Global Gaming Business, February 2015 by Global Gaming Business

GGB Global Gaming Business Magazine

NEW YORK WINNERS… AND LOSERS MONETIZING SOCIAL GAMING DOING DATA ONLINE REGULATIONS

February 2015 • Vol. 14 • No. 2 • $10

Responsible

Reaction Why the NCRG is

one of gaming’s most important institutions

Vetting

Vietnam

Return on Investment

How the nation can become the next major gaming destination in Asia

How to bring nongaming revenues to the bottom line

Official Publication of the American Gaming Association

California COLLISION A looming regulatory scandal shines light on a dysfunctional system

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CONTENTS

february

Global Gaming Business Magazine

COLUMNS

22 COVER STORY Good Morning, Vietnam?

14 AGA Regulatory Resource

As gaming revenues in Macau level out, investors looking for new gaming opportunities in Asia have a few options—and one is Vietnam. However, as two international gaming analysts write, success of Vietnam as a destination gaming market depends on avoiding entry fees, local gambling bans and other pitfalls that could sink Vietnam resort gaming before it starts. By Andrew Klebanow and Steve Gallaway

Vol. 14 • No. 2

Geoff Freeman

16 Fantini’s Finance Annual Uncertainty Frank Fantini

On the cover: Grand Ho Tram, Vietnam

52 Slot Operations Grow to the Adjacent Market Bruce Merati

FEATURES

18 Responsible Science As gaming expands worldwide, the National Center for Responsible Gaming has succeeded in moving the problem gambling discussion from slogans to science. By Roger Gros

26 New York, New York A state panel in New York has awarded the first three of seven planned casino licenses to both praise and controversy— and cries of foul from one region.

34 The Non-Gaming Model As the demographics of the casino market skew younger, operators are relying more than ever on courting non-gaming spend to complement the casino. By Rodric J. Hurdle-Bradford

New York’s planned Adelaar

6 Dateline 13 Nutshell 54 Frankly Speaking

The latest technological advances in player tracking and marketing aim to drill down into data from sources across a casino resort to increase revenue.

56 New Game Review

By Dave Bontempo

30 Regulating California

By Dave Palermo

4 The Agenda

46 Use the Data

By Marjorie Preston

An investigation targeting a key former regulator in California has laid bare the flaws of the state’s bifurcated regulatory setup.

DEPARTMENTS

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

60 Cutting Edge 62 Emerging Leaders With OnlinePokerReport.com’s Chris Grove, City Center Rosario’s Romina Freijomil, and the Illinois Lottery’s Sara Barnett

64 Goods & Services 69 People 70 Casino Communications

Feature

38 Going Social Operators are discovering how social casino gaming can help the land-based operation.

With David Lopez, President and CEO, American Gaming Systems

By Marco Valerio

iGNA Outlook

42 Best Practices, Part 2 Anthony Cabot

44 iGames News Roundup www.ggbmagazine.com

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THE AGENDA

Go North, Young Man Roger Gros, Publisher

nyone who has read this column on a regular basis knows that I got my start in gaming in Atlantic City, I still own a house there, and have the good of my adopted hometown at heart. So I hope those who don’t have a dog in this fight will allow me to voice my opinion on an issue that clearly only impacts Atlantic City. (Well, it has many other impacts, but my purpose is to address only the AC issues.) As everyone knows, Atlantic City has been through a terrible exodus (a phrase the pastor of St. Nicholas Catholic Church in Atlantic City uses every Sunday when he’s soliciting contributions). This exodus, however, began with the casino customers who decided it was more convenient to frequent the casinos in Pennsylvania and Delaware than to drive at least an hour to Atlantic City. It continued then with more than 8,000 casino employees who lost their jobs last year as four casinos closed and others teetered on the edge of insolvency. Gross gaming revenue in the city has been halved over the past seven years, dropping from $5.2 billion to around $2.7 billion in 2014, followed by a corresponding drop in gaming taxes. In New Jersey, gaming taxes are deposited in the Casino Revenue Fund, which largely funds prescription plans for seniors and the disabled, curing a thorny problem years ago that most states have yet to even address. But the decline in casino taxes has caused co-pays to rise and stress added to the lives of the affected. So as a citizen of New Jersey, I want to see that fund restored to its former prominence, but with the state of Atlantic City, the only casino jurisdiction, as it is, that will never happen. It can happen, however, if gaming is expanded to include North Jersey locations. Would this be bad for Atlantic City? Without any compensation for the Boardwalk town, undoubtedly. It would be the final nail in the city’s coffin. But no one in New Jersey wants to kill Atlantic City. It is one of the big tourism draws to the state and continues to be to this day. Any casino approved in North Jersey must dedicate a portion of its revenues—in taxes, fees, whatever—to the betterment of Atlantic City. Already most of

Global Gaming Business FEBRUARY 2015

the “convenience” market has abandoned the Atlantic City casinos, preferring instead the Pennsylvania or New York casinos closer to home. But Atlantic City still attracts visitors for the weekend getaways, special sports or entertainment events, meetings and conventions, holidays and other occasions. Money from North Jersey gaming could be used to beef up those attractions, offsetting any losses that would be suffered from casinos outside of Atlantic City. There have already been several proposals to introduce casinos in North Jersey. Some Atlantic City politicians are resisting this effort, even though they know that Atlantic City and South Jersey are simply the tail that the North Jersey dog wags. Whatever North Jersey wants, North Jersey gets. Now is the time not to resist, but to bargain and get as much as they can for South Jersey. The longer they resist, the smaller will be the reward from something that is clearly inevitable. All of the plans envision a much higher gaming revenue tax rate than you find in AC. Most are calling for a rate north of 50 percent vs. only 8 percent in AC (in addition to the 1.25 percent CRDA tax). So there will be plenty of money to go around in what should be one or two of the most successful casinos in the U.S. It would reinvigorate the Casino Revenue Fund, help to grow Atlantic City as a destination, and even contribute a few dollars to the state’s general fund. Approving gaming in North Jersey would also give the state the jump on New York, which by law can’t consider casinos in New York City for at least seven years. It would also bring customers back from Pennsylvania casinos and short-circuit losses to any upstate New York casinos. It only makes sense for the state, and for South Jersey politicians to continue to oppose it is not only short-sighted but potentially suicidal. Atlantic City has shot itself in the foot for 20 years. Let’s hope local officials and politicians get it right this time. Now back to your regularly scheduled programs.

Vol. 14 • No. 2 • February 2015 Roger Gros, Publisher | rgros@ggbmagazine.com Frank Legato, Editor | flegato@ggbmagazine.com Monica Cooley, Art Director | cooley7@sunflower.com 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 Anthony Cabot | Frank Fantini Geoff Freeman | Bruce Merati Contributing Editors Stephanie Adkison | Dave Bontempo | Steve Gallaway Alexis Garber | Rodric J. Hurdle-Bradford Andrew Klebanow | Dave Palermo Marjorie Preston | Renese Johnson Robert Rossiello | Marco Valerio

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 2015 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 ASIA february2015 The planned Incheon casino from Caesars and Lippo

China President Xi Jinping

Big TrouBle in liTTle China Pivotal ‘one China’ speech seen as a warning

n a brief but potentially game-changing visit to Macau last month, Chinese President Xi Jinping indicated that oversight of the island’s once-booming casino industry could increase, and the gaming mecca should prepare to develop other revenue sources. Last year the Chinese government cracked down on money laundering in an effort to keep money from illegally exiting the mainland, which has seen an economic slump. As part of the effort, the government gave China’s Economic Crimes Investigation Bureau access to transactions made with state-backed UnionPay credit cards, according to the South China Morning Post. The discouraging effect on once-freewheeling high rollers has already extracted billions in revenue from the gaming enclave. The island lost a combined $58 billion in market value in just six months in 2014, according to Reuters. In a two-day visit in December to celebrate the 1999 handover of Macau from Portugal, Xi warned government officials to be mindful of the proverb, “Be prepared before the rainy days come.” “Our sage said that, ‘One thrives in concerns and calamity whereas perishes in ease and pleasure,’” Xi told M SAR representatives. “Macau is now in a very good situation. In some aspects it’s even unmatched. But we need a sense of crisis to solve some deep-seated issues.”

City of Dreams Opens in Manila Solaire also growing ity of Dreams opened in December as the second resort in Manila’s Entertainment City casino district. A partnership of Macau’s Melco Crown Entertainment and the Philippines’ SM Group, the property celebrated a December 14 soft opening with just the casino floor and a few restaurants in operation, reported Forbes. By the Chinese New Year on February 19, City of Dreams may open other amenities, including an indoor DreamWorks theme park, a shopping mall, and its Nobu and Crown Towers hotels. Solaire, which opened in 2013, also continues to expand. The resort controlled by Philippine billionaire Enrique Razon Jr. opened its Sky Tower in November with more suites, more VIP gaming rooms, additional meeting space, new food and beverage outlets and a 1,760-seat theater. A 100,000-square-foot shopping mall, nightclub, karaoke bar and spa are all set to open in 2015. While the resorts will certainly compete with each other, Forbes noted, they will also support each other, providing critical mass and variety that will attract high-roller and mass-market players. Over time, blocks of vacant lots between City of Dreams and Solaire are expected to be populated with new restaurants, clubs, hotels and other businesses. A third competitor is less than five miles away: Resorts World Manila, owned by Travellers International Hotel Group, a joint venture of Genting Hong Kong and Philippine billionaire Andrew Tan’s Alliance Global.

Global Gaming Business FEBRUARY 2015

The Korean Caesars Looking ahead to 2018 Olympics partnership including Caesars Entertainment Corp. has signed a deal to acquire a 10.6-acre tract of land for a casino development at Incheon, South Korea. The partners paid US$95.9 million for the land. According to GGRAsia, the consortium known as LOCZ Korea Corp. is planning a casino that will serve foreigners only near Incheon International Airport in Seoul. The only Korean casino now open to residents is Kangwon Land, located in remote Kangwon province. Caesars will manage gaming for the property, which will begin construction in July 2015. Caesars Chairman Gary Loveman said last summer that the resort will be ready by the opening of the 2018 Winter Olympics in South Korea. The games are expected to bring a flood of foreign visitation to South Korea, which welcomed 12 million visitors in 2013, according to the Ministry of Culture, Sports and Tourism. Almost 30 million tourists traveled to Macau during the same period, reported GGRAsia. The Incheon project will cost KRW855 billion (US$838.8 million) and cover more 150,000 square meters (1.61 million square feet). Along with Caesars Korea Holding Co. LLC, a U.S. firm wholly owned by Caesars Entertainment, the other members of LOCZ Korea Corp. are Hong Kong-listed real estate developer Lippo Ltd., a parent company of consortium fellow member Lippo Worldwide Investments Ltd.; and OUE International Holdings Pte. Ltd., a Singapore company owned by Singapore real estate firm OUE Ltd.

Is Japan Back?

Big election victory by PM gives hope for gaming legalization

Japanese Prime Minister Shinzo Abe

apanese Prime Minister Shinzo Abe scored a big win in snap general elections in December, and has pledged to drive through his economic reform plan, raising hopes a bill to liberalize the country’s casino market may be back on the agenda. Abe’s Liberal Democratic Party and its junior partner, the Buddhistbacked Komeito, won 326 seats to maintain a two-thirds majority, although the LDP itself slipped to 291 seats from 295. However, turnout was a record low. The casino bill failed to gain sufficient parliamentary support and was put on hold indefinitely in November amid a political scandal that prompted Abe to dissolve Parliament and call snap elections. Abe is a strong proponent of casinos as a tool for boosting tourism revenue.

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DATELINE GLOBAL february2015

Bermuda OKs CasinOs Rules have yet to be set T

he Bermuda House of Assembly last month passed a controversial measure to allow casino gaming on the island territory of the U.K. The Senate followed the Assembly action a few days later. The law authorizes three casinos, all of them within hotels. Governor George Fergusson is expected to sign it. During the 10-hour debate on the measure, Tourism Minister Shawn Crockwell told fellow legislators that most people in the territory support allowing casinos and said that the measure would be good for Bermuda. The measure was passed partly to help boost tourism in the islands, which has declined in the last 30 years. “The bill we seek to pass represents a significant and critical adjustment to our tourism product and Bermuda as a destination,” said Crockwell. He predicted that it would create jobs and encourages investment in the island’s economy. The measure authorizes three casinos on sites that will be determined by the Casino Gaming Commission. There is some talk that when details of the measure are released only

Ontario Lottery and Gaming CEO Stephen Rigby

‘Huge Mess’

New Ontario Lottery & Gaming CEO faces big challenges

tephen Rigby took over as the new president and CEO of the Ontario Lottery and Gaming Corp. (OLG) on January 5. He faces a daunting task. Awaiting Rigby is what MPP Catherine Fife says is “one huge mess at the OLG” that “pivots back to the liberal government. They are looking for revenue in all the wrong places,” she told the Toronto Sun. Fife says the OLG needs a lot of help with its efforts to generate more government revenue through online gambling while also handling “scathing criticisms” of its “modernization plans,” the Sun reported. Ontario Auditor General Bonnie Lysyk recently called the OLG’s modernization attempts “overly ambitious” and claimed it overestimated potential revenues. Rigby is a former national security adviser to Prime Minister Stephen Harper, was an associate minister of the foreign affairs department and headed Canada Border Services. As head of the OLG, Rigby will be in charge of 7,000 employees. “I will be focused on helping to ensure the OLG is offering its customers the best possible lottery and gaming entertainment experience for the benefit of the people and the province of Ontario,” Rigby stated in a news release.

The former Club Med is a potential casino site

tourists staying at the casino hotels would be allowed to gamble. Crockwell said the measure would be “substantially” augmented by regulations. The legislation does not appear to allow for stand-alone casinos. Some members of the opposition party in the Assembly support the legislation, but argue that the people of Bermuda should be allowed to vote on it. During the 2012 election, the ruling party had promised to hold a referendum on the issue, but recently stated that the public was sufficiently involved in “extensive consultation” in drafting the legislation, and noted that $500,000 would be saved by not holding an election.

Brisbane Battle

Echo and Crown in showdown for integrated resort

cho Entertainment and Crown Resorts, which just battled over a casino license in Sydney, Australia, are now fighting each other for a license in the capital of Queensland. The government of Australia’s secondlargest state last month released the final “integrated resort development” designs from the two companies, which are vying for the right to develop a resort at Queen’s Wharf in the center of Brisbane. Both released their design plans late last month. Crown Resorts plans a complex with three hotels, a rooftop garden, new restaurants, a public space, and a bridge to South Bank, where the company will build a new movie theater and water park along with the casino. Echo’s Destination Brisbane group plans an arc-shaped building with a sky deck, restaurants and bars, five hotels including a RitzCarlton, a river arena, an underground mall and “12 football fields of public event space,” according to the Sydney Morning Herald. Echo’s existing Treasury Casino would be repurposed as a boutique department store, the Herald reported. A bridge would connect Queen’s Wharf to the other side of the river, where Destination Brisbane has promised to construct a new Lyric Centre. The companies are not yet permitted to

Echo plan for a new Brisbane casino

disclose additional details about the proposed resorts including size, number of gaming machines, casino size, etc. The massive Queen’s Wharf site covers 10 percent of the city, according to the Queensland Courier Mail. Echo and Crown just battled for a casino license in Sydney. The Crown group, led by billionaire James Packer, won that prize. The winning bid for the Queen’s Wharf license is unlikely to be announced before the second quarter as the government looks at the bidders, both of which have Chinese partners, reported GGRAsia. Crown Resorts has teamed up with a subsidiary of mainland China’s stateowned property developer Greenland Holding Group Co. Ltd. Echo Entertainment has partnered with Chow Tai Fook Enterprises of Hong Kong and the Far East consortium.

FEBRUARY 2015 www.ggbmagazine.com

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DATELINE USA february2015 Manila’s Ninoy Aquino International Airport Wynn Massachusetts CEO Robert DeSalvio

Three’s a Crowd Wynn faces down Massachusetts lawsuits

he city of Boston joined two other Massachusetts cities in January in suing the Gaming Commission over its decision in September to award the license for a Boston metro casino to Wynn Resorts. Somerville and Revere previously filed lawsuits. Mayor Martin Walsh’s 74-page lawsuit demands the right for the residents of the Charlestown neighborhood to vote on the project and asks a judge to

Open But Shaky Trump Taj Mahal stays open but its problems aren’t solved orkers at Atlantic City’s Trump Taj Mahal casino found themselves on a roller coaster in December as the fate of their casino hung on a series of announcements on possible deals—and deals falling Billionaire apart—to save the property. Carl Icahn The casino was slated to close December 20, but was open at the end of the year as billionaire Carl Icahn lent Trump Entertainment another $20 million to keep the Taj Mahal running until a “global settlement” can be found. Although a proposed deal with Local 54 of UNITE HERE fell apart, Icahn stepped up. “Even though I have no assurance that the state will provide aid or that the union will drop its appeal, I will send you a commitment letter to provide you with up to $20 million of additional financing (in accordance with your budget and subject to the terms and conditions contained therein) to keep the Taj operating throughout the bankruptcy proceedings,” Icahn wrote to Trump CEO Bob Griffin, “and I will also commit to work collaboratively with the state, the city and the union to try to forge a global settlement that will bring real stability to the Taj and its employees.” Icahn has been seeking to take over the property from Trump Entertainment through bankruptcy proceedings. The billionaire controls $292 million of the casino’s debt. Under a bankruptcy plan, he would exchange that debt for ownership of the casino and then invest another $100 million into the Taj.

order such an election. It alleges that the commission exceeded its authority in awarding the license and that it violated the state’s open meeting law. The lawsuit argues that the commission was required by law to insist that Wynn mitigate traffic impacts, which ought to have re-routed traffic away from this part of Charlestown. “Instead, the commission imposed conditions that will do nothing to prevent the exacerbation of existing congestion by introducing thousands of additional vehicles to the area.” The commission maintains that it addressed and rejected Walsh’s contentions during its deliberations last year. In May it denied the city’s petition to be designated as a “host city,” a designation that Walsh at the time claimed his city could grasp with or without the commission’s approval. Some see the lawsuit as a high-stakes negotiating

Global Gaming Business FEBRUARY 2015

tactic to get Wynn to offer the city more money than it has so far been willing to do. It has just enough legal irregularities to create some uncertainty about the outcome, they say. Richard McGowan of Boston College, a local gaming expert, told the Boston Herald, “They (the commission) seemingly overlooked who was selling the land in Everett. It could all be aboveboard, but who knows.” Neither Wynn nor Everett officials mentioned the lawsuit when they celebrated the finalization of the purchase last month. In an event hosted by Everett Mayor Carlo DeMaria, Wynn Massachusetts CEO Robert DeSalvio declared, “With this land transaction and our arrival into the city of Everett, nothing, nothing gets in our way in terms of bringing this project to fruition.” He declined to answer reporters’ questions on where discussions are between Wynn and the mayor on the issue of traffic upgrades. DeMaria called the lawsuits by Somerville Mayor Joseph Curatone and Revere Mayor Dan Rizzo “sour grapes” and added, “I’d like to sit down with them all, resolve their issues. They have the right to litigate it. I thought it was all done once. It was already done through the Gaming Commission.”

Philly License Awarded Losing bidders and existing casinos challenge license

Philadelphia’s planned Live! Hotel and Casino

s has been the case with each of the 13 casino licenses approved by the Pennsylvania Gaming Control Board, a losing bidder has exercised the right provided in the state’s gaming law to appeal the board’s latest decision to the Pennsylvania Supreme Court. The one difference in the case of the board’s recent decision to award the second casino license for Philadelphia to Live! Hotel and Casino, a joint venture of Cordish Companies and Greenwood Racing, is that one of the currently licensed casinos is joining in the appeal. SugarHouse, the current Philadelphia casino, has joined Bart Blatstein’s Tower Entertainment, which submitted a bid to create the Provence casino resort at the site of the former Philadelphia Inquirer building, in appealing the board’s decision to award the second city license to Live! SugarHouse executives were very vocal during the fall licensing hearings and in the weeks leading to the board’s decision in urging the board to delay the awarding of the second casino license for Philadelphia, saying the gaming market in the Philadelphia region is already oversaturated. Blatstein, the local developer whose Provence project was planned as a multi-use entertainment and gaming development over several blocks in the north Center City district, criticized the board’s decision on Live!, calling it just another “box with slots” that would do nothing more than cannibalize other casinos. The state Supreme Court has never overturned a decision of the Gaming Control Board. The board has defended the decision on Live! as having the best revenue potential, since it is adjacent to the city’s sports complex in the district that includes the stadiums of the NFL’s Philadelphia Eagles and the Major League Phillies, and the arena of the NHL’s Flyers. Board members have pointed to the hundreds of sports events every year that will draw foot traffic to the casino.

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DATELINE EUROPE february2015

Barcelona Bust? Mega-casino complex in doubt

oncerns have been raised over the future of Barcelona’s highly touted BCN World complex after lead developer Veremonte decided not to purchase the land needed to build the US$6 billion mixed-use complex. Veremonte allowed an option to acquire the 500-hectare site for €380 million to expire on December 10, saying it may still purchase the land but is waiting until it has more knowledge of the thinking of local government planners. The government of Catalonia has since said it will shield the land from speculation so as not to endanger the project, a decision which could give Veremonte upwards of 18 months to decide how to proceed. The government has not, however, given approval to Veremonte’s plans for the site. As an alternative to Las Vegas Sands’ aborted $10 billion EuroVegas complex in Madrid, BCN World envisions a similarly expansive collection of six destination-scale casinos, luxury hotels, theme parks, shopping malls, theaters, meeting and convention space, golf courses, a sports stadium and other attrac-

Good or Bad? Jury still out on new U.K. rules

he U.K. Gambling Commission expects a surge in online gambling revenues once the Gambling Licensing and Advertising Act 2014 goes into effect. The online sector, which currently accounts for 17 percent of the nation’s Exchequer Secretary to overall gaming market, saw revenues rise the Treasury Priti Patel 22 percent last year on sports betting turnover that jumped 30 percent to £25.4 billion, a trend the top regulator says will continue once operators get comfortable with the new regime, which requires them to accept U.K. licensing wherever they are based and is tied to companion legislation that imposes a 15 percent tax on their revenues generated in Great Britain. Exchequer Secretary to the Treasury Priti Patel has said the new system is “providing a fairer tax system for all gambling operators.” “Those businesses that moved their operations abroad to avoid paying U.K. taxes will now have to pay their fair share of tax. The government has created a level playing field across the gambling industry so that all gambling by U.K. consumers is now subject to U.K. tax laws.” Operators are not so sure, however, and in a recent interview CEO Peter Howitt of the Gibraltar Betting and Gaming Association, a trade group that failed to defeat the legislation in British court, says the country is becoming an increasingly unattractive one in which to do business. “The way the U.K. has gone about recent changes to regulation and tax has destabilized the confidence in the U.K. for some operators,” he said.

Global Gaming Business FEBRUARY 2015

tions. Hard Rock International, Caesars Entertainment and Lawrence Ho’s Melco International Development are among the global heavyweights that have expressed interest. Veremonte has said the project will create 17,000 construction jobs and another 6,000 jobs at each hotel, an attractive proposition for a Spanish economy that is still struggling in the aftermath of the global recession with a weak economy and double-digit unemployment. However, like EuroVegas, it is expected that significant regulatory modifications will be needed to adapt the project to the urban planning of the area, and critical policies regarding taxation and the scope of the gambling have yet to be resolved. But all is not lost. Generalitat, the regional authority of Catalonia, opted to salvage the project when Veremonte reconsidered. According to the new agreement, the local government will pay €100 million (US$120 million) for the 470-acre parcel. The purchase option must be exercised before June 2016.

Cyprus Casinos Fast-track law eyes integrated resorts he tourism landscape of Cyprus is likely to look much different in the upcoming years. A recent fast-tracked law would allow for casinos to be built in the Greek segment of the island, in the most recent attempt at combating the economic crisis plaguing Cyprus. While the Turkish northern end of the island has seen its fair share of casinos, the influential Greek Orthodox Church has demonstrated strong opposition to them in the south. However, a change of leadership last year took a much different look at the economy, and decided building casinos could provide a muchneeded boost to tourism and jobs, in addition to the economy. In an effort to squash criminal activity linked to gambling, especially money laundering, a stipulation in the bill forces the operator to create a control environment, in an effort to limit and regulate casino gaming. Furthermore, the casinos would adhere to controlled international standards, and follow state control, which dictates the types of casino games, bet amounts and machines allowed. Each operator would be allowed one resort, in addition to four smaller venues. Each resort must maintain a minimum of 500 hotel rooms, 100 gaming tables and 1,000 slot machines, while the smaller venues would be limited to 50 slot machines apiece. Responsibility for regulation, implementation of the law and income collection will fall on a National Gaming and Casino Regulatory Authority. The state will collect a €2.5 million annual fee, which will increase to €5 million between years four and eight. A casino tax consisting of 15 percent of all gaming revenue will also be implemented.

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DATELINE TRIBAL february2015 Navajo Fire Rock casino outside of Gallup, New Mexico

Albuquerque Agreement Two tribes reach compact deal with New Mexico

avajo Nation leaders recently finalized the terms of a proposed new gambling compact with the state of New Mexico. The tribe’s current contract will expire in June. Navajo Nation Council Speaker Pro Tem LoRenzo Bates said in a statement the months-long negotiations with Governor Susana Martinez’s administration have resulted in a compact that’s “fair for our people and for the people of New Mexico.” Under the proposed formula, the state annually would receive 2 percent of revenue up to $6 million, and 8.5 percent-10.75 percent in revenue sharing, based on net winnings and the number of years the 23-year compact has been in place. Navajo casinos generate about $80 million a year in net winnings, so the rate of sharing is expected to increase from the current 8 percent to 9 percent for the first three years of the agreement, bringing in an additional $1 million per year, then rise to 10 percent in 2018 and 10.75 percent in 2030. The Navajos operate casinos near Gallup and Farmington. A third casino near Shiprock offers low-stakes gambling not subject to state regulation. The tribe also operates a casino in northern Arizona. In the last legislative session, lawmakers rejected the Navajos’ proposal to open three more casinos over a 15-year period. Under the latest suggested compact, tribes with a population of more than 75,000 would be limited to three

casinos and tribes with a population below 75,000 would be limited to two. Tribes that currently have more casinos would be grandfathered in if they agree to the compact. The Jicarilla Apache tribe in northern New Mexico also has agreed to a compact that would allow it to operate its two casinos for at least 22 more years. Four other tribal compacts also are set to expire, though those tribes could sign on to new terms before the 60-day legislative session starts this month. After the legislature authorizes new compacts, they still must be approved by the U.S. Department of the Interior.

Winning in Washington

Tribal Increase

Cowlitz ruling could set new Indian gaming precedent

Indian gaming growing as percentage of total U.S. revenue

ack in 1988, part of the Indian Gaming Regulatory Act stated gambling was strictly prohibited on lands acquired after 1988. Since then, some tribes have fought tooth and nail in uphill legal battles desperately hoping for ways around the ruling. The Cowlitz Tribe may have found a way. They were not federally recognized until 2002, putting their land in federal trust shortly thereafter. The tribe claims to have been a part of the land for over 150 years. In 2009, the Supreme Court ruled tribes who wanted land had to be under federal jurisdiction in 1934. However, the Supreme Court didn’t quite define what that exactly meant. For more than a decade, the Cowlitz have been trying to build a casino in Washington, and they have finally received approval to do so, by a U.S. District Court judge last month. Opponents of the plan are already planning their appeal, which may end up in the U.S. Supreme Court. In Washington, under state law, card rooms are not allowed to have slot machines. John Bockmier, who represents several card rooms in the city

of La Center, said, “They’re just in a different regulatory environment and wouldn’t be able to Cowlitz Chairman compete, and it would be Bill Iyall the end of their business.” He went on to say La Center receives about 10 percent of the gross revenue from the card rooms. The development site is within 20 miles of Portland, which could also spell disaster for the Confederated Tribe of Grand Ronde, whose Spirit Mountain Casino is 68 miles southwest. Back near La Center, Cowlitz tribal Chairman Bill Iyall disagrees with the Grand Ronde and others who feel his tribe does not belong there. “We’re here in our homeland,” he stated. “This is where we belong.” On the other end of the country, in Massachusetts, the Mashpee Wampanoag Tribe is hoping the Cowlitz ruling helps them in their pursuit of a $500 million dollar casino in Taunton. Their argument is that in 1763 they had a land deal with King George III of England, which they feel is akin to a treaty.

Global Gaming Business FEBRUARY 2015

ndian gaming could conceivably account for half of the total revenue of the entire gaming industry someday if trends continue. Supreme Court rulings and action by Congress to pass the Indian Gaming Regulatory Act in 1988 accelerated the development of tribal gaming, until by the end of the 1980s there were 80 tribal bingo halls bringing in about $100 million annually. IGRA allowed for more casinos, but also subjected them to tougher regulation. By the end of last year, Class III gaming accounted for 43 percent of the market, or more than $27 billion. According to Alan Meister’s annual Indian Gaming Business Report, 242 tribes accounted for 460 casinos in 28 states, operating 341,000 slots and 7,700 gaming tables. That is still less than half of the federally recognized tribes that could legally operate casinos.

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NUTSHELL A casino once owned by Frank Sinatra will reopen on his 100th birthday in 2015. Originally the owners of the Cal Neva Lodge casino in North Lake Tahoe planned to reopen the casino on Sinatra’s 99th birthday, but pushed it back due to financial and construction issues. The casino was originally built in 1926 and owned by the legendary crooner in the 1960s, during the heyday of Sinatra’s “Rat Pack.” He lost his license when a known mob figure was seen frequenting the casino. It closed about a year ago. MGM China is reported to be eyeing investment in a non-gaming resort on Macau’s neighboring Hengqin Island. Authorities in mainland China, which governs Hengqin, are considering whether to give the go-ahead for the land to be used. The project would not contain a casino as they are not permitted on Hengqin. Analysts expect most of Macau’s major operators to eventually seek to invest in the island, which has been designated as a special economic zone by Beijing. Galaxy Entertainment Group already has plans for a resort there and said recently it expects to break ground early next year. The Mississippi Choctaws were set to reopen the Golden Moon Hotel and Casino on January 31, after operations were cut back due to the economic downturn. A restructuring of debt made possible the necessary upgrades to hotel rooms and the gaming floor. The Las Vegas Sands Corp. says its majority-owned subsidiary, Sands China Ltd., has received permission from Macau to finish construction of its French-themed resort on the island, Parisian Macao. It’s not clear when the resort will open. During the Sands’ third-quarter earnings call in October, Chairman and CEO Sheldon Adelson said the Parisian Macao would have a soft opening in late 2015 and a full opening that includes the casino in March 2016. A legislative committee in the European nation of Andorra is considering a bill that would regulate gaming in the country and allow one operator to develop a casino resort. The proposed legislation would also allow residents to access online gambling and poker websites that are currently not available to them. Lawmakers hope a casino would draw some of the millions of tourists that visit Andorra each year. The small European nation is located between Spain and France. The New Jersey Meadowlands, Jersey City and Newark are all being considered for an expansion of New Jersey casinos beyond Atlantic City. But with lawmakers hoping to get a referendum on the expansion before voters in November, it’s

now time to make a choice of which site, and advocates of all three—as well as other proposed sites—are making their case to colleagues. Jersey City and the Meadowlands are the frontrunners. The Kansas Lottery Commission changed the application deadline from December 19, 2014 to January 30, 2015 for prospective casino operators for the Southeast Kansas Gaming Zone, which includes Crawford and Cherokee counties. Three developers have come forward to date. In Crawford Count, Wichita billionaire Phil Ruffin and the Quapaw Tribe-Downstream group would open a casino in the former Camptown Greyhound Park in Frontenac, and the Southeast Kansas Casino Group would build a casino in Pittsburg. In Cherokee County, Castle Rock Casino Resorts would build a casino near Interstate 44 and U.S. Highway 400, close to the Downstream’s Oklahoma casino resort. Nevada job growth is third in the nation, behind only Colorado and North Dakota for the first half of 2014. The jobless rate dropped from 7.7 percent in July to 6.9 percent in November as well. The recessionladen years of 2009 and 2010 saw negative growth as low as minus-10 percent. Numbers are set to get even better, with Tesla Motors’ planned battery factory, which will employ 6,500 people just 17 miles east of Sparks. The Oneida Nation’s administration may be in hot water over a new Wizard of Oz-themed casino in New York. While working as editor of a South Dakota newspaper, Oz Author L. Frank Baum called for the extermination of all Native Americans. Some find this casino theme shocking, as the Oneidas have been an advocate for the removal of offensive mascots such as the Washington Redskins. GTECH S.p.A. announced that it is offering to buy back a €750 million ($924 million) bond due in 2016 as it prepares to finalize its merger with leading slot manufacturer International Game Technology. The Italian supplier and operator said it would purchase the bond at a premium of 5.75 percent to its nominal value. It will pay a further 3 percent premium to bondholders that tender their notes by January 7. The Kentucky legislature is expected to take up the issue of casino gambling once again in the 2015 session, although observers once again give the measures little chance of passage. Other gaming issues face the legislature, including a crackdown on so-called internet cafes, pull-tabs for charitable organizations and an expansion of Instant Racing, which has seen success at two Kentucky racetracks.

CALENDAR 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.

March 30-April 2: Indian Gaming 2015, San Diego Convention Center, San Diego. Produced by the National Indian Gaming Association. For more information, visit indiangaming.org.

March 18-19: Caribbean Gaming Show & Summit, Caribe Hilton, San Juan, Puerto Rico. Produced by C&GS Group. For more information, visit caribbeangamingshow.com.

April 14-16: iGaming North America 2015, Planet Hollywood Resort & Casino, Las Vegas. Produced by the Innovation Group, BolaVerde Media, Lewis and Roca LLP and eGamingBrokerage.com. For more information, visit iGamingNorthAmerica.com.

“They

Said It”

“One saying in Macau has it that ‘a table is not big enough to put on a good show.’ But what Macau has achieved in the past 15 years proves that with the right path, good policies, flexible moves and concerted efforts, a great show can unfold even on a table.” —Xi Jinping, president of China, urging the Chinese territory to diversify its economy, which now derives 80 percent of revenues from casinos

“New York City is the Holy Grail. The casino customer prefers convenience over amenities.” —Srihari Rajagopalan, analyst, UBS Securities LLC, on why more casinos could eventually come to New York state

“As gambling has proliferated across the world, it’s been the genesis of gaming law. I’ve always felt that there wasn’t sufficient academic research or academic recognition of gaming law as an actual discipline.” —Tony Cabot, Las Vegas attorney, commenting on gaming regulation through the years and the importance of academic research in explaining why UNLV will set up a gaming regulatory institute

“As casino entertainment has expanded in a safe and beneficial manner to countless communities across the United States over the last 20 years, tired stereotypes of public corruption and organized crime have been proven false.” —Geoff Freeman, president and chief executive officer of the American Gaming Association, responding to statements by FBI Special Agent Vincent Lisi linking the rise of corruption to an increase in commercial gaming

“Everybody is proud of getting to 40 million, but what is the next benchmark? We have to just keep trying to create events that will exceed what we already have accomplished. There is no stopping that process for us.” —Pat Christenson, Las Vegas Events president, on the city reaching a visitor milestone

“It only cost me $13 million and my reputation, but I have heard gratitude for bringing this community together and giving it hope in a way it hasn’t had for 50 years now.” —Michael Treanor, Nevele developer looking for solace after his failed New York casino plan

FEBRUARY 2015 www.ggbmagazine.com

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AMERICAN GAMING ASSOCIATION

Regulatory Resource

Unearthing gaming’s myriad statutes and regulations

By Geoff Freeman, President & CEO, American Gaming Association

he American Gaming Association recently released a first-of-its-kind online resource that enables industry stakeholders, gaming policymakers and regulators to easily access gaming policies across each of the 23 commercial casino gaming states. This new tool, called “By the Book” (gamingbythebook.org), shines a light on the vast discrepancies in gaming regulations and the need for more consistent, progrowth policies across the United States. By the Book aggregates and explains key gaming regulatory and statutory requirements in five key areas: regulatory oversight, licensing, taxation, responsible gaming and integrity. Historically, this information has only been accessible within the public records for every state. Now, relevant gaming information can be viewed all in one location, which allows stakeholders, policymakers, regulators and gaming journalists to compare commercial gaming regulations for each state. Modernizing gaming regulations and policies was a priority of the AGA in 2014, and we look forward to working with stakeholders, particularly gaming regulators, to build a stronger foundation for gaming innovation and reinvestment in 2015 and beyond. STREAMLINED ACCESS TO COMPLEX GAMING POLICY Casino gaming companies conduct business in an exceedingly complex policy environment that is controlled almost exclusively at the state level. Gaming statutes and regulations can consist of thousands of detailed pages of information in a variety of areas from chips transportation to on-premise display requirement. By the Book streamlines key statutes and regulations into a quick and easy overview of regulatory structures across jurisdictions in an interactive, easy-to-use platform. The tool enables an efficient understanding of our industry’s detailed and complex regulations across

the country—making available information that would otherwise only be accessible through state records. Moreover, as regulations and statutes change, so will this resource; updates to By the Book are made quarterly. GAIN INSIGHT QUICKLY AND EASILY By the Book provides an easy-to-access interactive database of statutes and regulations in the following key issues: • Regulatory Oversight: Features relevant information regarding each state’s governing body. This includes up-to-date mailing addresses, contact information, websites and other details. • Licensing: Addresses requirements that operators, suppliers or employees need to fulfill in order to

issues that vary from state to state, such as self-exclusion programs, alcohol service rules, advertising restrictions and measures regarding prevention of underage gambling. • Integrity: Details many of the requirements that ensure our industry remains a hallmark for integrity and transparency. The By the Book database highlights how the various states treat issues such as gaming equipment testing needs, anti-money laundering provisions and shipping requirements for gaming devices. Building a modernized regulatory and policy environment is a top priority for the AGA. For many months, the AGA has been convening our members, gaming regulators, legislators and other influencers to develop guiding principles

“

Building a modernized regulatory and policy environment is a top priority for the AGA. For many months, the AGA has been convening our members, gaming regulators, legislators and other influencers to develop guiding principles and recommendations for what we call ‘Next-Generation Gaming Policy.’

”

do business in a particular state. This section not only highlights the costs and fees associated with licensing, but also information on how frequently renewals are needed. • Taxation: Details the various gaming tax rates in each of the 23 states where commercial casinos are located. This section also discusses how those taxes are being reinvested and includes information on the taxation of promotional credit, as well as thresholds for withholding tax on customers’ gambling winnings. • Responsible Gaming: An important component of the gaming industry, this section details funding requirements for problem gambling awareness education. It also discusses responsible gaming

Global Gaming Business FEBRUARY 2015

and recommendations for what we call “NextGeneration Gaming Policy.” This policy document and its suggestions for policy and regulatory changes that aim to spur innovation and reinvestment in the gaming industry will be released in the spring. Gaming is an incredibly complex and heavily regulated industry that continues to evolve. Our first step was getting a better understanding of these complexities and better revealing them to stakeholders, media and policymakers. Our next step of developing guiding principles and policy recommendations will push for an environment that encourages innovation, reinvestment and job creation for gaming.

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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FANTINI’S FINANCE

Annual Uncertainty The outlook for 2015 is, in many ways, a polar opposite of a year ago.

ometimes, it’s instructive to look back. A year ago, I wrote about the hyper bullishness of gaming investors after a 2013 in which stock prices had soared. Stocks in Fantini’s North American Gaming Index had just soared 74.29 percent. Our World Index had leaped 59.63 percent. Everywhere, there were events, and anticipation of events driving up stock prices: enthusiasm over internet gaming in the U.S., the belief Japan would legalize casinos, Macau’s seemingly endless growth, financial engineering as in the expectation that casino companies would unlock value by spinning their casinos off into REITs, as Penn National had just done, and mergers driving up supplier stocks. The good times could not continue, certainly not at the 2013 pace, I warned. Among my theses: Internet gaming would be slower to develop than the bulls thought. Japan might never legalize and, if it did, might not just hand over the treasure chest to American casino operators. Valuations were stretched. Macau could not be expected to grow to the sky, and there was always the danger of what the mainland Communist government might do to the casino industry. There was potential for unseen negative surprises. Well, not to be too much of a self back-slapper, but every one of those cautions proved themselves in 2014. The result was wrecked casino stocks. Those same North American and world indices plunged 20.51 percent and 24.76 percent, respectively. Today, investor expectations are as gloomy as last year’s were euphoric. All manner of anti-gaming policy is expected to drive down business in Macau. Regional casinos continue not to recover at the pace of the consumer economy. The internet is a fizzle. Japan? Who knows? And so it goes. Young people are so tethered to their mobile devices and social games that they don’t care to play a slot game or try their luck at blackjack. Even the poker boom that had brought so many

By Frank Fantini

young players into casinos is now a receding memory. It would be encouraging to say that, just as investors were irrationally exuberant last year, they are as irrationally pessimistic now. Certainly, there are important signs of improvement: Consumer confidence and job growth are way up. Gasoline and other oil-related prices are way down. Las Vegas convention business is back. Heck, Macau casinos even had a strong opening week of the new year. Alas, such cannot be. In truth, there are no certain drivers of growth, and there are still plenty of risks to be run. And, given the decline in industry fundamentals, today’s lower stock prices are more apt to be about right than they are to be low. Let’s look at some of the standard issues: • Macau. The worst might not be over in Macau as the city, no doubt to the delight of the mainland China government, will review the gaming industry this spring. Given the pressure from Beijing, that could mean even tighter rules. Perhaps a tip-off in what to expect is the likely expansion of Macau’s smoking ban despite declining gaming revenues. As a major Macau official put it, employee health will not be compromised for casino revenues. The good news is that visitation to Macau continues to grow, but many VIP players are gone, perhaps not to return. Those increasing numbers of visitors are tourists. They don’t gamble anywhere near the levels of the people they are replacing. And, while it is popular to say the market will transform into a tourist destination just like Las Vegas, it could be a long and painful process. We’ll get some glimpse into the future when Galaxy opens its Phase II and Las Vegas Sands its St. Regis hotel tower this year. If they grow business, the thesis that Macau is room-constrained could prove out, boding well for future projects. • U.S. regional gaming. As many false starts as we’ve seen in the long-awaited regional casino recovery, we have to be from Missouri on this one. The reality is that most casino states are at or

Global Gaming Business FEBRUARY 2015

near capacity. Serious new growth would require a major state like Texas to legalize, and that isn’t likely. So, regional gaming will be a matter of the best manager wins. • Mergers have just about run their course among major supplier companies. And the ones achieved, or still in the works, haven’t done much for the acquiring company’s stock. More and more, the future is looking like a mature industry, but carrying more debt than before. • Interactive gaming still has considerable growth potential as more jurisdictions legalize, and as social gaming continues to blossom. The questions are who the winners will be, whether social gaming is so powerful that it crowds out growth of more traditional gambling games online, and if Americans will ever embrace sitting at home playing slots when real casinos are so much fun. In addition, online gaming has legislative risks, as operators in the U.K. are learning thanks to the 15 percent point-of-consumption tax. In brief, online gaming is an unpredictable space. • United States economy. Finally, we have economic recovery. And who in a discretionary consumer industry like gaming isn’t happy about falling oil prices? But the consumer economy bounding back robustly isn’t a slam-dunk. There are already murmurs about the inability of near-zero interest rates to lift the economy, so what happens if a recession returns? In a sense, concerns about the economy are a lose-lose argument. If a recession hits, casino revenues will decline. If the recovery continues but gaming continues to lag, it might reveal that slow—or no—growth is the new normal. Again, in that environment, the best manager will win. 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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REASONED

RESEARCH

The National Center for Responsible Gaming marks nearly two decades as the world’s premier research organization into disordered gambling BY ROGER GROS

t was a nightmare that haunted Frank Fahrenkopf since the moment he took over as president and CEO of the newly formed American Gaming Association. He had witnessed tobacco industry executives appear before congressional committees to be grilled about their products and their harmful effects on their consumers. The executives steadfastly denied there was any problem with their products and produced bogus study after bogus study defending all forms of tobacco use. Of course, even then, Americans knew that tobacco killed, so their protestations would have been comical if they weren’t so deadly serious. Fahrenkopf and most casino executives knew instinctively that gambling didn’t negatively impact the vast majority of their customers, but they had no solid proof. Fahrenkopf didn’t want to see casino executives before Congress undergoing the same kinds of questioning without having solid evidence to back up their understanding of the issue. “When I first took the job at the AGA, I knew that there were some problems with public perception, and the big one had to do with responsible gaming,” he says. “At the very first board meeting, I told them we had to do something about this. About half the room thought I was crazy. “But one of the people who didn’t think I was nuts was (former Harrah’s CEO) Phil Satre. He had attended a seminar put on by Howard Shaffer at Harvard about underage gambling. He was very impressed with Howard and urged me to meet with him.” Howard Shaffer was and is the director of the Division on Addiction and an associate professor of psychiatry at Harvard Medical School. He remembers the meeting well. “Frank and I were set to debate at a meeting of the National Association of Attorneys General,” he says. “The night before, I got a call from Frank and he

wanted to meet for breakfast. I was intrigued so I agreed. He proceeded to ask me lots of questions about how I viewed responsible gaming, and it turns out we agreed on most everything. So the debate turned out to be rather one-sided. When the moderator asked him his opinion, he just turned to me and asked me to speak about addiction and some of the work we had done. That was it.” Fahrenkopf says that there hadn’t been a study done on problem gambling in almost 20 years, and he asked Shaffer to update it. “Actually,” says Shaffer, “there had been many studies done over the years, but they had never been collected in one place. We put together all the data that we could find and let the science interpret it.” “It was really a leap of faith for us,” says Fahrenkopf. “While we believed we understood the problem, we wanted something to validate that belief, but it could have turned out much differently.” “This is one of the most important issues of the past 20 years in the industry,” says Shaffer. “It has made a big difference in the perception of the industry and also in the lives of people who have this problem. The faith the industry showed in science was commendable.” Shaffer’s study went on to form the basis of the National Center for Responsible Gaming, which was founded in 1996.

Responsible Roots One of the other executives who shared Fahrenkopf’s views was Bill Boyd, the chairman of Boyd Gaming. At that time, in the mid-1990s, regulators in Missouri were requiring gaming companies operating in the state to contribute millions to combat problem gambling, although the definition and scope of the issue was somewhat hazy. “So this money that Boyd was going to set aside as part of their Missouri

“No one can say that this industry hasn’t stepped up to the plate and been responsible in trying to uncover solutions for those that suffer with this compulsive gambling problem.” —Frank Fahrenkopf, former president and CEO, American Gaming Association 18

Global Gaming Business FEBRUARY 2015

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commitment became the seed money for the NCRG,” says Fahrenkopf. “In the beginning, we based the NCRG in Kansas City in 1996. We hired Chris Reilly as executive director, a job she’s still doing today.” Fahrenkopf says the industry wanted peer-reviewed research on pathological and underage gambling. “We wanted to show that the industry was responsible and cared about our customers,” he says. “The first grant went to Howard Shaffer to do the meta-analysis.” Shaffer says it wasn’t quite that easy. He required total freedom in choosing research topics, with no feedback or oversight from the industry, for a variety of reasons, and was doubtful the industry would comply. “Even today, critics of industries are skeptical about studies funded by the industries simply because of the link to the funding,” he explains. “They are not criticizing the research based on its methods, procedures and interpretation; they are just concerned about the source of the funding. But it’s much more important to be specifically critical rather than Each year, JCM American and the Association of Gaming Equipment suspiciously critical. Manufacturers sponsor a golf tournament to benefit the NCRG. Over “It’s a common problem, and we recognized it immediately. So we the years, the event has raised more than $1 million for problem used the strength and reputation of Harvard Medical School to set up a gambling research. (Photo from the 2010 tournament at Caesars firewall between the funders and the research. Put simply, our agreement Entertainment’s Cascada golf course in Boulder City, Nevada.) with the gaming industry was that we would do the research of our choosing, we would publish it wherever we wanted, whenever we wanted, and when it was published, we would send it to the industry. “We set up a firewall,” she says. “Neither the donors nor the board of direc“Early on, they didn’t want that. They would have preferred to have some tors has any say about our funding priorities, mechanisms or research priorities. oversight, which was understandable, but this was too complicated an issue. They Ken Winters, a professor from the University of Minnesota and a leading addichad to trust us, and to their credit, they did, and signed the contract.” tion researcher, currently heads the scientific advisory board. That group makes Fahrenkopf says it was a crucial point in the development of the NCRG. all the decisions about the research.” “Remember at that time you had an anti-gaming movement that was conReilly says that over the years, the NCRG has funded research that would tending that 20 percent to 30 percent of our customers were pathological gamhave ruffled some feathers in the gaming industry, had it had a say. blers and we were taking advantage of them,” he says. “We had to be careful. We “We’ve never taken the safe path,” she says. “We’ve looked at gambling as a had to make sure there was no suggestion of an industry taint. public health ‘toxin;’ we actually used that word. We have looked at gambling “So we set up two boards. One was made up of industry executives who hanamong the homeless and older adults. So by approaching it as a public health dled the organization’s basic business. But then we set up a scientific advisory issue, we have to look at the pros and cons. Because of our independence, we’ve board that decided where, about what and to whom the grants were made. There developed a high-quality program that is not afraid to take on all kinds of topics was no influence by the industry. We were just concerned that they would do the related to gambling.” research to establish responsible gaming guidelines so we could set up programs.” Shaffer says there were even firewalls on the scientific side. “We didn’t even trust ourselves,” he says. “I didn’t make the decisions on what research to pursue. People were concerned it would become my agenda, Two for One and no one, including myself, wanted that. We follow a strict NIH (National From the start, it was important for the gaming companies to keep at arm’s Institute of Health) model. People come together in groups, decide the best dilength from the research because of the perceived idea that the industry funding rection to take and only the best of the best gets funded. And that’s the way it would influence the research. still operates today.” Alan Feldman, senior vice president of public affairs at MGM Resorts InterShaffer’s initial research indicated that between 1 percent and 2 percent of national, has been chairman of the NCRG board for almost two years, and inAmericans were at risk from pathological gambling, a number that has not varvolved in the organization since the start. He explains how the process works. ied since that first study. “The scientific advisory board has a meeting and comes to the board of direc“And we estimated on the high side,” he says. “The number was actually tors and tells us what they believe to be relevant and what will get the highest re1.1. percent, which is further proof that the casino industry had nothing to do sponse rate. They’ve come up with tweaks over the years, like using smaller award with the research because no industry would err on the high side, which we deamounts because it’s not always about the big-dollar studies. They encouraged cided to do.” multi-year commitments because we can better understand the problem over a The initial research into the neuroscience of problem gambling was very longer term. So they tell us what the needs are and we decide how we can meet fruitful, according to Reilly. those needs financially and what the ramifications will be for the organization.” “It encouraged the American Psychiatric Association to move gambling disChris Reilly has been the executive director of NCRG since the beginning. orders into the addiction category in the diagnostic manual, where previously it Now based in Boston, she says the NCRG research has always been separate from had been in the impulse control category,” she explains. “That made a huge difthe funding.

Links Fundraiser

FEBRUARY 2015 www.ggbmagazine.com

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“The scientific advisory board… tell us what the needs are and we decide how we can meet those needs financially and what the ramifications will be for the organization.” —Alan Feldman, chairman, National Center for Responsible Gaming

ference because it meant that most states would fund treatment for problem gambling, while they would not if it was simply an impulse control issue. Our research helped them make that determination.”

Treatment Options The early days of the NCRG were filled with studies examining the physiological and environmental causes of problem gambling— epidemiology, neurology, behaviors and population segments that suffer with it. “It took a while to get to the psychology and social setting, which is where we are now,” says Shaffer. “Today, we’ve got lots of great studies—treatment outcome studies, cultural studies—the field is growing by leaps and bounds.” Complicating treatment, however, is the comorbidity issue—gambling addicts are usually addicted to another substance or activity—so finding a holistic manner to treat all the problems is difficult. “Today, it’s very difficult to get a grasp on whether other problems cause gambling difficulties or gambling difficulties cause other problems,” says Shaffer. Shaffer’s group at Harvard did a study a few years ago showing that 73 percent of people with gambling disorders also have other mental health problems. It was about evenly split whether the gambling or other mental health problems came first. Reilly says real strides have been made recently in identifying drugs and pharmaceuticals that are effective combatting problem gambling. “The more you learn about the brain, the more you discover what kinds of pharmaceuticals are effective in treating the disorder,” she says. “For example, right now, we have a rat study going on in Chicago—an animal model study— that is showing great promise. This particular drug they are testing seems to be reducing impulsiveness in the rats where we model gambling behavior. So the next step would be doing a small study with humans to see if this makes a difference. We’re starting to realize some important insights that will really help people.” Feldman says some experiments in brain waves are also encouraging. “I have a hearing-impaired daughter who is being treated with different kinds of brain impulses,” he says. “If we can figure out how to direct similar impulses to the affected areas of a gambling addict’s brain, maybe we can offer them some help.”

Online Outcomes The fears that online gambling would exacerbate any problem gambling issues have not materialized, according to Shaffer. “Using a strategy similar to the early work we did for land-based gaming, we identified that people were much more moderate in their gambling than critics were contending,” he says. “Those rates are very similar to the land-based rates,” with the caveat that the data was compiled from principally European gamblers since iGaming is relatively new to the U.S. Fahrenkopf says he’s seen the same results. “When we were considering supporting online gambling at the AGA, we had 20

Global Gaming Business FEBRUARY 2015

people come to us and say that problem gambling was going to be much worse when you could do it online. But from all the studies I’ve seen, that’s not the case,” says Fahrenkopf. Shaffer says that studies will intensify as iGaming spreads across the U.S. “I think inevitably that online gambling is here to stay,” he says. “I recognize the legal situations in the U.S.—it frightens a lot of people. But eventually it will be like the telephone or the automobile, which frightened everyone at the start. It’s here to stay, and that means more research will be forthcoming.” Shaffer says he was pleased that so much data was available when his team initiated the studies of online gambling. “I wasn’t smart enough to realize that right away,” he says. “That was (former bwin co-founder) Manfred Bodner’s idea. We met for a couple of days and he convinced me that this would be the future. When he told me that we could study every wager and every keystroke, my group went to work on it. We got to study actual behavior because, let’s face it, people with gambling problems don’t always tell the truth.”

Industry Responsibility Fahrenkopf calls the establishment of the NCRG one of the most important things he accomplished during his 17-year tenure heading up the AGA. “No one can say that this industry hasn’t stepped up to the plate and been responsible in trying to uncover solutions for those that suffer with this compulsive gambling problem,” he says. Feldman agrees, but would like to see problem gambling de-stigmatized. Too often, he says, the self-exclusion policies established by many states have a criminal outcome if the self-excluded person violates the terms of that policy. “If self-exclusion is one of the tools that we use,” he says, “and clearly it is, we need to treat it like we treat alcoholism or drug abuse. We need to accept that the person has a problem and allow him to treat that problem without a threat of prosecution. People suffering from gambling problems will then be able to come out to their family, friends and co-workers and get their support in getting on a path to treatment and hopefully to recovery. That really can’t be done today.” Shaffer is proud of how the NCRG has raised awareness of gambling-related problems. “The research we did led to responsible gambling programs and guidelines all around the world,” he says. He says that NCRG built integrity under serious duress. “That’s not easy to do,” he says. “It is an industry-born organization that has integrity, which reflected a shift in the industry from organized crime to responsible public companies. The NCRG was a punctuation of that movement. And I like to think that in a few short years, it will be considered a premier foundation, like the Ford Foundation, the Rockefeller Foundation and others.” And finally, says Shaffer, the NCRG was built upon a foundation of science. “The NCRG was born at a time that science was being challenged,” he says. “The fact that it has survived and even thrived during that time is a real accomplishment, and that we’re letting science guide us rather that politics.”

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New Kid in Town Can Vietnam emerge as an international gaming-resort destination? By Andrew Klebanow and Steve Gallaway

espite the recent downturn in gaming revenue in Macau, Asia remains the region of the world with the greatest opportunities for casino development. While Japan and Taiwan remain the most enticing markets, if only enabling legislation were to be passed, other markets are attracting the interest of casino developers. Unfortunately, most of those opportunities are in markets that are loosely regulated, difficult to get to, surrounded by poor infrastructure or require border crossings that can best be described as challenging. One market that continues to interest investors is Vietnam. With 92 million citizens, a burgeoning middle class, good airport infrastructure and airlift to a number of nearby countries, Vietnam appears poised to emerge as a regional gaming market that is capable of producing a prodigious amount of gaming revenue. Nevertheless, a number of issues must be resolved before the country can live up to its potential.

The Situation Today Casinos in Vietnam operate under a wealth of constraints today. First, Vietnamese residents are not permitted to gamble, though holders of dual passports—referred to as Viet-Qs—can. The government currently limits the number of casino-resort licenses to six. While these properties offer a full range of table games and electronic gaming devices, the actual number of tables and slots that those casinos can operate is predicated on the amount of capital invested and/or the number of hotel rooms they provide for guests. In addition, five-star hotels in urban centers are permitted to operate electronic gaming lounges. There are about two dozen such operations, and each has approximately 80-100 electronic gaming devices and a few electronic table games. Vietnamese residents who wish to gamble today must travel to Cambodia, where casinos are clustered in towns along the border. Travel to those properties 22

Global Gaming Business FEBRUARY 2015

can be arduous by Western standards. Alternatively, Vietnamese residents can fly to Phnom Penh and gamble at NagaWorld, the most attractive property in Cambodia. The government is slowly moving forward with a plan to allow residents that meet certain income requirements to enter casinos in Vietnam. The plan includes a pilot program in which one casino-resort would be selected to serve as the pilot project. The Grand Ho Tram Resort is the newest full-service casino resort in Vietnam, and its build quality and amenities allow it to compete with the best casino-resorts in Asia. It enjoys a beachfront location and is a 90-minute drive from Ho Chi Minh City. With its $600 million investment, commitment to spend up to $4 billion and location near Ho Chi Minh City’s 9 million residents, the Grand Ho Tram would be the ideal candidate. Even if the pilot program proves successful and the government moves forward with opening up casinos to residents, there remains a wealth of obstacles that limit Vietnam’s chances to rise to the upper echelon of gaming destinations and enjoy the economic benefits that casino-resort development can bring.

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Problem 1: Taxes Currently, casinos in Vietnam are subject to a 30 percent tax on gaming revenue. With the likely repeal of a tax on winnings paid by players, the government intends to add a 5 percent tax on top of the existing gaming tax. While the future gaming tax will rise to 35 percent, casino gaming revenue is also subject to a 10 percent VAT, which will bring the effective tax rate to 45 percent. This onerous tax rate will inhibit Vietnam’s ability to attract foreign investors for new large-scale integrated resorts, and will remain an obstacle for current operators as the amount of net gaming revenue retained by the operator will be only pennies on the dollar. To better understand the impact of a 45 percent tax rate, one need only look at junket revenue, which is a significant source of revenue for Vietnamese casinos. Casinos in Vietnam have to pay higher commissions to junket operators in comparison to Macau (1.25 percent) and close to those paid by casinos Vietnamese residents who wish to gamble today must travel to Cambodia, where in Cambodia and the Philippines (1.6 percent-1.7 percent), jucasinos are clustered in towns along the border. risdictions that have much lower tax rates. At a 1.7 percent commission, a Vietnamese casino is only keeping 22 cents on every junket dollar it earns. From this 22 percent, all operating expenses must be paid, leaving very little money for debt service. The Grand Ho Tram Resort is the newest full-service A similar story can be found in the premium mass and mass markets. When casino resort in Vietnam, and its build quality and considering that the rebate expense for premium players often equates to 30 peramenities allow it to compete with the best cent of their theoretical win, dropping to 10 percent for mass-market players (not casino-resorts in Asia. including other forms of player reinvestment such as airline tickets, hotel rooms, food and other casino-paid perks), the profit margin quickly disappears when the casino operator has to pay 45 percent of its winnings in taxes.

Problem 2: Reliance on PRC Citizens Casinos throughout Asia rely on citizens of the People’s Republic of China (PRC) for the majority of their customers. Actions taken by the government of the PRC directly impact Vietnam’s gaming revenue potential, which further increases the risk to casinos in Vietnam. This impact can be seen from how junket operators are allowed to operate and the greater geopolitical relationships between China and Vietnam. Chinese junket operators exist primarily Grand Ho Tram to 1) ensure gamers have money available to gamble in casinos, 2) assist with preparation of appropriate visas and 3) provide travel arrangements. The PRC recently instituted a crackdown on corruption, which has had a direct negative impact on junket gaming revenue in Macau and other countries in Asia. During this crackdown many junket operators have been accused of wrongdoings by the PRC and many have gone out of business. Is the PRC doing this to prove a point, and planning to pull back some soon? Are they legitimately trying to reduce corruption, which would be good in the long run for the gaming industry but will continue to cause pain in the short term? While the answers are unknown at this time, what is known is that PRC policies have a direct impact on the ability and desire of Chinese gamers to utilize junket operators. As such, gaming revenue throughout Asia suffers. Border conflicts also can impact gaming revenue. As evidenced with the spring 2014 conflict over China’s claim of a portion of the South China Sea that Vietnam believes falls within its 200-nautical-mile exclusive economic zone, an

immediate drop occurred in Chinese visitors to Vietnam. This drop also correlated Grand Ho Tram suite with a downturn in gaming revenue at many Vietnamese casinos. While this political situation has calmed down and Chinese tourists appear to have largely returned to Vietnam, it illustrates how PRC policies toward Vietnam, which have nothing to do with gaming or tourism, can have a direct impact on gaming and tourism dollars to the country. As China and Vietnam have had numerous conflicts over the past millenFEBRUARY 2015 www.ggbmagazine.com

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The Vietnamese government continues to explore opening up additional regions to casinoresort development with a requirement that the developer spend a minimum of $4 billion. This is simply unrealistic.

nium, it would be naive to believe that additional conflicts will not occur in the future. Given these factors, when evaluating the future potential for integrated casino development in Vietnam, one must consider the reality that PRC policies can have a direct impact on tourism and the gaming revenue that it generates.

Problem 3: Residents Not Allowed It is a known fact that Asian cultures universally enjoy gambling. Yet despite this fact, most Asian countries do not allow their citizens to gamble within their own countriesâ&#x20AC;&#x2122; borders. In those that do allow it, there are often other factors that impede visits, such as imposing an entrance fee (as in Singapore) or forcing their citizens to drive four hours to the nearest casino that admits residents (i.e., Kangwonland Casino in South Korea). These policies result in higher levels of risk for investors in any given casino in Asia. One needs to look no further than the United States to see what can happen. Atlantic Cityâ&#x20AC;&#x2122;s gaming revenue has plummeted, as its business plan was built around attracting gamers from surrounding states. As Pennsylvania, New York and other surrounding states expanded gambling in their jurisdictions, Atlantic Cityâ&#x20AC;&#x2122;s gaming revenues declined. Similar situations have occurred in West Virginia, Indiana and Tunica, Mississippi. Imagine what would happen to all Asian gaming destinations if the PRC legalized gambling. While no one believes that the PRC has any intention to legalize gambling, the point is made simply to illustrate that by forcing casinos to rely primarily on foreigners, the risk factor is significantly greater, as those casinos can be severely impacted when a neighboring country decides to allow casino development. When countries allow their citizens to gamble, they reduce the risk to developers, which thereby allows for higher levels of capital investment, more tax revenue and the creation of more jobs. The fundamental argument against allowing residents to gamble is to prevent problem gambling. The irony is that those gamblers the home country is trying to save are already gambling through other means such as visiting a casino across the border, playing at an underground casino in their home country, or hopping on a flight to a nearby country and gambling there. All international gaming companies have experience in training their employees to recognize problem gamblers and provide the necessary assistance to those gamers. A sound gaming policy and oversight campaign can actually reduce problem gambling in a country. Banning it does nothing to prevent problem gambling.

Global Gaming Business FEBRUARY 2015

Vietnamese residents can fly to Phnom Penh and gamble at NagaWorld, the most attractive property in Cambodia.

Problem 4: The $4 Billion Entry Fee The Vietnamese government continues to explore opening up additional regions to casino-resort development with a requirement that the developer spend a minimum of $4 billion. This is simply unrealistic. Without the ability for residents to gamble, the only way a resort of this magnitude could potentially be justified would be through significant numbers of junkets coming to the facility. Given the issues identified above, this would present such a high level of risk that a gaming company capable of building a facility of this size would not invest that amount of money. Even if residents were allowed to gamble, expecting anyone to invest a minimum of $4 billion for an integrated casino resort in any developing nation defies business logic. Minimum capital investments are a silly notion. To maximize the potential that casino resort development can bring, a country should develop sound gaming policy and oversight, clearly define and guarantee a tax rate and exclusivity period for a given amount of time, and then issue an open request for proposal (RFP) without a minimum capital investment requirement. A properly executed RFP process will yield qualified bidders who will put forth their strongest bids with the understanding that capital investment will be a significant factor. Should these problems above not be addressed, Vietnam will never develop into an international gaming destination with resorts that can compete with those in Macau and Singapore. However, given the many attributes that Vietnam possesses, if the government is able to craft sound gaming legislation that offers a stable and reasonable tax rate, and includes a provision that allows residents to gamble, then casino-resort developments can prosper and serve as an engine for economic growth. Andrew Klebanow and Steve Gallaway are partners at Global Market Advisors, a gaming and hospitality consulting firm with offices in Las Vegas, Denver and Bangkok. They can be reached at info@globalmarketadvisors.com. Steve Gallaway and Andrew Klebanow

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Minute

New York

A state panel has recommended Vegas-style gaming licenses for three communities in upstate New York. But that’s not the last word on new properties in the Empire State. By Marjorie Preston

n December, when New York’s casino siting board recommended Class III gaming licenses for a trio of upstate communities, reaction was mixed. Some of the losers politely conceded. Howe Caverns failed in its effort to bring gaming to tiny Schoharie County, but congratulated rival Rivers Casino, which won its bid to develop in the Capitol Region. “We wish you all the best,” the company said a statement, “and look forward to working with you on making your project a success.” Mitchell Etess, chairman and CEO of the Mohegan Tribal Gaming Authority, was disappointed but gracious when Empire Resorts was the sole developer tapped for the Catskills (Empire and partner EPR Resorts will build the $1 billion Montreign resort). “It’s a shame the premier region doesn’t have a brand name driving it,” said Etess, scion of the famous Grossinger family of Borscht Belt hoteliers, who hoped to helm Mohegan Sun at the Concord. “But I’m happy for Sullivan (County) and wish Montreign the best of luck.” Others were less cordial. Elliott Auerbach, former mayor of Ellenville, Ulster County, said he felt “betrayed by the state,” which passed over a $640 million proposal that would have transformed the 1903 Nevele Grand Hotel. And Jeff Gural, owner of Tioga Downs in Nichols, was irate. On hearing that his bid to expand the Nichols racino had lost, Gural called the selection of Lago Casino and Resort in the Finger Lakes region “a joke” and “a knife in the back.” He practically demanded a recount, saying Governor Andrew Cuomo needed to explain “why the Southern Tier got screwed.” Cuomo must have heard the summons; he has since called for the board to consider awarding the fourth upstate license granted by a voter referendum.

Late to the Game? In 2013, 57 percent of New York voters approved Cuomo’s casino expansion plan, which eventually could bring as many as seven Vegas-style casinos to the Empire State. The plan called for up to four casinos upstate in the first round of development. Three economically stressed areas were chosen for the new industry: the Capital Region around Albany; the Catskills-Hudson Valley area; and the Southern Tier-Finger Lakes, along the northern border of Pennsylvania. An additional three casinos could be established elsewhere in the state, including New York City, in seven years. Stumping for the legislation, Cuomo said, “We literally hemorrhage people who go to casinos out of state. This will keep the money in this state, and it’s a major economic development vehicle.” 26

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Or is it? Some analysts say it’s too late for New York to cash in on casinos. Along with its own inventory—five tribal gaming halls and nine racinos—the state has competition across every border, including Canada, with the exception of Vermont. “There’s clearly an oversupply in the Northeast; go talk to the people in Atlantic City,” says Hal Vogel, of Vogel Capital Management in New York. “You’ve got Pennsylvania, Maryland, Delaware, and now Massachusetts… Chris Christie is probably going to have a casino or two across the river from the Holland Tunnel in a short period of time. “When politicians and state legislatures need money,” Vogel says, “casinos always sound good. But in practice, this is not going to work. They’re 15 years too late.” Gaming analyst Richard McGowan, professor of economics at Boston College, says the siting board chose three licensees instead of four “because they’re scared of what’s going on in Atlantic City, and because Massachusetts is going to be opening up.” In the aftermath of the decision, state Senator Joe Griffo agreed that, with last year’s shocking closure of four casinos in New Jersey, it may be too late for New York to reap a bonanza from gaming. “My concern remains that the addition of three new properties to the casinos and racinos already in existence will oversaturate the market,” said Griffo, a Utica Republican whose district includes the Oneida Indians’ Turning Stone Casino in Oneida County.

Big Names, Orange County Passed Over A total of 16 development partnerships vied for the first four licenses, from smaller operators like Greenetrack, which runs an Alabama bingo hall, to global heavy hitters like Genting, which pushed two projects during the relatively brief yearlong selection process: a $1.5 billion mega-resort near Sterling Forest, and the $830 million Resorts World Hudson Valley. Big operators who walked away empty-handed include Caesars Entertainment, which proposed an $880 million casino in Woodbury; and Mohegan Sun, with its proposed $550 million Mohegan Sun at the Concord. McGowan says Caesars didn’t stand a chance because of a crippling debt load, which has forced the company to undertake a complex reorganization. “Clearly the commission didn’t think Caesars had the wherewithal” to bankroll and run a casino in New York, says McGowan. And though the board called Mohegan Sun’s proposal “compelling,” the Connecticut gaming company has its own financial problems, including $1.7

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The Adelaar plan calls for an 18-story hotel with almost 400 luxury rooms and suites, an 86,000-square-foot casino with 2,150 slots and 61 tables, conference and banquet space, and family-friendly amenities.

billion in debt; according to reports, a “significant” amount of that debt of will come due in 2017. To boost its financial outlook, the tribal gaming authority was hanging its hopes on a casino license in Boston or New York. It lost both times. “They thought the best defense is a good offense, which is why they also bid on the Boston license,” which went to Steve Wynn, says McGowan. “Now they’re just trying to keep their own place open at home.” Another major operator, Hard Rock, also lost its bid to develop a $280 million resort in Rensselaer on the Hudson River. Some big names didn’t bother with New York, at least in Phase I of the expansion. Wynn is “too busy in Boston,” says McGowan. And Sheldon Adelson of the Las Vegas Sands Corp. “wants to stay away from the U.S. He knows it’s overdone,” although some believe Adelson is keeping his powder dry for a bid on a New York City casino. Orange County did not command a single license, though a total of six proposals were pitched for the area. The county, which is closer to metropolitan New York and its vast population base, arguably does not require the kind of economic stimulus that’s needed farther upstate, but the very fact that it was in the running caused two bidders to withdraw their proposals. They griped that any casino close to New York City would get all the business and defeat the stated purpose of the ballot initiative: “promoting job growth, increasing aid to schools, and permitting local governments to lower property taxes through revenues generated.” “The financiers told people in Sullivan County if a casino was built in Orange County, they wouldn’t get the financing,” says Assemblyman Gary Pretlow, co-chairman of the state racing and gaming commission. “Orange County caused a lot of ‘agita’ among the other developers. It should definitely not have been in the mix.”

Three for the Money Of 16 total proposals, the three winners were chosen according to criteria based 70 percent on “economic activity and business development,” 20 percent on

“local impact and siting factors” and 10 percent on “workforce enhancement factors.” All the recommended candidates, listed below, must be vetted again by the state gaming commission before they can break ground.

Montreign/Adelaar, Town of Thompson, Sullivan County Empire Resorts Inc. and EPR Properties will develop the resort, part of a larger $1.1 billion destination called Adelaar. The plan calls for an 18-story hotel with almost 400 luxury rooms and suites, an 86,000-square-foot casino with 2,150 slots and 61 tables, conference and banquet space, and other family-friendly amenities. In its 17-page decision issued December 17, the siting board noted that Montreign will not cannibalize other racing, VLT and tribal gaming halls in the vicinity, and “presents the potential to revive a once-thriving resort destination.” The project will create more than 1,200 full-time jobs in an area that sorely needs them. The proposal won because “we had the best overall development plan that included not just a casino, but a destination resort,” says Empire Executive Vice President Charlie Degliomini. “Our plan was specifically designed to drive tourism to the Catskills through a variety of amenities including a 350-room indoor waterpark lodge, entertainment village and golf course.” And unlike its nearest competitor, Mohegan Sun, the company has strong financials: the controlling shareholder is Lim Kok Thay’s investment company, Kien Huat Realty of Malaysia, developer of the fabulously successful Resorts World New York at Aqueduct Raceway. Lim also controls Genting, the official owner of Resorts World, but Kien Huat is technically a separate company. Empire hedged its bets with a two-tiered bid that would have allowed it to build a smaller facility if Orange County got a license. “Given we are the only winner in the region, we’re going to build a bigger project that will make us more sustainable and competitive,” says Degliomini. The casino will draw patrons from “New York, Pennsylvania, Connecticut and New Jersey—approxiFEBRUARY 2015 www.ggbmagazine.com

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Rivers Casino will feature up to 1,150 slot machines, 66 table games, restaurants, lounges and banquet facilities, plus a 150-room hotel and natural areas including riverfront trails, all adjacent to the mixed-use Mohawk Harbor complex and its 50-dock harbor.

mately a 90-mile radius,” he says. Montreign will also cross-promote the nearby Monticello Casino and Raceway, also owned by Empire Resorts.

Rivers Casino & Resort, Schenectady The $300 million Rivers Casino & Resort is a project of Neil Bluhm’s Rush Street Gaming, operator of casinos in Des Moines, Philadelphia and Pittsburgh. Rivers is part of the larger $450 million Mohawk Harbor project, a redevelopment of a former brownfields site along the Hudson River. The casino will feature up to 1,150 slot machines, 66 table games, restaurants, lounges and banquet facilities, plus a 150-room hotel and natural areas including riverfront trails, all adjacent to the mixed-use Mohawk Harbor complex and its 50-dock harbor. Greg Carlin, CEO of Rush Street, says he is unconcerned about oversaturation in the market. “If you look around the country, there’s frankly too much gaming in certain markets; just look at what happened last year in Mississippi, Oklahoma and Atlantic City. Despite that, we feel a right-sized project in this market makes a lot of sense and would be a good investment for us.” The tax rate is also attractive. “If you look at states that legalized gaming recently, the trend has been to bifurcate the table tax and the slot tax,” says Carlin. “In New York the table tax rate will be 10 percent, a much lower rate that makes sense because tables require much more labor and are more costly to operate than slot machines. In our region the tax on slots is 43 percent, but there’s no tax on free play, which is also a smart way to incent operators to maximize revenue. If one of the aims of the act is to create jobs, certainly having a lower tax makes sense. And that’s what they’ve done in New York.” The competing Hard Rock proposal was strong, the board noted, but Rivers offered “a more comprehensive and well-measured” application, with sufficient equity capital on hand to complete the project. The development is expected to create almost 900 full-time jobs.

Lago Resort & Casino, Tyre, Seneca County To accommodate Amish and Mennonite residents of this farm community in New York’s Finger Lakes region, the developers of the Lago Resort & Casino have pledged to add horse-and-buggy lanes to new, widened four-lane highways that will lead to a 94,000-square-foot gaming hall. Lago will have 2,000 slot machines, 85 gaming tables, a 1,700-seat theater, a 207-room hotel, and according to one report, “a pool area big enough for 900 people.” The project from Rochester-area mall developer Wilmorite was the most controversial of the three winning applications, and resulted in demands for a fourth license in the Southern Tier. Owning a small part of the operation and managing the gaming will be JNB Gaming, headed by Brett Stevens, the founder of Peninsula Gaming of Iowa, which he sold to Boyd Gaming two years ago for more than $1 billion. 28

Global Gaming Business FEBRUARY 2015

Lago will have 2,000 slot machines, 85 gaming tables, a 1,700-seat theater, a 207-room hotel, and according to one report, “a pool area big enough for 900 people.” Developers have pledged to add horse-and-buggy lanes to new, widened four-lane highways to accommodate Amish and Mennonite residents of this farm community.

“The commission’s biggest error was granting a license to build in Tyre,” said Griffo, noting its proximity to Finger Lakes Gaming and Racing, a racino in Farmington, and Turning Stone, the tribal gaming hall in Verona. “This will result in a near zero-sum game, where local casinos and racinos will largely compete for the same scarce dollars to the detriment of them all.” Pretlow, who insists on calling the project “Lego,” agrees the board made a mistake with the Finger Lakes casino. “I would have preferred to see something in the Binghamton area or even Howe Caverns. Putting it 30 miles from (the Oneida Nation’s Turning Stone), I don’t see the economic benefit for the state—and I think this could break the compact,” the deal that guarantees the Oneida Nation gaming exclusivity over a 10-county area that abuts the Lago site. “When (Oneida Nation CEO) Ray Halbritter takes a look at the geography, I think there’s going to be a fight over that. The area is not going to be making any money for the state unless they’re trying to stick it to the Indians.” While the board considered “potential cannibalization of existing facilities,” it noted in its decision that Lago’s total capital investment of $425 million “far exceeds the proposed capital investment of the other two applications for this region.” Moreover, “Lago’s proposal is projected to generate significantly greater tax revenues to the state than the other applications for this region… (and) will provide many opportunities for enhanced economic impact and increased tourism in the Finger Lakes region.”

What’s Next Vogel takes a particularly grim view of expanded gaming in New York, and says it will not meet expectations once the initial ballyhoo is done. “Politicians, developers, real estate firms, law firms, architects and everybody who is involved, even tangentially, kind of licks a bone from the proposals, and everybody in this select group is paid when a casino is approved and starts getting built. It’s OK for the first year, it creates a few hundred or thousand jobs and it all looks fine and dandy. “Then the novelty effect wears off, you start to see the losses, and you’ve got the problem of oversaturation. You can’t slow it down—there’s no adult supervision in the state legislature to stop the bandwagon.” Though Pretlow supports the granting of a fourth license in the Southern Tier, he adds that four are really too many for the state. “We should have done three and done without Lego.” So what will happen in seven years, when three more licenses come up for grabs? “That may or may not happen, but everyone is looking for a New York City casino. A casino in midtown Manhattan would be the most lucrative casino in the entire world. The money is in Manhattan, Queens, Brooklyn and the Bronx—not so much Staten Island; they have money, but they don’t cross the bridge to gamble.” With the possibility of even more competition in the wings, the winning bidders “are rip-roaring and ready to get shovels in the ground,” says Pretlow. “They’re looking at this seven-year window. They know they’d better get moving.”

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california

Y R S V E O R CONT Lytle probe ignites scrutiny of Golden State regulatory system By Dave Palermo

n what could be the most significant regulatory scandal in recent history, the former head of gambling enforcement in California is being accused by the state attorney general of violating conflict-of-interest laws and jeopardizing a $116 million card-club skimming investigation. The attorney general’s Bureau of Gambling Control (BGC) says confidential information an agency official leaked in 2013 to former BGC chief Robert Lytle “potentially compromised” an ongoing probe of M8trix Casino in San Jose, accused of diverting profits to shell companies to avoid taxes. Lytle, who left the BGC in 2007 to become an industry consultant, acquired and disclosed confidential information to clients, including M8trix, before and after leaving the agency, the AG said in its accusation filed December 23 with the state Gambling Control Commission (GCC). “Lytle’s receipt of such information and documents potentially compromised the effectiveness, and undermined the integrity, of the bureau’s investigations,” the AG says in its accusation, which seeks revocation of Lytle’s gambling licenses as a key employee and card club owner. “This is huge,” a prominent gambling attorney says of the allegations. Perhaps it is.

How Deep Does It Go? Many industry observers regard the corruption probe as more than a case of a gambling regulator possibly gone astray. They view the case as symptomatic of a dysfunctional, politically bifurcated regulatory system ill-equipped to provide direct oversight regulation of card clubs and tribal casinos that comprise the bulk of the nation’s largest statewide gambling industry. “If these allegations are accurate, the state of California has to do a very public and massive review” of its regulatory system, says William Thompson, a gambling industry author and professor emeritus at the University of Nevada, Las Vegas. “California needs to take this case, shake it hard, and let people know they are taking action.” Other states have bifurcated gambling regulatory systems. But California has the only regulatory system in the country under two elected officials: a Gambling Control Commission under Governor Jerry Brown and an enforcement and investigatory Bureau of Gambling Control under Attorney General Kamala Harris’ Department of Justice (DOJ). Many believe the size and diversification of California’s $10.4 billion—net win—gambling industry, which includes tribal casinos ($7 billion), card rooms ($800 million), racetracks ($600 million) and a state lottery ($2 billion), requires a consolidated regulatory apparatus. They suspect the GCC and BGC, mandated by law to regulate some 80 card rooms while providing limited oversight over the state’s 59 American Indian casinos, is designed for failure. (Parimutuel wagering is regulated by the California Horse Racing Board and the lottery is under the jurisdiction of the California State Lottery Commission.) California’s system has resulted in commission/bureau debates over information sharing and enforcement authority. The latest squabble occurred in May, when the commission and bureau ping-ponged over which agency should revoke or impose conditions on M8trix’s license. The M8trix card room near San Francisco is one target of the probe

Global Gaming Business FEBRUARY 2015

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Former Bureau of Gambling Control Board member Bob Lytle from a website photo advertising his consulting services Richard Lopes, chairman of the California Gambling Commission and a former member of the Bureau of Gambling Control, admits that there is an issue with the two regulatory agencies in the state

“If you want to deny, deny,” BGC attorney William Torngren told commissioners. “We don’t know everything,” GCC Commissioner Tiffany Conklin replied. “You are the only agency that can make that determination.” The hearing was particularly edgy for those in the audience aware that James Parker, the former bureau agent suspected of leaking information to Lytle, was living with GCC Executive Director Tina Littleton. The commission will make the final determination on Lytle’s licenses. Its lawyers report to Littleton. “It’s not being salacious to bring that up,” a gambling regulator said of the Parker-Littleton relationship. “That’s pertinent to the investigation.” GCC Chairman Richard Lopes, a former BGC official, acknowledges the state’s bifurcated regulatory system could prove problematic. “If you get an attorney general and governor with different views on how gambling should be regulated, it does make things somewhat difficult,” Lopes told delegates at an International Masters of Gaming Law (IMGL) conference in San Diego. “The regulatory system should not be under the thumb of electoral politics,” Thompson says. “California is one of the world’s largest gaming markets with diverse constituents, including tribes, racetracks and card rooms,” says Mark Lipparelli, an industry consultant and former chairman of the Nevada Gaming Control Board. “That it does not have a consolidated gaming regulatory body presents tough challenges and complexities. “I am a believer in the two-tiered regulatory structure with a day-to-day, fulltime regulatory body that has broad authority over the industry subject to an oversight body such as a lay commission. “This provides for accountability, better consistency and appropriate due process. It also provides legislative leaders a better means to evaluate the important policy questions that arise across markets.” Governor Brown, in a 2012 budget shuffle, shifted the commission’s investigatory, auditing, compliance and enforcement functions to the BGC.

Underfunded Agency Unfortunately, AG Harris has devoted few resources to the agency, which is largely staffed with career law enforcement officers and not experienced regulators. The agency’s staffing is subject to strict union and Civil Service regulations, making it difficult to recruit from outside the DOJ. BGC officials testified in commission and legislative hearings that the agency

lacks the manpower and skills to enforce industry regulations. Tribal operators complain that many field agents are veterans of the DOJ’s narcotics division who lack the regulatory mindset needed to oversee casino operations. One tribal regulator who requested anonymity said bureau field auditors “come into the casino seeking crime, not compliance with gaming laws.” “The culture has to change,” GCC Chairman Lopes told GamblingCompliance.com. Tribal casinos are regarded as being well-regulated. Under the Indian Gaming Regulatory Act (IGRA), primacy for regulating gambling on Indian land is in the hands of tribes with limited oversight by the states and federal government. But industry observers criticize the GCC and BGC for not adequately regulating and enforcing a card club industry using banking firms to evolve from poker to high-stake versions of blackjack, pai gow poker and baccarat in an effort to compete with Indian casinos. GCC Commissioner Richard Schuetz, who has operated commercial and Indian casinos in several states, says card rooms constitute “the worse-regulated segment” of the nation’s gambling industry. “I’m not saying that to be mean,” Schuetz told those attending a recent commission hearing. “I’m saying that to be honest. We need to tighten up the regulations.” Finally, there are those who suggest the Lytle corruption probe and the state’s regulatory woes could hinder ongoing attempts to legalize internet poker. “An accusation suggesting there is corruption within the regulatory environment could become a sticking point with respect to a desire to expand gambling in the state with iPoker,” Schuetz says. “That’s one of the biggest implications of this. It may impact the iGaming debate. One of the biggest issues with iPoker is regulations.” Schuetz is careful not to accuse Lytle of wrongdoing. But he says even a suggestion of corruption in the state’s regulatory system is harmful. “It reduces the public’s confidence in the ability of the state to regulate gaming,” he says.

Regulators Under Suspicion The AG is seeking a fine and revocation of Lytle’s gambling licenses as a key employee and owner of two Sacramento card clubs. It is not a criminal investigation. Lytle did not respond to a request for comment. But in a brief interview with GamblingCompliance.com he denied wrongdoing. “Obviously I’m a strong believer in due process and innocence until proven guilty,” Lytle told the internet news service. “I look forward to a hearing. I look forward to proving that I didn’t do anything wrong.” According to the AG’s accusation, Lytle retired from the BGC on December 30, 2007. “On or about” the next day he went to work for Garden City Casino, which later became M8trix, the AG says, apparently violating a three-year period durFEBRUARY 2015 www.ggbmagazine.com

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California cardrooms vary from the very large (Commerce Casino), close to Los Angeles, to the very small Village Club card room in Chula Vista

ing which he was prohibited by law from working in the industry. He formed Lytle Consulting, and his website promotes having worked for 28 clients, including M8trix, for which he currently serves as head of compliance. Before leaving the agency, Lytle directed BGC agents “to cut back ongoing investigatory activities regarding Garden City,” according to the accusation. Between December 2012 and December 2013, Lytle “solicited and received confidential information” about M8trix from the bureau’s special agent in charge during “no less than 180” telephone calls, the accusation states. The accusation does not name the special agent in charge. But sources and hearing transcripts indicate the position was held by Parker, who has since retired from the agency. Parker could not be reached for comment. Littleton declined to discuss her relationship with the former agent. Parker does not hold a gambling license and is not subject to BGC jurisdiction. Although violating confidentiality business codes is a misdemeanor, the statute of limitations has expired. The seriousness of BGC officials disclosing confidential information and documents cannot be overstated. “When people are filing for applications and providing information, it’s done under confidential terms,” Lipparelli says. “There’s a high expectation it will be treated as such. They’re turning their crown jewels over to an agency. “Any time there’s a question about that process it tends to spook everyone, as if, ‘Okay, do I need to be extra careful about what I’m providing to the regulators?’ Those are questions that will cause concerns.” Although it is not mentioned in the AG’s accusation, tribal officials contend Lytle’s conflict of interest extends beyond the AG’s accusation. An opinion letter Lytle wrote 10 days before resigning stating that the deal need not be rotated among players in versions of blackjack has been used by card room owners, including Lytle’s clients, as justification to operate table games in apparent violation of regulations. DOJ in March 2008 distributed a copy of state law requiring that the deal be rotated. But the practice of avoiding rotation of the deal remains common. “It was his last favor to the card rooms as he walked out the door,” says a tribal official who requested anonymity. “And it was a huge favor. It was worth hundreds of millions of dollars to these guys.”

A Good, Bad And Ugly Regulatory Landscape Lopes and Schuetz insist tribal gambling in California is well-regulated. The tribes, Lopes says, “have the best-regulated casinos on the planet.” The same cannot be said of card rooms. Poker rooms in California date to the mid-1800s, but it was not until the Gambling Control Act of 1997 that the state began regulating the clubs. California’s card rooms have faced high-profile scandals, beginning with the 2012 temporary shutdowns on loan-sharking allegations of Artichoke Joe’s in San Bruno and the Oaks Card Room in Emeryville and continuing with the M8trix skimming investigation. 32

Global Gaming Business FEBRUARY 2015

California law prohibits clubs from having a financial stake in the card games, meaning customers wager against each other with the house taking a nominal fee, or “rake,” for each hand. But competition from Indian casinos gave rise about a decade ago to the widespread use of third-party proposition players (TPPPs) who bank high-stakes games, posing a challenge to regulators. Four banking firms in 2012 paid stipulated agreements of $250,000 to $550,000 for violating state law. Schuetz, in public hearings, likened the industry’s evolution from poker to high-stakes table games to “the Galapagos Islands.” “When you switch over to the type of games in California now—non-poker games that by law are supposed to be player-banked, but most of the time it’s a third-party banker—it certainly makes the situation far more complicated,” Nevada gambling attorney and author Tony Cabot says. “You need different internal controls than with poker. You also have the contractual arrangement between the banker and the house.” Tribes contend card rooms are advertising blackjack and baccarat, games prohibited by law, and using TPPPs to skirt regulations requiring that games be banked by players and not the club. “Not only are the card rooms playing illegal banked games, they are effectively house-banked games,” the Yocha Dehe Wintun Nation said in an October letter to the commission and bureau. The card room industry wields a great deal of political clout, often contributing 60 percent or more of a municipality’s taxes.

Out-of-Control Card Games A commission request that TPPPs submit monthly game statistics to the BGC was met with resistance from a bureau chief who said the agency lacks manpower to analyze the data, a standard industry technique for spotting fraud and ensuring game integrity. “The monthly submission is too much for us right now,” Assistant Bureau Chief Stacey Luna-Baxter told commissioners. “(Data is) going to sit there. We’re not going to be able to analyze it and do what we really need to do with it.

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â&#x20AC;&#x153;We had existing backlogs for our mandated workload as it is,â&#x20AC;? says Luna-Baxter, claiming CBGC had â&#x20AC;&#x153;a number of turnovers and vacancies,â&#x20AC;? including a licensing division short 22 people. â&#x20AC;&#x153;This is something we need,â&#x20AC;? Lopes says of the use of data in regulating the industry. â&#x20AC;&#x153;Having visited other regulatory agencies across the country, this is exactly what they do.â&#x20AC;? â&#x20AC;&#x153;We have a regulatory apparatus that is understaffed and doesnâ&#x20AC;&#x2122;t have access to training as much as they need,â&#x20AC;? Schuetz says. Vic Taucer, an expert on table games who recently surveyed card room casinos for tribal clients, says he found the card rooms lacked minimum internal operating controls and adequate surveillance. â&#x20AC;&#x153;The first thing I searched out for was whether there were any valid operating controls,â&#x20AC;? Taucer says. â&#x20AC;&#x153;It was nil. There were none.â&#x20AC;? George Joseph, a consultant on game cheating, calls the California card room industry â&#x20AC;&#x153;the Wild, Wild West.â&#x20AC;? Card-room attorney Keith Sharp says it is wrong to assume there is a â&#x20AC;&#x153;systemicâ&#x20AC;? regulatory problem in the card club industry. â&#x20AC;&#x153;The regulations are in good shape,â&#x20AC;? Sharp says. â&#x20AC;&#x153;The guys I represent in the card-room industry welcome fair and efficient regulations.â&#x20AC;? Dave Vialpando, a former BGC agent who now acts as gaming commissioner for the Iipay Nation of Santa Ysabel, says the BGC has â&#x20AC;&#x153;some very well-qualified and dedicated agents. â&#x20AC;&#x153;But if you ask me if the bureau is adequately prepared to regulate the industry, Iâ&#x20AC;&#x2122;d say absolutely not,â&#x20AC;? Vialpando says, largely because the agency is overworked and understaffed. â&#x20AC;&#x153;When you spread your resources very thin, it may give the impression thereâ&#x20AC;&#x2122;s a lack of skills,â&#x20AC;? Vialpando says. â&#x20AC;&#x153;I donâ&#x20AC;&#x2122;t think thereâ&#x20AC;&#x2122;s a lack of skills. I think thereâ&#x20AC;&#x2122;s a lack of sufficient resources. â&#x20AC;&#x153;The commission is almost at the point of overkill when it comes to promulgating regulations, but whether or not they have the staff in the bureau to enforce and ensure the regulations are adhered to, thatâ&#x20AC;&#x2122;s an entirely different matter.â&#x20AC;? BGC staffing problems were addressed by BGCâ&#x20AC;&#x2122;s Luna-Baxter last April, when the Assembly Government Organization Committee discussed pending iPoker legislation. â&#x20AC;&#x153;Currently within the bureau we do not have existing resources that we can shift to this new workload associated with internet poker,â&#x20AC;? she told the committee. The bureauâ&#x20AC;&#x2122;s licensing division, short 22 positions, would need additional manpower, while its compliance and enforcement division would require both training and manpower, Luna-Baxter said. The bureau, fully staffed, would have 188 people. Its current budget is $28 millionâ&#x20AC;&#x201D;$19 million from a tribal Special Distribution Fund and $9 million from the stateâ&#x20AC;&#x2122;s Gambling Control Fund. â&#x20AC;&#x153;It is anticipated there will be significant implementation costs due to the need for technical expertise, increased auditing requirements and staffing needs,â&#x20AC;? Nathan DaValle, the bureauâ&#x20AC;&#x2122;s assistant chief

for compliance and enforcement, told the committee. â&#x20AC;&#x153;Funding should be allocated to permit the bureau to contract and consult with technology experts familiar with internet poker platforms. Funding should be allocated for the hiring and specialized training of additional special agents, auditors, technology staff and support staff.â&#x20AC;? Luna-Baxter at the hearing acknowledged there was a â&#x20AC;&#x153;lack of skill setsâ&#x20AC;? in the bureau, but said Civil Service and union restrictions and the state process for seeking additional funding make it difficult to recruit specialists in auditing and statistical work. â&#x20AC;&#x153;Youâ&#x20AC;&#x2122;re looking at a six- to nine-month process,â&#x20AC;? Luna-Baxter said. It has been suggested that the BGC seek assistance from tribal gambling commissions in meeting the regulatory demands of an iPoker industry. But many tribes believe the agency has an anti-Indian bias, a belief inflamed in January when BGC attorney Torngren argued in federal court for a restraining order to shut down Santa Ysabelâ&#x20AC;&#x2122;s bingo website. Torngren said the â&#x20AC;&#x153;self-serving actionsâ&#x20AC;? of the tribeâ&#x20AC;&#x2122;s gaming commission were tantamount to allowing â&#x20AC;&#x153;the fox to guard the hen house,â&#x20AC;? a culturally insensitive if not racist remark that flies in the face of IGRA provisions giving Indian governments primacy over gambling regulations on tribal lands. â&#x20AC;&#x153;The gasps of disbelief from the many tribal members in attendance were noticeable to all,â&#x20AC;? Vialpando says. â&#x20AC;&#x153;That such a culturally insensitive comment would be made publicly from a state government official, in this day and age, is downright deflating and opprobrious.â&#x20AC;?

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Making Sense of

Non-Gaming Spend How amenities add to a casino’s bottom line by Rodric J. Hurdle-Bradford

he sounds associated with the casino used to be the jingle of a slot machine, the spinning ball on the roulette wheel and a card dealer yelling “blackjack” to a lucky player. However, for a new generation of casino visitor, the sounds they associate with their experience are the loud thumps of electronic dance music at a nightclub, the buzzing of a cash register at a retail store or the tinging of utensils on the plate at a trendy celebrity chef restaurant. Sounds good, but is it making the casino money? The answer is “yes,” because it is bringing a new generation of casino visitor who is not mesmerized by the spinning reels of a slot machine or a spinning ball on the roulette wheel like their parents or grandparents. “It is a great story to tell when almost 20 years ago the city had to reinvent itself from a gambling destination to the world’s top entertainment destination,” says Chuck Bowling, president and chief operating officer of MGM Resorts’ Mandalay Bay Hotel & Casino, known for its Mandalay Place dining and retail attraction, as well as hosting internationally recognized sporting events at its event center. Bowling also represents Mandalay Bay on the Las Vegas Convention & Visitors Authority board and acknowledges the trend toward attracting non-gaming visitors, and their revenue. It is what has made Las Vegas relevant in the 21st century—not the handful of casino games that stretch back to the city’s origin. “Our job is to evolve to create and generate revenue,” he says. “The recession allowed us to fine-tune and sharpen our tourism tools that were already best in class. Now they are a lot sharper and more in focus by listening to our customers and building the proper amenities based on that feedback.”

A Focus on the Future A large part of that focus is on the millennial generation, a generation that looks at cassette tapes, VHS machines and AM/FM radio like the older generation looks at a dinosaur. Because of that, both traditional and tribal casinos have had to change the “sound of the times” to match demand, and to add to their bottom line. “Las Vegas always has to be a great destination that continues to evolve and continues to reinvent itself,” says Bowling. “The younger generation likes celebrity chefs, nightclubs and DJs. And our job is to give them what they want.” It’s the same job that is being carried out on tribal gaming land across the

Global Gaming Business FEBRUARY 2015

country, from California to Connecticut to Cliff Castle Casino in northern Arizona. “We create our own non-gaming projects and events to generate a significant amount of revenue for our property,” says Gene Stachowski, marketing director for Cliff Castle Casino Hotel, which hosts unique events like the “Big Boy Toy Show” that features vendors of RV dealers, boats, and fishing and skiing accessories. “From over 20 years of experience at a casino, my idea of marketing is to create fun, and the people will come.” Part of that fun at the casino is the Big Boy Toy Show in March, and hosting auditions for the iconic game show Wheel of Fortune in May. “I meet with all of our media contacts to let them know that I am going to bring a cool factor to our casino,” says Stachowski. “If the cool factor is there, the people will come, and that will generate revenue.”

Casino Cooking Culture Guy Fieri. Gordon Ramsay. Rick Moonen. Giada de Laurentiis. Now, when you walk on the Vegas Strip, you often don’t know if you are in the iconic Sin City, or a fantasyland for the Food Network. “Las Vegas is about extraordinary experiences. Before, gambling was the sole focus. Now, it is equal parts dining and entertainment as well,” says Seth Makowsky, chief executive officer of the Makowsky Restaurant Group, a food and beverage management and consulting company. “Guests are becoming even more discerning, and celebrity chefs, savvy restauranteurs and bold food and beverage directors have transformed Las Vegas into a dining and entertainment mecca. With so many celebrity restaurants cen-

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Paul Heretakis, owner of Westar Architectural Group. “The casino operators know a big brand operator will not close because they have the corporate financial backing.” According to Heretakis, a potential downfall of the dining trend is a lack of diversity and uniqueness that Las Vegas is known for. “I think it is good for the short-term gain, but with these brands you do not get a lot of change over time, and one of the best things about Las Vegas is that it always changes,” he says. “You can end up with many brands past their prime but stuck in the middle of a 20-year lease.” Estimated earnings are between $10 million and $20 million per year for the most popular restaurants, validating the revenue potential for both traditional and tribal gaming properties. The longterm financial stability they provide equals revenues for casinos, but it may also ultimately cost the Las Vegas Strip originality. “Right now we have an oversaturation of the same product because something worked well and now we have too many dining options,” says Heretakis. “In many ways casinos like to play it safe with many national brands that have deep pockets to add revenue to their property.”

tralized on the Las Vegas Strip, there is opportunity to band together and attract national tourism and increased revenue.” Las Vegas Restaurant Week has evolved into a national event that draws foodies and visitors from around the world, with the help of top chefs like Moonen at Mandalay Bay’s RM Seafood. It fills the hotels and casinos during an off-peak time of year, which is extremely valuable. The event set new attendance and revenue records in 2014, and with a portion of the proceeds Fun Funds Mike Hammer, headlining act of a going toward the Three Square Food Bank, it creates ex- comedy magic show at Four Queens There are now more ways than ever to generate revenue from Hotel & Casino cellent public relations for the city to tourists from all entertainment on a casino property—high-priced production over the world. shows, value-driven comedy and magic shows, concerts and of “MGM Grand on the Las Vegas Strip is a fine example of this trend,” says course, the popular nightclubs. These offerings have become destinations in Makowsky. “The entire front façade has been rebuilt to showcase the restaurant their own right, with advertisements and marketing campaigns that often negand nightclub Hakkassan. At Hakkassan there is a celebrity in the kitchen and lect their location inside of a casino, and instead focus on the entertainment excelebrity DJs at the nightclub. The result is the highest-grossing restaurant and perience the guest will receive. nightclub in the world. “We have our Stargazer outdoor amphitheater where we bring in five or six “The future will bring increased focus and pressure to perform at higher stannational acts a year,” says Stachowski about the Cliff Castle in Arizona. “Our dards. Heightened expectations will lead to more and more investment and goal is to break even on the tickets and make our revenue on the food and bevgreater focus and pressure to perform.” erage side. Bringing an additional 1,200 to 3,000 people to the casino who norWith dozens of national restaurant chains to accompany the celebrity chef mally would not have gone doesn’t hurt either.” trend, the future seems as full of satisfied dining tourists as one of the trendy enStachowski combines traditional events like concerts with non-traditional trées on the menu. events like wine tastings to cater to different demographics to generate even “Most of the national restaurant big brands that have entered the Las Vegas more revenue. It is a formula that has been very successful for regional casinos. market have made money, along with the television personality restaurants,” says “You will continue to see these casinos use entertainment to entice new crowds in local markets,” says Steve Rittvo, chairman and chief executive officer of the Innovation Group, a consulting firm that specializes in food and beverage, sports and entertainment and interactive strategies and campaigns. “They are investing more in non-gaming amenities, and their investments are paying off.” “We have our Stargazer outdoor Perhaps no location demonstrates the shift from gaming to non-gaming revamphitheater where we bring in five or enue more than the Fremont Street Experience and Downtown Las Vegas as a six national acts a year. Our goal is to whole. The area built its reputation on hard-core gamblers, loose slot machines and low-limit card and roulette tables. In the past five years it has transformed break even on the tickets and make our itself into a hotbed for live music, value-driven entertainment, and new food revenue on the food and beverage side. and beverage options. Bringing an additional 1,200 to 3,000 “When I started five years ago it was difficult to draw crowds here, but now 90 percent of my customer base comes from the Strip,” says Mike Hammer, people to the casino who normally would headlining act of a comedy magic show at Four Queens Hotel & Casino, and not have gone doesn’t hurt either.” who is widely recognized as one of the best young talents in Las Vegas. “I also have reports that state 20 percent of my audience is staying and gambling at the —Gene Stachowski, Marketing Director, Cliff Castle Casino Hotel casino afterwards, so it benefits them, too.” Hammer represents two trends that transformed Downtown Las Vegas into the dynamic destination it has become to the younger generation—non-gaming FEBRUARY 2015 www.ggbmagazine.com

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Whether it is music, food or sports, the outdoor festival trend is the newest non-gaming attraction that tourists are clamoring for in both major and mid-market casino properties.

Kush Fine Art Galleries

entertainment and value-driven promotions. His deeply discounted $9.95 promotional ticket price also comes with a complimentary beverage, knowing that customers saving money on the ticket purchase allows them to spend more on beverages at the show. “I am an added bonus for the hotel, and I always see my guests in the casino floor after the show, so it is a seamless transition,” says Hammer. “We offer player’s club sign-ups and promotions at the show so we can generate revenue from all areas.” Downtown Las Vegas is also home to another non-gaming event trend that has created substantial revenue—the outdoor festival. Whether it is music, food or sports, the outdoor festival trend is the newest non-gaming attraction that tourists are clamoring for in both major and mid-market casino properties. “Twenty years ago the goal was to keep people indoors at casinos as much as possible so they could play,” says Bowling. “What we have realized is that we are a weather destination, too. That is why we use our MGM Resorts Village for a three-day country music festival.” This spring MGM is also hosting the Rock in Rio Music Festival for the first time, in a similar manner as the Life is Beautiful outdoor music festival has become a signature event for Downtown Las Vegas each fall. Halfway across the country in Mississippi, MGM Resorts has partnered with the city of Biloxi to develop a baseball park that will be home to not only a minor league baseball team, but also to special events and outdoor concerts. “At MGM, we learn about the communities we serve and how that fits into what the younger generation wants so it drives revenue,” says Bowling, who was equally excited about the 20,000-seat MGM Resorts arena on the Las Vegas Strip currently being built. “We are developing whole new reasons for people to visit our properties, and it does not have to be centered around the casino.”

Retail Revenue A longtime component of non-gaming revenue has been retail, but it has received a facelift in recent years by experiencing an outdoor trend itself, making more use of a property’s real estate while not being tied to some of the same labor union laws that govern inside a casino. Foxwood Resorts outlet mall in Connecticut and the Linq outdoor retail complex in Las Vegas demonstrate that this trend is occurring from coast to coast in the United States. 36

Global Gaming Business FEBRUARY 2015

“Everyone is understanding that the nature of the visitor is changing, and that helps the industry as a whole,” says Rittvo. It also changes roles for the casino operator. “Now you have casino operators acting as mall developers and operators,” says Heretakis. “There definitely is a learning curve that is happening; now they just need to adjust to maximize revenue for the long term.” Retailers at casinos are usually limited to clothing and accessories, but the increased popularity of art galleries is giving casinos in major markets another retail tenant willing to pay for the exposure, adding to the bottom line of the casino and the artist. “Our galleries offered opportunity to not only play and dine, but also be entertained and inspired with music, dance and of course, art,” says world-renowned artist Vladimir Kush, who operates the Kush Fine Art Galleries at Caesars Palace and Planet Hollywood Las Vegas Resort & Casino. “My style uses universal themes metaphorically, and is cross-cultural so it brings a diverse crowd through the casino, which adds value and revenue to each property.”

The Social Sale for the Future When it comes to the future of non-gaming revenue, the 800-pound elephant in the casino is connecting social casino play to non-gaming revenue from those online experiences. Online players can receive awards and incentives to non-gaming entities by purchasing apps online, as well as playing games. “The casino brand has to use the online experience to identify what type of incentives motivate that player,” says Dana Takrudtong, vice president of North American sales with GameAccount Network, a leading provider of internet gaming systems. “Identifying the player’s preferences could be the difference between them spending $1,000 at the casino or $15,000 on bottle service at a nightclub.” The data analysis that all casinos are performing on online players has shown that just because someone plays countless hours of a social casino game on their phone does not mean they are going to make a beeline to the slot machine or card table as soon as they enter the casino. “Online gaming can offer real-time marketing that you do not have in traditional media, which can directly correlate to non-gaming incentives and increasing non-gaming revenue,” says Takrudtong. With the future of non-gaming revenue being driven by the online experience, the customers of celebrity-chef restaurants, bottle buyers at nightclubs or ticketholders at a comedy show are just as likely to be inspired by staring at their phone screen for free as a multimillion-dollar print or television advertising campaign, allowing more money to be put into the casinos’ bottom line by saving on advertising expenses. “If casino operators do not jump in the social play segment now, the industry will evolve without them,” says Takrudtong. “It is not too late to enter the space and strategize on how to capture that vital non-gaming revenue. If you are considering it as an operator, 2015 is the year to jump in or get left behind.”

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Once You Go Social... Why everybody is doing free-play By Marco Valerio

few months ago, Jeff Connors disrupted his own illustrious career in the gaming supplier space to accept a position at a startup. You’d think somebody with Connors’ pedigree—a University of Nevada Las Vegas graduate who spent the next 20 years in top posts at companies like Aristocrat and Bally Technologies—would move on to some lofty position at one of the newly consolidated super-suppliers, or perhaps settle into a spot at an emerging U.S. iGaming operator. But Traffic Generation—the company for which Connors is now vice president of North American sales—is neither traditional supplier nor iGaming operator. Founded in 2011 and headquartered in Gibraltar, Traffic Generation specializes in helping land-based properties craft marketing strategies inspired largely by consumer behavior on social and free-play casinos. “I found the technology and user experience compelling,” Connors says. “Personally, I enjoy playing free games online and gambling at my local casino in Vegas. It’s important for operators to research multiple casino-centric opportunities for new sources of revenue. The analytics behind these monetized applications provide mechanisms for those opportunities.” This incident of a real-money gaming veteran jumping ship to the freeplay side is hardly an isolated one. Traffic Generation’s own founder, Andy Caras-Altas, worked for years in the European iGaming space before he could no longer ignore that the tide was shifting elsewhere. “Real-money online wagering was always going to be eclipsed by social, simulated and free-play products,” he says. “The biggest shift in 2014 was the realization that significant revenue can be generated from simulated and social gaming, when the products are fully integrated into the property’s marketing and player development systems.”

Free Fall It seems ludicrous on face that something with the word “free” in it would have anything to do with real-money gambling. And yet in just the last few years, the traditional U.S. gambling industry hasn’t just embraced social 38

Global Gaming Business FEBRUARY 2015

casino—it’s come to dominate the space almost entirely. “Today there are few differences between the traditional gambling companies and the social casino publishers,” according to Joost van Dreunen, “for the simple reason that the former has managed to acquire most of the latter.” As the CEO of Superdata, a market intelligence firm that monitors the digital goods space, van Dreunen has had a front-row seat to the social casino takeover of recent years. “Caesars Interactive owns Playtika, IGT owns DoubleDown, Aristocrat owns Product Madness, Churchill Downs owns Big Fish Games, and so on. There has been significant consolidation of the market—and we expect this to continue in 2015.” But why would the gambling industry so passionately covet a product that only looks like gambling, but doesn’t monetize like gambling and isn’t considered gambling? Because social gaming makes a lot of money and provides additional opportunities for customer acquisition and retention. Already rich with casino gaming resources and IP, many gambling companies had an edge in product development over social gaming startups that had to build from scratch. You see this in how gambling companies that offer social casino do a much better job monetizing it than their non-gambling competitors. “The three highest-earning titles in the social and mobile casino market in November 2014,” van Dreunen says, “were Big Fish Casino (Churchill Downs), DoubleDown Casino (IGT) and Slotomania (Playtika/Caesars). These games generate around $500,000 in revenues per day—but, surprisingly, do not have the highest traffic numbers. A title like Zynga’s Texas Hold ‘em Poker has a worldwide daily active user base of around 2.5 million, but generates less per paying user.”

iGaming Bust The U.S. gambling industry’s dominion of social casino surprised many who believed the progression of traditional gambling into the online world would take the form of real-money online gaming, also known as iGaming and RMG. And in some ways, it has—but at an underwhelming pace.

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OTHER AGENCIES CAN LEAVE YOU

“The three highest-earning titles in the social and mobile casino market in November 2014 were Big Fish Casino (Churchill Downs), DoubleDown Casino (IGT) and Slotomania (Playtika/Caesars). These games generate around $500,000 in revenues per day— but, surprisingly, do not have the highest traffic numbers. A title like Zynga’s Texas Hold ‘em Poker has a worldwide daily active user base of around 2.5 million, but generates less per paying user.”

LOST IN THE

—Joost van Dreunen CEO, Superdata

“I think U.S. casinos have been restricted and defined in their digital product strategy by external forces,” says Caras-Altas. “The lack of progress in real-money online gaming regulation has meant that the barriers for entering the real-money digital market were too high. This meant U.S. casinos have been limited to free-play, simulated or social casino.” But that did not turn out to be an annoying limitation. In fact, it has been a godsend. Social casino makes way more money than its regulated real-money counterpart in the U.S., and customer acquisition costs for social are way lower than what they are for RMG. What’s more, the widespread geographical and demographic availability of social and free-play casino can connect land-based operators with scores of casino gaming-inclined players around the nation and produce voluminous amounts of data on their gaming behavior. According to CarasAltas, “32 percent of U.S. social slots players visit a land-based casino more than once a week. This indicates that not only is there a real opportunity for casinos to engage with existing land-based players when they’re out of the property, but also there is a very large group of potential players who present a target for new player acquisition.” It’s probably worth taking the time to reflect on why “social” and “free-play” are often used interchangeably. Although some literal distinctions

can be said to exist, the term “social gaming” has generally come to apply to any number of webbased games, typically available free of charge, whose mechanics pit the user against other players on the same network—hence, the “social” part and the reason why Facebook in particular has done so well with these games. Social casino is only one subgenre, but its explosive popularity has been noted not just by the casino industry, but by everybody who tracks social gaming. A recent survey conducted by media research firm Frank N. Magid Associates found that 55 million Americans ages 8-64 have played “social/casual casino games without cash payouts,” and 71 million Americans in the same age bracket have either played them “or are interested in playing them,” indicating “serious near-term growth” of the genre. This destroys the widespread belief, held primarily by real-money gamblers, that poker and casino games aren’t worth playing if there’s no real money at stake. “People are doing it because it’s a degraded reality of real gambling,” says Mike Vorhaus, the president of Magid Advisors. “It has a lot of the attraction of real gambling, but it’s much less expensive. The thrill of winning and the fear of losing still exists with this type of currency.” Vorhaus, who enjoys playing live poker during his frequent visits to Las Vegas, compares his own gambling attitude to that of the average so-

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Frustrated low-stakes grinders who are upset that they can’t move opponents off superior hands are advised to move up to stakes “where they respect your raises.” In social poker, this is frequently why players who desire a more competitive challenge spend money to acquire additional play chips—to be able to play at a higher level, even though those chips can’t ever be cashed out for real money. cial casino player. “If I’m gambling and I’m winning, I’m trying to make money that I’m going to spend or save. But when social casino players are winning, they are accumulating credits that they intend to continue to play with.” But if social casino is “free,” how is it capable of monetizing at all? This is where Vorhaus suggests that “free-play” isn’t exactly a misnomer, but perhaps an incomplete description. “When I hear ‘free to play,’ I understand that to mean ‘free to start playing.’” A social game that permits the user to purchase in-game goods or credits will eventually lead to a level of gameplay where the buying option will start to seem more attractive. “In varying degrees across different games,” as Vorhaus puts it, “it becomes more and more difficult to resist playing, because the pain of not playing grows and grows.”

Grading Gameplay That sums up the free-play monetization model in a nutshell. The most engaged players are the ones who desire access to advanced levels of gameplay—and are thus more likely to consider paying for the privilege if the only other option is to continue to invest time into earning enough credits. There is a standing joke in the real-money online poker community about this natural inclination to play at a skill level one considers himself fit for. Frustrated low-stakes grinders who are upset that they can’t move opponents off superior hands are advised to move up to stakes “where they respect your raises.” In social poker, this is frequently why players who desire a more competitive challenge spend money to acquire additional play chips—to be able to play at a higher level, even though those chips can’t ever be cashed out for real money. Yes, this is sacrilege to the cash-minded gambler—and yet it happens. For all of his work researching the space, Vorhaus himself is incredulous. “I personally can’t believe people do that. When people tell me that they spend real money to buy currency with no dollar value to play casino games, and if they win more currency, it still has no value—that to me is insane. I still think it’s insane, even though I totally understand why millions of people play these games, and for them it is not insane at all.” If it is a form of insanity, at least it’s not epidemic. Unsurprisingly, the majority of social gamers, casino or otherwise, never spend a dime on these

games in their lives. The percentage of players who do become buyers is very small—for the average social casino game, it’s seldom much higher than 2 or 3 percent. Believe it or not, those tiny conversion rates have created a multibillion-dollar industry. Social casino revenue in the U.S. alone was almost $3 billion in 2014, according to Superdata and Eilers Research. What’s more, social casino is one of the best performing subgenres in the entire social gaming family. “Social casinostyle games, which almost exclusively use a free-to-play monetization scheme, generate two to three times more than regular social games,” van Dreunen says. “For slot games on Facebook, we see an average monthly spend among paying players of around $60—compared to $20 for average social gamers. Similarly, conversion rates also skew higher, roughly double.”

Pick Your Poison

“The most important conclusion that the data leads us to is that there is little or no cannibalization of the property’s players when they also play in the digital space. The net value of the player is higher by every metric when they play in both. This includes total hold, reduced dormancy, and increased response to marketing messages and promotions.” —Andy Caras-Altas, Owner, Traffic Generation 40

Global Gaming Business FEBRUARY 2015

In view of findings like that, the gambling industry’s interest in social casino goes from mysterious to a no-brainer—but it wasn’t always so. Alun Bowden, head of content for Pageant Gaming Media—which publishes Social Casino Intelligence (yes, the space eventually got big enough to require its own trade magazine)—remembers a time when the idea of getting into social must have seemed as crazy to the gambling companies as paying for chips seems to people like Vorhaus. “Caesars Interactive CEO Mitch Garber was one of the first from the real-money sector to spot the opportunity in social casino,” Bowden says, “and he was smart enough to realize that the best way to enter the sector was through the ac-

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quisition of an existing operator.” In so saying, Bowden puts his finger on social’s Big Bang: Starting in 2011, Caesars Interactive went on an aggressive acquisition spree, a strategy so quickly imitated by others that only a few years later “we are now in a situation where the big players in social casino are predominately owned by major land-based firms,” says Bowden. “This is an industry that has gone rapidly from an innovative startup culture to one where the price of entry is very high.” It’s not just the tech companies that have seen fit to get in touch with their social side, bypassing the need for iGaming completely. MGM Resorts—whose CEO Jim Murren has publicly called on the American Gaming Association to cool down its advocacy of online gambling regulation—entrusts social casino platform myVegas with providing a free-play experience to the property’s loyal customers. Even Station Casinos, which recently divorced itself from its real-money investment Ultimate Gaming, has taken on myVegas as a social gaming partner. Social casino is thus clearly past the “fad” stage, and its usefulness to the gambling industry is by now well ingrained and continuing to grow. In fact, we are beginning to witness the emergence of a separate industry geared directly toward maximizing social and free-play returns for land-based stakeholders. Traffic Generation, one of the first companies to serve this new area, utilizes a sophisticated platform that aggregates data on social casino players to reconcile the resulting online profiles with a land-based property’s customer database—thus delivering enriched consumer insights once considered unavailable. “The most important conclusion that the data leads us to,” Caras-Altas reveals, “is that there is little or no cannibalization of the property’s players when they also play in the digital space. The net value of the player is higher by every metric when they play in both. This includes total hold, reduced dormancy, and increased response to marketing messages and promotions.” Traffic Generation made its U.S.-facing ambitions clear when it brought Connors on board in November 2014. How prepared is the U.S. casino industry to explore modernized, social-facing marketing practices in 2015 and beyond? Numerous properties have already warmed up to them, and some, like MGM, have set standards for everybody else to catch up to.

Marco Valerio is a freelance writer and keen observer of online and social gaming. Follow Valerio on Twitter at @agentmarco.

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Global Gaming Practice Acquisitions | Financing | IP | Labor | Litigation | Real Estate | Regulatory Learn more at gtlaw.com/gaming 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. ©2015 Greenberg Traurig, LLP. Attorneys at Law. All rights reserved. Contact: Martha A. Sabol, 77 West Wacker Drive, Suite 3100, Chicago, IL 60601, 312.456.8400 or Laura L. McAllister Cox, 2700 Two Commerce Square 2001 Market Street, Philadelphia, PA 19103, 215.988.7800. °These numbers are subject to fluctuation. 24691

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iGAMING NORTH AMERICA

Best Practices The evolution of regulatory systems should be noted by iGaming participants, Part II

efore a jurisdiction can determine what practices to adopt related to a policy goal, a body of independent, evidence-based research must be available. To solve Ebola, you would not send a bunch of casino dealers to a drug store to mix a bunch of drugs. But, that is how many governments approach gaming regulation. Instead of going to trained professionals like we would in solving a virus, governments often look to a regulatory body with no experience in gaming and limited experience in regulation to guess their way through what should be the “best practices.” Regulatory failures have been many, and mostly based on voodoo law—where policymakers guess at what may work and may not. An example is one state that decided that loss limits would be effective in preventing problem gambling. It decided that casinos must issue script to limit the amount of gambling. Each gambler could only buy $500 worth of script a day and then could exchange it for chips or tokens in the casino. The idea was that when they ran out of script they had to quit gambling. Instead of quitting, some bought script solely for resale and a black market in script developed. In another case, a jurisdiction decided if they charged locals an admission fee to enter the casino, it would inhibit convenience gambling. It did not anticipate that locals who paid the admission fee gambled much longer—up to the full 24 hours per admission—to realize the full value of the entry cost. Best practices go beyond social engineering concerns like problem gambling. Every aspect of gaming regulation has associated best practices. Take internal controls, which are policies and procedures designed to prevent and detect errors or irregularities that may occur in the operation of a business. They assist a business to operate cost-efficiently. In a casino environment, internal controls are important due to the inherent risk associated with a business that

By Anthony Cabot

involves voluminous cash transactions. Casino internal controls, however, should be practical, and cause only minimal interruption of operations. A casino that generates $50,000 in gaming device revenues should not have to spend $100,000 to install a sophisticated manned count room surveillance system. What are best practices for casinos in adopting internal controls depending on its size, the games offered, number of locations, and other factors, can be subject to independent, evidencebased research. Here the experts may not be social scientists but industry-trained accountants. Best practices are available for many areas of gaming regulations including anti-money laundering, licensing, regulatory and criminal enforcement, auditing, new game approval, gaming and related equipment technical standards and testing. Again, all are reliant on independent, evidencebased research from different schools of experts. Best practices are equally for the benefit of the government and the regulated industry. The interconnectivity of the world’s gaming markets cannot be denied. Top international casino suppliers and casino operators are in multiple jurisdictions. Does it make sense that a casino company should have significantly different internal controls in one jurisdiction as opposed to other based on similar operations? Or, that a gaming equipment manufacturer should have to comply with 200 sets of dissimilar technical standards and testing requirements? Another challenge is multi-jurisdictional compliance—where regulators in each country where they are licensed expect they will comply with the laws in every jurisdiction where they are doing business. Consistency in regulation and compliance expectations promoted by best practices will ensure better multi-jurisdictional compliance. Costs are imposed on the industry by not adhering to best practices. Some best practices can be better standardized. There are five decisions that government need make in deciding licensing. The first is breadth— which persons or companies that have involvement in the gaming industry must get licensed.

Global Gaming Business FEBRUARY 2015

The second is depth—who within the organization must get licensed. The third is level of investigation, such as cursory or in depth. The fourth is criteria that the regulators will look at in deciding, such as honesty, criminal history, etc. The last is standards that apply to deciding whether someone is suitable. The problem is that licensing can create an absolute barrier for companies to enter the market to sell product. A government’s licensing system can be dysfunctional if it is over-broad in who must be licensed, charges too much to obtain a license or creates too much uncertainty. The consequences are that competition can be reduced, resulting in higher pricing and inhibition of innovation. For example, suppose one jurisdiction requires licensing of all shareholders owning greater than 5 percent of the stock of a publicly traded company but most other jurisdictions adhere to a 10 percent rule or greater for institutional investors. Gaming companies needing access to public markets may exceed 5 percent for institutional investors even if it means they must forego licensing opportunity in jurisdictions that have a 5 percent rule. What are the solutions? Gaming jurisdictions are not islands. They and the industry must work toward best practices. Common goals must be underlined with a commitment to empirical research into the impact and effectiveness of regulation. We need to encourage cooperative agreements between governments and regulatory agencies to facilitate best practices in all areas of gaming regulation. While it is worthwhile that regulators convene for conferences and the industry identifies potential regulatory approvals, unless dedicated resources and independent vehicles exist for follow-through, it will remain nothing more than good ideas and lost opportunity. Tony Cabot is a partner in Lewis & Roca, and one of the premier legal experts in land-based and online gaming. He is also a partner in the iGaming North America Conference, April 14-16 at Planet Hollywood in Las Vegas.

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New Jersey Reports on One Year of Online Gaming

DGE Director David Rebuck

ew Jersey’s first year of online gambling has brought in only a fraction of the revenue anticipated, but has also seen the state unraveling some of the technical problems that have plagued the fledgling industry. Among them are a reluctance of major credit card companies to approve deposits to online gambling sites in the state. In a report on the first year of online gaming in New Jersey—online gaming went live in the state in November 2013—the state Division of Gaming Enforcement announced it will introduce a new credit card code this spring to aid credit card transactions. According to a release from the DGE, the state expects credit card transaction rates to continue to improve as the banking industry becomes familiar with legalized online gaming and players become more educated about funding options. At the moment, Visa transactions have only a 73 percent approval rate at New Jersey’s online site while MasterCard transactions have a much lower 44 percent success rate. This is a bit of a reversal from earlier reports that had MasterCard transactions accepted more often than Visa transactions. The new credit card code is expected to increase the percentage of successful transactions for both cards. Most other major credit cards, however, do not approve online gambling transactions at all. The report said the state is continuing to approach banks and financial institutions about credit card transactions. The state has also seen problems with geolocation technology. Only players physically located in New Jersey’s boundaries can play on online sites. Initially, geolocation programs had difficulty distinguishing the location of players who were near one of the state’s borders and many were rejected. The DGE now says geolocation programs have a 98 percent success rate and the division expects that to continue to improve. Online gaming sites in New Jersey have been taking in about $10 million a month through the first year for about $130 million in total revenue. While that’s a far cry from some earlier estimates— Governor Chris Christie initially predicted more than $1 billion in revenues—it has sustained the state’s online sites. Only one site—Ultimate Gam-

ing—failed in the state and closed in 2014. More than 500,000 online gambling accounts have been created in the state since November 2013, the report said. However, David Rebuck, director of the DGE, acknowledged that getting the sites up and running successfully was more difficult than anticipated. Some analysts thought that for sites that already had tested software, the process would be like “flipping a switch,” but actual implementation was much harder. “One surprise from a regulatory perspective was how operationally unprepared the platforms were to implement internet gaming in a regulated U.S. environment,” Rebuck said. “They thought they would be able to flip a switch and start up their current system here. They quickly found out that was not going to happen. “There was definitely a learning curve for the operators to adjust to our regulatory framework but that has improved dramatically,” Rebuck said. “Companies adapted to our new model, which we believe has helped improve the industry and raised its standards.”

shortly,” the Gibraltar-based company said in a statement. “The group is continuing its discussions with several parties regarding a variety of potential business combinations with a view to creating additional value for bwin.party.” The company expanded into social gaming in May 2012 with a $50 million investment. Social games are similar to casino games such as blackjack and slot machines but are played on Facebook and mobile devices. But losses on the social gaming business are expected to be about €7 million ($8.5 million) for the year, the company said in the statement. Bwin also anticipates a loss of €10 million on its online betting site in New Jersey. Revenues for the year are projected to be in the range of €608 million to €612 million and its earnings before interest, taxes, depreciation and amortization margin to be 16 percent to 17 percent. The amount won by the company, particularly in December, was exceptionally weak, Bwin said. Full-year results will be announced March 10.

Pala Interactive Expanding Into New Jersey

ala Interactive is expanding its operation into online gaming in New Jersey. And that may just be the beginning, according to Chief Marketing Officer Jeremy Clemons. The Pala Band of Mission Indians in Southern California formed Pala Interactive in 2013 with the supposition that eventually real-money internet wagering would become legal all over the United States. It is the first tribal gaming site to operate within New Jersey. It partnered with the Borgata Casino Atlantic City.

Bwin.party Will Sell Social Gaming Business

win.party Digital Entertainment Plc has announced it is close to selling its social gaming business and is in continuing merger talks with other parties. The Wall Street Journal reported that bwin will sell its Win.com business to newly launched RisingTideGames, co-founded by former Zynga Inc. executive Maytal Olsha. A stake in RisingTideGames would be the payoff, although RisingTideGames has yet to release any products and its valuation is simply speculation. “We are in active discussions regarding the sale of Win.com, the group’s social gaming business and expect to make a further announcement

Global Gaming Business FEBRUARY 2015

According to Clemons, “New Jersey will position us well as more states legalize real-money online wagering.” He added, “We believe we can make a significant contribution to the New Jersey market with our proprietary iGaming products and through innovative marketing. Furthermore, our experience in New Jersey will position us well as more states legalize real-money online wagering.” Pala is currently in the midst of a “soft open-

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ing,” with PalaPoker.com, planned to launch in the first quarter of this year with 90 games. Clemons added, “We will offer PalaCasino.com players a Free Daily Spin for the chance to win $1 million. Each time our players log in to PalaCasino.com they will get a free spin for a chance to win life-changing money. We feel the Free Daily Spin for $1 million is a strong differentiator for PalaCasino.com and we look forward to rolling out more innovative promotions in the coming months.”

California’s Iipay Nation Defiant After Court Ruling on Bingo

alifornia’s Iipay Nation in San Diego County is defiant after a federal court ordered it to shut DesertRoseBingo.com down an online real-money bingo “casino,” thought to be the first such online Indian casino in the nation. The tribe, based in Santa Ysabel, has promised that it will continue to fight the attempts by both

state and federal governments to prevent it from offering real-money gaming on the internet. But now it must deal with the fact that the US District Court for the Southern District of California has issued an injunction to shut down the site. The Iipay began operating DesertRoseBingo.com in November, although California has not yet legalized online gaming with real money. The court rejected its argument that it was exercising its sovereign right to offer Class II gaming, including bingo and poker without a gaming compact as outlined by the Indian Gaming Regulatory Act (IGRA). Congress passed IGRA in 1988, before the advent of the internet gaming. The state attorney general Kamala Harris argued that IGRA envisioned gaming on tribal lands exclusively, and did not include the notion of “virtual” gaming. She asked for a temporary injunction to block the website until the legal issues could be settled in federal court. The tribe’s spokesman Cruz Bustamante said the court decision could have “dangerous and significant pronouncements” for Indian sovereignty. He added, “This decision poses a significant threat to tribal jurisdiction over Class II gaming under the IGRA.”

Russia Considers Online Poker Ban

ussia’s State Duma (Lower House) has passed a bill banning players from playing online poker outside of Russia’s four designated areas. The bill—which now goes before the Federation Council (Upper House)—would impose heavy fines and possible jail time on illegal players. The bill makes playing online poker inside Russia a criminal offense, except in the four designated areas. Players would face a 500,000 ruble ($7,625) fine or up to two years in prison. Illegal operators would face fines of millions of rubles, and up to seven years in prison. Russia had seemed interested in allowing Western online gambling sites to operate in the country—generating taxes—but has performed a quick turnaround on the issue. Some analysts speculate that the new hardline on Western gambling is designed to deflect attention away from charges of corruption in Vladimir Putin’s government.

SEPTEMBER 2014 www.ggbmagazine.com

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Drilling Down

Data collection has been around for many years, but the newest software technology is providing effective ways to use it.

By Dave Bontempo

t used to be easy. Casino presidents spotted premier players by walking the floor, conversing and determining informal data. It was “eyeball-itics,” an instinctive feel for player worth and comping tiers. Marketing? That was the art of placing slot machines in the path of a $1 breakfast buffet. And then came analytics, an umbrella phrase entailing color codes, software, technology-driven market campaigns and predictive analysis. A favored pricing tool, it fine-tunes the human decisions governing comps, room rates and restaurant discounts. Analytics can entail formulating a quick response for group bookings or determining the proper room-price level for several player groups. It can enable a property to predict a slow time period far enough in advance to launch a marketing program. Data is gold in the ultra-competitive, multibillion-dollar gaming world, and anything that moves the revenue needle 5-10 percent is priceless. Vendors must produce more than an avalanche of solid data, however. The information must be quickly accessible and connect with bottom lines. It must be easy to interpret, enabling operators to add their own creativity. How about some administrative razzle-dazzle? An operator can tell a customer that his level of play may not justify room discounts or comps, but issue rewards anyway. The patron feels more valuable than what a formula dictates, and may gamble with renewed enthusiasm. Or make a return trip. The combinations are limitless, as is the need to convert the data into action. Analytics are best used at the intersection of technology and psychology.

Duetto: Changing the game Marco Benvenuti saw an avalanche of information while connected with Caesars and Wynn casinos in Las Vegas for several years. At Wynn, he captured customer data on how much players spent on everything. That impacted decisions affecting what level of free room to give a player, including those who spent significant money on food and beverage. Nearly five years ago, he went on his own, and now runs Duetto Research along with Patrick 46

Global Gaming Business FEBRUARY 2015

Bosworth and Craig Weissman. The Las Vegas-based company has amassed clients ranging from El Cortez to South Point and Westgate with its GameChanger product, launched in January 2014. Benvenuti believes several more properties may soon install the product. He says GameChanger helps casino hotels select and retain their most profitable customers, independently assessed by each individual customer segment, room type, offer or discount. GameChanger determines the total value of each guest by their prospective gaming and non-gaming revenue potential. The product is cloud-based, eliminating the need for IT personnel, storage costs and the maintenance of servers associated with having the product on property. “Think of the cloud solution in the sense that you are a homeowner,” Benvenuti says. “And you outsource everything for people to take care of it. We can also provide general information and information that may be pertinent to your property. We have airline traffic demand, giving you an idea how many people are coming to McCarran (Las Vegas Airport) on a certain date. There is weather information that is practical, too. When the temperature goes above 120 degrees in Phoenix, many people from that area go to San Diego.” That may become a future selling point for GameChanger in the Indian-gaming-rich Southern California market. El Cortez, meanwhile, has already utilized GameChanger profitably, Benvenuti says. Using analytic information on customer requests, it fine-tuned the operation to maximize its three room tiers. If demand spiked in one area, the hotel raised prices in that segment without changing the others. This helped the company not only match the player to an appropriate room rate (low-tiered gamblers with low-tiered rooms), but to eliminate guess work. There could be a tendency, for instance, to misread the market without an analytic tool. It would be easy to lump a high volume of reservation requests made by low-tiered players into the idea of raising prices for all rooms and then perhaps losing mid- and high-range customers.

Duetto’s GameChanger

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DataSpade: Profit Bounce Kalkaska, Michigan-based DataSpade is an industry-specific software and consulting company that serves corporate and tribal gaming properties. Its chief gaming-industry role is providing decision support for gaming executives via data and software. Owner Conrad Miller says the company’s small size—five employees—guarantees personalized service. “Look, we’re in every gaming market but Atlantic City,” he says. “All my clients have my cell phone number. We don’t have automated phone systems. If you call us, you get us. We deliver solutions for a fraction of the cost you would have to pay a database employee.” A couple of DataSpade’s main programs, invented by Miller, have been effective in the last several years. DataAce software is a Windows-based downloadable player’s club analytic tool and mailing-list compiler. It is primarily used to analyze individual groups, segments and players’ key metrics. The product allows marketing mangers to extract and analyze raw data using a clean, precise interface compatible with all player tracking systems. DataSpade’s BounceBack software offers a higher level of marketing power for casino properties. Its automated casino promotion software is used to issue free-play coupons and gain loyalty with players. The product is designed to bridge the gap between a casino’s player’s club data and the unrelenting marketing efforts needed to sustain player loyalty. The BounceBack system has helped some properties increase revenues by up to 15 percent, Miller says. It outperforms ADT (average daily theoretical) 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 player segments 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 auto-

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matically triggered when a playerâ&#x20AC;&#x2122;s point threshold is achieved. These offers can then be syndicated directly to the print house and/or kiosk redemption center automatically, and daily. â&#x20AC;&#x153;One of the big things we offer is help in the timing, the â&#x20AC;&#x2DC;whenâ&#x20AC;&#x2122; this offer is triggered,â&#x20AC;? Miller says. â&#x20AC;&#x153;Itâ&#x20AC;&#x2122;s a crime for some properties to have all this information in their databases and to know that a player has an offer coming, and for the information to sit there for 30 days.â&#x20AC;? Casinos can see a clear picture with the data. In the four market-segmentation quadrantsâ&#x20AC;&#x201D;high frequency, high value; high frequency, low value; low frequency, high value; and high-frequency, low valueâ&#x20AC;&#x201D;there are some surprises. A low-frequency, high value player, for instance, may miss comps if the casino is using a cumulative segmentation model that measures only his total amount gambled rather than the per-trip average. Addressing that player, and prompting an additional trip in a quarter, can tap an overlooked source of revenue. Miller adds that some gamblers have a psychological barrier at certain gambling thresholds. â&#x20AC;&#x153;You might bet $100 next week, and $100 the following trip, but if I sent a limo to your house and wined and dined you on the property, you will still bet $100,â&#x20AC;? he says. â&#x20AC;&#x153;Nothing can move that number for you.â&#x20AC;? Translation: Extra comping efforts wonâ&#x20AC;&#x2122;t always produce additional revenue. BounceBack not only determines the offer amount based solely on cumulative play, but also accounts for a playerâ&#x20AC;&#x2122;s distance from the property and calculates their offers in relation to their travel time. Redemption windows are enforced using a shorter offer expiration period, effectively controlling player response pressure.

Casino Data Imaging: How Suite it Is Las Vegas-based Casino Data Imaging continues to stay atop advancements in technology to deliver feature-rich applications. Late in 2014, the company released GlobalSuite 1.5, which added new drafting tools and enhancements to the application data control center, including Asset Master and Query Editor. Some of its recent installations include Belterra Park Gaming in Cincinnati, Valley View Casino in California and FireKeepers Casino in Michigan. GlobalSuiteâ&#x20AC;&#x2122;s Report Analysis, Application Control Center and Data Visualization components are utilized for managing slots, table games, player data and future add-ons for performance analysis. It has added Player Data Version 1, which can be accessed directly from GlobalSuiteâ&#x20AC;&#x2122;s graphical interface. Clicking on a machine reveals whoâ&#x20AC;&#x2122;s playing the device, along with trip histories and tripsession drill-downs. Player information is also brought into GlobalSuite interactive dashboards and report analysis component.

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A key to good dashboard design is to avoid overpowering users with too much information, company officials say. How much is too much can vary depending on job roles. Casino Data Imaging has made dashboards interactive so users can get more information and customize data views. Theme Peer Group Comparisons, Distribution Utilization & Optimization and Lease Games Profitability (with adjustable data grids and graphs) are great examples of customer feedback and suggestions, CDI says. Alerts can also be used to call immediate attention to information based on pre-defined criteria set by users. If already using other tools for dashboard analysis, customers can still access its interactive trending collection if desired. GlobalSuite can be used to complement a property’s existing business intelligence assets as well as integrating applications that operate off the GlobalSuite data cube, like Excel’s PowerPivot and Power Query. CDI continues to invest in and expand its data visualization component for single- and multi-casino operations. Features include high-level and drill-down financial color coding, group tracking, advanced printing and plotting features, MGMD analysis views and drill-downs, group tracking, search features, server-based casino layouts, and both 2D and 3D visual modes.

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CIP Reporting: Self-Exclusion Analytics Casinos have long urged customers to bet with their heads, not over them. Some enlightened patrons have opted for self exclusion, and technology aids their efforts. Responsible gaming and self-exclusion programs are a duty of all gaming operations, but the tools available for enforcement have offered little more than a transition from a paper book to databases with photographs, according to Jason Riffel, who founded Massachusetts-based CIP Reporting in 2006. CIP Reporting’s Self-Exclusion Enforcement Analytics utilizes selfexclusion data with features that include customizable geographic analysis and dashboards. Self-exclusion data can be captured from any data source, including ad-hoc documents in folders, email, spreadsheets, databases, or manually entered and tracked in CIP Reporting. Real-time analysis is performed on the self-exclusion data, including demographics, background, history and the all-important geographic proximity to the gaming establishment. “With problem gambling well-known as a compulsive behavior, the

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geographic proximity of a person to a gaming establishment is a key indicator for the likelihood to violate at a specific property,” Riffel says. “Geographic proximity may include not only the place of residence but also place of employment. The higher the frequency a person is near a gaming establishment, the higher the likelihood that gambler will make the compulsive decision to gamble there.” CIP Reporting’s Self-Exclusion Analytics creates an unlimited number of specialized lists based on customizable criteria such as geographic distance, number of violations, violations at a specific location, or other custom criteria. The lists feed into analytic dashboards designed for display on large screens in prominent employee-only areas such as surveillance, security, employee dining, etc. The analytic dashboards protect the individual’s personally identifiable information by only displaying photographs and demographic information. The analytic dashboards rotate through various layouts in a randomized carousel to create a visually stimulating, alternating training tool to help employees be aware of the most important information, Riffel says. Mapping technology also is used to display proximity overlays while mapping to their closest post office.

“GroupREV has taken into account a casino manager, sales and revenue management standpoint. It will give you, within minutes, a suggested negotiating range for that product. The information can be given to the salesperson who immediately knows what he or she can negotiate for a block of rooms. There is no going back and forth with the manager, or sales director, in a process that may lead to you losing that business. The salesperson has the freedom to negotiate within a certain range.” —Amar Duggasani, Chief Strategy Officer, Rainmaker

Rainmaker: Speed is Money The Rainmaker Group, a world leader in automated forecasting and profit optimization software and services for the gaming and hospitality industry, has “REV-ved” up operations. About 18 months ago, the company, based in Atlanta, Las Vegas and Singapore, extended its customer measurement philosophy. It added GroupREV to help casinos use analytics to determine price and meeting space considerations. The solution is cloud-based. GroupREV is a stand-alone group pricing software solution enabling group sales and revenue management teams to quickly respond to leads with optimal prices. This helps improve conversion rates about 11 percent and increases group revenues approximately 8 percent, the company says. This innovative system delivers intelligent pricing, compliant with revenue management policy, optimized to capture the sale in seconds, not hours or days. The name of the game? Speed. This dynamic occurs on two fronts. One, 70 percent of first responders to group inquiries obtain the business, Rainmaker contends. Two, it eliminates layering. “Hotels are getting bombarded by requests for multiple room blocks on a given date,” says Amar Duggasani, chief strategy officer for Rainmaker. “That creates more opportunity but also more competition. Normally, a salesperson would have to go to the revenue management team and also the sales director for pricing guidelines. This creates friction in the process. The salesperson who is compensated on commission wants to close the deal and move on to the next one, and the revenue director wants the best possible revenue for that 50

Global Gaming Business FEBRUARY 2015

block of rooms. “GroupREV has taken into account a casino manager, sales and revenue management standpoint. It will give you, within minutes, a suggested negotiating range for that product. The information can be given to the salesperson who immediately knows what he or she can negotiate for a block of rooms. There is no going back and forth with the manager, or sales director, in a process that may lead to you losing that business. The salesperson has the freedom to negotiate within a certain range.” The suggested negotiating range also helps companies identify their top salespeople. “If you see that Mike is closing deals at the top of the suggested range and Bob is coming in at the bottom of the range, you can make a determination about the sales effectiveness of each,” he says. GroupREV has gained installations throughout Las Vegas. Duggasani says revenues jumped 7-10 percent in most cases. The product helped customers predict soft periods in their market and campaign accordingly. Late in 2014, the company announced that Seminole Gaming Corporation will implement a related product, GuestREV, at its recently renovated and newly expanded Immokalee property in Florida. For decades, casinos have had various tools designed to gather data on players and casino operations. Technology has finally caught up, and products such as those provided by the vendors above are teaching operators the most effective ways to use that data. Now more than ever, data is king in casino operations.

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SLOT OPERATIONS

Grow to the Adjacent Market How the introduction of lotteries and mobile devices will influence the slot floor By Bruce Merati

t is widely believed that U.S. state lotteries will use the power of the internet to enter into the gaming market. While there are good indications this might happen, the good news is that it will take some time before they will go online with a fully fledged gaming service, thus giving casinos a time window to re-engineer themselves and increase the size of the pie. The belief that lotteries are converging into gaming is not without merits. Those in the U.S. can look north of the border, where Canadian provinces such as British Colombia Lottery Cor-

selves in the driver’s seat to take advantage of the new opportunity of distributing games through a new channel for two competing industries. They are hoping for a breath of fresh air on the other side of the aisle. They also see consolidation as an effective shield against casinos looking to pass on some of their current economic hardships to them and squeezing their profit margins. Through mergers, the top three big game manufacturers have moved to the adjacent lottery market hungry for more revenues via new distribution. The mergers reflect a milestone for the paradigm shift of selling expensive boxes built for a casino floor to selling games on less expensive and ubiquitous devices such as PCs, tablets and smart phones. The most likely scenario in the U.S. is that the state lotteries will not offer a full range of gaming services similar to those offered by the lotteries in other countries. The history and dynamics of gaming in the U.S. is very different than a country such as Canada where the government historically owns both casinos and lotteries. Since U.S. casinos have large numbers of employees, it will be too risky for lawmakers to jeopardize their jobs by allowing lotteries to compete with casinos on all fronts. In all likelihood, the overlap between the two industries would be limited to slot-type games. Knowing what the future will bring, casinos need to find new revenue streams to compensate for loss of market share. In the past when the gaming customer base was growing, all casinos were making money and the ones that invested in bigger resorts were making even more money, causing the overcapacities we are currently experiencing. The business was so good that they didn’t have to look over their shoulders to worry about offshore internet gaming companies taking billions of dollars from their potential customers. They also missed the boat on the social gaming phenomenon. As casinos missed on new opportunities and more casinos were built across the

Casinos have to accept that ‘‘today’s internet is a must-have communication ecosystem, and that it will not substitute visitations to their casinos.

’’

poration (BCLC) has set up an online website that covers all types of casino games, sports wagering, skilled games such as poker and lottery games. BCLC’s owned-and-operated Play Now (www.PlayNow.com) is a full internet gaming site generating healthy cash flows for the province. Another sign of upcoming competition is the recent spate of mergers of slot manufactures such as WMS, IGT and Bally with lottery suppliers GTECH and Scientific Games. For the last 30 years slot manufacturers were casinos’ best partners. By providing the devices that generated most of the casinos’ profits, gaming manufacturers fueled their growth. Now these companies have positioned themselves to be partners with the state lotteries, supporting the notion that the line between lotteries and casinos is going to get very blurry. Casino slot manufacturers’ recent rush to merge with their counterparts on the lottery side is a message to the industry expressing their frustrations with protectionism and lack of progress in cooperating with each other to embrace the internet. The new merged entities have put them52

Global Gaming Business FEBRUARY 2015

country, the customer base for most casinos shrank, which, combined with players watching their wallets, was a perfect storm to knock out some casinos in several markets and put many others in a dire-straits situation. Casinos have to accept that today’s internet is a must-have communication ecosystem, and that it will not substitute visitations to their casinos. With lotteries going online, casinos will no longer be able to drag their feet. Soon, they will find themselves forced to compete with stateowned lotteries in a virtual market. By embracing new technologies, casinos can grow into their own adjacent markets. Using the internet and video streaming technologies they can create a new category within the media and entertainment sector. In Europe, this category already exists—recently, Sky TV sold 80 percent of its stake in Sky Bet for about $1 billion. Casinos can create interactive gaming shows by broadcasting live games on cable TV or on a website with viewer participation and engagement, a new model called second-screen gaming. Viewers can participate in a game using their tablets and smart phones as a second screen while watching the game on the first screen broadcasted on a TV channel or over the internet. Today’s slot machines, with all their technology, design and graphics, still do not excite the millennial generation who are used to games that require decision-making skills. However, on the other hand, table games, which were the foundation of the casino industry, have not changed over the years and have not benefited from the technological revolution. It is time for casinos to go back to their roots and make table games more digital, and start distributing them over a network. Bruce Merati is CEO of Uplay1 and Session Gaming. Uplay1 is a gaming IP company and Session Gaming is a licensed gaming manufacturer and distributor. Uplay1’s “One Dealer, Infinite Number of Players, Same Odds” patented Hybrid RNG technology makes a live game scalable to an unlimited number of players.

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FRANKLY SPEAKING by Frank Legato

Crime Fighters

VICT O

R RIN ALDO

n anticipation of next month’s special section on casino security and surveillance, I’ll concentrate this latest edition of “Casino Industry Crime Blotter” on a few weird security and surveillance stories from last month. First, a security officer who worked for a casino in Arizona actually took his gun and robbed the casino’s vault. Let’s contemplate that for a moment. It was the casino where he worked. He walks up to the casino vault and basically says, “Stick ‘em up.” After collecting about $132,500 and stuffing it in a bag, the guy actually felt he had to lead police officers on a high-speed chase to try to get away. He was “heavily disguised,” according to one article I saw. He later claimed that it was a disguised accomplice who actually robbed the casino, but the surveillance video made it plain it was the guard himself robbing the casino vault. Just one question: What was the guy’s disguise? What was the disguise he thought would let him rob his own casino? Was he masked like Zorro? Was he in a clown suit? Was he a ninja? I’m guessing ninja. In any event, it was no joke that he pointed an AR-15 rifle at two other officers, stuffed money in a bag… then, that bewildering high-speed chase. “HA! No one recognized me. My ninja was too good…” Not surprisingly, the guy was arrested at the end of the chase, and reportedly shot his rifle a couple of times—according to him because he was frightened; he wasn’t really shooting at police. So, first, he thought his disguise would result in the perfect crime. Next, he thought he could outrun the cops to… I don’t know where… And ultimately, he determined that his situation would be best improved by firing an automatic weapon a couple of times as police converged. As Sergeant Friday used to say, you just don’t know about some people. Turning to the eastern shore of Maryland… Oh, come on. I’m sure Sergeant Friday said that at some point. Anyway, in Maryland, a woman was kicked out of the Casino at Ocean Downs by security guards for breast-feeding her baby in an empty lobby. Not good, but get a load of what the security guards told her when they kicked her out. According to my favorite magazine, People: “Alanna Panas of Mechanicsburg, Pennsylvania, says she was trying to soothe her crying baby in the casino lobby on a rainy January 3 when she began to breast-feed. But casino security told her to leave because the baby was not 21 years old and that the baby was a security threat.” I swear I did not make that up. I really got it from People magazine. First, the casino’s security guards 54

Global Gaming Business FEBRUARY 2015

told the lady the baby was underage. Good call! They must have been real pros! “Ma’am, may I see the baby’s ID?” “She doesn’t have an ID. She’s a baby.” “Well, I’m sorry, but I’m determining she’s not 21 years of age.” “She’s not. She’s 7 weeks old.” “Ma’am, you’ll need to put your breast away and leave the premises immediately. The baby’s underage.” But as much as that got my attention, what really got me was that they called the baby a “security threat.” Did they think it was a baby…er, booby trap? A Trojan Baby? Because it looked like, you know, a baby. The mother, naturally, wrote all about it on Facebook, and Ocean Downs posted an apology on Facebook on behalf of “any staff member” who “did not help make the guest’s experience enjoyable.” Speaking of enjoyable guest experiences, over in Baltimore, security guards at the new Horseshoe casino logged eight physical altercations between guests, or some combination of guests and guards, during the month of November. November 10: “An intoxicated female subject was arrested by BCP (Baltimore City Police) for assaulting a security guard. A male subject and a female subject became involved in a physical altercation at Pit 2. The subjects were separated and then evicted.” “November 21: Two (2) female subjects became involved in a physical altercation and were evicted.” Wow. One fight between a male and female subject, and another between two (2) female subjects. The list of altercations goes on, with one guy damaging a television, four guys fighting in the parking garage… The casino’s security staff is to be commended, because they dealt with just about everything in November that security people would ever have to deal with. There were only two things missing from the list. That’s right. No mothers had to be wrestled to the ground for breast-feeding. And there wasn’t an underage baby in sight.

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NEW GAME REVIEW by Frank Legato

Birds of Orion AGS

his is the first game from AGS featuring what the manufacturer calls the “Uni-Reel” play mechanism. Instead of five spinning reels, the screen’s paylines or ways-to-win configurations are built around a single reel that snakes around the screen, similar to what one would see in an arcade game. Players see symbols enter at the top left-hand corner and travel through the play field, stopping to form winning combinations on a five-column, four-row grid highlighted on the screen, in which the pays are evaluated. It’s a visual designed to relieve the player of humdrum reel-spinning.

Birds of Orion features a beautiful graphical display of neon colored birds on a black, celestial background. Wild symbols and multiplying wild symbols increase base-game pays. Animation and sound effects entertain as bird characters randomly transform reel symbols into wilds and multipliers. Three bonus events include the Soaring Symbol Upgrade, the Birds of Orion Bonus and the Orion Color feature. The Soaring Symbol Upgrade is a mystery event in which a bird flies onto the screen to transform all symbols with feathers into wilds or win multipliers. The Birds of Orion Bonus is a free-spin event featuring multipliers applied to the wins. In the Orion Color feature, a multi-colored Phoenix symbol doubles all pays and six color groups of flowers and birds are selected to convert into wild symbols. Manufacturer: AGS Platform: Colossal/Crazy Tooth Format: Uni-Reel, five columns by four rows Denomination: .01, .02, .05 Max Bet: 250 Top Award: 18,000 Hit Frequency: 38.09% Theoretical Hold: 7.82%-14.82%

Cash Wizard Featuring Quick Hit Bally Technologies

ith this game, Bally combines two of its most popular themes and game mechanics—the Quick Hit progressive format and the Cash Wizard bonus wheel feature. The base game is a five-reel, 25-line video slot with a minimum required bet of 15 credits per line. The game is available in denominations up to $500, but is designed mainly for lower denominations. The main feature is the popular Quick Hit format, which awards progressive jackpots for five or more Quick Hit symbols scattered anywhere on the reels. Progressive resets in the penny version are $12 for five Quick Hit symbols; $60 for six symbols; $120 for seven; $800 for eight and $3,000 for nine symbols. Tying in with the new theme, in a mystery feature possible at the start of each base-game spin, the Cash Wizard characters may randomly transform symbols to Quick Hit symbols, increasing the chances of a progressive award. In addition to the Quick Hit features are two other bonus features. The main feature is a spin of the Cash Wizard Cash Wheel. Cash Wheel symbols scattered on the middle reels trigger a grid of 21 tiles. Players pick tiles until three match to win up to three spins of the wheel, with associated multipliers up to 4X. According to the manufacturer, this feature occurs every 69 spins for an average award of 18 credits times the total bet. Other scattered symbols trigger 12 free games with all wins doubled. For triggering the feature, the player is awarded a bonus of twice the total credits bet. 56

Global Gaming Business FEBRUARY 2015

Manufacturer: Bally Technologies Platform: Alpha 2 Format: Five-reel, 25-line video slot Denomination: .01-500 Max Bet: 400 Top Award: 200,000 times line bet Hit Frequency: 55.38% Theoretical Hold: 6.04%-14.51%

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