CURRENT TRENDS IN GAMBLING INDUSTRIES WORLDWIDE

1
CURRENT TRENDS IN GAMBLING INDUSTRIES WORLDWIDE

• William R. Eadington
• University of Nevada, Reno
• September 15, 2005
• www.unr.edu/gaming

2
LOTTERIES VS. CASINOS

• Parallel Universes
• Minneapolis vs. Las Vegas
• Objectives Revenue for the State v. Profit
  Maximization
• Mass Distribution Networks vs. Site Specific
  Venues
• Dream Buying vs. Adrenaline Rush
• Interface areas Keno, VLTs, Megabucks
• Semantic difficulties Gross sales vs. Gross
  Gaming Revenues Retention rates vs. House
  Advantage Online Gaming

3
COMMERCIAL GAMING IN AMERICA, 2004

• Casinos (Non-Indian) 30.6 billion
• Casinos (Indian) 19.4 billion
• Lottery 21.4 billion
• Pari-mutuels 3.7 billion
• Card rooms, charity, bingo, other 3.6 billion
• Internet gaming (global) 4.2 billion
• TOTAL IN 2004 78.6 billion
• TOTAL IN 1982 10.2 billion
• (0.8 of aggregate personal income)
• not counting internet gaming

4
(Billions)
Bingos, card rooms, charities
Pari-mutuels
Casinos
Lottery VLTs
Tribal Casinos
5
ECONOMIC AND SOCIAL BENEFIT/COST RANKINGS OF
TYPES OF GAMING

• Some Gaming Sectors or Forms are more benevolent
  than others. Possible ranking
• Traditional Lotteries, bingos (Soft gaming)
• Destination resort casinos
• Urban or suburban casinos
• Convenience gambling Gaming devices in bars and
  taverns, VLTs, slots arcades
• Ultra-convenient gambling inter-active
  television or internet gaming, mobile phone
  wagering

6
THE GAMBLING WORLD WITH AN EMPHASIS ON CASINOS
AND CASINO-STYLE GAMING
7
ECONOMICS OF CASINOS AND CASINO-STYLE GAMING

• Latent demand that is realized with casino
  legalization
• Very strong economies of scale
• Importance of convenience, location
• Social backlash is hard to avoid unless gaming is
  a strong export
• Reluctance to let market forces determine the
  size of the industry
• Much competition for economic rents gt Political
  until it reaches maturity

8
TOP CASINO MARKETS IN UNITED STATES
9
IMPORTANT TRENDS AND RECENT EVENTS WITH CASINOS
IN THE UNITED STATES

• Private sector is the major benefactor
• Governments are often important revenue sharers
• Most gaming markets are mature (stable)
• Exceptions Las Vegas, Racinos, parts of
  California Indian gaming
• Some new legalization, expansion
• Pennsylvania (2004), Florida (2005), Maine
  (2005) attempts in Maryland, Texas,
  Massachusetts
• Limited presence of convenience gaming
• Nevada, Montana, South Carolina (extinct), South
  Dakota, Oregon, West Virginia
• Less political backlash compared to Canada, other
  countries (so far)

10
LAS VEGAS
11
LAS VEGAS MAJOR DEVELOPMENTS

• Strong current economic performance, increasing
  diversity of the entertainment product
• Mergers of major gaming companies MGM Mirage
  Mandalay Bay and Harrahs Caesars
• Opening of Wynn Las Vegas (April, 2005) at a
  CapEx of 2.7 billion
• Development projects Venetians Palazzo, Wynn
  Encore MGM Mirages CityCenter, other high rise
  residential
• The Strip will increasingly become a place to
  live rather than just to visit gtManhattan
  West

12
(No Transcript)
13
CASINO MARKETS ELSEWHERE IN THE UNITED STATES

• Most markets have achieved maturity
• Limited growth in gaming revenues
• Limited new capital investments
• Consolidation and diversification are important
  trends
• Increase loyalty, enhance revenues, control costs
• Hotels, Convention sales, Restaurants,
  Entertainment, Leasing retail space are all
  becoming profit centers with casinos

14
AFTERMATH OF HURRICANE KATRINA ON GULFPORT AND
BILOXI, MISSISSIPPI, AND NEW ORLEANS
15
KIDS QUEST FACILITY, GRAND CASINO GULFPORT
16
CANADA CURRENT STATUS AND ISSUES

• Government ownership gt Captures substantial
  Economic Rents for Provinces
• Much greater presence of convenience gaming than
  in USA gt VLTs (all provinces but Ontario)
• Much more controversy over problem gambling
• Government ownership is a vulnerability
• Conflicts of objectives
• Regulator and owner or owner/operator
• Revenues or Mitigation, i.e. Ontario
• Trends toward diversification Plans to rebuild
  Casino de Montreal with Cirque de Soliel

17
FALLSVIEW CASINO, NIAGARA FALLS, ONTARIO
18
THE GLOBAL VIEW ADDRESSING LEGAL CHALLENGES TO
PROTECTED MONOPOLIES OR TO INCONSISTENT LAWS

• Two major parallel developments
• European Union The Gambelli Case and similar
  legal challenges
• The World Trade Organization The Antigua Case in
  challenging the United States prohibitions
  against commercial internet gambling

19
GAMBELLI COMMON PRINCIPLES

• Harmonization implies free and fair competition
  unless there is a compelling reason for a member
  state to protect its citizens from social harm
• Proportionality implies that the extent of
  protections offered need to be related to the
  economic power of monopolies claimed via
  Subsidiarity
• The challenge is in finding appropriate social
  protections to allow the continuation of monopoly
  power and capture of economic rents

20
ANTIGUA V. THE UNITED STATES COMMON PRINCIPLES

• Under the General Agreement on Trade and
  Services, the United States agrees to follow the
  principles of Market Access and National
  Treatment
• Exceptions come in the form of protection of
  Public Morals
• April 2005 finding of WTO court suggested
  inconsistency in the Interstate Horse Racing Act
  (2000)
• Can technical corrections keep the United States
  from having to remove its prohibitions?

21
OTHER IMPORTANT FACTORS

• Growing popularity of internet gambling among
  customers in the United States
• Unwillingness of policy-makers to impose
  penalties on consumers
• Grey area gambling products (Fantasy Football)
• Difficulty of enforcement
• Interest in the United States in using the
  Internet as a delivery system for such products
  as lottery
• Success of recent launches of British internet
  gaming companies
• Party Gaming at 4.7 billion next is BetFair

22
THE UNITED KINGDOM
23
THE UNITED KINGDOM THE BEST LAID PLANS

• Recognized need to modify Gaming Act 1968 (1999)
• Obsolete and eccentric law impacts of new
  technology
• Budd Commission and the Government Response (2001
  and 2002)
• Principles of competition, anti-protection, and
  treating problem gambling as an externality
• Scrutiny Committee and attempts to reshape
  outcome (2003 and 2004)
• Many Small versus Few Big Limit the ratios
  of slots to tables
• Political backlash
• Outcome Only one super-casinos (1,250 slot
  machines) and 16 other large and small casinos

24
LESSONS TO BE LEARNED

• Even with careful study and analysis, it is
  sometimes very hard to control the process and
  the ultimate outcome
• It is hard to persuade the general public that
  casinos should be offered in a free market
  environment
• At least with regard to gaming, the British are
  evolutionary, not revolutionary

25
OBSERVATIONS ON CASINOS IN EUROPE

• Aversion to the American style of casino gaming
• Existing casinos smaller, protected, less
  diversified
• British aversion to Super Casinos
• Gaming industries often protected monopolies
• Justified by good causes, social controls
• Significant proliferation of convenience gaming
• Likely to become increasingly problematic
• Possibility of Changes in the competitive
  environment
• European Union gt Harmonization
• Small country developments gt Domino effects
• Changing patterns of mobility in Europe the
  cheap airline phenomenon

26
AUSTRALIA/NEW ZEALAND MATURE MARKETS BACKLASH

• Consolidation and diversification
• Preserving profitability, capturing value
• Strong sense that gambling has been allowed to
  become too prevalent
• 3.5 of API spent on gambling
• Harm Minimisation strategies being debated and
  adopted, regardless of evidence of effectiveness
• Politicians must act to improve public concerns

27
ASIA THE EMERGING GROWTH MARKET

• End of Prohibition and the Pursuit of Opportunity
• High level of enthusiasm from Asian customers
• Macao Moving from an Outlaw industry to Las
  Vegas of Asia
• Singapore Enhancing the attractiveness of a
  prosperous but boring city, and controlling the
  social impacts
• Korea Opening the doors to casino gaming by
  citizens
• Japan, Thailand, Taiwan, India, China Watching
  others and trying to decide what to do

28
MACAO THE NEW GOLD RUSH
29
MACAO THE LARGEST GAMING VENUE IN THE WORLD

• New Law passed in 2002
• 2004 Gross Gaming Revenues at over 5 billion
  2005 GGRs over 6 billion
• GGRs are 98 table games 90 baccarat, 70
  private room VIP play (problematic for
  regulators)
• Growth rate of 20
• By 2006-2007, major new casinos by Wynn Resorts,
  The Venetian, MGM, Melcor, Galaxy, others

30
THE SANDS
31
INTERIOR OF THE SANDS
32
SINGAPORE
33
SINGAPORE THE BEST CURRENT OPPORTUNITY IN THE
WORLD

• Modern city-state of 4 million, high per capita
  income, honest government
• Government concerned about mitigating unintended
  adverse consequences Entrance fees of
  S100/S2,000 for Singaporeans limited local
  marketing limited local credit
• Two casinos to be given exclusive franchises in
  Singapore Primary interest in Integrated Resort
• Non-gaming amenities important
• Low to moderate tax rate (15 range 5 for VIPs)
• Originally 19 bidders now short-listed to 12
• Give out Marina Bay license, then Sentosa Island
• Short list 4 or 5 companies require them to
  submit bid on land lease choose the highest

34
ADDRESSING BACKLASH FROM CONCERNS OVER PROBLEM
GAMBLING

• Important concern in many jurisdictions, with
  parallels drawn between gambling and alcohol
  abuse, drug abuse, and tobacco
• Greater pressure when heavy locals gambling,
  government ownership, ugly gambling
• Risk of politically driven constraints that may
  not address the issues Symbolic regulation

35
CURRENT UNDERSTANDING OF PROBLEM PATHOLOGICAL
GAMBLING

• Prevalence studies suggest 1 probable
  pathological and 5 probable problem
• Within a casino or gaming venue, the proportion
  of customers who are PP is likely quite a bit
  higher than these averages
• Depends on locals v. tourists as customer base
• Proportion of revenues from PP gamblers is
  estimated as high as 30 (Australia, Canada)
• Unsure what causes of PP gambling are
• Used to be seen as a sin, then as a vice.
• Now it is increasingly viewed as a disease
• Illusion of control, personality disorder,
  impulse control, physiological, degenerative
  disease

36
STRATEGIES TO ADDRESS PROBLEM GAMBLING

• Ignore the problem and try to manage the
  political consequences
• Treat this as a public relations exercise
• Harm Minimization Place constraints on gaming
  operators or facilities that purportedly will
  mitigate PP gambling
• Reverse technologies, inconvenience all customers
• Identify and Isolate Use various schemes to
  limit or deny access to gaming venues to those
  who are self-abusive
• Consistent with self-exclusion and with
  involuntary exclusion
• Work toward a concept of gambling licenses as a
  revocable privilege for customers

37
OTHER AREAS OF IMPORTANCE PROBLEM GAMBLING

• In many jurisdictions, this has become the most
  important policy challenge
• Problem seems to become more severe with gaming
  devices permitted outside of casinos
• Severe backlash in Australia, New Zealand,
  Canada, North Carolina
• Strategies for containment Education,
  treatment, research
• Casino strategies Signage, support helping
  groups, self-banning, involuntary exclusions

38
UNDERLYING PRINCIPLES FOR GOOD STRATEGIES TO DEAL
WITH PROBLEM GAMBLING

• Evidence-based approaches
• Need for resource allocation for research,
  education, and treatment programs
• Support is increasingly coming from economic
  benefactors, i.e. Canadian provincial
  governments, State of Nevada

39
MAJOR CHALLENGES FOR GAMING INDUSTRIES EVERYWHERE
(INCLUDING LOTTERIES)

• Find an appropriate balance of how much gambling
  should be present in society
• Establish regulatory and legal structures that
  are politically stable and respected by the
  public
• Address the issues of problem gambling in a
  pro-active and effective way

40
EXPLORING THE FUTURE OF GAMBLING AND COMMERCIAL
GAMING

• Attend the University of Nevada Renos 13th
  International Conference on Gambling and Risk
  Taking, Lake Tahoe, Nevada, May 22-26, 2006