Global Gaming Business, Dec. 2014 by Global Gaming Business

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Global Gaming Business Magazine

december 2014 • Vol. 13 • no. 12 • $10

CASH IS KING LVS’ MIKE LEVEN U.S. ELECTION RESULTS NO GO IN JAPAN

Trends 10 for 2015 What to look for in the new year

Aruze Arises Underdog slot company makes mark in Asia and U.S.

Card Carrying Why payment processing is so complicated for iGaming Official Publication of the American Gaming Association

PRSRT STD US POSTAGE PAID HARRISBURG PA PERMIT #1080

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CONTENTS

Vol. 13 • No. 12

december

Global Gaming Business Magazine

34 COVER STORY Out of the Box

On the Cover: Kelcey Allison, COO, and Richard Pennington, CEO, Aruze Gaming America

Slot-maker Aruze Gaming America’s ship share has soared as operators realize the earning power of its games. The company’s recipe is simple: Its development team creates games that are like those of no other manufacturer. By Frank Legato

COLUMNS

Cover photo by Donavon Lockett

AGA The Drumbeat Continues Geoff Freeman

Fantini’s Finance Macau’s Lessons Frank Fantini

Global Gaming Women A Call to Action Keli Elkins

DEPARTMENTS FEATURES

4 The Agenda 6 Dateline

18 Regulating Mega-Companies

58 King Cash

One of the industry's top regulators notes that the complicated financials of today’s gaming companies pose special regulatory challenges.

The cash-access business as it relates to casinos has expanded to include software to help casinos comply with federal regulations.

By Richard Schuetz

By Dave Bontempo

13 Nutshell 46 Emerging Leaders With GGAM’s Shaza Sattar, Duane Morris LLP’s Eric Frank, and Hollywood Casino Charles Town’s Alex Alvarado

62 Frankly Speaking 64 New Game Review

22 Top Trends 2015 Our annual look at the industry’s top trends for the coming year examines issues including market saturation, supplier consolidation, social gaming and more. By Mark Birtha, Frank Legato, Roger Gros, David Rittvo, Patrick Roberts, Katherine Spilde and Michael Zhu

GGB iGames Our monthly section highlighting and analyzing the emerging internet gaming markets. Feature

50 The Payment Issue While the processing of payments for iGaming accounts has definitely gotten better, significant challenges remain.

66 Cutting Edge

By Marco Valerio

68 Goods & Services

40 Tribal Survival

iGNA Outlook

69 People

The slowdown in gaming revenue for Indian tribes in the U.S. has made tribal operators look beyond the casino for new income.

50 The More The Merrier

By Dave Palermo

Sue Schneider

56 iGames News Roundup

70 Casino Communications With Michael Leven, President and COO, Las Vegas Sands Corporation DECEMBER 2014 www.ggbmagazine.com

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THE AGENDA

Getting Loose

Vol. 13 • No. 12 • December 2014 Roger Gros, Publisher | rgros@ggbmagazine.com Frank Legato, Editor | flegato@ggbmagazine.com Monica Cooley, Art Director | cooley7@sunflower.com

Roger Gros, Publisher

hen I was the first editor of Casino Player magazine back in the late 1980s, I was responsible for answering the “letters to the editor.” Since casino gambling was rather new to most Americans, the letters were pretty basic: “Last time I was in a casino, I split 10s at the blackjack table and got two face cards. Tell me why that’s not a great play.” Or, “The dealer seems to win all the time, so why don’t I just play the same rules as the dealer does?” Or, “I can’t lose every hand, so doesn’t it make sense to double your bet every time you lose?” Hello, Mr. Martingale. But by far the most letters we got in those days were about the slots, and they were equally simplistic. “Where is the switch that the casino bosses flick to make the players lose?” Or, “I always play machines around the entrance because the bosses want people to see winning.” (That one had a grain of truth to it.) Or, “I never use credit on the machine; I always put coins in.” Yes, I am that old. So it was with great surprise that, as publisher of GGB, I received a letter last month (a real letter with a stamp, envelope and a real signature!) that complained about today’s slots. Mary Ann Loida of Eureka, Missouri, took the time to write about a story we ran a couple of months ago on AGEM (the Association of Gaming Equipment Manufacturers) planning a study on why slot revenue has been flat and if people are playing less. “As a longtime slot player,” Loida said, “I can tell you that years ago the slots were so much fun. The Flamingo in Las Vegas was the king of slots on the Strip. But gradually the good-paying slots have disappeared and the new slots have gotten tighter and tighter. Tunica was the same way. The casinos have gotten greedier and that has driven me away. I go much, much less now. Years ago, I would play for hours and hours and have so much fun, but now, the money is going quickly and you have nothing to show for it. Casinos need to loosen their slots up and players will come back.” To be truthful, I’ve read dozens of letters like

this over the years and mostly discounted them as being written by people who just had really bad luck. You know who they are. You actually root for them sometimes, but they just continue to lose. But Loida’s letter has real credibility, and we can see the results of this by the flat or declining slot revenues in almost all jurisdictions. And what is our response, often, to those falling numbers? Raise the casino win percentage so you can make your monthly numbers. And that becomes a vicious cycle. The more and quicker the players lose, the less money and time they play. That has to impact your bottom line. Now, slot machines are the one game that pay guaranteed money to the casino. Even if you pay 95 percent of the money inserted into the machine back to the players, you are still keeping 5 percent of that money. Now with the increasing costs of human resources, rent, power, etc., that 5 percent isn’t profit. So another vicious cycle. But I’m trying to imagine what would happen if one stand-alone casino tried that strategy—and widely advertised it. Would players understand the concept of higher payback percentages—something we invented at Casino Player magazine in those early days when we flipped the casino win percentage to create the player payback percentage in our monthly slot charts? Our readers in those days certainly got it. But another complication is that not every gaming regulatory agency issues slot revenue numbers for every casino in its jurisdiction. And New Jersey, which once issued the most comprehensive numbers, down to individual denominations, is now talking about removing that information. An informed gambler is a good gambler. They are invested in the information they can gather, so casinos and regulatory agencies should be invested in providing that information for the good of the entire industry. And by the way, I only split 10s in a blackjack tournament.

Global Gaming Business DECEMBER 2014

David Coheen, North American Sales & Marketing Director dcoheen@ggbmagazine.com Floyd Sembler, Business Development Manager fsembler@ggbmagazine.com Becky Kingman-Gros, Chief Operating Officer bkingros@ggbmagazine.com Lisa Johnson, Communications Advisor lisa@lisajohnsoncommunications.com Columnists Keli Elkins | Frank Fantini Geoff Freeman | Sue Schneider Contributing Editors Stephanie Adkison | Mark Birtha | Dave Bontempo Renese Johnson | Lauren Lachowsky Dave Palermo | David Rittvo | Patrick Roberts Robert Rossiello | Richard Schuetz Katherine Spilde | Marco Valerio | Michael Zhu

EDITORIAL ADVISORY BOARD Rino Armeni, President, Armeni Enterprises

• Mark A. Birtha, Senior Vice President & General Manager, Hard Rock International

• Julie Brinkerhoff-Jacobs, President, Lifescapes International

• Nicholas Casiello Jr., Shareholder, Fox Rothschild

• Jeffrey Compton, Publisher, CDC E-Reports

• Geoff Freeman, President & CEO, American Gaming Association

• Dean Macomber, President, Macomber International, Inc.

• Stephen Martino, Director, Maryland Lottery and Gaming Control Agency

• Jim Rafferty, President, Rafferty & Associates

• Thomas Reilly, General Manager, ACSC Product Group Eastern Region Vice President, Bally Systems

• Steven M. Rittvo, President, The Innovation Group

• Katherine Spilde, Executive Director, Sycuan Gaming Institute, San Diego State University

• Ernie Stevens, Jr., Chairman, National Indian Gaming Association

• Roy Student, President, Applied Management Strategies

• David D. Waddell, Partner Regulatory Management Counselors PC Casino Connection International LLC. 921 American Pacific Dr, Suite 304, Henderson, NV 89014 702-248-1565 • 702-248-1567 (fax) www.ggbmagazine.com The views and opinions expressed by the writers and columnists of GLOBAL GAMING BUSINESS are not necessarily the views of the publisher or editor. Copyright 2014 Global Gaming Business LLC. Las Vegas, Nev. 89118 GLOBAL GAMING BUSINESS is published monthly by Casino Connection International, LLC. Printed in Nevada, USA. Postmaster: Send Change of Address forms to: 921 American Pacific Dr, Suite 304, Henderson, NV 89014

Official Publication

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DATELINE USA december2014

Message in Massachusetts Voters turn down bid to ban casinos

he voters of Massachusetts spoke loud and clear on election night last month, voting 60 percent to 40 percent to retain casino gaming in the state. They voted against Question 3, which would have repealed the 2011 Expanded Gaming Act. For several weeks, polls had indicated that Question 3’s odds of passage were lengthening, with a poll by Suffolk University showing that only 34 percent of those surveyed supported it, with 59 percent saying no, which is about the way the vote turned out. Most of the state’s clergy were solidly behind Question 3, including all of the Catholic dioceses and the Latino Clergy Coalition of Western Massachusetts, which held rallies in Springfield near where the MGM casino is planned. Others in the coalition

were the Brockton Interfaith Community, Faith for Repeal, and representatives of the Episcopal, Greek Orthodox, Jewish and Islamic faiths. Although polls never showed the Yes on Question 3 percentages even Wynn Resorts’ project in Everett will now move forward close to a majority, the various casino developers involved didn’t take any chances. Penn National, for example, contributed ber, donated $1 million to the campaign. $3.2 millon overall to help protect its Plainridge Following the defeat of the measure, the MassaPark Racecourse. MGM Resorts, which bitterly chusetts Gaming Commission confirmed the lifought Penn for the rights to the Springfield license, censes awarded to Wynn Resorts and MGM was happy to donate $2.5 million to the common Resorts, for its property in Springfield, anxious to cause. Towards the end of the campaign Wynn Recollect millions of dollars owed to the state by the sorts, awarded the Boston metro license in Septemcompanies.

NOT SO FAST

No Football Bets

Meadows revenue projections called “fantasy”

Judge quashes sports gambling in New Jersey

uestions surround a lawsuit filed last month against Cannery Q Casino Resorts by Pennsylvania-based Gaming and Leisure Properties (GLPI), the real estate investment trust created by operator Penn National Gaming—an action that could derail the REIT’s planned purchase of Cannery’s Meadows Racetrack and Casino outside of Pittsburgh. Gaming and Leisure Properties had entered into a $465 million agreement last May to buy Meadows, a popular harness racetrack and casino in the suburbs around 20 miles south of Pittsburgh, with an agreed-upon final closing date of November 13, 2015. Last month, GLPI announced in its third quarter report that it had filed a lawsuit against Cannery “alleging, among other things, fraud, breach of the membership interest purchase agreement and breach of a related consulting agreement.” The complaint, filed in U.S. District Court for the Southern District of New York, is seeking a declaration that Cannery breached the terms of the April purchase agreement because “Cannery did not truthfully disclose the Meadows’ declining performance.” The lawsuit attacks the earnings projections for the Meadows put forth by Cannery in the purchase agreement as “fantasy,” noting that Cannery’s latest 2014 earnings projection, made in September, was $44.1 million, down 23 percent from the original projection of $57.7 million, and 18 percent below 2013 earnings, the lawsuit said.

The Meadows Racetrack and Casino outside of Pittsburgh 6

Global Gaming Business DECEMBER 2014

ew Jersey’s plans for sports betting were stopped last month, just days before Monmouth Park racetrack—which is partnered with British bookmaker William Hill—planned to begin taking bets. The professional sports leagues and the NCAA sued for an injunction to stop the track from taking bets, saying that the state is simply trying to illegally circumvent a federal ban on sports betting. The state responded that the leagues’ claims are meritless and that it remains confident that it has a legal plan to allow sports betting. The NFL, the NBA, the NHL, Major League Baseball and the NCAA had requested an injunction to keep the bettors on the sidelines. U.S. District Judge Michael Shipp agreed with the leagues that betting at Monmouth would cause “irreparable harm” to the leagues, although he didn’t clarify why the same harm isn’t inflicted each week when bets are taken in Nevada and Delaware on NFL games. “More legal gambling leads to more total gambling, which in turn leads to an increased incentive to fix plaintiffs’ matches,” Shipp said. So far, Monmouth Park—which had hoped to begin taking bets days after the

New Jersey’s Monmouth Park racetrack would have opened a sports book if a judge had concurred.

court hearing—was the only venue ready to test whether New Jersey’s take on sports betting is legal. The track reportedly spent more than $1 million on a grand sports bar that would have accepted wagers on the games. New Jersey argues that a federal appeals court ruling last year spelled out how the state could implement sports betting despite a federal ban. The state tried to overturn the federal ban, but Shipp and several appeals courts overturned the state’s sports betting law. However, during the arguments, rulings indicated that the state could simply repeal its laws against sports betting and allow nonstate-regulated betting to take place, contending that was not prohibited by the Professional Amateur Sports Protection Act that passed in the early 1990s. The leagues also claim they will suffer “irreparable harm” if sports gambling is allowed in New Jersey. A hearing was scheduled for late November on the issue.

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DATELINE EUROPE december2014

Gibraltar StrikeS aGain

Despite losing an appeal, online casinos again sue U.K. government

fter losing a challenge in Britain’s High Court of Justice to the country’s new licensing requirements for offshore operators, a trade group representing Gibraltar’s web gambling operators are suing again, this time to overturn the U.K. government’s plans to impose a 15 percent tax on revenue generated from British players wherever the operator is located. The Gibraltar Betting and Gaming Association says this “point of consumption” tax, as it’s known, violates E.U. law and ultimately will harm consumers. “The new tax regime breaches Article 56 of the Treaty on the Functioning of the European Union in that it amounts to a restriction on the free movement of services,” the association argues in its application for High Court review. The tax is designed to “discourage remote gambling operators from moving to foreign jurisdictions and offering their services to U.K. consumers from those jurisdictions,” the GBGA claims. “This aim is contrary to the very essence of the

E.U. rights of freedom of establishment and freedom to provide services guaranteed by Article 56.” The association also contends the tax is “discriminatory” by subjecting E.U.-based operators to the possibility of double taxation—in Britain and in their home country—depending on their location. As for consumers, the petition claims the tax would encourage a “black market” to flourish in the U.K. by encouraging players to seek out “companies with no regulation and lower overheads,” increasing the risk of “fraud, non-payment and abuse.” The new requirement that all U.K.-facing operators must be licensed by the U.K. Gambling Commission commences next month under an extended deadline prompted by the GBGA’s first unsuccessful challenge. The tax, incorporated in a new Finance Act passed by Parliament this summer, kicks in on December 1. A spokesperson for HM Revenue & Customs said, “We will robustly defend against the challenge” to the tax. “We are studying the grounds, but are confident the reforms are lawful, proportionate and non-discriminatory.”

Dotting the Sites Irish Ayes

New rules drafted for gambling

he government of Ireland plans to bring the country’s outdated gaming regulations into the 21st century. A new bill will be introduced in the Dáil requiring offshore operators to obtain Irish licenses before offering betting services to Irish customers, similar to new regulations coming into force in the United Kingdom, and imposing a betting duty on transactions involving Irish customers. Neither provision is included in the laws currently governing the industry: the Betting Act 1931, the Gaming and Lotteries Act 1956 and sections of the Finance Act 1992. Provisions also will establish consumercomplaint and age-verification procedures and more controls on advertising, and will require all remote and land-based operators to pay a 1 percent tax on all wagers, which last year totaled an estimated €1.6 billion. The bill includes a cap on the number of casinos, which mostly operate ostensibly as members clubs, allowing no more than 40, and will restrict the number of table games per venue to 15.

Spain to issue new online gambling licenses

pain hopes more online gambling sites will grow the country’s market. Spanish gambling regulators will offer an unspecified number of licenses to offer online slots and betting products within the “dot-es” market. Applications will be open to operators currently holding licenses from the Directorate General for the Regulation of Gambling (DGOJ) license, as well as new operators. While analysts don’t expect much movement for online poker, the new licenses are hoped to increase online slot play. About 12 new operators are expected to apply for licenses, with nearly all applying for slots play. As for online poker, surveys show that nearly half of the country’s online players use illegal offshore sites. According to the latest figures released by the DGOJ for the second quarter of 2014, gaming revenues fell by 6 percent compared to the same quarter of 2013, while the total number of online poker players fell by 5 percent.

Self Regulation U.K. bookmakers promise FOBT reforms ritain’s bookmakers are slated to unveil in-house reforms regarding the industry’s electronic table games in an effort to stave off government action against the controversial devices. The games, known as fixed-odds betting terminals, now account for a majority of betting shop revenues and are blamed for a proliferation of the venues in cities and towns nationwide. Opponents also contend the devices are a leading cause of problem gambling. The complaints from local governments and community groups have made their way to the House of Commons, which has raised the tax on revenue generated by the machines and is considering tougher measures such as a cap on bet sizes. The machines have come under heavy fire from the Labor Party in particular, prompting concerns in the industry that it could become a political football in the run-up to the general election. Bookmakers have responded by banding together to propose self-regulation as an alternative, and will recommend reforms that will include mandatory breaks for anyone playing longer than 30 minutes or who has bet more than £250.

DECEMBER 2014 www.ggbmagazine.com

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DATELINE ASIA december2014 Manila’s Ninoy Aquino International Airport

Wait ‘til Next Year Japanese gaming legislation disappoints the industry again

bill to legalize casinos in Japan has stalled in the National Diet amid continued political opposition, and may be postponed for consideration until next year. Reports are that Prime Minister Shinzo Abe’s governing Liberal Democratic Party is struggling to obtain a parliamentary consensus for the bill, and the prime minister himself, the bill’s biggest Prime Minister Shinzo Abe backer, has been weakened by political scandal, which is making the negotiations more difficult. Takeshi Iwaya, who heads the governing LDP’s pro-casino caucus in the Diet, told reporters he would “ensure progress” on the bill this year, according to Bloomberg. But other members of the caucus have told Reuters the bill doesn’t have the votes to pass and will be shelved until the next regular session, which begins in January. And the bill’s future will be problematic at that point as well, according to the same sources, because the 2015 session will be consumed with national defense, the budget, the Fukushima recovery and other big issues. “If they can’t pass it now, I doubt whether they’ll ever be able to pass it,” one said. The Diet adjourned for 2014 at the end of November.

MACAU MALAISE Revenue continues to fall as operators debate reasons acau gaming revenues suffered their M worst year-on-year drop on record in October, falling 23.7 percent against the same month last year. The 35 casinos took in MOP28 billion (US$3.5 billion), which paled against October 2013’s $4.6 billion month, the market’s second-best month on record, even though in absolute terms this October was “broadly in line” with the range from June to August, noted Union Gaming Research Macau, and almost 10 percent higher than September, which was a low in absolute terms at MOP25.2 billion. Revenues are down five straight months in the Chinese gambling hub, and it isn’t expected to improve in the months ahead as tougher comparisons weigh on investor sentiment. VIP has declined in the second half of this year from the Chinese government’s aggressive crackdown on corruption and graft, while falling property prices on the mainland, coupled with slowing economic growth, has tightened the credit markets on which the sector depends. The corruption issue is expected to loom large well into the future following the announcement that the government has created a special agency to investigate and prosecute cases. The higher-margin mass market is slowing down as well. It fell 8 percent in October, the first negative year-on-year comparison this year.

Global Gaming Business DECEMBER 2014

Asian Focus

Caesars has big eyes for Manila aesars Entertainment wants to bet US$1 billion on a resort casino adjoining C Manila’s Ninoy Aquino International Airport, and if the Las Vegas-based casino giant can raise that to $1.5 billion, it might be a go. In October, Philippine President Benigno Aquino met with CEO Gary Loveman, President of International Development Steven Tight and other top Caesars officials to discuss the plan, which Caesars has followed up with a written expression of interest, according to Cristino Naguiat, head of Philippine gaming regulator PAGCOR. The government, however, is requiring that new casino investors commit to at least $1.5 billion, $500 million more than the minimum set for the four developers licensed at the government’s Entertainment City reclamation district on Manila Bay. “If we bring in something new, it has to add value to the development of Entertainment City,” Naguiat told Reuters. “They will be facing new terms of reference—the new investors.” An airport location would put Caesars in direct competition with Resorts World Manila, which opened its casino hotel complex opposite the city’s main international gateway in 2009 and has grown it into the country’s largest and most lucrative gaming operation. It also would bring the number of Manila mega-resorts, either existing or under development, to six, a possibility the government would be expected to welcome as it looks increasingly to resort-scale gaming to boost foreign tourism and investment and provide badly needed jobs. “There is no major international brand currently in Manila,” Tight said in an interview with Bloomberg. “There’s a chance to create something that will drive tourism, that will really put Manila on the regional tourist map.”

Island Time Vietnam OKs casino in Phu Quoc

ew reports out of Vietnam say the ruling Communist Party’s Politburo has approved the inclusion of a resort casino as part Phu Quoc of the economic development of the country’s largest island. The newspaper Tien Phong says Prime Minister Nguyen Tan Dung believes in Phu Quoc’s potential as a tourism and trade hub, and the local People’s Committee Chairman Le Van Thi says negotiations are under way to select suitable casino developers. “Many investors have filed applications, but we have not made a final decision,” he said. “We expect the investor to have a track record and ability to draw the region’s top gamblers.” Located in the Mekong Delta in Kien Giang Province in the south of the country, Phu Quoc is reported to have one of the best beaches in Vietnam, and last year welcomed 430,000 tourists, a 32 percent increase over 2010, and generated receipts of US$42.7 million.

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DATELINE TRIBAL december2014

Shopping halted

Prop. 48 In California goes down to defeat

alifornia voters soundly defeated Proposition 48, which would have allowed the North Fork Rancheria Band of Mono Indians (North Fork Tribe) to build an off-reservation casino in California’s Central Valley, 40 miles from its traditional homeland. With more than 4 million votes cast, “no” votes had about 61 percent, compared to 39 percent for yes votes. Opponents of off-reservation casinos, which they call “reservation shopping,” focused all of their opposition to that practice on Proposition 48, which was largely funded by gaming interests who felt threatened by the competition posed by an Indian casino near the freeway that bisects the San Joaquin Valley. Proposition 48 would have approved a tribalstate gaming compact signed by Governor Jerry Brown in 2013 and ratified by the legislature. It would have also ratified a compact with the Wiyot Tribe, which in return for promising not to build a casino was allocated a portion of the North Fork Tribe’s gaming revenue. Major funding for the opposition to the measure came from gaming tribes with large, dominant

casinos, which between them raised $16 million, compared to $400,000 raised by supporters of Prop. 48, most of it from the North Fork Tribe’s casino partner, Station Casinos. Proposition 48 was put on the ballot by opponents of the compact, including U.S. Senator Diane Feinstein (D-California). She joined those who claimed that the North Fork compact violated California Proposition 1A passed in 1999 that allowed Indian gaming in the state. Those people claim that the amendment to the state constitution stipulated that tribes would confine their casinos to their reservations. Some contended that Prop. 48 was actually a national issue, and Feinstein’s onetime ally on this issue, former U.S. Senator Jon Kyl of Arizona, once stated, “The Indian Gaming Regulatory Act was originally intended to promote tribal economic development and self-sufficiency—not to enable tribes to become gambling enterprises that constantly expand to new casino locations.” Feinstein recently declared, “The fact is that some tribes have abused their unique right to operate casinos and have ignored the intent of Congress

U.S. Senator Diane Feinstein

by taking land into trust miles away from their historical lands. This is done simply to produce the most profitable casino and the greatest number of potential gamblers, often with little regard to the local communities.” Brown, the California Democratic Party, the Los Angeles Times and many local leaders in Madera supported the proposition. They claimed that the North Fork casino would create 4,000 jobs and protect pristine lands near the Sierras because the tribe would not be building on its out-of-theway reservation. The tribe wants to build a $250 million casino with 2,000 slots and hotel adjacent to Highway 99 near Madera on 305 acres. The vote does nothing to change the land’s status as reservation land. The Bureau of Indian Affairs has ruled that the North Fork Tribe has a historical connection to the land. The vote does not affect the bureau’s approval of the compact.

Legal and Legislative Blockades Arizona casino could be in courts for years lthough the Tohono O’odham Nation broke ground in August on its proposed West Valley Resort and Casino next to Glendale, Arizona, it may be years before they are actually able to start operating it. Besides being in a county “island” next to Glendale, the proposed resort is also near Phoenix, which is the reason for the location. The property, which the tribe purchased 11 years ago with money awarded to them as compensation for their original reservation being inundated by a federal dam project, is actually about 100 miles from their Tucson reservation. Several fellow gaming tribes oppose the Tohono project because, they claim, it violates the gaming compact that all of the state’s gaming tribes signed and which the voters approved in 2002. That compact was supposed to limit the number of casinos that would be allowed in Maricopa County, which includes Phoenix. The compact was approved before anyone became aware that the Tohono tribe was interested in purchasing the land, which they bought through a shell company. In fact, opponents accuse of the tribe of keeping that fact a secret until after the compact was approved. The Tohono tribe disputes that, claiming that in the 1990s it informed other tribes that it intended to buy land near Phoenix for a casino. It adds that it used a shell company to keep the price of the land from being pushed up. According to Diane Enos, president of the Salt River Pima-Maricopa In-

Global Gaming Business DECEMBER 2014

Ground was broken for Glendale’s Tohono O’odham casino but it may never open

dian Community, who was interviewed by KJZZ News, the compact includes a provision that could allow commercial gaming in the state if the terms of the compact is violated. She considers what the Tohono are doing a violation. “The Tohono O’odham have learned very well from the non-Indians, the federal government, the United States, how you do Indian people dirty and then smile at the same time,” she told KJZZ. So far the Tohono have fended off all comers in the courts.

LOTTERY + SPIELO + INTERACTIVE + BETTING

All Together Photo of Howie Mandel courtesy of Alevy Productions, Inc. © Endemol International B.V., Deal or No Deal is a registered trademark of Endemol International B.V. Used with permission. All rights reserved. © 2014 GTECH Canada ULC and/or its affiliates. All Rights Reserved. All trademarks and logos noted herein are trademarks owned by, or licensed to, GTECH Canada ULC.

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DATELINE GLOBAL december2014

Secret Sauce

Crown in controversy over high-roller information

ontroversy over James Packer’s political influence in Australia has spread from his home base of Victoria to New South Wales, where at least one state lawmaker Crown’s proposed Sydney mega-resort has demanded that censored information be made public relating to the potential for organized crime influence at his planned high-roller casino in Sydney. Agreements between the state’s Independent Liquor and Gaming Authority and Packer’s Crown Resorts setting out the rules for the casino—including who may enter, the types of games that may be played, minimum bet limits and tax rates—were made public in September. But sections of one document, the “VIP gaming management agreement,” were redacted by the authority, which claimed its release could be commercially damaging to Crown. Crown Sydney, as the Darling Harbour resort is known, is slated to open in November 2019 with a license awarded by the NSW government on the basis of the company’s pledge that it will operate as a “restricted gambling facility,” without slot machines, and will cater to members only. Packer has said the casino will be marketed to wealthy Asian high rollers, predominantly from China, meaning Crown is likely to partner with Chinese junket operators, and that has raised concerned about the possibility of involvement by organized crime groups and money laundering. The NSW Parliament’s upper house, the Legislative Council, was scheduled to vote on whether to release the secret material.

SuSpiciouS TranSacTionS

B.C. casinos allow millions in small transactions

n investigation of two Canadian casinos by CBC News has uncovered what the news organization called “suspicious cash” alleged to be “gang money” circulating through the gaming halls. During the three-month probe, almost $27 million in dubious transactions were documented at two British British Columbia’s River Rock Casino Columbia casinos, the River Rock in Richmond and the Starlight in New Westminster. Ed Rampone, former head of casino investigations with the provincial Gaming Policy and Enforcement Branch, called it money laundering. “It’s eye-opening and shocking to see the volume that it’s reached,” he said. Hundreds of reports noted the flow of suspicious cash, mostly in small denominations, CBC reported, but law enforcement was never summoned. “The failure to do anything about it and just continue to rubber-stamp this and pass it on as intelligence—its bordering on negligence,” Rampone said. In some cases, casino customers arrived with shopping bags and suitcases full of 20- and 50-dollar bills. One person brought in $800,000 in 20s. Another carried $1.1 million in cash. 12

Global Gaming Business DECEMBER 2014

Hilton Hotel, Nassau, Bahamas

‘Thunderball’ Hotel Sold to Chinese Firm Condos and deluxe hotel to be added

he British Colonial Hilton hotel in Nassau, Bahamas has been sold to China State Construction Engineering Corp. CSCEC will redevelop the property, which was renovated just five years ago, and transform it into a luxury hotel. The company will build condominiums on an adjacent tract of land. The development will also include a parking garage, rooftop garden, meeting space, high-end retail, restaurants, a nightclub, a marina and a boardwalk. The hotel was once used as a film location for the James Bond spy movie Thunderball. Bahamian Prime Minister Perry Christie called the deal “beneficial to the country.” He said the project will create several hundred short-term construction jobs and 500 permanent jobs. CSCEC also has a $150 million stake in the $3.5 billion Baha Mar project on Cable Beach.

Hard Rock Hotel Coming to Dubai Marina Tourism on the rise in UAE y next summer, Hard Rock International is expected to open a Hard Rock Hotel at Dubai Marina in the United Arab Emirates. The 101floor Hard Rock Dubai Marina, which will be the second tallest building in the UAE when it’s done, will include a 281-room hotel on the first 33 floors, and a entertainment venue on the top floor. “As an ongoing effort to continue expanding the Hard Rock Hotels portfolio, we are thrilled to announce our plans to construct Hard Rock Hotel Dubai Marina with experienced partners like the Abu Dhabi Financial Group,” said Hamish Dodds, CEO of Hard Rock International. “We look forward to launching our hotel product to a region already familiar with our café brand and who embraces us.” “We are pleased to bring the Hard Rock Hotel Dubai to the Marina 101 development at a time where Dubai’s tourism sector is experiencing continued rapid growth,” said Jassim Alseddiqi, CEO of Abu Dhabi Financial. “When choosing a hotel to be placed, we were seeking an iconic global brand boasting the same irreverent spirit as the destination it represents and found that in our collaboration with Hard Rock.” Hard Rock Hotel Dubai Marina will also include a Rock Spa, a Body Rock workout facility, and a Rock Shop featuring Hard Rock’s music-themed merchandise.

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NUTSHELL

“They MGM Resorts International has agreed to sell its Gold Strike casino in Jean, Nevada to JETT Gaming, owned by members of the Herbst family, well-known in the gaming industry as the former owners of Herbst Gaming. MGM’s Chief Financial Officer Dan D’Arrigo said the sale is part of a plan by the company “to review and refine our portfolio of properties, and focus on new developments in international and regional markets.” It is the second sale in as many months of a smaller MGM casino; the company sold the Railroad Pass in Henderson last month. Casino operator Full House Resorts is looking for a buyer. The Las Vegas-based company owns the Rising Star Riverboat Casino in Rising Sun, Indiana; the Silver Slipper Casino in Hancock County, Mississippi; and Stockman’s Casino in Fallon, Nevada. It also operates a Hyatt in Incline Village, Nevada under a lease agreement. Shares of Full House stock have plummeted almost 60 percent since the beginning of the year; the decline sparked outrage from shareholders, a group of whom recently demanded a reconfiguration of the board. The shareholder group, led by former Pinnacle Entertainment CEO Dan Lee, is proposing to double the size of the board to 10 and enforce a change in the company’s direction. Sun International has opened a casino at the Trump Ocean Club Tower in the Panama City suburb of Punta Pacifica. The US$105 million Ocean Sun Casino features a public gaming area on the first floor and a Premium casino for VIPs on the 66th floor, which also houses six luxury suites. Manila’s Solaire Resort & Casino has expanded with more hotel rooms, casino space and a theater. The resort’s owner, PSX-listed Bloomberry Resorts, is adding a second 312-room hotel tower to the property’s current count of 478 five-star rooms. The casino is getting 66 more VIP table games and 223 machine games, growing the floor to 361 total tables and 1,443 EGMs. The showroom will have 1,760 seats. Century Casinos Inc. announced that it has acquired a 7.5 percent stake in the Argentina-based Mendoza Central Entretenimientos S.A. for $1 million. Century also has a three-year option to raise its stake in MCE to 50 percent, at a price equal to five times MCE’s EBITDA, minus MCE’s debt. Century and MCE also have entered into a consulting services agreement, in which Century will help MCE in project assessment, compliance, operating procedures, staff training and general casino management expertise. Century will be paid a fixed monthly consulting fee, plus a percentage of MCE’s EBITDA. Boyd Gaming Corp., owner of 22 casinos in

eight states in the U.S., may form a real estate investment trust. The REIT would enable the company to shift some of its casino holdings into a separate entity. The decision “takes a considerable amount of time and thoughtful consideration, so this will not be a quick process,” said Boyd CEO Keith Smith during a third-quarter conference call with analysts. He cited “various aspects of our capital structure” that would make “value creation” through an REIT difficult to achieve. The bipartisan Gaming Study Committee of the Indiana General Assembly recently unanimously agreed that the state’s 10 permanently docked riverboat casinos should be allowed to move onto land near their current locations. Panel members said landbased gaming on adjacent property already owned or leased by the casinos will make them more competitive with new land-based casinos in neighboring states. The committee also endorsed tax incentives for casinos to build or rehabilitate facilities. According to state figures, revenues from Indiana’s casinos and racinos declined more than 13 percent in 12 months. According to the Arizona Department of Gaming, the state’s 23 casinos operated by 15 tribes will contribute about $24.1 million to the state for the third quarter of 2014. The figure represents an increase of 0.8 percent compared to third quarter 2013. Gaming department Director Dan Bergin said $12 million will go toward the state’s Instructional Improvement Fund for education, $6 million will go toward the Trauma and Emergency Services Fund and $2.1 million will go toward Arizona Department of Gaming operating costs. Slot content developer Gamblit Gaming announced it has received approval from the United Kingdom Gambling Commission for its Continuation Remote Operating License. This license allows Gamblit Gaming’s Alderney location to operate a U.K.-facing online casino, pending technical approvals. The Philippine Amusement and Gaming Corporation (PAGCOR) posted a slight decline in revenues in the first nine months of the year. Data from the country’s gaming regulator and operator showed PHP30.1 billion in gross revenues through September (US$752 million), lower by 2 percent compared with the same period last year. The decline stems in part from a lowering of fees charged the four licensees developing resorts at Manila’s Entertainment City. The fee revision is intended to soften the impact of a Bureau of Internal Revenue decision to impose the country’s 30 percent corporate income tax on casinos.

CALENDAR December 8-11: The 41st Annual Symposium on Racing & Gaming, Westin La Paloma Resort, Tucson, Arizona. Produced by the University of Arizona Race Track Industry Program. For more information, visit ua.rtip.org. January 31-February 2: London Affiliate Conference 2015, London Olympia. Produced by iGaming Business. For more information, visit londonaffiliateconference.com.

February 2: European Online Gaming Law 2015, Crowne Plaza London-The City Hotel, London. Produced by C5. For more information, visit C5-online.com. February 2-5: ICE Totally Gaming 2015, ExCel Center, London. Produced by Clarion Gaming. For more information, visit icetotallygaming.com. February 10-12: Western Indian Gaming Conference 2015, Harrah’s Resort Southern California. Produced by the California Nations Indian Gaming Association. For more information, visit WIGC2015.com.

February 26: iGaming Legislative Symposium, Sheraton Grand Sacramento, California. Produced by Pechanga.net and Spectrum Gaming. For more information, visit igamingsymposium.com. March 2-4: World Game Protection Conference, M Resort, Las Vegas. Produced by World Game Protection Inc. For more information, visit worldgameprotection.com.

Said It”

“Ultimately, there’s too much competition and they’ll all go down the tubes. The problem is the whole country is becoming one big gambling casino, and many of them will die.” —Donald Trump, commenting on new casinos planned for New York state

“Upstate? It’s too far away.” —Lionel Leung, Queens, New York, who says he will not travel beyond Resorts World

“The judge bought it. That’s why I’m not optimistic about the judge ultimately ruling in our favor. I wish we had a different judge. Irreparable harm wasn’t there. It isn’t there. But he’s the judge.” —Raymond Lesniak, New Jersey state senator, to the Newark Star-Ledger after federal Judge Michael Shipp issued a temporary restraining order to stop a New Jersey racetrack from beginning sports betting under a new state law

“The casinos have to pay their fees and have to pay their taxes like any other business. But the casinos have also been raped by the state of Delaware to the tune of 43.5 percent of their earnings. Who can survive in a business like that?” —Delaware state Rep. Steve Smyk, in remarks presented in the campaign video of his political opponent, who criticized his vote for last year’s $10 million bailout of the state’s racinos

“I think it will enhance the game as opposed to doing anything to hurt it. Sports wagering done in a way like Nevada that is properly regulated will give more confidence to fans that games and fights aren’t fixed.” —Lawrence Epstein, executive vice president and chief operating officer of the Ultimate Fighting Championship league, to ESPN

“We’ve been hanging out the window by our ankles for two or three years. But, these are the toughest people around. They are tough as nails.” —Steve O’Toole, head of racing at Plainridge Park Casino, where horsemen have long worried about the possible closing of the track, which will now stay open thanks to the defeat of Massachusetts Question 3

“When I saw this scenario, I said, ‘This is the place.’ Las Vegas dreams big, and I dream big, also. It’s a good combination, this crazy guy coming into Las Vegas with Rock in Rio.” —Roberto Medina, the promoter who is bringing the four-day Rock in Rio fest to Vegas in 2015

DECEMBER 2014 www.ggbmagazine.com

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AMERICAN GAMING ASSOCIATION WE’VE BEEN ON A

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By Geoff Freeman, President & CEO, American Gaming Association

he AGA’s aggressive efforts to promote the value of the gaming industry, combat outdated stereotypes and pave the way for gaming’s next-generation policies realized more significant achievements last month. The 2014 midterm election resulted in millions of voters who cast their ballots in support of gaming. It proved what we already know: voters across the political spectrum recognize that casinos create jobs, strengthen local businesses and benefit communities. The AGA delivered facts to voters and Americans nationwide, and we will continue the drumbeat of the “Get to Know Gaming” multi-year campaign effort.

AGA ASSERTING ITS VOICE Tirelessly promoting the value of gaming is a hallmark of the AGA. We push back against critics’ tired stereotypes, provide facts in states where gaming is under discussion and applaud forward-thinking policymakers’ proposals to help our industry thrive. Some recent firsthand examples include: • Driving Delaware to take a fresh look at gaming policies by testifying in front of the Delaware Lottery and Gaming Study Commission. AGA’s Senior Vice President of Public Affairs Sara Rayme articulated gaming facts at the hearing, which will inform recommendations to policymakers for improving the statutory and regulatory environment for Delaware casinos. • Encouraging other states to initiate critical discussions similar to Indiana’s proactive review of gaming policy, and thoughtful consideration of policies that would allow for the gaming industry to continue to thrive. • Launching an aggressive communications promotion in the lead-up to Election Day in communities where gaming was on the ballot or under discussion. Our push included earned media promotion of a high-impact video that highlights gaming’s quarter-trillion-dollar impact. VOTERS REAFFIRM VALUE OF GAMING The midterm election resulted in millions of American voters casting their ballots in support of gaming. The results reaffirmed those of the AGA’s nationwide poll conducted by bipartisan pollsters Mark Mellman

Global Gaming Business DECEMBER 2014

and Glen Bolger earlier this year, which showed: • Voters across the political spectrum view casino gaming more favorably than ever; • Voters’ recognition that casinos create jobs, strengthen local businesses and benefits communities; and, • No state was more widely publicized and watched by our industry than Massachusetts. Voters of the Bay State considered an unprecedented casino repeal question at the polls. By a resounding margin (60 percent to 40 percent), the people of Massachusetts rejected tired stereotypes and cemented the role of casinos in the commonwealth. In states where gaming expansion did not pass, such as Colorado, voters chose to protect the benefits realized from casino gaming. Additionally, voters in South Dakota and Rhode Island made the choice to further expand gaming offerings, believing the economic engine can deliver more for its communities with a larger portfolio of entertainment options. While individual states will decide whether or not, and how much, gaming is appropriate for their communities, the AGA will raise its voice to counter false claims and ensure the facts about casino gaming are told. DELIVERING THE FACTS Authoritative research from the AGA’s “Get to Know Gaming” campaign has delivered credible data and messaging on casino gaming. While we’ve seen considerable support, there is no shortage of places where our positive story still needs to be told. In the months ahead, we will release economic impact figures for commercial gaming states throughout the U.S. In December, we will debut a first-ever study on the gaming industry’s ability to provide a pathway to prosperity through its more than 200 unique careers. To accompany these strong statistics, we will release a video series that reveals many of the individuals who make up our industry’s vibrant employment base. Leading into the new year, we will call on industry employees to stand up and speak up about how gaming benefits their career progression, educational advancement and livelihood. We hope you will answer our call and join the AGA as an advocate of gaming.

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FANTINI’S FINANCE

Macau’s Lessons Trees don’t grow to the sky, so investors should not be surprised

arren Buffet has famously said his favorite stocks are those of companies so well-managed and with such competitive moats that you can go away for years, return and your investment would be more valuable and intact. For years, that was the degree of confidence investors appeared to have in Macau casino operators. They were helped along by analysts who did straight-line projections of Chinese growth, calculated low market penetration and forecast doubledigit growth to the horizon and beyond. I have used this space several times during that period to warn against overexuberance. There were three reasons: • Trees do not grow to the sky, to use an old Wall Street expression. • The Chinese government is still run by the Communist Party, so businesses, by definition, live in jeopardy of government policy. That is especially true of gambling companies. • Success breeds competition. So, here we are with investor confidence badly damaged, if not shattered, as government policies—tighter credit, a smoking ban and really, truly, this time, a crackdown on corruption—have slammed gaming revenues. Meanwhile, off in the periphery, the Philippines is building mega-resorts and NagaCorp in Cambodia is drawing Chinese players, many brought by Macau junketeers who are finding business tougher at home. And Korea, Vietnam, Australia and maybe Japan could join in. Further, the recently held tenet that the six megaresorts rising in the Cotai section of Macau would ignite huge growth has transformed into a worry about excess capacity in the face of declining revenues. Even the much-heralded growth of the mass market, thanks to the burgeoning Chinese middle class, is getting hit. Analyst Phoebe Tse of Barclays noted that the smoking ban on the main casino floors has resulted in a migration of high-end players to the VIP rooms where smoking is permitted, but where casino profit margins are lower. Mass table game revenue fell 8 percent in October compared to 15 percent growth in Septem16

By Frank Fantini

ber before the ban, Tse pointed out. VIP revenue, which has been declining for different reasons, fell 31 percent. Tse now forecasts total gaming revenues will slip 1.4 percent for the full year and rise 3 percent next year. However, margins will be hurt if smokers continue the shift to VIP rooms. The result of all this new negative feeling is that Macau gaming stocks have plunged. Here are the percentages by which the stocks of Macau operators and their Macau subsidiaries have fallen from their 52-week highs as of this writing: MGM Resorts Wynn Resorts MGM China Sands China Wynn Macau Las Vegas Sands Galaxy Entertainment SJM Melco Crown

-24 percent -29 -31 -32 -32 -34 -40 -42 -47

Hit even worse has been Macau casino manager and e-table provider Paradise Entertainment, falling 61 percent even though its revenues have been growing. To all of this, we invoke the words of Roy Rogers’ sidekick Pat Brady: Whoa Nelly. Every one of the worries about Macau is true, and we’re glad, in a way, to see our previously stated cautions have proven their merit. But as so often happens, investors are running the risk of reacting too strongly in the other direction, if they already haven’t reached that extreme. Even if every current worry remains, the future should be brighter for these companies than the current sell-off justifies. Consider: • Burgeoning Chinese middle class is real. And, while the transition away from VIP gaming-centric operations to a more Las Vegas-like model might be difficult, it will happen. Demographics, as they say, are the future, and the demographics of China are compelling. • Delivering people to Macau. The network of high-speed rail lines, the bridge connecting Macau to Hong Kong and to the mainland, and the develop-

Global Gaming Business DECEMBER 2014

ment of adjacent Hengqin Island into a national Chinese tourist destination are real, too. • Tough, not dumb. Both the central Chinese and Macau governments might permanently toughen conditions, but they also know the financial treasure they have in Macau casinos and aren’t likely to strangle the geese laying the golden eggs. More likely, there will be a means of mitigating the impact of the smoking ban, players and governments will adjust to stricter policies aimed at corruption, and the renegotiation of casino licenses will be resolved. • They can play the geographic expansion game, too. As Melco Crown is demonstrating with its casino projects in the Philippines and Far Eastern Russia, Macau casino operators can venture beyond the city’s borders to capitalize on new jurisdictions. Of course, we don’t know where bottom is for these stocks. And, to resort to yet another old Wall Street saying, you don’t want to catch a falling knife. But the risk-reward ratio might be starting to lean towards the reward side. For example: • Las Vegas Sands has made the case that Macau is actually capacity-constrained. It needs more hotel rooms and gaming space, the company says. So maybe those new resorts opening next year will boost business, after all. • Macau casino operators have become dividend payers, some very generous, such as WYNN, now around a 3.4 percent yield not counting its special dividend, and LVS, around 4.5 percent. Those dividends—and LVS’ big share repurchases—should help cushion the stock and reflect management confidence in their growth. • Las Vegas is growing again and U.S. regional markets are slowly recovering—pluses, especially for MGM. • Valuations. While the stocks are not quite in the value category, they are no longer stretched at 15 times forward earnings for LVS and MPEL, and enterprise-to-EBITDA ratios below 13 for them and WYNN. Frank Fantini is the editor and publisher of Fantini’s Gaming Report. A free 30-day trial subscription is available by calling toll free: 1-866-683-4357 or online at www.gaminginvestments.com.

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s ’ t I Complicated It’s a brave new world for regulators. Are they up to the challenge? By Richard Schuetz

tarting in 2008, I began working as a consultant to the state of Kansas as that state worked to introduce casino gaming within its borders. It was a most pleasurable engagement, and many of the people involved with the state have remained my friends, in particular the person I reported to, Mr. Keith Kocher. My primary effort on behalf of Kansas was to ensure that the prospective bidders met the test of being capable of operating a casino, at least as defined by the Gaming Act, and that they possessed the financial wherewithal to ensure that their vision for the casino they wanted to introduce into the state could become a reality. This latter task was a bit challenging, since my engagement with Kansas coincided with what came to be known in Regulators are tasked with unraveling the arcane financial the United States as “The Great Recession.” structure that is Caesars Entertainment. During this time, there was a substantial deterioration of many of the gambling firms’ balance sheets, and this was being further compounded by the fact that access to finance capital was becoming more uncertain and problematic by the day. with the message, “I have fallen in Harrah’s financials and can’t get up.” In many ways, this was the consulting engagement that would just not go The point is, this was a lot of work, it seemed to have a great many away. About the time I thought my efforts were concluding, someone would moving parts, and they were moving all over the place. At the end of this drop out of the Kansas process, a bidder’s financial conditions would dramati10-day session, I wrote my report for Kansas and suggested that I believed cally change, or there would be some other unanticipated event that would send that Harrah’s had the financial wherewithal to accomplish what it said it the state again asking for my assistance. was going to accomplish, and I returned to doing whatever it was that I was I would be off minding my own business somewhere, and Mr. Kocher doing before this assignment. would call wanting to get the band back together again. Such was the case in the I would never make an effort to claim that I am the sharpest pencil in late summer of 2010 when I was contacted to perform a thorough analysis of the the box when it comes to financial analysis. I have been involved as an execfinancial wherewithal of Harrah’s Entertainment. utive in the gaming industry for a significant number of years, however, and my education included more than 11 years in economics as an undergraduate and graduate student. I am somewhat comfortable in financial terrain, even when it is a bit At this time, Harrah’s was the largest gambling company in the world, just about bumpy. The Harrah’s experience did teach me, though, that I had met the any way it could be measured. It had somewhere in the neighborhood of 50 upper boundary of my ability to not hurt important parts of my brain tryproperties distributed around the globe, had a huge database within its loyalty ing to figure out just what was happening on all of the myriad schedules, program, serious revenues, and a substantial workforce. spreadsheets, debt instruments and other boxes of materials that the comIt also had, as a result of its acquisition by Apollo Global Management and pany provided to me to explain its financial situation. Texas Pacific Group in 2008, a substantial amount of debt. As a result of its size, This was a ton of work, it made my head hurt, and it was damn compliits geographic dispersion and its debt load, the analysis I was asked to perform cated. was, at least by my standards, complicated. Since this engagement, I have continued to casually follow the story of I set off to undertake this task by heading to a dear friend’s house located in Harrah’s, which changed its name to Caesars Entertainment shortly after Mission Bay, a beautiful seaside area in Southern California. My friend was runmy analysis was completed. Furthermore, in following the news of late, I ning around Hawaii at the time, so I assumed the cat- and dog-sitting tasks, and would suggest that this company’s financials have become more complex dove into Harrah’s financials with a reckless abandon. since I was looking at them, by a factor of n, where n is a pretty big number. I maintained this status for about 10 days, working about 14 hours a day. And given that I was at the limits of my game back before the n multiSeveral times during this effort, I would email my supervisor back in Kansas

Layers Upon Layers

Global Gaming Business DECEMBER 2014

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p. 18 regulation:Layout 1 11/13/14 7:18 PM Page 20

Let’s take a look at what is happening in technology. We have slot machines on our casino floors that have more computing power than the early satellites that this country sent into space.

Regulators are expected to understand how slot games migrate from machine to online.

ple came into play, there is absolutely no way that I could tear through these new financials and arrive at any meaningful understanding as to what is going on within them today. As a regulator, I am then forced to ask the question, who can?

Technical Challenge It has been my good fortune to work in many markets across the United States and the world. In these travels I have met some extraordinarily talented regulators. And I am comfortable that there are a handful who could rip into the complicated financial structure of some of the bigger gaming concerns and understand the plot line. Unfortunately, while there are a handful of regulators who could do this, there are more than a handful of states that regulate gaming. This implies that some of these regulatory entities are going to be well beyond their comfort zone in doing a deep-dive into many a gaming firm’s financials. This leaves two choices for these entities: either hire an outside party to assume this task, or pray that the other states that have looked at the firm got it right, and send it down the approval chute. I like to call this latter choice regulation by prayer. Furthermore, if recent news has taught us anything, it is that these financial structures are only going to become more difficult by way of the fact that the recent spurt of mergers, in particular in the manufacturing sector, are yielding some very large firms with complicated financial structures that are spread across the planet. Imagine the poor regulatory agency that just opened the mail to get the applications for the new GTECH entity, the new Scientific Games, and just for good measure, from Caesars and Amaya. That load could keep some regulatory staffs busy into the next century. And this is only the financial side of the regulatory challenge. Let’s take a look at what is happening in technology. We have slot machines on our casino floors that have more computing power than the early satellites that this country sent into space. These beasts have player tracking and accounting systems attached, TITO printers and readers, programmable graphic packages, bill acceptors, and who knows what tomorrow will bring? These devices can be attached to servers offering downloadable programs to control many attributes of the game. Sitting at that machine, someone can be making in-game sports wagers on a mobile application, and that casino is also hosting players on its iGaming systems who may be driving in cars 200 miles away from the casino, and each playing on eight different poker games. As the regulators are reeling in shock from this reality, there are 27 game approvals waiting in the queue, and the state wants to legalize some new form of technological wizardry in an attempt to fill a budget hole. 20

Global Gaming Business DECEMBER 2014

Third-Party Plans In the modern world of regulation, there are companies being regulated that are almost as big as the states that are attempting to regulate them. These firms can and do hire the best and the brightest, and can offer incredible compensation and benefit packages. If these companies need additional help they can hire some of the top-notch experts in the world. For many a regulatory agency, the playing field is not even close to being level. In trying to mitigate this inequality, the regulatory agencies have had to become more dependent upon third parties, both in the financial and technological sectors; and they have also had to become more dependent upon regulating by prayer. In the United States, gambling has been an issue of states’ rights. This has resulted in a mass of individual regulatory agencies, each operating within the borders of one state. Unfortunately, these agencies tend to become sequestered; that is, they are too often self-contained and operating as independent agents oblivious to what is going on in the other states. While one might then suggest that the federal solution may prove appropriate, the federal government really has convincingly demonstrated that it cannot solve anything—with an emphasis on the “anything”—so this option really is not available. What to do? As the gaming industry continues to grow and concentrate, we regulators need to join hands across our state boundaries. In order to ensure a wellregulated industry that can continue to generate tax revenues, employment and investment, it is going to take a village, and that village needs to be comprised of diverse and different state regulatory agencies working together toward a common set of goals. We need to share insights, information, successes and failures. The United States is currently continuing to dig itself out of the Great Recession, an event that some attribute, at least in part, to regulatory failure. Prior to this crisis, the financial sector was developing new and complex financial instruments—instruments that the financial regulators did not understand. Encompassed within the regulators’ inability to understand these instruments was the inability of the regulators to understand the risks associated with these instruments. The system then collapsed, while the financial regulators basically fiddled. It has been suggested that what one doesn’t know can’t hurt them, but failure of a regulatory entity to understand, and to know, can be absolutely catastrophic to the underlying ecosystem. We, as regulators, need to catch up, and we need to start now. Richard Schuetz is a commissioner for the California Gambling Control Commission. The opinions expressed in this article are his alone, and do not necessarily reflect the position of the state of California, the commission, or any other entities or individuals within that state.

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2015

10 for 15

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}

Our annual rundown of trending issues in the gaming industry his year’s “10 Trends for 2015” contain several issues that were also something we considered in 2014. The interest in those issues has simply gotten more intense over the past year. Our goal with this annual story is to prepare our readers for the things that will be trending in the upcoming year. If you are prepared and aware of what’s coming around the bend, you can better react. So whether it’s the burgeoning area of social games, the collision of operators and manufacturers, the confusion in Indian Country, the shocking events in Atlantic City and what that means to the industry as a whole, or many more subjects, read this special report and you’ll be prepared for almost anything that comes along in 2015. And please let us know if you disagree with us, think we missed a major trend or believe we are right on the mark, so we can make the trending piece for 2016 even more valuable.

SATURATION SITUATION

Shut-down Showboat Cas ino in Atlantic City

Atlantic City could portend things to come

t the far northern end of the Atlantic City Boardwalk, two casinos sit empty and abandoned. A third may soon join them if reports are correct. They are all victims of saturation—too much supply, not enough demand. The same illness claimed another victim earlier in the year at the other end of the Boardwalk (and one in the middle), and it may not be over. For those who believe that this phenomenon is limited to Atlantic City and that other jurisdictions wisely limited the number of casino licenses issued, it’s time to think again. Let’s start with Connecticut, where the two tribal casinos in the eastern end of the state have seen declining revenues for more than half a decade. While Atlantic City casinos fell victim to new supply in their primary markets of Pennsylvania and New York, there has been little new supply in the feeder markets to the Connecticut casinos. Maybe a few more slots and tables at Rhode Island casinos, but we’re still a couple of years at least from any Massachusetts casino opening. And yes, New York City added two slot parlors, but not enough to sap the revenue that has been leaking from the Connecticut casinos. And what about Ohio, where the full complement of casinos and slot parlors is now open? Revenue projections for those facilities haven’t been touched by actual gross gaming numbers. And even with disappointing numbers, the presence of Ohio casinos has negatively impacted casinos in Pennsylvania, West Virginia, Michigan and Indiana. So what’s going on here? Is it true that supply has now outstripped demand? Are the casinos’ primary demographic—baby boomers—dying off and not being replaced by younger gamblers? Has the casino experience become old and stale? The answer is probably yes to each of those questions, but it’s also much more complex than those answers seem to suggest. For example, as crowded as the gaming market is in the northeastern U.S., Massachusetts and New York will add up to eight more casinos over the next several years and maybe more after that. So what will that increase in supply

Global Gaming Business DECEMBER 2014

do to casinos already struggling for market share? Time was, when a casino opened it exposed new players to the gaming experience, thereby creating new players and markets. That introduction formula has withered away as casinos elbow themselves into existing markets, cutting the pie into smaller pieces rather than growing it. And what of the demographic argument? Young people clearly enjoy playing games and gambling, so what are we doing wrong in failing to convince them to enjoy that experience in a casino environment? The person or company that solves this particular issue will do very well. And as for the vaunted “casino experience,” has the time come to re-evaluate what customers expect? Do the entertaining slot games we see on today’s casino floor really deliver what customers want? Winning is usually more important to them than entertainment, so maybe operators need to rethink their payback percentage, and maybe manufacturers need to rethink the cost of the devices themselves. So saturation is more than just a group of casinos stealing business from each other. It’s more than presenting new games and non-gaming attractions. And it’s more than solving one problem, because another invariably arises. Saturation is the challenge we all face. —Roger Gros

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HOME SWEET HOME The localization of tribal government gaming

s someone who has “been around” the tribal gaming industry for 20 years, people often ask for my opinion on particular tribal gaming issues, including gaming on recently acquired reservation lands (often mischaracterized as “off-reservation” gaming), the online gaming debate, the potential for more competition and slowing growth, the impact of gaming on the federal recognition of Indian groups, and so on. Increasingly, tribal gaming issues have become more complex due to a combination of increased scrutiny by outsiders and investment by diverse stakeholders as well as the effective exercise of tribal sovereignty at the local level. In this context, it is becoming more difficult to clearly identify the “side of tribal sovereignty” without considering individual tribal positions. In the past, any action that was perceived as eroding or limiting tribal sovereignty was uniformly opposed by tribal governments and organizations, including the National Indian Gaming Association (NIGA). Lately, it seems that there is more than one way to argue the point that a particular position “supports tribal sovereignty.” A recent example in California illustrates the point. Proposition 48, a referendum on a single state-tribal compact (in contrast to Proposition 1A in 2000, which ratified 61 compacts), generated nearly $16 million in campaign contributions, most of it directed to the “No on 48” effort. Yet, “both sides” of Proposition 48 could argue that their position supports an exercise of tribal sovereignty. (The measure was defeated on November 5.) For the two tribes who were party to the gaming compact on the ballot, Proposition 48 represented the culmination of a long road to economic development that included multiple acts of tribal sovereignty, including the acquisition of a new reservation parcel through negotiation of several federal, state and local government processes, and securing a complex tribal-state compact for a single property that benefits both tribes (and includes environmental protections) while also preserving two important funds that support non-gaming tribes and host communities in California. In addition to the two tribes, Prop. 48 was supported by California Governor Jerry Brown (considered a “friend of Indian Country”), various union interests related to the tribes’ designated casino management company, environmentalists, the local sheriff and other government officials. The “No on 48” position also supported tribal sovereignty, however. The majority of tribes in California established their casinos on lands they held in trust prior to the passage of the Indian Gaming Regulatory Act (IGRA) in 1988. Many of those lands are in remote locations and required significant investment in order to offer gaming, if they were able to sustain a gaming facility at all. Tribes with gaming have spent millions of dollars and nearly 20 years building a relationship of trust with California voters, including an understanding that the growth of tribal gaming would have a “natural limit” based on a known geography. In addition to concern over the statewide reputation for tribal gaming, indi-

vidual tribes near the newly acquired lands involved in Prop. 48 strongly opposed their acquisition by a single tribe, arguing that the lands were used communally and never historically “owned” by a single tribe. What this proposition ultimately reveals is that individual tribal governments are now exercising sovereignty at the local level in ways that can impact other tribes or public policy as a whole. This focus on a more local context for sovereignty makes it more difficult for tribes to unite at the state or national level unless there is some larger “common enemy” that threatens tribes equally (such as taxation by non-tribal governments). Rather than being “on the side of sovereignty,” it is more likely that interested parties will face a forced choice between individual tribal expressions of that sovereignty. Other issues such as online gaming have divided tribes as well. Some tribes initially created a partnership with card rooms (COPA), while others believe that they can offer Class II gaming online under IGRA without further regulation (Desert Rose). Some tribes worry that online gaming will threaten their land-based operations while others see it as a necessary extension of current offerings. Always, there is a host of lawyers, business partners, service providers, industry experts and others who are pushing their agendas into the debate as well. It is not always clear, even to tribal leaders or communities, which option is the most clear “exercise of sovereignty” among those available. NIGA and other tribal organizations have responded to this localization by drafting documents that memorialize fundamental principles that all tribes can support. The NIGA resolution on internet gaming, for example, affirms that Indian tribes are sovereign governments with a right to operate, regulate, tax and license internet gaming, and states, “Those rights must not be subordinated to any non-federal authority.” The NIGA resolution also insists that “existing tribal government rights under tribal-state compacts and IGRA must be respected.” Other provisions are similarly broad, and the resolution, passed in 2010, has passed the test of time. The localization of tribal sovereignty makes it difficult to identify the “side of sovereignty” in general, but the good news is that this is the direct result of increased tribal authority and influence at the local level. Academic research reveals that the best decisions are made when those making them will have to live with the consequences. Tribal gaming has provided the opportunity for tribal governments to manage their own affairs, and the effects have revolutionized Indian Country. —Katherine Spilde, Ph.D., Associate Professor of Hospitality and Tourism Management (HTM) at the L. Robert Payne School of Hospitality at San Diego State University, and chairwoman of the university’s Sycuan Institute on Tribal Gaming

Some tribes worry that online gaming will threaten their land-based operations while others see it as a necessary extension of current offerings. Always, there is a host of lawyers, business partners, service providers, industry experts and others who are pushing their agendas into the debate as well. It is not always clear, even to tribal leaders or communities, which option is the most clear “exercise of sovereignty” among those available.

DECEMBER 2014 www.ggbmagazine.com

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SLOT-SECTOR

CONSOLIDATION The mergers and acquisitions keep on coming

s much as the industry has been inundated this year with stories of consolidation in the slot-manufacturing sector, it is almost universally agreed that the mergers and acquisitions have not ended. It is generally expected there will be more consolidation in 2015, for the same reasons that so many slot manufacturers signed merger agreements over the past 12 months: There are simply too many companies selling slot machines. For years—decades, really—there were a handful of slot manufacturers of note serving the industry. However, over the past decade, the market became flooded with new players. Class II stalwarts like Multimedia Games, Cadillac Jack and AGS moved into Class III with renewed game development and marketing teams. International slot leaders like Novomatic, Ainsworth and Casino Technology began selling and marketing to North American casinos. Amusement game manufacturer Incredible Technologies started making slots. Bingo companies Ortiz and Zitro increased marketing to North American casinos. Something had to give. It started with two deals—Canadian supplier Amaya Gaming’s buyout of Cadillac Jack, followed by Bally’s acquisition of SHFL en-

CASINOS AS SAVIORS Economically depressed regions begin to realize that more is needed than simply gaming

he date was November 2, 1976. New Jersey voters went to the polls for the second time to decide whether to provide Atlantic City with casinos to revive its economy. The first time, two years earlier, it was defeated because casinos would not have been limited to Atlantic City. In 1976, that mistake was fixed, and voters overwhelmingly approved gaming only in Atlantic City. Citizens and business owners in and around Atlantic City partied all night, expecting the streets to quickly become paved with gold. And they were—for a small group of people who owned land in the casino zone, in the beach block along the Boardwalk. Most of them cashed in and walked away millionaires. Others, not so much. Prior to the legalization of casinos, Atlantic City was desperate. The faded resort had been rendered obsolete by air travel and faster automobiles. Once the primary holiday spot for Philadelphia and, to a lesser extent, New York, Atlantic City was now being ignored by more affluent and prosperous vacationers. The Democrat National Convention was held in Atlantic City in 1964 and, instead of reviving visitation to the town, it simply highlighted how outdated and dowdy the remaining resorts had been.

Global Gaming Business DECEMBER 2014

tertainment, the latter creating a full-service supplier of slots, table game content, etables and table utility products. Then, the lottery companies got into the act. First, lottery industry giant Scientific Games bought WMS Industries and its WMS Gaming slot manufacturing company, one of the top five slot-makers in the business. Then, Scientific Games’ competitor in the lottery business, GTECH—itself a product of a merger combining the Rhode Island-based core lottery supplier with Italian lottery operator Lottomatica and former slot suppliers Atronic and Spielo—announced it was buying leading slot manufacturer International Game Technology. Then, another blindside—since GTECH was buying IGT, Scientific Games decided it would buy the No. 2 slot manufacturer, Bally Technologies. The mergers were still not done. Aristocrat Technologies bought Class II supplier Video Game Technologies. Multimedia Games, long a subject of M&A speculation, was bought by an unlikely company, ATM supplier Global Cash Access. Most experts say the deals are not done yet. There are other big lottery companies, other big slot companies, and a lot of smaller suppliers, many of which are not capitalized to sustain competition with the big boys. Gaming analyst Frank Fantini wrote in September GGB that potential suitors include Intralot, the world’s second-largest lottery company, and the only of the top three lottery suppliers without a slot partner. On the other side, Fantini wrote, Aristocrat, while it did acquire a Class II supplier, remains the largest publicly traded slot manufacturer without a lottery partner. Aristocrat and other large slot companies like Austria’s Novomatic and Japan’s Konami also could be looking to nab smaller slot companies, simply to remain competitive with the behemoths created by the past year’s big deals. (Fantini brought up the prospect of Aristocrat acquiring Ainsworth, the company owned by Aristocrat founder Len Ainsworth.) There is consolidation coming in other areas of gaming—cash-access companies, printing companies—but the trend to watch will be the one involving the companies that supply the industry’s slot machines. —Frank Legato

So gaming was a savior for Atlantic City, the one economic development tool that would revive it as a resort. And for many years, it worked. At its most successful, 33 million visited Atlantic City each year (OK, maybe it was only 5 million who visited six times a year, but those were the numbers). Even into the early 2000s, few imagined the gravy train would ever end, despite expansion of gaming into surrounding states. But Atlantic City’s lack of economic diversity cost it dearly as the recession hit and gambling expansion crept into its primary markets. Atlantic City isn’t the only gaming jurisdiction that counted on gaming as the economic savior. Many of the riverboat states leaned heavily on gaming.

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Mississippi hoped to reverse years of economic hardship with stationary riverboats. New Orleans and Detroit counted on gaming to return their downtowns to prominence. Gaming was surely a savior of dozens of Native American tribes that had no other way of bringing economic development to their reservations. But the concept of diversifying the tribal economies is just beginning to take hold. And the idea of gaming as an economic savior is not limited to the U.S. In the Philippines, the state-owned casino corporation, PAGCOR, is depending upon the vast Entertainment City tract of reclaimed bayfront land in Manila to create jobs and increase tax revenues, while bringing more tourists to the city with four $1 billion-plus casino resorts. Saipan and the Northern Marianas have recently approved huge casino resorts to rebuild a tourist economy that is the islands’ principal revenue source. But putting all your eggs into one basket isn’t the optimum method to revive an economy. Even the American Gaming Association agrees. “Gaming serves as one component of a strategic, multi-faceted economic development plan and supports thousands of jobs, boosts small businesses and generates vital revenues for public services, such as education and safety,” says Geoff Freeman, the president and CEO of the AGA. “While there’s no regulatory silver bullet that will level the playing field in every state, lawmakers should consider ways to strengthen their partnerships with gaming companies or risk losing crucial jobs and revenues.” Many of the Asian gaming jurisdictions have realized the truth of this viewpoint. When strait-laced Singapore chose to issue RFPs for gaming in 2004, leaders understood that gaming was just one element of achieving its goal of increased tourism. Therefore, the number of casinos was limited to two, the size of the casino was to be less than 5 percent of the total size of the “integrated resort,” and a wide selection of non-gaming amenities was required. But to achieve the level of investment required, the government understood that it must compromise and allow locals to gamble. Before shelving casino legislation last month, Japan had similar goals connected to the 2020 Olympics being hosted there. South Korea, Vietnam, Taiwan and several other countries are interested in taking a measured approach to gaming to duplicate the Singapore success. Back in the U.S., recent casino openings in four Ohio cities and in Baltimore seem to have recognized that gaming is only part of the equation in downtown revitalization. New York and Massachusetts have approved casinos for depressed areas, but the jury is still out on how successful they will be, entering an already saturated market in the Northeast. Clearly, there needs to be additional economic development in each state since casinos cannot be the entire answer. In Indian Country, the realization that a casino must be more than just gaming has forced tribal leaders to be more creative and visionary when it comes to building or expanding existing casino properties. So the days of the casino as the main fiscal engine that fuels an economic revival seem to be over. Hopefully, forward-thinking communities will view gaming as a part—a vital part—of any economic rebound and treat gaming as it would any other business that plays that kind of a role. —Patrick Roberts

Global Gaming Business DECEMBER 2014

INTERNATIONAL SHIFT Have Asian casino operators outpaced their U.S. counterparts?

The global gaming industry is well into a third decade of massive expansion. Although demographic and technological trends have reshaped the attributes of the gaming experience, the most substantial investment opportunities and volume of EBITDA are still largely in the development of brick-and-mortar operations. And despite distribution trends that have led to highly successful regional casinos (with total gross gaming revenue of over $21 billion in regional commercial markets 2012), route operations and online spend, the most provocative opportunities—if not the most lucrative returns—are arguably associated with what have become known globally as IRs (integrated resorts). And the real prize seems to be access to premium Asian play, wherever such resorts are being developed. So, why should we be surprised if casino companies most strongly integrated into Asia have become the envy of the industry?

First Wave Following the opening of the Mirage in Las Vegas in 1989, nearly two decades of intensive casino expansion were unleashed. That era saw unprecedented investment in Las Vegas (over $10.5 billion in capital investment between 1993 and 2000), and a flurry of activity in emerging markets throughout the Midwest, Gulf Coast and Native American sectors in the U.S. However, new development in these markets was led primarily by domestic operators hungry to capitalize on states introducing enabling legislation to fill budgetary gaps, primarily in North American markets. Competition within and between markets remained moderate through most of that period, at least through the late 1990s. And notwithstanding fluctuating economic cycles and inconsistent availability of capital, the dominance of U.S.-based powerhouse operators was undeniable. Think MGM Grand (later incorporating Mirage Resorts and Mandalay Resorts), Las Vegas Sands Corporation (LVS), Harrah’s and Caesars (now consolidated), and eventually Wynn Resorts—and their emerging market counterparts, including companies like Isle of Capri, Grand Casinos and Ameristar to name a few. During this period of U.S.-led expansion, Asian gaming operators concentrated on the handful of opportunities in their own backyards, with a few rare exceptions, such as the early interest in Foxwoods by Genting principals.

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Some good questions for operators, investors and industry observers, are: Where will the next wave of expansion occur? Who will end up with the most prized opportunities? Does success beget success? Or is it a matter of access to capital, or strong relationships with VIP players?

U.S. Operators Enter Asia Fast-forward to the late 2000s, and the landscape became quite different. First, there was a migration of gaming capital investment to international markets, primarily to Asia and most notably Macau, which had provided for a series of new but limited licenses and sub-licenses. Between 2004 and 2013, Macau saw a total capital investment of over $23 billion on major projects. The major U.S. operators remained in the game, learning the ins and outs of VIP play in Asia, with LVS leading the new wave of development followed by substantial investments by Wynn and MGM. Caesars was the only major U.S. operator not to end up with its footprint in this crucial market. LVS also secured a coveted license in Singapore, as did Genting, but that was the last major move by a U.S. company in the region.

Domestic Drought/Asian Dominance New opportunities in North America are now quite limited. Other than the opening of Massachusetts and added licenses in New York, and wishful thinking in Florida or Ontario, the North American opportunities well is running dry. Recently, the Innovation Group conducted overlapping national studies of gaming revenue trends as well as gambler behaviors, and found that while only one major region had shown signs of revenue decline, growth is minimal (less than 2 percent) if not non-existent in the remaining regions. Additionally, player participation and frequency appear to have declined consistently across the U.S., and almost equally across all age segments. Similarly, due to impacts on discretionary income, average entertainment budgets are also declining. Meanwhile, as U.S. operators are in the wings awaiting movement in Japan or Taiwan, or local play in Vietnam or Korea, the major Asian players are dominating, and taking on mid-sized opportunities in the Asia Pacific region within their regional strategic reach. In fact, things have nearly come full circle, with successful Asia-based operators not only keeping their foothold in Asia, but doing so while entering the U.S., and exploring other global opportunities enthusiastically. Genting, for ex-

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ample, has operations in New York, soon to be followed by Las Vegas and one day potentially Florida. But the company also continues to expand in Asia, with additions to Resorts World Manila and a new property planned for Entertainment City, also in the Philippines. As Crown maintains its position in Australia and Macau, it is developing aggressively at the Frontier site in Las Vegas. And while Melco remains heavily invested in Macau and is developing in the Philippines, the company is also looking hard at several real development opportunities in Europe.

What’s Next? Some good questions for operators, investors and industry observers, are: Where will the next wave of expansion occur? Who will end up with the most prized opportunities? Does success beget success? Or is it a matter of access to capital, or strong relationships with VIP players? Beyond even the larger Asian casino operators, there is movement by a new wave of potential visionaries who may lead—Asia’s answer to Steve Wynn or Sol Kerzner. For example, Tony Fung is embarking on a massive integrated resort in Cairns, Australia while Chinese junket operator Imperial Pacific is planning to invest multi-billion dollars in developing a world-class destination resort in Saipan, Commonwealth of the Northern Mariana Islands. And let’s not count out Europe and Latin America, each with the potential to become more attractive as economies stabilize and governments revisit their regulatory and tax structures. Like any industry, gaming has seen cyclicality over the last 25 years, with variability based on macro-economic trends, shifting regulatory environments, technological innovation and consumer preferences. But there is a certain irony in the history of casino development, and the concentration of U.S. and Asian companies vying for the biggest prize. It may have all started in Las Vegas when U.S. companies owned the global VIP market, but now it seems their Asian counterparts are fighting to take it back. —David Rittvo and Michael Zhu, Innovation Group Asia Cotai Strip

DECEMBER 2014 www.ggbmagazine.com

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MONETIZING SOCIAL GAMES

7. $

The profitability of social gaming goes way beyond virtual credits

THE GREAT COMEBACK Las Vegas is back, but smaller than ever?

umbers never lie. Last year, the number of people who flew into McCarran Airport in Las Vegas exceeded the number who arrived in 2007, the year the economy crashed. Occupancy rates and ADR on the Las Vegas Strip have bounced back. And the locals market is creeping back on the strength of renewed construction around town and rising housing valuations. So what’s wrong with this picture? What hasn’t bounced back so strongly are gross gaming revenues. GGR on the Las Vegas Strip in 2007 was $6.8 billion. In 2013, it had inched back up to $6.5 billion. Not bad, but when you drill down into the numbers, you’ll see much of that rebound is attributable the game of baccarat and the Asian players being brought in by the companies with a presence in Macau—Las Vegas Sands, Wynn Resorts and MGM Resorts. Slot win over that period has been flat or declining. And with the dependence on the volatile baccarat tables, revenue can vary wildly from one month to the next. Some Las Vegas casinos have downsized their gaming floors, and have eliminated money-losing operations (like poker rooms, now that the popularity of the game is again waning). Still, Las Vegas has once again reinvented itself to adjust to the times. Large amounts of capital are going into strictly non-gaming attractions—Caesars Entertainment’s Linq and High Roller observation wheel; MGM’s Park and arena behind New York-New York, and its Rock City festival grounds opposite the new SLS Las Vegas on Sahara; and expanded niche projects in the Downtown area. New projects are on tap. Genting’s Resorts World Las Vegas will get under way this year on Boyd Gaming’s former Echelon site, expanding its U.S. presence beyond New York City. Australian gaming magnate James Packer recently bought the former New Frontier site across from Wynn Las Vegas and will develop his first North American Crown casino. Both will be multibillion-dollar properties. A second arena has been announced for the old “Wet and Wild” site next to SLS. But many Las Vegas arenas and stadiums have been “announced” but not built. Non-gaming continues to be the key concept for Las Vegas. As gaming revenues continue to languish, non-gaming dollars now make up almost 70 percent of all revenue crossing hands on the Strip. Nightclubs attract a new generation of visitor to Las Vegas, not necessarily to gamble, but certainly to enjoy the bottle service at the hottest nightspot. So will the rebound continue? Gambling can be found in almost every region of the U.S., including Las Vegas’ primary feeder markets. Visitors no longer come to Las Vegas just to gamble. Gambling is part of the package that includes entertainment, dining, great hotel rooms, and the naughtiness that is Las Vegas. It appears marketers understand the appeal of the “What Happens Here Stays Here” campaign. And the customers are responding. —Patrick Roberts

Global Gaming Business DECEMBER 2014

hen leading slot manufacturer International Game Technology bought social gaming company Double Down Interactive two years ago for $500 million, many in the industry thought the price was vastly inflated. Double Down promptly generated $213 million in revenue in the first year, and few have since called it a bad acquisition. The value of monetizing social, free-play casino and poker games has only become more obvious since then, from Caesars Interactive’s Playtika platform—$135 million in revenues for the second quarter of this year, up 95 percent year-on-year—to free-play sites from Williams Interactive to Aristocrat showing big gains. Social gaming has been the growth story of the gaming industry, even as land-based slot revenues have gone down. Over the next year, social casinos will rake in money not only from the credits purchased by players and website advertising on the social sites, but in more indirect ways as social gamers turn into land-based gamers, and as traditional casinos use social sites to promote their brands, and to get people in the doors. In 2015, more casinos are sure to launch free-play sites that will allow social gamers to earn player’s club points with their free play, as more land-based casino operators realize that social gaming platforms allow them to build engagement with their current databases, and create a clearer picture of who those customers are. Casinos will be able to acquire new customers by extending their gaming brand to social sites like Facebook. As technology improves, social gaming on mobile channels will offer landbased casinos even more marketing opportunities. Geofencing technology will enable subscribers to social sites run by casinos to be offered comped meals or free stays for the points they’ve earned on the social sites on their mobile devices when they are, say, less than 25 miles from the property. Casinos can use social gaming to create an extended reach of the landbased brand to customers outside of the current property database. They also can use the digital platform to continuously engage with customers and create transparency on what digital activities attract the most value. Finally, research shows that most active casino gamblers play the social games online, and that majority is growing every year. Thus, casinos can use social gaming sites to recapture business or increase visits from customers who have gambled there in the past. As the social gaming universe expands, land-based casinos will find more ways to cash in on the popularity of social gaming. And with 130 million smart phones just in the U.S., the ability to market through social sites to known gamblers may be the best method yet of monetizing social gaming. —Frank Legato

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OPERATORS VS. VENDORS High holds, slot replacements and technological battlefields

he relationship between casino operators and their equipment vendors—particularly slot manufacturers—has seen rocky times over the years. When slot-makers in the 1990s first revealed plans for high-profile games that would be leased with the vendors getting a cut of the profits, operators balked. Some, notably the former Harrah’s Entertainment, even flirted with refusing to sign any participation deals for new slots. Manufacturers, though, consistently fought to reclaim some of the millions in R&D and license fees they poured into their biggest titles by offering them only in participation deals. When the highest-profile branded slots began earning several times house average, slot managers couldn’t refuse. Eventually, the operators couldn’t do without leased games. When the recession hit, the operators stretched out their replacement cycles, causing a ripple effect with the manufacturers. The result was lean times on both sides of the supply chain. Operators attempted to rebound, as much evidence has shown, by using the popular penny denomination to raise theoretical hold on the slot floor. But even after the economy improved and hotel revenues rebounded, the industry’s slot revenues remained flat. The Association of Gaming Equipment Manufacturers (AGEM), the trade group of all the major slot manufacturers, thinks those two facts are connected. The group has launched an investigation into whether there is a correlation between operators’ attempt to recoup revenue by tightening slot holds and the decline of slot revenues for those operators. The association is well-equipped for the venture—the data rests in the sales records of AGEM members. Those records show the programs selected by operators for each slot game purchased,

which indicates the theoretical payback percentage. The AGEM study will try to identify policy shifts where operators began to buy the higherhold programs and match them to periods of declining slot revenue. The implication, of course, is that operators were greedy in keeping high hold numbers, causing many players to quit going to casinos because their money went too quickly. The outcome of the AGEM study certainly will make slot holds a trend to watch in 2015. For the future, issues between operators and manufacturers may focus on trends in game design. While manufacturers are providing hardware today that looks the same as it has for decades, there are voices on both the operator and manufacturer sides calling for something new—namely, a product that will attract a younger audience. It is a bone of contention among many on both the operator and supplier sides. Some say the fact that a traditional slot machine has no appeal for a 25-year-old does not mean that same player will not go for the simple slot machine when he’s 40—just in time to replace the baby boomers that dominate the slot floor today. Others say millennials and Generation Xers will never want to sit down and watch reels spin, and radical changes in game design are overdue— namely, competitive video games, with no spinning reels but a home-video-style experience with skill determining the winner. The answer to this argument is likely to fall somewhere in the middle, with games for both types of players. It’s something already being pushed by many slot manufacturers. What remains to be seen is how much space the casino operators are prepared to turn over to the millennials. —Frank Legato

Global Gaming Business DECEMBER 2014

THE ROAD NOT TAKEN

Why iGaming is not a passing fad

hen iGaming launched in New Jersey in late November 2013, there were high hopes on all sides. The administration of Governor Chris Christie saw iGaming as a way to balance the budget, and projected a billion-dollar market. Atlantic City casinos were more reasonable, and stuck to the projections made by analysts of about a $400 million market. The casinos wanted to replace some of the gaming revenue that has been lost to surrounding states over the last seven years. And the iGaming operators, most of whom came to the U.S. after staying white-listed in foreign jurisdictions, expected to be pioneers in what some thought would become the biggest market in the world. The wide-eyed optimism was, as we know now, misplaced. There was no mad rush to sign up for iGaming in New Jersey. And those that had an interest often confronted obstacles that seemed insurmountable. ID verification, geolocation, and most importantly, payment processing made what should have been an entertaining experience into something akin to signing up for Obamacare. Atlantic City’s casino operators were poles apart in their involvement with iGaming. Some embraced it; others ignored it. Most inked deals with operating partners, mostly companies with iGaming experience in Europe, but the dynamic of each relationship was different. Some landbased casinos took an active role in planning with their partners, while others simply took the money and ran. But the more successful iGaming ventures today are the ones that included full collaboration from each side. Consumer education has also been lacking in New Jersey. With an uncertain authority to market via affiliates—the major marketing tool in Europe—New Jersey operators have been cross-marketing with their online partners. When state regulators required that affiliate marketing sites obtain an ancillary casino license—a higher bar than simply vendor registration—several companies complied, but the powerful Eu-

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1 7 5 0 A T T O R N E Y S | 3 6 L O C A T I O N S W O R L D W I D E˚

ropean affiliate marketers opted, for the most part, to decline. But when regulators were informed that there were sites marketing legal New Jersey iGaming alongside the illegal blacklisted U.S.-facing sites, scrutiny only increased on marketing by operators, a situation that is still in flux today. Earlier this year, the other two iGaming states, Delaware and Nevada, announced that they would seek to pool players via an interstate compact. While such an agreement wouldn’t be much different than operating alone for these two small states, the addition of New Jersey could be significant. But differences in technical requirements, games, regulations and other legal matters have conspired to delay compacts. The success of iGaming in these three states is the proof that it can be done safely and securely. Despite initial issues with geolocation, there have be no incidents of players being allowed to log in across state lines. And there have also been no reports of minors or problem gamblers being able to access any iGaming sites in those three states. Payment processing remains an issue, but progress is being made on creating new “legal gambling” designations for credit card companies, as well as other options like “e-wallets” or remote deposits that will ease the payment procedures in the future. So while iGaming in the U.S. hasn’t become the breakthrough success that many predicted prior to its introduction, it is a new industry, with new regulations and new technology that has a bright future. Now if we can only wait for its arrival. —Patrick Roberts

Fresh perspectives. Greenberg Traurig welcomes Mark Clayton, Laura McAllister Cox and Loretta Tuell Bringing insight earned from working in public and private gaming companies and gaming equipment manufacturers, as well as regulatory agencies and the federal government, Mark, Laura and Loretta join the more than 40 attorneys at Greenberg Traurig focused on the global gaming industry. Together, they are helping clients in an increasingly complex and competitive marketplace to see things differently.

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GREENBERG TR AURIG, LLP | ATTORNEYS AT LAW | WWW.GTLAW.COM The hiring of a lawyer is an important decision and should not be based solely upon advertisements. Before you decide, ask us to send you free written information about our qualifications and our experience. Prior results do not guarantee a similar outcome. Greenberg Traurig is a service mark and trade name of Greenberg Traurig, LLP and Greenberg Traurig, P.A. ©2014 Greenberg Traurig, LLP. Attorneys at Law. All rights reserved. Contact: Michael Bonner in Las Vegas at 702.792.3773. °These numbers are subject to fluctuation. 24141

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MILLENIAL

MOMENTUM

10.

How will this generation relate to casino gaming? ithout question, one of the most significant discussions at G2E this year revolved around the millennial generation and the changing face of our casino guest. It is not a new topic in the gaming space, nor is it something unique to our industry. A recent Time magazine article highlighted this demographic shift on a national level, noting that there are over 85 million millennials that represent 27 percent of the US population—the largest segment currently. The article goes on to state how this group, born between 1980 to 1999, is highly educated, has compelling average salaries, and is focused on saving for retirement earlier and making that happen at a younger age. The flip side, however, is that millennials are carrying far more student debt than prior generations, were hit harder by the Great Recession, and are finding it more difficult to acquire assets and build equity. It is already evident that this “next generation” is both “social media-advanced and tribal”—and they never “unplug.” In fact, their sense of self directly correlates to their influence on the social media. They also like to keep their options open with regards to their time and spend. Millennial technology (and related devices) is also an extension of who they are, so integrating it into every level of product and service design and execution is paramount. One of the most telling facts, though, is their desire for aspirational experiences and genuine relationships. Given their limited time and money, coupled with the highest levels of access to unending information, they don’t want to be “sold,” and they aren’t impressed with simple transactions and commodities. So what does that mean for this generation’s future interest in our industry? It is crystal clear that the experience we offer has never been more important than now. We are not delivering a slot or table game or dining transaction; we must have our sights set on delivering a comprehensive entertainment experience. Our properties cannot merely be places to just drink, eat or gamble; they need to evolve into destinations that engage this generation with genuine products and services that allow millennials to enjoy a socially interactive, compelling and experiential discovery that gives them a sense of value that exceeds the mere consumption or accumulation of goods. This is achieved in both the design and operation of the venue. The gaming industry is clearly moving in this direction. New technology platforms and games focusing more on skill with video gaming parallels are at the forefront of this shift. Innovation in video display, audio and 3D interaction, and multigame connectivity with bonusing and competitive scoring, are advancements in interactive gaming. Casino and non-casino interactions in communal settings meet this need. Hotels, restaurants and spas packaging together unique bundles of activities that are customized to the guest go beyond booking traditional parts of a vacation stay. Corporate cultures that put attention on philan-

Global Gaming Business DECEMBER 2014

{

Millennials don’t behave like their parents or grandparents, and that will force us all to reflect on our business models and how we move our offerings to the next level.

}

thropy, sustainability and employee goodwill as part of the total ROI appeal to their sensibility of moving our respective communities forward. Marketing on digital platforms in ways that show people having fun and doing things they can’t do elsewhere fulfill this desire. The truth is, email and phone calls are antiquated means of communication in their world. Most importantly, the continued focus on creating relationships with guests that are not transactional in nature but “personal” allow us to move the needle in their world and build future long-term loyalty. Millennials are 24/7 and now, and our services and products need to mirror this need. Although the challenge may seem daunting, the reward for success could yield the most ROI our industry has ever seen. Millennials don’t behave like their parents or grandparents, and that will force us all to reflect on our business models and how we move our offerings to the next level. Operators who make the right moves could find themselves catering to an entirely new market of slot, table-game and other revenue-center patrons. The casino industry’s evolution into shared experiential entertainment destinations will engage millennials and ensure the next generation of gaming embraces the next generation of customer. —Mark Birtha, senior vice president and general manager, Hard Rock International

LET THE PARTY BEGIN!

www.aruzegaming.com

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The Power of

“We try to be very innovative and out of the box.” —Kelcey Allison, COO, Aruze Gaming America

Global Gaming Business DECEMBER 2014

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n u F Superior R&D and a flair for entertainment drive Aruze Gaming America into the elite of the slot sector by Frank Legato

f the slot sector has proven anything over the years, it’s that an amusement pedigree is a valuable asset in the casino slot-manufacturing business. So it is with Aruze Gaming America. The company, taken private in 2009 by owner Kazuo Okada, began life as Universal Entertainment, a company that made its name in the Japanese pachinko/pachislot business. In the 1980s, Universal became the first real challenger to the former Bally Manufacturing for market share in the casino slot business. By the time the Tokyo-based company was reborn as Aruze Gaming America in 2007—establishing a central sales and marketing headquarters in Las Vegas—the company had established its own signature style in a rapidly changing slot market. That style is not unlike the pachinko and pachislot machines which Okada developed for decades. Look at a bank of Aruze machines, and you see action before a reel is turned. Dancing lights, back-lit reels moving at varying speeds, shiny, elegant and elaborate top boxes—the games are a show in themselves. “It goes back to our chairman’s philosophy of being innovative and entertaining,” says Kelcey Allison, chief operating officer of Aruze Gaming America. “That’s his strongest philosophy—that we are an entertainment company. That brings together a lot of different elements: It means entertaining visually and physically, appealing to all of the senses.” One would be hard-pressed to find a chief executive of any slot manufacturer that pays more attention than Okada has to make sure every product meets his established company standards. “Historically, Mr. Okada has been very involved with our game development,” Allison says. “He made sure the colors were perfect. Every game passed through Mr. Okada as a final pass. He likes a lot of bells and whistles, and likes a lot of excitement in the casino. We don’t want it dull and boring.” It’s no accident that these attributes are the same factors that drive the Japanese pachinko/pachislot business Okada’s companies have dominated. “In the pachinko/pachislot business, machine utilization is about 99 percent, almost 100 percent of the floor, for 24 hours a day,” says Allison. “When someone gets off a seat, the next person gets on. These machines are much more visually stunning than games in the Class III and Class II markets in the U.S.” Maybe that’s why Aruze has never been a company to rely on big pop-culture brands. Other than a single 2009 game carrying a theme based on the rock group Queen, Aruze has never launched a game with a licensed brand. As other

companies have spent fortunes the past five years securing the rights to everything from major motion pictures to TV game shows, Aruze has not spent a penny on licensing. “Licensed brands are very expensive, and somebody’s got to pay for that,” says Allison. “Ultimately, a licensed theme is intended to build player loyalty. Aruze’s approach is to build player loyalty by creating our own brands.” Aruze has indeed created its own stable of popular brands—Aruze brands. And, for the past several years, many of those brands have become cemented in the minds of slot players around the world.

Stacking Success No Aruze game group has struck a stronger chord with players than the Ultra Stack series, a franchise consisting of video games with a sole, simple central feature—clusters, or “stacks,” of matching symbols, generating multiple wins on a single spin. Ultra Stack has been huge. “We have had a runaway, No. 1 hit with our Ultra Stack series,” says Allison. “They’re just doing gangbusters everywhere.” At the recent Global Gaming Expo, the company expanded the series with new versions of the Ultra Stack brand, from “Stackin’” to “Mystery Stackin’” to a 100line version. “Ultra Stack is the tree trunk of that video series, and we have a whole group of branches that come off that trunk,” Allison says. “The concept behind the Ultra Stack games is a pretty simple math model,” explains Rich Martinez, senior product specialist for Aruze. “If someone who never gambled before were to step into a casino, they could sit down and play and understand where their wins are coming from—the more opportunities to fill the screen with the same symbol, the more opportunities the player has for wins. Ultra Stack is simple; people understand it, from beginners to experienced players.” The Ultra Stack series, though, is only one in a collection of product lines DECEMBER 2014 www.ggbmagazine.com

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“With Player’s Party, there are communal events in the linked game, but you also have ones where you’re playing with the players sitting next to you—so it’s almost like you’re at a live craps table. When one person wins, everyone wins, and you advance to the next level. It’s a team concept.” —Rich Martinez, Sr. Product Specialist, Aruze

that have distinguished Aruze over the past five years. Never a me-too slot manufacturer, Aruze has injected something unique into each of its product areas. Allison says one reason is that its game development team is based in Japan—with a 150-strong team in Tokyo (there is another team in the Philippines). “We have a unique advantage in that our game development is not in the United States, so we don’t copy competitors’ games,” says Allison. “We try to be very innovative and out of the box.” While its studios are in one region, the company has nonetheless concentrated on producing games that will appeal to each of its markets—particularly North America, where its ship share has soared over the past few years. The reason? Aruze’s product development team travels well. “On a quarterly basis, our product development team sends developers throughout different markets in North America,” says Allison. “Our team just finished a tour of Wisconsin, Illinois, Ohio, Pennsylvania, New York, Ontario and Connecticut. They visited all the casinos and actually played the games to gain a player’s point of view. They do a lot of analytics looking at the demographics in that region, which games play well, what the demographic looks like, what they are attracted to, how our games play vs. competitors’ games.” It’s a strategy that has worked well—resulting not only in features like Ultra Stack, but in slam-dunk successes like the Innovator stepper series, the G-Link community-play series, the G-Station line of e-tables, and the workhorse G-Series line of core video products. Each of those game groups was strengthened with new entries at G2E. In the stepper area, the Innovator and Innovator Deluxe reel-spinning groups were augmented with new games. The Innovator series is a prime example of Aruze’s “out-of-the-box” game design strategy. With the largest reels in the industry backed by multi-colored LED lighting and variable reel speeds—not to mention elaborate top-box bonuses in the hybrid Innovator Deluxe series—the Innovator steppers are a new take on the traditional reel-spinner. Allison says it is a take that has been emulated by other slot-makers. “We like to say we’re forging a path that others have followed,” he says. “I walked around the G2E show and saw a lot of manufacturers coming out with new five-reel, multi-lighted steppers. We know we are having a positive impact on the industry when we see the competition following our lead. “Our strategy is to keep strengthening that line. It does very well for Aruze. We’re very proud that in the next couple of months, we will strengthen it even further by introducing a three-reel Innovator series.” 36

Global Gaming Business DECEMBER 2014

Youth Be Served While the Innovator series is designed to appeal to a broad spectrum of reel-spinning fans, Aruze innovations in other product groups are designed to broaden the company’s audience to include the elusive younger player. One example of a game designed with millennials and Gen-Xers in mind is the new iteration of the company’s “G-Link” series of community-style games. Four years ago, the company made what was its biggest splash in the market with its mega-hit community game “Paradise Fishing.” That game and its followup “Amazon Fishing” launched the G-Link series with an innovative tactile functionality called “Reel Feel.” In the community bonus, players would “fish” in a massive video “pond” made up of three adjacent giant LCD monitors, using joysticks that reacted with a tug when a fish was caught for the bonus. The award-winning technology still has people flocking to both of those games wherever they are placed. For the third generation of G-Link, “Player’s Party,” Aruze went after a younger demographic with a multi-tasking community bonus. “Our game development team did an exceptionally good job of incorporating three different kinds of game play in one game,” explains Martinez. “You have the basic kind of video slot play within Player’s Party. You have a four-level progressive with a wheel spin. And then in the random bonuses, you have an electronic table-game feel with a hi-low, a craps bonus and a roulette bonus. It adds an entirely new dimension to the G-Link product line.” “Paradise Fishing and Amazon Fishing served a very broad demographic,” says Allison. “Most people like to go fishing. You could be 90 years old and love fishing, or you could be 21 years old and love fishing, female or male. One of the things our game developers wanted to specifically target (with Player’s Party) was that younger demographic.” Allison says the community aspect of Player’s Party was designed for younger players. “When younger players enter a casino, they come in packs—five, six, 12 people,” he says. “This product provides them with a game where they have their own player’s party.” Martinez adds that the bonus events were expanded to maintain the interest of the younger player. “Paradise Fishing and Amazon Fishing have communal events in the linked game,” he explains. “With Player’s Party, there are communal events in the linked game, but you also have ones where you’re playing with the players sitting next to you—so it’s almost like you’re at a live craps table. When one person wins, everyone wins, and you advance to the next level. It’s a team concept.”

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Launching within the next few months will be “Virtual Craps,” which uses a central 3D holographic effect to display dice bouncing around a chamber. The game, which was introduced in prototype at G2E, is designed to provide an authentic craps experience, even in jurisdictions that do not allow traditional physical dice. Forging Ahead Aruze’s effort to serve the new generation of players also appears in a new hardware format launched at G2E. Called “CUBE-X,” the platform features high-definition 24-inch LCD monitors, an ergonomically friendly cabinet, and one of the fastest processors in the business. “With CUBE-X, our strategy was to develop a platform that would be comfortable for a player used to the look and feel of a home entertainment device, and they hit the nail on the head,” says Allison. “We used some really innovative technologies. The button panel, the lighting, the sound—all very important to the development team. The strategy was to aesthetically target the younger demographic.” Of course, the social nature of the younger gambler also makes table games a natural choice, which fits in nicely with Aruze’s expansion of its G-Station line of e-tables. Launching within the next few months will be “Virtual Craps,” which uses a central 3D holographic effect to display dice bouncing around a chamber. The game, which was introduced in prototype at G2E, is designed to provide an authentic craps experience, even in jurisdictions that do not allow traditional physical dice. “It has 3D imaging with the cityscape of the Strip and Las Vegas,” explains Allison. “The feedback (at G2E) was overwhelming. This will allow us to present our virtual craps product into non-traditional craps markets.” He adds that Virtual Dice is complementary to the company’s Shoot to Win Craps product, an electro-mechanical game using an automated roll. Play of both games is similar to live craps, without using traditional handheld dice, Allison says, noting that the product is even successful where live table games are offered. “It’s been a launching pad for players who are intimidated by live craps,” he says. “This is a kind of training ground where the novice can come in and play Shoot to Win Craps, and then graduate to the live format.” Finally, targeting the younger demographic could not be successful without an effort to take content online in for-money and social channels, an area Allison says Aruze is approaching with caution. “We want to be very intelligent about the path we choose for social and online gaming,” he says. “By that, I mean I don’t want to compete with Aruze’s customers. That’s very important. I don’t want to have an online casino that competes with the casinos or customers that I’m selling machines to. I think a lot of companies have gone down that path mistakenly, and have seen that it does affect the relationship. So, we’re very selective with the partners we are talking to so that our online games are complementary to the brick-and-mortar casino games, and not competitive.” 38

Global Gaming Business DECEMBER 2014

Aruze is still in the process of spreading its presence across North America, with licensing to date in about half the casino markets on the continent. “We’re working day in and day out to bring more jurisdictions on line,” says Allison. Meanwhile, the company continues to gain market share. “I’ve been with the company since 2009, and the first year, we shipped fewer than 500 units,” Allison recalls. “In 2013, we exceeded 4,000 units, and in 2014, we’ve already exceeded our 2013 target. “We’re in approximately 50 percent of the North American markets, but we have an 8 percent ship share. That’s a phenomenal number for a private company. We’re very proud of that.” In this era of M&A in the slot sector, Allison anticipates there will be more consolidation among manufacturers—but quickly adds that Aruze is one company that will continue to make its mark without the help of outsiders. “If the next five years are anything like the past three, we are optimistic that we will maintain our trajectory of success,” he says. “We’re a very strong company, and we’re basically debt-free.” He adds that the company’s smaller size is an asset that the mega-suppliers lack. “We can turn on a dime,” he says. “We’re very customer-centric. There are a couple of things that differentiate gaming companies today. One is customer service, and two is performance. Performance really dictates everything, and that’s been our success driver. Our distinctive games perform well for the casinos.” Allison adds that Aruze has made a big effort over the past year to open its information infrastructure to customers, launching a new website on G2E week, with features that give operators access to wealth of company information. “Customers can quickly drill down and easily find what they are looking for,” he says. “For example, if a customer needs a service call, we have a 24-hour monitoring service that can be accessed through the website portal. You can also order parts. It’s all very seamless. You can gain access to our game information if you need brochures or other marketing materials.” It’s a nod to the fact that the company is serving many different time zones. “As a global company, we want to make ourselves available to our customers worldwide at all times—we wanted to be very customer-centric,” he says. “We have a uniquely elastic website. Facebook, Instagram and Twitter actually all feed into one portal, so a customer can just go to Aruzegaming.com and see all social media links.” Customers can even write on the Aruze blog, “so they can tell the world how awesome our products are!” laughs Allison. Fact is, more customers these days are making that exact comment.

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BEYOnD

GAMING Tribal casinos look at alternatives to boost revenues BY DAVE PALERMO

merican Indian tribes are expanding and renovating casino and hotel facilities in an effort to bolster a lethargic tribal gambling industry that for many indigenous communities is the primary source of government services to their citizens. Much of the expansion involves non-gambling amenities such as hotel rooms, parking garages, movie theaters and restaurants, all intended to help tribes cope with a seven-year cycle of uninspiring revenue growth from the casino floor. Tribal casino operators also are implementing operating and design efficiencies and improving player marketing programs to increase their gambling income. Meanwhile, the internet and social media, combined with contemporary entertainment offerings, is increasingly becoming a tool for reaching a relatively untapped market of younger gamblers who, unlike baby boomers, are not enamored with buffets and slot machines. “The trend I’m seeing is the creative use of facilities and the social media to reach out to new and younger market segments,” says Steve Rittvo, chairman and CEO of the Innovation Group, an international gambling and hospitality consulting and management company. “Part of the reason we’re seeing a decline in casino revenue is the gaming customer is aging. We’re not seeing the younger clientele coming to the casino. Slot machines are not holding people’s interest. At least, not the way they were.”

Flat Growth The industry trends are a reaction to a maturing and sluggish Indian gambling market limited by federal law to largely rural reservations often inaccessible to potential customers. The nation’s 450 tribal casinos are also hindered by tribalstate regulatory compacts restricting the scope of gambling on Indian lands. Revenue from tribal casinos in 28 states finally reached $28 billion last year, according to the National Indian Gaming Commission, a modest 0.5 percent increase over 2012 and a continuation of a slow growth trend that began in 2007. The annual double-digit growth ignited with the passage in 1988 of the Indian Gam-

ing Regulatory Act (IGRA) crawled to a halt in the last seven years, during which it has not exceeded 4 percent, says economist Alan Meister, author of the Indian Gaming Industry Report. Kevin Washburn, the Interior Department’s assistant secretary for Indian affairs, in July told a congressional committee the stagnant gambling industry is of great concern to tribal leaders. Gambling revenues are a crucial resource in providing education, health care, housing and government infrastructure to Indian Country. “Indian gaming remains a very, very important part of the picture on Indian reservations,” Washburn told the Senate Committee on Indian Affairs, generating 10 times the tribal budget of Interior and the Bureau of Indian Affairs. “The sad thing is Indian gaming revenue has really plateaued. “I don’t anticipate dramatic future growth,” Washburn told the senators. “That means we’re going to have to learn to live with the existing amounts of revenue.” Senator Al Franken, noting the federal government’s failure to adequately fund its trust responsibility to tribes, asked Washburn what impact gambling’s demise would have on indigenous communities. “I shudder to think what Indian Country would look like without the revenue that comes in from Indian gaming,” Washburn said. “No one believes we have enough money to fulfill our trust responsibility to Indian tribes. Indian gaming, much more than our own appropriations, has underwritten tribal self-determination and tribal self-governance.”

Gambling Remains A Vibrant Industry The seriousness of the industry slowdown is subject to debate. Jason Giles, executive director of the National Indian Gaming Association, the industry’s trade organization and lobby, says Washburn is prone to exaggeration. “By no means have we accepted that we’ve flatlined, that we’ve plateaued,” Giles told attendees of the recent Global Gaming Expo in Las Vegas. “We reject that out of hand. We still believe Indian gaming will continue to grow. As the national economy recovers, Indian gaming will con-

“I shudder to think what Indian Country would look like without the revenue that comes in from Indian gaming. No one believes we have enough money to fulfill our trust responsibility to Indian tribes. —Kevin Washburn, Interior Department assistant secretary for Indian affairs

Global Gaming Business DECEMBER 2014

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“The growth of the industry has slowed, obviously, but it’s still a $28 billion industry. It’s not stagnant. It’s pretty healthy.” —Dike Bacon, principal of Hnedak Bobo Group tinue to grow.” The figures belie Giles’ optimism. “Since 2009 we’ve seen three straight years of growth, but still a very modest growth, below the pre-recession growth rate,” Meister says. “We had already begun seeing a slowdown before 2007,” he says, “due in part to maturation, though not necessarily saturation, of the Indian gambling market.” New casino development has become a thing of the past. “We haven’t seen as many new projects. There have been a few mostly small ones,” says Charles “Chief” Boyd, principal of Thalden Boyd Emery Architects, a Native American-owned firm. The company’s last greenfield project was Indigo Sky, a Wyandotte, Oklahoma, casino opened two years ago by the Eastern Shawnee Tribe. Despite the lack of revenue growth and new casino construction, most believe tribal gambling remains a vibrant industry. “The growth of the industry has slowed, obviously,” says Dike Bacon, principal of Hnedak Bobo Group architects, “but it’s still a $28 billion industry. It’s not stagnant. It’s pretty healthy.” Economists are hopeful an improved economy, Obama administration policies, tribal-state compact negotiations, advances in slot machine technology and other factors will speed gambling growth in Indian country. (See related story, right.) But industry observers believe it is crucial that tribes expand and improve existing facilities with non-gambling amenities. Commercial casino companies generate 65 percent of their revenue from non-gambling sources, says Knute Knudson, a vice president of IGT, the nation’s largest slot machine manufacturer. But only 11 percent of revenue from Indian facilities is driven by amenities off the casino floor. That percentage will likely grow. “You can’t walk down a hallway occupied by tribal entities without hearing talk about a new hotel, additions to a casino, remodeling restaurants, planning for entertainment ventures,” Knudson says. “Not all of these projects are going to happen. But some of them will.”

Building Beyond The Casino Floor Non-gambling projects in Indian country are, indeed, numerous. Some examples: • New hotel towers and parking facilities at the Chickasaw Nation’s WinStar World Resort in Thackerville, Oklahoma. • A $100 million hotel tower and 584-space parking garage at the Chumash Casino in Santa Barbara, California, owned by the Santa Ynez Band of Indians. • A 242-room hotel tower, events center and restaurant at the FireKeepers Casino Hotel in Battle Creek, Michigan, owned by the Not-

Cause for Optimism in Indian Country nlike commercial gambling, American Indian casinos are subject to a myriad of federal and state regulations and political issues. “As we have seen in tribal gaming since the very beginning, regulatory issues have been overwhelmingly significant,” says Knute Knudson, a vice president of slot manufacturer IGT. Nearly 240 of 366 federally recognized tribes in the lower 48 states operate casinos, according to the National Indian Gaming Commission. About 60 other tribes share in the revenues. With some 450 casinos restricted by the Indian Gaming Regulatory Act to tribal trust lands, the market in most states is nearing saturation. Tribes can only operate casinos in states where they are legal, and only Texas remains a potentially lucrative market. “There haven’t been a lot of new markets opening up,” says James Klas of Klas Robinson Hospitality Consultants. “There are not a lot of places that don’t already have tribal gaming.” Yet Klas, Knudson and others believe there are paths to future growth in Indian gambling. Obama administration policies, future tribal-state compact negotiations and improved slot machine technology are pathways to industry growth. “I think there is opportunity in the future,” Knudson says. The U.S. Department of the Interior has lifted what was a virtual moratorium on land/trust applications for casinos. The department also is proposing revised regulations on recognizing indigenous groups as tribal governments. There are 19 current applications from tribes seeking trust land for casinos. And the revised regulations for recognizing tribes could also result in at least a small increase in tribal casinos. “You can be sure there will be additional tribal casinos because of regulatory issues,” Knudson says.

Economist Alan Meister, author of the annual Indian Gaming Industry Report, says despite a nationwide flattening of gambling revenue there was growth in 22 of 28 states with Indian casinos. “Many of the markets where tribes are located are not, by any means, saturated,” Meister says. Unfortunately, he says, the growth took place in relatively small markets in Wyoming, Montana and North and South Dakota. IGRA requires tribes seeking to operate Nevada-style casinos to enter into tribal-state regulatory agreements, or compacts, with officials of the states in which tribes are located. Many of these compacts require revenue sharing and limit the scope of gambling. Tribes may fare well in future negotiations. Improved technology in Class II bingo-style machines that do not require compacts may give tribes leverage in the talks, particularly in California and Florida. Class III, casino-style compacts in states such as Alabama, with exclusively Class II gambling, also could significantly impact tribal revenues. Meanwhile, improved performance of slot machines is expected to increase the bottom line for a number of tribal governments. “You will see new stuff this year that takes it all up a level, all designed for performance on the casino floor,” Knudson says. The cause for optimism is welcomed in Indian country. But Kevin Washburn, Interior’s assistant secretary for Indian affairs, remains troubled. “The next 25 years for Indian gaming I believe is uncertain,” Washburn said in July testimony before the Senate Committee on Indian Affairs. “Nothing lasts forever. No great economic resource lasts forever. I’m concerned where we will be in another 25 years.” —Dave Palermo

DECEMBER 2014 www.ggbmagazine.com

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Left: The new hotel tower at FireKeepers Casino Hotel in Battle Creek, Michigan; The Poarch Band of Creek Indians added hotel towers at three of its Alabama casinos

tawaseppi Huron Band of Potawatomi Indians. • A parking garage, golf pavilion and spa at the Sandia Pueblo’s Sandia Resort & Casino in Albuquerque, New Mexico. • New restaurants and a 715-space parking garage at the Seneca Nation’s Seneca Casino in Buffalo, New York. • New hotel towers, parking garages and convention facilities at HoChunk Nation casinos in Wisconsin. • Hotel towers, parking garages and restaurants at three Alabama casinos operated by the Poarch Band of Creek Indians. “Tribes are looking at more amenities,” says James Klas, founder and principal of Klas Robinson Hospitality Consulting. “This means conference space, water theme parks, movie theaters and bowling alleys. Retail is finally moving to the forefront.” Rather than building new facilities, tribes are expanding and renovating existing operations. “A lot of the early properties need to refresh their image,” Boyd says. “After five or 10 years you need a new feel or look. We’re seeing a lot of that.” “A facility wears out. It gets old, dated,” Bacon says. “There’s a need to constantly refresh, renovate and refurbish. “We’re not seeing the greenfield, $200 million project, but there are substantial casino renovations and amenity additions and improvements. There’s a lot of that.” Boyd designer Nick Schoenfeldt says tribes are drawing on their culture and traditions to distance themselves from commercial operations. “The effort now is how to make the place unique,” Schoenfeldt says, which includes design elements depicting tribal heritage and traditions. “It’s their way of saying, ‘We are not a commercial gambling place. We have a heritage. We have traditions.’” Consultants such as Klas Robinson and the Innovation Group work with architects to ensure the amenities are economically strategic and geared to generate more revenue from the casino floor. The convenience of a garage parking space, for instance, can mean $22 a day in the casino. An expensive, land-intensive golf course, on the other hand, might generate a 7 percent return on investment. “Parking garages have a huge impact on the gaming floor,” Boyd says. “Golf courses are way down the line.” “Tribes have learned you’ve got to spend the money where it counts,” Bacon says. “The investments are extremely strategic. You’ve got to spend the money in the right place to get the best return.” The best use of facility space is also an issue. Rather than building a nightclub or ultra-lounge that goes unused much of the day, thought may turn to a multi-use nightclub and meeting room. “No one wants space they’re only using on the weekends,” Schoenfeldt says. “They want a space that is more productive.” 42

Global Gaming Business DECEMBER 2014

The Sandia Pueblo’s Sandia Resort & Casino added a golf course

Movie theaters can be profitable, as the Confederated Tribes of the Umatilla Indians found out when they built the five-screen Cineplex at the Wildhorse Resort & Casino in Pendleton, Oregon. “They were skeptical at first, but they’ve been extremely pleased with the results,” Boyd says, particularly in that it drew more families to the resort. More tribes are also exploring “flagging” or contracting regional and national restaurants and partnering on entertainment projects. Hard Rock has been extremely popular in Indian Country. “You’ve got to reach down to a younger demographic,” Rittvo says. “The facility has to be a little more club-centric and a little less baby boomer resurrection entertainment. “You’re not seeing the old bands coming in. The industry is taking more of a risk with younger bands, younger entertainment.” There is no universal trend in a nationwide industry that varies dramatically from one state or gambling market to the next. “In Indian Country there is not a settled opinion on things,” Klas says. “There are tribes that adamantly want nothing to do with kids and families. Other tribes do want kids and families. “Some tribes are totally open to alcohol,” he says. “Others are grudgingly allowing it but have a history of not being excited about it.”

Player Marketing Casinos are increasing reliance on social gambling internet sites to reach out to a younger clientele. “These sites are relatively inexpensive to implement, and tribes are finding they are driving more traffic to the brick-and-mortar facilities,” Rittvo says. “The premium rewards are linked to the casino, whether it’s a meal, or a night stay or just picking up a prize.” Operators are also making better use of premium player databases. “Tribes have very sophisticated databases, marketing teams and operations people,” Bacon says. “They’ve gotten very savvy relative to understanding customer demands and targeting customers they don’t have.”

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GLOBAL GAMING WOMEN

A Call to Action You are Global Gaming Women

f you happened to attend the last session in Global Gaming Women’s (GGW) expanded education program at G2E this year, you may have caught one gutsy New Yorker inspiring audience members to “go big or go home.” Out of the mouths of babes and, it turns out, the former editor-in-chief of Cosmopolitan magazine and New York Times bestselling author Kate White. “How can you make your job bigger, bolder and more badass?” she proclaimed. White’s words stuck with us here at the AGA. What can we do to make Global Gaming Women bigger, bolder and more badass in 2015? Taking a step back to reflect on our own research, an encumbering landscape challenges female professionals trying to advance within our industry—and from White’s remarks and frequent national headlines on the subject, women in gaming aren’t alone. For us, the reality is: Gaming women often do not seek or achieve career advancement. This is primarily for two reasons. They believe women are discounted by the industry and that gaming remains a male-dominated business. Further, they believe the path to higher-level positions requires significant personal sacrifice. Common barriers prevent advancement of women within the industry. Industry women repeatedly cite gender differences, negative

By Keli Elkins, Vice President of Industry Services, American Gaming Association

stereotypes and work-life balance issues as barriers to their progress. Most gaming organizations do not provide key advancement programs—for men or women. Formal leadership and mentorship programs as well as informal sponsorship and coaching, which provide important opportunities for development and advancement, are reported as uncommon and challenging to cultivate. GGW aims to combat negative perceptions and empower gaming women through education. We educate the industry by discussing and promoting the value women bring to leadership positions. We educate gaming women by providing the tools necessary to develop the skills and competencies to propel them to top leadership positions. As an AGA initiative, we seek to deliver our core objectives to educate, connect, and promote and inform the industry through GGW as follows: Educate: We offer scholarship and education programs for women pursuing careers in gaming. Connect: We bring together gaming women professionals to share ideas and experiences, and create lasting connections, both in person and online. Promote and Inform: We seek to educate, empower and engage women of the gaming industry through an aggressive communications campaign. But our efforts to promote visibility and upward mobility of women in the industry can only

aims to combat negative perceptions “ GGW and empower gaming women through

education. We educate the industry by discussing and promoting the value women bring to leadership positions. We educate gaming women by providing the tools necessary to develop the skills and competencies to propel them to top leadership positions.

”

Global Gaming Business DECEMBER 2014

become “bigger, bolder and more badass” with one pivotal person—you. As we look toward 2015, we look to you—our audience members—for support in driving our industry forward. We encourage active participation in GGW initiatives through the following leadership opportunities: • Host your own GGW event or encourage your company to develop a similar program to promote the value of women and diversity within the organization. • Start a discussion with fellow gaming women on our LinkedIn community to learn how they overcome daily work challenges and combat negative stereotypes. • Sponsor one of our GGW Charitable Education Fund events, such as Kick Up Your Heels 2015, which benefit your industry colleagues through GGW’s growing scholarship program. Every contribution makes a difference. As scholarship recipient Anne Cox said of her experience at the MGM Resorts Foundation’s Women’s Leadership Conference, “I found this to be a great catalyst of change in my life. Sometimes we just need to hear other people’s journeys to help us realize we can achieve success.” Piece by piece, voice by voice, individual by individual, we’re making a difference for women in gaming. You can make a difference too. Not only do we encourage your participation, we encourage your suggestions and feedback as well. We want to hear from you about how we can make our voice bigger, bolder and louder within the industry. Shekinah Hoffman, coordinator of industry services at the AGA, serves as our primary GGW liaison. I urge you to reach out to her with your suggestions and feedback for the program. Shekinah also serves as a resource to individuals and organizations interested in hosting their own GGW events. GGW can change our industry for the better. But it is only with your active engagement that we will overcome tiresome gender stereotypes and promote upward mobility of gaming women. We look forward to a year of growth, development and success with your continued support of GGW.

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EMERGING LEADERS Global Perspective Shaza Sattar Director of Analysis & Business Development, Global Gaming Asset Management (GGAM) haza Sattar has been a leader in the gaming industry since she graduated from college in 2008. Even at 22, she knew she wanted to be in the gaming industry, and she has not looked back. In Sattar’s words, “I was searching for a career instead of just a job.” At only 28, she has received three promotions, which have led her to become the youngest professional in the management team for the pre-opening of the $3.5 billion Baha Mar Resort and Casino in the Bahamas, where she currently resides. Her interest in gaming was first sparked in her senior year at the Marshall School of Business at the University of Southern California during a passing conversation with her cousin. He told her the gaming industry was a multi-faceted, progressive industry with a lot of growth potential. Additionally, many gaming companies were expanding outside of the U.S., particularly in Asia. “This sparked my interest in gaming,” she recalls. “I wanted to be involved in a growing industry as well as get international business exposure.” After graduating from the Marshall School, Sattar began her career in financial planning and analysis at the Venetian and Palazzo. She then transitioned to corporate finance at Las Vegas Sands Corp. Sattar was with LVS from 2008 to 2012, when she was the manager of corporate finance. Last year Sattar joined Global Gaming Asset Management (GGAM), which is a joint venture between Cantor Fitzgerald and former members of the Las Vegas Sands management team, formed to acquire, invest in, develop and manage hospitality and gaming assets globally. On behalf of GGAM, Sattar moved to the Bahamas in June 2013 to live on site at the Baha Mar as the director of analysis and business development. Many people would be hesitant to move out of the country, but Sattar jumped at the opportunity. “I’m open to anything as long as it is a learning experience,” she says. On the ground at Baha Mar, Sattar was assigned as the direct right-hand to Paul Pusateri, the chief operating officer. “It has been an incredible experience, as it has given me the opportunity to look at the business from a leadership point of view,” Sattar says. By living in the Bahamas, she has seen firsthand how much goes into building an organization from the ground up. “When I joined Baha Mar, there were less than 150 people on the team,” she says. “When Baha Mar is fully operational, there will be over 4,000 employees. Developing a strong culture and work ethic early on is crucial to the resort’s success in the long run.” Sattar’s success can be credited to a mix of circumstance, relentless work ethic and guidance from industry leaders. She entered the gaming industry in 2008, “when casinos became ghost towns at the start of the recession.” Through this, she learned how to efficiently manage operations while minimizing overall expenses. She has had multiple mentors and leaders who have given her advice and guidance throughout her career, the most influential being Omer Sattar, the executive vice president of vendor Sightline Interactive, who also happens to be the cousin that encouraged her to pursue gaming. “When I first started in this business, he urged me to make the extra effort to learn more about the overall business and operations, instead of only focusing on the finance department I worked in at the time.” Through his recommendation she spent multiple Friday and Saturday nights working on site with various operations teams to understand how they ran their business segments. Doing this allowed her to recognize the various components that make up the business and how they are interrelated. Sattar is excited for the opening of the Baha Mar in spring 2015, and will continue to provide strategic support to ensure continued success in its operations. To those already in the industry or those looking to get their feet in the door, Sattar says, “Work hard and be relentless. Go above and beyond what your job responsibilities entail.” —Lauren Lachowsky, The Innovation Group

Global Gaming Business DECEMBER 2014

Political Animal Eric Frank Associate, Duane Morris LLP en years ago, Eric Frank might have told you his career would be in politics. Today, he is a major player in the legal kaleidoscope that is the gaming world. While his career trajectory has since changed, he is still drawn to the “politics” of an ever-changing industry by playing an integral role in the interpretation and advancement of emerging legislation. This is no easy feat, given the often-ambiguous nature of the gaming regulatory environment. However, Frank’s legal acumen has positioned him as valuable resource for organizations seeking opportunities in various jurisdictions across the global gaming landscape. In 2001, fresh out of the University of Michigan, Frank became a political strategist for a number of campaigns that transported him across the country to states such as California, Michigan, Florida

“Go all in; don’t stand on the sidelines. Read everything you can, get your name out and interact. Don’t be afraid to put yourself out there.”

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The Sky Is The Limit Alex Alvarado Director of Slot Operations, Hollywood Casino at Charles Town Races and New York. Ready to settle down and put his experience to good use, Frank attended law school at Rutgers University in Camden, New Jersey. Upon graduation, Frank joined the firm Wolf Block LLP, where he was first introduced to the gaming industry. There he became immersed in a number of emerging business endeavors that served as learning opportunities to develop his career and overall knowledge of the industry. Today, Frank serves as associate at Duane Morris LLP, where he met one of his mentors, Frank DiGiacomo. A partner at the firm, DiGiacomo took Frank under his wing and has invested in his success by empowering him with large responsibilities and encouraging a focus on marketing, learning and fun as drivers for his career. As such, one of the most enjoyable aspects of Frank’s career has been the team he works with. “(It’s great to) work with people who are invested in me as much as I am in them,” he says. “They are my friends as much as my colleagues.” One of the major challenges he faces in his career is navigating through the “grey areas” of the gaming industry from a legal perspective. This is especially true given the often-changing regulatory environment in a number of jurisdictions across the globe. “A lot of clients are looking for clearly defined responses on undefined areas of the law, but it isn’t always straightforward. It can be tricky for us to answer definitely,” he admits. “Sometimes you have to be creative.” During his nearly six years of experience in the legal side of gaming, Frank has written several published articles, on topics ranging from business development success tips to Bitcoin trends to regulatory licensing of software providers. Last May, he was highlighted in South Jersey Biz magazine’s list of “Best Attorneys in Business” in the gaming industry and in June was selected as one of the “New Leaders” of the New Jersey bar. As he continues to advance in his career, Frank’s advice for other emerging leaders is to put 100 percent into whatever it is you are doing. “Go all in; don’t stand on the sidelines,” he recommends. “Read everything you can, get your name out and interact. Don’t be afraid to put yourself out there.” Through steadfast diligence and persistence, Frank has done just that, serving as a constant force in an industry renowned for its ever-shifting legal landscape. —Renese Johnson, The Innovation Group

Global Gaming Business DECEMBER 2014

rmed with experience beyond his years, Alex Alvarado has brought a new perspective to the gaming industry. He is currently working for Penn National Gaming as the director of slot operations for Hollywood Casino Charles Town Races, a facility in West Virginia, outside Washington, D.C., but his journey started on the technological side of gaming. As a child growing up in Las Vegas, Alvarado was always intrigued by the mystery of casinos, since they were “those places your parents always rushed you by.” With a mix of curiosity and skill, he decided to go to school for information technology at the University of Phoenix, where he graduated with his bachelor’s degree. His first position was with a technology company where he programmed gaming applications, followed by a position involving the sale and installation of ticket-redemption kiosks. It was during this time that he first encountered MGM Mirage (now MGM Resorts International). Alvarado knew instantly that MGM was an organization where a career could be launched, and spent three years as manager of slot operations. “Although it was such a large organization, it felt like it was family-owned,” he recalls. “Once I got into gaming at MGM, I realized how mysterious it all was, and I wanted to learn everything I could about the industry.” He described coming in on his days off to shadow colleagues who worked in other departments, and what evolved to be a significant interest in analytics. One of the suppliers to MGM—Aristocrat Technologies—had an opening for an application specialist, an opportunity Alvarado pursued to better learn how to “apply logic to numbers.” He worked in support and development, traveling to help general managers throughout the country leverage slot data. After gaining this valuable experience for two years, he returned to MGM as assistant manager of slot marketing, and was promoted to manager of that department within a year. Alvarado’s diverse skill set caught the attention of the industry, and he was soon recruited to the Florida Gaming Corporation to help open a new property in the emerging South Florida market. After completing that initiative, he took advantage of his first international opportunity, a consulting position for a new facility in Kingston, Jamaica. After contributing to that assignment, he accepted

“Once I got into gaming at MGM, I realized how mysterious it all was, and I wanted to learn everything I could about the industry.” his current position with Penn National. Alvarado has been heavily influenced by two people in particular: Marcel Haar and John Georgiadis. He met Haar when he was working as an IT consultant, and was instantly inspired. “The first thing he did was challenge me, and I challenged him right back.” Haar has a wealth of experience, with which he taught Alvarado to never slow down once you put your mind to something. He describes Haar as an influential man who could “explain everything,” adding that “if he cared enough to talk to you, you should listen.” Alvarado credits his ability to think about the “big picture” to Georgiadis. He met Georgiadis while employed at MGM, noticing immediately that he was always “focused and had a plan.” Georgiadis has extensive experience in the gaming industry, specifically in Las Vegas, which appealed to Vegas native Alvarado. He showed Alvarado not only how to think of broad topics in detail, but also how to mentally connect the moving parts and see how they interact to form the big picture. Alvarado is an industry trailblazer who has packed a lifetime worth of experience into just a few short years in gaming. The fact that he has accomplished so much in a variety of roles shows how far a little curiosity and a lot of hard work can go. —Stephanie Adkison, The Innovation Group

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It’s

E-Commerce, Stupid

The lingering challenge of payment processing By Marco Valerio

oker people are often quick to point out that a new (or “casual”) player’s first online poker experience is critical. Ideally, the player has some fun for a length of time relative to the size of his deposit. Even (or especially) if he loses, as long as he feels the playing experience was worth his time, he’s more likely to deposit again. But the nightmare scenario for operators is seeing the same player make a deposit, begin to play, and get eaten alive in a heartbeat, either by bad luck or ruthlessly superior adversaries. In this scenario, the player blows his roll much faster than he had wanted to, and of course, he’s unhappy. Afraid to lose this player forever, operators try to make amends by pampering him with incentives to keep depositing, such as a “reload bonus.” Sometimes this works. Too often, however, the player’s fate is sealed. He ain’t coming back. As much as he may like to play poker online, everybody’s got a threshold, past which things simply aren’t worth the hassle anymore. This parable can be applied to the player’s depositing experience, which precedes the start of his play. The growth of U.S. regulated iGaming continues to be inhibited, to no insignificant degree, by deposit-related complications. And just like at the virtual felt, if the player becomes too frustrated during the process, it can cost the operator future revenue.

Deposit Debacle Payment processing has been a scapegoat for New Jersey iGaming’s supposedly lackluster results since day one. For the first few weeks of operation, depositing options were limited, and successfully funding an account became a lottery of its own. Accustomed as they are to using credit cards without incident for so many of their online transactions, Americans pulled out the plastic to make their first online gaming deposits. And found out it wouldn’t work. To Americans who had tried to gamble online before, this was a familiar experience. Depositing via debit and credit cards had been tough to do for

years, especially after the passage of the Unlawful Internet Gambling Enforcement Act in 2006. But state-regulated iGaming in New Jersey wasn’t unlawful. The state had legalized it and its Division of Gaming Enforcement was regulating it, with the dispassionate but transparent approval of the Department of Justice. If so many law enforcement agencies agreed state-regulated iGaming was legit, who else wasn’t playing ball here? Banks weren’t. They have final say over which credit card transactions go through and which are denied. The card companies—Visa, MasterCard, etc.—are merely responsible for letting banks know what kind of transaction is being attempted. They do this through the use of Merchant Category Codes (MCCs), which describe the business category of the transaction. Retail? Real estate? Religious goods? Yes, there’s a code for each of those, just like there is for “betting and casino gambling:” 7995. Logically enough, this is the code card companies assigned to U.S. iGaming deposit attempts. Therein lies the problem. For close to a decade, U.S. banks have been conditioned to treat 7995 online transactions like malware. UIGEA may have been vaguely worded, but one message was clear enough to the banks: get caught processing money for “unlawful” internet gambling, and you’re committing a federal crime. Banks did not have to take this on faith. They saw what happened on

“If California and Pennsylvania were to launch state-regulated internet gaming, those two states plus the three currently offering state-regulated iGaming would equate 20 percent of the U.S. population, and now that becomes meaningful.” —Joe Pappano, Senior VP of Merchant Sales, Vantiv

Global Gaming Business DECEMBER 2014

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Just like an early cooler can drive away first-time players from the online poker tables, unsuccessful credit card experiences can discourage firsttime depositors from trying again.

Black Friday—a catastrophe caused largely by suspicious banking practices involving online gaming transactions. For the banks, this was enough to hold off. But along with legally motivated hesitation, there was also a good deal of businessminded discretion. Consumers overlook the length to which banks will go not just to avoid doing something illegal, but to do what’s in banking’s best financial interest. “Banks have to be able to make money too,” says Joe Pappano, senior vice president of merchant sales at payment-processing vendor Vantiv. “Right now, they are struggling to drive revenue. In the U.S., we have had historically low interest rates. Banks aren’t making money on their NIM (net interest margin) through lending and things of that nature. So they’ve got to pivot toward other businesses.” According to Pappano, any decision a bank makes to either accept or refute new transactions has real bottom-line consequences. Echoing what much of the industry now believes, Pappano says the current U.S. iGaming industry simply isn’t large enough yet to turn it into a financial priority for the banks. “Right now, only 3 percent of the U.S. population has the ability to actually

conduct a legal internet gaming transaction,” he says. “The ROI for a financial institution to change its acceptance strategies is not yet large enough. “But if California and Pennsylvania were to launch state-regulated internet gaming, those two states plus the three currently offering state-regulated iGaming would equate 20 percent of the U.S. population, and now that becomes meaningful.”

Making It Work The banks’ apathy was disheartening, but after years spent trying to get home-grown iGaming off the ground, the industry was not about to let it die so complacently. So-called “alternative” payment methods gradually became less alternative and more commonplace. Relatively quickly, options like ACH (e-checks), e-wallets (Skrill, Neteller) and OTC services like PayNearMe proved to be reliable ways to inject some cash into accounts, meet consumer demand for action, and thus enable operators to make money. But the credit card issue cannot, to this day, be swept under the rug. This is, after all, Americans’ preferred way of paying for anything online—and when it does not work, consumers are wary. The alternatives, effective as they may be, seem at

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“Even if 100 percent of credit cards were approved, the original goals set forth by the state of New Jersey still wouldn’t have been achieved. The industry is not big enough to achieve those numbers in year one.” best totally alien, at worst outright uncomfortable. ACH? What is that? My bank account number? How should I know? Plus, why do you care? (My Social Security? OK, get lost.) Banks thought they were protecting their bottom line, but iGaming operators had to worry about their own, and the credit card issue was evident. As CIO of Caesars Interactive Entertainment, Marco Ceccarelli oversees payment processing for all the company’s global brands, including U.S.-facing iGaming. “Money in is a key factor that is directly associated with revenues,” he says. “Let’s not forget that people today don’t have a Rolodex of credit cards. If someone gets their deposit declined, it’s very hard work for all the operators to convince them to try another method.” In other words, just like an early cooler can drive away first-time players from the online poker tables, unsuccessful credit card experiences can discourage first-time depositors from trying again. Not good. Furthermore, even if a player decides to experiment with alternative payment options, he may prefer to deposit an amount smaller than he had planned to via the use of a credit card, out of concern over the safety and efficiency of the unfamiliar new method. This doesn’t reduce just money coming in. It filters the influx of a certain type of online gambler, and a very valuable one at that: the casual player. Categorizations of users are key to interpreting any market. The poker industry splits players into “casual” and “serious.” More generally, the online gaming industry breaks consumers down by preferred playing device, and for very good reasons: “Tablet players” have been shown to behave and monetize quite differently from “mobile players” or “desktop players.” Can similar inferences be drawn from online gamblers’ preferred payment option? Is there such a thing as the “credit card player,” and does he behave and monetize differently from the “ACH player” or the “cage deposit player?” If most Americans are so casual about their credit card use, does it follow that their online gambling habits should reflect it? Robert DellaFave, a New Jersey-based iGaming reporter and painstaking observer of iGaming payments activity, is curious about this. “If credit card deposits were more successful, I think you’d see more recreational players on these sites,” he says. “That would lead to a more sustainable ecology—particularly for online poker—which would help the games more broadly.” In contrast, those users who competently get around the credit card issue through alternative payment options generally demonstrate greater seriousness about the game. “The ACH player is more likely to be a regular player,” DellaFave says. “The ACH player, in my opinion, is also a smarter player, because ACH doesn’t require the depositor to pay any fees, whereas credit cards and e-wallets do. Prudent poker players are never going to pay a dime more than necessary to make a deposit or a withdrawal.”

Global Gaming Business DECEMBER 2014

—Matthew Katz, CEO, CAMS

E-Answers None of this is to suggest that the robust availability of alternative payment options hasn’t alleviated New Jersey’s problems. On the contrary, these options have played a vital role. ACH looks like an obscure acronym at first, but it gets the job done, and eventually you get used to it. (It helps that most operators take the trouble to remember your account number for you.) E-wallets deserve their share of credit for helping users who know how to use them. Overall, it’s safe to say that if someone is serious about putting money into a state-regulated online gaming account nowadays, he should easily figure out how to do so. So why haven’t revenues grown as depositing got easier? In fact, the opposite has happened—New Jersey iGaming revenue decreased as alternative payment options became more plentiful. But this should only seem counter-intuitive if you believe New Jersey iGaming was supposed to generate the untold billions some people said it would. Matthew Katz, CEO of account management system supplier CAMS, puts it in check for us: “If I were to remove those ‘duplicates’ (multiple credit card attempts) and just take the gross number of initial deposits, it wouldn’t even be close to what the original forecast was. Even if 100 percent of credit cards were approved, the original goals set forth by the state of New Jersey still wouldn’t have been achieved. The industry is not big enough to achieve those numbers in year one.” But would New Jersey iGaming revenue be at least higher if credit card acceptance rates were too? Fortunately, we may soon find out. Brand new MCCs for legal U.S. iGaming are expected to go into effect in the spring of 2015, and the issuing banks have not yet objected. According to Katz, the new category codes are 7800 for government-owned lotteries, 7801 for government-licensed casinos (specific to online gambling), and 7802 for government-licensed horse and dog racing. Here’s hoping that the new MCCs will unclog as many revenue restrictions as possible. U.S. regulated iGaming no longer has a payment-processing problem, because getting money on a site is not hard. What New Jersey, and other states, will need to contend with is a credit card problem. Until iGaming deposits become as simple to do as buying stuff on Amazon, many Americans simply won’t put up with it—or worse, some of them will take their gambling to illegal offshore sites, which unscrupulously uphold the shady payment processing traditions that put U.S. banks on tilt in the first place.

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iGAMING NORTH AMERICA

The More The Merrier Online poker depends on liquidity, but are regulators suppressing that? By Sue Schneider

t recently dawned on me that we may have this poker thing all wrong. If liquidity is king, then perhaps the regulatory structures should be developed to maximize them. Hear me out here. First of all, it’s important to remember the “old days” when there were essentially no borders, and the likes of PartyPoker and, subsequently, PokerStars and FullTilt pooled players across the world. This was a brave new world (or as some liked to call it, the “Wild West”). They were able to pool mass quantities of players globally. Today, other than those European states that still maintain monopolies (which are constantly being challenged by the private sector), most countries are allowing a fairly free-market approach where licenses are available to those who meet the criteria, whether land-based or not. As it’s evolved, the countries are mainly ringfenced, which has clearly inhibited liquidity as well as the round-the-clock availability of games. In the U.S., it’s playing out that that each state will have its own regulatory structure. And the licensing is being restricted, for the most part, to those who maintain terrestrial gaming licenses. So these evolutionary approaches have led to a much diffused poker landscape. Let’s say a country or state has issued 10 poker licenses. The poker player liquidity is diluted in this approach, making the offering that much less attractive to the player. When I heard of the efforts toward interstate compacts in the U.S., I had some hope that this would help the situation. But I struggled with the details of how this would actually work technically. In exploring it further, it became clear that this was only a marginal improvement. It still relied on the networks to pool among their own

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players. As an example, if 888 worked with operators in New Jersey and Delaware, which they do, they could pool those players. It did not mean that any pooling would be accomplished across networks. Then I remembered speaking years back in 2007 with Jim Tabilio, who, at the time, was one of the main proponents of bringing regulated internet poker to California. When they were first conceptualizing what this would look like, they were taking the approach of licensing one to three poker networks. Bingo! It dawned on me that, perhaps, this was the approach that we should be taking as poker is legalized in the U.S. So, I decided to look into this a bit more to flesh out the concept. What I found was actually some spirited debate among a few in the poker community on this very subject. In fact, Curtis Woodward advocated for regulation on the basis of sharing liquidity on common poker platforms in an August ’14 article in Onlinepokerreport.com. The way he describes the network model, a limited number of networks or platforms would be licensed and they would “skin” sites to, for example, California tribal casinos and card rooms. Woodward points to the splintering of interests, which has inhibited progress in getting internet poker legalized in California. He states, “Rather than creating just a handful of partnerships that will leave out so many, and create staunch opposition from same, networks will create an opportunity for even small card rooms to extend their offerings online.” He thinks this will actually foster competition in a positive way. “The card rooms and tribes should be competing for players, while letting the platform operators compete for the business of the card rooms and tribes,” stated Woodward. “By pushing the platform operators into the network model, and allowing any and all suitable card

In the U.S., it’s playing out that that each state will have its own regulatory structure. And the licensing is being restricted, for the most part, to those who maintain terrestrial gaming licenses.

Global Gaming Business DECEMBER 2014

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rooms and tribes to launch a skin, you change the dynamic and give the power back to the local interests. But, given the perceived dominance of PokerStars, another poker expert, Steve Ruddock, offered a differing view. “There is simply no incentive for the Morongos or the Bicycle Club to push PokerStars to make improvements or add more features since all of their competitors will also benefit from this,” Ruddock wrote. I reached out to former California Assemblyman Lloyd Levine, who was one of the original sponsors of the poker bill in 2007-08. He had this to add: “Our original plan was to have one to three network operators with the other entities all being white-label partners. The justification for this was to narrow the points of enforcement for the Department of Justice. However, as it has played out, there is another reason that model might have been better. Bluntly, there are just too many entities in California that are eligible to do this and want to participate. “With over 160 entities (card clubs, tribes, and likely racetracks) who could potentially offer poker, there just aren’t enough players for everyone to make money. Even if you limit it to the smaller number of entities who would likely be interested in participating and have the resources/capability to offer games, you are still looking at over 25 entities, and that still means there will be losers. “A ‘hub system’ would minimize the risk by reducing the up-front costs to the various entities, as only the hub operators would incur the major expenses. Also, it would put all the players onto one to three systems instead of 25 systems.” So as Pennsylvania and other states begin to explore regulation, perhaps this is an alternative that should be considered.

Sue Schneider is one of the world’s leading experts on internet gambling, having been in the industry since 1995. Schneider founded industry events such as GIGSE and EiG before selling the River City Group to Clarion in the U.K. in 2006. She is currently a partner in several established conferences (iGaming North America and the Malta iGaming Seminar) and is also a regular columnist for Gaming Law Review.

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U.S. Election Results Could Hurt Online Gaming Chances

emocrats may not have been the only losers in the U.S. general election, as analysts predict the new Republican-controlled Congress will be unlikely to move to legalize online gaming any time soon, leaving online gambling proponents out in the cold. The biggest loss for online gambling may have come in the U.S. Senate, which will now be controlled by Republicans. That means Nevada Democrat Harry Reid will lose his job as Senate majority leader. Reid had been a supporter of online gaming. “I think the Senate transition away from Reid is, on the surface, bad for internet gaming,” Macquarie Securities gaming analyst Chad Beynon said. Republican wins in various state contests could also block online gaming efforts in several states, especially since online gaming in New Jersey and Nevada has not produced expected revenue. “There’s little interest among the states at this point given lower budget deficits and power moving back to the GOP,” Beynon said. “California is still the big domino, in our view, but it doesn’t appear that they’re any closer.” Somewhat ironically, Pennsylvania’s gubernatorial election went to Democrat Tom Wolfe—one of the few wins for Democrats—who has opposed online gambling. Incumbent Republican Tom Corbett had been neutral on efforts to bring online gambling to the state. The GOP win also bodes well for Las Vegas Sands Corp. Chairman Sheldon Adelson, who has been financing a drive to ban online gambling in the U.S. Adelson has paid for lobbyists fighting online gambling bills and is a major backer of Republican candidates. According to published reports, Adelson gave $10 million to Crossroads GPS headed by Republican political operative Karl Rove. The group funded GOP Senate candidates, many of whom won election. Republicans are not seen as backers of online gaming, making it unlikely any effort to legalize online gambling will come forward in the next two years. But a bill currently before Congress to ban online gaming could gain traction. The Las Vegas Review-Journal reports that a bill introduced in March that would restore a ban 56

Sheldon Adelson was the big winner on election night in the U.S.

on online gaming by reinstating portions of the Federal Wire Act could be attached to another piece of legislation next year. The bill was introduced by Senator Lindsey Graham (R-South Carolina) and Rep. Jacob Chaffetz (R-Utah), but was seen to have come directly from Adelson’s Coalition to Stop Internet Gambling. The coalition released a statement saying the election results have bolstered its position, and pointed out that 21 members of Congress were reelected who were seen as against online gaming. Many of those candidates had been targeted by pro-online gambling groups. “The tactics to remove the dissenters of online gambling from office have failed,” the coalition said in a statement. “Putting a stop to internet gambling is a worthy cause, long supported by the coalition, many lawmakers, and the public.” Meanwhile, other reports have said that Reid may also move on a bill to allow online poker during the lame-duck session before the Senate changes hands. But he still faces a Republican-controlled House of Representatives, even in the lame duck session. The end result? Online gambling could be on the back burner for a long time.

Santa Ysabel Introduces Real-Money Online Bingo

t’s not a poker site, but the Iipay Nation of Santa Ysabel has gone forward with live online gambling for real money with a bingo site. The tribe had been talking about launching an online poker game, but instead went with DesertRoseBingo.com first. The site is being operated in conjunction with Great Luck and is a VPN-based product that employs proxy play. “The Iipay Nation is excited to be the first

Global Gaming Business DECEMBER 2014

tribal government in America to deploy Great Luck’s VPNAPS technology,” said David Chelette, president of Santa Ysabel Interactive, the tribal economic development entity operating the venture. “As the owner-operator, this licensing agreement not only underscores the sovereignty of Santa Ysabel to offer Class II bingo, it also represents the use of innovative technology to reach users. The Desert Rose Bingo enterprise will offer this small rural community and the Iipay Nation a positive economic impact.” The site is open to California residents located in California. Players must be 18 or older. The site is a move by the tribe to offer online play without state sanction—a right it says it has under its tribal autonomy. “At no time is live bingo game action performed by the user,” the tribe said in a release. “This ensures that all game play takes place on tribal lands, under the jurisdiction of the tribal government, and is in compliance with all applicable laws and regulations.” The tribe maintains that by offering Class II gaming—defined as poker and bingo under the Indian Gaming Regulatory Act of 1988—it is exerting its sovereign rights, regardless of whether it is legal at the state or federal level. Either way, the site could bring challenges from the state and could be a factor in the current debate in the California legislature on a bill to regulate online poker. The tribe, however, expects to launch online poker soon. “Some believe our promise to bring regulated cash poker games to California has all been a great big bluff, for any number of self-serving reasons,” Chris Wrieden, director of marketing for Santa Ysabel Interactive, told pokerfuse. “I can tell you it hasn’t been; it just takes time to put all of the pieces together. When we launch, it will put our critics’ bluff theory to rest, and when we accept our first online bet, we will be on our way to creating change for our industry.”

Most California Politicians Not Interested in Online Poker

here may be a simple reason why online poker hasn’t moved very much in the California legislature: Most politicians aren’t interested in the issue. CaliforniaOnlinePoker last month released results of a survey it tried to conduct among Senate candidates in the Golden State. It contacted 35 state Senate candidates about online poker but only two responded.

O o s th c

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The poker publication speculated as to a number of reasons for this lack of response, and wrote, “One conclusion to draw from the lack of Former Senator Roderick response is that it is Wright will be missed by iPoker proponents. not something that most candidates are passionate about. This is nothing new. It occurs at all levels of government. Players in California need to make it known that this issue does matter.” With the resignation of Senator Roderick Wright earlier this year, and the departure of termlimited Senator Lou Correa, there doesn’t appear to be anyone to pick up the iPoker banner in the Senate. There are several supporters in the Assembly, however.

New Jersey to Get New Online Gambling Provider—California’s Pala Indians

alifornia may still be waiting for online gambling, but the state’s Pala Band of Mission Indians isn’t waiting to start online gambling services. They’re just going forward in New Jersey, which has already approved online gambling. The New Jersey Division of Gaming Enforcement has approved Pala Interactive to team with the Borgata Hotel Casino & Spa to offer online gambling in the state. The tribe is the first to operate online gambling in the state. Under New Jersey’s online gambling laws, all gambling sites have to team with an Atlantic City casino. The casinos, however, can have multiple partners. Borgata is already teamed with PartyPoker. The Pala Band of Mission Indians, however, will op-

erate their site independently from Borgata. “Hopefully we’re going to surprise and delight and build some meaningful market share in New Jersey,” said Jim Ryan, Pala Interactive’s CEO, in a press release. Ryan formerly ran the bwin.party online gambling company, which offers PartyPoker. The tribe wanted to expand its brand onto the internet, Ryan said. The tribe’s palacasino.com site should go live in New Jersey this month following a five-day state-mandated testing period. The site will only take bets from gamblers located within the state’s borders. Though the site will be going live in New Jersey, Ryan said the tribe still has its sights set on launching a California site. “The California market is one we are focused on,” Ryan said. “We began building this product in the hopes that there would be a regulated internet gambling market in California.” By operating in New Jersey, however, and going through the state’s tough regulatory process, Ryan said the site will gain “regulatory credibility” that the company would be able to bring to other states in the future.

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Cash is

King

Image co

urtesty

DiTroni

But the queen provides the security and integrity needed for payment processing BY DAVE BONTEMPO

f cash, in its varied forms, is king, then compliance is queen of the gambling world. Together, they occupy a figurative gaming throne. The “king” supplies the assets fueling this frenzied, multibillion-dollar industry and the “queen” maintains its safety. Together, they are increasingly inseparable, and increasingly important. Compliance has exceeded the realm of industry jargon. It’s a necessity as billions of dollars flood casino floors via ATMs, kiosks, cash advance, debit and credit-card mechanisms. Ticket-in, ticket out, automated games and more sophisticated kiosks drive the industry’s push for speed. Casinos enjoy increased time on device, reduced time between game outcomes and a microscopic look at their customers. But there’s a flip side. The industry’s advanced capabilities tempt money launderers, and casinos must help the government find them. Vendors understand this need. They unfurl more solutions that are effective, if not grandiose, to casino operators. Manufacturers tailor products aligned with Title 31, also known as the Bank Secrecy Act, which requires casinos to work with the federal Financial Crimes Enforcement Network (FinCEN) to thwart money laundering throughout their properties. It’s not an easy task, but gaming operators discovered how serious the government can be about it last year. Las Vegas Sands was fined $47 million for accepting funds on behalf of Zhenli Ye Gon, a native of China who was being held pending extradition to Mexico on drug-trafficking charges. Money was wired from several banks and currency exchange houses in Mexico to LVS accounts in the U.S., according to published reports. Ye Gon was a high roller who had lost more than $125 million in the casinos, which were viewed as an acquiescent partner in this instance. But imagine if the laundering process was launched by a terrorist group, analysts maintained. What if casinos were blindsided by sophisticated criminals? The fine, large by casino standards, reverberated through the industry. Reporting transactions exceeding $10,000 was no longer enough. FinCEN wants 58

Global Gaming Business DECEMBER 2014

information on the source of funds, customer due diligence, international money transfers, pass-through activity and data on dormant accounts. It’s the same information required of banking institutions in the global terror war. Attempted manually, this is labor-intensive, if not impossible. Operators instead turn to manufacturers, who produce a product line aimed at increasing the property’s compliance effectiveness. The innovations also make casinos look proactive in government relations and allow them to save manpower for normal operations. But compliance—a form of financial housecleaning—isn’t sexy. That’s why manufacturers stress the dual use of their new products in helping to identify key players. The same technology used to meet government regulations can service high-end customers. Vendors thus have two methods to sell their latest wares.

Software Play Global Cash Access has long satisfied customer demand to “show me the money.” The Las Vegas-based company already owns a dominant market share of the North American land-based cash-access market, being licensed in over 150 gaming jurisdictions. GCA generates more than $20 billion in cash distributed to gaming patrons and processes over 90 million transactions each year through its land-based operations. Company highlights include a rich database of more than 8 million patrons accessible through Central Credit. GCA’s latest move is, literally, NEWave. It acquired the leading compliance software supplier to the gaming industry this past spring, addressing a significant customer need in an increasingly complex regulatory environment. In the time-honored tradition of industry powerhouses, GCA purchased a company and thus a strong market position. Obtaining NEWave enabled GCA to provide a major client service, according to Tim Richards, the company’s general manager and senior vice president of interactive solutions. “It is working out very well to this point,” Richards says. “There is a lot

nics

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Manufacturers stress the dual use of their new products in helping to identify key players. The same technology used to meet government regulations can service high-end customers. more focus on that portion of the business right now. There is a push on greater oversight of customer money from the casino perspective. The focus on anti-money laundering and knowing where the funds are coming from for high-end players has become increasingly important. “The fines we have seen levied for these reasons indicate that this is going to be a growth area in which we can help better manage the integration of cash-handling products.” NEWave’s Title 31 Manager is the leading software of its kind. It automatically completes, files and archives forms required to comply with federal Title 31 money laundering requirements, Richards says. In addition to other features, Title 31 Manager provides consolidation of all audits as well as creation of the CTR, SAR, W-9 and W-8 and electronic filing. NEWave’s myDocument Manager suite automates document flow, manages routing and approval of forms, digitally stores specialized gaming documentation scanned from NEWave’s other suites, and provides an end-to-end document solution for departments across the entire operation. The solution can be implemented at stand-alone properties or across multiple locations. Other notable developments involving NEWave this year include gaining a multi-property software agreement in Oklahoma and the installation of several modules of myDocument Manager at the Downtown Grand in Las Vegas. NEWave fit immediately with GCA products, according to Richards. “We have integrated NEWave into our Jackpot Exchange, and we expect to do more in the areas of kiosks and Table Xchange,” Richards indicates. “We can streamline the anti-money laundering reporting going forward and we can ease the transition for casinos that are now being asked to do what the banks are required to do.” NEWave joins an established product lineup for GCA. The company achieved a significant development in August, announcing it had been awarded a comprehensive, five-year contract with one of its top customers, Station Casinos. The deal means

GCA will begin to provide its full suite of cash-tofloor and compliance solutions across all Station properties, including Green Valley Ranch Resort, Red Rock Resort and Wildfire properties. GCA’s integrated kiosk platform can be combined seamlessly with its anti-money laundering and other compliance solutions through Cash Club, the company’s upgraded cage application. This will help customers meet compliance obligations. The Station development occurred after Ram Chary, the chief executive officer and president of GCA, indicated in late spring that the company wants to become a long-term strategic partner with its clients, especially via the integrated kiosk. Rather than focus on short-term hardware sales, GCA will offer kiosks as part of an overall cash support solution. With innovations like QuikTicket, TableXchange and Cash Club entering the market, GCA wants to integrate them into broader, multiyear solutions.

Hardware-Software Tandem Las Vegas-based DiTronics handles nearly $3 billion annually, or about $7 million a day. It has long specialized in in check-cashing, ATMs, kiosks and other cash-access poducts, servicing 450 casino operators. DiTronics helps casinos in the compliance area by offering a comprehensive library of more than 70 reports, encompassing market offerings as well as financial audit and balancing reports across all applications. Access is provided securely and is available from any internet-enabled device. So much for the nuts and bolts. DiTronics has also fired a one-two punch into the funds access market. The hardware-software combination will be featured together. The hardware is its 200 DFS 5 “N” 1 ticket redemption solution, which exceeds the prevailing ATM performance average, according to Jim Kirner, senior vice president of sales and marketing in North America for DiTronics. “Ours is built on the Glory hardware platform out of Japan,” Kirner explains. “They have a huge presence in the banking and gaming industries, and DECEMBER 2014 www.ggbmagazine.com

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they build their equipment to be industrial-strength for cash management. An ATM is built on average to do 450 to 600 transactions a day. Ours is rated to do 1,000-plus. “That’s really important in an age in which operators are busy doing 8 million things. Everybody is watching the bottom line; they are busy being superultra competitive, and they tend to view people getting their money as a basic thing. We continually want ATMs and kiosks to do more.” The DFS-200 is about a year old. It increases cash on the floor by turning ticket redemption terminals into user-friendly ATMs, cash-advance and checkcashing kiosks. Kirner says it has an innovative design, high-quality LCD displays, multiple languages, high-speed communications and the ability to support multiple cassettes. It is backed by a 24-7 staff call center. The software? If DFS 200 is the car, Transaction Rewards software is an essential option, like a premier sound system. This product brings marketing technology into play. “The funny thing about the accessing of monies with kiosk devices and ATMs is that you have no idea as an operator who is using that,” Kirner says. “That means perhaps 50 percent of the money coming onto your gaming floor is coming from people, and you have no idea who it is. Transaction Rewards will help you as an operator understand who that player is. “If Donny Big Bucks comes into your property and swipes his loyalty card, we can help you market to him. Player ranking is built into the algorithm, so if he is a higher-limit player, you can allow more funds availability. We help your best players get better limits than they will with your competition.

“You can also decide to reward Donny by waiving his surcharge to use the machine, providing points based on the amount of his play, and—we’re talking about this right now—give him a certain amount of free play. Operators have comped these types of things in the past, but it has always been manually.” The DiTronics interface to the casino player database provides configurable, variable cash-access pricing and enhanced check-cashing features. Transaction Rewards offers greater insight into player cash-access usage and patterns, which also provides value-added data for marketing, Kirner asserts. Features include play-driven check-cashing limits, automatic segmented fee discounts, fee payment via club points or comps, and consolidated player tracking and cash-access reporting. Benefits include increased cash to the floor, recognition of high-value players and increased insight into customer spending habits, according to Kirner. Transaction Rewards can be added to existing DFS hardware. Another component already built into the kiosk is Smart Dispense, which allows operators to tailor payouts into the bills it believes customers want. It can set up a kiosk to deliver higher bills in a high-limit room, for instance. Smart Dispense will provide more $100 bills. Smaller bills might be dispensed in lower-denomination rooms.

Team of Rivals Cincinnati-based Vantiv already is a beacon of transparency. It handles 16 billion transactions and more than $600 billion in card volume annually. It services retail giants Wal-Mart and CVS, among others.

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Vantiv applies the same standards to gaming, which it entered last year. Its analysts stay abreast of emerging state and federal legislative activity related to the casino world. While Vantiv’s gaming push concerns the future of online gaming, its reputation for efficient reporting brings a twofold purpose to its sales pitch. It can help casinos know their customers and trace the money. At last year’s Global Gaming Expo, Vantiv plunged into the casino realm by launching Vantiv Gaming Solutions. Gaming, with projected double-digit annual revenue over the next several years via fantasy sports, online wagering, social gaming and the lottery, provided a logical extension for Vantiv’s enterprise. Its scalable, customizable solutions run on a single proprietary platform and are built to include iGaming, mobile gaming, cashless gaming, prepaid and alternative payments acceptance. If someone wants to use a card to fund his gaming purchases, Vantiv will provide the connectivity to allow that transaction to occur. That dynamic can occur both online and inside the casino. Regardless of how slowly online gaming proceeds—several more states are expected to adopt it, although it has not matched industry revenue forecasts—more people use cards than ever before. Money is spent in restaurants, spas, shops and hotel bars. That’s good news for anyone servicing the amenities that complement gambling. “Its been a very strong first year for us,” says TJ Sharkey, the vice president of operations and business development for Vantiv Gaming Solutions. “Gaming has proven to be successful for us. We have seen no different experience with gaming than in other businesses. We do have the history and tradition of being able to

support what the merchants are looking for. “There have been no underage issues, no money-laundering concerns, etc. We work well with regulators. We understand the gaming market just as we do our other markets. We go into a casino, and whether this involves ticketing, hotels, sports functions, etc., there is nothing on the floor we cannot handle. “In any casino setup, there are all kinds of point-of-sale transactions. It can be the spa, the golf course, the lodging, the food and beverage, a ticketing function—all require payment capabilities. We are the payment processing service for all of those functions.” A significant part of Vantiv’s strategy involved becoming an equity partner in Sightline. This four-year-old company involves its growing relationship list with casinos to utilize a general-purpose reloadable card. Borgata and Golden Nugget became partners with Sightline early in New Jersey’s online gaming era. Sightline enables a property to send a prepaid card with its logo, etc., to customers who have funded the purchase online. Diran Kludjian, executive vice president of Sightline Payments, says the Vantiv-Sightline partnership excels in several areas. Among them: Kludjian says casinos also obtain money that settles back into their accounts, like ATM surcharge fees, much faster with Vantiv and Sightline. They obtain the funds after each day, rather than monthly, which is customary in the business. “For big casinos like Mohegan Sun, etc., that moves the needle for them,” he indicates. Sightline also figures to enhance its casino relationship by sharing the interchange money, the fee card issuers make on transactions, with casinos.

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FRANKLY SPEAKING by Frank Legato

Pigeons at the Gate

Global Gaming Business DECEMBER 2014

VICT O

R RIN ALDO

eave it to the international casino industry to keep the folks at PETA busy. Back in the 1990s, People for the Ethical Treatment of Animals nixed a plan by the Taj Mahal in Atlantic City to bring the fabled Diving Horse back to the Steel Pier. The animal rights group just didn’t buy the argument that horses actually like to dive 30 feet from a platform into freezing cold, choppy surf. They do. Why, back in the Old West, cowboys had to avoid cliffs near rivers, because their horses would always jump in. You could look it up. These days, PETA’s dealings with the casino industry typically take them to more distant shores. As you may recall, around a year ago, officials in Russia raided an illegal casino that was taking bets on cock fights, rat races and even insect races. I remember wondering if they gave clever names to the bugs to aid in the wagering: “Ten bucks on More Than Larva to win, and five each to place on Fuzzy Legs and Surviving Nuclear Holocaust.” Last month, PETA’s warriors were in Taipei, Taiwan, where police raided a gambling club that had been conducting pigeon races. PETA says around 1.5 million birds a year are killed in pigeon races. I’m having trouble wrapping my brain around that fact. Why don’t the pigeons just fly away? How do they get them to stand still so they can paint little numbers on them? How do they get the pigeons to speed up? Do they have freshly washed cars that they drive around the track? Do they lead the birds forward by showing them statues? Do the pigeons run? Because I’ve only seen them waddle. Waddling pigeons would tend to make a race boring, I would think. Are there pigeon harness races? Maybe with rats standing in the little wheeled carts? Hey, I’m always thinking. My first thought was that this could never happen in America, because the sports leagues would take the pigeon racers to court, on the basis that wagering on pigeon races would lead to pigeon match-fixing and disrupt the integrity of the sport. But anyway, agents from Taiwan’s Criminal Investigation Bureau searched the back offices of the gambling club, and froze about US$3.95 million in assets. So, evidently, there’s good money in pigeon races. (They must need it to clean up the mess.) PETA Asia even issued a statement. “Taiwan authorities have shown the world that they take the accusation that pigeon racing is a cruel front for illegal gambling very seriously,” the statement said. “Taiwan’s pigeon-racing industry is the most extreme, most deadly, and most crime-ridden in the world.” Wow. There’s even a “pigeon-racing industry.” According to PETA, there are 30,000 “pigeon breeders” supplying the industry with 2 million pigeons each year. Only half a million survive to poop on statues another day.

I always wanted to be a pigeon breeder. When I was a kid, I dreamed about having a big pigeon ranch, where I could raise prize racing pigeons. I’d drive a big, expensive, poop-covered car, with a gold pigeon as the hood ornament. I’d wear pigeon-bling. I’d… I’d… No, that’s all I’ve got. Much like the Taiwanese birds, I think this bit has run its course. Taipei, by the way, has one of the cleanest airports I’ve ever walked through. I’m guessing the absence of pigeons has something to do with it. OK, I had one more. Closer to home, my favorite Las Vegas locals joint, the South Point, just unveiled a $35 million tournament bowling facility, with 60 lanes to be used only for pro bowling, and a 360-seat viewing area. It says here the aim is to make Las Vegas “the competitive bowling capital of the world.” The new center debuted with the Professional Bowlers Association World Series of Bowling. I love bowling, because it’s the only sport for which one can train while drinking beer. In fact, that was one of the big selling points for the South Point, according to GM Ryan Growney, who was quoted in one of the newspapers as saying bowlers are a good demographic to serve because they “like to drink beer, they like to have a good time, and they like to gamble.” The only casino demographic that’s better than bowlers, as I understand it, is pigeon racers. Maybe they’ll expand the equestrian center to include some pigeon tracks. Oh, right. They can’t, because of PETA. And the sports leagues. Too bad. I just got a hot tip on a pigeon that’s a sure thing. I wanted to put down a bet before he was put out to stud. On a statue, I’m guessing.

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NEW GAME REVIEW by Frank Legato

Betty Boop’s Firehouse Bally Technologies

his latest game in the Bally franchise featuring 1930s cartoon vixen Betty Boop (and her dog Pudgy) features a firehouse theme and, appropriately, a ladder-style bonus on the tall LCD screen of the Pro Series V22/32 cabinet. Betty Boop’s Firehouse is a wide-area progressive penny video slot on Bally’s Cash Connection link, with a top jackpot resetting at $400,000. The base game is a five-reel, 300-line video slot, including Mystery Stacked Reels—mystery symbols across the reel set are replaced with the same symbols to form clusters of like symbols—and “Betty’s 5-Alarm Scatter,” in which the mystery stacked symbol also pays as a scatter on randomly chosen spins. In Pudgy’s Wild Rescue Free Games, players use the touch-screen to pick a cat for Pudgy to rescue. They are awarded eight to 20 free games— in sets of four, with the player picking a cat before each set of free spins to reveal one of four free-game “enhancers,” which include Wild Reels, Symbol Wild, Extra Wilds, or a Wild Reel Multiplier. The feature occurs every 152 spins on average, with an average bonus of 34 times the total bet, according to the manufacturer. The main bonus event is “Betty’s Blazing Tower.” Landing Heart Bonus Symbols on reels 2 and 3, and a Betty’s Blazing Tower Bonus symbol on reel 4, triggers five free spins. Each spin is a three-reel mini-

game with outcomes of mixed or matched 7s. Three matching 7s unlock the corresponding ladder level and award two additional spins. The player continues up the ladder, from 900 credits to 60,000 credits, times the line bet. This feature occurs every 80 spins on average, with an average payoff of 15 times the total bet. The top progressive jackpot is triggered by five scattered Betty Jackpot symbols with maximum credits bet. Manufacturer: Bally Technologies Platform: Alpha 2 Format: Five-reel, 30-line video slot Denomination: .01 Max Bet: 300 Top Award: Progressive; $400,000 reset Hit Frequency: 39.49% Theoretical Hold: 11.52%-14.78%

Invasion 2: The Return Multimedia Games

his is a much-anticipated sequel to Multimedia’s popular Invasion From Outer Space, and like the original, it is a mix of funny animated alien sequences and nods to campy 1950s sci-fi films. (As they did with the first game, Multimedia’s designers tapped the manufacturer’s own employees to portray screaming citizens fleeing from flying saucers.) There are several mystery wild features, multipliers and free spins built into this theme. Primary game features include stacks of wild symbols, “Tractor Beam Wild Reels,” and a mystery feature in which a robot randomly appears to “zap” the win meter with a laser beam, revealing a multiplier of up to 10X. The main event, called the “Invasion Bonus,” awards five picks with the goal of destroying a fleet of aliens. Picks reveal credit awards, multipliers or additional picks along the way. In the free spin bonus, players are awarded 10X for four free spin symbols, or 50X for five symbols. The free spins continue, with each win multiplied by 10 or 50, until a “Zap The Alien” symbol appears on reels 1, 3 and 5, awarding a prize of 300 credits per line and picturing two identically cloned townspeople. The player picks one, who is zapped with a ray gun to reveal whether it is human or alien. If you pick the alien, the free spins resume, continuing up to a possible total of 175 free games. Finally, there are two “Must Hit Jackpots”—progressives guaranteed to hit by certain levels. In this case, one jackpot must hit by $50 and the other by $400. Player excitement builds as each meter approaches the Must Hit level. 64

Global Gaming Business DECEMBER 2014

Manufacturer: Multimedia Games Platform: MGAM OS Format: 50-line video slot Denomination: .02, .05 Max Bet: 375 Top Award: 489,700 Hit Frequency: 31.32%-32.73% Theoretical Hold: 2%-15%

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The Ellen DeGeneres Show International Game Technology

his new branded IGT video slot is the first in a series of games based on the daytime talk show hosted by Ellen DeGeneres. The two initial games are The Ellen DeGeneres Show Featuring Ellen’s Dance Party and The Ellen DeGeneres Show Featuring 12 Days of Giveaways. The names reflect the main bonus events of the games, one featuring the goofy dance through the audience the host does on the show and the other a prize giveaway from the show. Ellen’s Dance Party is a “ways to win” setup—no paylines, with wins from adjacent symbols. In this case there are 432 ways to win on each spin. The Giveaways game is available in 15-line and 30-line versions. The games are housed on IGT’s impressive CrystalCore cabinet, featuring exceptional sound and visuals on a large vertical touch-screen display. The familiar Ellen theme song plays during primary game spins, and DeGeneres herself provided voice-overs to accompany the game events. Video footage from several of the most famous episodes is used in the bonus events. The Ellen’s Dance Party Free Spin Bonus turns the game’s reels into a bonus round centered around the famous dance, as a cut-out of DeGeneres bops around to award wild symbols in a funny sequence. Building upon the most-anticipated Ellen episodes each season, the 12 Days of Giveaways slot features a symbol set that includes many of the show’s most famous gift shop items, including Ellen-branded boxers, totes and mugs. A dedicated Free Spins bonus has players spinning reels full of holiday-themed symbols and picking from 12 on-screen gift boxes, each revealing multipliers that increase with each spin, up to 12X. Two of The Ellen DeGeneres Show’s popular games are replicated in bonus rounds. The Know or Go Bonus has players picking prizes until they are elimi-

nated. Ellen’s Wheel of Riches Bonus offers players the chance to give the touchscreen wheel a spin for bonus awards including one or two of the game’s progressive jackpot awards. Manufacturer: International Game Technology Platform: AVP Format: Five-reel, ways-to-win, 15-line or 30-line video slot Denomination: .01, .05 Max Bet: 150, 300 Top Award: 200,000, 500,000 Hit Frequency: Approximately 50% Theoretical Hold: 4%-16.1%

Lady of the Dead Incredible Technologies

his new 25-line video slot celebrates the beloved Mexican holiday Dia de Muertos (Day of the Dead). Lady of the Dead features authentic imagery frequently seen during Day of the Dead celebrations, a variety of mystery wild symbols and multipliers, and a three-level progressive jackpot. The game also features random full reels of Lady of the Dead Symbols and Popping Wilds, which are randomly awarded to upgrade low-paying symbols to wild symbols.

The Free Spin round is triggered by five or more Fiesta Grande Scatter Symbols across the reel windows, awarding up to 14 free games. Collecting a total of 25 Lady of the Dead symbols during the reel games triggers a spin of a bonus wheel for one of three progressive jackpots, when betting the maximum. Lady of the Dead features default fixed bet options of 30, 60, 90, 120 and 150. The game is featured on the company’s new Infinity platform, including compatibility on the Infinity U23 cabinet. Five payables ranging from 85 percent to 94 percent are offered, as well as multi-denominational capability. Manufacturer: Incredible Technologies Platform: Infinity Format: 25-line video slot Denomination: Multi-denominational Max Bet: 150 Top Award: 6,250 times line bet Hit Frequency: Approximately 50% Theoretical Hold: 6%-15%

DECEMBER 2014 www.ggbmagazine.com

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CUTTING EDGE by Frank Legato

Automated Incentives

Product: BounceBack (automated casino promotion software) Manufacturer: DataSpade

ataSpade’s BounceBack software offers a higher level of marketing power for casino properties. The automated casino promotion software, used to issue free-play coupons and gain loyalty with players, is designed to bridge the gap between player’s club data and the marketing efforts needed to sustain player loyalty. BounceBack is a valuable tool to maximize the effectiveness and profitability of any player’s club database. It’s been proven to increase revenues by up to 15 percent. BounceBack outperforms ADT and cumulative segmentation models alone by using a balance in conjunction with daily response, which eliminates the need for a period average or total. With BounceBack, properties can send appropriate offers to all segments of their players without the risk of running a loss. By implementing a predetermined point threshold (that stays relative to each player’s value and trip frequency), offers are automatically triggered when a player’s point threshold is achieved. These offers can then be syndicated directly to the print house and/or kiosk redemption center

automatically, on a daily basis. The software will encompass all player’s club data and issue appropriate offer amounts to each player. Not only does the BounceBack determine the offer amount based solely on cumulative play; it also accounts for a player’s distance from the property and calculates offers in relation to travel time. Redemption windows are enforced using a shorter offer expiration period, effectively controlling player response pressure. BounceBack will build value in the player’s club while perpetuating a steady growth in player loyalty, carded play, trip frequency and revenues. Executing effective marketing incentives is an imperative necessity in supporting players’ interests to keep them coming back. Implementing BounceBack into a marketing campaign ensures that a property recognizes and rewards each player automatically on a daily basis. For more information, visit dataspade.com.

Progressive Tables Product: Infinilink Manufacturer: Bally Technologies

ally Technologies has launched a progressive jackpot product that allows one progressive to cover several table games, even though the odds of each are different. Normally, a table game like Ultimate Texas Hold’em will feature one progressive jackpot, while Three Card Poker will have another. With the Infinilink progressive system, the same jackpot can be used on several games. With more games on the same link, operators can offer bigger, faster jackpots. Roger Snow, Bally’s senior vice president of table and utility products, predicts Infinilink to be a game changer for table game progressives, which are becoming more popular. Games featuring the Infinilink progressive play the same as they always have—players make their progressive wager to qualify for normal and Infinilink payouts, and a portion of their progressive wager goes to the Infinilink meter. The hands and rounds selected for Infinilink payouts are completely random. If a player makes a progressive wager during one of these

Global Gaming Business DECEMBER 2014

randomly selected rounds and hits the randomly selected hand, they win both the regular and Infinilink payouts. Infinilink works by combining the use of a random number generator with underlying hand odds to provide the same chance of winning an Infinilink payout. This allows operators to link any pay table and any game type, regardless of the math model used, to a common jackpot. Offered exclusively on the Game Manager 2 progressive platform, an Infinilink jackpot can be used in addition to game- and title-specific jackpots to provide a flexible, tailored offering that will resonate with table game players.

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GOODS&SERVICES ISAACS: SCI GAMES/BALLY DEAL ON TRACK avin Isaacs, CEO of lotG tery and gaming giant Scientific Games Corporation, assured investors last month that the company’s pending $5.1 billion acquisition of diversified gaming supplier Bally Technologies is Scientific Games on track to close by the end of CEO Gavin Isaacs the year. Isaacs, who blamed short-sellers for a bogus report in Bloomberg indicating that the consortium of banks was delaying more than $3 billion in bridge loans, used the company’s third-quarter earnings call to assure investors that Scientific Games has the ability to fund the Bally purchase. The company will initiate a debt offering that will provide the last piece of the funds needed for the purchase. “Management still expects to close the Bally deal by year’s end regardless of whether or not the remaining acquisition-related debt is funded via a high-yield offering or taken on by the current bank syndicate,” Eilers Research founder Todd Eilers told investors after the call. On the conference call, Isaacs said the acquisition would increase cash flow and reduce obligations taken on by the deal. “Our goal is to primarily use our increased free cash flow to pay down debt and bring our leverage ratios back to more optimal levels,” he said.

ARISTOCRAT COMPLETES VGT ACQUISITION

ustralian slot manufacturer Aristocrat Leisure Ltd. announced it has completed the acquisition of Tennessee-based Class II gaming machine manufacturer Video Gaming Technologies Inc. (VGT), in a deal worth US$1.28 billion. Aristocrat also said it would consider other “accretive opportunities.” The company achieved all necessary regula-

tory and other approvals required with respect to its agreement to acquire VGT, Aristocrat said in a filing to the Australian Securities Exchange. VGT had an installed base of approximately 20,200 leased machines at the end of last year, according to previous filings. It will be run as a business unit of Aristocrat, maintaining its focus on Class II products, the Australian gaming manufacturer said. Aristocrat has put in place an interim leadership structure “while a rigorous global search for a permanent leader is undertaken,” it said. The deal had first been announced in July.

GTECH SHAREHOLDERS APPROVE IGT MERGER hareholders of Italian lottery giant GTECH Smeeting S.p.A. last month approved, in a shareholder’s held on a single call, the company’s acquisition of leading slot manufacturer International Game Technology. The shareholders approved the folding of GTECH into a new holding company that will be based in Britain, called Georgia Worldwide plc. That company will be listed on the New York Stock Exchange as NewCo, at least at first. The combined entity will have more than $6 billion in pro-forma revenues, GTECH said last summer when it announced the $4.7 billion acquisition of IGT. A 97 percent majority of GTECH shareholders attending a meeting in Rome approved the merger. The deal is expected to be completed by the second quarter of next year.

ONLINE POKER BOOSTS AMAYA; CADILLAC JACK FOR SALE anada’s Amaya Gaming reported that its recent C acquisition of PokerStars and Full Tilt have boosted the company’s bottom line, thanks to significant year-on-year revenue and income for the poker sites in the first half of 2014. Amaya reports that Oldford Group, the holding company of the poker brands the company bought this year from Rational Group, generated net income of $218.4 million for the first half, up from $189.9 million for the same period last year. Revenues were $567.9 million, up from $545.9 million last year. “We’re very pleased with the performance of PokerStars and Full Tilt in 2014,” said Amaya CEO David Baazov. “The core poker business continued to grow during the fist half of the year, and recorded strong cash flow.” Meanwhile, the company announced that it has initiated a strategic review process to explore alterna-

Global Gaming Business DECEMBER 2014

tives for Amaya’s B2B landbased slot manufacturer, Cadillac Jack Inc. The strategic review will consider various alternatives for the company identified by Amaya’s and Cadillac Jack’s executive management, with the fundamental objective of Amaya CEO expediting Cadillac Jack’s David Baazov growth strategy and maximizing value for Amaya’s shareholders. “In light of recent consolidation within the gaming machine supplier industry, we believe that this is an appropriate time to review and evaluate potential strategic alternatives for Cadillac Jack that may further maximize value for our shareholders,” Baazov said. Amaya has engaged Macquarie Capital and Deutsche Bank Securities Inc. as co-financial advisers to assist the company with the strategic review of Cadillac Jack.

BMM COMPLETES ACCREDITATION aming testing company BMM Testlabs anG nounced that it has successfully expanded its ISO 17025 scope of accreditation to include two additional Gaming Standards Association protocols, GAT and GDS. Game Authentication Terminal (GAT) protocol is used by regulators and operators to identify and authenticate gaming software and firmware in the field. The Gaming Device Standard (GDS) protocol is GSA’s USB-based serial protocol used to connect gaming devices with peripheral devices such as printers, note acceptors and card readers. “We are very pleased that BMM is now able to provide certification for both GAT and GDS protocols from the Gaming Standards Association,” said Travis Foley, BMM’s executive vice president of operations for the Americas. “This extended ISO accreditation ensures that BMM is fully able to provide all GSA certification needs for our clients.”

NORTH STAR PICKS BALLY lot, table and system supplier Bally Technologies Sin Wisconsin announced that the North Star Mohican Casino is installing a complete suite of the manufacturers’ award-winning systems. The property will deploy Bally’s iVIEW Display Manager (DM) picture-in-picture-style playeruser interface and Elite Bonusing Suite (EBS) floor-wide on 1,200 gaming machines, enabling interactive, floor-wide player-bonusing events. North Star also selected a host of other products from Bally’s broad systems portfolio.

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PEOPLE KREEGER TAKES OVER AT SLS

MULLER JOINS NIGA SHOW PRODUCER

cott Kreeger, who formerly was given the impossible job of turning around the struggling Revel casino hotel in Atlantic City, has been named the new president of SLS Las Vegas. Kreeger replaces Rob OseScott Kreeger land, who is joining former Wynn Las Vegas President Andrew Pascal to develop a resort on the Las Vegas Strip across from Encore. The development partnership also includes Australian billionaire James Packer and investment firm Oaktree Capital Management. “Working with Andrew on his new project enables me to further my passion for developing and operating unique resort destinations,” Oseland said. The 1,620-room SLS Las Vegas is owned by Stockbridge Real Estate and Los Angeles-based sbe Entertainment, owned by Sam Nazarian. It has a 56,000-square-foot casino with almost 800 slot machines, 74 table games and a William Hill sports book. Prior to Revel, Kreeger’s career included stints at MGM Mirage and Station Casinos in Vegas. He was the first general manager of Station Casinos’ Red Rock Resort. Sam Nazarian called Kreeger “an extremely gifted leader.”

FREEMAN PICKED FOR U.S. CHAMBER PANEL

eoff Freeman, president and CEO of the American Gaming Association, was one of six executives named by the U.S. Chamber of Commerce to its Association Committee of 100. The committee, also Geoff Freeman called the C100, meets to network, build partnerships, and discuss current issues. Freeman joins the CEOs of businesses representing financial, utilities, insurance, alternative energy and auto dealers on the panel. “These new members reflect our continued dedication to naming diverse, high-profile leaders to serve on this important committee,” said Rob Engstrom, senior vice president of political affairs and federation relations at the U.S. Chamber. Freeman has been the head of AGA since June 2013. Prior to joining the gaming industry’s leading trade organization, he was chief operating officer of the U.S. Travel Association.

ourtney Muller, the former senior vice president and head of the Global Gaming Expo trade show for Reed Exhibitions, has joined Atlanta-based Urban Expositions, producer of the annual NIGA Indian gaming trade show, as executive vice president. Muller will report directly to Urban co-owners Doug Miller and Tim von Gal. She will assume responsibility for overseeing much of the day-to-day management of the company as well as seeking out new acquisitions, Courtney Muller launches and partnerships for Urban Expositions. Chief among those responsibilities will be her oversight of the NIGA trade show. Muller led the efforts on Global Gaming Expo from 2004 to 2013 and worked closely with G2E partner American Gaming Association as well as the sponsor, Association of Gaming Equipment Manufacturers.

CASINO TECHNOLOGY NAMES CFO

ulgarian slot manufacturer Casino Technology has named Sascha Blodau, formerly the longtime managing director of Bally Wulff Games & Entertainment, as the company’s new chief financial officer. Sascha Blodau During his time at Bally Wulff, Blodau positioned and strengthened that supplier’s corporate financial structure, establishing capital investment, and managing investor relationships. He was one of the main driving forces behind the acquisition of the Germany-based Bally Wulff by Schmidt Group in 2007. “The appointment of Sascha Blodau as a CFO of Casino Technology is in line with the company’s strategy of streamlining its activities and further expanding on the global gaming markets,” said Milo Borissov, founder and president of Casino Technology. “We are confident that with his experience and solid financial background, Sascha will provide a highly valuable contribution to achieving these goals.”

BROWN TO HEAD SAIPAN CASINO

ong Kong-listed gaming investor Imperial Pacific International Holdings Ltd. announced the appointment of veteran casino executive Mark

Brown as president and chief executive of the company’s Saipan casino resort project. The appointment will be effective from November 10, the company said in a filing. Brown was president of the Venetian Macao and Sands Mark Brown Macao from April 2006 to April 2009. He joined Cambodian casino operator NagaCorp Ltd. in December 2013 as chief operating officer of subsidiary NagaWorld Ltd., but resigned last month to “pursue other opportunities.” Prior to his Asian work, Brown headed up the Trump casino properties in Atlantic City. “As a chief executive with a career working directly for prominent gaming figureheads, Mr. Brown is uniquely qualified to helm ultra-large-scale operations from the ground up and strategize for longterm growth,” Imperial Pacific wrote in its filing. The Lottery Commission of the Commonwealth of the Northern Mariana Islands confirmed on July 15 that Best Sunshine International Ltd., a subsidiary of Imperial Pacific, had been awarded an exclusive license to operate a casino on the Pacific island of Saipan. Saipan is the largest island in the U.S. Commonwealth of the Northern Mariana Islands.

GGB

December 2014

Index of Advertisers

Acres 4.0 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21 AGA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .63 Ainsworth . . . . . . . . . . . . . . . . . . . . . . . . . . . .17 American Gaming Systems . . . . . . . . . . . . . . .29 Aristocrat . . . . . . . . . . . . . . . . . . . . . . . . . . . .25 Aruze . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33 Bally Technologies . . . . . . . . . . . . . . . . . . .2, 45 Cadillac Jack . . . . . . . . . . . . . . . . . . . . . . . . . .43 Cole Kepro . . . . . . . . . . . . . . . . . . . . . . . . . . .57 DiTronics . . . . . . . . . . . . . . . . . . . . . . . . . . . . .61 G2E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .49 GLI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19, 51 Greenberg Traurig . . . . . . . . . . . . . . . . . . . . .31 GTECH . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11 GTECH Interactive . . . . . . . . . . . . . . . . . . . . .37 ICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .49 iGLS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .67 IGT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5 Konami Gaming . . . . . . . . . . . . . . . .Back Cover LT Game . . . . . . . . . . . . . . . . . . . . . . . . . . . . .59 Macquarie . . . . . . . . . . . . . . . Inside Back Cover Multimedia Games . . . . . . . . . . . . . . . . . .15, 47 Ortiz Gaming . . . . . . . . . . . . . . . . . . . . . . . . .39 Red Square Gaming . . . . . . . . . . . . . . . . . . . . .9 RPM Advertising . . . . . . . . . . . . . . . . . . . . . . .14 Rymax Marketing . . . . . . . . . . . . . . . . . . . . . .60 Spin Games . . . . . . . . . . . . . . . . . . . . . . . . . . .53 UNLV Foundation . . . . . . . . . . . . . . . . . . . . . .67

DECEMBER 2014 www.ggbmagazine.com

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CASINO COMMUNICATIONS

Michael Leven President and COO, Las Vegas Sands

ichael Leven is stepping down at the end of the year as president and COO of Las Vegas Sands. At press time, there had been no announcement of a successor, but whoever is named will be measured against a very successful executive. Leven, who had been on the board of LVS, was asked to take over as COO when the company was floundering. The oncevaluable stock had slumped to less than $2 per share, and the company had run out of money to fund its Asian expansion. Leven stepped in and engineered a financial turnaround that is remarkable. The stock price in November was around $60, the final Macau casino will open next year (the Parisian), the Las Vegas convention properties are more successful than ever, and strong revenue is still reported in Singapore. Leven spoke with GGB Publisher Roger Gros in his offices at the Venetian in Las Vegas. To hear a full podcast of the interview, visit GGBmagazine.com. GGB: When you first signed on as COO and president of LVS, you did it as a favor to your friend Sheldon Adelson. How long did it take you to realize it was going to be more than a short-term favor? Michael Leven: The original contract was for

two years, and then we had two extensions. It was a favor for Sheldon, but it was also a favor to myself. I was asked by Miriam Adelson to “come and help us fix the company.” She didn’t define exactly what she wanted fixed, but it was to help right the company, put the company back and execute Sheldon’s visions, and it’s a job that never ends, really.

plan to essentially monetize some of our Macau assets to develop cash for the company. That’s when we sold off 29 percent of Macau to a public entity. And the third was to get Singapore open properly so that it could start to generate funds for us to be able to finance the completion of two or three more properties in Macau. So, that was the combination of strategies, and what we had to do was put together the various people, the human resources, to get those things done within the legacy systems that existed in the business. Singapore was an incredibly difficult project, wasn’t it? Singapore was very interesting because the government was very deeply involved in the project, and everything needed government approval. And we were way behind. We didn’t have a strategy for the roof—for the SkyPark, what was going to be up there. Certain restaurants weren’t contracted for, we didn’t have the art museum finished and we didn’t have the relationship there of how to run it. And there were lots of other things. One of the floors in the MICE center wasn’t completed, so we really put together a lot of effort to get that open. Frankly, the opening in April of ’10 was not the best opening we’ve ever had, but by the time we got to June of ’10 we were off and running, and that place in the first eight months did about $700 million in EBITDA, a massive injection of capital to the company.

What was your strategy to right the ship? There were three significant strategies that we had to do. The first and foremost is we had to get our costs under control in Macau, in Asia and in Las Vegas. The second was to develop a

Global Gaming Business DECEMBER 2014

And in Macau, you built one place after another. You actually had to put the Sands Cotai Central on hiatus for a while. Was that a difficult choice? The hotels at Cotai Central were management contracts, and we stopped the construction on those because we didn’t have the capital, and they weren’t financed. But by going public with Sands China, by getting the money coming in

from Singapore, we were able to finance the completion of those properties. Then we changed the names within a matter of hours. Because of my previous experience, I just called the CEOs, and we got it done. When ShangriLa dropped out, I had both the Conrad name and the Holiday Inn name attached to it and the deal done. What is your strategy in Asia? The difficulty in Asia is that you don’t control the decision. In Vietnam, Korea and Japan— which are the three countries we’re interested in—it’s all about the political environment. Whether or not in Korea and Vietnam they’ll let locals play, what currency restrictions are and things like that, assuming you can solve those problems. And in Japan, just getting through the Diet. If any of those countries go, Las Vegas Sands will have a real shot at it, because of our financial strength—which is interesting to say after five years—and also our capability, because all of them want what we have provided in Singapore and in Macau, and even in Las Vegas. You’ve had a great career in the hospitality industry even before you got here, so where does the Las Vegas Sands experience stand when you look at your entire career? I think this was the pinnacle of any of the experiences I’ve had, because I think this was the toughest situation going in, with the most iconic chairman I’ve had. And I’ve had plenty of chairmen, but understanding him and how to get things done was satisfying. In addition, there were legacy systems here in the way of doing business that were difficult to overcome. But I think at the end of the day, this is the most visible and satisfying experience I’ve had in terms of change, in terms of execution, in terms of the people. The company today is very solidly successful financially.

THE RULER OF THE DRAGONS IS HERE.

PREPARE ITS THRONE. gaming.konami.com DUNGEONS & DRAGONS, Wizards of the Coast, their respective logos, all characters and their distinctive Likenesses are property of Wizards of the Coast LLC in the USA and other countries and are used under license. ÂŠ 2014 Wizards of the Coast LLC. All rights reserved.