www.gamingamerica.com
Jan/Feb 2020
INSIDE a final interview with tim wilmott a challenge for horseracing's reputation kambi exclusive: plenty left to come in the us
Jostling for position finding the ideal casino customer strategy
from the top
From the top: A blend of personalities Tim Poole compares the wide range of C-level figures he has spoken to within US gaming
2 GAMINGAMERICA
Why become a CEO when you can spend your days speaking to the most influential CEOs in the industry? As we at Gaming America prepare to distribute this January/February edition and the CEO Special of Gambling Insider at ICE London, I’ve been looking back at the CEOs I’ve dealt with in my time here so far; some for the CEO Special, some for the US CEO Special, and others for completely separate assignments. What we’ve found as a team is there’s certainly no shortage of personalities. From the straight-talking Keith Smith of Boyd Gaming, to the enlightening former American Gaming Association (AGA) CEO Geoff Freeman, the gaming industry boasts a variety of strong characters at its summit. Whatever approach each CEO takes, they don't shy away from the need to stand out. Those that survive simply have to, such is the nature of executive turnover – not just in this industry. In recent months, a number of gaming firms have changed CEOs, while William Hill was the biggest name in the sector to appoint a new chief during the latter half of last year.
from the top
Its US branch still has Joe Asher very much at the helm and that is testament to exactly the kind of personality I’m alluding to. Stand out is exactly what certain executives have done with aplomb. It was clear to me why AGS CEO David Lopez won his American Executive of the Year Award at the Global Gaming Awards Las Vegas last year, for example, just from a 30-minute conversation with him; he was as honest and forthcoming as anyone I’ve spoken to in my journalism career. AGA CEO Bill Miller was much the same, both in person and over the phone. From leading figures at small gaming start-ups to the giants of the industry, most have brought their distinct individual flavour to proceedings when in conversation with trade media. My colleagues have conducted memorable interviews of their own with some of the sector’s biggest names, coming out of those conversations with a new-found appreciation of the very industry issues we discuss in the office on a daily basis. Asher’s lawyer-like precision was hard to miss in our Gaming America cover feature that flew out to G2E (September/ October). The William Hill US CEO was quick to point out PASPA was “overturned,” not “repealed.” Equally firm was David Rebuck, Director of the New Jersey Division of Gaming Enforcement, who appeared in Gambling Insider back in 2016 and was unflinching in his stance when asked a number of probing questions. If I had to pick a favourite of my personal interviews, it's close, but I would have to say Jim Murren, MGM Resorts CEO. It would be no lie to suggest Murren’s willingness to speak openly, alone, would have made the interview worth the 10-hour flight to Las Vegas, even if we were not surrounded by luxury. From personal and emotional topics, to business projections for the future, at no point did Murren hold back from being honest. In fact, the proactive nature of so many US execs has filled me with confidence as a B2B gaming reporter. While execs in the UK have been guilty of only addressing certain topics when reacting to media pressure, US executives have willingly raised key topics before I’ve even had the chance to ask about them.
They say ‘nice guys never win’ but Interblock CEO John Connelly has earned success while coming across, to me at the very least, as a genuinely decent character. At ICE London meanwhile, DraftKings CEO Jason Robins was no disappointment. To my surprise – and he is not alone here – the executive didn’t shy away from the big questions. He took responsibility for the errors in DraftKings’ inaugural Sports Betting Championship and, when he argued with Asher at a sports wagering conference, it became clear he is a man of a very forthright nature. His Twitter feed would certainly support that description. Were I to choose an underrated favourite - a CEO interview which surpassed all my expectations - I’d go with Lopez for his sheer honesty and that rare laudable ability to publicly praise competitors. An honorable mention though, must go to Synergy Blue CEO Georg Washington, who certainly puts his own stamp on the skill-influenced gaming vertical; so much so, I’ve stopped calling it skill-based gaming on his say so. His unmistakable Australian accent reminds me of former Scientific Games CEO Gavin Isaacs, who was just as relaxed as he was switched on during our call – an interesting juxtaposition. Although a widespread series of female CEO appointments is yet to materialize in gaming, Sheila Morago represents both the female and tribal side of the sector extremely well as Executive Director of the Oklahoma Indian Gaming Association. Articulate and humorous, Morago is equally formidable; she was certainly a pleasure to interview for Gaming America and was unafraid to share her opinions on politics and the tribes. But, as I reach the end of my list, I’m excited to say the fun doesn't stop there. Our editorial team will plough on, just as eagerly awaiting what our next group of high-profile gaming executives will have in store for us. On that note, look out for our CEO Special in the January/February edition of Gambling Insider magazine, as well as our interview with the recently retired Penn National Gaming CEO, Tim Wilmott, in this very publication.
"While execs in the UK have been guilty of only addressing certain topics when reacting to media pressure, US executives have willingly raised key topics before I’ve even had the chance to ask about them"
4 GAMINGAMERICA
FINDING THE EDGE
Finding the edge
Oliver Lovat compares how the leading Las Vegas Strip properties have developed customer strategies and how they have used these to position themselves in the market
6 GAMINGAMERICA
FINDING THE EDGE
As the casino industry reaches maturity in many countries, there is a growing body of evidence that demand is no longer outpacing supply. As such, the industry is required to borrow from good practice in other industries in adhering to a strategic framework to develop effectiveness in management, or risk both underperforming and ultimately facing business failure. More than a decade ago, one of the first observations I made in the gaming industry is that unlike many businesses, the product is predominantly generic: gaming is generally undifferentiated and sold at the same price, therefore the points where competitive advantage can be driven are few. As a further observation, there are very few executive-level strategy positions in the gaming industry. Like many other industries, the responsibility sits with the CEO, but unlike many other businesses, gaming CEOs frequently manage fast-moving, complex, operations-heavy businesses. These businesses are capital-extensive, with many requiring daily challenges and ongoing decisions. Strategic thinking is frequently deferred until it becomes critical.
When developing a strategy, there are several complementary areas that need addressing. In some cases, I have witnessed these aspects being analyzed in silos, thus rendering them ineffective and damaging to the enterprise. A holistic view is necessary, hence the need for a specific person to run strategy. Customer strategy The key question to ask when operating a casino is: Who is our customer? One can build the most opulent property, but if it does not align with the identified customer needs, then it is just a waste of resource. The purpose of the customer strategy is to identify a customer and seek to attract their loyalty. Within the market, there are clearly-defined segments that have varying value. The seven categories of casino players are identified by Jonathan Barsky and Todor Tzolov, in their paper, The Effectiveness of Casino Loyalty Programs - Their Influence on Satisfaction, Emotional Connections, Loyalty and Price Sensitivity (2010):
FREQUENCY
SEGMENT
CASINO WIN
FAVORITE BRANDS
SHARE OF INDUSTRY
NIGHTS PER YEAR
High
Mr. High Roller
High spenders, very frequent travelers with more than 10 trips per year, non- members, fairly satisfied, predominantly male, very high income, travel on business and pleasure
Bellagio, Encore, Venetian, Wynn
4.1%
28
High
Elder Elites
Elite loyalty members (take most trips among members), sufficiently satisfied, not optimistic, oldest, predominantly male, high income
Harrah's, Caesars Palace, Bally's
11.2%
17.4
Medium
Unmoved Members
Regular loyalty members, lowest satisfaction among all members but inclined to recommend and return, take shorter trips
Tropicana, Orleans, Harrah's
33%
11.5
Medium
True Blue
Regular loyalty members, highest satisfaction among members and most likely to recommend and return, would pay premium for room (sometimes comped)
11.9%
11.4
Low
Happy-go-lucky
9.3%
9.1
Low
Ice Queens
Low
Accidental Travelers
Happy non-members, highly satisfied with service, optimistic about gambling, likely to recommend and return (and sometimes do take multiple trips), young, average income, would pay premium for room
Foxwoods, Mohegan Sun
Hard Rock, New York-New York
Hard to please non-members, not satisfied with service, pessimistic about gambling, unsure about returning or recommending, young, predominantly female, average income, rely on reviews for selection
Circus Circus, Excalibur, Mandalay Bay, Imperial Palace
9.4%
8.9
Least frequent travelers, non members, fairly optimistic and satisfied, youngest, average income, say they may return but seldom seem to do so
Luxor, Excalibur, MGM Grand, Treasure Island, Palms
21%
7.4
GAMINGAMERICA 7
FINDING THE EDGE
Once the particular customer is identified, all aspects of the business strategy should be focused on attracting that customer and capturing their business. Although this paper is nearly a decade old, the research is valid - the loyalty aspect of the Harrah’s/Caesars points-based transactional programs have proved highly effective in capturing the loyalty of the most desired customers. Moreover, this highly-valued customer shows loyalty to properties that are perhaps not the newest or market-leading, but are part of the most effective transactional loyalty program. The “Mr. High Roller” segment is less focused on transactional loyalty, but on a variety of other drivers; finding the correct amenities, brands and entertainment offering for the desired customer is also rewarded, as is the essential aspect of customer service.
of rooms in themed properties; many with opulent pools, magicians and wild animals. A generation later, Wynn Las Vegas opened without a discernible theme (other than ethereal aspiration) and the themed properties were replaced with non-themed offerings. When The Bellagio opened exclusively for the high-roller market, there was no way The Mirage could challenge the newer, grander property. It had to reposition, focusing more on the convention customer. In response, The MGM Grand built The Mansion for VIP guests and Caesars had to reinvent with increased entertainment and amenity for that segment; Celine Dion started the residency and Caesars was elevated. In response, MGM evolved its entertainment offering and Las Vegas truly became the entertainment capital of the world. When one looked at the market in the late 2000s, there was an absence of properties for sophisticated urban dwellers. The Cosmopolitan, identifying this, positioned itself to meet the needs of that group, with great success. With the rest of the market catering for customer A, who would bring profitability, nobody considered customer B, where there was future growth. Understanding your competitors is of vital importance. It is surprising how little time is taken to consider this aspect.
"Another important thing to remember is that if your competitor is superior in capturing a particular customer segment, then move your own focus to another segment. Within the evolution of Las Vegas, there is ample evidence of this"
Competitor strategy I once asked an executive what he thought of a recently-opened multi-billion-dollar mega-resort. He hadn’t been and he wasn’t interested in what his competitors were up to. That executive is no longer employed in his leadership role. What is important in developing your offering is understanding what your competitor is doing, with the aim of replicating something, if appropriate. Another important thing to remember is that if your competitor is superior in capturing a particular customer segment, then move your own focus to another segment. Within the evolution of Las Vegas, the most competitive gaming market in the world, there is ample evidence of this. For decades, Caesars Palace was the most successful casino resort in the world. The second-most successful was Circus Circus. Both were aimed squarely at different demographics with a very different audience. In 1989, The Mirage was to challenge Caesars’ hegemony, inspired by many of the successful elements that made Caesars work, including reference to a theme. Inspired by Caesars and The Mirage, across the next decade, Las Vegas was home to thousands 8 GAMINGAMERICA
Property strategy Las Vegas was once known for blowing things up and starting again. This has not been the case so much in recent years, as a more strategic view is taken for managing assets to meet the customer or business needs. Once the target customer has been identified, management of the physical asset is needed to pivot the property to meet the needs of the customer. Functional change is predominantly in the areas of the standard of the room product (if there is a hotel component) or in the areas of food, beverage or lifestyle amenity. As we saw above, The Cosmopolitan began the move to attract under-40s to Las Vegas, which coincided with
FINDING THE EDGE
"Some operators have sought to partner with European operators with experience, while others have sought to acquire the skills and technology for internal operations and management. Some have done nothing" the research that led to the repositioning of The Imperial Palace to The Linq. The management at Caesars Entertainment identified a particular customer, post-college groups, predominantly from Southern California. The IP, which was past its peak, required modernization. With little brand equity in the name, it pivoted the development around a distinct customer, seeking to meet the real needs of that customer. There have been many hotel renovations within the past decade, with many being unsuccessful. The failure to understand the customer, and then understand the competitors, has led to underperformance in relation to investment. Plaudits have been given to The Linq team for taking risks with F & B. The gaming floor and entertainment has proved popular. As a result, increased room rates and occupancy have proved their strategy to be successful, showing it was not an accident. Internal capability strategies What skills do we have internally, and what do we need to effectively manage our businesses? It may seem an obvious point, but until relatively recently, the gaming industry was not well known for hiring from outside the industry and instead promoting from within. In culture-heavy organizations, this level of hospitality management has value. But when considering the management of multiple groups, in many locations, the traditional capability to manage effectively has had to change, and must be under constant review. In a simple case, Bill Bennett and his team, who managed Circus Circus and built Excalibur with great success, found the development and operation of The Luxor challenging, as the competencies to operate for a different culture were not held by the group. 10 GAMINGAMERICA
When Harrah’s embarked on becoming a data-driven business, it had to build a team that was capable of collecting and managing large amounts of information for decision-making. These fresh thinkers, with good practice and business-savvy brains, allowed the company to grow at a rapid pace when competitors were static. The influx of data scientists, initially brought in by then Harrah's CEO Gary Loveman, are now leaders across the gaming industry. To achieve growth, gaming companies should be focused on structures that can allow for building and enhancing their organizations, ready to react to the various evolving changes. Arguably, the next gold rush will be in sports betting, in particular on personal devices. The actions thus far are instructive. Some operators have sought to partner with European operators with experience, while others
have sought to acquire the skills and technology for internal operations and management. Some have done nothing. Today’s casino GMs and CEOs are highly-skilled, talented operators, and the extreme demands placed on time do not always allow for the strategic thought required to drive competitive advantage. It is hoped the framework above acts as a brief reminder that there is a logic to strategic decision-making; with some refined planning and analysis, there is a proven way to drive business success that is more viable than comp coupons and cheap beer promotions. Oliver Lovat leads the Denstone Group, which offers strategic advice and consultancy on customer-facing, asset-backed investment and development, with a focus on casino resorts. He is a Fellow of the Royal Institution of Chartered Surveyors and visiting faculty at Cass Business School in London. He lives in Las Vegas.
Tim wilmott
An industry career to remember Before the now former Penn National Gaming CEO and American Gaming Association Chairman Tim Wilmott retired at the end of last year, he spoke to David Cook about his time in the gaming industry, spanning three decades, and opened up on what he will miss about the market Can you tell us a bit about your background before you became COO of Harrah's in 2003? I have a couple of engineering degrees. I worked for IBM for four years and then went back and got my MBA. I was recruited by Harrah's in 1987. At that time, Nevada and New Jersey were the only US states that had gaming. Harrah's had three properties in Nevada and one in Atlantic City at that time. I liked the industry and thought it would be a growing industry. I worked in management development roles for five years; marketing, human resources, slot operations etc. My first big role was to oversee the opening of Harrah's first riverboat operation outside Chicago. That opened in 1993. I then moved back to Atlantic City; I'm originally from New Jersey. Then as Harrah's started to do a lot of M & A activity, I became regional president of the eastern division from 1997 to 2002. I then became COO when Phil Satre retired as CEO and Gary Loveman became CEO. I took Gary's spot as COO and was there until the company was taken private. I left Harrah's and moved my family back east to join Penn National Gaming in February 2008. I was President and COO in 2008 and became CEO in 2013.
What was the casino industry like back in 1987 compared to now? It's changed so, so much. I was actually at an event last night with Phil Satre, who was my boss when I started and is now Chairman of Wynn Resorts. I remember going to Reno in northern Nevada, where Harrah's had properties. I saw people playing slot machines that were entirely mechanical with no wire. 12 GAMINGAMERICA
It's really interesting, because back then, we didn't rate slot players. There was no tracking system. Table games were always the most important operation. All the marketing was spent on table players and that has changed dramatically. Most of the folks in Atlantic City got started in 1978. Some of the folks that learned the business in Nevada moved over to Atlantic City. For the most part, it wasn't very sophisticated. New Jersey was very concerned about organized crime, so there were onerous regulations in Atlantic City and not so much in Nevada. As more states opened up in the 1990s and 2000s, they all started out being tough regulators, but as they've grown, they have understood their partners and how to grow revenue in their state. It's been a great run across 32 years, but I'm not regretting my decision to retire. I live in New Jersey and work in central Pennsylvania. I'm constantly travelling and often don't get home until weekends. I just turned 61, so I want to enjoy the rest of my life.
You were COO when Apollo Management and Texas Pacific Group (TPG) agreed to buy Harrah's for about $28bn in 2006. Did you play a big part in getting that deal done? What happened was interesting. In September 2006, we got an offer for the company of $81 per share. I had told Gary Loveman my contract was up at the end of 2007 and that I was going to look elsewhere. We were the same age. I wanted to be CEO of a company. I was actually talking to Peter Carlino, Chairman and CEO at Penn National at the time. Once TPG and Apollo put the offer on the table, Peter and Penn National came in to see if they wanted to make a counter offer. I then had to suspend my conversations with Peter and I helped TPG and Apollo through the due diligence process. I was not negotiating directly with the private equity sponsors. That was really Gary and our board. They ended up getting $90 per share for the company. It was a $28bn transaction, made up of $4bn in equity and $24bn in debt.
As you mentioned, you became Penn National President and COO in 2008. How different was the challenge at Penn compared to Harrah's? When I joined Penn National, we had 15 properties. Peter had put together these 15 properties mostly through acquisition, so it was really a holding company. There was very little connection between the properties. They had 15 different ad agencies. They all had different ways of doing business and how they thought about doing business, so a lot of my time in the first three years was spent
tim wilmott
trying to put together an operating structure that we could follow and grow from. We standardized a lot of practices, such as how we communicated with customers. We ran one rewards program across all the properties. We did a lot of things between 2008 and 2010 at Penn National that I had been doing for Harrah's from 1994 to 1996. That's what created Total Rewards. That was probably the first in the industry.
What was it like dealing with the financial crisis in the late 2000s? We were a regional gaming company and didn't have any presence in Las Vegas at that time. Actually, regional gaming fared better in 2008 and 2009 than Las Vegas did. Our revenue was down about 5% from 2007 to 2008 and EBITDA went down about 10%. It was the worst recession we had seen in 100 years and I don't think things will ever be as bad as that again. But we're probably going to have a recession in the next two or three years, given the long run of growth we've had.
What exactly was the thinking behind buying Pinnacle Entertainment for $2.8bn in 2018 specifically when looking to do M & A? We competed against Pinnacle, so we knew them well. I used to work with their then CEO, Anthony Sanfilippo; I used to work with him at Harrah's. Bringing the two companies together meant we could eliminate about $100m in cost synergies, so that was the rationale behind the deal. They had 16 properties and we had to sell four for FTC reasons. We had to find a partner - Boyd Gaming - who took those four off our hands. A year later, it's about exactly what we expected. We have actually found $120m in synergies and we've picked up very well-run properties that are among the best in their markets, so it's changed the profile of Penn National as well.
When you leave Penn National this year, how would you compare the position now to when you started in 2008? We started with 15 properties that acted independently. We now have 41 properties across 19 states. We operate on a big national platform called Mychoice, which has five million customers. We're a much bigger company now, with $6bn in revenue and around 33,000 employees. The whole industry has changed now. We now have landlords that operate retail-investment trusts and are raising the value of all gaming companies, plus we have their high-multiple capital they've introduced into our space.
You are also stepping down as Chairman of the American Gaming Association. How did your position there come about? I have been active with the AGA for 12, 15 years. Frank Fahrenkopf was the CEO and then Geoff Freeman was CEO. I was very much involved when Geoff took over. Jim Murren was the Chairman.
We made some major changes to what membership needed to look like. Before, it was really just the large casino operators and manufacturers that sat around the table. We recognized that probably touched about 40% of the US market. We decided, and I was very involved in this, to open membership up to private and tribal gaming operators and to other suppliers. When Jim left as Chairman at the end of 2017, Geoff and Jim asked me to succeed Jim. I took over in 2018 and my term ends at the end of this year [2019]. The unfortunate thing is in June 2018, Geoff said he was leaving. I had to form a search committee and engage with a headhunter. Bill Miller has been the CEO since the beginning of this year.
PASPA was overturned soon after you took over as Chairman. Did you have any idea of what may be about to happen when you took over? We did have an idea. When we knew the Supreme Court wanted to hear the New Jersey appeal, we knew that could only be a good thing for us. We knew in late 2017 the Supreme Court would hear the case and we felt we were going to get some kind of favorable ruling. It was as good as it could have been. They found the legislation to be unconstitutional and made it null and void.
enn National announced a multi-state sportsbook deal with Kambi in August. What was the thinking behind outsourcing toKambi as opposed to partnering with another operator? We wanted control of our own destiny with the user interface. Kambi provides us with all the back-end support. We are developing our user interface right now for online sports betting. We saw this opportunity as being too big to share with somebody else. Nobody has reach like we do, being in 19 states. We need a platform to take advantage of this and we did not want to partner with another operator. We're working with Kambi as our tech partner, but they're not providing any services that makes us lose control of any customers.
As you leave the industry, what do you predict for the future of the market? I think the whole digital opportunity is in its infancy; Pennsylvania is just getting started. We're going to see more states regulate online casino and online sports betting in the next five to seven years. How retail and digital interact will be very interesting to watch. If you look at what's happened in New Jersey in the last five or six years, the operators in Atlantic City have not had their visitation numbers impacted by having online. In fact, it's been accretive to their operations. The industry needs to make sure it doesn't create an Amazon-like effect. I don't anticipate many new US jurisdictions opening up to casinos in the next five years or so. There's only nine states that now don't have some form of commercial gaming. Georgia is the one state we're watching closely that may consider it. GAMINGAMERICA 13
tim wilmott
I don't think Texas is going to happen, even though it would be a huge market for us. I think there will be more industry consolidation, as smaller, one-off properties are gobbled up. I think there will be larger deals like Eldorado Resorts buying Caesars Entertainment. We just did a large transaction a year ago where we bought Pinnacle. I think you'll see the experience evolving too, as it has in the past. Baby boomers will retire. Gen. X and millennials will become a bit older and have more disposable income. I think slot machines and casino floors will continue to evolve to appeal to a younger demographic, and I think sports betting will have something to do with that as well. We're seeing a much younger crowd in our casinos on weekends and they can now bet on sports legally.
Do you think more consolidation will happen in sports betting as well as casino, like we've seen with Flutter Entertainment agreeing to buy Stars Group? Yes, I do. We're now seeing a lot of interested, small companies getting into this space. There are probably going to be too many people and it's going to be very inefficient and expensive to market. There's not going to be a lot of money being made. You'll see consolidation, because eventually, the only way to become profitable is by having scale. 14 GAMINGAMERICA
How much are you looking forward to retirement? Very much so! I told my management team this story this week. I have a 21-year-old daughter who has moved out and my wife is a retired doctor. We made a life decision 22 years ago that I would continue with my career and she would stop practising medicine and raise our daughter. We did so with one caveat; she made me promise that when her job was done, I would stop and we would enjoy life together again. We have a home outside Charleston, so we're moving to South Carolina. We'll winter down there and summer in New Jersey. My wife hasn't seen as much as I have, so I'm going to show her the world. I want to get better at golf! I'm on the board for a restaurant company and I want to get on another board, so I'm going to keep myself busy from a business standpoint. I'm not going to miss having the alarm clock go off at 4:30am on a Monday morning!
Will you miss it at all? I certainly will. I'll miss the people and the action. I'll miss the competitive fight. But I've been doing it 32 years. This has been in the works for a couple of years now and with the Pinnacle deal done, I wanted to make sure both companies were put together successfully, which they have, so the timing is right for me.
HORSERACING PROBLEMS
A troubled time for horseracing Ezra Amacher on the rising issue of deaths in US horseracing and the impact this could have on betting on the sport
The 2019 Breeders’ Cup at Santa Anita Park was by some measures a great success for the renowned southern California racetrack. The two-day event, held at the start of November, brought in 109,000 people and produced a record $174m in handle. In the days that followed though, Santa Anita received attention of the wrong kind. Another horse had died on its track following the last race of the Breeders’ Cup, bringing the track’s fatality count since December 2018 up to 37. The rash of deaths that plagued Santa Anita for much of 2019 brought renewed attention to the safety of horseracing in California and beyond. The response of track operators, trainers and lawmakers would determine the future of a sport that accounts for billions of dollars in economic impact and tens of thousands of jobs. When horses started dying at an alarming rate last winter, the California Horse Racing Board (CHRB) and Santa Anita originally focused their efforts on the conditions of the tracks. CHRB spokesperson Mike Marten tells Gaming America: “There were lots of conferences between CHRB officials and 16 GAMINGAMERICA
Santa Anita officials and there was a lot focus on the racing surface, because there was so much run. It appeared the interjections had led to some corrections, because suddenly there were no deaths for two weeks in early February. “We thought, ‘okay, we dealt with it.’ But no, from 17 to 23 February, another six horses died, so we understood that we still needed to do a lot.” Santa Anita closed its track for several days in late February and brought in specialists to refurbish the track, according to Marten. When racing resumed however, two more horses died within a week, leading to another closure of the track. The racing surface was not the lone culprit leading to the rash of deaths. Marten said: “At that time, Santa Anita announced that in addition to making changes to the track, they were going to do other things more geared to making sure the horses themselves were sound for racing.” By late June, California Governor Gavin Newsom had directed the CHRB to introduce stricter safety measures as a response to the influx of horse fatalities at Santa Anita.
HORSERACING PROBLEMS
A five-member team began to evaluate each horse’s medical status and injury history, then decide if the horse was suited for racing. Between 26 December 2018 and 22 June 2019, a total of 30 horses perished at Santa Anita. The concerted effort to improve safety lowered the number of fatalities at the track significantly, but still six more horses died from the start of July through the end of October. The Stronach Group, which owns Santa Anita and Golden Gates Fields in Berkeley, instituted a house rule that prohibits horses from receiving steroid injections within two weeks before a race. They also limited by half the amount of Lasix - an anti-bleeding medication - that horses could take on race day. Some tracks have agreed to phase out Lasix, while in other parts of the world, race-day medications are universally banned. The CHRB also ruled trainers must stop administering anti-inflammatory drugs to horses 48 hours or more before races. Speaking with Gaming America, California State Senator Bill Dodd said: “We lag behind the rest of the world in horse safety. We even lag behind Kentucky. We can do a better job of regulating and improving safety. My hope is that what will happen is the industry and the regulators will come together on a plan that keeps the sport in-tact and creates a better safety environment for horses and the jockeys.” Dodd chairs the Governmental Organization Committee which includes oversight of state gambling and horseracing. In June, Dodd passed a bill that gives the CHRB authority to suspend or move racing days without any notice if there is concern for the safety of horses. The legislation, signed by Governor Newsom in June, is set to come into effect at the start of 2020. Dodd said: “How and why our regulator didn’t have that power in the first place is frankly beyond me, but we sought to right that wrong.” As the CHRB waited for the new law to take effect, it sent 16 safety recommendations to the office of Governor Newsom. Some proposals would need to be brought forth in legislation. One of the most consequential recommendations would give the CHRB the power to make public any positive drug test within 24 hours of confirmation. The public notice would serve as a condemnation against trainers who refuse to comply with adapted rules for administering drugs before races. Marten said: “Right now, the statutes say that if there’s a positive test, you cannot reveal it to anyone until the investigation is completed and a complaint is filed, which could be weeks or months.” In a December meeting held at Los Alamitos Race Course, the CHRB adopted an amendment restricting the use of the riding whip to six times in a race. 18 GAMINGAMERICA
Further safety reforms can’t come soon enough. Two days after the CHRB meeting, two more horses died at Los Alamitos. One of the horses that died was trained by Jerry Hollendorfer, a hall of famer who is banned from running his horses at Santa Anita and Golden Gates Fields. The Stronach Group prohibited Hollendorfer from competing at its tracks following four deaths at Santa Anita and two more at Golden Gates. Critics of horseracing have pounced on racetracks and horseracing authorities for being too lenient. Patrick Battuello, President of the non-profit Horseracing Wrongs, says to Gaming America: “With all this talk about safety measures, the first thing I would ask the industry is: Where was this zeal for equine welfare last year, or five years ago? They’ve known all along that they’re killing horses, but because the national media wasn’t covering it, they could get away with it. “Santa Anita was the tipping point and this industry has been exposed. The killing is built into the system. A certain level of death is inevitable, starting with the fact that these animals are bred force-fed with big bodies and fragile ankles. They’re also immature when they’re thrust into training.” Though past efforts to abolish horseracing have failed, Battuello predicts the sport is up against unprecedented challenges as it enters a new decade. As the horseracing industry loses more of its elderly fans each passing year, it struggles to captivate the interest of younger fans. Another potential threat is the opportunity for bettors across the US to wager on sports other than horseracing, as more states legalize sports betting. Battuello said: “Fifty years ago, if you wanted to legally gamble, you had to do it on either the dogs or the horses. No such excuse exists today, where not only are there lotteries in almost every state, but casinos proliferate throughout the country and now there’s sports betting growing state-by-state. “I say have at it. Gamble to your heart’s content but not on the backs of suffering animals.” A recent study from Virginia officials analyzed the economic effects of five proposed casinos and found the state’s horseracing industry would see a major drop off in revenue. Colonial Downs Racetrack outside of Richmond would lose as much as 45% of its $300m yearly revenue. Senator Dodd, a lead sponsor of a bill that would legalize sports betting in California, believes sports betting and wagering on horseracing can complement each other. Dodd said: “I think it’s likely that the horseracing tracks would be involved in opportunities to have sports betting. Certainly horseracing has its own challenges regardless of sports betting, but I believe that if sports betting were to pass in California, it would be a net positive gain for the horseracing industry.”
Nightclub struggles
What next for Las Vegas nightclubs? Following the announcement Kaos Nightclub and Dayclub will be closing, Sean Chaffin questions the future of Las Vegas’ nightlife Strobe lights flash and the music pulses throughout the room. Eager men and women dressed sharply flood the dancefloor as the DJ spins another series of beats. Revelers pop their cash or credit cards out for another pricey cocktail or maybe bottle service – with that tab for the Grey Goose or Don Julio running as high as several hundreds of dollars. This type of nightclub party scene has meant big bucks for the Las Vegas casino industry in recent years. Carefree young partiers looking to spend have been cash cows, with the clubs helping to drive profits. The feasibility of that concept took a hit in November however, when it was announced Kaos Nightclub and Dayclub at the Palms Casino and Resort would be closing. The shuttering of the 73,000-sq.ft. indoor-outdoor venue caught many in the industry by surprise. Red Rock Resorts, the owner of the property, and Station Casinos, shelled out millions of dollars in renovation and talent contracts with top-level DJs, only to announce the club was a major factor in a third-quarter loss of almost $27m. The big question now: Is this a sign of things to come? Megaclubs have been part of the Las Vegas scene for two decades now. Massive, cavernous venues kept a younger crowd circulating through the doors. They were willing to pay top dollar for a dream night out. Kaos offered the outdoor-indoor nightclub and dayclub concept with everything tied together.
20 GAMINGAMERICA
The pool at the property was even closed for renovation for the whole summer in 2018. But with the closing, as well as Hyde at Bellagio and Intrigue at Wynn, many are wondering if it’s closing time for the megaclub fad. Analysts quickly downgraded Red Rock’s stock after the announcement. Rolling Stone noted the club had signed DJ Marshmello to a two-year, $60m residency, and the company listed high talent costs as one of the reasons the club was unprofitable. “It’s obvious the nightclub environment in Vegas is extremely competitive,” Station Casinos CEO Frank Fertitta III said during a call to investors. “It doesn’t appear that the market has grown enough for the amount of supply in the market. The cost of entertainment is excessively high, and we just made the decision to focus where the fish are and acknowledge that the nightclub business, at least at the Palms, was not working for us.” Anthony Curtis, longtime publisher of the Las Vegas Advisor newsletter and website, has observed the city’s casino and entertainment industry for years. The closing was unexpected and caused a stir in Las Vegas. “The closing is a bombshell, for sure,” he tells Gaming America. “Nobody expected this. They hired some big names and had a gigantic opening and it just fell flat. It just didn’t work. The reasons for that, I think, are multiple.” Some of those reasons may be property-specific. The Palms opened in 2001 and quickly became a Las Vegas hotspot. The casino was owned by the Maloof family, the former owners of the Sacramento Kings NBA franchise. Red Rock purchased the property in 2016 and the property’s shine and coolness may have quickly worn off. Many industry analysts were skeptical of Red Rock’s recent $690m renovation of the property. Curtis says Palms was impacted by management changes and has been seen as a lower-tier property in recent years since the Maloof brothers sold. It’s also in a difficult location off the Strip for Kaos to compete with other clubs and already faced stiff competition. Another problem may have been the Palms didn’t have enough hotel rooms for such a massive club. A lack of hotel space and foot traffic may have created significant hurdles Kaos couldn’t overcome.
Nightclub struggles
Changing directions and changing generations On a broader spectrum however, Kaos’ failure may also have to do with the transition of Las Vegas entertainment. Curtis says the nightclub scene has seen a “changing of the guard” in terms of megaclubs becoming a bit passé as smaller, more intimate clubs and nightspots become the new trend. Smaller music spots like On the Record at Park MGM have been able to find a niche with fewer sq. ft. and unique concepts. This club offers a speakeasy experience inspired by an old-time record store. The Barbershop at Cosmopolitan offers a prohibition-style whiskey bar feel, offering “cuts and cocktails” in a laid-back environment. These types of venues have found success catering to a different segment of the nightlife market. Other venues like Topgolf may have also infringed on the megaclubs’ consumer market. Beyond some of those reasons, a generational shift may be in the works and leaving the megaclubs behind. “For two decades, the 20- and 30-somethings were saving their money all year to come out with three or four friends and go out one night clubbing and buy a couple of bottles of booze for three or four grand,” Curtis says. “I think maybe that group has grown out of it and you’ve got a new group moving in a different direction.” That changing direction could mean more clubs close. With several new casinos planned in Las Vegas, including the northern end of the Strip, Kaos could serve as a cautionary tale. “It’s not like they’re going away tomorrow,” Curtis notes. “But they’ve been hot for two decades and I think we’re starting to see things change a little bit with a shift to smaller venues.Megaclubs aren’t completely off the table, but I don’t think you’re going to see them popping up at every casino.”
An industry in transition Entertainment can be a fickle business. Changes in musical tastes can happen quickly and may also be playing a role in the trend toward smaller venues. In recent years, celebrity DJs could make tens of thousands of dollars (sometimes more) for spinning EDM (electronic dance music), which features a series of beats segueing from one electronic sound to the next. Like the dance club scene itself, that appears to be changing. “People are sick of the DJs in Vegas,” Victor Drai told the New York Post in 2016. His nightclub - Drai’s - at the Cromwell Hotel and Casino on the Strip, has focused on live music since opening in 2014. “It’s ridiculous to have the same five or six guys, pay them a fortune and lose money," he said. "It will reach a point where DJs are totally irrelevant.” Drai may have been seeing the future and that appears to be what’s happening. Las Vegas journalist and club industry insider Melinda Sheckells says the changing club scene is partly due to that shift from EDM to a more open format crowd – meaning music lovers are more interested in random selections of songs and sounds.
“When you had a higher concentration of EDM artists, you were really selling around a DJ-type performance and the clubs changed as a result of that,” she says. “They changed their seating structure, they changed their pricing structure, they changed the talent they brought in and what they had to pay talent, because that was so popular at the time that there was a premium on everything.” Sheckells notes that along with a shift in taste music-wise, there is also an overabundance of other entertainment options now in Las Vegas. In the last couple of decades, properties have shifted away from the “cheap stay and good gamble” mentality to make the city more of an entertainment mecca. Resorts now derives much of its revenue from options away from the blackjack tables and slot machines. Throw in the Vegas Golden Knights NHL team, which launched in 2017, the Oakland Raiders NFL team beginning in 2020, and a growing number of mega-sportsbooks, and the club scene may just be feeling the pinch of so many options chasing entertainment dollars. Las Vegas visitors are now just simply looking for more diversified entertainment options. “Everything has a saturation point,” Sheckells says. “The nightclub has really reached a saturation point and I think for there to be another major player, you’re going to get a space that blends food and entertainment in a new way – it’s evolution.” Sean Chaffin is a freelance writer in Crandall, Texas, and senior writer for Casino Player and Strictly Slots magazines. His work appears in numerous websites and publications. Follow him on Twitter @ PokerTraditions or email him at seanchaffin@sbcglobal.net for story assignments. GAMINGAMERICA 21
Erik Lögdberg
A five-year process Kambi Deputy CEO Erik Lögdberg speaks to David Cook about his journey with the company and offers a defence for the future of its US plans, in light of recent M & A activity What was your background before you began working for Unibet in 2005? I started as an electrical engineer, but Unibet gave me my first job after my studies. I got stuck and it’s now been 15 years! I was at Unibet for five years and I was head of live [in-play] betting for the most part. In 2005, live betting was basically nothing, but everyone knew it was going to be the big thing, so we started building that up. How different was the in-play betting product back then compared to now? It was fully manual to begin with. You needed a trader to sit there. You could maybe manage three bet offers; the match odds, over or under 2.5 goals and possibly the half-time score. He would have to sit there and change the odds and the score every minute. In soccer, it worked, but in sports like basketball and handball, it was impossible to make money. They had a very small offering. For example, in 2005, we would discuss whether we should cover the Liverpool game or the Manchester United game, as that’s all we had resources to do. Now, it’s 200,000 plus events every year and very automated. A trader can manage more than 10 games at a time. How would you compare Kambi’s position in the market to where it was at the start in 2010? Even in 2010, the business was about signing really big operators; not necessarily small, local operators. The business was really built around signing with some of the big monopolies and some of the big tier ones in Europe. There was also the idea the US would one day open up. But in the first years of course, it was all about proving 22 GAMINGAMERICA
the business model, going from a B2C product to a B2B service. We signed a few customers and we showed it works to have more or less the same scalable product that Unibet then had and deploy that to others. Gradually, it has grown; 888 was a big break for us back in 2013. That was our first tier-one operator and it's grown since then. But then of course the US was by far the most important development for Kambi. The thing with the US is that the model we have been building, where we do end-to-end solutions and we can build our own front-end as well, also allows us to do the technology and the trading. It matches with the US market, where there are no incumbents really, as opposed to Europe, where you’re selling to operators that have been doing this themselves as well. Mentioning the US there, so much has changed even in the last year. How do you compare your position in the market to where you were just after the launch one year ago? We had a big advantage with our speed-to-market and our ability to quickly comply with regulations, which showed first in New Jersey. Now, I think we’ve really cemented this by doing it state-by-state with more and more operators, being faster than everyone and taking a big part of the market share. Your CEO Kristian Nylén said last February you had a 50% share in the market in New Jersey. So first, to what extent would that have changed and second, is it a similar kind of performance or similar market share in other states you’ve gone into as well? One thing that has happened in New Jersey of course is FanDuel has had very big success as well, so now we’re
Erik Lögdberg
In light of the planned merger between DraftKings and SBTech, what is your plan of action for achieving further growth in the US moving forward? We have a particularly strong network of operators in the US with the likes of Rush Street Interactive and Penn National Gaming, as well as operators yet to launch as we await regulation, including Mohegan Sun and Jack Entertainment. In broad terms, our plan of action remains the same in that we continue to empower our current partners, which still includes DraftKings, and will seek to expand our network with high-calibre partners across the US. We believe we have a great opportunity to do so, particularly as we feel the combination of a competitor and a high-profile operator has the potential to strengthen the appeal of Kambi in future sales processes. It’s worth emphasizing a point DraftKings recently made, that this was an ideological decision based on them wanting to own their entire tech stack, rather than a reflection on Kambi. Together we have been able to launch DraftKings ahead of the competition and delivered excellent market share in a number of US states, and with us, they have become a major player in the US sports betting landscape.
probably a little bit lower than 50%. Now, we’re getting closer to 20 operators in the market, so of course it becomes more competitive, but that also makes the market grow. In Pennsylvania, I think we were about 50%, but again FanDuel has entered now, so it will be tougher, but in most of these markets, it’s the Kambi operators that have the largest share of the market. With Flutter Entertainment in the process of buying Stars Group, how much of a challenge is it for the market if it keeps getting smaller and to what extent would you see that altering the shape of the US market moving forward? I guess there are two sides of it. One is of course the scale and if they can really manage to work with that, but I guess that will take time and it takes a lot of work to get them all to the same platform and the same sportsbook. I think the opportunity in the meantime here is actually how our product development can move much faster as opposed to a company that is merging with bigger products and organizations.
How challenging is it to convince companies to outsource technology as opposed to buying a company and bringing it in-house, as will be the case with DraftKings and SBTech? I guess it’s the general point that we’ve been working with ever since 2010; to explain the value of outsourcing, as well as the efficiency of it and the complexity of what we actually do. In 2010, our strategy was summed up in one word, and that was scalability. Around 2014/15, we decided that if we keep doing the same thing by just going for the biggest operators, we're not going to have enough scalability. Some will choose M & A as a route to gain scale advantages and more efficiency. Others will choose outsourcing to gain more efficiency and others may choose to build their own sportsbook. All we can do is educate people about the value of what we do, the cost of what we are doing and the complexity of what is happening. With the focus predominantly being in the US, how do you see the market playing out in the next few years? I think most states will open up for both online and retail sports betting; probably not just one but both of them. We are preparing for it to be rolled out in 10 to 15 states per year for both retail and online. For us, it’s going to be a five-year process with new operators and getting existing operators into new states. GAMINGAMERICA 23
betconstruct
Ready to go Anna Shahbazyan, BetConstruct Regional Director for Latin America, speaks to Gaming America about the supplier’s social, fantasy and sports wagering plans for 2020, in both the US and LatAm markets open, so with our core sportsbook product, we are going to expand and enter into the market offering very special packages. For us, the most important thing is the localization. So, entering every market, we need to be sure all our software is adapted; it does not matter which channel it is on, but what is important is we have all the tools and to have these localized. Even in the states where regulation isn’t 100% done, we will try to make the preliminary contracts and some negotiations to be able to establish our presence and offer the best quality product. The most important idea we are going to speak about during ICE London 2020 is that BetConstruct never sleeps and, from East to West, we are always awake. We are trying to develop and localize all the resources and all the offers we can for the market.
What plans does BetConstruct have in place for 2020 for the competitive US marketplace, with several burgeoning online markets? Generally speaking, the most important thing for us in the upcoming year is to finalize our certification and licenses. We have different approaches and different ideas regarding how to enter the market and our approach to the different types of collaboration with tribes, land-based casinos and lottery associations, which is very important. BetConstruct has player acquisition games, which come as a free-to-play sportsbook alternative. The games are Sweepstake and Predictor. Both are set to deliver a non-betting experience to players, who can simply test their luck and sports predictions with these games. However, the ultimate outlines Sweepstake and Predictor have is to convert the players into sportsbook users. This year, we could see a very big growth of regulation. Approximately 22 states right now have the regulations already done and more markets are going to 24 GAMINGAMERICA
What about BetConstruct’s offering in LatAm markets? How will your approach differ and what are you looking to achieve within this region? The most important thing is to have the product ready to go; it doesn’t matter if it’s the US or Latin America. For South America, in 2020, we are going to think about opportunities in Brazil, because the Brazilian market is going to be regulated in 2020 and it is the biggest country in the continent. So for us, it’s strategically a very important place and we might think about opening an office out there, making some investment to have the resources and understand the market deeper. Right now, we have two offices in Uruguay and Brazil will be the next point for BetConstruct to offer our product and localize them. We are also following the other markets which could become regulated; for example, Argentina is going to copy and paste the same regulations as in the US, as they have different provinces and have to establish different regulations for each of them.
As there are many lottery associations, we are going to understand that market and that type of collaboration as well. We have a lot of work to be done in Latin America in 2020 and in the US as well. Sports betting regulation for mobile and for web are also important to understand. So the time for the channel of delivery, especially for US mobile, is the most important thing. Based on statistics and information we have from our market research team, most players are playing on mobile, and for us, the most important thing is to have all the key features and tools for easy mobile use.
NFL players who will advise players how to use the product. So it’s not only to provide the product but it’s also to educate people how to play. As you know, DFS and these types of skill products are very important for the operator, because later you can do a very quick conversion to sportsbook and vice versa. If you have an educated player in DFS, they can easily become a very good player in sports betting. So for US operators, it’s very important to have this type of product.
How is the development of BetConstruct’s fantasy sports arm progressing? Right now, besides sportsbook, which is our core product for the US market, we have different types of games such as daily fantasy sports (DFS), fantasy sports generally, social platforms and we even have sweepstake games prepared especially for the US market. Last year, DFS had big success, because we partnered with Atlantic Games and also Hall of Fame, in co-operation with Atlantic Games. Currently, they are conducting different types of marketing campaigns. The most important thing is not only the DFS website, but the fact they are going to use retired
Finally, what can you tell us about BetConstruct’s social platform? Our social platform is very important for states which are not yet regulated, to have liquidity of players and to have people understanding how it works. It’s not only casino, it’s sportsbook – social sportsbook as well – so people can get used to the product and later become a real-money player. Also, our sweepstakes are important because, for example, March Madness will be very popular this year. We have prepared this product for the operator to involve more players and prepare them to become sportsbook players. GAMINGAMERICA 25