Gaming America May/June 2020

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May/Jun 2020

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2 GAMINGAMERICA

COO, EDITOR IN CHIEF Julian Perry

EDITOR’S LETTER

EDITOR Carl Friedmann Carl.Friedmann@gamblinginsider.com Tel: +44 (0) 207 739 9908 SENIOR STAFF WRITER Tim Poole Tim.Poole@gamblinginsider.com STAFF WRITERS Owain Flanders Owain.Flanders@gamblinginsider.com Iqbal Johal Iqbal.Johal@gamblinginsider.com Ezra Amacher Ezra.Amacher@gamblinginsider.com LEAD DESIGNER Laura Fogar DESIGNERS Rebecca Lydamore, Olesya Adamskar DESIGN ASSISTANT Radostina Mihaylova, Aimee Matthews EVENTS MANAGER Mariya Savova PRODUCTION CONTROLLER Emily Jackson WEBSITE MANAGER Tom Powling COMMERCIAL DIRECTOR Deepak Malkani Deepak.Malkani@gamblinginsider.com Tel: +44 (0)20 7729 6279 EVENTS SALES MANAGER Ryan Horwood Ryan@globalgamingawards.com +44 (0) 208 638 7610 SENIOR ACCOUNT MANAGER William Aderele William.Aderele@gamblinginsider.com Tel: +44 (0)20 7739 2062 ACCOUNT MANAGERS Michael Juqula Michael.Juqula@gamblinginsider.com Tel: +44 (0)20 3487 0498 Clive Waite Clive.Waite@gamblinginsider.com Tel: +44 (0)20 7729 0643 Richard Carr Richard.Carr@gamblinginsider.com Tel: +44 (0) 203 435 5624 Nitesh Patel Nitesh.Patel@gamblinginsider.com Tel: +44 (0) 207 739 5768 US BUSINESS DEVELOPMENT MANAGER Aaron Harvey Aaron.Harvey@playerspublishing.com Tel: +1 702 425 7818 US ACCOUNT MANAGER Erica Clark Erica.Clark@playerspublishing.com Tel: +1 702 430 1912 CREDIT MANAGER Rachel Voit WITH THANKS TO:

JULIAN PERRY, COO, Editor in Chief

CARL FRIEDMANN, Editor

As the saying doesn’t go: What happens in Vegas... when the Bellagio fountains are turned off and there’s no one there to wish them back? We’re all still finding out, though, since each day presents a new test of character, morality and coping skills for state, city and business officials as the city wrestles with getting its game back on.

The pandemic has thrown everything into disarray, and rifling through the existing playbook won’t reveal a set formation or response to tackle such chaos. Nevada Governor Steve Sisolak has been floating ideas. Las Vegas mayor Carolyn Goodman has certainly voiced her opinion on how to proceed, and operators have been testing the waters in other markets and offering dates to reopen some venues on the Strip.

Since the lockdown, the city, and the world in general, has at least moved on from the initial state of shock to acceptance. Of course, acceptance means compromise and our next trip to Las Vegas, whenever that might be, will be very different from the last one (starting at the departure lounge). Companies are finding solutions to reconfigure casino floors to make them safe yet still attractive and comfortable. After all, no one wants to be entertained to a Vegas standard while barricaded behind Plexiglas as the sickly smell of sterilization wafts from the vents.

And we know that sports beget sportsbooks, and without the former, there’s no latter, so land-focused companies are scrambling to get an online footing before what’s left to collapse does. “The groups that don’t have a good offering in terms of esports betting are reaching out to see how quick they can get one up, because they know that they’re missing out on a good market right now,” says Scott Burton, chief executive of Askott Entertainment in Ezra Amacher’s feature starting on page 12. Luckily, some sports betting markets are opening up again, but that doesn’t mean it’ll be a swift succession back to normalcy.

Tribal gaming is also in peril as Sean Chaffin explains in his feature on page 36. “With the industry in uncharted territory,” he says, “many tribal gaming operations find themselves not only in a fight for their business and members’ well-being, but for the fiscal future of the tribe itself.”

In Amacher’s other feature on page 34 about how to put this reality into context, professor Michael Green from the University of Nevada Las Vegas probably put it best.

“In my line of work, we don’t really like the word ‘unprecedented,’” he says. “We don’t like to toss it around too much. We can toss it around for this.”

CONTRIBUTING THIS ISSUE

Paul Sculpher, Bobby Soper, Max Meltzer, Sean Chaffin, JD Duarte, Alberto Alfieri, Gonzalo Perez, Alessandro Fried.

Gaming America magazine ISSN 2632-766X Produced and published

by Players Publishing Ltd All material is strictly copyrighted and all rights reserved. Reproduction without permission is forbidden. Every care is taken in compiling the contents of Gambling Insider but we assume no responsibility for the effects arising therefrom.

The views expressed are not necessarily those of the publisher.

JASON ADER

CEO, SpringOwl Asset Management

BOBBY SOPER

President & CEO, Sun Gaming and Hospitality

READ EVERY EDITION ONLINE FOR FREE AT GAMINGAMERICA.COM GAMINGAMERICA 3

CONTENTS 06

FROM THE TOP

32

Tim Poole looks into the difficulties facing Oklahoma tribes during the coronavirus pandemic.

08

ZEN SPORT

Max Meltzer, Kambi CCO, analyzes the sports betting options facing tribes.

34

Keeping the customer in control was the primary business model as Mark Thomas set out to create ZenSports.

12

ESPORTS

AML

36

DEBATE

40

POKER TO THE RESCUE?

42

RECRUITMENT Paul Sculpher and Steven Jackson, owners of GRS Recruitment, explore recruitment within the gaming industry and how perceptions are changing, and being challenged, in the current climate.

28

LATAM A panel at a recent SBC Digital Summit evaluated the future of Latin American sports betting, and the biggest lessons for operators to take from the COVID-19 pandemic.

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SEIZING OPPORTUNITIES Bobby Soper, president and CEO of Sun Gaming and Hospitality, on opportunites operators should ignore at their peril.

44

As COVID-19 temporarily calls an end to traditional sports betting across the globe, panellists at the SBC Digital Summit discussed the effect on the poker segment.

24

EBITDA Tim Poole speaks with industry experts to gauge exactly how much value assessing a gaming firm’s EBITDA gives an investor.

With sports betting all but sidelined for the foreseeable future, the editorial team debates where online companies should focus their attention during the COVID-19 pandemic.

22

TRIBAL GAMING Tribal gaming operations credit economic stewardship in helping survive the coronavirus pandemic, as Sean Chaffin investigates.

Paul Sculpher of GRS Recruitment discusses anti money laundering strategies on both sides of the Atlantic, and how a familiar enemy reveals that we’re divided by more than a common language.

18

COVID: VEGAS Professor Michael Green explores the resilience of Las Vegas as the city is deprived of action on a new scale.

Ezra Amacher examines esports and online gaming as a whole as it looks to sustain growth in a volatile climate.

16

TRIBAL SPORTS BETTING

US LOTTERY With US lotteries being impacted by the COVID-19 outbreak, a panel at the SBC Digital Summit discussed how it could bring about a digital transformation.

46

DRAFTKINGS Despite this being a time like no other, DraftKings has maintained a sense of fluidity to power through current obstacles and setbacks. Ezra Amacher speaks with the Boston-based operator’s C suite about how they’re weathering the storm.

FROM THE TOP

FROM THE TOP: A TOUGH TIME FOR TRIBES Tim Poole looks into the difficulties facing Oklahoma tribes during the coronavirus pandemic.

Though the impact of the COVID-19 outbreak has been devastating worldwide, in gaming, few nations have been as affected as the US. While legalized online sports betting has begun to proliferate nationwide, with very young online casino markets also breaking through, the coronavirus has decimated sports betting from the source, but has especially brought the US’ primary segment to a shuddering halt: its land-based casino and hospitality sector. States in the process and some which are very near to legalizing sports wagering also now face a major slowdown due to the practicalities of self-isolation and social distancing.

But while the likes of MGM Resorts International, Caesars Entertainment, Boyd Gaming and other commercial entities make headlines across the US, spare a thought for tribal casinos. Not only are tribes losing out on huge sources of revenue with casinos shut down nationwide, leading the industry to request $18bn in federal aid, the sector has now been deprived of the highlight event on the tribal 6 GAMINGAMERICA

gaming calendar: NIGA. The annual epicentre of exhibiting, networking and industry discussions for tribal organizations, this year’s NIGA trade show in San Diego in March was postponed due to the coronavirus pandemic.

More specifically, however, Gaming America would like to zone in Oklahoma, where it’s fair to say current plights for tribes are exacerbated by Governor Kevin Stitt’s approach toward tribal gaming. On top of the current pandemic and subsequent loss of revenue, Oklahoma tribes have been at loggerheads with the Governor for some time now; Stitt has most recently been accused of ramping up efforts to create division among tribes even during the COVID-19 outbreak. Tensions in Oklahoma are rooted in the renewal of the state’s gaming compact, which Stitt believes no longer accurately reflects how much gross gaming revenue tribes generate in the Sooner State.

In April, Stitt reached a tentative agreement with Otoe-Missouria Tribe chairman John Shotton and Comanche Nation chairman William Nelson, to "establish clarity and

FROM THE TOP

certainty" and expand gaming opportunities like sports wagering for the two tribes as part of a modernized gaming compact. But legal disputes between the tribes and Stitt are ongoing, and in early May, Oklahoma attorney general Mike Hunter questioned the new compact’s legitimacy, saying Stitt lacks the authority to allow sports betting, which is prohibited by Oklahoma state law.

Yet Oklahoma Indian Gaming Association executive director Sheila Morago told Gaming America the ball is still in the Governor’s court, and he wants exclusivity fees to be raised significantly. Morago, however, said tribes will not agree to such demands.

"I call it a little push and a little push back,” she said. “Right now, the tribes are caught a little off guard with Governor Stitt’s position.

We’re united in terms of our belief the compact is renewed for another 15 years if we can’t come to an agreement. Even if we did want to negotiate, there are only two sections of the compact that are negotiable. The reading of the compact is very clear: if it’s not broken, don’t fix it."

Despite this stance being made clear throughout, Stitt has remained undeterred in his attempts to continue the dispute.

Once the coronavirus pandemic had already forced the closure of all casinos in late March, a legal letter on behalf of the Governor was sent to tribes. During these “uncertain times,” they were urged to “stand together” with the state and sign the proposed new gaming compact with a 5% flat fee on all class III games, and allowing tribes to implement legal sports wagering with a 2% fee of the total amount wagered. It also included an oversight fee schedule each tribe would be required to pay, ranging from $25,000 to $250,000 depending on the annual revenue derived from covered games. This letter, according to the Oklahoma Indian Gaming Association, was not sent to tribes currently involved in the lawsuit against Stitt.

Oklahoma Indian Gaming Association Chairman Matthew Morgan said in response: "We are disappointed in the action taken by Governor Stitt through one of his attorneys to take advantage of tribes as they focus on protecting

their tribal citizens and non-tribal citizens during this pandemic. This letter is yet another unsuccessful attempt to divide the tribes. The letter confirms the real intent of Governor Stitt is to destroy the tribal interest outlined in the existing compacts. The tribal leaders who received the letter reject the proposal as disrespectful and disingenuous."

Morgan continued: "Perhaps more than anything, we are dismayed Governor Stitt would exploit the current pandemic for these purposes. Consistent with the advice of public health professionals, the tribal governments have suspended gaming operations to help blunt the spread of COVID-19. Nothing is more important to the tribes than working together to fight this deadly virus. Public health is our main focus at this time."

As is by now tradition, though, the Governor’s office would not be subdued.

The tug of war continued, despite Morgan’s strong claims. Defending the state’s offer, Baylee Lakey, the Governor’s communications director, said: “Since day one, the Governor has been committed to negotiating to achieve a win-win for the future of tribal gaming in our state. The State has been aggressively communicating with every tribe in Oklahoma to advance a common-sense solution on Model Gaming Compacts [which] are unquestionably legal and deliver unprecedented guarantees of clarity, stability and transparency for all Sovereign parties, and for the benefit of all four million Oklahomans.”

It seems the disagreement shows no signs of abating, at a time when legal wrangles should be the least of both the state and the tribes’ worries. Indeed, the situation in Oklahoma offers us a window into the difficulties tribal operations face on a regular basis.

While wider uncertainty pervades every walk of life, no one in the US should take tribal gaming and the resilience it is showing for granted, especially during such a tough time for tribes in particular. For a sector that contributes so much of US gaming’s gross revenue on an annual basis, its reward is often paid in unjustified hostility, instead of the credit it deserves.

"THE REAL INTENT OF GOVERNOR STITT IS TO DESTROY THE TRIBAL INTEREST OUTLINED IN THE EXISTING COMPACTS. THE TRIBAL LEADERS WHO RECEIVED THE LETTER REJECT THE PROPOSAL AS DISRESPECTFUL AND DISINGENUOUS." – MATTHEW L. MORGAN

GAMINGAMERICA 7

ZENSPORTS

FROM THE GROUND UP Keeping the customer in control was the primary business model as Mark Thomas set out to create ZenSports.

When Mark Thomas started ZenSports, a mobile peer-to-peer sports betting product, he continually went back to a saying commonly tossed around in technology circles: “If you’re going to build a technology product and be successful, it needs to be 10 times better than anything else out there.”

So Thomas and his small team decided to forgo building a traditional sportsbook website, focusing rather on a strictly mobile platform. ZenSports would use cryptocurrency and blockchain technology to expedite the betting process. Most significantly, there would be no bookmaker.

“The bookmaker is like the biggest middle man in the world,” Thomas tells Gaming America. “They’ve been around forever and they charge huge fees. What we can do is disintermediate the bookmaker.”

ZenSports was designed as a global marketplace for sports bettors where customers can create or accept bets and submit results all without an intermediary. The app divides bettors into roles of makers or takers. Makers create any type of bet they’d like, set a maximum wager and wait for a taker to review and accept their wager.

Bets range from traditional over/under and moneyline to props, like what color uniform a team will wear. A taker has the option of accepting a bet at maximum amount or less.

8 GAMINGAMERICA

Unlike most sports betting products, ZenSports asks the maker of the bet to also submit results. “We have this really cool penalty and reward system in place to ensure that the maker always acts in good faith and sends in correct results,” says Thomas. “It’s a full-proof system and it works really well. “The maker has an escrow fee in addition to their bet, and if they send in incorrect results, they’re going to lose that additional escrow fee as a penalty. So it’s a decentralized market place in the fullest form and it allows us to stay completely out of the process.”

Thomas believes that by placing trust and responsibility in the consumer, they’ll feel greater trust toward the product in return.

ZenSports’ other signature difference from most mobile sports betting products is its use of cryptocurrency. The app has its own utility token, which Thomas says is used for nearly 100% of wagers.

Cryptocurrency is a big draw for ZenSports’ customer base, split equally between Eastern Europe and sub-Saharan Africa.

“If you take for example a lot of African countries, there might be people who are unbanked or they may not have access to laptops or other devices to bet with traditional bookmakers, but they all have smartphones and they have access to cryptocurrencies,” Thomas says. “We’re perfect for them. I think we’ve got a really cool opportunity in a lot of these emerging, burgeoning markets that are about to explode in the next five to seven years.”

That explosion will inevitably be delayed by the ongoing COVID-19 crisis, which stymied a period of torrid growth for ZenSports. From July 2019, when the app launched a sports utility, through February, the company saw revenue grow from $150,000 a month to $2.5m.

“Obviously with the coronavirus issues, that’s pretty much fallen off a cliff,” Thomas admits, yet is still upbeat. “We’re optimistic the games will get going again and we’ll be able to resume our growth from where we left off of as soon as that happens.”

A fortuitously-timed round of fundraising wrapped up in February, giving ZenSports another $770,000 as the company waits out the return of sports. At five and a half members, Thomas feels that ZenSports is well sized to ride out the COVID-19 storm.

“The problem with big companies like DraftKings, FanDuel or William Hill is that in addition to having big layoffs, you probably tend to have an employee morale issue in these types of situations, even when things come back,”Thomas says. “Those folks are going to be scrambling. Maybe they’ll be short-staffed because they had layoffs. There are a lot of question marks, whereas with a smaller

ZENSPORTS

team like what we have, we’ve all been in this from the beginning and we’re all very closed niched.”

With only a mobile product to care for, ZenSports can get up and running as soon as sports pick up again. The return of Bundesliga will likely provide a burst of betting action from ZenSports’ soccer-obsessed Eastern European base.

Meanwhile in the United States, UFC and NASCAR returned in May and Major League Baseball is in discussions for an early July return.

Whatever the timeline may be for the return of sports leagues, Thomas insists ZenSports will be in decent shape compared to some of its peers.

“Since everything is done right from their phones with our product, you don’t need to actually leave, he says. “One of the nice things about what we’re doing, because it doesn’t require a physical, land-based presence, is that once the games get going again, we’re good.”

Based in San Francisco, ZenSports is as much a technology company as a sports betting operator. Thomas possesses an attitude toward traditional sportsbooks expected from a decade-long vetern of Bay Area startups.

“I still don’t understand the physical brick-and-mortar business model and then the customer experience with having to use cash and having to get paper slips,” Thomas says. “It just feels very 1995. I know a lot of it is old legalities and certain states still require you to have a physical paper slip or still require you to register in person.”

Those same legalities have prevented ZenSports from formally entering the US sports betting landscape. ZenSports is evaluating US opportunities on a case-by-case basis, Thomas said, but it would take a special situation for the company to consider investing in a physical partnership or ownership.

10 GAMINGAMERICA

For now, ZenSports is satisfied with its international customer base.

“We get people from all over the world betting on Calgary-Winnipeg NHL games,” Thomas says. “And it makes sense, because there’s enough data and media out there to easily consume this content and understand what’s going on. You don’t have to wait for your newspaper the next morning. Because of that, all these sports are really, truly global.”

The ZenSports team is staying busy by adding their own organic content including a podcast focused on the effects of the coronavirus. They also recently added debit card deposits and wire transfers to its app.

“We recognize that maybe five to 10% of the world is on crypto but growing every day, which puts us in a great position for the future,” Thomas says. “But we also don’t want to exclude those who want to use their debit card or want to use their bank account to put money in. We still want them to have a fun, easy experience for betting.”

The company’s latest venture is mixing eSports into the mix of its wager offerings. ZenSports originally planned to introduce eSports by the third quarter but hastened that process once coronavirus stopped sports leagues. The company uses Sportradar as its data provider.

“All we were doing in April was ramping up additional content to make sure that we’re not having any missing bets that we could be having,”Thomas adds. He’s betting that sports wagering will return to normal volume by early 2021, when Zensports is scheduled for a round of Series A funding.

“That’s still the plan,”Thomas says. “As long as we can get these games going again in the next few months, even really at some point by summertime, we’ll get our growth trajectory again back to the point where we’ll be attractive.”

ESPORTS & ONLINE GAMING

THE I IN TEAM Ezra Amacher examines esports and online gaming as a whole, as it looks to sustain growth in a volatile climate.

As chief executive of Askott Entertainment, an iGaming development company, Scott Burton is accustomed to placing outbound calls where he gauges interest in the immersive offerings of eSports and casino style products.

However, since the spread of COVID-19, it’s been Burton’s phone that's ringing off the hook. eSports, long outcast from mainstream betting, is suddenly one of the coolest kids on the block. “The groups that don’t have a good offering in terms of esports betting are reaching out to see how quick they can get one up because they know that they’re missing out on a good market right now,” Burton says.

The sudden and unexpected cancelation of sports leagues led to a dearth of betting content this spring, forcing operators and state governments to gravitate toward iGaming as a revenue lifeline.

Whether iGaming can realize its full potential depends on how soon sports leagues return to action and casinos reopen, as well as the success of operators at retaining new online players. Also important is whether regulators take on more urgency to get iGaming up and running in new markets. iGaming experienced an initial wave of interest in late March as domestic and international sports came to a 12 GAMINGAMERICA

halt and nearly all of the United States fell under a state-at-home order.

“We’ve seen significant growth, and this is no surprise to anyone,” said Aviram Alroy, Mohegan Sun VP of interactive gaming, during an ICE North America expert panel on iGaming.

“What’s really interesting is that the growth we’re seeing is from people from our brick-and-mortar database a lot more than the general public.”

Mohegan Sun offers an online casino for New Jersey residents and partners with Unibet for a Pennsylvania online casino and sportsbook.

An easy-to-play, accessible interface is essential for brick-and-mortar brands like Mohegan Sun, who depend on an older consumer base.

“I think that is very encouraging for us to know that people who cannot go to casinos right now are able to go and play online and are not afraid from that hurdle of playing online,” Alroy said.

Regulated online poker is available in four states: Pennsylvania, New Jersey, Delaware and Nevada. Of those four, all but Nevada also offer online casino games.

New Jersey is the clubhouse leader for online gaming. The Garden State earned a record online gaming revenue of

ESPORTS & ONLINE GAMING

$80m in April, a year-on-year increase of 119% and a 23% jump from March.

“With no other great options to make money, online casinos are their overwhelming focus at the moment,” says Dustin Gouker, lead analyst for PlayUSA.com and PlayNJ.com. “The biggest question is just how much the casinos will change behavior and acquire customers actively rather than passively.”

Pennsylvania also set an online gaming revenue record in March ($24m) and the number is sure to rise in April. The state’s online growth took off in January, when Valley Forge Casino introduced its FanDuel Sportsbook; Valley Forge brought in $6m of online revenue in February. FanDuel has responded to the drop off in live sports by adding baccarat, video poker and land-based slot titles to its iGaming library.

“It would be unusual to see the growth sustain forever, obviously,” Jesse Chemtob, GM and VP of Casino for FanDuel told the ICE panel. “For so long as we see some sort of modified behavioral changes from the general public, with these stay-at-home orders and what local governments are implementing from a public health perspective, we should expect to see some organic migration of land-based customers trying online for the first time.”

Pennsylvania online poker is limited to PokerStars, which launched last November under the Fox Bet umbrella. PokerStars recently held a “Sunday Million” contest that attracted more than 93,000 entries with a prize pool of $16.8m; PokerStars earned record online revenue of $3.1m in March.

“It’s been amazing to see the feedback and watch the live chat where players have been exclaiming how much fun it is to be playing with us,” Eddie Motl, VP of communications for Fox Bet. “Right off the bat, our first ever Pennsylvania Championship of Online Poker broke our $1 million guarantee.

Our Spring Championship is taking place right now and is so far getting a great turnout.”

Delaware and Nevada are also seeing tremendous online poker growth with legal poker sites hitting record traffic according to Gouker.

Nevada is under enormous pressure to improve gaming revenue, which fell almost 40% in March. In April, the Nevada Gaming Commission took the unusual step of approving esports wagers for four leagues, an indication that bookmakers were in need of more content beyond Ukrainian table tennis.

The early-April NBA 2K Players Tournament demonstrated the risk of bookmakers accepting eSports contests. Someone leaked results of the pre-recorded contests, allowing savvy bettors to take thousands from sportsbooks. Bookmakers were forced to pull the plug on the event midway through.

“Regulators and bookmakers aren't entirely comfortable with booking all esports events,” Gouker said. “And there are only so many events that are big enough for it to make sense. In addition, eSports have also seen a number of high-profile 14 GAMINGAMERICA

match-fixing and gambling-related sanctions and issues in recent years.

“The daily fantasy side of esports for DraftKings and FanDuel are more immune to that, as it's almost impossible to fix a DFS contest.”

Other esports events have found better success, including NASCAR’s iRacing product. Penn National, which partnered with the auto racing league in February, quickly incorporated eNASCAR into its free-to-play mobile app.

Boom Sports CEO Stephen Murphy, who helped develop Penn National’s NASCAR Finish Line app, says: “Gaming is one of the few industries that has started to skyrocket in popularity in the past couple months. It’s more important than ever that media companies, teams and leagues invest in what a mobile gaming or mobile viewing experience would look like. We expect our type of products to be in high demand.”

For iGaming to sustain its growth in coming years, more states must follow the lead of Michigan, which legalized online gaming in December in conjunction with a sports betting bill.

Earlier this year, Michigan regulators also said that online casino games wouldn’t get off the ground until 2021. That process could be expedited in the absence of brick-and-mortar casino revenue.

“Without those gaming dollars, that revenue from the commercial three casinos in the city of Detroit, we’re left with significant budget shortfalls,” Michigan Representative Brandt Iden told the ICE panel. “We are moving quickly. The rules are out. We’re waiting feedback on those hopefully with an implementation period sooner than the one year that was originally discussed and written into the legislation.

Iden said that Michigan is trying to expedite its process by provisionally licensing operators who are already licensed in other states. Even if Michigan can regulate online gaming ahead of schedule, the state faces another problem. Casinos and operators who had planned on a year-long process to build out their platform would be playing from behind to get their products up, putting them at a competitive disadvantage.

“In fact they may not put the investment into Michigan that they originally anticipated,” Iden adds.

Ultimately, the concern for individual operators may be overridden by states’ urgency to add revenue amid record budget shortfalls.

“We’re hopeful that states look at this as a way to drive incremental tax revenue that they may not be receiving from other areas where they’re having budget deficits,” Chemtob told the panel. “So [online] gaming could be a way to help fill that hole. We’re hoping that states look at it as a way to have a complimentary offering with land-based entertainment options with the casinos and sportsbooks.”

AML

ONE STEP BEYOND Paul Sculpher of GRS Recruitment discusses anti money laundering strategies on both sides of the Atlantic, and how a familiar enemy reveals that we’re divided by more than a common language.

With the ever converging world, made smaller by the ability to travel and the influence of technology, it’s fair to assume that elements of every business including the betting and gaming sector will converge over time. One factor that has had a gigantic effect on the UK and European market has been the impact of Anti Money Laundering (AML) regulations, and the knock-on effect they’ve had – it’s been transformational.

16 GAMINGAMERICA

Restrictions on movement of cash has long been vaguely on the radar of the authorities, but if the US gambling industry is going to end up following on from the European experience, there’s a major storm coming.

The Americas are no stranger to AML issues and fines, with HSBC being levied phenomenal penalties for essentially turning a totally blind eye to gigantic cash deposits from drug cartels, resulting in a $1.9 billion fine in 2012 to avoid prosecution for allowing over $880 million in proceeds from illegal drugs. At the heart of the issue for the gambling industry, however, is perhaps not so much pure money laundering in the literal sense, but the spending of proceeds of crime. That distinction turns the focus from gigantic players to much smaller fish. So how did Europe get to the position they’re in now?

Leaving aside the details of which piece of legislation pertains (European money laundering directives and countless other bits of law) and how the politics worked,

AML

it feels like the primary driver of the very strict interpretation in the UK has been negative press surrounding that Proceeds of Crime issue. One could argue that true money laundering is pretty tricky in a gambling environment, either offline or online, without either a very large and complex cover up operation, or a total disregard for the existing laws from operators and indeed regulators. The option to obtain “clean” money from an offline operation is tougher than many think, with “suspicious” transactions such as large buy-ins and cashout with minimum play having been under scrutiny for decades. On the other hand online play is of course tracked to the penny, meaning there’s less room for huge movements of money from illegitimate sources to apparent clean winnings.

However, it doesn’t take too many headlines screaming “man steals $300K from employer to feed gambling habit” to get the authorities very interested, and with gambling on sports opening up in many states in the US, these headlines will become more prevalent. It seems likely that online casino wagering won’t be too far behind too, arguably a more dangerous form of gambling that will lead to more addiction problems and more high profile cases.

The solution used in the UK and Europe has been something almost unimaginable 10 years ago – the need to verify the source of wealth or funds for all significant players. It might seem inconceivable to US operators,but in the UK for example, players worth as little as a few thousand pounds a year are being asked the most intrusive questions about how they can fund that play – and penalties for failing to record this information are getting tougher by the month. Twenty to 30 years ago, there may have been a tacit acceptance that many of the bigger players in UK offline casinos, for example, were likely to be operating business that were tax-averse at best, and downright illegal at worst, but with minimal regulatory oversight , blind eyes were turned.

These days, however, all that is ancient history. No casino manager in the country isn’t familiar with the need to verify sources of income and wealth, and you only have to witness a couple of conversations between casino managers and long treasured customers to understand the seriousness of this task. I’ve seen an older lady asked, apologetically and somewhat unwillingly, to produce documentary evidence of the inheritance from her late husband to justify her £10K a year slot play. The problem for the top line of the business isn’t just getting the information from players, so as to exclude people whose incomes aren’t verifiable, however.

For every player who produces this information, you can imagine there are plenty who won’t. In some cases they’re criminals. However, there are plenty of other

casualties, from people who just don’t want to produce the information on the basis that it’s intrusive, to a significant problem in the UK, players who are concerned that their income may become a little too transparent to the tax authorities.

The regulators in Europe have, as one might expect, had zero sympathy for operators whose revenues have been destroyed by these measures, and while the casino industry in the UK hasn’t seen too many closures just yet, we believe a good number of casinos won’t re-open after the current virus outbreak permits a back to normal situation.

How does all this relate to the situation in the USA? It’s beyond the scope of this piece to foresee the reaction of the legislators in every state, but inevitably as cases mount up of people resorting to illegal activities to fund their problem gambling, the issue will gain traction. The tipping point may well be some high profile individual who is able to gain access to a very large fund of illegally obtained money and spend it gambling online, at which point the legislatures must step back and say “shouldn’t we be asking the operators to run proper checks?” That’s how it starts, and when you combine the societal damage caused by genuine money laundering, spending proceeds of crime and then pure problem gambling, checks on where players’ money comes from look like the obvious solution. Just bear in mind it might have a savage effect on revenues if it’s anything like the UK and European set of regulations.

PAUL SCULPHER

GAMINGAMERICA 17

DEBATE

THE ELIMINATION ROUND With sports betting all but sidelined for the foreseeable future, the Gaming America editorial team debates where online companies should focus their attention during the COVID-19 pandemic.

Amid mass cancellations on the sporting calendar, sports wagering companies have been deprived of a central revenue source during the coronavirus pandemic. As opposed to the record year many suppliers, operators and affiliates were expecting – with the UEFA European Football Championships and Olympics scheduled for the summer – the sports betting sector is now facing months without major sporting events.

In the absence of MLB, NBA, NCAA, tennis, Formula 1 and more, some bettors are turning to table tennis in states like Pennsylvania and Indiana. But to generate revenue on a much larger scale, sports wagering firms 18 GAMINGAMERICA

simply have to turn elsewhere. So which vertical stands to gain the most spillover during sports betting’s stagnation period?

TIM POOLE: ONLINE POKER, THE ACE IN THE PACK While online casino should generate the highest gross gaming revenue during an indefinite period without sports betting, the vertical that stands to gain the most – if operators are shrewd – is online poker. Down in the dumps and on the decline in the past, poker has been presented with an unprecedented opportunity to grow. Even though online casino should strengthen, gaining traffic from land-

DEBATE

based companies digitalizing their business, poker boasts a number of aces within its hand:  Sports fans don’t always migrate to table games and online slots. Those who look for competition and specifically enjoy the competitive sporting element can still get that stimulus from poker.  The professional poker scene can be kept alive via digital play, unlike major sports that require physical gatherings.  People are more home-based due to social distancing, with additional time on their hands. Rather than quick-fire casino games that previously filled short slots for players, bettors will have more time to invest in a product with a longer duration, like poker.

This, as mentioned, depends on how shrewd operators will be and how quickly they can pivot. 888 Holdings CEO Itai Pazner has previously spoken to Gaming America about a desire to revolutionize poker, and now could be the vertical’s biggest opportunity to do so. Perhaps shorter contests can still be offered to introduce sports bettors to the action, while more expansive bonuses and welcome offers are a risk worth taking at a time when free trials are being used to great effect across all industries.

As stated, online casino games do have an inherent advantage in that their demand has remained unaffected

by COVID-19, even growing during the pandemic. But poker has also seen a rise where, crucially, it hasn't been so fortunate in recent times. I expect esports to grow even quicker than usual and virtual sports should also rise in the current climate. In my opinion, however, online poker will be the biggest beneficiary from the mass reduction in sports wagering.

the season, I found myself watching (and actually enjoying) the virtual edition of the Australian Grand Prix. For those like me who previously rejected the idea of esports, this sport-less period may prove vital in swaying opinion – increasing the growth of an already fast-moving vertical.

Last year, global esports revenue topped $1bn for the first time in its history, while its audience grew to more than 450 million people worldwide. This has prompted many industry experts to tout it as the next big thing in wagering.

Speaking with Gambling Insider late last year, John Griffiths, VP Marketing and Business Development at Spicy Mango, explained why he expects the vertical will continue to grow. He said: “There’s a whole generation of people growing up who have been moving their game playing online. Then, when you add that to the ability to stream those games on YouTube and Twitch, these players have created a following very quickly, which encourages other players to get involved.”

Although it’s still early days to compare esports to the more traditional forms of betting, it does seem gambling companies would be missing a trick in not capitalizing on its increased viewership. The current situation may provide the motivation for them to do just that. Griffiths insisted that for esports wagering to grow to the levels of traditional sports, greater education was needed, both on a customer and business level.

Perhaps operators could use this time to increase education; directing their sports bettors towards esports competitions and potentially creating some life-long esports fans (and bettors) in the process.

OWAIN FLANDERS: ESPORTS COMING OFF THE BENCH

IQBAL JOHAL: VIRTUAL SPORTS SET TO THRIVE

When trying to fill the void left by sports betting, it seems evident you would choose the vertical most similar (give or take a letter). Although the impact of COVID-19 has been devastating for large parts of the industry, it has provided us with a vital glimpse into the future of the esports vertical. Sports fans searching for their usual dose of competition have been driven elsewhere by the cancellation of major sporting events, and esports has demonstrated it can provide a more than suitable replacement.

As a Formula 1 fan, I was understandably disappointed to learn the season was delayed indefinitely. However, in an effort to allay this disappointment, racers, professional athletes and esports stars have been arranging virtual versions of each Grand Prix – smashing previous viewership records in the process.

Earlier in the year, I would have scoffed at the premise of virtual racing. However, having waited so long for the start of

We all know how popular sports betting is but virtual sports seems to be the best vertical to fill the absence.

First off, it’s the vertical that replicates sports betting the most, considering it’s a virtual, pre-recorded version of your favourite sports, such as horseracing and football.

Long before the postponement and cancellation of sporting events due to the coronavirus outbreak, Golden Race CEO Martin Wachter told Gambling Insider last year that virtual sports has “enormous potential” to exceed revenue generated by sports betting.

Fast forward to now and you have the likes of Newgioco stating the longer live sports are delayed, the likelihood of a surging effect on virtual sports increases in the long run. Virtual sports are capable of running 24/7 and can, in this age of technology, provide an engaging and realistic offering of entertainment. The majority of operators now offer impressive graphics and commentary, replicating real life matches, particularly GAMINGAMERICA 19

DEBATE

in football, which more than adequately fills the void left by a lack of live sports.

But it’s not just the traditional sports fan virtuals can attract. Looking to younger generations, virtual sports betting could be exactly what a Generation Z audience – usually referred to as those born in the mid to late ‘90s – is looking for given their obsession with all things technology and mobile-based.

A panel at last month’s Prague Gaming Summit discussed Generation Z, with the consensus being virtual sports could be the ideal way to attract more players to the gaming industry and, given the current climate, the opportunity certainly presents itself right now.

The panel discussed the fact the younger generation engages with mobile devices constantly, making speed, graphics and accessibility key, which are all elements that make today’s virtual sports product stand out.

Golden Race sales director Tassos Panagiotaros admitted the supplier has adapted itself based on specific characteristics of Generation Z, to appeal to them with its virtual sports offering. Meanwhile, the fact customers who engage with virtual games also remain loyal, according to Newgioco, is another big factor in the popularity of virtual sports during this period.

Virtual sports can also offer customers virtual events and athletes they may be emotionally connected to, which is another subjective yet very important factor to consider. Overall, this period with reduced sports is a great opportunity for the virtuals segment to continue its rise in popularity and attract a new customer base.

online poker is entering a renaissance in parts of the US. Pennsylvania, one of four states that currently offers legal online poker, has seen steady seven-figure revenue across its first four months of earnings with December revenue reaching a high of $2.5m.

March figures for Pennsylvania, New Jersey, Delaware and Nevada will give a better picture as to what the ceiling is for online poker.

New Jersey and Nevada had seen revenues decline in recent months, but with traditional sports betting and in-person casino play out of the picture, online poker is poised to win over bettors craving some action.

Dustin Gouker, lead analyst for PlayUSA.com, tells Gaming America: “There's definitely more interest in online gambling options like casino and poker. With sports betting almost completely shut down and land-based casinos closed, people are looking for online options, at least in the short term. We're going to see significant jumps in online casino revenue in both Pennsylvania and New Jersey, beginning with March's numbers. Online poker in both states, along with Delaware and Nevada, is also growing significantly, with traffic hitting record levels on legal poker sites.”

Poker is a familiar game to millions of adult Americans and has some bona fide celebrities in its corner promoting it on social media. Baby boomers, the group with the most disposable income to spend on gambling, probably don’t know the difference between League of Legends and Overwatch, but they’re well acquainted with five card draw and Texashold ‘em.

Then there’s the social element of online poker.

Users can play with competitors from their own backyard or all over the world. In a time of stay-at-home orders and social distancing, there’s something especially appealing about forging new relationships through a shared interest. Online poker provides that.

"IT’S NOT JUST THE TRADITIONAL SPORTS FAN VIRTUALS CAN ATTRACT. LOOKING TO YOUNGER GENERATIONS, VIRTUAL SPORTS BETTING COULD BE EXACTLY WHAT A GENERATION Z AUDIENCE IS LOOKING FOR GIVEN THEIR OBSESSION WITH ALL THINGS TECHNOLOGY AND MOBILE-BASED."

EZRA AMACHER: POKER ENTERING A RENAISSANCE Poker has survived revolutions, world wars and plagues.

Its online form will almost certainly thrive amid the COVID-19 crisis.

Though sports betting has garnered the lion’s share of the attention in America over the past two years, 20 GAMINGAMERICA

REBIRTH OF POKER

POKER TO THE RESCUE? As COVID-19 temporarily calls an end to traditional sports betting across the globe, panellists at the SBC Digital Summit discussed the effect on the poker segment.

MODERATOR JONAS ODMAN, founder and CEO Rising Sun Media

PANELLISTS SERGII ROMANENKO, COO POKEROK DMITRY STAROSTENKOV, CEO Evenbet Gaming IVONNE MONTEALEGRE, founder and event director Malta Poker Festival

JO: What state was online poker in before COVID-19 and how has this changed?

SR: Poker has been growing since the end of the 1990s and during the last two years, it has shown small growth. Companies have improved their databases and retention. Nobody knows for certain but I think poker has increased since quarantine started. The number of active poker players online is now very close to 2011 numbers.

DS: In emerging markets, poker had been growing in the last few years. The world’s online poker experienced a drop in developed markets and moved to Asia where it evolved. Now it’s experiencing a second wave in Europe where, prior to coronavirus, it was growing again. The pandemic has sped up the growth of online poker.

Poker is acting as a lifesaver for sports betting operators now along with casino and virtual sports. We’re observing high demand from players to sports betting operators for online poker. Those operators who weren’t keen on online poker are now including it into their portfolio. We’re seeing a big increase on that with our clients.

IM: Before the pandemic we experienced the Moneymaker effect where poker was well known with just a few operators taking a large share of the market. Poker flat-lined and emerging markets saved poker for some operators. The big brands always survived but we were facing a poker industry that saw the smaller brands swallowed up and having a difficult time existing.

Since 2010 it’s been very difficult for poker to make the revenue it needed. Hosting a live poker event has been hard. We have to ask operators to host the live satellites because there are a lot of 22 GAMINGAMERICA

overlays. The golden times when poker was thriving and there weren’t that many operators ended in 2010. Since then it’s been difficult to survive, but with some exceptions of emerging markets.

Microgaming shutting down was an interesting example of how badly poker was performing.

But with this pandemic, poker is thriving again. It’s a new second wave even bigger than the Moneymaker days. Companies are experiencing 300% growth in their revenue. Now everyone wants to have poker again.

JO: Is this growth new players signing up for poker websites or old players coming back?

IM: I think it’s a combination. Players fully understand the affiliate business now. Back in the early 2000s, players weren’t aware of how the affiliate coding worked, whereas now, players want to have nine different accounts with all different operators. A lot of live players are turning to online poker. My clientele of live players are older - 60 up. Now they’re playing online poker because they miss it. It’s an incredible time for acquisition. It’s the golden era again.

DS: I think there’s an influx of newbies to the poker world, which plays positively to poker in the long-term. However, I’m not sure how sustainable this trend is because it’s hard to predict anything at the moment.

JO: With that in mind, will the second poker boom last beyond the pandemic?

SR: I hope it will be the next poker boom but it’s hard to predict. I

DIMITRY STAROSTENKOV

REBIRTH OF POKER

believe poker will become healthy beyond quarantine. It’ll be hard to keep the pace of the last two months for different reasons. The economical situation will become worse in most countries and there will be rising unemployment so a decrease in recreational activity. I think the main good thing is that poker players who haven’t understood online in the past will now understand it.

JO: How is the poker industry affected by the lockdown strategies of different countries?

SR: It’s hard to predict because poker increases and decreases in certain seasons. If there is quarantine in the summer season then it’ll be decreased anyway.

DS: I would say what’s interesting is we’re getting inquiries from some surprising areas, which we had never considered as our main markets, including Europe, Africa and some parts of Lat Am. From Asia, we don’t see any huge difference from before and now. But for Europe, Lat Am and Africa we’re seeing more and more enquiries from land-based casinos that want to keep the relationship with their players. They don’t know how to deal with it but they’re trying to find a way to get into online poker.

IM: Poker is an interesting industry that has managed to mix a live part with an online part. The live part is dead right now but it’s a big industry with a lot of casinos and politics. When the live part is activated it’ll take a large part of the market again, but it won’t take it entirely. We’ll see some interesting changes.

The Irish Open has been cancelled completely and moved online. Everyone follows suit with that. Life will not go back to normal as we know it. Casinos in Vegas and here in Malta are sitting down and establishing new protocols because it’s such a high risk.

We are prepared to deploy live events again but we might not be able to do them in huge arenas as usual. We’ll learn as an industry.

Live poker will learn that some online needs to be deployed.

Of course, I’ve always thought that Lat Am is a gold mine in terms of poker and sports betting. Now this lockdown is educating everyone that poker is a lot of fun to play. We’re

“A LOT OF LIVE PLAYERS ARE TURNING TO ONLINE POKER. MY CLIENTELE OF LIVE PLAYERS ARE OLDER - 60 UP. NOW THEY’RE PLAYING ONLINE POKER BECAUSE THEY MISS IT. IT’S AN INCREDIBLE TIME FOR ACQUISITION. IT’S THE GOLDEN ERA AGAIN.” - IVONNE MONTEALEGRE seeing a lot of poker apps on the phone exploding. That is another trend in the poker world.

JO: When this pandemic is over, will live poker come back to the numbers we saw before?

IM: In general I like to be positive. I think yes we will benefit because of the overall exposure of poker but it’s going to be difficult to congregate a lot of people in the same room. Live poker is at particularly high risk because of poker chips etc.

We have to be responsible. In the early stages, next year and late this year, live brick-and-mortar casinos need to be very responsible and the governments will make sure they are.

There are a number of policies already in discussion in Vegas and Malta, and there will be entities that will check hygiene with cards and poker chips. We will have to keep distances between players. But overall in the long-term I believe poker will show how exciting an industry it is and the amazing committed people behind it.

GAMINGAMERICA 23

RECRUITMENT

PEOPLE POWER Paul Sculpher and Steven Jackson, owners of GRS Recruitment, discuss recruitment within the gaming industry and how perceptions are changing, and being challenged, in the current climate.

From a UK perspective, there’s a gathering storm in the betting and gaming industry. Recruitment at staff level has been challenging for a while now for a variety of reasons. The unsociable hours are the first barrier to bringing new faces into the industry, and a tougher trading environment means wages aren’t far north of the unskilled types of roles that include entry level fast food server – with minimum wage legislation narrowing the gap further. Brexit – almost forgotten right now in a virus laden world – may cut off the recent free flow at staff level too.

24 GAMINGAMERICA

The reputation of the industry isn’t necessarily the greatest incentive to get involved either, with some high profile negative publicity about fairly predatory behavior from some rogue operators. You’d probably struggle to make the case that the future is too bright as well – online may be flying right now, but with the spectre of legislative sanctions and likely consolidation on the horizon, job security isn’t what it used to be.

The COVID-19 situation, which is still the focus of everyone’s attention, will have effects too. It’s widely

RECRUITMENT

recognized that jobs in leisure and hospitality were among the first to be furloughed or released when the pandemic gathered pace. But at the same time, there’s a certain pride in serving leisure customers, which perhaps may have been enhanced by the enforced period of quarantine. Right now we all look forward to a welcoming pub with an obliging friendly face behind the bar, and the gaming industry not far behind on many a wish list.

Perhaps one thing we collectively don’t leverage as much as we might are the prospects for advancement in the leisure industry. There are almost as many stories of gaming floor (or equivalent) to executive level as there are executives, certainly if you count people working across sectors within leisure and hospitality.

The starting point of minimum wage plus a premium for antisocial hours might not be much of a hook to bring people into the industry, but a shot at six figure salaries within a decade for hard work with a bit of applied intelligence starts to look a whole lot better.

From a recruitment agency point of view, there are bright spots. Compliance, which to some CEOs may have the appearance of a troublesome pure cost center, takes top billing in this regard. A cursory glance at any trade magazine will show what happens if you don’t observe your compliance obligations, and from a situation two or three years ago where the demand for skilled compliance people from entry level to director far outstripped supply, we have now seen a rebalancing. A good part of what we do is making companies safer by sourcing the experts they need to protect their businesses.

As a result, we’ve begun to see a more balanced talent pool in terms of gender diversity. Going back to my dealer and shift manager days in casinos, it was very visible that the management teams were heavily male-weighted, and while there is some way to go, the balance feels to have shifted somewhat. There is still plenty of work to do in this regard, all the way through to senior executive level, but progress is being made.

In addition, retention is challenging for all operators.

There are twin forces mitigating against lower turnover

rates both at staff and management levels. The first is that “land of opportunity” element – most ambitious team members know that the best way to progress through the ranks is to be prepared to change employers to access the next level role, so your best people are often not willing to wait for the job they want in their current employer. Add in that in many sectors, the watchword is wage efficiency and cutbacks, and you may be in a situation where your best people leave to go elsewhere, and the next best wave of prospects decide to forge a path in a more secure looking sector – and what does that leave you with?

It never fails to amaze us how some companies just flat out won’t use recruitment agencies at management level. We can only assume they’ve had bad experiences in the past, possibly receiving relentless cold calls from shady operators, but it really does make sense in many ways to partner with a specialist. We have spent almost 20 years becoming experts in both recruitment and within casinos, and combining this expertise with subscriptions to all major job boards, and extensive presence and reach on all social media platforms.

Plus, there are the everyday annoyances of recruitment that the operator really doesn’t need to be dealing with.

All the fuss of setting up interviews and weeding out candidates who demonstrate unreliability during the early stages is taken care of, without wasting the operators’ time.

It’s all about ensuring the candidate is committed, before they even get near the hiring manager’s desk.

By the nature of our work, get feedback about candidates as well from current and prior roles. The betting and gaming sector is pretty small, and with the changing of employers noted above, we usually have a decent idea of how well regarded most candidates are, all the more so at senior levels, giving us a good idea of who the stars are, and often more importantly, who will fit with any given culture. This familiarity with candidates can also help us advise employers which areas they may wish to focus on during the interview process.

"THE STARTING POINT OF MINIMUM WAGE PLUS A PREMIUM FOR ANTISOCIAL HOURS MIGHT NOT BE MUCH OF A HOOK TO BRING PEOPLE INTO THE INDUSTRY, BUT A SHOT AT SIX FIGURE SALARIES WITHIN A DECADE FOR HARD WORK WITH A BIT OF APPLIED INTELLIGENCE STARTS TO LOOK A WHOLE LOT BETTER."

GAMINGAMERICA 25

RECRUITMENT

On the other side, it would be unethical to blacklist candidates based on our knowledge. It’s a fact that some people just don’t mesh with some work cultures, so we work hard to try to forward the people we think will best fit, with a bespoke service shaped by our experience.

The other frustration that we can try to remove from the equation is the dreaded counter-offer. There’s nothing worse for a new employer or a recruitment agency than the perfect candidate being offered the role by our client, a new employer, only for the old employer to suddenly realise how valuable they are and offer them more money or more responsibility, or both, to stay. The standard response would be to say, “Well, if they knew you were worth more, but didn’t pay you, do you really want to stay?” But these decisions are personal for candidates. The ideal placement has a candidate so enthused that a counter offer is simply irrelevant. From the employer’s perspective, though, if you’re using GRS Recruitment and the worst does happen, all you do is tell us to send another selection of superstar candidates for you to select another suitable one, rather than having to go through the whole exhausting process again yourself. You only end up paying the agency when you get someone in the role, and they stay for three months.

Most managers regard recruitment as a time-vacuum, which can dominate a diary for weeks at a time. While there’s nothing we can do to mitigate the time needed for a thorough interview and assessment process, we source, identify, screen and interview candidates so you don’t have to in order to provide a tight and focused list of the best candidates available. This saves the employer

26 GAMINGAMERICA

"SOME COMPANIES JUST WON’T USE RECRUITMENT AGENCIES AT MANAGEMENT LEVEL. WE CAN ONLY ASSUME THEY’VE HAD BAD EXPERIENCES IN THE PAST, POSSIBLY RECEIVING RELENTLESS COLD CALLS FROM SHADY OPERATORS, BUT IT REALLY DOES MAKE SENSE IN MANY WAYS TO PARTNER WITH A SPECIALIST." time, resource, effort and allows them to secure the very best available talent.

Paul Sculpher and Steven Jackson are the owners of GRS Recruitment, helping betting and gaming companies across Europe find the best candidates for their management positions.

LATAM SPORTS BETTING

COMING BACK STRONGER A panel at a recent SBC Digital Summit discussed the future of Latin American sports betting, and the biggest lessons for operators to take from the COVID-19 pandemic.

MODERATOR KRISTAL ROVIRA, legal and research director, Americas, VIXIO Regulatory Intelligence

SPEAKERS JD DUARTE, CEO Betcris ALBERTO ALFIERI, COO Vivagol GONZALO PEREZ, CEO Apuesta Total

make much sense releasing casino right now. Currently there’s a big series of challenges.

GP: We were mainly retail focused so there’s been a huge impact in our operations considering the current situation. Shops make up 85% of our revenue, and there’s no light at the end of the tunnel to when we’ll be able to open again. It’s a big challenge for us because we want to keep as many jobs as possible because we invest a lot of money training these people and we don’t want to lose them. The reality is we have no income in this channel, therefore we have to be responsible or our financial situation will be in jeopardy.

We have a challenge taking our customers from a retail channel to an online channel. We have to learn to adapt to the situation.

ALESSANDRO FRIED, chairman BtoBet AF: Our situation is a bit different to the operators because of course

KR: How has the coronavirus outbreak impacted operations and your companies?

JDD: Definitely a different situation for sports betting companies such as ourselves. As sporting events are at a halt, there are very few events happening in the world. We find ourselves having to find a new routine as far as what products we can offer, and keeping our customers active, considering they will have other things on their minds right now, keeping health as the number one concern.

How we communicate with our customers is a challenge, because most of them can’t go to one of our shops, aren’t visiting our website and don’t read emails. The current phase is waiting for the sports leagues to return and waiting to see what will happen with the different economies in the different countries we operate in.

AA: It’s definitely a unique series of situations coming from the coronavirus. We are lucky because we work only online so we don’t have any land-based activities, which helps as well. The first challenge was maintaining communication at an internal level and in a new reality where people weren’t used to working from home and are facing uncertainty and fears of the virus.

Both our brands are mainly sports driven while Vivagol is a recently launched brand in the market, and we were waiting for the kick-off of local football in Brazil, which changed our plans completely from one day to another. We had to put off several things we had planned, including casino because it doesn’t 28 GAMINGAMERICA

we’re a platform supplier, but indirectly we’re affected because it’s obvious that a reduction of revenue from our operators affects our revenues as well.

It’s a pandemic, which is affecting all businesses, but it’s a strong opportunity. The reason is all the technology operators now have means they can improve the product they have to contain the situation they are facing. And they believe when sport resumes, the final product will be a better one. That means increasing the quantity of verticals for many operators.

Some operators in Colombia immediately activated casino where previously it was focused on sportsbooks. Depending on the country they operated in, they activated casinos, live casinos and virtuals. In my opinion this has helped operators create a better product, and they also understood the importance of online.

This situation will affect retail but will change the behavior of customers. They’re becoming more acquainted to the use of internet and mobile, and the online service will become natural to use in the future. This means that many operators in LatAm understood the importance of online, and being online doesn’t mean just a page on which I display my content, but also to work on the organization and have the proper knowledge and tools.

KR: It's a good opportunity for growth and innovation. What are the things you will take from this pandemic?

AF: One part that’s important is related to the product itself.

Previously, just a month ago sportsbook in LatAm in particular, was the main driver. Everybody was focused on it and it represented a

LATAM SPORTS BETTING

significant part of the strategy. Casino was coming after in terms of percentage but it was always considered a side product and not a strategic vertical. Working on the content is a fundamental element, and understanding what it means for the vertical because it’s not just adding some content to your website, it’s much more complicated to work and acquire this kind of knowledge.

This brings about challenges because we know LatAm is strongly affected by payment online. This depends country to country but online payment is one of the biggest challenges that all the operators have. We work in Colombia and we saw a transfer with the players because previously the main channel indicators for payment was the retail channel. But we saw a good migration for the players to use online payment.

The company needs the proper technology to make it easy to increment verticals or channels but this isn’t always the case. A lot of operators don’t have the technology to allow them to change the business model to increase the vertical and activate online payment.

GP: The first thing we’re

KR: There’s a lot of movement happening in the region, particularly with Brazil, Argentina, Peru and Mexico.

How do you evaluate the new opportunities?

JDD: I think the appetite for all these new markets hasn’t changed. We’re still committed to entering all these markets that have been coming out with licenses. It’s going to be more challenging for gaming as an industry because right now we’re a lesser priority to governments, and as far as coming up with regulation, that makes sense. Right now we look like a big piece of meat to governments, where they need tax money right now and they’re going to be looking at gaming to provide that. We were already facing a few challenges, regarding banking, payments and taxes, so we need to really unite as an industry.

The landscape is changing, anyone who has a strong digital channel is now in an advantageous position and I think land-based should be something the governments should give incentives to because they create jobs.

We’re going to be in a rebuilding mode in all of these countries, if not the world.

“THIS SITUATION WILL AFFECT RETAIL BUT WILL CHANGE THE BEHAVIOR OF CUSTOMERS. THEY’RE BECOMING MORE ACQUAINTED TO THE USE OF INTERNET AND MOBILE, AND THE ONLINE SERVICE WILL BECOME NATURAL TO USE IN THE FUTURE. THIS MEANS THAT MANY OPERATORS IN LATAM UNDERSTOOD THE IMPORTANCE OF ONLINE, AND BEING ONLINE DOESN’T MEAN JUST A PAGE ON WHICH I DISPLAY MY CONTENT, BUT ALSO TO WORK ON THE ORGANIZATION AND HAVE THE PROPER KNOWLEDGE AND TOOLS.” – ALESSANDRO FRIED

thinking about is the point of view of our customers. There are a lot of people suffering due to the situation. Our customers, from one day to another, have no income. Therefore we don’t want to be too aggressive with our advertising. Recently we’ve had a couple of cases in Peru about that and people didn’t take it too well. Given it’s a tough situation, we have to think about how we can help people, from our site. In our case, we launched a free bingo with cash prizes, which has proved quite popular.

We stream the game through our Facebook page and 99% of the comments are positive because people recognize the effort we’re making to entertain and help people.

AA: One lesson will be the product preference. Of course the customer behavior has changed during this period and it will be a matter of assessing if this change will be temporary or something definitive that will last. For LatAm, there’s the extra factor of being a region heavily supported by land-based 30 GAMINGAMERICA

operations. This will be an interesting point to observe after the emergency will be over, to understand how effective the cross-sale has been and taking advantage of showcasing all the online products and flexibility you can have as an online operations for normal players that usually use retail.

AA: The approach and pace of the rebuilding mode will tell us more about which countries in the long-term will achieve the most. Right now in the region, Brazil, Argentina and Mexico are all in very different positions when it comes to regulation. Brazil is closer to regulating land-based casinos rather than online betting. There will be a need more than ever to get government priorities strengthened with taxation to look appealing. Online operators do have an advantage because they are able to adapt quicker and online regulation is easier to regulate.

TRIBAL SPORTS BETTING

B2B OR NOT TO B2B Max Meltzer, Kambi chief commercial officer, analyzes choosing the best way forward for tribal sports betting partnership, to build property-wide gains.

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Landmark years in betting and gaming don’t come much bigger than 2019, the first full calendar year following the repeal of PASPA - a regulatory development that opened up unprecedented opportunities in sports betting for all manner of organisations. The US landscape is taking on a defined shape, with multiple states regulating and plenty of promising signs from legislators in others.

However, while regulation has been efficiently rolled out in a number of states, there have of course been frustrations and examples of it being done less effectively in states like Oregon.

The tribal community holds the cards on how sports wagering can expand through lobbying efforts and compact negotiations. As sensible regulatory frameworks are established, the right insight from trusted partners can lead to significant growth to the bottom line not just in sports betting, but across the entire casino floor.

Many tribes are seizing the opportunities. Tribal groups including Seneca Gaming Corporation have launched sports betting at their properties, while others such as Mohegan Gaming and Entertainment have signed agreements and lined up sports betting launches in anticipation of the passage of regulation.

Selecting the right route to market for the business is a crucial aspect tribes must manage. In general, two routes are open.

The first being a partnership with a B2C brand, handing over day to day management of the sportsbook to an operator and providing that company with access to the casino’s user

TRIBAL SPORTS BETTING

database and the brand building opportunities that come with the task.

For those tribes that believe in the strength of their brand and want ownership of the sports betting value chain, partnering with a B2B provider capable of providing all-important regulatory certainty and swift, hassle-free deployment can be the first step to sports betting success. This has been the case for Seneca Gaming Corporation, who launched sports betting in all three of their New York properties in December 2019, just weeks after partnering with Kambi.

It’s important to emphasise that neither option for launching sports betting is right or wrong, although there is some evidence from state by state to now indicate that going B2B with Kambi and utilising one’s own brand database, or a top B2C partner utilising Kambi, can consistently drive higher revenues than other options. No tribal community is the same, and the only certainty is that the most important aspect will be planning strategically for sports wagering and considering partners who are both experienced at working with tribes and operate with the highest levels of integrity.

ENHANCING THE ENTIRE CASINO FLOOR An engaging on-property sportsbook with a well-managed blend of over-the-counter and kiosk services can help draw in younger clientele, and future-proof growth by promoting higher levels of engagement – not just in sports betting, but across gaming and hospitality. It also brings more customers through the doors of properties by broadening its range of products and services.

This is especially the case when rolling out sports betting with an accomplished B2B supplier, as opposed to handing over their database and responsibility for the day-to-day running of the sportsbook to a third party.

Taking control of the sportsbook with a B2B partner empowers the casino with a full 360-degree view of casino and sportsbook customers – enabling them to see how they intersect and how to most efficiently drive cross-sell between the two verticals.

These property-wide boosts are already being experienced

by Kambi partner Penn National Gaming, finding that sports betting has already significantly benefitted casino revenues at its properties – especially in table gameplay. For example, Penn National Gaming recently reported that at its Hollywood Casino Lawrenceburg, table volumes rose by approximately 20% in Q4 2019 following the launch of sports betting.

What the B2B providers in this scenario must prioritise is ensuring that the process is as consultative as possible, building on the individual requirements of each tribal partner and learning what’s needed through ongoing dialogue and genuine partnership. No aspect of a tribal casino’s offering is a bolt-on, and for those with trust and confidence in their own brand, sports betting doesn’t need to be either.

PROTECTING THE CONSUMER Aligning a high-quality mobile product with the on-property offering can also deliver significant uplift. Casino players will naturally find their way to mobile and online sports wagering as regulation allows, and developing a mobile and online sports offer consistent with the tribe’s established brand is the best way to beat the competition to the punch and develop even greater brand loyalty. Particularly now, in light of Covid-19, casinos may be encouraging greater use of mobile on-premise.

Also, tribes and legislators are looking at diversifying risk around land-based reliance and seeking online revenue opportunities driven by their databases to protect overall tribal revenues.

Tribes considering whether to advocate for online regulation alongside land-based sports betting could look to Seneca Gaming Corporation’s strategy, the New York-based tribe planning to have a leading online product that taps into new audiences in a world in which more people are happy to act remotely through the internet.

Developing a meaningful online connection with the customer is an excellent way of protecting future growth – for example, rewarding an online customer with a land-based bonus, which includes food and beverages, or a night at the resort can help boost the long-term retention of a new breed of player.

For tribes that believe in the strength of their brand and the potential that comes with owning the sports betting value chain, partnering with powerful B2B providers can be a valuable means of achieving lasting success.

MAX MELTZER

GAMINGAMERICA 33

LAS VEGAS FOCUS

STRIPPED Professor Michael Green from the University of Nevada Las Vegas, explores the resilience of Las Vegas as the city is deprived of action on a new scale in the wake of the COVID-19 pandemic.

Michael Green, an associate professor of history at the University of Nevada Las Vegas, remembers the panic throughout Las Vegas in the immediate aftermath of the September 11, 2001, terrorist attacks. Tourists retreated home, companies called off work conferences and casinos were left with little choice but to implement layoffs.

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“The day that really terrorized us was September 12th when the casinos cleared out,” says Green. “There was substantial unemployment. There were some casinos who got rid of employees and others who furloughed, cut back hours and so on.”

Some 15,000 workers filed for unemployment that September as hotel occupancy rates plunged 14%. Nevertheless, the Vegas Strip kept its lights on and customers slowly flocked back to America’s Playground.

“It was in November that the Palms opened,” says Green.

“There was a great deal of talk of the Palms opening at that moment. In a way it was a signal that Las Vegas was open for business and we’re going to keep going, and it was a success.”

Las Vegas has ridden a number of boom-bust cycles throughout its nine decades as a hub for gaming and entertainment, but nothing has shaken the city as much as the COVID-19 pandemic. Since Nevada Governor Steve Sisolak imposed a stay-at-home order and shut down non-essential businesses in late March, the state has received approximately 350,000 unemployment claims.

The Las Vegas leisure and hospitality industry, which employed 294,000 people in 2019 according to the Federal Reserve Bank of St. Louis, has been hit the hardest.

“In my line of work, we don’t really like the word ‘unprecedented,’” says Green. “We don’t like to toss it around too much. We can toss it around for this. Never before has

LAS VEGAS FOCUS

there been a government mandated closure like this.”

Government officials and gaming operators are left to map out a future of Las Vegas with a lack of historical references to point to. Las Vegas mayor Carolyn Goodwin received criticism recently for comparing COVID-19 to previous diseases like H1N1 (Swine Flu), SARS and the Avian Influenza. Those comparisons don’t line up according to Green.

“There wasn’t a large outbreak where it really was felt where you say ‘Oh wow, there’s this virus that is going around that is obviously cut significantly into business,’” he said. “There’s nothing comparable.”

Nevada reported approximately 5,000 COVID-19 cases by late April with an overall infection rate of 12%. Only 1% of the state’s three million residents had been tested, according to the Las Vegas Review-Journal. Widespread tests are needed before officials can fully gauge the infectivity of the virus.

The near-time impact of COVID-19 is plenty tangible in Clark County, where more than half of all jobs are vulnerable according to McKinsey and Company. The magnitude of the region’s economic woes escapces Green’s comprehension.

“A friend and colleague who made the comment that what is happening right now is as if the 1919 Spanish Flu Pandemic got married to the 1929 Stock Market crash,” he said. “If you think of that pandemic in 1918, the population of Las Vegas was 2,000. Reno might have been in the 10,000 range. Gambling was not wide open. There was some legal gambling going on, but not much. Businesses were closing down, but we did not have Nevada or Las Vegas as we know it now. So this is unique.”

Las Vegas was little more than a frontier town through the first quarter of the 20th century. Mining had been Nevada’s primary industry until the Great Depression ravaged production, forcing state lawmakers to generate new sources of revenue.

In 1931 politicians found their answer by legalizing gambling. The same year President Herbert Hoover ordered construction of a concrete dam at the southwest end of Lake Mead, 35 miles from Las Vegas. That brought thousands of laborers to the region.

By 1940 Nevada’s population topped 100,000 and casino developers began to build properties in Las Vegas. El Rancho Vegas and El Cortez opened in 1941 followed by Last Frontier Hotel in 1942.

Las Vegas’ first casinos continued operating during wartime.

“During World War II, there were curfews and blackouts,” Green says. “Casinos did close by order of essentially the US Army, but not for a long term basis. They might not stay open full hours. They may have to close at midnight or something.

There’s a report of the closures of the casinos for a Good Friday observance, but they were able to stay open for the most part.”

Green’s research found that casinos also closed for Franklin Roosevelt’s funeral on April 14, 1945. That same year the Nevada Legislature passed a gaming tax and authorized the state to regulate gaming licenses, which had previously been awarded

by local and county governments. Las Vegas then grew rapidly in the mid-20th century as America’s middle class widened and air travel became more accessible.

The 1960s brought in a remarkable era of building, buying and selling casinos, which continued to attract customers with the exception of one day: John F. Kennedy’s funeral. Kennedy was buried on November 25, 1963 and at the governor’s request most casinos closed from 7am until midnight according to Green.

“That was a recommendation and it was, I think, understandable to close,” Green says. “There was controversy about that sort of thing. The NFL played its regular slated games and a lot of people were critical of that.”

While funeral-induced closings were one-off events, Las Vegas casinos faced a serious internal crisis in spring 1984 when the Culinary Union launched a strike that nearly brought gambling to a halt.

Casinos had been hit hard by the global recession of the early 1980s. Hotel occupancy percentage fell more than 10% between 1979 and 1982 according to the Las Vegas Conventions and Visitors Authority (LVCVA). To compound matters, Atlantic City emerged as a premier east coast gambling destination, stealing away many of Las Vegas’ top clients. Casinos responded by cutting wages and benefits for workers, setting up a showdown between corporations and labor leaders. In April 1984, some 17,000 maids, waiters, cooks and bartenders and other hotel workers went on strike against the 32 Strip casinos.

Non-union casino workers including card dealers and croupiers were not a part of the strike. Hotels brought in more workers to replace the strikers, and the Strip maintained business as usual, bare a few show cancelations.

The events of September 11, 2001, however, shook the Las Vegas economy more than any event until then. Long dependent on air travel, the city’s casinos suffered in the coming months and well into 2002; the 2002 fiscal year marked the first time where gambling revenue fell from the prior year, according to LVCVA data stretching back to 1970.

The Great Recession of the late 2000s put another dent into the Strip with visitor volume falling more than 7% between 2007-2009. “The Great Recession was more of a construction and housing issue in Nevada than a gaming issue,” Green explains. “Where it did have a real impact on the casinos was that people had less discretionary money to spend. When you have less mad money, then we’re going to hurt. Pure and simple.”

As deleterious as that recession was, it stands as a poor historical comparison to what Las Vegas is facing today.

“It’s very difficult to judge because there isn’t a lot to go on,” Green says. They may be doing surveys and looking at what precedents they have, but that only goes so far. “There is certainly concern about the willingness of people to gather again, and at the same time what the virus is going to do.

There’s a combination of experts in marketing and epidemiology that should get together.”

GAMINGAMERICA 35

TRIBAL GAMING

TRIBAL GAMING AND COVID-19 Tribal gaming operations credit economic stewardship in helping survive the coronavirus pandemic, as Sean Chaffin investigates.

With most of the American casino industry shut down, the impact on companies, employees and communities has been huge. Scenes from the Las Vegas Strip depict more of a ghost town than one of the most popular entertainment centers in the world. As a “non-essential” industry, the casino industry has been hit harder than many during the Coronavirus pandemic.

With many potential customers around the country also struggling, recovery may not be easy as well. Tribal casinos are one segment that may face even more significant challenges. Gaming activities and revenue often help fund numerous aspects of a tribe’s livelihood including health care, education and much more. Native American communities are reliant on those operations for their day-to-day operations and infrastructure.

With the industry in uncharted territory, many tribal gaming operations find themselves not only in a fight for their business and members’ well-being, but for the fiscal future of the tribe itself. Are tribes prepared for the current economic calamity, and what does the future look like?

COLD REALITY Stark numbers face the gaming industry as a whole. For many tribes, gaming revenue has been instrumental in self sufficiency for over thirty years. Beyond that, their gaming operations employ more than 600,000 people, and as many as 40% of those have now lost their jobs and income.

“The nationwide casino closures in response to the COVID-19 pandemic are devastating to the entire gaming industry, with every commercial and tribal gaming property in the United States having shuttered their doors,” said Casey Clark, American Gaming Association senior vice president of strategic communications.

In April, Meister Economic Consulting released a study outlining the growing economic impact the pandemic has had on tribal gaming. That includes the closing of more than 500 gaming facilities operated by 246 tribes in 29 states.

During the first two weeks of closure, Meister estimated $1.5 billion in lost economic activity including gaming and 36 GAMINGAMERICA

non-gaming revenue to tribal casinos. Other numbers include: 296,000 people out of work; $332 million in lost wages; and $240 million in lost taxes and revenue to federal, state and local governments.

“These closures are causing significant detriment to Native American tribes,” Clark added, “many of which rely heavily on gaming-related revenue to pay for tribal government operations, infrastructure and social and economic programs and services for a Native American population that is already substantially disadvantaged.”

MASSIVE ENTERPRISES While some may think of tribal gaming operations as smaller casinos with minimal footprints, there’s actually a trend toward more expansive, growing operations.

Tribal casinos have a huge impact on the casino industry as a whole.

The Seminoles in Florida may serve as an example of how significant tribal gaming has become. The group is believed to have been in the state as early as the 1500s. The Indian Removal Act of 1830 relocated many in the tribe to Oklahoma in part of what became known as the “Trail of Tears.” However, about 200 fled deep into the Everglades, where they hid for decades and are now officially known as the Seminole Tribe of Florida.

The tribe has more than 4,200 members who live on and off reservations located in southeast and southwest Florida. With its own constitution and governmental leadership, the tribe is headquartered in Hollywood and was a pioneer of Indian gaming after opening a high-stakes bingo hall in 1979. There are now six tribal gaming properties including the Seminole Hard Rock in Hollywood.

In 2007, the tribe even purchased Hard Rock International, one of the world’s most recognized restaurant, hotel and casino brands with 190 cafes, 30 hotels and 11 casinos in 75 countries. The Seminoles employ more than 20,000 people, including 10,000 in their Florida gaming operations, and 7,000 at Hard Rock International. Another 15,000 are employed by global Hard Rock licensees.

TRIBAL GAMING

Those enterprises greatly benefit tribe members. The Seminoles operate schools on its Brighton and the Big Cypress reservation, and gaming funds helped build new school buildings with state-of-the-art technology. Such technology has naturally enabled distance learning from home for students during the pandemic. Casino revenues also help fund governmental operations, health care, elder services, historic and cultural preservation, economic development opportunities, and dividends paid to tribal members.

Certainly business closures aren’t easy with reduced revenue, but the Seminoles are weathering the financial storm. Unlike some traditional commercial gaming companies, the tribe seemed to be prepared for an economic downturn.

“The Seminole tribe continues to be in a strong financial position, due to its low debt ratio, significant reserves and prudent management,” spokesman Bary Bitner said. “As a result, there has been minimal impact. Essential governmental services continue to be provided.”

As of mid-April, tribal leadership continued to monitor when it might be appropriate for its operations to reopen.

CRITICAL TO COMMUNITIES Also in the southeast, The Poarch Band of Creek Indians of Alabama runs three Wind Creek casino properties and one mobile greyhound racing facility in the state. The Poarch is the only federally recognized tribe in the state and has had a presence in the area for more than 200 years.

Unlike many tribes in the eastern part of the US, the group was never removed from its lands. Like the Seminoles, the Poarch have greatly made use of tribal gaming to benefit members. Those efforts have included branching out into other states and even other countries.

Along with properties in Alabama, the tribe also owns two casinos on the islands of Aruba and Curaçao, as well as the Wa She Shu Casino in Nevada and the Pensacola Greyhound Track in Florida. Much of that success benefits its 2,900 tribal members in the form of health care, education, housing, fire and police protection, utilities and an overall improved quality of life.

Like the Seminoles, rather than see the pandemic solely as another time of struggle or economic downturn, tribal leaders point to advances made that have put it in a position to serve members during such an unfortunate time. A key result of economic improvement has been preparedness, and that includes helping others.

“The Poarch Band of Creek Indians has a long-held mantra, ‘Seeking prosperity and self-determination,’ and we continue to stay true to it during these difficult days,” said Megan Young, Poarch director of strategy and special projects. “As the tribe has become increasingly successful over the years, the communities in which we have our businesses and other operations have also benefited.

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“Not only have our business interests created economic stimulus and job opportunities for tribal and non-tribal citizens alike … we are also fortunate to be able to generously give to those in need through our philanthropic and charitable efforts.”

Like other businesses, however, the tribe hasn’t been immune from the effects of operational closures. Young credits strong tribal leadership for being careful stewards of resources, and that has translated into a positive outlook on the future once American life and the gaming industry returns to normal.

“Even as the virus has radically changed the way we live and work in the past few weeks, we are able to maintain our solid financial position,” she added. “While we face a future with many uncertainties, of this the tribe is sure: we are all in this together, and we will bounce back stronger than before.”

LOOKING AHEAD Recovery from such an impact to the industry and US economy won’t be easy, but tribal casinos have a distinct vantage point. As a people, Native Americans have persevered from hardship for generations and tribes have reaped major improvements for their people over the last few decades.

As the Seminole and Poarch Creek Indians show, that spirit of self-reliance and determination remain. Rather than fear the future, both tribes have worked to ensure the physical and financial health of their members and employees, and gaming has played a major role in that.

This may not be the case with all tribes however, and many in the industry recognize that. Many challenges remain even when properties reopen. The AGA is working with members and regulators to identify best practices, protocols and regulations for ensuring a safe environment for customers.

Adjusting to reduced workforces and customer demand will also be a struggle. In response, the AGA continues working with the federal government in hopes to bring additional relief to all sectors of the gaming industry, including the successful fight for $8 billion in aid for tribal communities impacted by COVID-19 as part of its CARES Act advocacy.

“But our work is far from done,” Clark continued. “We will continue to push for the highest priority relief measures in each successive package so the gaming industry has the resources needed to reopen our doors when it’s safe to do so. This is a resilient industry and I’m confident we will come back strengthened by this crisis.”

Sean Chaffin is a freelance writer in Crandall, Texas, and also the writer and host of the True Gambling Stories podcast.

Follow him on Twitter @PokerTraditions or email him at seanchaffin@sbcglobal.net for story assignments.

THE CASE FOR EBITDA

INVESTORS CORNER: HOW IMPORTANT IS EBITDA? Tim Poole speaks with industry experts to gauge exactly how much value assessing a gaming firm’s EBITDA gives an investor.

Like any business document, a financial report is built to tell a story. Creative accounting, and something as simple as the ordering of information, means public gaming firms tell the story they want – with the headlines they want emphasized.

But whatever order financial statements are written in, the facts and figures remain publicly available. All key performance indicators are documented and investors have to assess for themselves how a gaming company has actually performed, rather than how it wants to be perceived to have performed.

When making this assessment, however, a number of overlapping measures exist – and it can be difficult to ascertain which of them is most valuable. Revenue, profit (operating and net), operating cash flow and earnings per share are all relevant indicators that stand out on income statements. Where, though, does EBITDA fall within this list? While it typically sits second or third in a gaming financial report, especially among US organizations, how important is it in practice?

Representing earnings before interest, depreciation and amortization, EBITDA can be thought of as income generated

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purely from the selling of a company’s products and services. As Jason Ader, CEO of SpringOwl Asset Management, tells Gaming America, it’s the “closest and simplest measure” of establishing how much cash flow is generated by a business. After all, the significance of cash flow cannot be underplayed – a fact particularly emphasized during the current coronavirus pandemic.

By comparison, earnings and earnings per share are affected by various external factors. As Ader says, “analysts and investors look at EBITDA because it most closely approximates the business cash flow, which is critical in assessing a business’s value.”

EBITDA and EBITDA margins, which show the percentage of a business’s total income generated through EBITDA, vary widely across the gaming industry, and some firms may present data on EBITDAR (the R standing for restructuring or rent costs) and others on EBITA or EBIT. While revenue is usually the first figure to be presented, taking all the credit so to speak, EBITDA can help investors read between the lines. This spring, for example, a number of trading updates from companies such as GVC Holdings, Playtech, William Hill and Flutter Entertainment spoke of projected EBITDA hits due to the absence of major sport and, consequently, sports wagering revenue.

Speaking to Gaming America in March, meanwhile, GVC CEO Kenny Alexander also provided an interesting case study.

Indeed, Alexander projected there would likely be an EBITDA hit for GVC-owned Bwin when sports betting is regulated in the German market. But conversely, he asserted that the operator’s share price will rise as investors respond positively to a fall in EBITDA – in return for regulatory clarity in the German sports betting sector.

One benefit of EBITDA as a KPI lies in its lack of reliance on outside financial factors. As Ader explains, interest is a function of debt and interest rates, while depreciation and amortization are affected by several aspects of accounting methodologies.

These can all “distort earnings.” However, the investor warns against viewing EBITDA as a lone “magic metric.” He says: “I think there’s no one measure; it’s very common to look at EBITDA because it gives you a sense of how much cash flow is coming out of the business before items that could negatively impact earnings per share; but it all matters.

THE CASE FOR EBITDA

“Revenue matters, too, in the context of how much revenue per employee, how much revenue relative to expenses and how much it costs to generate revenue; every company is different.

So there’s no one magic metric to look at this, just like there’s no one metric in sports to tell you how good an athlete is. It all matters in the context of who the company is being compared against and what specifically you’re looking for in the company.”

The SpringOwl Asset Management CEO suggests earnings and earnings per share still hold value, too, for instance showing if a company has an inordinate amount of interest, or demonstrates a large scale of depreciation. High depreciation levels could suggest a gaming firm may have overpaid for acquisitions in the past or made investments in capital that’s falling in value. That depreciation affects the business’ earnings, and accountants do their best to match depreciation of assets and amortization of trademarks in line with the value the company loses every year. “Buildings depreciate, with the paint and the plumbing and all that stuff,” Ader adds, “and that’s why you have capital improvements.”

Another financial figure within the gaming industry, Sportech CFO Tom Hearne, places even less emphasis on EBITDA. Indeed,

“ANALYSTS AND INVESTORS LOOK AT EBITDA BECAUSE IT MOST CLOSELY APPROXIMATES THE BUSINESS CASH FLOW, WHICH IS CRITICAL IN ASSESSING A BUSINESS’S VALUE.” – JASON ADER he believes “smart” investors can gain far more from evaluating a company’s operating cash flow. Initially asked how EBITDA compares to revenue as an indicator, Hearne says: “I think the question does make sense and, particularly with some of the changes in the accounting rules over the last year, I think EBITDA is becoming a less and less important measure. We have expanded to include significant KPIs like operational cash flow.

At the end of the day, businesses talk about EBITDA a lot but the smart investors always look at cash flow.”

Hearne’s assessment is rooted in the value of understanding exactly how a firm’s revenue relates to cash. For Sportech, a

JASON ADER

retail and digital supplier specializing in sports betting and US horseracing, that is one of the key drivers in digitalizing its business. Moving a greater share of the organization online helps customers build better margins, according to Hearne, and reduces capital costs significantly. This, in turn, increases operating cash flow. “Those are the KPIs we focus on as we grow our business and I think they will become as important – or more important – than EBITDA,” adds Hearne.

Despite pointing out that there’s no “big difference” between the two measures, when this is put to Ader, he agrees operating cash flow is perhaps the superior KPI. “It’s usually net income and then you add back your non-cash charges,” he says. “Then you’re adjusting for any changes in working capital, which could be changes in inventory levels and methods you go about securing funding for your business. So that gets down to exactly what I was saying: one would look at EBITDA to get a sense for the cash generated out of the business. But I would agree that an even better measure is operating cash flow, which gives you a truer measure of the cash being generated by the regular activities of the business over the period you’re looking at.”

EBITDA’s primary use is for business valuations, according to Ader, gauging where gaming companies across the public sector trade market value, plus debt, divided by EBITDA. That formula remains important for valuations and investors will continue to look at it. Investors, though, are equally encouraged not to look solely at EBITDA before making any final decisions, although it remains one of the more useful measures on an income statement. Ultimately, EBITDA serves a worthy purpose in providing a more honest, undistorted picture of a gaming company’s earnings, although it’s worth noting the argument for operating cash flow as an even more effective indicator.

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SUN GAMING

BEING AT THE READY Seizing opportunities in the time of the stranded gambler.

Casino operators need to think strategically to survive the current Coronavirus crisis and create long-term viability, according to Bobby Soper, president and CEO of Sun Gaming and Hospitality.

The land-based industry in the US is faced with the prospect of having many more losers than winners in the coming months, with missed forecasts, steep revenue decline and even cash bleeds stemming from closures.

Things might not get better quickly either, with the hammering of the nation’s economy certain to have dented consumer confidence and damaged the spending power of casino patrons.

And yet, Soper believes those who have chosen – and are able – to invest in online operations will benefit the most, with their successes set to kick-start further legislative change in the near future.

He said: “When the dust clears, those operators with a strong balance sheet and more accommodating lenders will fare the best.

But as history teaches us, the reality is that the current economic

BOBBY SOPER

situation and consumer mood at the time of re-opening will dictate the response. We learned in 2001 and 2008 that bounce back may not be immediate.

“Upon re-opening, there will be changes that will impact demand, including of course social distancing and crowd control measures. The severity and extent of such measures will in large part be dependent upon the timing of the development and implementation of a vaccine to remove fears and help restore consumer confidence.

“While there are few published revenue numbers since closure, anecdotally, online gaming operators are enjoying a major surge 42 GAMINGAMERICA

in demand having been presented with the chance to monopolize share of wallet. For online operators that execute well during this time of the ‘stranded gambler’ it is an incredible opportunity to expose their product to new consumers who would not otherwise have tested it.

“For the long-term strategic thinkers, it can also be an opportunity to illustrate the importance of online gaming, and therefore catalyze efforts to expedite its legalization in jurisdictions where there is potentially enough support to do so. It not only shows the importance of having a product that can be played remotely, but in order to preserve jobs, any such authorizing legislation should be tied to the land-based facility.

“To put it simply, while the negative short-term implications of Coronavirus will never be wholly mitigated, this is a time to make lemonade out of lemons through legislative change.”

For those that don’t have an online gaming available in their armory, there are still reasons to be hopeful, provided they use this time wisely to engage with their customer base.

While Soper accepts it's probably too risky to launch any large-scale campaigns given the uncertainty around physical capacity restraints when casinos do re-open, there is much that can be done.

He added: “Strategic management teams need to develop a portfolio of campaign options with appropriate incentives to drive business that can be immediately launched upon opening after assessment of initial volumes and within the context of current constraints.

“From a marketing perspective, those operators that do more now during the closure to incentivize their guests to revisit after re-opening will have a competitive advantage.

“Those with social gaming, for instance, can seize the opportunity and elevate their efforts to leverage this platform for customer engagement and incentivization. There are more traditional avenues too such as e-gift cards, which is a tool some of the national restaurant operators are using successfully to generate revenues during closure while creating incentives to visit the property upon re-opening.

“Ultimately, the long-term health and survival of numerous gaming companies will depend on factors including how long it will take to rebound, and how permanent – and to what extent – behavior will have changed due to the pandemic.

The good news is that there seems to be some help through direct government aid and, perhaps more importantly, a more thoughtful and accommodating approach by lenders compared to what we have seen in the past.”

US LOTTERY

A DIGITAL OPPORTUNITY With US lotteries being impacted by the COVID-19 outbreak, a panel at the SBC Digital Summit evaluated how this could bring about a digital transformation.

MODERATOR RICHARD WEIL, gaming business consultant & investor

SPEAKERS BARRY PACK, CEO Oregon State Lottery GORDON MEDENICA, Maryland Lottery & Gaming director MAY SCHEVE, executive director Missouri Lottery

RW: If you could all provide an update of your respective businesses during the COVID-19 pandemic.

BP: The longer our bars, restaurants, taverns and sporting events stay cancelled, we’re looking at significant revenue shortfalls. It’s pretty grim and I think it’s a good reminder that we all need to have diverse product channels to weather storms like this, and we’re certainly preparing for potentially reopening our economy and a possible second wave of the virus.

MS: The first thing on the minds of the Missouri Lottery staff is the safety of our players, of our retailers and of our staff. We cannot exercise enough that is one of the things we are laser focused on as we move through these trying days.

Last week, we had the best, strongest sales in terms of our instant product, in the 34-year history of the Missouri Lottery.

You can see people are scratching to get out and looking for things to do and wanting to get back in the routine of things.

I know the Missouri Lottery needs to diversify our distribution channels, and I think we can find ways of doing that. With support and co-operation, we will be able to turn a page on these dark days.

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GM: In the early days of the shutdown in the middle of March, we got the order to shut all the casinos. We were very much focused on the casinos, and then we found the lottery was closing. Two days after that, bars and restaurants were closed, which represent about 15% of our retailers, so we saw an immediate hit.

The decline in sales accelerated for the first three weeks; we were down 20%, then 25%, then 30% for the third week and we didn’t know where the bottom was at the point. We were getting some complaints from our retailers about people lingering in the stores, so we started putting out a number of advisories to them to encourage people to buy their tickets then leave the stores.

The strategic dilemma we have is obviously a health crisis as number one, but this is quickly turning into a an economic crisis and we understand how important our role is in raising money for the good causes in all our jurisdictions. Being very cautious and safe on health issues and continuing to do what we need to do to raise money is the central decision point we will be making going forward.

RW: What opportunities do you see arising from the pandemic?

BP: I think the recovery from this pandemic is going to force a digital transformation in our industry a whole lot quicker than we might normally have seen it come.

In terms of our roadmap we started with a mobile sportsbook, and our plan is to move to other forms of digital play. We initially ran into some issues with the legislators here but when they convene in a special session and are facing a $1bn shortfall, their opinions about mobile gaming will change and there will probably be less resistance.

There will still be people opposed to gambling on a digital platform but I think we’ve learned that reliance on a brick-andmortar sales channel is probably not the best model moving forward, at least for the next couple of years. I think we will see a quicker adoption of digital platforms and finding ways to work creatively with our brick-and-mortar partners.

In terms of a digital transformation, we really have to be listening to the voice of our customer. Our players are not going to go back to their prior patterns of behavior. They’re getting used to their groceries and takeout delivered to their door.

We’re all going to expect that to continue once our economy returns so I think we’re going to be have to be careful to what our customers want now and figure out ways to adjust our business model to meet their expectations.

We’re going to see a change long-term in customer experience and lotteries will have to figure out how to adopt

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their business to meet a whole host of changing guidelines and expectations.

RW: What are the lotteries doing to protect players both offline and online?

BP: One of the advantages of lotteries moving more and more

MS: It’s a tough time for legislators because they have a lot of things to deal with all at once and lottery really doesn’t bubble up to the top so I’m usually left at the door with revenue ideas and there’s just so many other bigger paths they have to take control of.

We work very hard together to try and educate our legislators and governors and try to talk about the good causes we are committed. We have to put together a strategic plan to build a business so we can not only help grow our retailers and our customers, but also return those funds to good causes.

into the digital space, is you move to anonymous cash based play to online and you have a whole lot more tools in your toolbox to give players choices and information for them to make better decisions and choices, both from a customer experience and responsible gaming perspective.

GM: I think this could be a big change for the lottery industry.

We’ve been pushing digital transformation and online settling ever since I’ve been in this industry.

In Maryland, they passed a law three years ago, specifically banning us from being able to sell on the internet. I think the lottery industry has suffered somewhat from not having surrogates making their cases for them. Now we’re certainly getting questions even from the press about why we are not selling on the internet.

So I think there’s going to be a sea change of attitude. First of all, people understand that selling on the internet is no more dangerous than selling anywhere, if anything we’re probably more capable of enforcing responsible gaming guidelines in a digital environment than we are in the anonymous bricks and mortar environment.

I think we will see dramatic change and certainly we will look forward to it. What we also need to recognize is online is just another channel and there’s no evidence that it hurts brick-and-mortar. There’s also substantial evidence that the incremental revenue, depending on the type of games you put out, could be modest from under 1% to fairly significant. It’s definitely a trend and we are hopeful that others will make our case with us on why we need to be online.

GM: In Maryland we’re not online so it’s all focused on the bricks and mortar. We’ve encouraged advanced play, which isn’t quite online but a way for people to continue playing without going in store. We’ve encouraged subscriptions and for people to use the self-service machines. Accepting there's going to be a diminishing level of sales during this crisis, our responsible gaming initiates continue to play out as well.

For the most part, we’ve closed our customer service centers and encourage people to send in their winning tickets. We want to keep paying people for their winnings, we know how important that is to our players right now. Casinos were the primary source of customer service, and now that’s gone out the window. We’ve managed to attach ourselves to one of the governor's executive orders and extend the deadline for a period of 30 days beyond the state of emergency so no-one will have to worry if their ticket is going to expire. We’re going to take care of that as well. That aspect of customer service has been very important to us.

MS: Responsible gaming has always been and always will be at the core of the operations of the Missouri Lottery. We’re so excited that we are the first jurisdiction in the US to have the World Lottery Association certificate for responsible gaming. It’s at the heart of everything we do from the advertising we used to have to dealing with retailers, and putting messages out there.

We’re here to provide an entertainment, we’re not here to provide a detriment to society. We turn over all our money, as we always say, to good causes so that’s our focus. Responsible gaming is definitely at the core of our operations.

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DRAFTKINGS

PLAYING THE LONG GAME Despite this being a time like no other, DraftKings has maintained a sense of fluidity to power through current obstacles and setbacks.

Ezra Amacher speaks with the Boston-based operator's C suite about how they’re weathering the storm.

DAN HANNIGAN-DALEY

In the two months since COVID-19 disrupted the sports calendar, DraftKings has rotated games the way a casino buffet would change meal options.

Some offerings are esoteric, like a free to play Tiger King popularity pool or German darts, while others stick to the daily fantasy sports (DFS) provider’s bread and butter.

Madden simulations, it turns out, do quite well among sports-starved Americans.

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In total, DraftKings has introduced more than 50 new free to play pools for its daily fantasy sports customers. The operator is also expanding its sportsbook library in the seven states where it’s legal to wager.

“For a lot of ways this has been business as usual for DraftKings,” says Dan Hannigan-Daley, director, sportsbook product at DraftKings. “We typically like to stay nimble and stay on top of current events and be able to reflect our offerings based on the changing needs and demands of our customers. This is definitely at the extreme end of that spectrum, but we’re well positioned to innovate and continuously create.”

By way of experimentation and improvisation, DraftKings hopes to ride the coronavirus storm through late 2020 into 2021, when CEO Jason Robins expects sports leagues to be operating at full capacity.

“Currently we don’t anticipate any impact to our FY 2021 or long-term plans as a result of COVID-19, assuming the sporting events calendar resumes to a normal state by 2021,” Robins said on a 15 May earnings call.

The barren sports landscape of late spring was unimaginable when DraftKings announced in December that it would go public via a three-way merger with SB Tech and Diamond Eagle Acquisition Corporation. Investors were bullish when DraftKings hit the trading floor on 23 April, and the company’s first quarter earnings report set its stock soaring again despite a net loss of $69m for the quarter.

Revenue for the quarter increased by 30% to $89m.

DraftKings could be in for a difficult second quarter, which saw professional sports come to an international standstill until the May return of UFC, NASCAR and Bundesliga. Robins wouldn’t tip his hand to any April or May numbers.

“One week’s story may be different than the prior week’s story,” Robins said. “Right now we’re waiting for the dust to settle before we put any commentary on there about what we’re seeing.”

DraftKings CFO Jason Park said the company has maintained cash burn to $15-$20m per month.

“We are able to achieve these low levels of cash burn to our highly variable levels of cost structure,” Park told investors. “There’s even opportunities to improve that burn rate as we continue to diversify our offerings and grow our igaming activity.”

DraftKings is betting that competitions on popular video game titles like League of Legends and Counter Strike Global Offensive will attract customers to free-to-play pools.

“As those prize pools grow and there’s more appetite to do additional research, and there’s more content getting created, it

DRAFTKINGS

almost becomes a virtual cycle in that the more content that’s out there, the more informed users feel and they’re subsequently able to end up playing with higher confidence,” Hannigan-Daley said.

“Certainly we provide lots of opportunities for our users to get into these competitions whether that’s a free-to-play so they can test their knowledge initially and try to win money.”

League of Legends entries increased by 50x in the first weeks of stay-at-home orders with contests reaching upwards of $500,000.

In addition to the fantasy side, DraftKings also offers betting on Overwatch and Call of Duty in West Virginia.

“We’re certainly happy with the results that we’re seeing there and hopeful that some incrementality of that sticks even when sports comes,” Hannigan-Daley adds. “It’s working in some ways in that it’s exposing more sports fans to these other types of variants, and we’re hopeful it just broadens the depth of our offering in the appetite of our offering.”

DraftKings also ran contests for NASCAR’s iRacing league and the NBA 2K Players Tournament. But the sports simulation contest with the most interest has been Madden, where on some days there are 10 or more games going on.

“To me it kind of makes sense that there are a lot of football fans who want football year round, and it’s probably even enhanced by the fact that there’s not a lot of other sports on TV,” Robins said. “There could be some potential to extend the NFL season really throughout the year through simulated sports.

I think it will also work for other sports, but in particular for the NFL because it’s a scarce product.”

Igaming’s success comes with drawbacks, however. Older bettors who didn’t grow up playing video games may be more reluctant to participate. Frank Carruli, a veteran linemaker and professional sports bettor based in Las Vegas limits his wagers to live sports.

“As a sports bettor, you don’t have many options,” 58-year-old Carruli said. “You can either bet on horse races, bet small limits on sports you know little about like Cactus Tour Golf and table tennis, or do research for the upcoming football seasons in hopes that they don’t cancel the season.”

Igaming’s popularity among DraftKings’ demographic of younger consumers ensures plenty of overlap, leading customers to choose one type of game over another.

“Across the board it’s mostly our existing customer base,” Robins said. “It’s hard to know if there’s a particular new segment or anything that’s being attracted to any of these new offerings.

My guess is it’s mostly existing customers and mostly the same profile of customers we had typically been acquiring.”

Robins predicts that as more states legalize iGaming and sports betting, interest could begin to wane, as happened in New Jersey.

When DraftKings introduced its sportsbook to the Garden State, gains in sports wagering cannibalized DFS, according to Robins.

“The degree to which [DFS] will grow, whether it’s low double digits, single digits or flat will depend on how quickly the other states move,” he said.

In the meantime, DraftKings continues to implement new contests that delve away from sports. They’ve introduced contests for reality TV shows like Shark Tank and entered the even murkier waters of politics, running a free pool for a Democratic debate between Joe Biden and Bernie Sanders, which received nearly as many entries as a Super Bowl LIV free pool despite being live for less than a day.

“Generally people in the sports betting industry are pretty well aware of the potential for political betting,” Hannigan-Daley said.

JASON ROBINS

“Globally it’s a pretty significant market if you look at the UK and Australia. We have DraftKings in those jurisdictions and we understand the value of those types of things.”

In April FanDuel became the first US operator to offer presidential election betting – in West Virginia. Within a day however, the state lottery forced FanDuel to remove political offerings.

DraftKings wants to avoid similar errors.

“We’re going to work very closely with the regulators and with our own internal legal teams to make sure that anything we offer is done at the appropriate timing as well,” Hannigan-Daley said.

All the while, DraftKings is keeping an eye toward the fall and winter, when sports could return at historic volumes. MLB, NHL and NBA seasons are still on indefinite suspension, however.

Those leagues along with the NFL and college football could potentially overlap with marquee events like The Kentucky Derby and The Masters, which were delayed until the fall.

“Usually what we’ve seen is that when there’s more popular sports going on, overall activity and overall revenue go up,” Robins said. “That’s something we see typically in Q4 when we have a lot of sporting activity going on each year. I expect there will be similar impacts but it’s very hard to know, because the combinations are totally different than they’ve ever been in prior years.”

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