGEMENT AN OXYMORON? POSTKATRINA LESSONS ON THE GULF COAST BY KATHRYN HASHIMOTO & JAMES P. O’BRIEN

BALANCING POSITIVE FORCE WITH A LIGHT TOUCH BY JULIAN HARRIS

Casino & Gaming International ■ 5

ASIAN GAMING: EXPO ADVANCE

PARADIGM SHIFT: COMING OF AGE AMONG DRAGONS BY ROSS FERRAR

The presence of a strong team of international gaming experts and a showcase of cutting-edge technology at the third annual Asian Gaming Expo (AGE) held in Macau on 13th-14th June, brought the future of gaming fully to life. Asia’s largest gaming equipment expo, hosted by the Australasian Gaming Machine Manufacturers Association (AGMMA), included 36 exhibitors, 546 gaming machines, and expert speakers from around the globe. The trade exhibition and conference series focused on the future of gaming technology and how it will be used to empower casino players while making it easier for casino executives to deliver their value proposition. Next year’s expo expects to make new strides now that the AGE has been strengthened with American Gaming Association and Reed Exhibitions involvement to become ‘G2E Asia’.

he industry is experiencing a paradigm shift in the delivery of gaming towards far more exciting and entertaining ‘server-based’ configurations. Standard IT can be used to deliver far greater variety and tailored solutions that address players individually across all locations on the casino floor. Technology has progressed to a point where standard IT configurations are enabling further improvements to player fairness, security and auditability. As a result executives have far better facilities to recognise and communicate their particular value proposition directly with their customer base using very powerful but relatively uncomplicated processes. In turn, the customer will be empowered by a range of tailored choices which are relevant, entertaining and immediate. This shift has tremendous benefits for meetings, incentives, conventions and events (MICE) facilities around the world. In places like Macau, the entertainment features being negotiated for new venues can be effectively and seamlessly supplemented by great gaming entertainment. At the Asian Gaming Expo Conference, Anthony Baerlocher, Director of Game Design and SB Applications with International Game Technology (IGT), said that in the near future, the casino floor will be dependent on a high speed integrated network. The integrated network would enable casino executives to improve existing methods by further leveraging non-gaming amenities, marketing to players with targeted messages and effectively coordinating the efforts of different departments. As a result casinos will be able to optimise operations, create more loyalty, differentiate products, reduce costs and increase revenue. Peter DeRaedt, President of the Gaming Standards Association, highlighted the changing demands of the ‘players

Casino & Gaming International ■ 7

ASIAN GAMING: EXPO ADVANCE

of tomorrow’ and explained that convergence is happening and competition is increasing. The new generation of players will have a near-infinite supply of entertainment options, and will demand flashy graphics and anytime/anywhere access. For the gaming industry, the speed and convenience of delivery is paramount. According to Peter DeRaedt the success of operators will be determined by their ability to respond to the rapidly changing player preferences that require a fast reaction and speed to market. The atmosphere at the 2006 Asian Gaming Expo was very positive and the event successfully achieved its primary objective of connecting buyers and sellers. Top casino equipment procurement companies and senior casino executives from around the Asian region, Europe and the United States attended the expo. This year’s event had 33 per cent more gaming machines on show than the previous year, with more than 546 gaming machines on display and 36 exhibits from Spain,

Italy, France, the USA, Australia, Taiwan, Japan, Korea and Macau. The enormous feat of building an expo as big as many of Macau’s permanent casinos in just four days and then pulling it down again in just 25 hours at the event’s conclusion was made possible by a dedicated team of 430 contractors and 732 exhibitors. The expo was held over 3,800 square metres of floor space, with exhibitors averaging 60 square metres each. Some of the equipment on show had never been seen before and has not yet been used in any casino anywhere. The Asian region has already redefined casino gaming – and in particular, the eyes of the gaming world are on the transformation under way in Macau and the phenomenal growth of the region’s gaming industry. Macau, in fact, epitomises the dynamic and exciting opportunities that gaming has to offer right around the world, and is considered by many as the hottest gaming destination right now. From just under 12 million visitors in 2003, this year

>> The Asian region has already redefined casino gaming – and in particular, the eyes of the gaming world are on the transformation under way in Macau and the phenomenal growth of the region’s gaming industry. Macau, in fact, epitomises the dynamic and exciting opportunities that gaming has to offer right around the world, and is considered by many as the hottest gaming destination right now >> 8 ■ Casino & Gaming International

ASIAN GAMING: EXPO ADVANCE

Macau looks likely to break the 20 million visitor mark for the first time. Since 2003 the number of gaming tables has increased fourfold, the number of machines fivefold and the number of casinos from 11 to 19. And with the world’s best casino operators opening the world’s most remarkable casinos over the next two years or so, Macau is set to transform into possibly the world’s most desirable tourist destination. Renowned in the industry, Frank J Fahrenkopf Jr, President and CEO of the American Gaming Association (AGA), discussed the next generation of global gaming including ‘racinos’; (racetrack casinos) and the growing phenomenon of internet gaming. Referring to the ‘Las Vegas of the East’, he highlighted the fact that gaming revenue in Macau had more than doubled in the past four years, reaching $5.6 billion in 2005. This was compared with $6 billion for the Las Vegas strip and $5 billion for Atlantic City. David Green from PricewaterhouseCoopers said by 2009 Macau is expected to have 28 million tourist arrivals and more than 35 million casino visitations each year. At least ten mega-resort casinos are expected, along with 5,000 gaming tables and 14,000 gaming machines. He pointed out that expansion of Macau’s gaming industry was being driven by China’s rapid economic growth and supported by the capacity of new facilities and an absence of political or community opposition to gaming. There are regulatory challenges associated with Macau’s rapid growth, such as managing approvals in an environment of changing technologies and upskilling and recruiting in a tight labour market. Whether it is tourism, employment, or bricks and mortar development, you can’t help but see the impact that the gaming industry has had on Macau – and in this important Macau World Heritage Year we also recognise the unique history and culture of which Macau residents are so proud.

Macau Tower: 10th tallest free standing tower in the world.

Dr Ricardo Siu from the University of Macau’s Faculty of Business Administration, said that 25 of Macau’s historic locations were officially listed as United Nations’ Educational, Scientific and Cultural Organisation (UNESCO) World Cultural Heritage sites on 15th July 2005 including the Guia Fortress and the Ruins of St Paul. Reflecting the growth and prosperity of the Asian gaming industry, the Gaming Expo has an equally bright future, following the announcement that the event has been sold to a joint venture of the American Gaming Association (AGA) and Reed Exhibitions. The Asian Gaming Expo had certainly caught the attention of industry operators, of trade media and of the gaming world in general. Its conception and its growth surprised many observers. As this event grows even bigger we need to ensure that the world’s very best expertise is applied to properly service the event’s constituents and to continue to provide an appropriate marquee event for the Asian region’s dynamic environment. Next year’s event promises to be even better, as a result of the enormous local, regional and international interest in Macau and the linkage which will now be established with the world’s biggest gaming industry event – the annual Global Gaming Expo in Las Vegas. We are delighted that its status as the benchmark event for the casino gaming industry in the Asian region will be further strengthened by its association with the successful G2E brand. There is no doubt that the AGA and Reed Exhibitions will apply even greater expertise and resources to further grow this event, while AGMMA will retain a role through an involvement on the Event Advisory Board. From a small start with the first Asian Expo in Singapore two years ago, AGMMA’s team has built up the biggest and most successful gaming expo in the region. We recognised then that there was a need in the Asian region for an annual event to connect buyers and sellers in the gaming industry.

Casino & Gaming International ■ 9

ASIAN GAMING: EXPO ADVANCE

>> From just under 12 million visitors in 2003, this year Macau looks likely to break the 20 million visitor mark for the first time. Since 2003 the number of gaming tables has increased fourfold, the number of machines fivefold and the number of casinos from 11 to 19. And with the world’s best casino operators opening the world’s most remarkable casinos over the next two years or so, Macau is set to transform into possibly the world’s most desirable tourist destination >> Ribbon-cutting ceremony.

The inaugural event provided an outstanding gathering of leading academics and gaming executives whose focus was on this huge and diverse Asian region. With many Asian jurisdictions considering the substantial social, economic and recreational benefits that gaming provides, the conference proved very timely and was reinforced by an excellent gaming equipment exhibition from the world’s leading machine manufacturers. The first annual Asian Gaming Expo showed that we were no longer tied by geography. Local issues had become global issues and companies realised they had to conduct business in many countries around the globe to survive. Gaming machines and games which appeal to players in one country are also likely to appeal to players in other countries – provided local customs, culture and preferences are recognised. The successor to the Asian Gaming Expo, ‘G2E Asia’, will debut on 12th-13th June 2007 at Macau Tower. AGMMA will continue to run the long established annual Australasian Gaming Expo in Sydney and the New Zealand Gaming Expo. Planning is well advanced for AGMMA’s next event, the 2006 Australasian Gaming Expo (AGE) in Sydney on 3rd-5th September. All available space sold out some time ago and we will have more than 165 exhibits over 15,000 square metres. The online registration process for the Sydney Expo 10 ■ Casino & Gaming International

is now in full swing and we expect a record number of international visitors to attend this year. ROSS FERRAR Ross Ferrar is the EO of the Australasian Gaming Machine Manufacturers Association (AGMMA). Ross has worked in the Gaming Industry since 1979 and held senior management positions in casino table gaming, networked keno gaming, machine monitoring and networked jackpot operations AGMMA is a not-for-profit industry association, est. in 1990 to promote the development of the manufacturing resources of Australia. AGMMA’s members are Ainsworth Game Technology, Aristocrat Technologies, Aruze Gaming Australia, Global Gaming Industries, IGT (Australia), Konami Australia, and Stargames Corporation. AGMMA hosts and operates the Australasian Gaming Expo and the New Zealand Gaming Expo. For further information: contact AGMMA’s Executive Officer at info@agmma.com or on tel. +61 2 9960 0125. G2E Asia info: www.global gamingexpo.com/g2easia. Visit: www.agmma.com.au

ASIAN GAMING LAW

MOVING FAST TO REGULATE THE MACAU DRAGONHEAD BY JORGE GODINHO

Even before the arrival of the Portuguese by sea in the 16th century, there has always been gaming in Macau. The formal authorisation and regulation of gaming enterprises in Macau owes its origin to various factors: the fiscal pressure in particular felt in the 1850’s due to the establishment of Hong Kong subsequent to the First Opium War, and the Macau Portuguese colonial Government’s attitude of laissez faire towards the customs of the local people, who have long exhibited a strong demand for gaming.

ll sources agree that gaming was legalised under Macau’s Governor Guimaraes (1851-1863) although the exact date is unclear. Soon there were more than two hundred fantan stalls in operation. According to most accounts, the legalisation of gaming proved a massive success from the outset, with the traditional gambling trip to Macau becoming very quickly an established feature of Hong Kong lifestyle. The era of monopoly concessions of casino games of chance lasted from the 1930’s to 2001. The Sociedade de Turismo e Divers es de Macao (STDM) – now Sociedade de Jogos de Macau (SJM) – was the sole concessionaire from 1961 to 2001. The tender process started in 2001 and concluded in 2002 with the Government of the Macau Special Administrative Region (SAR) awarding three concessions to SJM (the so-called ‘historical operator’ today), Wynn Resorts and Galaxy Casino. In fact, a 1982 law had already envisaged the granting of up to four concessions, but for various reasons, including the prospect of transfer of sovereignty, this was not pursued at that time or in the ensuing final years of the Portuguese administration of Macau. With the additional granting of three sub-concessions to the Venetian (2002), to a partnership of MGM and Pansy Ho (2005) and to PBL/Melco (2006), the stage is set for the next phase of gaming in Macau. The 2001-2006 process marked the end of an era and ushered in a new one, which can be seen as having its start on 18th May 2004, the day the Sands casino opened its doors to the public. Indeed, a massive crowd eagerly awaited the moment. Galaxy followed suit very quickly, opening the Waldo casino in July 2004. Melco’s slots-only halls have been rapidly opening all over Macau and in September 2006

Casino & Gaming International ■ 13

ASIAN GAMING LAW

Wynn will open its property in downtown Macau, across from Stanley Ho’s Lisboa hotel. Meanwhile, construction of the Grand Lisboa is proceeding quickly, and SJM has announced a number of other projects in various parts of Macau (including Ponte 16 in the Inner Harbour). As for the Cotai strip, the construction of the major resorts in the area is (with the exception of Galaxy’s Grand Waldo casino) still underway, with the properties likely to open only in 2007 and 2008, and the whole area likely fully maturing around 2009.

THE CURRENT CONCESSIONS The legal arrangements upon which operations in the Macau casino gaming sector rest take the specific legal form of the administrative law concept of ‘concession’. This is a widely used legal arrangement in Macau, as in other concessions such as telecommunications, water, electricity, refuse collection, television, public transport, harbour management or airport operations. One of the fundamental characteristics of gaming concessions is that they are designed as time-limited arrangements of up to 20 years, which may be extended for a maximum of five years, after which the concessions must come to an end according to current Macau law. This contrasts with banking and insurance, where the necessary government permission takes the form of a ‘license’ or ‘authorisation’, which does not have a time limit attached to it. Upon the expiry of a concession, the property of the casinos, including the equipment it uses reverts to the Macau SAR without compensation. A concession may or may not be renewed, and all investments must clearly bear this factor in mind. Reversion of the gaming operation enables the government to start again with other potential bidders or, in other words, with a clean sheet. Broadly however, investors from abroad have nothing to fear: Macau is a stable region of China, a market-based capitalist system based on the rule of law, and private property is protected by law. This is, in fact, the core of the ‘one country, two systems’ philosophy which was agreed between China and Portugal in the 1987 Sino-Portuguese Joint Declaration, which then led to the transfer of sovereignty on 20th December 1999 and continues to apply until 2049.

REGULATING THE MEGA-RESORT ERA The Macau gaming industry, since 2001, is undergoing a major transformation. The new era extends to the regulation of gaming. Remarks are sometimes voiced in conferences by gaming regulators suggesting that Macau is a ‘five-year old’ jurisdiction - clearly an exaggeration. However, the remark bears some truth and serves to point to the fact that much has changed since the end of the monopoly period and the start of the Las Vegas-style mega-resorts era. Macau has responded to the challenges posed by improving both regulation and the regulators. A new body — the Gaming Commission — set up by the regulators was established to share the regulatory job with the long-standing Gaming Inspection and Coordination Bureau (known as DICJ). In terms of regulation itself, and aside from the new framework gaming law approved in 2001, the Government has moved to legalise and control two fundamental matters which had been in existence for many years in semi-obscurity: gaming promoters, and the granting 14 ■ Casino & Gaming International

ASIAN GAMING LAW

of credit to patrons. The importance of these two issues cannot be over emphasised.

GAMING PROMOTERS Gaming promoters serve as a distribution network that brings players to the casinos. With a new law approved in 2002, the process of regulation was initiated. This network is quite important for the VIP market which brings in the majority of gaming revenue. The gaming promoters have operated for many years but they were never regulated prior to 2002. The Macau Government decided to regulate the network to secure transparency and clarity in the market. The regulation was enacted by means of Administrative Regulation 6/2002, of 1st April, covering rules on access to the activity (including suitability requirements) and how the activity is exercised. The licensing of gaming promoters is done by means of administrative permissions (administrative licenses), and not by means of concessions. This means that the process is ongoing and anyone can apply at anytime, since there are no application periods. Gaming promoters may be private firms, public companies or individuals. However, there must be ownership clarity in all cases: if the applicant is a company, all shareholders must be individuals. If it is a public company, all shares must be nominative. Routine functioning requires that each gaming promoter must register with at least one concessionaire with whom they wish to conduct business in the upcoming year. Gaming promoters are free to work with more than one concessionaire if they wish to. Conversely, subconcessionaires must submit annually a list of the gaming promoters with whom they wish to work in the upcoming year to be approved by the DICJ. Sub-concessionaires are responsible for the activity of the gaming promoters they use, which means the compliance of gaming promoters with all applicable laws and regulations. The commissions paid by casinos to gaming promoters are subject to a single (flat) tax rate of five percent (but currently lowered to three percent), which must be withheld at the source.

CREDIT FOR GAMING The ability to legally grant credit, although controversial, is regarded as a fundamental factor in modern gaming operations. There is a clear sign of this: one of the current Macau concessionaires has publicly stated that the ability to grant credit was a sine qua non condition of its investment. Credit is especially important to attract the premium player segment, and as a convenience to patrons who do not need to come to Macau carrying large amounts of cash. The Macau Government recognised that credit for gaming is a necessary and unavoidable part of the industry, and that it is therefore preferable to have it legalised and regulated in a transparent, credible and stable manner. In addition, credit means more gaming and therefore more tax revenue. Debts arising from credit for casino gaming have been judicially enforced in Macau courts since 1st July 2004; but whether collection is possible or not in other countries does not depend on Macau law. Under the new 2004 law, gaming sub-concessionaires and gaming promoters can grant credit. Macau law has accommodated different types of arrangements or roles for gaming promoters in the credit granting process. Gaming Casino & Gaming International â&#x2013; 15

ASIAN GAMING LAW

>> Macau is a stable region of China, a market-based capitalist system based on the rule of law, and private property is protected by law. This is, in fact, the core of the ‘one country, two systems’ philosophy which was agreed between China and Portugal in the 1987 Sino-Portuguese Joint Declaration, which then led to the transfer of sovereignty on 20th December 1999, and which continues to apply until 2049 >>

promoters can grant credit by themselves or do so through representation of gaming sub-concessionaires. In Macau sub-concessionaires are taxed on the basis of gross gaming revenue, regardless of whether such revenue arose from credit play, and whether such credit was actually repaid: currently Macau tax law does not have provisions allowing the ‘write-off’ of losses arising from uncollected extended credit. The issue is reportedly being discussed, but as it involves perhaps a rather large reduction of tax revenue, and the potential for abuse, it is doubtful whether such ‘write-off’ will ever be accepted.

MONEY LAUNDERING AND PROCEEDS OF CRIME Although not technically restricted to gaming, the issue of money laundering is unavoidable in this connection. It is well known that the international regulation for the confiscation of the proceeds of crime, and for the prevention and repression of money laundering and the financing of terrorism, has expanded rapidly in recent years under the influence of international trend-setters such as the Financial Action Task Force, the Basel Committee on banking supervision and the European Union. The initial policy aim of regulation, in the late 1980’s, was narrowly focused on the proceeds of drug trafficking; it was then subsequently enlarged, during the 1990’s, to cover funds connected with organised crime, corruption and serious crime in general. After 9/11, the financing of terrorism was also added. The specific patrimonial or financial strategies of crime control that have been pursued internationally cover a range of issues: the crime of money laundering; the crime of financing of terrorism; confiscation of proceeds of crime, including so-called ‘expanded’ forms of confiscation; seizure of assets; detection mechanisms, including customer due diligence, record-keeping and reporting of suspicious transactions; and supra-national asset freezes initiated by the United Nations’ Security Council acting under Chapter VII of

16 ■ Casino & Gaming International

the UN Charter. All of these issues impact the financial and gaming industries. Some of these issues are currently in the process of legal reform. In April and May 2006 the Government of Macau approved new legislation on money laundering and the financing of terrorism which amends and improves earlier laws that had been enacted during the 1990’s. The process is almost finished, with the specific regulations on the gaming industry expected within the next four months.

FUTURE DEVELOPMENTS Overall, the revolutionary changes in the gaming landscape of the early 2000s are being coupled with a thorough reregulation of the sector. Aside from the issues already mentioned, other regulations are expected on such topics as slot machines, breaches of the law and of the concession contracts, legal effects of gaming debts, and other matters. An area that should concern the regulators in the future is that of problem gambling. Overall, regulation of the gaming sector has made a major leap forward. In Macau everyone is keenly aware of the fundamental goals of gaming law: to ensure game fairness, to prevent and weed out any criminal infiltration, and to ensure the payment of taxes due. It is important for the credibility of the industry itself that there is proper regulation: if someone commits crimes or other offences, this affects the image of the entire jurisdiction. One of the challenges for the future relates to the sheer magnitude of the market: ways will have to be found to efficiently supervise a market with so many more tables and machines, by an increased reliance on technology and a slight adaptation of supervisory tactics. JORGE GODINHO Jorge Godinho, Assistant Professor, Faculty of Law, University of Macau. Lic. Law (University of Lisbon), LL.M. (University of Macau); PhD candidate, European University Institute, Florence. The author teaches gaming law, commercial law and international criminal law at the University. Research interests include money laundering, confiscation of the proceeds of crime (including expanded powers of confiscation and reversal of the burden of proof), organised crime and the financing of terrorism (including UN SC action in this regard). Jorge is currently working on a study of Macau business law and the legal system. Contact: jgodinho@umac.mo

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ASIAN GAMING: CULTURAL IMPACT

THE SOCIALISING POWER OF GAMBLING IN ‘LAS VEGAS OF THE EAST’ BY SOO-MAY CHENG

Macau has long enjoyed a reputation as a leading gaming hub, and is likely to hold its own against increasing competition from nearby countries such as Singapore, South Korea and Thailand. It would not have been possible without a population that grew up in, and tolerate or embrace, the gaming culture. However, new challenges from increased internationalisation of the gaming industry will be inevitable.

18 ■ Casino & Gaming International

ollowing the award of casino licenses to Las Vegas operators after expiry of the former Sociedade de Tourismo e Divers de Macau (STDM) casino monopoly, the world’s media headlines about Macau have almost inevitably been about its development into a ‘Las Vegas of the East’ since 2002. Sheldon Adelson’s Sands Casino opened in 2004, marking the beginning of Macau’s transformation from a monopoly-dominated gambling locale into a world-class gaming and entertainment destination. This feat will be topped by Adelson’s Venetian, the biggest casino in the world ever to be undertaken at this time as it rises out of reclaimed land between Macau’s two islands to change its gambling landscape forever. Rival Steve Wynn’s US$705 million megaresort that includes 600 rooms and 100,000 square feet of gambling space, seven restaurants, approximately 28,000 square feet of retail space, a spa, salon and entertainment facilities (Goldman, 2004) is due to open in September 2006. Meanwhile, the former monopoly held by Macau’s own casino king, Stanley Ho, is now a viable third contender for the reputation as architect of Macau’s transformation, with his partnership with Las Vegas’ MGM Grand and Australia’s Melco and PBL. Such business interest in Macau suggests that the exPortuguese colony which returned to Chinese sovereignty in 1997 – with its historical reputation for gambling, its endorsement by the central Beijing government as the country’s only legal casino hub, and its reception of millions of Chinese visitors every year – is a land of opportunity for business interests, employees, and gamblers. It seems that what Macau is doing for these stakeholders is drawing them in like a magnet with promises of rich returns. But what is gambling doing for Macau? Economic benefits such as

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PAYMENT SOLUTION COMPANIES: FRIEND OR FOE? BY ALPESH PATEL

As a merchant, your payments strategy should address a number of key considerations. Negotiating a price which can be justified or is indicative of market conditions is usually first priority. However, price cannot be the sole judgement criterion, as this cannot be sustained by the supplier, over the long term. Merchants often over-emphasise the importance of pricing in the “supplier-merchant” relationship, disregarding the more fundamental attribute of “product suitability.” Basically, does the supplier’s product satisfy your business requirements? Payment processing is a constantly evolving environment. Generally, suppliers are the first to know about the latest innovations and developments. You need to get this information quickly, allowing sufficient time for decisions on how to interpret the data and execute your plans. Ask yourself, does the supplier provide updates on new product developments; latest fraud related issues, chargeback mitigation methods, as well as other financial transaction oriented developments such as the VISA OCT programme. Comprehensive fraud and security management tools must be integrated into the payment strategy. The supplier is responsible for safeguarding your customers’ money; they need to be committed to the security of your funds as well. Establishing service levels is essential. Merchants are not payment processing experts, hence, the supplier is responsible for providing an exceptional service to ensure that this area runs smoothly and this is where your account manager can assist. Guaranteed response times are important, providing reassurance that issues will be dealt with quickly and efficiently. Through dedicated account management you will benefit from detailed reporting including chargeback level management and reason code reports. It isn’t enough to know that a transaction failed, it’s more beneficial to know exactly why it failed and whether it could happen again. Suppliers should also offer their backoffice staff to you. These teams are the real knowledge base in a payment supplier’s setup. Being able to speak directly with the specialist individuals will prove invaluable in problem resolution. Service levels should not be limited to processing but, also include a window on the payments world. Access to this level of support needs to be agreed in advance. Many suppliers

offer comprehensive web-based management tools that are available around the clock. However, when dealing with financial transactions insist on seeing your Account Manager in person on a regular basis. When selecting a new supplier, the IT integration demands are often overlooked. Your chosen supplier should offer a dedicated IT specialist to support the technical integration process. User testing, test environments, test accounts and cards, along with continuous communication during the integration phase, are essential to meeting any deadlines to live date. Establish this, so both parties have a clear, reasonable and achievable expectation of each other. A supplier’s heritage and track record must be a key consideration; can a supplier evidence longevity and remain a respected processor? Guaranteed up-time, timely customer settlements, industry expertise, respected account managers and a dedication to servicing your requirements must be reflected in their attitude to working with you. After all your customers money is in their hands! Dedicating time and resource to the evaluation of your supplier can ensure you receive the best service from your acquirer. So “Friend or Foe?” - is the supplier working for your benefit? A “friendly” supplier relationship will deliver the benefits of enhanced efficiencies and increased conversion rates, leading to greater profitability. Contact Gateway Payment Solutions at: alpesh.patel@gpslonline.com Mobile: +353 86 8562352 www.gatewaypaymentsolutions.com Alpesh Patel started in the gaming industry in 1998 with Coral plc, as Senior Marketing Manager he was part of the team to launched Coral Eurobet into UK and Europe. He then moved to Barclays Bank where he headed up the gaming division for Barclaycard Merchant Services and pioneered the acquirer’s route into the Gaming market. Returning to gaming operations with Victor Chandler as Group Payments Manager, here he developed a proprietary payment platform for the Chinese market and developed the payments strategy for a launch into North America. From there it was a small step across to payments processing and Gateway Payment Solutions as Head of European Sales.

ASIAN GAMING: CULTURAL IMPACT

increased tax revenue, infrastructure for the tourism industry, positive impact on real estate values, and job creation brought by the industry, are already apparent: gaming tax revenue comprised 75% of total tax revenue in 2005 compared with 51% in 2002 (Department of Demographic Social and Employment Statistics, 2006); the unemployment rate dropped from 6% in 2003 to 3.9% in 2005 with 18.7% of the working population in gaming (with still 6,167 vacancies to fill), up from 12.8% in 2003; and an average increase in visitor numbers of 54% per annum over the last three years. However, the social impact of gambling is much more debatable. A rising current of research focuses on problem gambling and its ill-effects (eg. Fong and Ozorio, 2005; Leung and Chow, 2005), but an alternative look at the social experience of the gambler and the worker in Macau’s casino and related industries is presented here.

MACAU AS A MIGRANT COMMUNITY Macau’s residents are migrants who have been arriving in China since the 13th century, Portugal since the 16th century, and myriad other countries within the last decade. The early Chinese migrants were fleeing refugees from the Mongoloccupied Mainland, settling down eventually to establish a trading centre for the southern provinces. The Portuguese discovered Macau’s strategic usefulness when they became intermediaries in China’s trade with Japan following a ban on direct Sino-Japanese trade in 1547. The historian Shipp (1997) documented the establishment of the first permanent 24 ■ Casino & Gaming International

Portuguese settlement in Macau, the expansion of the Portuguese influence into political and territorial control, the issuance of the first gambling licenses by the Portuguese governor, and the continuing influence of Portuguese rule until the handover of Macau back to Chinese sovereignty in 1999. Such enduring colonial control has created a segregated society consisting of the ruling Portuguese class and its largely acquiescent Cantonese subjects, with limited intermarriage between the two, producing a third Macanese ethnic group. Later Chinese migrants generally had little difficulty becoming “Cantonised”. Few Chinese needed to adopt Portuguese language or culture unless they aspired to employment in government service. Macau’s reputation remained a quaint Portuguese-controlled enclave until the turn of the 21st century. Tourists from neighbouring Hong Kong escaped to Macau in order to avoid the pressures of city living for gambling, eating and relaxation. Since 2002 a perceptible change has come over the cultural face of Macau. The territory is now attracting investors, players, travellers, and job-seekers from all over the world. Chinese travellers came to gamble, Filipinos came mostly into hospitality servicing, Thais and Russians worked the bars and spas, Americans and Australians came as senior managers to look after their countries’ investments, and Singaporean and Malaysian middle managers provided the linguistic and cultural bridges between the senior expatriates and the local operational level employees.

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ASIAN GAMING: CULTURAL IMPACT

RESEARCH ON SOCIAL ACCULTURATION From the migration literature, Aycan (1997) defines crosscultural adjustment as “the degree of fit between the [individual] … and the environment” (p.1) and “the process of change to fit in” (p.6). Hechanova et al (2003) and Aycan (1997) identified other indicators of cultural adaptation as: general feelings of acceptance and satisfaction, psychological comfort, acquisition of culturally appropriate skills, and lack of mental health problems. Cross-cultural adjustment then is a process of learning how to behave acceptably, adapting to and participating comfortably in a new and alien environment. While the migrant is usually expected to adjust to his new life in his adopted community, the process also involves the host making efforts to acculturate the newcomer. In their interaction, both migrant and host usually undergo some change. (Compare the use of adaptation, adjustment, acculturation and assimilation in Benson, 1978; Black, 1988; Black and Stephens, 1989; Aycan, 1997; Tung, 1993.) There appears to be evidence of such mutual accommodation in the development of gambling-related business in Macau. The positive signs of mutual adaptation may be found in the urban landscape of Macau which is dotted with neon lights signalling the presence of casinos. The legal and economic infrastructure is closely tied to the

operation of various types of gambling; and the community is relatively comfortable with the jobs and welfare support provided directly and indirectly by the gambling industry. There is also evidence of local acceptance of the presence of large numbers of foreign experts and labourers working in the casino and related sectors, as long as there is sufficient protection of residents’ right to employment. For the migrants, there is inevitably a period and process of adjustment during which they grapple with language and cultural issues, but they generally express satisfaction with life in Macau (Huang and Cheng, 2004).

THE SOCIALISATION OF GAMBLERS IN MACAU’S CASINOS Once known as the “Monte Carlo of the Orient” (Vong, 2004), it is now nicknamed “Las Vegas of the East” (Anonymous, 2006) because of the entry of international casino operators from the US and Australia. Internationalisation of the industry has also attracted professionals and labourers from all over the world. The interface between these foreigners and locals has been captured through archival research and interviews to obtain an ethnographical picture of what gambling has meant to various groups of people in Macau. It is expected that regular gamblers can become socially acculturated into the larger Casino & Gaming International ■ 27

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Macau culture, through habitual contact with a social subculture involving other gamblers. Moreover, as the gambling industry is the largest non-government employer, the local workforce is a microcosm of Macau society which can help to socialise foreign workers and professionals into a local way of life. Vong (1999) found that Macau residents had mixed feelings about gambling: 56.7% were morally against gambling, but 62.6% were still comfortable with it (note that only 15.8% were not comfortable). She suggested that it was because residents had grown accustomed to the way of life in Macau, and had come to terms with its indisputable contribution as the economic lifeline of Macau. Most residents seemed to be able to distinguish between the entertainment value of gambling, and the less acceptable indulgence in winning money. This dichotomy is captured in historian Pina-Cabral’s observation about the “wan-do paradox”; from the Cantonese wan for “play” versus do for “gamble”. He points to a notice in the main hall of the Macau’s first Casino Lisboa that reads: “There is no certainty that you will win if you gamble (do). Placing small bets can be fun. Playing (wan) with spare money keeps it a form of entertainment.” (PinaCabral, 2002, p.79). Pina-Cabral observes that, when the Cantonese resident of Macau enters a casino, he believes that he is engaging in a rather harmless activity called wan, whilst most of the other people present are engaging in an addiction called do (Pina-Cabral, 2002, p.101). This belief in gambling as fun is one instilled in Macau residents from when they are young. During the Chinese New Year the whole family went to the fantan dens to gamble small amounts of money. At the same time, it was customary for the households of wealthier people to call into their house an ambulant organiser of taisai (“big-small”). Their own involvement was always seen as harmless fun, even if money did change hands during the games to give them a touch of realism. This wan-do dichotomy thus makes it easy for the local residents to accept gambling as a communal activity involving relatives and friends. Thus it appears that the social interaction and play theories such as those of Abt (gambling enables gamblers to assume new identities, as it creates distinct social worlds with their own symbolic meaning systems), Herman (gambling functioned as a mechanism to socialise gamblers into risktaking, rule-following, role-playing and character displays typical of the gambling setting) and Goffman (people gamble to impress others) (as discussed in Asasved, 2003) can readily explain much of the social bonding that has been accomplished through gambling. The idea of bonding may also extend to casino gambling, as local residents have readily accepted the proliferation of casinos in Macau in the past three years. Moreover, the wan-do mentality of casino gamblers may also be true of all players, whether they are local, from Mainland China or Hong Kong, as casino players all over the world have been observed to have the same motivations: “Today, very few jurisdictions on Earth are still immune from casinos. Throughout the five continents, the games of roulette, blackjack, baccarat and the like have all gamblers dreaming about making fortunes…or simply enjoying a great moment of fun” (Anonymous, 2006). The Pina-Cabral (2002) and Vong (2004) data suggest that there is support for the expectation that frequent contact 28 ■ Casino & Gaming International

ASIAN GAMING: CULTURAL IMPACT

with the gambling subculture can cause the gamblers to become integrated with the mainstream Macau. Further research needs to be done on the context of such social gambling, to include the influence of gambling operators, providers of supporting services like money lending and prostitution, and perhaps even law enforcement personnel on the socialisation of gamblers.

THE SOCIALISATION OF FOREIGN EMPLOYEES IN MACAU’S CASINOS In the 19th century when Mainland Chinese men were routinely sold overseas as coolies (slave labourers), many had come to work in the “pig shops” in Macau. These coolies were mostly attracted to Macau by stories of easy money to be made in the gambling dens; when they lost all their money, they borrowed more, and lost again, finally having nothing left but their lives to repay their debts (Siu, 2004). Today, non-resident workers in Macau have come not only from the Mainland, but all over the world to meet the massive demand for all levels of professional and unskilled workers, particularly in the gambling and related industries. In 1999 when Macau returned to Chinese rule, 11% of the total workforce was employed in the gaming industry; by 2005, this figure has risen to almost 19% (see Table 1). When the casino boom started in 2002, the industry hired less than one percent of all 23,460 authorised nonresident workers in Macau. By 2005, 11% of all foreign workers were in gaming-related developments like casinoconstruction, casino operations, security, hotels and restaurants casinos and other gaming outlets, hotels and inns, catering and recreation, restaurants, sauna, travel agencies and transportation, local transportation (e.g. taxi), supervisory authorities, education and training. This figure is more significant considering that only local residents were allowed to work as dealers in the casinos. (DESC website). Table 1 Employment in the Gaming Industry as a Proportion of Overall Employment (1996-2005) Year

Numbers Total employed employed in the population in gaming industry Macau

As a % of employed population

1996 17500 168000 10.4% 1997 18000 167400 10.8% 1998 19600 180700 10.8% 1999 19300 176600 10.9% 2000 21500 176100 12.2% 2001 22100 184000 12.0% 2002 23000 180900 12.7% 2003 23500 183200 12.8% 2004 30900 196600 15.7% 2005 40300 215300 18.7% (Adapted from tables in Department of Demographic Social and Employment Statistics, 2006b) Against a backdrop of local workers being retrenched by “sunset” industries like textiles and fireworks, and Mainland workers coming over the border daily to work illegally on construction sites, the attempts of the bona fide foreign worker to assimilate into Macau society may be futile. Some case studies of foreign workers and professionals may illustrate the limitations of socialisation. Casino & Gaming International ■ 29

ASIAN GAMING: CULTURAL IMPACT

>> When the casino boom started in 2002, the industry hired less than one percent of all 23,460 authorised nonresident workers in Macau. By 2005, 11% of all foreign workers were in gaming-related developments like casinoconstruction, casino operations, security, hotels and restaurants casinos and other gaming outlets, hotels and inns, catering and recreation, restaurants, sauna, travel agencies and transportation, local transportation (e.g. taxi), supervisory authorities, education and training. This figure is more significant considering that only local residents were allowed to work as dealers in the casinos >> Case 1 is a Mainlander employed by his Hong Kong company to oversee its new casino operations in Macau. His working hours from Monday to Friday in Macau are consumed by work and meetings, but his weekends are spent back in Guangzhou where his family and friends remain. Despite being Chinese, and being able to speak Cantonese (the dialect of the Macau Chinese), he has almost no social life in Macau outside of his work. Case 2 is an Australian casino professional who came to fulfill a dream to work in one of Macau’s fancy new casinos. Hired as a senior manager, she encountered “culture shock” in many forms, including the humid summer climate, the narrow and congested roads, and language difficulties. After repeated rebuffs of her attempts to communicate with her staff in her limited Cantonese, she has resorted to using intermediaries to translate at work, and to socialising only with her expatriate colleagues and friends. Case 3 is a Filipino driven by a lack of job opportunities in the Philippines to seek work in Macau. Although he had previously worked in Taiwan and found it easy to communicate with his Taiwanese colleagues, his adjustment in Macau has been more difficult. His employment as a

30 ■ Casino & Gaming International

contract cleaner in a casino lacked security, did not have benefits other than a basic pay, and did not give him opportunity to get to know local Chinese colleagues. His lifestyle is restricted to sharing food, drinks and songs with other Filipinos working in Macau. Case 4 is a Russian woman driven to Macau by total disillusionment with her country. In her first job as waitress in a disco, she was exploited and unhappy. She later found similar work with a much more supportive employer in a local drinks bar, met a local Chinese man who became her boyfriend, and is now making plans to get married and start a business in Macau in future. She has developed a good support network she can call upon, comprising her manager, an older Portuguese friend and his wife, and her Macanese boyfriend. She considers Macau her home, and has no plans to return to Russia though she is still supporting her relatives there. However, she has still found it difficult to assimilate, for the prevalence of prostitution amongst her compatriots has tainted all Russian women, and she is wary of men who approach her looking for sexual favours. Case 5 is a Thai woman who came to Macau as a young girl seeking escape from poverty and family discord. Landing

ASIAN GAMING: CULTURAL IMPACT

a job as drink hostess in a local bar along with other Thai girls plunged her eventually into prostitution and despair. She married one of her clients and her status and lifestyle changed for the better. Having a son with her husband won her acceptance by his family, though she was occasionally made to feel inferior because of her past. She found it hard to make friends with local women. She also became estranged from her previous circle of Thai “sisters”, maintaining contact with only one other Thai woman who shared a similar experience. Recently, she was hired to manage the flower shop in a new casino hotel, which to her symbolised a newfound respect.

CONCLUSION It seems that the various cases discussed above illustrated different degrees of socialisation of foreign professionals and workers in Macau. Perhaps the Thai woman’s marriage to a local man has given her the deepest inroad into the Macau community, and the Russian woman’s identification of Macau as her home speaks volumes about her sense of belonging. However, life remains fairly segregated for most foreign nationals in Macau, suggesting that employment in the gaming industry has not served to facilitate their integration. These stories suggest that there exists a certain degree of local ambivalence towards foreigners living in Macau. While they acknowledge the economic need for their services, they are also aware that they are competing for work, school places for their children, and other social services. On May Day 2006, the local unions staged a protest march against imported and illicit labour in Macau, demonstrating a declining tolerance of foreigners’ encroachment. The Government’s response has remained muted, since it is caught between the need to protect locals’ right to work and the critical shortage of human resources for the burgeoning casino-gambling industry. Macanese people are also slow to internationalise. The adoption of English as an international language is slow and laborious as Chinese and Portuguese continue to be the official languages. Macau residents’ general reluctance to engage with foreigners or even Mainlanders is a telling sign of their ethnocentrism. Foreign workers and expatriates may need to be contented with a segregated existence as “blue card (Macau work permit) holders” who may never quite integrate into the local community. Macau has long enjoyed a reputation as a leading gaming hub, and is likely to hold its own against increasing competition from nearby countries such as Singapore, South Korea and Thailand. It would not have been possible without a populace that grew up in, and tolerate or embrace, the gaming culture. However, new challenges from increased internationalisation of the gaming industry will be inevitable. As Czinkota, et.al. (1995) put it: “The global imperative is upon us!…Both the willing and the unwilling are becoming participants in global business affairs. No matter how large or small your business, ready or not, here comes the world (p.1).” The gaming industry, in leading the internationalisation of Macau’s economy, may well be the place to begin cultivating an appropriate mindset to meet this global imperative. Note: This editorial is based on a paper co-authored with Leanda Lee of Monash University, entitled, “Gambling as a Socializing Agent in a Migrant Community: Macau Past & Present,” currently being reviewed by another journal.

REFERENCES Anonymous. (2006). The dawn of Macau’s gambling business: the social and economic settings. Retrieved May 2006, 2006, from http://members.lycos.co.uk/Macau1999/history/ch4-htm Asasved, M. (2003). The Sociology of Gambling. (Vol. 2). Springfield, Illinois, USA: Charles C Thomas Publisher Ltd. Aycan, Z. (1997). Acculturation of Expatriate Managers: A process model of adjustment and performance. In Z. Aycan (Ed.), New approaches to employee management (Vol. 4, pp. 1-40). Greenwich, Conn. ; London: Jai. Benson, P. (1978). Measuring cross-cultural adjustment: The problem of criteria. International Journal of Intercultural Relations, 2(1), 21-37. Black, J. S. (1988). Work Role Transitions: A Study of American Expatriate Managers in Japan. Journal of International Business Studies, 1988(Summer), 277-294. Black, J. S., & Stephens, G. K. (1989). The influence of the spouse and intent to stay in Pacific Rim overseas assignments. Journal of Management, 15(4), 529-544. Czinkota, M.R., Ronkainen, I.A. and Tarrant, J.J. (1995). The Global Marketing Imperative: Postitiong Your Company for the New World of Business. NTC Publishing. Chicago, IL. Department of Demographic Social and Employment Statistics. (2006). Principal statistical indicators 2005. Retrieved 24 June, 2006, from http://www.dsec.gov.mo/index.asp?src=/english/html/e_sitemap.html Fong, D. K. C., & Ozorio, B. (2005). Gambling participation and prevalence estimates of pathological gambling in a Far-East gambling city: Macao. UNLV Gaming Research & Review Journal, 9(2), 15-28. Goldman, A. (2004), “Wynn details $705 million Macau casino” Associated Press, Posted: 6/10/2004 10:25 pm, http://www.rgj.com/news/stories/html/2004/06/10/72855.php?sp1=rgj&sp 2=Business&sp3=Business&sp5=RGJ.com&sp6=news&sp7=business&jsmultita g=news.rgj.com/news/business] Hechanova, R., Beehr, T., & Christiansen, N. D. (2003). Antecedents and Consequences of Employees’ Adjustment to Overseas Assignment: A Meta-analytic Revew. Applied Psychology, 52(2), 213-236. Huang, H., & Cheng, X. (2004). Abstract Analysis of the new immigrants from Mainland China, (in Chinese). pp XXIV-XXVII. Leung, G. K. H., & Chow, S. L. (2005). Gambling: antecedents, consequences and management, (in Chinese). Hong Kong: Joint Publishing Co. Pina-Cabral, J. d. (2002). Chapter 4: Paradoxes: Gambling and the Imperial Civil Service Examination. In J. d. Pina-Cabral (Ed.), Between China and Europe: Person, culture and emotion in Macau. London: Continuum, London. Shipp, S. (1997). Macau, China : a political history of the Portuguese colony’s transition to Chinese rule. Jefferson, N.C.: McFarland and Company, Inc. Siu, R. (2004). Notes for Gaming Management course. Macau: University of Macau. Tung, R. (1993). Managing Cross-National and Intra-National Diversity. Human Resource Management, 32(4), 461-477. Vong, F. C. K. (2004). Gambling attitudes and gambling behaviour of residents of Macau: The Monte Carlo of the Orient. Journal of Travel Research, 42(February 2004), 271-278.

SOO-MAY CHENG Soo-May Cheng is a Associate Professor of Management in the Faculty of Business Administration, University of Macau, Macau Special Administrative Region of China, specialising in strategic and service management in gaming, hospitality and tourism establishments. She has published in the Asia Pacific Journal of Management, the Journal of Enterprising Culture, the Asia-Pacific Business Review, among others. She has taught executive, graduate and undergraduate programmes in Singapore, Australia, Taiwan, China, Hong Kong and Macau. Her current research deals with cross-cultural, interdisciplinary and international comparisons of service quality, management style, and business ethics. Contact: smcheng@umac.mo Casino & Gaming International ■ 31

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WINNING NUMBERS ARE IN BUT SUSTAINABILITY ISSUES LOOM BY CATHY HSU

Recent media attention has been on the building booms, record gaming revenue, increased tourist arrivals, and excitements of new casino and hotel openings in Macau. The bidding process for the Singapore’s two casino licenses has also generated discussion, while many more countries continue to debate the casino legalisation issue. What will the market be like if all planned casino projects are realised and many more countries legalise and build casinos? Can all of them be successful? Can the demand absorb all the supplies? Is Las Vegas style casino/entertainment resort the prototype to follow? Can product offers drive market demand?

he winning numbers are in; and odds are good for investors. Being one-fifth the size of Las Vegas geographically and having only about 44% of the table games and 6% of slot machines on the Las Vegas Strip, Macau has generated a similar level of overall gaming revenue in 2005. Take Sands Macau as an example, it showed a $3.1 million (all $ in USD) per day in revenue during the first quarter of 2006, that’s 3.5 times as much as the Venetian Casino Hotel Resort in Las Vegas. In Macau, VIP players accounted for 65% of gaming revenue, while mass market table players contributed 25% and slot machines just 5%. In Las Vegas, slot machines contributed to 75% of revenue and VIPs just 5%. The average daily take per gaming table is $8,000-9,000 a day in Macau, compared with about $3,200 in Las Vegas. The significant difference in figures, for the most part, is due to the type of players attracted and their behaviour.

MEGA DEVELOPMENT In 2005, 10.5 million mainland Chinese visited Macau, or 56% of the total arrivals. Hong Kong is the second-largest market, representing 30%. About half of the visitors reported that they gambled during their visit, and a significant portion of those Chinese visitors who played at the casinos are serious about the games. They wager more than their Western counterparts—an average of $85 per hand compared with $25 in Las Vegas. This is particularly remarkable considering the income disparity between most mainland Chinese residents and players visiting Las Vegas. The sheer volume of visitors and their behaviour as players contributed to the extraordinary results reported by the gaming industry in Macau. Casino & Gaming International ■ 33

ASIAN GAMING MARKET

The crackdown of the Chinese Central Government on officials betting in neighbouring countries and regions using state funds or bribery money has shown some effect in Macau. Officials at a certain grade or above are barred from visiting casinos, if a travel document is issued for other purposes to cross the border. Personnel from the Public Security Bureau regularly visit casinos and inspect gaming areas to identify government officials who have violated the regulations. VIP room operators have indicated shrinkage of this market. However, as the Chinese economy continues to develop and the number of self-made wealthy individuals increases, the VIP business will continue to contribute to a significant portion of the overall casino revenue. The figures for the hotel industry, however, have been less than impressive. The annual average occupancy rate for 2005 was 71%, with an average daily rate of less than $100. The occupancy rate for five-star hotels showed a double digit decline in 2005, partly due to the opening of five new hotels. On the other hand, occupancy rate at three-star hotels was the highest among all hotels at 81%. Considering the average length of stay among all visitors at 1.1 days and 52% of the visitor arrivals are classified as “same day visitors”, the occupancy rate reported was not surprising. Mainland Chinese visitors had a slightly longer length of stay at 1.4 days; however, they are likely to stay in three-star hotels and use the savings from rooms at the gaming tables. In fact, the hotel industry in the mainland city of Zhuhai, across the border from Macau, has experienced tremendous growth since the liberalisation of casinos in Macau. Of the 46% mainland visitors who did not stay overnight in Macau, many of them stayed in Zhuhai instead due to the lower accommodation costs. A number of new major properties will open in Macau on the main peninsula during 2006 and 2007. Galaxy Star World, Crown Macau, Wynn Macau, and MGM Grand Paradise will all include upscale accommodation facilities. Macau’s 8,900-room hotel inventory is expected to more than triple in four years. The real test for Macau will begin in 2007 when the properties on Cotai Strip open for business. These facilities will add hundreds of mass market gaming tables and thousands of slots and hotel rooms. The masterplanned Cotai Strip will include convention facilities, hotels with 10,000 guest rooms, eight theatres with 20,000 liveentertainment seats and 850,000 sq ft of retail space. Long term, the issue is whether demand growth is able to measure up with the surge in supply of hotel rooms. Hotels that have signed up on the Cotai project plan to build mostly high end properties, including the Four Seasons, Shangri-la, InterContinental, and St. Regis.

CHALLENGES There appears to be a mismatch between the current market demand and future plan on the Cotai Strip. It is true that more than 100 million people reside within a three-hour drive, and more than one billion people within a three-hour flight from Macau. However, these individuals’ patterns of consumption as travelers have not been closely examined. The development of the Cotai Strip region into the “Las Vegas Strip of Asia” will introduce a significant non-gaming component to a market currently characterised by a gamingcentric customer base. If Macau wants to become a destination resort with high end lodging and dining, like Las Vegas, can mainland Chinese 34 ■ Casino & Gaming International

visitors’ behaviour change fast enough to fill the hotel and dining rooms, concert halls, and convention venues? Keep in mind that those have not been the contributors to the magical growth experienced by Macau in the past few years. Can the investors wait long enough (say 10 years to be conservative) for the Chinese market to mature and eventually focus on the “experience” components of the tourism products offered by the destination resort environment? Hong Kong is the second largest feeder market for Macau’s tourism and gaming industry at the moment. Visitors from Hong Kong play a major role in the 54% profit surge for Shun Tak Holdings, which operates the jetfoil and helicopter fleets between Hong Kong and Macau. A new bridge that should link Hong Kong and Macau in 2010, or shortly after, could bring more visitors from Hong Kong; however, the bridge would also bring the convenience for Hong Kong

ASIAN GAMING MARKET

visitors to return home on the same day. Again, there may not be a great demand for hotel rooms from this market. To develop and sustain the convention and hotel business, operators need to develop key markets outside of China, which include regional and long-haul markets. These travelers are likely to arrive by air, which brings up the issue of airport capacity. In 2005, only six percent of the total arrivals entered Macau through the airport. Regional low-cost airlines have increased their traffic to Macau; however, the airport capacity in handling long-haul large aircrafts is rather limited. If the sustainability of the convention and hotel business depends on air traffic, the airport facility should begin its infrastructure upgrade immediately. In addition to the airport capacity, traffic and human resources issues also need immediate attention. Original roadways, built for the less than half a million local residents,

are now shared by tourists approaching the 20 million mark. While new and wider streets can be built on the newly reclaimed land on the southern tip of the peninsula and on Cotai Strip, room for improvement on the streetscape of the older areas is quite limited. Sands Macau and Greek Mythology have become the must-see tourist attractions, especially among Chinese visitors (who come with a tour group) who come by the thousands on a daily basis with their tremendous appetite for picture taking. These are likely to be non-gamblers, or the mass market table and slot machine players who contributed to 25% and 5% of the casino revenue, respectively. However, they are busy going from casino to casino so that they can cover all the attractions in one day, and thus contributed greatly to the traffic congestion. An unemployment rate of around four percent makes casinos’ recruitment effort a real challenge. Many of the four percent are unskilled or unsuitable for the service industry. This phenomenon caused a fast increase in salaries for casino employees, generating a ripple effect in other service industries, followed by inflation and property value appreciation. In fact, the property value has escalated by 30% in the past year or two, which triggered a whole host of other economic and social changes. Local residents’ participation in gaming activities is widely known but rarely discussed or formally studied. Based on local practitioners’ observations, residents’ participation could involve two basic groups of players. One group of players plays for business purposes—they need to bring their underground monies aboveground—mostly on VIP tables. The other group plays for leisure. The recent opening of slot clubs caters mainly to this group of customers. The extent of gambling addiction and the size of the problem gambler population are unknown; this has been a hush-hush issue. According to a senior consultant specialising in regulatory issues, there is some degree of unease among foreign regulators and some operators that the Macau market is insufficiently regulated, that organised crime is involved in the gaming industry, and that the legal system remains nontransparent. Having knowingly entered into this high risk and high return market, with investments in the billions, Las Vegas operators need to be particularly vigilant about observing Nevada gaming law in order not to put their Nevada gaming license in jeopardy. On the other hand, their operating strategies need to be competitive in the Macau context so that they can have their fair share of the market in relation to the local establishment (i.e., Mr Stanley Ho) that still dominates the market with over two-thirds of the market share.

ANNOUNCEMENT FROM SINGAPORE The Singapore government plans to have casino resort complexes built in two areas, one at the Marina Bay, close to the business district, and the other on the Sentosa Island, a popular tourist destination. The Marina Bay development will be a city-based resort, similar to Las Vegas casino resorts, including convention centres, retail, restaurants, shopping, and museums. The Sentosa integrated resort will offer gaming in a luxury sea-side resort with all the amenities, similar to some of the islands in the Bahamas. Singapore’s low crime rate, well-planned logistics and infrastructure, and low gaming tax rate attracted major players from the US, Australia, Malaysia, and Macau as potential developers. Casino & Gaming International ■ 35

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The recent announcement by the Singapore government on the winning bid for the operation of the casino in downtown Marina Bay surprised many casino analysts and operators. Las Vegas Sands’ $3.6 billion plan was given a 30year concession to operate the casino, along with a 200,000 sq ft arts and sciences museum, a 2,500-room hotel, a 1.2 million sq ft convention centre, and one million sq ft of retail space. The selection result was a surprise because MGM Mirage, partnering with Singapore’s CapitaLand, was the favourite among analysts due to the partners’ combined experience and talent pool. Harrah’s strategy of partnering with the Singapore’s own Keppel Land also did not convince the decision makers that it had the best proposal. Genting International, based in Malaysia, was the other final bidder for the Marina Bay concession. Analysts were not surprised that the Genting consortium did not win because it was always seen as having better chances at the second casino site on Sentosa Island. Having teamed up with the Universal Studios and extensive experience in operating integrated resort facilities in different parts of the world, including Australia, Malaysia, the Americas, the Philippines and the UK, Genting has a strong chance in bidding for the Sentosa site. The result will be announced later this year. An industry veteran who was involved in the selection/bidding process made the comment that Singapore has one of the, if not the, most transparent governments he has ever seen. The selection was purely based on proposals’ merits and proposers’ background. Whether a local partner was part of the bidding team made no difference. The legalization of casinos in Singapore, whose government has a reputation of being conservative and has implemented strict social controls, can be seen as a policy turnaround that gives the impression of a generational change. With the two development projects, Singapore hopes to triple its tourism revenue by 2015. Knowing that Chinese tourists already are the second-largest overseas tourist market for Malaysia’s casinos, Singapore hopes to further increase the number of visitors from mainland China. In 2004, nearly one million Chinese visited Singapore, a 55% increase over 2003, and China is already the second largest Asian tourist origin country, next to Indonesia. Singapore’s plan appears to be sound. Its airport already serves as a hub for Australia-European and Africa-European traffic, as well as connects cities in Southeast Asia with other parts of the world. Its strong legal system, stable political environment, established financial industry, and welldeveloped infrastructure are all favorable conditions to secure the destination resort and convention center position. The new casino investment simply added the attractions, or the “hooks”, to motivate people’s selection of Singapore versus other locations.

MARKET SUSTAINABILITY The US gaming market went through an expeditious growth in the early 1990s, which resulted in some very successful operations and destinations, but the economic contribution made by casinos for many locations was not as great as expected. As the gaming market became mature and saturated in America and Australia, Asian countries are obvious locations for new growth opportunities. There is already a strong American and Australian presence in Asia’s gaming industry. After the initial explosive growth, can 36 ■ Casino & Gaming International

American and Australian casinos sustain their competitive advantage with a globalisation strategy that offers Las Vegaslike standardised products? More countries, including the most likely candidates Japan and Thailand, are considering legalising casinos. Mongolia is in the process of reviewing legalised gaming. India is making efforts to develop the casino industry in Goa. The Philippines government is likely to renew gaming licensing for another 25 years. The obvious lesson Asian locations can learn from the US experience is that market will be saturated if everyone basically offers the same product. Every Asian country considering gaming as a development option needs to carefully assess its existing resources and infrastructure, identify its uniqueness, and position its gaming product appropriately based on a realistic estimation of the potential market demand. The nature of the casino development and the direction the projects are going in should be prescribed by the local government or economic/tourism development agencies, in consultation with various local stakeholders, rather than leaving them up to the developers and foreign investors, as appeared to be the case in Macau. Casino development in non-Asian countries also presents growth and investment opportunities for Asian gaming operators. For example, Genting International is the financial source for some casinos in other continents, including America, and has expressed formal interest in the UK’s super casino project. Genting has provided technical advisory and management services to overseas casinos, and acquired and developed casinos in the Bahamas and Philippines. Opportunities overseas have not only provided growth opportunities in casino operation, but also enriched its investment portfolio. As other Asian casino brands gain more experience in their home market, future expansions into other countries are possible. However, these companies need to pay particular attention to their corporate governance and financial accountability practices. Due to the colourful reputations associated with some Asian casino operators, the Western world may be on high alert when dealing with all Asian casinos as potential collaborators.

CATHY HSU Cathy Hsu, PhD, is a professor in the School of Hotel and Tourism Management at The Hong Kong Polytechnic University. She is the editor of the books, Legalised Casino Gaming in the US: The Economic and Social Impact (published in 1999) and Casino Industry in Asia Pacific: Development, Operations, and Impact (2005), both by The Haworth Hospitality Press. She has over 100 refereed journal and proceedings publications, including many on gaming related issues.

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ASIAN GAMING ECONOMY

MACAU: A MIRACLE IN THE MAKING? BY DAVID GREEN

By any measure, the growth of the casino industry in the past five years has been extraordinary, the more so when it is recognised that the “mass market”, which now accounts for around 30% of gross gaming revenue, barely existed before the opening of the Sands in May 2004. Already, at least in terms of drop, Macau’s casinos have outstripped not just those of Las Vegas, but of the entire State of Nevada. Table Macau: 2001 cf. 2006 2001 No. of Casinos 11 No. of Tables 337 No. of Machines 796 Gross Gaming Revenue MOP 4.3 bn VIP Baccarat Revenue 70% Gaming tax as a % of Government 64% revenue No. of Visitors 10,279,000

2006 21 1,648 4,223 MOP49.5 bn1 58% 78% 20,992,0002

MOP 8 : US$ 1 Note 1: This figure is annualised based on Q1. It is likely considerably understated as both Wynn Macau and Galaxy Star World will open in Q3. Note 2: This figure is annualised based on Q1 visitor numbers.

ince the break-up of the The Sociedade de Turismo e Diversões de Macao (STDM) casino monopoly in 2002, the future of Macau has almost universally been portrayed as one of boundless opportunity, and reward, for those fortunate enough to have been granted exploitative rights to offer gaming, whether under concessions or permitted sub-concessions. Macau’s proximity to the burgeoning economy, and enormous population of mainland China (PRC) has seen sell-side analysts exhaust superlatives, and precedent, in their enthusiasm for this new gravy train. In fact, thus far, there is no reason to believe that their effusive appraisal of Macau is inappropriate, since the Macau story post-liberalisation speaks of an Asian Eldorado, to say nothing of a new Las Vegas. In this case, statistics don’t lie. (see table) By any measure, the growth of the casino industry in the past five years has been extraordinary, the more so when it is recognised that the “mass market”, which now accounts for around 30% of gross gaming revenue, barely existed before the opening of the Sands in May 2004. Already, at least in terms of drop, Macau’s casinos have outstripped not just those of Las Vegas, but of the entire State of Nevada. Unlike Nevada, however, baccarat accounts for around 84% of gaming revenue, so what Macau gains in drop, it loses in hold (the hold on baccarat is typically 2.6%). What challenges does this rapid growth present? The most obvious are labour and infrastructure. Macau’s unemployment rate is down to 3.8%, and vacancies for staff in the gaming sector alone far exceed the available pool of unemployed. Economists believe that the 3.8% figure is structural…most of the unemployed are likely unemployable. Competition for labour makes it a seller’s market, with the result that wages for dealers alone have increased by more

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than 50% since liberalisation. Considering most planned major casino developments are yet to open, the situation can only worsen in the short term. SMEs are struggling to retain staff, and to hire suitable replacements when the staff they do have are, inevitably it seems, lost to the casinos. The lure of the casinos, and the relatively high wages they offer to entry-level staff, has led to a reduced demand for tertiary education places. Anecdotal evidence suggests that some 20% of students accepted into University courses are not taking up places offered. Certainly, some of those hired by the casinos will make management grade positions, but many will be limited by their education and capabilities to lower-level functions. The progressive diminution in the aggregate intellectual capital of Macau may have serious consequences should its casino industry for any reason cease to meet the continuing growth expectations held for it. Of course, this is symptomatic of a market in action; supply and demand will eventually find equilibrium. In this case, though, there is a distortion which impacts the supplyside; the labour market is still restricted by quotas on imported labour, and the Labour Department itself has been deluged with applications for working visa approvals. On the demand side, there are no constraints; Macau is an unlimited gaming jurisdiction. Hence equilibrium will likely be achieved, at least in the short to medium term, at wage levels which may ultimately be unsustainable. This year, Macau is expecting to welcome in excess of 20 million visitors, more than half of whom will enter via the land borders with the mainland. Traffic densities are already the highest in the world (there are more than 150,000 registered motor vehicles in Macau, which occupies an area of less than 30 square kilometres). The roads are clogged with construction vehicles, and with private buses which ferry many of the visitors to and from tourist attractions, the casinos, and the border gates. Macau imports much of its energy, and most of its water, from Guangdong, a mainland province which is itself enjoying unprecedented growth and prosperity…and strain on its resources. Apart from these obvious challenges, the legal regime under which the casinos operate remains incomplete. Amendments are required to the umbrella gaming law, in particular to clarify the status of the permitted subconcessions, and their relationship to the concessions under which they have been granted. Regulations concerning gaming machines, key employee licensing and administrative infractions are expected…and needed. Casino sportsbetting is being constrained by the existence of other monopoly concessions covering horse-racing, and football betting. The status of betting exchanges wishing to operate from Macau remains uncertain in law While the term of the concession agreements is short (a maximum of 25 years), there are more short-term issues than the matter of what will happen upon the effluxion of the term. The guarantor of the “One country-two systems” autonomy which Macau now enjoys, the Basic Law, will not expire until 2049. However, in 2009 the limited exclusivity period provided for in the gaming law will expire, and the Government of the day will be free to consider further liberalisation. Any appearance of a shortage of land to found further casino or resort development is an illusion; reclamation has already almost doubled the size of Macau in the past 20 years, and the Government has announced further reclamation of more than 300 hectares. 40 ■ Casino & Gaming International

The prospect of new entrants post-2009 aside, the concession contracts themselves (and the sub-concessions awarded under them) can be terminated at any time should the public interest require it. While it is difficult to think of a situation where that may arise, it is not inconceivable that a change in attitude by the PRC Government towards casinos could be such a circumstance. In this regard, even though early termination would give rise to entitlement to compensation, it is a quirk of the concession system that the ownership of gaming assets would then revert to the SAR, regardless of the reason for termination. The emergence of regional competitors remains a threat, particularly Singapore, which has established a split gaming

ASIAN GAMING ECONOMY

It remains a moot point whether the PRC will itself consider an expansion of gaming or wagering, beyond its existing Welfare and Sports Lotteries. Certainly the recapture of tax revenue lost to jurisdictions outside the mainland must be a consideration, so too the desire to control China’s rampant illegal gambling industry. However, it may potentially be inimical to social order and stability to officially sanction casino developments, particularly since Macau and its industry will in any event revert to full Chinese sovereignty in 2049. Macau in a sense is a laboratory, where the results of the experiment it is undertaking will become apparent sooner than in any jurisdiction before it. There are no limits placed on supply, and with six permitted operators, including some of the casino industry’s biggest names, the growth in availability of product will only accelerate. Table yields have already recorded significant declines since 2001, although on average they are still some five times higher than on the Las Vegas Strip, itself enjoying a revival in table game popularity. While saturation isn’t presently an issue, it could become one, and quickly. Compression of the gaming life cycle, at least through to maturity, could occur before Macau has established its sustainability as an international tourist and MICE destination. The pace of change is such that Macau is in a perpetual state of catch up, in its laws, its infrastructure and its employment policies. Its casino regulatory mechanisms are generally abreast of the game, but with so many new property openings (at least eight destination casino developments will open by 2009) the regulator will be under pressure to adopt a more risk-based approach in the discharge of its functions, since its traditional 24/7 inspection model and supporting processes may be unable to be properly resourced. So, Macau remains a work in progress. What has been achieved to date is undoubtedly unique in the annals of lawful casino gaming. However, while expectations of limitless success continue to drive investment thinking, and stimulate risk appetite, the question is, what happens if those expectations are not met, or if they are not met within the timelines dictated by mobile capital, which may be impatient for the stratospheric returns associated with the developments pursued by the early entrants?

DAVID GREEN tax rate destined to attract junket business to the city State. The first of its new Integrated Resorts will not be on stream until 2009, at the earliest, so Macau has the opportunity to consider both implications, and response options. Macau’s success will almost certainly spawn imitation, possibly from Japan, Taiwan and Thailand. The Philippines has a robust casino industry, albeit a State monopoly, but the country has much to do to present itself as an attractive host for international-standard destination casino developments. While there may be imitators, Macau has the undeniable, and permanent, advantage of geography. Its proximity to the growth engine that is the PRC will always underpin its aspirations to appeal to broader regional and global markets.

David Green is a Director of PricewaterhouseCoopers’ Macau gaming practice. He is based in Macau, where he has been working since February, 2001 with the SAR Government in relation to the liberalisation and regulation of the casino industry. David is also an advisor on gaming matters to other regional governments and is a former Chairman of the Independent Gambling Authority of South Australia. Contact: david.j.green@hk.pwc.com

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CITY, CASINO, COMMUNITY: A VISION UNDER CONSTRUCTION INTERVIEW WITH FRED CLARKE

At the G2E Institute’s benchmark event in May Fred Clarke explained the vision propelling MGM’s Project CityCenter into the ranks of Las Vegas’ number one experience. The model was

CGI: What was your overall impression of the G2E Institute’s first combined event? FC: I was there on a tight schedule, but of what I saw I thought it was very impressive and thorough. The detail I noticed in all of the building materials and even the look and feel of gaming environments seemed to be very nicely covered. Well, it’s off to a great start.

recently unveiled to acclaim, construction is underway and the cast of design luminaries is expanding. While the perpetual search for gaming enhancement is critical, considerable efforts are underway to contribute to a lasting development of Las Vegas as a maturing city.

CGI: Were there any ideas that struck you in bringing casino design and game technology together under one roof for the first time? FC: I think the idea is very good and it is something that is going to have immediate benefits. There really is no substitute, after all, for that concentrated and well-organised cross fertilisation of disciplines and interests – I’m all for it. CGI: So what were the main themes of your contribution on Project CityCenter? FC: There were two. One was my general observation on the impact of good design on gaming and casino environments in the future. My thrust is that I believe that the customer has become much more educated and so much more sensitive to design issues. To me it is rather like the iPod phenomenon. Any person today who owns an iPod has in his or her hand a beautifully designed object which is also highly functional. That immediately educates the person. Just the look, feel and care with which something like that is put together expands Casino & Gaming International ■ 43

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CityCenter perspective: new paradigm from a logical development.

exponentially people’s expectations about everything from a beautiful bathroom, to the way a hotel room is laid out, to the way a casino looks and feels. And this is at all price levels. Consumers today, particular those who are the children of baby boomers, are expecting highly designed environments and unique and fresh environments. The other to me was to go through more detail what we see as the evolution of casino-hotels, particularly in Las Vegas. I showed the audience how we developed our concept for CityCenter which, at one level, is a new paradigm but at another level is a very logical development and evolution of the way casinos and large hotels have been organised and function in Las Vegas in the recent past. Las Vegas is the home of highly evolved, large hotel and gaming environments. We drew lessons from precedents but also looked at how we might further that evolution and bring our own thoughts to it. CityCenter is the result of that thinking. CGI: The model of Project CityCenter has now been unveiled and considering the immense scale of the structures, are you saying that this project represents a distillation of all that is established as the best in design currently on offer and also, is it a case of you being more accommodating to a wider range of peoples’ interests? FC: Well, metaphorically, we studied the DNA of the Las Vegas casino-hotel. I cite that particularly because it is a specific building type that one does not see anywhere else except in Las Vegas. We analysed what made those large buildings work from a functional point of view primarily because they are rather like giant organisms that really must work extremely well. We looked at what they are like as environments to be in and from that analysis we brought our creativity into the picture and demonstrated how that DNA might itself be re-used but at the same time improved upon. In the process, we have created something that is related but different. As designers we are very proud of that. You see, we didn’t think it was our charge to completely reinvent the casino-hotel and we certainly didn’t want to experiment with MGM Mirage’s money or time in that way. We wanted to assure them that what we were proposing was a workable and proven design philosophy but at the same time, as I say, it had to be different. So, I describe at some length, recent in Las Vegas hotels and how CityCenter reacts to and absorbs lessons learned from them. I presented some new attitudes and approaches as to how the next generation of buildings might look and feel. CGI: You use the phrases ‘new paradigm’ and ‘logical evolution’. Can you explain a little more of the thinking that represents? FC: With a new paradigm one would completely reinvent the building type. In other words you would erase everything that you knew from before and actively try to do something completely different. We did not do that. What we did was to examine the immediate history because the buildings that matter the most to us are those that were built in the ‘70s, ‘80s and ‘90s, such as the MGM Grand, Mirage, Bellagio – actually the Bellagio is probably the current benchmark – and Mandalay Bay to some extent. 44 ■ Casino & Gaming International

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Each of those buildings functions superbly and they are also evidence of just how highly evolved the thinking is behind the casino-hotel. We have great respect for that, we didn’t think that one needed to reinvent that particular building type. At the same time though there has to be a 21st century model; there has to be a new experience: something that is fresh, exhilarating, unusual, breathtaking…that was really our charge. Melding lessons from the immediate past and creating a new architecture, a new approach but firmly rooted in the knowledge of the past. CGI: When you say absorbing the lessons of the recent past what, more specifically, were the main lessons you have incorporated? FC: First of all, our casino-hotel building alone is some 7.5 million square feet and 4,000 rooms. As a precedent, The Bellagio is nearly that size. To achieve that beautifully functioning entity the designers of The Bellagio had to understand the elevator systems, how room service moves through the building, how laundry facilities function – in other words, all the back of house functionality. This is very highly evolved at The Bellagio. The guest knows most about the gracious and beautiful environment, of course, but supporting that is an intelligent machine with superb functionality. To a large extent our CityCenter building has learned all it can from Bellagio. So it was really up to us to create a new architectural form and guest experience. Bellagio’s guest experience is based on historical buildings which is an idea rooted primarily in the 1980’s and 90s in American architecture. We felt that the 21st century architectural answer needed to be something contemporary and fresh. Ours is not an historical building. Ours is about modernity, technology, powerful spaces and great views from the moment you drive onto the site in your car all the way through to your room. CGI: By creating something bigger in concept and scope do you think in some ways, by absorbing past ideas and current thinking that it is going to detract from existing types and styles that exist on the Las Vegas Strip? FC: That is a very important issue. We believe that it is in no one’s interest for other buildings to seem immediately outdated. From a business and urban point of view, these large buildings must work as an ensemble. I think that the key issue, a core tenet of CityCenter, is that no longer can one think of Las Vegas and the Strip as simply a set of individual buildings as totally separate environments. It has to work and function as a city, so these are buildings, particularly in the case of CityCenter, that are responsible partners in making a city. Ours is the 21st century contribution. Though a very large one, CityCenter is still a piece of a city and must support the whole. CGI: It is exciting given the idea that Las Vegas’ history is quite a short one and the idea that it can become what might be regarded as a ‘real’ city is quite remarkable considering the way it started and the nature of its primary tourism. To some extent do you see its future that way? Casino & Gaming International ■ 45

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CityCenter perspective: absorbing past lessons for next generation sophistication.

Yes we do that is the key to the future. The urban mission of CityCenter to a large extent is to create a heart for the Strip and I think it is going to achieve that. As it does so, it is a mutually supportive entity. CityCenter’s casino-hotel will be a great compliment to Bellagio and to all the MGM properties and others. They are all destined to be woven together as an urban experience which in fact, makes a much more memorable experience. Just look at how the fountains at the Bellagio draw hundreds of people in a day. It is great that the sidewalks are full day and night with people enjoying the display. That is a real urban experience and available to all, regardless of where you are staying. That is the beginning of city making and, I believe, also good for business! CGI: In some ways you are setting a precedent by creating a model that can perhaps be replicated beyond the United States. I’m thinking of Macau… FC: Macau or perhaps an even better example would be Singapore where the idea of casino-hotels is new. This is actually a model for how one does more than just simply provide thousands of rooms and acres of gambling environments, it is really about how you create a destination and a sense of place. CGI: And Singapore is an apt example? FC: It can be. It would be a good place to apply this model. It is unfortunate MGM lost the bid but I would hope that the officials in Singapore would understand that this is much more than just simply a gaming environment: it is a piece of their city. CGI: It is clear simply in terms of the gaming revenue returns that the majority proportion is now shifting slightly over to non-gambling revenues in Las Vegas. That, in itself, suggests what the ultimate direction would be of a city of that kind. FC: And what goes along with that shift is an obligation to create a real home or a real heart and sense of place. That is part of the underpinning of CityCenter. CGI: I know there is something like 12,000 jobs being created through this project, so it is also a major employment generator. FC: Absolutely. I have to say that in doing CityCenter we have looked at how MGM Mirage organises, trains and treats its staff and it is really quite remarkable. They are a great example of an enlightened employer. It is probably the one place in the United States where there is a consistent negative employment rate, so workers must be treated well and must be thoughtfully dealt with. MGM Mirage is a model for that kind of company. CGI: The current sensitivities over smoking in casinos and how that is being handled appears to be indicative of that. But on the customer side does the functionality involved enable the customer, where the hotel and entertainment may be the key attraction, to bypass any guidance to the casino. Is the casino in CityCenter not so ‘up front’? 46 ■ Casino & Gaming International

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FC: It is still very important to our client that the casino be the centrepiece. Everything we are doing is intended to support the casino as a destination. Regardless of whether one is going to gamble or not it is imperative that the guest see the casino, walk through the casino, like the environment a great deal and be intrigued by it, even if you are on your way to dinner or a show. There is no getting around the fact that the real driving force in these projects is the casino. CGI: Well you would fail in your objective otherwise… FC: We wouldn’t have gotten this far if we didn’t understand that! But, therein lay an interesting problem because that is also the historical model going all the way back to Monaco, Biarritz, and the great European casinos. That is not a new paradigm in and of itself. In classic old casino-hotels the casino is also the centrepiece and the most important experience. The real issue is how to take that as an understanding of the way things work, and transform into a 21st century environment and experience. CGI: Las Vegas is becoming denser almost by the minute. How does this fit into the wider picture of it being sustained as a community looking to the future and is there a lesson here in the development of North Las Vegas. FC: Sustaining Las Vegas as a community, of course, is something that happens off the Strip, in the city itself. At the moment a performing arts centre is being contemplated for the community. One immediately asks the question: with all of the great performance venues on the Strip, how could a performing arts centre possibly compete? The point is that Las Vegas must have its own sense of community, a unique sense of place, apart for the Strip, for the resident as opposed to the visitor. Without that it will never really become a community. Therefore, even if it represents a risk, this is an important step in bringing civic pride to the city beyond its commercial success as a gaming or hotel destination. CGI: That is an interesting point you have touched upon in terms of consultation, to understand what is required as against what is desired in the community. Has that been a factor for you? FC: MGM Mirage has very good community outreach and public relations in the best sense of the expression so I know they care about their city. We have talked to the backers of the performing arts centre enough to understand that there is real sensitivity in the community about how is it to raise children here, to have long term cultural investment, as it were, and how can Las Vegas become much more than a tourist destination? The good news is that there are substantial resources in town and genuine civic aspirations so Las Vegas is in a position to consider its future in ways other cities are unable to. If they want a performing arts centre they can get it. They have the wherewithal to make it happen. They are positioned to do something significant for their long term future. CGI: Do you expect, in relation to the G2E Institute, Casino & Gaming International ■ 47

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>> What we did was to examine the immediate history because the buildings that matter the most to us are those that were built in the ‘70s, ‘80s and ‘90s, such as the MGM Grand, Mirage, Bellagio – actually the Bellagio is probably the current benchmark – and Mandalay Bay to some extent. Each of those buildings functions superbly and they are also evidence of just how highly evolved the thinking is behind the casino-hotel >> MGM’s new Las Vegas footprint: Laying the foundations of CityCenter.

that more and more architects will see this expansion of casino development as an attraction to architects? Doesn’t the recent announcement of Daniel Libeskind’s involvement, for instance, suggest an endorsement for more and more architects to get involved in this sector? FC: Absolutely. It is already happening. Other places as well. CGI: That’s a good thing for legitimacy and for good architecture to flourish? FC: It is a great thing because it will raise the level of quality. That has been an underlying issue. The buildings today may be fabulous but there is always a question of architectural seriousness and importance. Are they more than just grand 50 ■ Casino & Gaming International

stage sets? I believe what is happening now is that architecture and design are being seen as intrinsic to the way a company, like MGM Mirage, and a complex like CityCenter, define themselves. The buildings can no longer simply be a box containing activity. Good architecture is now part of the business plan, and getting good architects involved is exactly the way to do it. It is going to bring global notice to a city and the gaming environment. CGI: In a sense you could say it is mutually reinforcing, stretching architects and making for the best developments in the casino sector? FC: Yes, we love that kind of challenge! Fred Clarke, Lead Architect, Project CityCenter.

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November 14-16, 2006 | Las Vegas Convention Center November 13, 2006 | G2E Training & Development Institute You can’t compete in gaming on a global scale with yesterday’s game plan. That’s why we’ve reinvented Global Gaming Expo (G2E) again this year to put even more emphasis on the issues that matter to our international audience. With more than 99 countries represented, G2E truly is the international gaming event—with the fullest array of products and the smartest educational examination of global issues anywhere on the planet. In addition to a host of international conference sessions, G2E 2006 also will feature a new international keynote, State of the Industry: The Next Generation of Global Gaming. And, we’ve made it easier than ever for you to experience G2E, with a variety of enhancements throughout the show. It’s now a snap to register for G2E. Go to www.globalgamingexpo.com/AD for more Register by October 31 to enjoy special discounts to the Show and Conference. Special Hotel & Travel Deals are also available online. Questions? Call 1-203-840-5626. To Exhibit, call 1-203-840-5341. It’s the world of gaming. Right where you need it.

COMMITTED TO YOUR FUTURE SUCCESS By Anastasia Kojemiakina, corporate communications manager, EELEX.

The EELEX project was launched in 1991 when the first slot machines were introduced to Moscow casinos and other venues. The show was originally established by Unicum Group, the largest Russian slot manufacturer and distributor, and the first expo launch took place in St Petersburg, Unicum’s headquarters. Throughout its history EELEX has evolved with the Russian gaming industry. It moved from St. Petersburg to Moscow, occupied the most popular trade show venue Expo Centre and for several successive years gathered a record number of visitors following rapid growth in the country’s slot industry. Post 2000, when slot halls started to spread across the country, EELEX became more of a casino industry show, when it had always been a gaming and amusement equipment trade show. Due to the limited capacity of the venue in 2006 the show moved to a new home, the spacious Crocus Expo. It enabled EELEX to focus on attracting more participants from the amusement sector without limiting the slots and casino floor area. Atronic identified its future value. “In the past few years EELEX has grown continuously to become an internationally recognised event,” Sylvia Dietz, Atronic’s Marketing Director said. “It is now one of the most significant industry trade shows for us to exhibit at. Atronic will be exhibiting an impressive range of cutting edge new products at EELEX, including innovative linked gaming concepts and attractive new game titles on e-motion™, Harmony™ and Cashline™. As a highlight Atronic will unveil a number of surprises at the show giving visitors to EELEX an exclusive look at our very latest products and solutions”. Today EELEX is the largest gaming and entertainment industry trade show in Russia, CIS and Baltic countries, as well as the third largest casino exhibition in the world. It is one of the most respected international gaming shows, which this year celebrates its 15th anniversary. More than 200 exhibitors took part in last year’s EELEX and around 11,900 attendees from 53 countries came to Moscow’s Expo Centre over the three days of the show. EELEX 2006 will be held in the Crocus Expo on 27th -29th September and will provide 17, 200 sq metres of exhibition space covering three halls. About 60% of EELEX’s floor is dominated by gaming equipment manufacturers – the show’s regular exhibitors – representing large international gaming brands and leading domestic companies. CATS typifies the growth trend. Brett Clark, General Manager of CATS Russia explained: “CATS is a progressive and forward looking company and we see EELEX as a good opportunity to present the latest innovative products developed by leading slot manufacturers and our long-term partners – Novomatic, IGT and Octavian. Our expectations of EELEX 2006 are clear: we have increased our stand space four times over! We believe there is a bright future for gaming business in Russia and we are looking forward to meeting with our partners and customers at the show.” Equipment manufacturing products, designed for the advanced market, have a particular interest for Russian operators who follow closely industry developments and changes in the local markets. The show organisers maintain a close look at industry trends to ensure visitors experience the most relevant products showcase. Certainly, the world’s largest equipment manufacturer thinks so. John Gomes, General Manager of IGT Russia, said: “EELEX is a great opportunity for demonstrating our exciting selection of games and this year the highlights at the IGT stand will be new games specifically developed for the Russian market.” He added that “During the last year, IGT’s development team carefully and thoroughly studied Russian players’ tastes and has adapted our products to the needs and requirements of the Russian market. Our participation in EELEX is a wonderful chance to communicate directly with our customers and get their immediate response to our developments.” This year the trade show adds to its traditional gaming portfolio by returning to “the EELEX of the 90s”. A large share of the event stands will promote amusement equipment. A growing number of complex operations, where one operator offers amusement, gaming and entertainment services within the same venue, are more popular in Russia’s big cities now. At the same time, large entertainment sites with a cinema, casino, restaurants and an amusement area are also opening up around malls and supermarkets. “We have the ability to expand the show with more services and products by inviting new companies from adjacent market segments and making EELEX a one-stop-shop for operators,” Alexandra Soroko, Director of EELEX, said. “Today the market is maturing; our attendees grow or diversify their businesses, and some of them are able to offer their clients more services. We are glad to help and to provide new opportunities and our firm commitment.” EELEX ’06 will also introduce a completely new supporting product sector which will cover self-service kiosks and vending machines – necessary instruments of modern amusement and gaming operations. Internet and ticket kiosks, snack’n’drinks machines, ATMs and payment systems will also be much in evidence on the hall floor. EELEX is the largest gaming trade show in the country and as organisers we focus on providing yet more services to our attendees in an atmosphere designed to maximise business success. EELEX gathers all the top manufacturers and participants from around the world and, as a result, there are no plans to launch regional projects. The 2006 tradeshow hosts conferences, product presentations and seminars, to be held in several modern facilities located in the pavilion and suitable for a wide range of interests across the gaming industry.

ONLINE GAMING & SEO

BEWARE OF THE BLACK HATS! BY BRIAN CULLINGWORTH

eCOGRA intervention shows that search engine optimisation can prove damaging if not used in a strictly ethical and professional manner. In the constant war of the search engines, SEO abusers can be ingenious, and that means equally smart counter measures to defeat them in the interests of keeping the engines safe,

ecent incidents in the online gambling sector have highlighted the need for careful supervision of outsourced or junior employees when it comes to the ethical use of search engine optimisation (SEO). Whilst SEO can be a powerful tool to rank sites high in search engine positioning, thus generating more visitors, there are perils in its unsupervised use that can bring grief and loss of reputation to unwary managements. There were many public calls for the intervention of the eCommerce and Online Gaming Regulation and Assurance (eCOGRA) standards body in recent weeks after two particularly high profile cases surfaced, generating a significant level of protest from the public and affiliate sectors of the business.

unbiased, fast and precise. EFFECTIVE SUPERVISION IS ESSENTIAL One case involved the Jackpot Factory group of online casinos, where public admissions by the management illustrated the dangers of engaging outsourced writers without close ethical supervision within the company. Serious public opprobrium was triggered when players uncovered a series of “inspirational” mini-stories super-loaded with key words including a number relevant to vulnerable audiences such as cancer sufferers, the infirm, depressed and aged, addictive personalities and the like. The stories had preposterous suggestions such as “play slots to alleviate depression”, and were apparently intended to boost search engine ratings rather than market to vulnerable audiences. However the sheer volume and distribution, together with the nature of the content and the potential for it to be misunderstood ignited a barrage of protest that left the business embarrassingly on the defensive. Casino & Gaming International ■ 55

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It transpired that inadequate management supervision had been devoted to this outsourced material before it went up on the Internet, and content management techniques outside the normal company protocols made removal more problematic and time consuming than was desirable. The consequences for the company were serious: it had to undergo the temporary suspension of its eCOGRA “Play It Safe” seals whilst an independent investigative team visited the site to find out what had happened, what had been done about it and how to avoid a recurrence; considerable energy, expense and time had to be devoted to tracking down all of the offensive material and taking it down, and the damage to a formerly excellent reputation has yet to be quantified.

FIGHTING BLACK HAT ACTIVITY TOGETHER This sort of ethical misadventure falls under the loosely colloquial term “black hat practice” and unfortunately it is not uncommon in contract deals where some SEO specialists are more focused on rankings than rectitude. Other blackhat allegations have recently surrounded third party SEO contractors and marketing affiliates promoting the giant 888.com online casino and poker room group. Following weeks of severe criticism, this industry leading group is now in a cooperative dialogue with senior professional affiliates with the joint objective of eliminating bad SEO practice. Writing in a recent article condemning bad SEO practice, Dave Sawyer, the webmaster at portal Online Casino Reviewer.com said that there were indications that some online affiliate marketers were “site scraping” (plagiarising content) from thousands of websites. The stolen material is then deployed as their own in order to increase exposure in Internet search engines such as Google, MSN and Yahoo. “The result is that the principal’s exposure in the search engines is not just limited to gambling related searches; but its location and name can be returned as the result for a multitude of terms which are definitely not gambling related,” says Sawyer. “What is even more worrying is that there is evidence to suggest that affiliates of respectable public companies have been actively participating in the practice of Blog Spamming. Blog Spamming in layman terms consists of webmasters increasing the popularity of their own websites by indiscriminately adding links to website forums or blogs regardless of their content or relevance. “Not only is this extremely annoying for the owner of said forums or blogs, but this “shotgun” approach of broadly targeting any and all media and audiences can promote gambling to unreceptive or worse still undesirable audiences e.g. minors. “In addition, it abuses the efficiency of search engines by throwing up irrelevant material when users carry out a search.” Sawyer concludes: “It is a serious concern when leading online gambling companies are apparently unable to police affiliate programmes. In my opinion, by allowing affiliates to do as they please in promoting a company and its associated brands, the owner not only tarnishes its own brands, but the entire industry.” Sawyer’s ethical concerns are clearly shared by many professional affiliate marketers and portal owners. For example Lou Fabiano of Casino Affiliate Programs.com (CAP a popular gathering place and information site for many 56 ■ Casino & Gaming International

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experienced webmasters) pulled 888.com’s accreditation after bitter debate regarding its “…failure to reach an amicable resolution involving known content theft and blog spamming being performed by their top affiliates and consultants.” CAP and senior managers from 888.com are now involved in a collaborative effort to bring black hat SEO affiliate behaviour under control. One of the top watchdog and player advocate sites, Bryan Bailey’s Casinomeister.com censured the group recently, too and Brian Nank’s iGAMI roundly condemned black hat activities. “Site scraping and content thefts are very serious issues that need to be halted now,” wrote Bailey.

THE APPLICATION OF MORE COHESIVE ACTION IS GROWING All of these actions were widely publicised, and sources report that many professional webmasters prejudiced by the black hat activities have started linking together to bring the issue to prominent public notice and possibly further joint action. The potential for damage to even big and successful operators is considerable and growing as more cohesive action is brought to bear, underlining the need for careful supervision. A CAP spokesman went into more detail, saying: “These illegal activities are negatively impacting thousands of affiliates and online marketers worldwide. There are a number of programming teams operating with the approval of some online casino and poker groups which are flooding search engines like Google and Yahoo with thousands of spurious search results. “This angers searchers and makes finding legitimate destinations on the internet difficult if not impossible. This sort of black hat practice is robbing bandwidth and corrupting web logs with millions of commercial messages all linked to the principal (operator). This abuse of the system tarnishes the image of the industry as a whole and cannot be allowed to continue.” It is clear that in the event that an operator becomes aware of any affiliate which behaves in such as way that contravenes the eGAP minimum requirements and has an adverse effect on players, then the operator must take prompt action to ensure that the affiliate ceases that behaviour or the affiliate contract is terminated. Failure to do so could result in a suspension or even removal of the ‘Play It Saf’e seal. One of the biggest online casino and poker room operators, 888.com has responded positively to the uproar. In a letter to several prominent personalities in the affiliate sector, Vice President Nicholas Lev recently highlighted the good reputation of the company and its brands, and pointed out that: “No official process of any kind was conducted by any authorised party to verify these allegations. Additionally most of the affiliates who have been singled out for practicing “Immoral” marketing techniques on 888.com’s behalf are providing marketing services to several other large and small online gaming companies.” Lev goes on to draw attention to the group’s Affiliate Programme contractual terms, which specifically exclude the conduct on which the allegations are based, and reveals that: “We have recently investigated several hundred affiliate Casino & Gaming International ■ 57

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accounts that were brought to our attention and immediately blocked the ones who have violated our policies.” He points out that his company recently added a notice on its Affiliate Programme homepage outlining its Ethical Marketing Practices Policy with a link to report any misbehavior by affiliates, emphasising that every time a credible allegation that a member of the program has engaged in any sort of illegal or illicit activity is made, the company will investigate it thoroughly. “If the evidence that is gathered proves wrongdoing there will be decisive action taken, including blocking their affiliate account and suspending all payments, towards the affiliate found in breach of this policy. We encourage all moderators and members to share any evidence of misbehaviour of our affiliates and 888.com guarantees that there will be a prompt and efficient investigation.” Such a strong public stance against black hat SEO activity by an industry leading company and founder of ECOGRA is welcome. If followed up with vigour and commitment it sets a meaningful example to other companies to adopt a similar policy.

ECOGRA POLICY ECOGRA sees bad affiliate practices in SEO as undesirable, but will not become involved unless the activity directly impacts on players at its “Play It Safe” seal venues: “The principle goal of eCOGRA is the protection of the player at online casinos and poker rooms that have committed to our ideals and authority,” says CEO Andrew Beveridge. “Other than the Jackpot Factory issue, where we are currently active in addressing the problem we have not received a single complaint thus far from a player, and we will not dilute finite resources to campaigns that do not directly benefit the player.” ECOGRA has some 87 of the largest and most successful online gambling operations under its authority, and recently announced a campaign to increase this number to 100 by the end of the year. Comprising a wide range of venues powered by Microgaming, Random-Logic-888.com and Ongame the non-profit standards company looks set to make its target and is talking to other software providers. Fortunately, the number of “white hat” or ethical SEO practitioners exceeds that of the black hat brigade, and this ensures that professionalism continues to prevail when it comes to this important marketing activity. Many specialists most frequently use Five Top Techniques to achieve consistently good rankings. These start with the need to regularly update, review and use the right and more importantly relevant keywords on the site to ensure good positioning on the major search engines. This is not the sort of area where content and positioning can simply be left to run; it requires constant attention to be successful. It certainly helps to know what is happening in this fiercely competitive and dynamic sector, which can be subject to rapid change: standards, rules and requirements that were pertinent before can change with remarkable speed, leaving the inattentive behind the curve. Next, evaluate the leading engines. Google is the giant in this sector with a very high percentage market share – some claim over 70 percent, and many webmasters say that up to 90 percent of their hits come from this mega-engine which is constantly innovating. 58 ■ Casino & Gaming International

Yahoo is second, and MSN the “Johnny come lately” third although this Microsoft associate is growing fast and the MS Vista release coupled with IE7 will probably enhance that significantly. The Webmasterworld.com site is a great resource for those wishing to keep pace with developments, but there is a feeling in many webmaster circles that the days of Google holding an overwhelmingly large chunk of the market could be numbered, with a more even distribution possible over the next few years. Google & Yahoo also power other, smaller engines, such as the free listings featured on AOL and Netscape and paid listings on AOL, Netscape, Ask Jeeves, HotBot and Lycos. Yahoo! powers free listings featured on AltaVista, AllTheWeb and HotBot, plus the paid listings on AltaVista and AllTheWeb.

ONLINE GAMING & SEO

Webmasters need to know about this sort of information so as to exploit it to best effect, together with critical technical changes to algorithms used to rank sites and future developments – for example there is currently much speculation about the next major Google update and the enhanced algorithms that are said to have had a significant effect on its efficacy. Black hat practices do not go unnoticed by search engine managers, who can effect changes in response to unscrupulous operators or contractors who seek to manipulate indexing methods, thus harming the integrity of free search parameters. In the constant war of the search engines, these SEO abusers can be ingenious, and that means equally smart counter measures to defeat them in the interests of keeping the engines safe, unbiased, fast and precise.

FIVE TOP TIPS It is important to remember this, especially where the operator uses an outsourced contractor, because no matter how tempting a strategy and its promised results sounds, if it is against the search engines policies and rules there could be drastic consequences – like being removed from the listings. Here are a few basic guidelines that can achieve good results without getting into trouble! 1. Reach agreement with relevant sites of quality to link with your own. Good links are as important, or perhaps more important than positioning keywords in prime locations in the text and site coding. The number and quality of sites that link to your own influences performance because search engines assess the relevance of the links, largely based on the commonality of the content on the sites involved. The more relevant, the better, which is why black hatters steal content instead of putting in the work to create their own. To assess the quality of a linking site, webmasters consider the kind of online profile or “presence” it possesses, and how much traffic it experiences. For example, an established and successful high traffic online gambling portal would be a better link than a relatively obscure personal website. The darker side of this is the use of irrelevant links pointing to a site. This may seem to represent a “volume over quality” strategy but it can be punitively unproductive. When search engines find linking sites with content that has nothing in common with the main site a penalty in the form of a lower relevancy rating can be expected. 2. Keyword inclusion and placement is still important, despite the fact that keywords are no longer the only criteria for a high ranking. Try to include keywords in the domain name, in the root of the URL, not the stem. Thus, the domain “Online-Casinos.com” becomes a very valuable asset in the online gambling industry, where people searching for Internet gambling venues will probably use that description among the first they try. Include keywords in the title tags in the source code, and in the meta description of the site. Although not as critical as other tactics, this can only help. And in the meta keyword tags. Things to watch out for include making sure that only relevant keywords are used; marketers who try to smuggle in keywords that have nothing to do with the content of the site can bring retribution from the search engines in the shape of costly penalties. 3. Good content helps to attract traffic, and it is therefore essential that interesting and relevant content-rich information pages are uniquely created and maintained. Provided the content is sound, extra pages can be introduced, linking to the site and boosting the chances of better rankings. But here’s another caveat – additional pages that offer no value other than multiplying the number of links (sometimes known as “pointer pages”) will attract the wrath of the search engines. Always have front-of-mind the importance of placing the keywords in the best and most visible positions so that plenty of traffic is directed to the site by these additional pages. Repetitive use of keywords in the meta tags (called “keyword stuffing”) is another favourite trick of the unscrupulous that does not sit well. Search engines have been on to this stunt for some time and it can result in a ranking drop. 4. Using quality online gambling and other relevant Casino & Gaming International ■ 59

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>> One case involved the Jackpot Factory group of online casinos, where public admissions by the management illustrated the dangers of engaging outsourced writers without close ethical supervision within the company. Serious public opprobrium was triggered when players uncovered a series of “inspirational” mini-stories super-loaded with key words including a number relevant to vulnerable audiences such as cancer sufferers, the infirm, depressed and aged, addictive personalities and the like >>

directories is another great channel to enhance traffic, and sites should be submitted to as many as possible. A wide spread of relevant listings on top directories will improve rankings on the major search engines that monitor these. 5. So long as the content remains pertinent and of value, the creation of a whole community of inter-linked sites, all pointing to the main site can be very effective. “Link Farms” are the antithesis of the linked and relevant information pages referred to earlier in this article as acceptable tactics. Search engine chancers will sometimes try to build multiple “doorway” sites whose sole purpose is to multiply the number of links pointing to their sites. A favourite trick is to pad these doorways out with keywords instead of genuine and useful content, but once again the search engines are wise to this scam and will drop sites that use it from their listings. Be selective – don’t link for the sake of it but try to find partners who have quality sites with well rated content that has something in common with your own. Avoid “all comers welcome” link pages. That sort of site may have low relevancy ratings that could end up costing points with the search engines rather than scoring them. Webmasters new to SEO work will find a wealth of highly efficient tools to assist them, some of which are listed here: Optilink: This search engine optimisation software has been steadily improved over the years as a highly efficient link reputation analyser capable of determining why search engines rate a site highly (or not) and how good a reputation it has. Many SEO specialists use this software when running checks on competitive sites or seeking suitable link candidates. WordTracker is another Internet SEO tool that has been around for some time and has reached high performance levels. Along with more recent tools like Keyword Discovery it helps select specific keyword phrases that will better direct traffic. Free and paid versions are available. WebPosition Gold/ Platinum Pro Professional is used as a placement tool to generate Web pages that will rank high on major search engines. It has an analytical capability, too so that users can study existing Web pages in depth, incorporate improvements and track specific rankings on a diversity of search engines. Mcdar.net allows the user to monitor 56 Google datacentres, and is a labour saving utility, especially when in the midst of a Google update. There’s a wealth of useful and informative reading material available to both experienced and neophyte webmasters, too: Search Engine News. Since 1997 the definitive source of 60 ■ Casino & Gaming International

search engine information for the professional optimiser. Search Engine Watch. Danny Sullivan’s comprehensive coverage of the search engine world offers forums, reviews, articles and ratings. Paid subscriptions give access to higher level information. Search Engine Blog. Provides regular search engine news and views that has value. Planet Ocean’s online resource, “The Unfair Advantage Book on Winning the Search Engine Wars,” is updated monthly and provides excellent optimisation tips and information on the search engine industry. Search Engine Guide. This free site contains a lot of useful information about the smaller search engines on the Web and who to submit a site to in order to get a better ranking with the bigger search engines. The importance of professionally and ethically conducted SEO activities cannot be overstressed, and to ignore the fundamental rules of search engine work is to invite costly damage to reputation and rankings alike. Two final thoughts for the operator: Select your SEO personnel or outsourced agency with the same care you devote to banking arrangements. Never allow SEO activities to go unsupervised.

BRIAN CULLINGWORTH Brian Cullingworth is Senior Partner at InfoPowa News, a popular online gambling industry executive news service. A marketing and communications graduate he has been involved in the industry since 1996 in senior management positions as an operator of online casinos, a consultant on setting up online casinos and marketing same and latterly as a provider of industry news and business intelligence. He has wide mediating experience in player-casino disputes. Prior to entering the industry he enjoyed a distinguished career as marketing director for a major international diamond company. He is a former president of both Rhodesian and South African professional management bodies.

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REMOTE GAMING STANDARDS

UNIFYING INDUSTRY INTERESTS TO SECURE A LEVEL PLAYING FIELD BY CLIVE HAWKSWOOD

The RGA has now been going for a year. Since the merger between ARGO (Association of Remote Gambling Operators) and iGGBA (interactive, Gambling, Gaming and Betting Association) the Association has reached agreement on key industry standards including: social responsibility and age verification; moving the European debate forward; protecting the legal rights of members; countering the often false and misleading statements made about the remote gambling industry; and producing detailed solutions to various taxation and regulatory issues that have arisen.

ooking back we have to be pleased that there was no fall out in membership and that, on the contrary, we have attracted some companies that belonged to neither of the earlier associations. In fact, if the truth be told, we have turned down a number of applications because our Executive Committee took the view that companies without proven track records in the field might become a liability. This was certainly no reflection on the individuals behind those companies, but more an appreciation that it has become increasingly difficult for new entrants to the market to thrive and that it would be dangerous for existing members to be associated (if you will excuse the pun) with a company that went out of business early on. Given that we have other membership restrictions (ie, that applications must be supported by two existing member and operators must be licensed for gambling purposes somewhere in the European Economic Area, the Channel Islands, or the Isle of Man) then something fairly dramatic would have to happen for our membership to extend much beyond the current 34 members. However, that is not a cause for concern when those 34 include most of the market leaders and the commonality of their interests means that it is rarely difficult to achieve a consensus. That has been important for us because the one thing we are not short of is issues to address. Despite this there has perhaps in some quarters been a misconception about the RGAâ&#x20AC;&#x2122;s remit to the extent that it was seen solely as a UK trade association. This was understandable for three reasons: the first being that our offices are in London; the second being that many of our members are nominally British or have close links through their management; and the third being that we have invested

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a lot of time and effort in the development of British legislation and regulation. However, in the same way that the remote gambling industry is inherently international, so too any trade association must also be to promote its own interests. It is unavoidable. So in answer to the three points made above I would comment on each that; (i) probably any major city with good travel and communication links would do for a base and so London is as good as anywhere and better than most in terms of convenience for most of our members; (ii) its almost a truism that, irrespective of the markets being targeted, most of the larger remote gambling companies do either have traditional links with the UK or have senior management from there, but it is far from an exclusive club; and (iii) the focus on the UK has largely been inevitable because it is the one major jurisdiction where something concrete has been happening that has the potential to change the international political environment for the industry. On the last of these the industry has sometimes been guilty in the past of making the right general noises about regulation without really getting to grips with it. As a maturing industry we have to get past that stage now. We have to, as we have been doing, agree policies and practices internally that both we and a first tier regulator can live with. Primarily, that involves the UK at the moment because it is almost the only game in town. Hopefully, that will change and we can engage with other regulators as their political masters grasp the nettle and accept that remote gambling is an activity where appropriate regulation is always better than ineffective prohibition. Whether any online gaming operators will eventually relocate to Britain post September 2007, when the new regime is due to come into force, is a moot point which will be determined by the tax regime at least as much as by the regulatory regime. What we cannot do is sit on the sidelines and hope for the best. Our job is to campaign for an overall regime that some operators at least might find attractive. Our aim is to push open that door for them and then leave them with the choice of whether to walk through or not. As things stand the industry’s options are just too limited. One thing we can also be sure of is that even if, for whatever reason, the UK does not prove to be an attractive jurisdiction it is still somewhere that future regulators might look to for a regulatory template. In addition, it will certainly continue to be a market that is of interest to many companies and we are therefore working hard on issues such as advertising (where we have had pre-consultation discussions with the Advertising Standards Authority) and the location of equipment (in other words how much of an operator’s business can be in the UK without a gambling licence being required). Having mentioned the future British tax regime it is only right that I say a few words about the current state of play. We have been and are still in fairly regular discussion with Her Majesty’s Treasury to try and identify and agree a viable tax regime. This relates to the overall tax burden and not just to the rate of gaming tax. After lengthy consultation and the use of independent economic analysts, the RGA put forward two models that would be attractive to at least some remote gambling operators. As befits a new and radical sector our proposed solutions were new and radical as well. Or at least that is how 66 ■ Casino & Gaming International

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they seemed to the Treasury Ministers and officials. While not immediately taken with either of them they have so far failed to come up with any other alternatives apart from those that would kill a new British-based remote gaming industry before it had even begun. We have been very honest and explained that they cannot expect a huge revenue uplift from the taxation of remote gaming (remember that they already tax online and telephone betting in the UK). We have also politely reminded them that if they do not find some way to accommodate at least some online gaming businesses then much of the legislation in the Gambling Act 2005 will have been a waste of time. In political terms this could be embarrassing to the Government because it has repeatedly stated that the primary reason for introducing the Act was to regulate online gaming and as recently as 3rd July 2006 the Minister for Gambling, Richard Caborn MP, said in answer to a question in the House of Commons that, “…..that is the very reason for bringing the legislation forward – so that the Government have some controls over internet gambling.’ Clearly this is not achievable if no internet gambling operations are based and licensed in Britain. In short, the Government has found itself between a rock and a hard place. On the one hand it pushed through a contentious piece of legislation, in its own words to control internet gambling, and yet now faces the possibility of having no one to control unless a workable regulatory and tax regime are put in place. This means that we very much have a shared objective even if we may have differing views on how to get there. It has not been easy and there is no certainty of success, but there is no alternative other than to collaborate with the authorities to try and establish a practical system. And that is true in every jurisdiction and not just Britain. Regulators are not going away, nor is the industry, and online gamblers certainly aren’t. Collectively, we have to find mutually satisfactory ways to ensure that each of those three key stakeholders is properly protected. A central message for us going ahead is that their interests do not have to be contradictory. I believe we have now reached the position where an increasing number of regulators look on the industry as a partner which they can operate alongside to provide reasonable solutions to complex problems. As a minimum they need to appreciate that we are a resource for them to draw upon. If anyone has real experience of, for instance, security and technical issues then it is the industry. Where else can a regulator learn about the realities? In time they can build up their own expertise. Unfortunately, at the moment they do not have that time and so we must develop a relationship of trust where they can take our advice on matters and not forever fear that we are trying to put one over on them. In that regard I must give full credit to the British Gambling Commission who early on recognised that weakness in their organisation, raised it with us, and then agreed that the best approach in the short term was to take someone on secondment from the industry to assist them. We were happy to trawl our members for candidates and at the time of writing one of them has already been working on technical standards at the Commission for several months. Turning to the broader European picture, one of the Casino & Gaming International ■ 67

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>> Around Europe there are also a number of legal challenges to the industry, for instance, over intellectual property rights or the blatant protectionism of the Italian Government in seeking to bar access to all offshore gambling websites. Although it was not something that we had envisaged when the RGA was established, our members have found it useful for us to co-ordinate joint defences in cases in Italy, Spain, France, Belgium, and Germany. This is a concrete example of where the industry or groups of companies within it are in a much stronger position if they stand together >> concrete benefits of the merger between ARGO and iGGBA is that we have been able to retain the services of Wes Himes (the former Director of IGGBA) and his company, Policy Action, to monitor and advise us on developments, especially those at the hub of the European Union in Brussels. That allied with the network of local advisers that our members have throughout Europe has put us in a stronger position than ever before and, finally, there are real signs that the monopolists are on the retreat. Despite that they will continue to fight us every step of the way. They cannot be blamed for that. If any of us were lucky enough to run a monopoly that raked in millions of euros every year without having to provide competitive products or returns then we would do exactly the same. However, understanding their motivation can never be the same as agreeing with it. In practice the challenges in Europe are more comparable to those in the US than most people might think, but at least in the European Union we believe strongly that the law is on our side and in the long term that will prevail. The clearest sign of this came in April when the European Commission launched infringement proceedings against Denmark, Finland, Germany, Hungary, Italy, the Netherlands and Sweden. We had been pressing for this for the best part of two years and while the Commission officials had long since accepted the need for action there was a hold up at the political level. As in so many areas a great deal of effort was being made behind the scenes, not least on the part of Wes Himes and our European sub-committee, to tip the balance and we should not underestimate how important this change might be. Unfortunately, at this stage all they are asking for is information on those national restrictions and how the States involved justify them. Suffice to say that many of them will find that difficult to do as can be seen from a quick look around at what those very same States and others like them have been doing since the original complaints were lodged. Sweden – initiated an independent review of its gambling laws (not unlike the Budd Report in the UK) which found that their laws were indeed incompatible with EU law. It goes without saying that the review’s findings were not welcomed by the authorities and, with an election in September, the whole process could easily be derailed. We have put in a submission in response to the Swedish consultation exercise that ended in June and will be interested to see how they respond. Germany – after its own Constitutional Court directed that the law had to be changed by the end of 2007, the 16 68 ■ Casino & Gaming International

regional governments are collectively trying to find a way to defend their monopolies. Italy – is still threatening to prosecute any Internet Service Provider that provides access to an offshore bookmaker (including those in the UK), but is now considering whether to open up its domestic sports betting market. Netherlands – is considering new legislation that will provide a licence for online casinos, but it will only be available to Holland Casinos, the existing bricks and mortar monopoly operator. Meanwhile, the protracted legal fight by De Lotto to prevent Ladbrokes from taking bets from Holland continues. Belgium – plans not as far as advanced as in the Netherlands, but already going down the same road. France – is still offering extensive betting opportunities via the PMU and online gaming by Francais de Jeux, but prosecuting Ze Turf, a Malta-based bookmaker, for taking bets from France. There is also a rumour that they might follow the Italian example and put pressure on the Internet Service Providers to do their dirty work for them and effectively compel them to act as the internet police and bar access to offshore bookmakers. The list could go on, but the pattern is the same with State after State cobbling together justifications for why their citizens must be protected from private bookmakers. But, as I’ve said, there is some light on the horizon. Firstly, the infringement proceedings initiated by the European Commission are a relatively open process and will force the seven states involved to explain themselves properly for the first time. Secondly, the body of case law is growing and it consistently supports our position. Thirdly, the growth of online gambling is so dramatic in Europe that it is becoming increasingly difficult to find reasons why the European Union should not acknowledge and accommodate it. Finally, the British Government has confirmed that it will host an international conference later this year for governments and regulators to explain why Britain has adopted a regulatory rather than a prohibition stance and to see if there is any way to agree some standards that would merit mutual recognition. Taken together these give some cause for optimism, but the only two things we can be certain of are that nothing is going to come easy and that Europe will continue to confound us for some time.

REMOTE GAMING STANDARDS

RGA membership list Remote Gambling Association Membership ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■

Barcrest BellFruit Bet 365 Betfair Blue Square Cantor Index Cashcade Chartwell Games CryptoLogic Eurogaming Gala/Coral Group Globet Inspired Broadcast Networks Limited Ladbrokes Leisure & Gaming Littlewoods Microgaming

■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■

Million21 Orbis Technology Ltd Paddy Power PartyGaming Playtech Ritz Skybet Sportingbet Stan James Stanley Talarius Totesport Victor Chandler Virgin Games William Hill 32 Red 888.Com

I did wonder a lot about why this should be until I came across a quote from Madeleine Albright, the former US Secretary of State, who once observed that, ‘To understand Europe you have to be a genius – or French’. Unfortunately, I don’t qualify on either count so that might be why I and many others like me remain patient but bemused. Around Europe there are also a number of legal challenges to the industry, for instance over intellectual property rights or the blatant protectionism of the Italian Government in seeking to bar access to all offshore gambling websites. Although it was not something that we had envisaged when the RGA was established, our members have found it useful for us to co-ordinate joint defences in cases in Italy, Spain, France, Belgium, and Germany. This is a concrete example of where the industry or groups of companies within it are in a much stronger position if they stand together. As for the US, we naturally follow events very closely and several of our members have been very active in lobbying. However, as a group, we took a policy decision last year not to get heavily involved unless we could bring some real added value to what was already being done through those companies with major stakes in the US market (eg PartyGaming, Sportingbet, 888, etc) and other associations such as the Interactive Gaming Council. Another consideration was that we did not want to spread ourselves too thin, but like everything else in this industry the situation could change quickly and, in case our members do decide that they would like us to play a greater role in the US, we have held several meetings with Washington-based consultants so that we have a ready base to build on if we go down that route. So coming back to the RGA’s first year, we have really come a long way in agreeing industry standards on social responsibility and age verification; moving the European debate forward; protecting the legal rights of members; countering the often false and misleading statements that are made about the remote gambling industry; and producing detailed solutions to various taxation and regulatory issues that have arisen.

However, our real strength has been in the ongoing commitment of our members. Apart from our governing Executive Committee, we have standing sub-committees on Regulation, Taxation, Social Responsibility, Europe, and Mobile Gambling. In addition we have meetings on legal cases and ad hoc issues. The smallest sub-committee has five members and we often have more than 20 attend the sixweekly Executive Committee meetings. In other words, quite aside from those of us who work for the RGA, our members are working tirelessly for the benefit of the industry. It is easy to forget that the individuals concerned are busy running multi-million pound/dollar/euro businesses at the same time. Their willingness to attend meetings regularly, to share information and resources, and to work towards common goals is a tribute to how important remote gambling and its continued success has become. In the final event any trade association is only as good as the strength of its membership, not just in terms of numbers and market share (although our list of members speaks for itself on that score) but also the contribution they are willing to make. For my part I can only say that I have been pleased, and maybe even a bit surprised, at just how involved our members have wanted to be. It is an indication that they see the RGA as the right vehicle for taking the industry where it needs to go in the years ahead. One thing is for sure: the prize is too big for us to allow operators in the remote gambling industry to be picked off one by one. Whether it is politicians, governments, regulators or interest groups like the World Lottery Association, there are some hugely powerful opponents out there who will fight tooth and nail to prevent the continued growth of the remote gambling industry. While achieving unity is rarely an easy matter it remains the remote gambling industry’s best hope of overcoming them.

CLIVE HAWKSWOOD Clive Hawkswood is the first General Secretary of the Association of Remote Gambling Operators (ARGO) which was established in 2004. Membership is open to any type of remote gambling operator as long as they are licensed and operational in some capacity within the European Economic Area. All of its members operate online casinos and most, including the larger British bookmaking companies, also have extensive remote betting businesses. On 1st August 2005 ARGO and iGGBA merged and Clive became the Chief Executive of the new Remote Gambling Association (RGA). Prior to joining ARGO in August 2004, Clive was head of the Betting & Racing Branch at the British Department for Culture, Media & Sport (DCMS), where, amongst other things, he was closely involved with the development of the Government’s policies on gambling. Before that he was at the Home Office, spending time in both the Gambling Section and the Horseracing Policy Team. Earlier in his career he also spent several years working in the bookmaking industry.

Casino & Gaming International ■ 69

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OFFSHORE: ISLE OF MAN

STRATEGIC eGAMING CENTRE: ISLAND BUSINESS HUB WITH GLOBAL REACH INTERVIEW WITH BILL MUMMERY

The Isle of Man (IOM) has steadily advanced its e-commerce interests over recent years and has become a burgeoning centre for disaster recovery. The island has a strong track record with the UK Government as a crown dependency going back over 30 years, and its egaming driver, provided by industry leaders NETeller, Microgaming, Playtech and Fairview, has contributed in no small measure to the island’s business strategy, encouraging the latest tranche of pipeline IPOs.

CGI: What concerns and challenges are there in promoting e-gaming as part of the Isle of Man’s inward investment? BM: It became clear to me that the Isle of Man was in an ideal position to become a premium jurisdiction. Leading software provider Microgaming; Playtech, a company with similar standing; NETeller, one of the largest alternative money-in, money-out financial processors, all came to the Isle of Man. Now, through both Manx Telecom and Domicilium, the island has a world class telco infrastructure. At present, a spin-off from Mohawk Internet Technologies is about to float. However, for the island’s economic development, concentrating entirely on licensed operator activity is always going to risk a degree of volatility. It therefore became vital to us to build a foundation of strategic support businesses in the non-licensed sector. Naturally, there will always be operators for whom it is never going to be appropriate to be based in and licensed from the IOM. However, we find the island is strategically important to many businesses in an ancillary way, either because they run Microgaming or Playtech software, or especially because they use NETeller. Disaster recovery services from one of the skilled providers on the island may even be required. Once some of the players actually become licensed and domiciled in the IOM, any subsequent decision by resident companies to move to another jurisdiction becomes problematic when weighed against the luxury and benefit of having such strategic relationships close to hand. I see the development of the non-licensed area of the industry as being Casino & Gaming International ■ 71

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very important therefore. Firstly, because it creates stability and a strong foundation for the island’s economy; and secondly, it acts as a very powerful mechanism attracting and retaining market share of the quality operators. CGI: You have been promoting regulatory reliability, telecommunications leadership and favourable tax rates, all of which you would consider a key attraction. However, isn’t there a standardisation beginning to emerge among offshore jurisdictions, does the IOM have a unique advantage now? BM: When we refer to ‘low taxation’ in the gaming sense there is a danger of thinking there is a separation between the licence fee and the duty. In fact, they are two components of the overall basket of taxation in a jurisdiction. Where the comparative advantage for the IOM comes in is in the following sense: the IOM realigned its duty last year with a sliding scale down to an effective cap at 0.1 per cent, but in the broader sense particularly at corporate level, start-ups are now becoming much less a component of the overall mix. It is more a matter of encouraging cash-rich businesses that, by definition, have been successful that are now at a crossroads. Either the founders are looking for a partial exit route or, rather than be targeted for acquisition, seek to participate in the longer term consolidation. In both of those circumstances there are a lot of cash-rich businesses in jurisdictions that have served them well as they built up their business. Companies then often reach the stage where they then need to go to the capital markets. This might be as an IPO seeking a partial exit route for the founders, who may have worked very hard for six to eight years; or it may be to raise funds to strengthen the company’s own ability to acquire another rather be acquired.

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Either way, the IOM has demonstrated that it is a very acceptable route to the London market, in particular the AIM market. Currently, we have got NETeller, Playtech, Fairground and about 10 other companies preparing their IPO process. Not only does the island now offer zero percent corporation tax for businesses ongoing, it is also very important that there is zero capital gains tax. This means that when they realise their capital gains through floatation, they can manage their own tax affairs. The most recent element a few weeks ago, though not specifically aimed at the gaming sector but certainly pertinent to it, is the high net worth personal tax cut that was passed by the IOM Government. Someone can reside on the island and benefit from a tax cap of 100k on their worldwide income, and there are a significant number of individuals who would pass that threshold and for whom being able to cap their global tax liability to 100k would be a significant advantage. Whenever taxation is discussed there are multiple strands to it – license, duty, VAT, corporation tax, absence of capital gains tax and even personal tax for key managers that companies are parachuting into the IOM. Suddenly finding their maximum personal tax liability is 18 percent is a significant aid to settling personnel in. Our taxation policy gives the island a particular USP both for the corporation and key individuals. With easy access to London capital markets, while that is not exclusive, clearly it has been a successful ingredient to date for the IOM and its business community. CGI: This relates back to the Online Gambling Regulation Act 2001 (OGRA). How has that influenced developments?

OFFSHORE: ISLE OF MAN

“NETeller made a strategic decision when it floated on AIM to seek an attractive base for the company. The Isle of Man has a tax structure advantage, proximity to London and its growing merchant centre is a strong driver. That’s coupled with a solid regulatory environment with approval for NETeller from the FSC in the Isle of Man and FSA in the UK. For us it is also a question of the quality of life, creating a happy environment for our staff. We think this all amounts to a positive synergy.” – Bruce Elliot, Vice President, NETeller. BM: Given there was no road map at the time in 2000, all jurisdictions appeared to be struggling to create a model and I think, as far as the island is concerned, OGRA 2001 was a damn good attempt to get to grips with the industry. The lessons drawn from it and the responses to it revealed that no one could imagine how dynamic this industry was going to become. The legislative framework has to cope with this very dynamic landscape and the demands that it brings, so if the bulk of legislation is locked into the parliamentary process then change is bound to be difficult and slow. We learnt the lesson in that respect. You will have seen earlier this year that we introduced some specific regulatory changes – disaster recovery, advertising, among others – and we have just successfully passed through the IOM Parliament further legislative change which will enhance the ability of the legislative framework to respond to the dynamics of the e-gaming sector. In fact, any jurisdiction that wants to stay at the forefront of this sector must have de minimis in primary legislation as an enabling instrument, and have as much flexibility as possible by pushing the appropriate amount of legislation down into secondary regulation. The point being, if primary legislation allows for it, the changes under secondary legislation are facilitated speedily and with ease. Naturally, it will be laid before Parliament as a matter of course, but you see the change, you draft the legislation, the relevant minister signs it and it becomes law immediately. That ability to be fleet of foot with legislation will be the key for the island, over the next three to five years, to keeping up with the dynamics of the e-gaming sector. CGI: Fleet of foot but retaining full control in the process… BM: Absolutely, to the extent that historically the Isle of Man has been very conscious of the ‘valid’ criticisms. That is to say, valid from the point of view of the desires and needs of an operator. If there is a sense that at times we move slowly, it has to be put in a certain context. That is to say, you may desire to be in a premier jurisdiction and that is an asset to you and your business, so the last thing you want to see is the barrier to entry lowered after you have worked hard to fulfil the standards of the given jurisdiction. More importantly, it all has to be viewed in the context of this jurisdiction that has spent half a century becoming a Standard & Poor’s AAA-rated finance sector. Back in 19982000 when nobody really understood what this beast was

called e-gaming, no one was prepared to put at risk a half century of growth and reputation as a quality finance sector for something that was little understood and a bit of a grey area. So it is the fine balance between the need to have effective strong regulation that benefits everyone, all the stakeholders, and at the same time having the ability to respond to the dynamics. CGI: What has been the impact of the recent changes in policy over accepting bets from the United States? BM: We didn’t want to offend a major trading nation and no government wants to put itself in that position. As the industry has matured in many ways, not least with the recognition that e-gaming has become a real business sector, defining the role of the jurisdiction and its government comes into serious focus. If we took advice from five different legal practices in the US concerning online matters, we would get five different sets of opinions. The IOM Government will accept that a licenced business which has passed a high level of due diligence and has considered, for example, the Wire Act, the WTO ruling, engaged a reputable law firm and that they have reached a balanced decision in a grey area which they think is right for them. It doesn’t mean the Government endorses that, it means that as part of this sector’s maturity governments now have the view that those are allowable commercial decisions for the operator. The only issue that we would take up with them is that they demonstrate they have gone about it in a responsible manner. CGI: In what way is the Isle of Man affected by the UK’s recent gambling legislation? BM: Naturally, we hope that we will be on the first tranche of jurisdictions to be included in the White List and that the UK DCMS and its Government will feel that the territories included will have similar levels of probity. However, consider that at the moment the 2005 Act is not yet in play and the only gambling regulation that exists in the UK today is the 1968 Gambling Act – the very thing that drove Victor Chandler to go to Gibraltar. The 1968 Act clearly states that no overseas entity shall advertise into the UK for gambling, which essentially means fixed-odds betting in this case. That same Act embodied in the primary legislation also says that the Isle of Man shall not Microgaming operates in a truly global industry, with its licensees spread throughout jurisdictions across the world. As such, it needed a base from which it could reach out and communicate with them. The Isle of Man not only provides a strong communications platform from a telecommunications point of view, but it also provides a strong central base between the US and Asia from a travel perspective. Microgaming has always had a positive dialogue with Government on e-business and economic development issues and this continues to be very productive. The number of other e-businesses now relocating to the island is adding momentum to the whole sector. – Gavin Bisdee, Marketing Director, Microgaming

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>> I genuinely believe that even if in five years time the rate of growth in e-gaming has slowed, if we have used it as a kickstart mechanism to produce a very strong e-business sector then it has done a wonderful job for us. We created an economic model taking us to 2014 and we have identified that e-gaming could contribute as much as 16.8 percent compound growth over that period >>

be considered to be overseas. That is largely because we have, apart from our protocol arrangement with the European Union, a long-standing partnership with the UK as a member of a common pool arrangement for VAT and duty. When the UK 2005 Act comes into play the IOM will have nearly reached a 30-year record with the UK. Given that throughout those decades we have had market access and never once caused the UK Government any concern, it would seem unlikely that the new Act would mean turning the lights out on the island. Interestingly, that it is not generally known. It is not a new phenomenon for the Isle of Man as it would be for another territory in the EU simply because we have that track record. CGI: The technological driver for the Isle of Man is clear. You therefore see e-gaming as an integral part of the island’s development strategy? BM: At a macro-economic level the bigger advantage of the e-gaming sector for the Isle of Man is as an engine giving a kick-start to the broader development of the island’s business strategy. When e-gaming and e-business is referred to many tend to think of such things as hosting technical infrastructure. The e-gaming driver generally is pushing investment in world class telco hosting and disaster recovery infrastructures. The sort of bandwidth that e-gaming demands will have a downward price pressure on bandwidth and that will clearly have a benefit across all sectors, whether banking, finance or insurance. I genuinely believe that even if in five years time the rate of growth in e-gaming has slowed, if we have used it as a kick-start mechanism to produce a very strong e-business sector then it has done a wonderful job for us. We created an economic model taking us to 2014 and we have identified that e-gaming could contribute as much as 16.8 percent compound growth over that period. CGI: The fact that you recently allowed limited disaster recovery hosting is clearly a part of the process towards that goal? BM: We can demonstrate the skill sets to be a very strong secondary jurisdiction for those companies whose primary location is elsewhere. Of course, it is about the benefits of capital expenditure, the ongoing hosting and the bandwidth that is required to keep the database in the secondary location concurrent with that in the primary locations. In a demanding model like e-gaming where it tends to tolerate less business continuity interruption than almost any other sector, it is paramount for the Isle of Man that we 74 ■ Casino & Gaming International

demonstrate those skills are directly transferable to management, insurance and finance, among other professions. CGI: Do you see the Isle of Man developing into an R&D base? BM: The focus has been on attracting key managers and technically skilled people. We have had 10 years of doubledigit growth. However, in the early 1980s the island was a tourist destination that had a 20 percent-plus unemployment rate in winter. Now we are looking at two percent. What the Isle of Man doesn’t want, and this fits entirely with the egaming model, is 400 operators in a call centre. Indeed, five years ago the industry said we needed to find a quality jurisdiction within which to operate. Companies found the need to be headquartered on the IOM, which also meant demonstrating mind and management. If our demographic focus should happen to be the Far East, for instance, it is entirely appropriate that a call centre is located in Manilla or Kuala Lumpur with the benefit of both time zone and language. The centralised model where key mind and management personnel and high-end skills in research and development are based on the island all fits very well with what we can support. CGI: Since you spent time based in Hong Kong you will presumably be quite tuned in to the huge AsiaPacific gaming potential. BM: I would say watch this space. Very few of the mainstream operators in our part of the globe have had any success in really penetrating the Far East in general and Japan in particular. Much of that is down to a lack of cultural understanding. The bright business leaders in the region that have already built a presence in their domestic markets, fully realise that it is only a matter of time before those markets will be subject to some erosion as western-based operators get their act together and start taking market share. In my view the thinking now is that the outcome is inevitable and they in turn are prepared to take market share in Europe. So we need to start creating a presence in that part of the world: one, to take us close to those markets; two, to learn about the nuances and differences in market operations. I think there is a very significant opportunity for the Isle of Man to provide a home for quality Asian-based operators seeking a springboard into Europe. Bill Mummery, Head of e-Gaming, Isle of Man Government

US: HURRICANE KATRINA & CASINO RECOVERY

IS EMERGENCY MANAGEMENT AN OXYMORON? POSTKATRINA LESSONS ON THE GULF COAST BY KATHRYN HASHIMOTO & JAMES P. O’BRIEN

The anniversary of Hurricane Katrina in August arrives as Gulf Coast casinos continue a slow recovery. The human cost and the change that has wrought represents, perhaps, one of the most profound impacts in recent US history. The casino industry has readjusted and reassessed its role, but what were the risks, can uncertainty be subjected to an effective emergency plan, what has been the effect on the infrastructure and how are the lessons of the disaster setting the scene for a renewed casino presence?

PERCEPTIONS ABOUT HURRICANES AND EVACUATIONS The summer of 2005 was like any other summer on the Gulf Coast – hot and humid. Tropical storms and hurricane warnings are a part of life here. However, this summer was unusually busy. Every Friday it seemed that another storm was on the way, another warning issued, and evacuations suggested. After the third or fourth warning, many people who heeded previous warnings ran out of money and patience, and opted to stay home. “While unsettling to watch their neighbour states get pounded by these storms, most Gulf Coast residents by their own admission, paid little attention to the storm systems brewing in 2005.” (Holtmann 2005, 11) Besides, if their homes and family survived Hurricane Camille in 1969, people concluded that they could survive anything. “Most of the people who were killed down here had lived through Camille and believed there would never be another storm as bad as Camille and since their house survived Camille, they believed they would survive this one.” Tim Hinkley President and COO, Isle of Capri Casinos (Connor & Holtmann 2005A, 35) “The reason I stayed here was because I, like almost everybody else that was here when Hurricane Camille hit, used it as a benchmark . . .“The water didn’t get in the house during Camille. This area didn’t flood during Camille. People based their decisions on whether to stay or leave on what kind of damage they got during Hurricane Camille.” Beverly Martin, Executive Director of the Mississippi Casino Operators Association (Holtmann 2005, 11) So, while public safety officials asked people to leave, Casino & Gaming International ■ 77

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many people stayed in their houses, feeling safe from the storms. After all, they had survived Hurricane Camille and other storms that had previously blown through the region. In fact, there had not been a category 2 hurricane since the casinos began arriving on the Gulf Coast in the 1990s. This feeling of invincibility was fostered by many experiences such as Mr. Burkholder’s (President and CEO of Treasure Bay Gaming and Resorts Inc). He defied a mandatory evacuation order during Hurricane Ivan and stayed at the Treasure Bay hotel which had withstood Hurricane Camille. “I felt I was in a very safe place in our hotel: I was also in communication with several friends and employees who were evacuating and I heard the horror stories of traffic jams, and I didn’t feel like I really wanted to subject myself to that after going through three days of night and day hurricane preparation and Ivan being so close.” (Burke 2004, 16) And, he was fine after the storm. He had avoided the traffic jams, the inconvenience of leaving home, and the problem of finding an available hotel room. For example, during these hurricane evacuations, the usual one hour drive from New Orleans to Baton Rouge took an average of eight hours, and that was at 3:00 am when most people were sleeping, not driving. Many evacuees had to stay in Arkansas because it was the nearest place to find an available hotel room. Others drove to Jackson, Mississippi, only to find that the hurricane was headed in that direction and that they had to evacuate further north. Others couldn’t find lodging that allowed pets. So, people spent a significant amount of time and money only to come back to their untouched homes three days later. Plus, they spent another long day driving back home with all the other evacuees. The effort expended just didn’t seem worth all of the aggravation. “That’s about as big a concern that we have right now, complacency. Plus the fact that we have so many new people in town. We try to stress being prepared with our employees. It would almost be better if we had some sort of storm so people will know what to expect.” Lamey, President of the Gulf Coast Casino Security Directors’ Association. (Gillette, 1998A, 15). Little did he realise back in 1998 how prophetic his words would be in 2005.

RISK PERCEPTION FUNDAMENTALS Analysts often define risk as the probability that an outcome will occur times the consequence it produces (Kammen & Hassenzahl, 1999). An alternate definition of risk is the chance of an adverse outcome to human health, quality of life, or quality of the environment (Graham & Wiener, 1995). Risk can carry much uncertainty, such as the lack of knowledge about specific factors, parameters, or models surrounding a hazard (EPA, 1997). Some types of uncertainty include: 1) Model Uncertainty, which is uncertainty due to the necessary simplification of real-world processes, misspecification of model structures, model misuse, or use of inappropriate surrogate variables; and 2) Scenario Uncertainty that includes descriptive errors, aggregation errors, errors in professional judgment, or incomplete analysis. People’s underestimation of the likelihood or consequence of an event such as a hurricane can lead to incomplete risk analysis, contributing to uncertainty (Hoffrage, Lindsey, Hertwig, & Gigerenzer, 2000). In the case of Katrina, the Gulf Coast residents assessed the probability 78 ■ Casino & Gaming International

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that the hurricane or tropical storm would have a direct hit and how that consequence would be comparable to Hurricane Camille. Was the information they relied on based on a lack of understanding about hurricane models and underestimation of the consequences that category 5 hurricanes produce? Absolutely! The ability to understand risk and its associated uncertainty can be compromised even when people face familiar hazards (Slovic, Fischoff, & Lichtenstein, 1979). Several social and demographic variables such as education and income (Burton, Kates, & White, 1978), age (Mileti, 1975), duration of residence in the community (Baker, 1977), and site preferences (Bridges, 1983) correlate with people’s ability to understand risks. People’s initial set of beliefs about risk structures the way they interpret new evidence about risk (Nisbett & Ross, 1980). New evidence that is reported by technical experts and is consistent with one’s initial beliefs is interpreted as reliable and informative. According to Nisbett and Ross, inconsistent reporting produces dismissal and labeling of any new evidence as erroneous. Differences in how technical experts portray risks to the public have marked effects in risk perception (McNeil, Pauker, Sox, & Tversky, 1982). The media had portrayed each new storm as a major disaster, contributing to alert fatigue, making it difficult for people to choose whether to evacuate or not. Especially confusing was the reporting of Hurricane Katrina’s predicted path. Originally, the level 1 hurricane was forecasted to blow across Florida and the Gulf to Mexico and on to the Mexican coast. So everyone ignored it as just another irrelevant warning. Only three days before the storm did residents have any indication that this was not going to be the model. It seemed as though the storm track changed overnight and people awakened Saturday morning to hear that a category 5 hurricane was headed for the Gulf Coast and was scheduled to hit Monday morning! The inconsistent media reporting did trigger the dismissal of new information that was not inconsistent with original reports and which had marked effects on people’s risk perception. Parallel operations that exist between two risk analysis systems—the rational system and the experiential system— serve as integrated guidance tools in risk perception (Slovic, Finucane, Peters, & MacGregor, 2004). The rational system uses logic, reason, algorithms, and scientific reasoning to quantify risk perceptions. The experiential system relies on human instincts, fight-or-flight responses to danger stimuli, and intuitive reactions to conceptualize a risk. The interplay between these two risk analysis systems serves as the foundation for the recognition-primed decision making model (Heath, 2003). This model relies on backward mapping of experiences coupled with the current situational awareness that requires a decision, incorporating experiential benefits and risks. Thus, perceptions are vital to evaluating risk. However, the uncertainties associated with risk influence people to either a) minimise their perception of a risk and opt to ignore it, i.e. choosing not to evacuate, or b) to magnify it so much that they avoid it altogether, i.e. once again refusing to drive long distances to evacuate (Slovic, 1982).

HURRICANE PLANNING PRE-KATRINA The development of a disaster recovery plan always seems to be a low priority project. The total destruction of a casino property has never been really contemplated until the terrorist events of 9-11. But even since 9-11, no one expected Casino & Gaming International ■ 79

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Treasure Bay separated from its moorings (below and right) by Hurricane Katrina.

casino disaster recovery plans to be tested quite like they were in the Gulf Coast on 29th August, wiping out casinos, churches, office buildings, home, and unfortunately lives, off the face of the earth. (Scheri 2005, 40) State Law stipulated that casinos must be physically located on the water as a safeguard against gambling spreading over too much of the state. One of the original plans for when a storm approached the Gulf Coast was that the casino boats would be towed out to safety by tugboats from Louisiana. However, the concern was the long waiting time for the tugboats to arrive and the raising of the drawbridge to let the casinos out of the bay. Unfortunately, raising the bridge also meant that cars could not evacuate using the drawbridge road. In 1998, Casino Magic was moored to withstand a category 1 or 2 storm. However, it was planned that the gambling barge would be towed off to shelter with a category 3 or greater hurricane. The casino considered installing heavier mooring in the future that would allow the casino to stay in place for bigger hurricanes (Gillette 1998B). Casino Magic also had a breakwater built in front of the casino. A barge was outfitted with concrete and metal racks to break up the wave action. Copa Casino in Gulfport was another gaming barge that planned to summon tugboats from New Orleans when hurricanes threatened. Chet Harrison, marketing manager of the Copa Casino said: “It takes 20 hours to get here, we have to pay for them coming and going, and while they are in a holding pattern waiting on what we have to do, if we had the mooring system like the others have, we wouldn’t have to leave. But we don’t 80 ■ Casino & Gaming International

have the cost outlay for the mooring system, so it evens out. . . Although this is the fourth time a hurricane got close, to date the 503 foot long Copa Casino has not actually had to move. The decision of where the ship would be moved in the event of a hurricane is left up to the U.S. Coast Guard.” (Gillette, 1998A, 16) Later in 1998, Hurricane Georges made an unexpected turn to ultimately hit Mississippi. It was a good test of the code standards that required buildings constructed on the Coast to withstand winds of up to 110 miles per hour (Gillette 1998B). So, Mississippi had hurricane protocols in place (for example, the gaming commission decided when it was time to close the casinos) and the casinos followed the plans. They just hadn’t perceived the possibility of a Hurricane Katrina. In 2001, the Mississippi Coast Chamber of Commerce created a new “sustainable growth committee” to assess, reflect, and evaluate the growth and impact of casinos in the 90s. After all, the casino development was slowing down and after many years of lobbying by residents and environmentalists, the government and industry leaders were beginning to be more concerned about planning. However, according to Jeff Taylor, Director of the Gulf Regional Planning Commission: “There’s been plenty of planning. There’s just been a lack of follow through. It hasn’t been that our elected officials didn’t want to do things right, have smart growth it’s just in a lot of instances they lacked the tools, the zoning, the money, the public support to implement these plans.” (Pender 2001) During Hurricane Ivan in 2004, the Mississippi Gaming

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Association estimated that the state’s dozen floating casinos lost about $10 million when they were forced to close for two days. This was especially serious because gaming accounts for about 10% of Mississippi’s general fund. Ivan eventually swerved east, leaving behind a massive cleanup job but little serious damage to coastal casinos. Deciding what to do with the casino boats during a hurricane was a dilemma. Mr. Burkholder (President and CEO of Treasure Bay Gaming and Resorts Inc) maintained that casino barges were sitting ducks in the event of a major hurricane. Therefore he attempted to relocate Treasure Bay by building a man-made basin to better shelter the boat, but the courts blocked his efforts. (Burke 2004). Another effort to protect the casinos was to change the regulations so that the casino boats could be built inland. “The Secretary of State, Eric Clark argued that moving casinos off statecontrolled tidelands property would cost millions in much needed rent while also overturning an arrangement approved by state voters.”(Burke 2004, 16) Another factor that hindered detailed, extensive disaster recovery plans was the sheer size of the gaming business. Because of budget constraints, small casinos believed that they did not have the time or resources to create a detailed plan using real time strategies. Therefore, these plans usually referred to offsite storage of back up files and agreements to run their systems at another location. But it can take weeks to get systems up and running at another location (Scheri 2005).

POST-KATRINA When Katrina veered to the right at the last moment, the casinos on the Mississippi Gulf Coast took a direct hit from Katrina. Because all the gaming regulations stipulated that gaming activities must take place on floating barges, these properties had little defense against a storm the size of Katrina. Beau Rivage Hotel and Casino, Boomtown Casino, Casino Magic Bay St. Louis, and the Imperial Palace Hotel & Casino all had major flooding on the first two floors but survived structurally. Palace Casino sustained heavy damage, but Point Cadet, the surrounding area, was obliterated. Casino Magic Biloxi, Copa Casino, Grand Casino Biloxi, and Grand Casino Gulfport were wrenched from their moorings and thrown to the opposite side of Route 90. Their floating gaming barges are actually several linked barges that broke apart. Grand Casino Biloxi was hurled west for the length of seven football fields (nearly a half-mile), and came to rest on very old trees where a brace piece broke away and divided the barge into two pieces. Eventually, the Grand Casino Biloxi was imploded to remove it off of US Highway 90 where it blocked the road. Grand Casino Gulfport broke away from its moorings and out of the four linked barges: one ended up on Highway 90, one sunk in 15 feet of water, and the last two capsized. Both casinos were total constructive losses. Lance Ewing, Vice President of Risk Management for Harrah’s Entertainment, Inc. joked that their two casinos were the “first on-land barges in Mississippi.” President Casinos, soon to become Silver Slipper Casino, came to rest on top of the

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Holiday Inn. It was completely destroyed. The Treasure Bay Casino’s pirate ship tore away from its moorings and tossed about in the Gulf of Mexico where it was gutted. Perhaps the hardest hit was the Hard Rock Biloxi. Casino executives were just finishing the last details of a $235 million investment before opening in early September. The anticipated 13th casino was completely destroyed. Adding insult to injury for all the casinos, if the insides of the barges were not gutted, 98% of the slot machines were destroyed, not from Katrina, but from the salt water and humidity (Holtmann 2005).

ROLE OF CASINOS IN RECOVERY: ECONOMIC AND SOCIAL ISSUES In 2004, the Mississippi Gulf Coast barges generated over $1.2 billion. Up until 30th August, 2005, their gross revenues were over $830 million. It is estimated that the State of Mississippi and the areas that rely on gaming are losing $450,000 to $550,000 per day after Katrina. If lost income tax and other gaming resources are included, the loss could go as high as $1 billion just for the counties. This results in a 40% loss to local government budgets revenues from the period before Katrina struck. (Holtmann 2005). On 22nd September, 2005, the Harrison County Board of Supervisors unanimously agreed to adopt a resolution 82 ■ Casino & Gaming International

asking the Mississippi lawmakers to allow the gaming barges to move from over water locations to land-based locations. In order to keep the gaming enterprises from moving too far from the water, the resolution stipulated that the new location must be within 1,500 feet of the Gulf. Instead of virtually unprotected floating gaming operations, the land-based developments could be planned with greater hurricane resistance. In addition, the state would allow more elaborate and larger casino resorts. Deutsche Bank gaming analyst Marc Falcone wrote a note to gaming investors, saying that the governor’s signature on the resolution would boost confidence in major operators in long term planning and rebuilding. This could result in most major operators in the region committing to rebuild (Stutz, 2005). Lance Ewing, Vice President of Risk Management for Harrah’s Entertainment, said in a telephone interview that Harrah’s sold their Gulfport site to another company. Out of their four hotels, one was imploded and the other three had two to three floors of repairable damage. Therefore, the Biloxi hotel will be rebuilt to begin operations this fall and then be converted into a temporary casino. At the same time, Harrah’s is clearing the land to begin construction on a bigger and stronger land-based casino for an estimated billion dollars. One of the recovery issues for Harrah’s

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Entertainment was that they had just finished one of the largest mergers in the casino industry with Caesars on 13th June, 2005. As a result, when the hurricane struck, reorganisation was just beginning for the company and many planning guidelines were in the process of creation. Currently, the re-development of the Gulf Coast is booming. Treasure Bay expects to open a temporary casino in its hotel in June 2006. By the end of June 2006, Boomtown plans to open, while Hard Rock Casino should begin rebuilding and expects to open July 2007. Harrah’s Grand in Biloxi plans to open its temporary casino in mid-August followed by Beau Rivage at the end of August and finally the Copa in Gulfport in early September. There is a golden light at the end of the tunnel, as the three Biloxi casinos, the Imperial Palace, Isle of Capri Biloxi, and Palace Casino, opened in December 2005, and are generating 70% of the total income from the original nine casinos in Biloxi and 50% of the original 12. (Mitchell 2006)

ROLE OF CASINOS IN REDEVELOPMENT In the face of disaster, the gaming industry has stepped forward to show strong support for colleagues. Not only have they verbally stressed the need for aid in the flattened communities but they have put their money and resources behind their words. The American Gaming Association (AGA) immediately created the Gaming Industry Katrina Relief Fund. Its purpose is to raise industry dollars to provide disaster relief and assistance to affected gaming employees in Mississippi and Louisiana.

Gulf Coast future: Villas to be built at Bacaran Bay Casino Resort, Mississippi, integrated and beyond storm surge. Courtesy of Condo Hotel Center: www.condohotelcenter.com

The National Indian Gaming Association (NIGA) and National Congress of American Indians (NCAI) offered $5,000 to begin raising money for the Hurricane Katrina Disaster Relief Fund and asked all the tribes to follow suit and donate a total goal of $1 million. The Gulf Coast Community Foundation and the Mississippi Gulf Coast Convention and Visitors Bureau have numerous casino members, and have established the Bring Back Our Coast fund. Its purpose is to aid the economic recovery, rebuilding efforts and job regeneration in the coastal region. Across the nation, racetracks have also joined the fundraising with “Racing with Heart” and “Racing to the Rescue.” In Louisiana, Evangeline Downs Racetrack and Casino in Opelousas donated 100% of its revenues on 4th September, 2005 to the Red Cross. Las Vegas and Atlantic City offered homes and jobs to displaced workers. Furthermore, Atlantic City, known for their stringent requirements for licensing, was joined by the state regulators to issue temporary licenses to displaced workers for Atlantic City casinos to hire. New Jersey regulatory agencies also promised to do everything they could to get these people working as quickly as possible. AGEM (Association of Gaming Equipment Manufacturers), JCM America, WMS Gaming, IGT, Bally Gaming & Systems and Gaming Partners International are just a few of the companies that donated money to the AGA fund. In fact, Bally Gaming & Systems agreed to match all employee contributions up to $50,000 However, the casinos in the disaster area have also been

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working with their employees to help in any way they can. This is important assistance in the redevelopment of the Gulf Coast, since 72% of the jobs in the area are casino related. The first priority after the hurricane was to assess where the managers and employees were and to evaluate their circumstances. Once a skeleton crew of workers was gathered, many casinos supplied real estate information, brought in disaster counselors, and contacted insurance adjustors to give staff members guidance on managing their claims. In addition, many casinos opened recovery centers to help employees with emergency needs, provided job matching services with other sister properties, and hired employees for cleanup and recovery. Several casinos opened up their warehouses and brought in food, water, linens, and other supplies and distributed them to the employees’ families at no charge. In addition, they brought in portable hot showers and provided shelter when they could. Others brought in computers that allowed employees to go on line and fill out FEMA and insurance claims, perform Internet searches, and read email messages to find out about their families. Furthermore, over and above their previous contributions, the Isle of Capri covered hourly employees for up to 90 days of pay, and salaried employees for up to nine months of pay. In addition, they put together a relief fund that paid out in excess of $900,000 to bridge the gap between FEMA, Red Cross, and insurance payments for their employees. Beau Rivage paid all of its employees for 90 days plus vacation time earned. It also waived all co-pays as well as employee contributions and out of network claims for doctors and prescriptions. MGM Mirage workers from all over the country, created an employee fund, the Voice Foundation, so that employees could help their distressed colleagues. MGM Mirage seeded the fund with an initial donation of $1 million. Despite not even opening, Hard Rock believes they are insured enough to be able to rebuild and to pay salaries for 90 days even though much of the property’s paperwork was lost in the storm. Harrah’s Entertainment organised their entertainment artists for the Harrah’s Entertainment Artists Rally Together (HEART) for a one night only sold out concert at the Coliseum at Caesars Palace. The gala raised $2.1 million for hurricane affected employees in New Orleans and the Gulf Coast region.

AREAS OF ACTIVITY FOR EMERGENCY PLANNING In preparing an emergency plan, casino operators should especially be familiar with three documents. First, they should know about the National Fire Protection Association (NFPA) and its role in establishing voluntary consensus standards related to fire protection and life safety. NFPA 1600 is the Standard on Disaster/Emergency Management and Business Continuity Programs (NFPA, 2004). This standard provides criteria for private and public organisations to assess their levels of readiness for disasters and their aftermath. Also, the United States Department of Homeland Security has published the National Response Plan (NRP) and its complementary system for managing emergencies, the National Incident Management System (NIMS) (www.fema.gov/emergency/nims), to guide private and public preparedness activities. These three documents provide a roadmap to the natural order of five actions to better position casinos or any other organisation in their disaster preparedness mode. 84 ■ Casino & Gaming International

1 Planning Planning involves multiple stakeholders that represent the casino’s staff, management, suppliers, public safety, insurers and others who have an influence on emergency operations and disaster recovery. Work products include hazard mitigation plans, continuity of operations plans, emergency response and early recovery plans. These plans should conform to the local government and state emergency operations plans and the NRP. 2 Organising Organising means the creation of strike teams and task forces that are charged with implementing the various components of the plans. They are identified in plans as having specific roles and responsibilities, reporting to a single supervisor within a NIMS-compliant organisation. 3 Equipping Strike teams and task forces must have the equipment necessary to do the jobs that the emergency plans describe. In addition to NFPA, ANSI, ASTM and other standardssetting organisations, the Responder Knowledge Base, located on the website sponsored by the National Memorial Institute for the Prevention of Terrorism (www.mipt.org), has equipment-related standards and certifications that have been vetted by public safety and first responder organisations. 4 Training Once organised teams have selected and acquired equipment, they must train with the equipment within the constructs of the emergency plans. Also, NRP, NIMS, and Incident Command System training should be required for these teams to understand the framework within which they will be working side-by-side with conventional public safety forces. All three courses are available online at http://www.training.fema.gov/. 5 Exercising An emergency plan is never valid until it has been subjected to a simulation exercise to test the assumptions it contains. What looks good on paper hardly ever works smoothly during the implementation phase. A tiered approach to exercising the emergency plan moves from the easy, nonstressful workshops and seminars, to field drills, tabletop, functional, and full-scale exercises. Establishing a working relationship with the local emergency management office can help to integrate casino activities into the greater community and vice-versa. Lessons learned from these exercises help to validate plans and identify corrective actions that strengthen the emergency plans. Well-planned, organised, equipped, trained, and exercised casinos will fare better during and after disasters.

SUMMARY – LESSONS LEARNED Disaster researchers generally agree that four core issues can be found at the centre of disaster activities that have gone poorly. They are: ambiguity of authority; inability to communicate; failure to use specialised resources; and poor media relationships (Lavalla and Stoffel, 1988). One of the primary Post Katrina lessons that has surfaced everywhere is communications. The hurricane destroyed all forms of communications which made it extremely difficult to get

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people back together and organised. Lance Ewing, Harrah’s Entertainment, suggested that satellite phones would have been helpful during the storm to keep the lines of communications open. Harrah’s is evaluating people to create a core team of emergency preparedness people who will be able to train the trainers. However, finding the right people takes time. Overall the main focus of Harrah’s recovery strategy has always been to put employees, business and community first. After the crisis is over, it still seems like a good strategy. Another lesson is related to having back-up vendors. Casino buyers have a first line of local vendors that they use on a day-to-day basis. However, in the aftermath of incidents like Katrina, the local vendors were destroyed too. Therefore, a second line of national back up vendors is also needed so that supplies can be ordered and shipped faster. Residents’ perceptions of hurricanes have been that it takes about 2-3 days after a hurricane evacuation before things can get back to normal. Therefore, it was not surprising that Beau Rivage’s recovery plans accounted for 23 days of support. As a lesson learned from the Katrina experience, their future planning will include at least a week of supplies with larger generators, more fuel and diesel storage, and more satellite phones situated off site and well inland. Other lessons from Katrina, emergency preparedness kits with hand crank phone satellite phones, ready-to-eat meals, and bottled water should be available. Possibly for larger chain properties, large bench strength emergency generators with diesel fuel, and mobile homes with wheels and vans should be ready for security personnel. Perhaps contracts should be executed with firms to have tractor trailers at the ready with all these items in place . As Lance Ewing, Harrah’s Entertainment, says: “ Plan and keep planning. Always expect the unexpected. After all, who would have thought we would be figuring out how to get a dead 600 pound sea lion out of our parking lot.” At Beau Rivage, they agreed with the importance of planning. They felt that they had a comprehensive plan in place for every department, which included established checklists for securing the building, backing up vital records, moving assets off property, evacuating all personnel and guests, and shutting down central plant systems. Everything went like clockwork and as planned. However, how do you plan for a 27 foot storm surge?

REFERENCES Baker, E. J. (1977). Land use management and regulation in hazardous areas: A research assessment. Boulder, CO: University of Colorado Institute of Behavioral Sciences. Bridges, J. (1983). Greenbelt feasibility for fire and flood loss reduction in the San Bernardino foothills. Unpublished master’s thesis, University of California, Riverside, California. Burke,A. (2004) Weathering the storms, International Gaming & Wagering Business, 25(12), 15-16. Burton, I., Kates, R. W., & White, G. F. (1978). The environment as hazard. New York: Oxford University Press. Connor, M. & Holtmann, A. (2005a) Best laid plans. Casino Journal, 18(11), 35-36. Environmental Protection Agency. (1997). Guiding principles for Monte Carlo analysis (EPA/630/R-97/001) Washington, D.C.: Author. Gillette,B. (1998A) Gulf Coast casinos take hurricane threats seriously. Mississippi Business Journal, 20(38), 14-16. Gillette,B. (1998B) Georges Soaks Mississippi Businesses. Mississippi Business Journal, 20(40), 1-2. Graham, J. & Wiener, J. B. (1995). Risk v. risk. Cambridge, MA: Harvard University Press. Heath, R. (2003). Effective problem and crisis management – FAST and

the six interaction rules. International Journal of Emergency Management 1(1), 49-60. Hoffrage, J., Lindsey, S., Hertwig, R., & Gigerenzer, G. (2000). Communicating statistical information. Science, 290, 2261-2262. Holtmann, A. (2005) Storm of the century. Casino Journal, 18(11), 10-16. Interview with Lance Ewing, Vice-President of Risk Management, Harrah’s Entertainment, June 16, 2006. Kammen, D. M, & Hassenzahl, D. M. (1999). Should we risk it?: Exploring environmental, health, and technological problem solving. Princeton, NJ: Princeton University Press. Lavalla, Rick and Robert Stoffel. 1988. Managing Emergency Operations. Olympia, Washington: Emergency Response Institute. McNeil,B.J.; Pauker, S.G.; Sox, H.C.; & Tversky, A. (1982). On the elicitation of preferences for alternative therapies. In P. Slovic (Ed.), The perceptions of risk (pp. 182-198). London: Earthscan Publications, Ltd. Mitchell, G. (2006) Tourism industry plans $1 million post-hurricane Gulf Coast drive. 6 June, Retrieved from http://www.sunherald.com/mld/sunherald/14843313.htm. National Research Council. (1989). Improving risk communication. Washington, DC: National Academy Press. NFPA. 2004. NFPA 1600 Standard on Disaster/Emergency Management and Business Continuity Programs. Quincy, MA. Author. Nisbett, R., & Ross, M. (1980). Human inference: Strategies and shortcomings of social judgment. In P. Slovic (Ed.), The perception of risk (pp. 220-231). London: Earthscan Publications, Ltd. Pender, G. (2001) Civic leaders awakening to pleas for smart growth on Gulf Coast. Sun Herald (Biloxi, MS) 23 July. Retrieved from EBSCOhost 6/13/06. Scheri, S.R. (2005) Tech Solutions. Casino Journal. November, 40. Slovic, P. (1982). Toward understanding and improving decisions. In P. Slovic (Ed.), The perception of risk (pp. 182-198). London: Earthscan Publications, Ltd. Slovic, P., Fischhoff, B., & Lichtenstein, S. (1979). Rating the risks. Environment, 21(3), 14-20. Stutz, H. (2005) Hurricanes force Harrah’s to adjust, Las Vegas ReviewJournal (NV), October 7, Retrieved from EBSCOhost 6/13/06.

KATHRYN HASHIMOTO & JAMES P. O’BRIEN Kathryn Hashimoto, Ph.D. teaches and researches in the area of casino gaming in the Lester E. Kabacoff School of Hotel, Restaurant, and Tourism Administration at the University of New Orleans. She has written 3 textbooks, has published more than 9 research articles and done numerous seminars and presentations on casino gaming. She is the co-founder of the Association for Casino Education (ACE) and is the Casino Content Specialist for the Council on Hotel, Restaurant, and Institutional Education. Her research interest lies in the impacts of casino gaming along with certification and programme development. Email: khashimo@uno.edu. Dr. James P. O’Brien is the Director of the Clark County Office of Emergency Management. & Homeland Security in Nevada. He currently chairs the Clark County Local Emergency Planning Committee, Governor’s Hazardous Materials Interagency Task Force and the National Association of Counties Emergency Management Subcommittee. He participates actively as a member with the International Association of Emergency Managers and is credentialed by them as a Certified Emergency Manager. He holds leadership roles with the Nevada Emergency Response Commission and the Nevada Emergency Communications Committee. He earned a B.A. in Biology from Stonehill College; a Masters in Public Administration and a Ph.D. in Environmental Science both from the University of Nevada, Las Vegas. Casino & Gaming International ■ 87

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BALANCING POSITIVE FORCE WITH A LIGHT TOUCH BY JULIAN HARRIS

In the first quarterly issue of CGI for 2006 my partner John Hagan analysed developments since the passing of the Gambling Act 2005 in April last year and made some predictions as to what developments the industry might expect in 2006. Much of it duly came to pass though, to be fair, many of the changes, such as the Gambling Commission’s (the “Commission”) move from London to Birmingham, had already been announced. However, there have been other changes too, and there have been unexpected twists and turns in the gambling law plot of which even Dan Brown could be proud.

ome of the developments we have seen, such as the huge number of new casino licence applications under the old Gaming Act 1968, were entirely predictable and indeed inevitable, the moment the Government started playing the “numbers game” with new casinos under the 2005 Act. Some of the less predictable changes in approach perhaps indicate an underlying trend which may cause the industry as a whole to be concerned: there are signs that Government back-tracking has turned into full retreat, and, whilst some sectors of the domestic industry may consider that cause for celebration, they may find some of the consequences, which are already becoming apparent, less palatable.

THE HOME FRONT Boom rather than bust is definitely the order of the day here. In his article (CGI, Issue I, 2006), John highlighted some of the key regulation measures implemented ahead of the full introduction of all the remaining parts of the 2005 Act (in September 2007), including, most importantly: ■ The abolition of the 24 hour rule on 1st October 2005. ■ From 1st October 2005, the increase in gaming machine entitlement for existing casinos from 10 to 20 and, with effect from the end of that month, the increase in maximum stakes and prizes to £2 (previously 50p) and £4,000 (previously £2,000) respectively. These changes have given a boost to existing casinos, some years before their prospective new competitors are even on the starting blocks. Some operators are showing an increase in attendance of up to 17 percent following the abolition of the 24 hour rule, though these visits have Casino & Gaming International ■ 89

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principally been in the provinces, leaving London largely unaffected. These are the recent changes, but the effect of those that came before are still being seen, and should not be underestimated. Over the past few years we have seen: ■ The growth of live entertainment in casinos; ■ The ability to serve alcohol on the gaming floor; ■ The relaxation of the Commission’s approach to demand: the Commission will now only object on the “demand ground” where it has regulatory concerns; ■ Limited relaxation on the ability of casinos to advertise; and ■ Last but not least, the introduction and popularity of electronic gaming. The overall effect of these developments has been to increase public awareness of casinos as an adult leisure activity, and substantially to increase their appeal to a wider market. Evidence of this can be seen in the increase in casino numbers over the last few years. At 31st March 1999, there were 119 casino licences in Great Britain; the same number as at 31st March 1990, with some minor ups and downs in between. They were then modest increases year on year, but no more than five in any one year, up to 135 in 2003, though the number trading at that date was 126. Then by 31st March 2004, the number had risen to 143, with a further substantial jump by 31st March 2005 to 152.1 Between March 2005 and 30th April 2006, a further 11 licences had been granted, bringing the total to 163, of which 139 now trade. These figures do not include new licences relating only to the relocation or expansion of premises. These numbers are perhaps not surprising, given that the number of licences available under the Gambling Act 2005 will be restricted to “a total of an extra 17 in total of the three new categories” for at least the first three years of the operation of that Act, and possibly considerably longer than that. The 1968 Act, with the “demand criterion” a seemingly difficult barrier to entry, suddenly appeared attractive, compared with the impossibility of acquiring a new licence, once the permitted 17 have been granted. The number of applications, though not licences, to be made under the 1968 Act has now crystallised. In order perhaps to stem the flow, the Government required that applications for Certificates of Consents for new licences be received by the Commission by 29th April2 2006. As of 20th June, there were no less than 26 new licence applications awaiting determination, and it is believed that a substantial number have yet to be made, once pending Certificate of Consent applications have been determined by the Commission. With the exception of the application by London Clubs International plc in Blackpool, and even that was granted on appeal in December 2004, throughout 2002, 2003 and 2004 all applications were granted by Licensing Committees. However it would be wrong for any applicant to regard grant as inevitable: 2005 saw refusals in Aberdeen (2) and Teesside, though both Aberdeen applications were subsequently granted on appeal. Of the eight applications so far in 2006, both Stanley and Grosvenor have been refused licences in Edinburgh, and London Clubs/Marriott was refused at the Grosvenor House Hotel in London. Given the number of applications pending, and the number of new licences already granted, it is inevitable that it will become 90 ■ Casino & Gaming International

increasingly difficult to persuade Licensing Committees that applications should be granted, and that all applicants will face one or more “trade objectors” from rivals.

NEW CASINOS: ‘LOCATION, LOCATION, LOCATION’ On 24 May 2006 the Casino Advisory Panel (the “Panel”) published its shortlist of successful proposals. And the nominees are: Regional ■ Blackpool ■ Brent, London (though after a change of political control in that local authority, it is thought this application, at the new Wembley, may now be withdrawn) ■ Cardiff ■ Glasgow ■ Greenwich, London ■ Manchester ■ Newcastle ■ Sheffield Large and Small3 ■ Bath and North East Somerset ■ Bournemouth ■ Brighton ■ Canterbury ■ Chelmsford ■ Dartford ■ Dudley ■ Dumfries ■ Galloway ■ East Lindsey ■ Great Yarmouth ■ Hastings ■ Hull ■ Leeds ■ Leicester ■ Lincoln

■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■

Mansfield Middlesbrough Milton Keynes Newham, London North East Lincolnshire Peterborough Restormel Scarborough Sefton Solihull Southampton South Tyneside Swansea Thurrock Torbay Wolverhampton

Many competitors missed the fact that the announcement was a “provisional shortlist”. In his press statement, the Chairman of the Panel, Professor Stephen Crowe, said that there would be further consultation before the list is finalised, and asked for any such representations to be received by 28th June 2006. The help the Panel was particularly requesting was the people’s views on the broad location of casinos, and he pointed out that national policy about casinos has already been decided by Parliament. The Panel will then further test the strength of selected competing proposals, either through public “roundtable” conferences based on the method of “examination–in–public”, or through the examination and consideration of written representations and other material. Examinations are likely to take place from the end of August to the end of September, limited to proposals for the regional casino. Proposals for large and small casinos will be examined on the basis of written evidence. In view of the continuation of this process, and of our involvement in it, not only for clients, but in some cases for authorities, it would not be appropriate to comment on individual bids, or individual chances of meeting either the

UK GAMBLING LAW

final list or those eventually selected by the Secretary of State. In any event, the Harris Hagan crystal ball appears to be cloudy on the subject. The most notable point is perhaps that eight regional proposals have made the shortlist. The conclusion to be drawn from this, subject to any changes in the list when it becomes final, is that if the Government were to increase the number of regional casinos from one to eight, we know where those eight regional casinos would be!

REGIONAL CASINOS: THE ‘NUMBERS GAME’ There were good pragmatic reasons just before the 2005 General Election for the Government agreeing to the Conservative Party’s demand that the number of regional casinos be reduced from eight to one. The Government was faced with the choice of getting the Bill passed and on to the statute Book before the Election, or losing it altogether for that Parliament, and then having to start again after the Election. At that point, however, few, if any, believed that the number would remain at one. It was therefore not surprising that, almost immediately after the Election, Tessa Jowell, Secretary of State for Culture, Media and Sport, was ‘refusing to confirm’ that Government would not return to Parliament to ask for the number to be increased: and indeed, she specifically reserved the Government’s right to do precisely that.

“It is important that the industry remains supportive of this Bill and has confidence in it. The decision to reduce from eight to one the number of regional casinos in the first stage means probably the loss of £600m of inward investments to some of those parts of the country where that inward investment is most needed, and the loss of probably in excess of 40,000 jobs. No Government can bind the next Parliament but it will be for the next Parliament to decide whether, in the light of demand and consistent with the precautionary principle, that number should be increased”. 7th April 2005 The Government has said that it would want to see the results of two prevalence studies before the numbers are increased. The competition for the regional casino licences, and for the eight small and eight large licences, will not begin until at least mid-2007. It is unlikely that any licences will be granted before some time in 2008. Then the casinos have to be built, which probably takes us until 2010 before any of them open. It seems unlikely therefore that any reconsideration of numbers could take place before 20142015. The first indication that the Government’s resolve was weakening, was the statement:

“We are not prepared to go back to Parliament unless there is an indication from (other) political parties that they want to move from one to eight”. Richard Caborn, Minister for Sport and Gambling Society for the Study of Gambling Meeting 16th May 2006 (among other occasions he said this) Whilst the Liberal Democrats have now agreed that one regional casino is insufficient properly to test the impact of them and would agree to increase to four, the Conservatives

have flatly refused to agree any number change (a decision, we understand, that has been taken at Shadow Cabinet level and will therefore not be open to amendment). This is political posturing at its most cynical and infantile. This is a pilot phase, and the criteria for selection are designed to ensure that the subsequent assessment in the new casinos will be on the basis of a broad range of information and experience. It must follow that sufficient information and experience cannot flow from one casino. For example, if there is one pilot regional casino in London, how will that enable Government to assess the potential for regeneration and the effect of such a casino in a seaside resort such as Blackpool? Furthermore, part of the reason for the concept of the regional casino was its potential for regeneration. Given that potential, and the very substantial investment in an area which a regional casino will bring, it would be iniquitous for only one region to have that benefit. Moreover, with only one regional licence available, that means that two out of the three countries that form Great Britain – England, Scotland and Wales – will fail in their bid for a regional casino. Apart from the absurdity of the position, it also seems to be dangerous politically. The reality is that the Government does not need the support of the Conservatives or the Liberal Democrats and does not call for this in any other policy area. It is a convenient ‘cop-out’. The Act provides that no more than one casino premises may have effect in respect of regional casinos4. However, it further provides5 that the Secretary of State may by order amend the Act so as to substitute a new maximum number of casino premises licences. Any such order made by the Secretary of State has to be laid before and approved by a resolution of each House of Parliament6. The Government has a good working majority in Parliament, and would also be likely to have the support of the Liberal Democrats if the number were increased from one to four (but not higher) we understand. All the indications are that the subject of gambling now strikes so much fear in Government that it is refusing to touch the issue again. We therefore are left with a ‘Mexican standoff’ between the two major political parties, which has nothing whatever to do with the merits of the argument. The result of this failure on the part of politicians to behave like responsible adults will not merely be the failure of the regional casino experiment to produce reliable evidence to determine the long term future of regional casinos, but more importantly the loss of several billions of pounds of investment, many thousands of jobs and the lack of regeneration of some of the most deprived and needy areas of this island.

REGULATION: ‘LIGHT TOUCH’ OR ‘STRANGLE HOLD’? Since the Gaming Act was passed in 1968, thanks both to the British gaming industry and the regulator for most of that time, the Gaming Board for Great Britain, we have enjoyed a remarkably fair, responsible, crime-free gaming environment. All those in and involved with the industry would agree that gaming should continue to be properly regulated, but to a level which is necessary to meet the licensing objectives of the 2005 Act, and proportionate to the level of risk. We are not, as to some extent we were in 1968, moving from an unregulated ‘free for all’ into the system of regulation designed to clean up the industry. Casino & Gaming International ■ 91

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It was against the background of the success of the last 35 years that everyone in the industry was promised “a light touch” so far as regulation was concerned7. The Commission’s approach can to some extent be seen from the consultations of which it has undertaken and continues to undertake, most importantly: ■ Statement of principles; ■ Licence conditions and codes of practice; ■ Licensing, compliance and enforcement; and ■ Guidance for local licensing authorities. It should be emphasised that none of these documents is in its final form, and the Commission is in the process of consulting widely, (and most importantly with the industry), before taking any final decisions. Much of the system of regulation, in particular in relation to licensing, compliance and enforcement, will be familiar to existing operators, from the processes established by the Gaming Board. For example, investigations of companies and individuals as currently conducted in relation to applications for Certificates 92 ■ Casino & Gaming International

of Consent will be undertaken. However, there are examples in the documents of proposals which, if implemented, would result in an intrusive and stifling regulatory system that would make operators yearn for the “liberal regime” of the Gaming Board and the Gaming Act 1968! For example, all applicants for personal licences, whether casino directors or croupiers, will have to provide the sort of detailed information previously only expected from senior employees and investors. This is overly burdensome, and probably confusing for many junior staff, as is the requirement that they sign a document confirming that they will abide by the “licensing objectives” which are central to the new Act. This is almost laughable, but it has connotations of the Official Secrets Act, apart from being unrealistic and burdensome. For many it will beg the question: how are they to ensure that those objectives are met? Again, in the consultation document on licence conditions and codes of practice, there seems to be a danger that the ‘social responsibility’ provisions will include measures

UK GAMBLING LAW

which are disproportionately strict: there are real worries about the extent to which gambling staff are going to be ‘required’ to “intervene” with possible “problem gamblers”. In the section on incentives and marketing, the Commission have even raised the suggestion that alcohol should not be given away in casinos, which has always been allowed in the past, and the withdrawal of which would be likely to infuriate high spending customers. It must be emphasised again, however, that these are proposals for consultation, and not final. We can only hope that the Commission maintains the realistic approach of the Gaming Board, and is not overly influenced by the antigambling lobby. We have some concern in this context about the nature of the consultation process. Those primarily concerned are regulators (obviously), the industry and industry advisers and those who deal with problem gambling issues such as GamCare and Gordon House. It is interesting to note, as an aside, GamCare were supportive of the reform process, and work closely with the industry. There is a fear of a disproportionate influence from so-called “faith groups” despite their small size and diminishing place in the world. The Remote Gambling Association (RGA) Chief Executive Clive Hawkswood has recently pointed out that even the least-used remote gambling site among his members, has more players than the Methodist church has in the whole of the UK. I doubt very much whether any of the churches would welcome the involvement of the casino industry in their regulation!

REMOTE GAMBLING: ADVERTISING CRACKDOWN The advertising of remote gambling is very much the ‘hot topic’ within the online industry. The Government has attempted to clarify its policy by the recent issue of joint guidance on advertising by DCMS and the Commission8 (the “Guidance”). Currently, and probably until September 2007 when the whole of the new Act will be in force, the advertisement of remote gambling remains governed by the 1968 Act9. Whilst the Act, in its original form, banned virtually all advertising for, and even mention of, UK casinos, an exception was made for casinos based overseas. The thinking behind this was to permit, for example, the mention of overseas casinos in travel brochures for Las Vegas and Monte Carlo circulating in Great Britain, and it is an accident in drafting that the section has been found to apply to the internet, which did not of course exist in 1968. The 1968 Act prevented not only inviting the public to take part as players in gaming in Great Britain, but even informing the public that premises in Great Britain are premises on which gaming takes place. These prohibitions do not apply outside the UK, where the ban is more limited, preventing only invitations to the public to subscribe any money (or money’s worth) to be used in gaming, or to apply for information about facilities for doing so. The implication is that the law permits the publication of advertisements inviting players to take part in offshore gaming, they cannot be invited to subscribe money. Applying this distinction to specific advertisements is not an easy task. Until March of this year, the Commission adopted a pragmatic and sensible interpretation of these provisions, and advised operators that advertisements must not contain any inducements to gamble, such as “we will match your first

deposit”, or “a £100 free for all new players”. Nevertheless, (unfortunately for the good of the online industry as a whole), the policy was ‘abused’ by some operators of offshore online casinos, which, understandably, caused the British casino industry, which is still hamstrung by the more draconian provisions of the Act mentioned above, to complain. The result was that on 3rd March 2006, DCMS and the Commission, having apparently taken legal advice, issued joint “guidance”, the first official attempt to interpret section 42 of the Act. As expected, this guidance confirmed the Commission’s view that an inducement to take part in gaming amounts to an invitation to subscribe money, but it went much further than that, and in our view, too far, in two important respects. The joint guidance states that expressions such as “play Poker every day” or “play Poker here”, or “try your luck in our casino”, amount to invitations to subscribe money for gaming. We believe this goes further than the legislation intended, and that these are no more than invitations to participate in gaming, and not invitations to subscribe monies for it. Secondly, the joint guidance states that factual information in an advertisement could also amount to an invitation to subscribe money: for example, “weekly tournaments”, “daily jackpots” and “five new Poker games”. However, there are no more than statements of fact about the facilities and numbers of facilities available, and are therefore legal in our view. The joint guidance is of course not law: it is the expression of an opinion, and we seriously doubt whether it is in fact an opinion which has emanated from the Commission. Certainly, it departs from their practice over the past two years, though that has not been officially stated. It is even questionable whether it is in fact “guidance”. If it truly were, what we would expect it to state is that none of these restrictions apply to online bingo – which they do not – but this is no doubt a fact which DCMS would rather not advertise. In any event, the guidance amounts to an attempt to produce “heavy-handed crackdown” on the advertising of remote gambling, in advance of implementation of the new regime, and there is no doubt that it has been successful in this. It has not been challenged, and, for the most part, the industry has knuckled under, probably for the following reasons: ■ It is broadcasters and publishers who control the content of advertisements. Their in-house lawyers no longer ask the operator – does this advertisement comply with the law? They now ask – does it comply with the Guidance? Their business is not in gambling, and they have no interest in being involved in a landmark test case, particularly when advised that imprisonment is a theoretical punishment for breach of the law; ■ There is a feeling that the Commission is preparing to flex its muscles and prosecute a high profile offender and no operator wants to be first in the firing line; and ■ A prosecution is unlikely to be heard until the new regime is implemented and the outcome will therefore be of academic interest only. The industry may also have taken the view that as there will be freedom to advertise from within Europe and any other jurisdictions which are “white listed” from September 2007 when the Act is fully in force, discussion at this stage is Casino & Gaming International ■ 93

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meaningless; but as the industry does want to continue to be able to advertise in line with the hitherto accepted interpretation of the 1968 Act, then discussion between the industry and the Commission would be the sensible way forward.

THE BIG PICTURE I mentioned at the beginning of this article the concerns we have about an apparently developing trend, identifiable in each of the issues discussed. This started the moment Government decided to prefer the views of the Daily Mail, which were based on ignorance, hysteria and a desire to sell more newspapers, over those of the Parliamentary Joint Scrutiny Committee10, chaired by John Greenway MP, who heard evidence from all quarters and whom – all agree – produced extremely well-thought-out reports which are models of independent, non-political common sense. (It is not only in the gambling arena that Government appears to have lost the courage of its convictions). The consequence of this now seems to be not only reflected in the loss of political will to increase the number of regional casinos, but of even greater concern to the industry, in its approach generally to the regulation of gambling. In some of the examples given above of Commission guidance, we see suggestions based not on the 35 year experience of the regulatory authority, but on DCMS loss of nerve. The fact, for example, that advertising guidance was issued, not by the regulator alone, but jointly with DCMS indicates potentially a degree of interference by Government, for political reasons, in the areas for which the Commission is responsible under this Government’s legislation. Also, the involvement in the consultation process of those who are avowedly opposed to gambling per se and indeed the appointment of one such person to the Commission is a further indication of the Government’s new approach. Lord McIntosh of Haringey, former DCMS Minister whose responsibilities included gambling and the passage of the 2005 Act, and now President of GamCare, who has also been appointed as a member of the Gambling Commission, has sought to defuse another danger to the industry, which is lurking around the corner. In the House of Lords on 22nd June 200611 during questions in the House of Lords concerning the regulation of internet gambling and following suggestions that it would be difficult to regulate satisfactorily, Lord McIntosh drew attention to the misrepresentation of the alleged increase in problem gambling, some of which he wisely attributed to the increase in the number of calls made to the GamCare helpline and demands for counselling. He pointed out that the increase arises from the fact that the charity is much better known, being advertised on every fruit machine, so that there is much greater public awareness of the help it offers. The industry ought to be concerned that this greater public awareness, again highlighted by newspapers whipping up public hysteria by publishing stories about individual cases of problem gambling (which we have not in the period 19682004 seen in the press) may lead to over onerous “social responsibility requirements” being placed on the industry by the Commission. It may also be reflected in prevalence studies and Commission advice which will dictate future Government policy on gambling. The increase in the popularity of gambling, reflected in the increase in casino attendances has been the product of 94 ■ Casino & Gaming International

deregulatory reforms, all of which could have been effected under the 1968 Act, and which led on from the deregulation process started by the Conservative administration in 1992. Some in the existing industry wanted no more than that, and foresaw the dangers inherent in opening up the Pandora’s Box of overall gambling law reform enabling the press to reawaken or create an ‘anti-gambling lobby’. Unless the Government takes the lead, and the politicians of all parties act responsibly in refusing to use gambling as a political tool, then the “leave well alone” lobby in the industry may well be proven right and gambling reform might instead prove to be “gambling clampdown”. Our prediction is that the anti-gambling-lobby – and the press seeing this issue as a good one to sell newspapers – is now going to continue to be a serious and negative force over the next few years. Despite this, if the industry respond in the right way to all consultations, and if the Commission continue to be influenced by ex-Gaming Board senior figures, then fundamentally the “pro-gambling” underpinning of the 2005 Act will still be a positive force. It will all take careful finessing for years to come. “The price of liberty is eternal vigilance……!” 1

Source: Annual Reports of the Gaming Board for Great Britain (now the Gambling Commission).

2 3

The Gambling Act 2005 (Transitional Provisions (Order) 2006) Some of these bids for “regional” as well failed on that but were left in as bidders for the lower category(ies).

Section 175 (1) Gambling Act 2005

Section 175 (8) Gambling Act 2005

Section 355 (6) Gambling Act 2005.

Tessa Jowell, Secretary of State, DCMS before the Act was passed

Advertising by remote gaming operators: see DCMS website at www.culture.gov.uk

See section 42 (1)(c)

10 [Refer to Committee Reports] 11 Hansard 22 June 2006

JULIAN HARRIS Recognised as a leading expert in national and international gambling and licensing law, Julian is highly regarded by both operators and regulators throughout the world. He and John Hagan are the founder partners of Harris Hagan, the first UK law firm specialising in legal services to the gambling and leisure industries and they are at the forefront of those advising UK and international operators alike on the opportunities presented by the UK Government’s major reform of gambling law. Julian is a Trustee of the International Association of Gaming Attorneys. With over 20 years experience of gambling law Julian has advised some of the world's largest gaming and entertainment industry corporations, including trade associations: the British Casino Association and the Casino Operators’ Association of the UK. Julian came to specialise in this area representing the Gaming Board for Great Britain (the UK regulator) for five years early in his career.

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