Casino & Gaming International: Issue 2 by Casino & Gaming International

2006 ISSUE 1

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uring the 1980s in particular, the ‘casino economy’ was a term invoked to conjure an image of globalisation stripped down to winner-takes-all stakes. Supposedly, it signified the rest of the world, disadvantaged or not, could go hang or hope to be lucky in the manner of Russian roulette. However, that literal association with all things unstable and underhanded could be given a substantially different slant today. As the gambling industry has evolved to become a powerhouse of international investment activity in its own right, it is made all the more attractive and enduring with the range of leisure, service, technology and finance concerns that stretch out from the traditional hub of the casino-centred industry. Its revenue streams, as we know, are increasingly tied to cross-sector corporate considerations. The breadth and depth of its presence is still gathering momentum with unabated North American, Euro-Asia/Asia-Pacific growth. Technology and innovation is gradually bridging all gaming media forms (with its heightened public interest and generational awareness); and a rapid, yet volatile, rise in billion-dollar Online casino-related games, coupled with betting options, that together presage major interactive and mobile lift-off. Generally, this encourages a demystification of the industry as a whole, providing scope for a more rational understanding of one of the oldest impulses known to human life. Visibly dynamic as we can see from the ever crowding expo calendar, the flurries of cross-border M&As, not to mention the UK LSE’s highflying entrants, all point to greater emphasis on this rich, fluid industry. The spread of Online gaming has lost none of its momentum despite a cautious, sceptical view of its longevity. But the recent euphoria over the big leaguers is more than hype, even though PartyGaming and Empire, veering into a potential legal tussle recently, tend to confirm for some the persistent instability of the Online world. The notable LSE new risers inevitably do have shakier elements among them, but there is no fault line. Rather, this is essential to business development: the ‘Cyber Sea Bubble’ may have burst in the initial flush of dotcom mania, but that made way for regeneration. It is arguable that Online gaming is fully buoyant to ride any extensive boom, while a shakeout would surely amount to a transformation, not its commercial demise. Core casino developments will remain the heart of human-oriented gaming for as long as we remain distinguishable from virtual reality. The field is wide open. Frontiers are being pushed in eastern and central Europe; Russia and the Baltic countries; and Asia-Pacific, especially China’s Macau. An object lesson in the making, perhaps: Singapore, it has been suggested, could find itself hemmed in by the competitive rush, at least initially. At this rate though, what country is going to be left out of the global casino drive? Burgeoning worldwide saturation and consolidation tends to point to the need for vigilance where problem gambling is concerned. Professional management policies and prevention mechanisms are slowly being embedded, closely connected with sophisticated regulatory appraisal and control. International standards, meanwhile, are being set in place – vital to underlying business confidence and public scrutiny. The media-enhanced profile of gaming looms ever larger in everyday life, creating real and imagined negative impacts that can be exaggerated, despite the statistically limited numbers that are actually thought to succumb. Consequent damage to the serious intentions of casino funding of social and educational programmes, unavoidably partisan as it often may appear, would therefore hinder industry’s role in tackling the issues. Recent events on the Gulf Coast demonstrate that there is always good reason to have a sound human response to adversity, quite apart from opportunities the aftermath offers. This may never be the bottom line, but commercial logic suggests that paying social dividends, as competition and scrutiny sharpens on the world’s stage, is likely to be one of the distinguishing features helping to define the culture of the industry and its wider acceptance.

Stephen Lawton is editor of Casino & Gaming International Casino & Gaming International ■ 1

CONTENTS

FEATURES 7

DUMMY UP AND DEAL: EVOLUTION OF MANAGEMENT IN THE CASINO INDUSTRY BY GEORGE G. FENICH & KATHRYN HASHIMOTO

MARKING THE UNIQUE MOULIN ROUGE ERA BY CLAYTEE D WHITE

WGPC: SETTING SIGHTS ON THE FUTURE OF SECURITY BY WILLY J. ALLISON

SAVVY, EAGER AND INNOVATIVE ENTREPRENEURS PUSH NEW ‘HOT SPOT’ BOUNDARIES BY ROSS FERRAR

THE GAMING ECONOMIC VALUE OF INTEROPERABILITY AND OPEN COMMUNICATION BY PETER DE RAEDT

SAFE, FAIR AND EFFICIENT: eCOGRA’S PATH TO PLAYER PROTECTION BY MICHAEL HIRST OBE & ANDREW BEVERIDGE

Casino & Gaming International ■ 3

CONTENTS

FEATURES 49

BUSINESS SENSE OF EDUCATING FOR PREVENTION INTERVIEW WITH CONNIE JONES

SEEKING AN OPEN, COMPETITIVE AND RESPONSIBLE MARKET BY DIDIER DEWYN

SHIFTING INTO mGAMING GEAR: CONVERGENCE, OPPORTUNITIES AND FUTURE PROSPECTS BY GARETH WONG

COMMERCIAL REALISM: ALDERNEY’S ‘STATE OF eGAMING’ BY ANDRÉ WILSENACH

BRITISH CASINOS – A HAPPY NEW YEAR? BY JOHN HAGAN

COMMON CAUSE FOR A COLLECTIVE WISDOM: SEEKING A FAIR AND BALANCED HEALTH POLICY BY CHERYL LEWIN

ADDICTION TRENDS: INTERNET V CASINO GAMBLING BY MARK GRIFFITHS Casino & Gaming International ■ 5

CORPORATE CULTURE

DUMMY UP AND DEAL: EVOLUTION OF MANAGEMENT IN THE CASINO INDUSTRY BY GEORGE G. FENICH & KATHRYN HASHIMOTO

This article deals with how casino management has evolved, how management has dealt with challenges, and how history can serve as the guide to managing casinos in the future. While many of those in casinos think that their industry is different, it is suggested that casino management and ownership have followed patterns of evolution and development that are not unique. Rather there are strong similarities between the evolution of casino management and the evolution of many businesses that preceded the casino industry. Thus, by recognising the parallels, casino managers and owners of the future can better understand where the casino industry is likely to go.

n examining how successful businesses evolve, corporate culture is used to evaluate the relationships management portrays to its employees and to its public. In America, the history and evolution of casinos have created two very strong corporate cultures. A corporate culture could be described as the personality of the organisation. Like a person, a business can be weak or strong, conservative or daring, or even stodgy or innovative. Corporate cultures are very important because they set the boundaries for behaviour by managers and employees. The stronger the culture, the easier it is for employees to know what they should do when the formal rules are not available. There are always new situations and problems in a casino that must be addressed. A strong corporate culture sets the tone and guidelines for problem solving. Thus, we will look at the evolution of different corporate cultures in the gaming industry. In doing so, we will see the patterns of evolution in the casino industry and other businesses and use those patterns to predict the future.

CORPORATE CULTURE IN EARLY CASINO DEVELOPMENT When casinos first developed in America, ownership was by a single individual who could lose that enterprise on a toss of the dice. It was the owner’s ‘luck of the draw’ that determined his length of stay, not his management ability. As a result, owners were superstitious and they only trusted their own instincts. The ‘monopoly on brains’ syndrome referred to the fact that only the owner could make a great decision, not employees. Therefore the corporate culture was one of ‘do as I say. I don’t want to know your opinion’. In this setting, management style rested on one man’s whim, not his management expertise or great management decision-making Casino & Gaming International ■ 7

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style. In employee relations, ‘Dummy up and deal’ was the slogan. Fear of management was what kept the employees honest. According to the old school attitudes, employees should be constantly reminded that their jobs are a privilege, not a right. A job can be taken away at any time. Promotion came to employees who were loyal to management. This included doing dishonest or even illegal activities. They had to learn the trade from the ground up starting as a dealer and by proving their knowledge and loyalty along the way. The foregoing is analogous to management in traditional manufacturing firms, especially as they expanded rapidly at the turn of the 20th century. Employees were thought to be no more than ‘cogs’ in the machinery that should be seen and not heard. Like machinery, they could be replaced at a moments notice and for no apparent reason. SUPERSTITION AND OTHER DECISIONMAKING STYLES During the early years of both manufacturing and casino businesses in the U.S., managers employed ‘common knowledge’ in decision-making. In American corporations there were times when women were shunned from the workplace because they were thought to have limited mental and physical capabilities. Depending upon the era, various ethnic and religious groups were thought to have negative traits, which included Catholics, Jews, Blacks, Hispanics, Asians; and the list goes on. In many service businesses, blacks could not work in the ‘front of the house’ where they would have direct interaction with white guests. Rather, they were subjugated to the ‘back of the house’ as cooks, dishwashers and maids. Casino management has followed the same pattern, albeit at a later point in time. There was a time when discrimination against various segments of the population was rampant and superstition was as good a factor in making decisions as anything else. Therefore, women had a very small role to play. They were decorations. Furthermore, they were thought to bring bad luck so they were not good employees or gamblers. If they did appear, sexual harassment was to be expected. After all, what else was a woman good for in a casino? And if she didn’t want that kind of attention, she wouldn’t have walked in the door. African Americans were another group that faced superstitious discrimination. Until the late 1960’s in Nevada, Black employees and entertainers were not allowed to enter the front doors or drink out of cups reserved for the players. It was bad luck. The Rat Pack of Dean Martin, Frank Sinatra and Sammy Davis Jr., changed this as a result of their charisma. Their impressive ability to draw in money whether they were playing or working gave them the clout to alter superstitious driven policies. They boycotted any casino where Sammy Davis Jr., who was a Black man, was not allowed. This financial power and influence quickly changed policies. EMPLOYEE LOYALTY During the history of U.S. businesses there were times when employees were expected to be so loyal to the company that they would do almost anything for that company. During the era of significant union organising, some employees used physical force and violence to dissuade others from union membership. Employers terminated those trying to unionise because they were being disloyal to the organisation. So too was it with casinos where employees showed their loyalty by 8 ■ Casino & Gaming International

doing whatever they could to help the owner. In some cases, employees were asked to violate rules and regulations in order to favour the house or accommodate a high roller’s desires. Even though guests might make unreasonable requests, operators would agree because the customer might take his business elsewhere. For example, at Caesars in Atlantic City, a customer requested that he have a male dealer instead of the woman who was currently at the table. The management complied knowing that it was discriminatory. However, it was cheaper to pay the class action suit that followed, then to antagonise the player. Another way casino employees showed loyalty was to express extreme concern about the outcome of a game because it would be disloyal to want the customer to win. In addition, the dealer was perceived to be personally responsible for the outcome. After all, it was thought that some people were just ‘unlucky’ and shouldn’t deal certain games. Any dealer who lost money had ‘bad karma’ and was instantly fired: no questions asked. However, there were several ways to change bad luck. For example, changing the dice and/or cards would help change the luck of the casino. Changing out an ‘unlucky’ (losing dealer) employee for a different one could also help improve a bad streak. One casino manager was reported to say, “It was a question of mind over matter”. So, he would switch dealers with weak

CORPORATE CULTURE

minds from a losing game. Without any rational decision making guidelines, superstition and one man’s idea of common sense ruled the operation. SHIFT TO CORPORATE CULTURE During the 1960s and 70s, there was a shift in management styles and decision-making. Some say it was Howard Hughes that began the movement. The story goes that Howard liked staying in the penthouse suite of a particular casino so he paid his bill and lived there. However, the casino management was very concerned that he wasn’t gambling enough and they wanted the penthouse for a high roller. So, they ordered him to vacate the premises. Howard didn’t want to leave. So, what did he do? He bought the casino and changed the rules. Under the new management, the casino functioned like other large corporations. Superstitions were replaced by well-researched facts. Teams of employees replaced the individual owner. The idea that a dealer is responsible for the losses was replaced by probability theory. As a result, the casino made money and this encouraged other corporate giants like Baron Hilton to invest in casinos. This adaptation to corporate culture is exactly the same pattern that most business sectors follow as they evolve from ownership by entrepreneurs who started the company to a corporation organisational structure. For example, Steven

Jobs started his computer business in his garage, but when it became big business the organisation changed and he didn’t adapt fast enough. As a result, management forced him out. Giants of corporate America started a new trend in management styles and organisational cultures. They found that efficiency and improved performance were achieved by breaking the company down into functional areas and then organising departments with similar functions. Thus, a tradition company might have departments such as accounting, marketing, sales, human resources and operations. An employee did not have to have expertise nor even experience in every department in order to be promoted up the corporate ladder. When corporations took over casinos they created a similar organisational structure that had two major parts: the casino side and the administration side. The casino side revolved around what happened on the casino floor: the daily grind of securing the casino and tracking the money. The management side handled the marketing, accounting and human resources. With this split, new emphasis was placed on educational backgrounds like MBAs. People with no background in gambling began to work on the marketing plans and run the financial enterprise. Computers and statistics became guiding decision makers. For example, the ‘comping’ decisions switched from floorpeople to computers. When the Old School lost their ‘comping’ privileges to a computer, it was a confusing time. They wondered how a computer could know the right people comp. How can a machine build a rapport with the players so that they will come back? Old time supervisors issued comps to whomever they pleased. It gave them power. Now, the computer decided. TWO CULTURES COLLIDE In casinos, the clash of traditional culture versus the new corporate culture was inevitable. The following sentiments characterise the traditional casino culture. “The guys upstairs don’t know the business.” “How can an MBA know anything about the way a casino works?” “If he doesn’t understand the product, how can he manage it?” “They are just a bunch of kids with degrees but no real experience.” “The only real way to learn the business is to start as a dealer and work your way up through the ranks. By the same token, the new culture examined the traditional views and found them lacking. “The traditional managers want to micro-manage and keep everything to themselves.” “They do not want anyone else to know what is going on.” “This way of managing is out of date; they obviously haven’t kept up with the times.” “It’s not necessary to be a dealer to run a company. What does a dealer know about marketing or accounting?” “Formal education is important. It teaches how to manage and oversee operations. It allows a person to step back and see the big picture.” These statements reflected the new corporate culture. CHANGING TIMES REINFORCE CORPORATE CULTURE However, it wasn’t just the ownership switch that altered the traditional corporate culture in the casino business. During the 1990’s when Las Vegas and Atlantic City found themselves inundated with all kinds of new gaming venues, the competition for employees became intense. Finding trained employees was a big problem. Anyone with any qualifications or experience quickly climbed the corporate Casino & Gaming International ■ 9

CORPORATE CULTURE

ladder. There was always the enticement from the next casino or riverboat for higher wages. There were too many jobs and not enough workers. As a result, the employment department changed into Human Resources. Instead of hiring, disciplining, and firing, their responsibility shifted to keeping employees. Employee satisfaction became the new buzzword. Retention and motivation are the new service management foci. Empowering, educating, and recognising workers improve the chances for a company to build employee loyalty and reduce costs of turnover. This step in the evolution of the casino industry is very similar to the evolution of many business sectors as competitive environments grew over time. Instead of the old view ‘your job is a privilege’, the new

view is a casino (or any business for that matter) should strive to ‘be the place of choice’. Instead of looking for abilities, the new culture searches for personality first: someone who is friendly, personable, and stable. Many skills can be learned, but a person cannot be taught to be outgoing and friendly. These new features in corporate culture reflect the emphasis on the satisfied employee. As researchers study the best corporations, whether they be gaming companies, service industries, or manufacturing, they are finding that good service management pays. There is a strong relationship between employees who like their jobs with customers who are treated with enthusiasm and empathy to bottom-line profits. Understanding that connection is the key to winning a competitive slot in today’s business environment.

<< During the 1960s and 70s, there was a shift in management styles and decision-making. Some say it was Howard Hughes that began the movement. The story goes that Howard liked staying in the penthouse suite of a particular casino so he paid his bill and lived there. However, the casino management was very concerned that he wasn’t gambling enough and they wanted the penthouse for a high roller. So, they ordered him to vacate the premises. Howard didn’t want to leave. So, what did he do? He bought the casino and changed the rules >> 10 ■ Casino & Gaming International

CORPORATE CULTURE

THE FUTURE – IS NOW Up to this point in the article, we have drawn parallels between traditional business management and the gaming industry. This was accomplished by reviewing corporate cultures and their evolution. We now turn to the future and the recent history in traditional businesses to predict the future for gaming. One of the patterns of the 1990’s was for companies to merge and consolidate. This occurred in car manufacturing, high tech, service companies, and even hospitality. An example of the latter is the emergence of Intercontinental Hotels Group, Accor and Starwoods. We now see consolidation and merger in the gaming industry with Harrahs and Caesars merging. In the corporate world these consolidations and mergers have led to smaller management teams, especially in corporate offices. Some managers displaced by mergers have reverted to an earlier stage of the management evolution scale and become entrepreneurs who opened new, small businesses or developed new products. We are likely to see the same thing happening in the gaming business where these former corporate managers go out and find a niche not served by large corporations. This could be in small markets that do not warrant a large corporate presence or in gaming products not yet imagined. However, there is an aspect of the gaming industry that separates it from corporate giants like IBM and Chrysler. Casinos are part of the service industry and casinos cannot be produced in one location and delivered to another. Thus, regardless of the downsizing that mergers and acquisitions cause at corporate headquarters, there is still a need for managers at the property level. From a historical perspective, even the Romans of the first century AD knew that they needed one manager for every ten soldiers. So too today, supervisors, shift leaders, department heads, and general managers are needed at the property level, especially in operations. After all, someone needs to manage the thousands upon thousands of individuals working in the gaming industry. Another emerging pattern is the opening of new markets. Corporations are quick to seize these opportunities if they are insightful enough to see them and flexible enough to satisfy the needs. The gaming industry of the 1990’s saw new markets in locales or regions in the U.S. States were legalising gaming with the caveat that local jurisdictions had the option of allowing gaming. Thus, we saw casinos on the rivers of midwestern states but not in the hinterland, floating barges on the Mississippi Gulf Coast and on the river, but not inland. Managers could move from the mega markets of Las Vegas and Atlantic City to these smaller venues. However, these opportunities were limited in scope and geography. In the new millennium, we see new markets worldwide, in countries not counties. Gaming has come to the formerly closed Soviet Republics, including Russia. In Russia, local entrepreneurs have developed gaming with the help of experienced managers from England, thus providing new employment opportunities for the latter. We see the market in Macau opening and some of the largest gaming corporations moving in. Initially, they will undoubtedly bring experienced managers with them rather than take the time to develop them locally. As these experienced managers depart from their positions in the U.S. or England, younger and less experienced managers can move in and move up. One can

only imagine the wealth of opportunities for the gaming industry and for gaming managers as the economy of China opens. So, what is the impact of the aforementioned on the managers of today? Once again they can learn from the history of non-casino businesses. First, they need to identify opportunities just like other businesses. They need to be flexible and understand markets, cultures and languages other than their own. Language skills are critical. Further, today’s managers, especially those in the U.S., must move beyond their ethnocentric myopia in thinking that their way is the best way and that there will always be opporunties next door. For the gaming industry, opportunity is outside U.S. This holds true for many non-casino businesses as well. We can conclude that casinos are becoming increasingly like any other business. More importantly, the casino industry and its management techniques are following in the evolutionary footsteps of many other industries. Thus, lessons can be learned from them. The casino industry is no longer unique unto itself as it may have been in the 1930’s and 1940’s. Furthermore, like other businesses, casinos are diversifying their product offerings and relying less on the gaming element for revenues and profits. Thus, there will continue to be a need for management personnel as much off the casino floor as on it. As has been seen in other industries, those companies who can diversify can better weather economic ups and downs. Those who diversify worldwide are also better equipped to survive downturns in some regions and benefit from the upturns in others. History does repeat itself, and those that understand history are in a better position to capitalise on the future.

GEORGE G. FENICH & KATHRYN HASHIMOTO George G. Fenich, Ph.D. is a Professor in the Lester E. Kabacoff School of Hotel, Restaurant, and Tourism Administration at the University of New Orleans. He has published over 30 research articles, done over 50 seminars and presentations to both academe and industry, and sits on the editorial board of 6 academic journals. He was written three books on the casino industry and is currently working on another. Email: gfenich@uno.edu. Kathryn Hashimoto, Ph.D. teaches and researches in the area of casino gaming in the Lester E. Kabacoff School of Hotel, Restaurant, and Tourism Administration at the University of New Orleans. She has written 3 textbooks, has published more than 9 research articles and done numerous seminars and presentations on casino gaming. She is the co-founder of the Association for Casino Education (ACE) and is the Casino Content Specialist for the Council on Hotel, Restaurant, and Institutional Education. Her research interest lies in the impacts of casino gaming along with certification and program development. Email: khashimo@uno.edu.

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THE REAL DEAL

If there is one area of their business that casinos cannot gamble on – it is interiors. Atmosphere and ambience have to be just right for the discerning punter and their guests and this is where using Lambro Contracts, as a Specialist Interiors Contractor, is like playing a winning ace in a high stakes game. The Essex-based company is, on the back of completing a prestige London contract, winning a name in the gaming industry for its excellent work. The Lambro Contracts’ team embodies a wealth of diverse talents which achieve fine results and, most importantly, on time. Lambro’s is a 21-year success story of delivering highquality shopfitting and specialist interiors from its purpose-built headquarters. Key to that is that the company is in tune with architectural and design trends. Design visions are correctly interpreted whether they are in traditional wood and leather or utilising the latest in high-tech materials. Lambro Contracts is used by top-name hotels and upscale developers for shopfitting and interiors. A recent success has been the prestigious Fifty casino in London where Lambro built a champagne bar, restaurant and nightclub. It had all the ingredients that the Lambro Contracts management and craftspeople relish. It was complex and challenging and demanded a high-quality finish within tight time constraints. Working to a high-specification design brief Lambro, apart from building the public area above, also had to refurbish an existing kitchen and create another to the wishes of a top chef. Intricate features, ornate plasterwork and state-of-the-art

materials were all part of a brief with a short 16-week construction schedule. An added demand was that the casino would continue to operate. Lambro’s work was highly praised as a true testament to Fifty’s historic and prestige location in London’s St James. Project manager David Seton said: “We are very happy with Lambro’s work. They always produce what they say they will produce and have always done what they said they would do – and done it on time. Unlike a building site, Lambro was working in a casino which was operational. This is a situation which could have caused delays but Lambro was extremely flexible, working around restricted hours.” Lambro is renowned for delivering high-quality shopfitting and specialist interiors to time and cost restraints. The company has a culture of consistency and reliability and the result is a very high level of customer satisfaction and a growing reputation for dependability and flexibility. Keith Shirley, Lambro Contracts’ Business Development Manager, said: “Clients keep on coming back because they know they can depend on us. Much of our growth has come through recommendation. “Added value comes from understanding clients’ diverse needs whether we are involved on direct contracts or delivering our services through a main contractor. “The whole process is always tightly controlled and monitored. We keep clients continually informed of the project’s progress. There are occasions when the project changes and we have systems with the flexibility to respond quickly to such changes.”

LAS VEGAS MOMENTS IN TIME

MARKING THE UNIQUE MOULIN ROUGE ERA BY CLAYTEE D WHITE

The Las Vegas Moulin Rouge became a symbol of the best the city had to offer and spanned an era from 1954 to the late 1960s. Construction commenced on the Rouge in 1954 (opening in 1955) and prospective employees and black professionals began to migrate to the Westside from around the country; some because of the hotel and others independent of it. It was a movement, a synergism, a symbolic watershed. March 26, 1960, the official date of racial integration in Las Vegas was marked at the Rouge and placed Las Vegas at the forefront of American cities, at that time, in this particular approach to integration. The City of Las Vegas deemed the Moulin Rouge a historical landmark and the National Register of Historic Places added it to its list of deserving structures. Burnt down in 2003, debate over whether to rebuild the Moulin Rouge continues.

e Moulin Rouge in Paris, France, has entertained the world since 1889 always holding to the concept of feathers, shine stones and sequins, original music, great food, and beautiful girls. The Moulin Rouge in Las Vegas opened in 1955, added gambling to that repertoire, and became the first racially integrated hotel casino in the city. The builders were businessmen not social workers. They saw a need and knew that money could be earned so investors, Will Max Schwartz, Louis Ruben, and Alexander Bismo found a site in no man’s land. It was across the tracks but not actually in the black community. It was perched on the border line. The physical structure they designed became more than a mere building. The Las Vegas Moulin Rouge became a symbol of the best the city had to offer. It was a movement, a synergism, a symbolic watershed that introduced a new group of people into the black struggle for social, economic, and political equality. New Post-Second World War migrants expanded the middle class forming a network of people who began to develop more political finesse by establishing a newspaper, revamping the Voter’s League and extending the movement for racial equality to a statewide initiative. The new casino meant that the sizeable number of African American entertainers would no longer have to stay in rooming houses on the Westside, the black community. This new-found freedom caused other hotels to relent in their restrictive racial segregationist policies. Gradually, Nat ‘King’ Cole was allowed to stay where he was performing, Sammy Davis, Jr., was permitted to bring his family to see his show, and Harry Belafonte gambled at the Sands. Soon, lesser name black entertainers were provided accommodations at the hotels where they performed.i The Moulin Rouge Era spanned from 1954 to late 1960s.

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LAS VEGAS MOMENTS IN TIME

<< The new casino meant that the sizeable number of African American entertainers would no longer have to stay in rooming houses on the Westside, the black community. This new-found freedom caused other hotels to relent in their restrictive racial segregationist policies. Gradually, Nat ‘King’ Cole was allowed to stay where he was performing, Sammy Davis, Jr., was permitted to bring his family to see his show, and Harry Belafonte gambled at the Sands. Soon, lesser name black entertainers were provided accommodations at the hotels where they performed >>

16 ■ Casino & Gaming International

LAS VEGAS MOMENTS IN TIME

Construction commenced on the Rouge in 1954 and prospective employees and black professionals began to migrate to the Westside from around the country; some because of the hotel and others independent of it. March 26, 1960, the official date of racial integration in Las Vegas was marked at the Rouge. The new arrivals came from New York, Detroit, Los Angeles and other metropolitan areas not just from Southern states. They included dancers, attorneys, singers, a doctor, a writer, and a dentist. They were young, energetic, bold, and unafraid like the 1940’s migrant, Lubertha Johnson who stated that unlike Mississippi, she did not believe anything would happen to her in Las Vegas. She was never frightened even when she and her friend, Mabel Hoggard, would call and make reservations for a show on the Strip.ii It was this belief that no matter what accommodation may be denied and no matter the method of protest, ultimately, whether accepted or rejected, no harm would come to you. Johnson made it a practice to go to different places and get thrown out.iii The new migrants helped the early black residents reinvigorate the local National Association for the Advancement of Colored People (NAACP) branch and continued a string of ‘firsts’ – the first black medical practice, the first dental office, the first black newspaper (the NAACP branch published a newspaper called the Missile for a short time), the first black television show, the first black dancer in a line in a Strip hotel, and the first black cocktail waitress. In 1954, the same year that construction started on the Moulin Rouge, the Supreme Count ruled in the Brown v Board of Education case that declared school desegregation the law of the land. And in 1955, as the beautiful edifice rose on Bonanza Boulevard, adjacent to the Westside community, and prepared for operation, the Supreme Court ruled again ordering the nation to act on the previous ruling “with all deliberate speed.” Though named for a case involving public school attendance, the ruling stretched to include housing, public accommodation and employment. The Moulin Rouge opened to standing-room only crowds mixed with blacks and whites. This national symbol of harmony also initiated an era of violence. The battles began. Whites in many parts of the country felt that no outsiders, including the Supreme Court could force such a change.iv In 1955, there were three lynched in Mississippi, two NAACP leaders were killed because they refused to remove their names from the list of registered voters, and Emmett Till, a teenager, was murdered for whistling at or speaking to a white woman. In December 1955, Rosa Parks, an active NAACP member and passenger on a city bus in Montgomery, Alabama, refused to relinquish her sear in the front of the black section to a white passenger who had no seat because the front section of the bus was filled. In Las Vegas, three white men opened the Moulin Rouge as the first integrated resort in a town where blacks, except on rare occasions, could only enter the back doors of gaming resorts. Opening night was probably like that of Le Moulin Rouge in Paris. The food was scrumptious, the patrons were in evening attire, champagne flowed, the revue featured the famous French Cancan, and the musical entertainment was spectacular. The all-black stage show consisted of eight dancers, six showgirls and four male dancers. Benny Carter, the Hines Brothers and Stump & Stumpy graced the stage. Over the next weeks, the line-up broadened to include Dinah Washington, the Platters, Lionel Hampton and many others.

The doorman wore the French uniform, depicting that station, to admit the first inter-racial audience. Prior to this, Las Vegas had earned the moniker, “Mississippi of the West,” a term that could have been attributed to almost any town or city in the United States of America at that time of Jim Crow practices. Movie theatres separated black from whites; restaurants would not serve black customers; job opportunities were limited with blacks working at the most menial levels and if in equal jobs, blacks earned less; city buses carried black passengers in the rear; and finally, water fountains, public bathrooms, and schools were dual entities that provided inferior structures to accommodate blacks. The state of Mississippi enacted these rules most stringently. The Mississippi Plan was harsh, unrelenting, and pervasive. In May 1955, the Moulin Rouge created a crack in this insidious veil of oppression. The Rouge operated at full capacity for five months. The Montgomery bus boycott that resulted after Rosa Parks’ act of civil disobedience lasted for almost a year. The city of Las Vegas, like that of Montgomery, would never again be the same in its racist behaviour. On that one night in May, Las Vegas soared past other cities that stood as bastions of racial inequality. Just as Rosa Parks sparked the Civil Rights Movement in the South, the Rouge ignited the protest in Las Vegas. Previous warriors for equal rights – Woodrow Wilson, Lubertha Johnson, Jimmy Gay, Clarence Ray, Rev. Donald Clark, Mary Nettles, Zimmy Turner, Owedia Brooks, Cora Williams, Mabel Hoggard, Rev. Prentiss Walker, and many others – had been fighting against tremendous odds since the early 1930s. The playing field leveled slightly during the Moulin Rouge Era because the numbers of black, financially independent warriors expanded. Dr. Charles I. West led the neo-insurgency as the first black medical doctor to move to the city in 1954. He was encouraged to do so by Count Basie who played in early Strip hotels. Because the people Basie encountered while in town included no professionals, he assumed that a solid black middle class was missing. He saw no role models that young black children could identify with that looked like them. With the added coercion of his wife, Dottie, Dr. West took the state medical examination, passed it, and immediately moved to Las Vegas. He packed the office of his friend, Dr. McMillan, a dentist who was completing military obligations and who also moved to the city to establish a home approximately a year later.v Prior to his official move McMillan visited Dr. West after the Moulin Rouge had opened. That trip, in addition to the fact that his dental equipment and instruments were already here, made positive impressions on the dentist. First, it was freezing in Detroit and 75 degrees in Las Vegas. Additionally, during the weekend visit, Dr. West was called to the room of a Moulin Rouge guest who was suffering a minor complication, and was paid with several casino chips. McMillan had accompanied him and enquired about their value. They were $100 each. McMillan returned to Detroit to pack his family for the move to Las Vegas.vi The Moulin Rouge era did not start civil rights strivings, just enhanced and recharged them. Prior to this trickle of professionals, the existing middle class had not been idle and women were prominent in the forefront along with black men. Lubertha Johnson, Director of Headstart, and Mabel Hoggard, first black school teacher hired by the Clark County School District, would call and make reservations for shows on the Strip. Johnson gave her address in Paradise Valley, Casino & Gaming International ■ 17

LAS VEGAS MOMENTS IN TIME

which was different from those of most blacks in the Westside community. Thus, their reservations were always taken. When they appeared at the showrooms, they were seated but usually after many tense moments.vii Showrooms were in an awkward situation. They wanted to keep their southern white high-rollers happy but they did not want unpleasant scenes in full view of those customers either. Johnson and Hoggard were appropriately dressed, welleducated and professional. They were confident of being seated because their reservations were on the list taken earlier in the day by a hotel employee. Other African Americans were also seated as invited guests during this period. Jimmy and Hazel Gay attended many shows at the Sands.viii Jimmy Gay enjoyed the prestigious position as a key fund raiser for the NAACP as the chairman of the annual Freedom Fund Banquet. He knew that it was important to form a relationship with the white community and to gain their support.ix This policy prevailed long before the 1954 beginning of the Moulin Rouge Era. The practice of blacks attending shows increased when McMillan, Bob and Anna Bailey, Alice Key and others joined Dr. West. This group counted many entertainers among their list of friends. Bob and Anna performed at the Moulin Rouge and Alice Key was an ex-showgirl. All three had traveled the country as well as to London and Paris to perform. Bob served as the house singer and emcee at the Moulin Rouge and Anna was one of the dancers who performed the intricate Cancan moves on opening night and throughout the five months of the Rouge. Dr. West’s son, John P. West remembered his parents and their friends as acting almost as ambassadors from the Westside. As the team doctor of his high school football team, Dr. West invited all the parents and players to the Dunes Hotel for a special dress rehearsal of one of the shows.x The Era sparked a new attitude and an expansion of the current community activism. The extension of community involvement moved into several new directions. Alice Key and Bob Bailey created and launched the first black television show. Alice took her show idea to Hank Greenspun, owner of a local television station and secured sponsors. Using the Moulin Rouge as a springboard, Alice interviewed the entertainers booked there as her weekly show’s guests. Bob Bailey directed and produced the hour long show, The Talk of the Town, which was designed in the current talk show format. Some of the advertisers were the Town Tavern, Bruner’s Liquor Store, and the Moulin Rouge. Naturally, like the Moulin Rouge itself, the show was short lived.xi The television show was a dramatic step that personified the new energy and exposure available to the black community and that, like the Rouge, anything was possible on the Westside. There is no documented proof, but this was probably the first all-black television show in the country. Bob later became a local news anchor for channel 8. The Moulin Rouge was a showplace that rivaled any hotel on the Strip. It was first class with superb service. Waiters, hired from among the best across the country, served a gourmet international cuisine in the Deauville Room while wearing tuxedos with white gloves. Hazel Gay operated the dress shop that was stocked to capacity with the finest clothes available. The huge bar was constructed of the most elegantly polished wood. Politicians, celebrities, and highrollers peppered the audience. And the entertainment was the best in the city because after the paid acts completed 18 ■ Casino & Gaming International

their performances, other entertainers who were there as customers, would entertain in impromptu sessions. The dancers were the crowning glory of the Rouge. They were the first African American house line and were hand-picked for their talent and beauty. The opening night performance of the Watusi appeared on the cover of Life Magazine in May 1955. Some of the dancers who arrived to work at the Moulin Rouge were well traveled, had performed in shows in the best theatres in the country, and chose to make Las Vegas their home. One was Anna Bailey. She and Bob were persuaded by Dr. West to settle here even if they continued in show business. They saw the unlimited possibilities and followed his advice.xii Anna had no desire to end her career when the Rouge closed in October of the same year that it had opened, so she went on the road with a Larry Steele production dancing in starring roles. She then traveled with Pearl Bailey becoming the head dancer. Tired of the road after about five years, Anna began to apply for positions on the Strip. She was hired by the Flamingo in 1960 or 1961 after many failed auditions at other Strip properties. The Flamingo hired her on her reputation alone, not requiring an audition. At other Strip hotels, she could not get through an audition. The work in a house line at the Moulin Rouge prepared her for the Flamingo where she danced until her retirement from the profession. Her next chosen line of work also spawned from the nights and days at the Moulin Rouge. Anna and Bob acquired a gaming license and operated several small establishments that Anna managed. The Moulin Rouge was not simply a catalyst for the Las Vegas Civil Rights Movement but aided the economic well being of the Westside community. Other neighbourhood businesses flourished. After a few weeks of business, the Rouge added a third show pulling even more people across the tracks for longer periods of time. The new 2:00 AM show ensured that Strip entertainers had plenty of time to join the revelry. It is common knowledge that big spenders found the entertainers exciting and wanted to be in their company after their performances. The economics of the area support the theory that the Moulin Rouge Era was good for business. The Brown Derby Club on Monroe Street enjoyed business success until 1974 after opening in 1952. The El Rio Tavern opened just prior to the Rouge in 1954 and stayed in operation until 1964. The Louisiana Club opened a few months after the Rouge and closed in 1970. The Town Tavern, the only club still operational, opened its doors in July 1955. The Moulin Rouge offered slots, 21, and craps while the smaller venues listed provided poker as well. The Louisiana Club offered Keno instead of poker.xiii Katherine Joseph who worked as a waitress in the Moulin Rouge still remembered spending her entertainment dollars at the smaller clubs. “Sidewalks on the Westside were nonexistent so loose rocks ruined our best shoe heels but the jam sessions were great and entertainers like Pearl Bailey came so often that we knew champagne was her favourite drink.”xiv The Westside was always integrated. The downtown and Strip portions of the city were not. The bars on the Westside had become popular, especially as ‘after-hour’ clubs. Most black entertainers were anxious to entertain where the audiences were always appreciative and where they could mingle with the crowd as they drank and gambled. As word of these sessions spread, more of the white community began to visit Westside clubs. Integrated clubs proved a

LAS VEGAS MOMENTS IN TIME

problem for city fathers as early as the Second World War. Even before the Las Vegas Strip began, the grand jury upon the recommendation of Police Chief, Harry Miller, closed the Star, a Westside Club. According to the testimony of the Chief, “the bar was playing to a mixed trade, with Negroes and whites encouraged to congregate in the establishment promiscuously.”xv These attitudes relaxed over the years. Whites contributed openly to the Westside economy and increasingly so, when the Moulin Rouge opened for business. The Moulin Rouge brought the area into the mainstream of economic activity competing with well known white establishments and influencing upwardly the numbers of visitors to the area. The mysterious closing of the resort is a conundrum that is still discussed. When this article was mentioned to Katherine Joseph, she remembered that she never received her final paycheque. When she arrived at work, on that sad day in October of 1955, the door was padlocked. She remembered a full house the night before.xvi The facts that can be documented show that monies owed to contractors and utility companies were not paid. The public belief is quite different. Even Las Vegas’ beloved Frank Wright, past curator of the Nevada State Historical Society and Museum, stated that, “The downfall of the Moulin Rouge was probably hastened by its success at drawing business away from the Strip. All of the four major resorts which opened in the same year (Dunes, Riviera, Royal Nevada, and Moulin Rouge) were experiencing difficulty at a time of too-rapid expansion. While the older Strip resorts helped the newer ones to avert mutual catastrophe, there were no offers of support for the Moulin Rouge.”xvii But the famed structure did not perish completely nor did the spirit diminish. As the black community continued the push for equality, the local NAACP branch acted on a mandate issued by the national office of the organisation in the early months of 1960. The first black dentist, McMillan, was serving as president and decided to act on the correspondence that requested each branch to “do everything possible to eliminate all vestiges of discrimination in its region.”xviii McMillan decided to send a letter to the Mayor, Oran Gragson. In it he demanded the integration of the Las Vegas Strip and downtown by March 26, 1960. If not, according to the correspondence, blacks would hold a protest march on the Strip on a Saturday night. Negotiations began with battles raging in the two newspapers and between the NAACP and the city fathers. On Saturday morning, March 26, 1960 all parties met at the Moulin Rouge to discuss the integration of downtown and the Strip. An agreement was reached among those present, the governor, Grant Sawyer, mayor, Sun Newspaper owner, Hank Greenspun, and members of the black community that included Lubertha Johnson, Bob Bailey, Donald Clark, James McMillan, Charles I. West, J. David Hoggard, Woodrow Wilson, and others. Through a gentlemen’s agreement formulated and negotiated around a table in the place where integration first took hold, the city would be integrated at 6:00 PM that Saturday evening. The Rouge may have been in poor condition physically but had enough life to give birth to another civil rights milestone. It is primarily because of that meeting that the City of Las Vegas deemed the Moulin Rouge a historical landmark and the National Register of Historic Places added it to its list of deserving structures. The new professionals who migrated to

Las Vegas at the beginning of the Rouge’s heyday caused the city to change more rapidly. These changes would have occurred without their presence but because of their involvement, Las Vegas has progressed along with other cities; sometimes even more rapidly. This is a fitting end to this story but history has a funny way of not always being tidy. In the late 1980s, after a series of white owners, the Moulin Rouge for the first time, was purchased by blacks. Sarann Knight Preddy, her husband and son operated the club for about ten years. The Rouge never regained it original lustre of that five month period in 1955. The grand old place served its purpose as the flame that sparked the movement for racial equality in Las Vegas. In May 2003, forty-eight years later, it was mysteriously engulfed in flames and burned to the ground. i ii

iii iv v vi vii viii ix x xi xii xiii xiv

xv xvi xvii xviii

The Moulin Rouge Preservation Association First Edition, Limited, The Moulin Rouge Hotel: History in the Making, 1996, pp. 12-13. Jamie Coughtry, Lubertha Johnson: Civil Rights Efforts in Las Vegas: 1940s -1960s (Reno: Oral History Program University of Nevada Reno, 1988). 38. Ibid, 37. Lerone Bennett, Jr., Before the Mayflower: A History of Black America (New York: Penguin Books, 1987, 6th edition) pp. 376-77. Claytee D. White, Interview with Alice Key (Las Vegas: Las Vegas Women in Gaming and Entertainment Oral History Project, 1998). 30. Moulin Rouge: A Stroll Down Memory Lane, Emcee: Bob Bailey, 120 minutes, Moulin Rouge Hotel & Casino, Las Vegas, NV, 3 October 1992. Ibid. Claytee D. White, Interview with Hazel Gay (Las Vegas: University of Nevada Las Vegas, 2 December 1995. Ibid. Claytee D. White, Interview with John P. West (Las Vegas: University of Nevada Las Vegas, 1998). Interview with Alice Key. Claytee D. White, Interview with Anna Bailey (Las Vegas: University of Nevada Las Vegas, 1997). Howard W. Herz, ed., Index of Nevada Gambling Establishments (Minden, NV: The Coin Company, 1992). Claytee D. White, Interview with Katherine Joseph (The Boyer Early Las Vegas Oral History Program Las Vegas: The Oral History Research Center at UNLV, 2005). “Bar on Westside Ordered Closed,” Las Vegas Review Journal, 1 July 1943. Interview with Katherine Joseph. Frank Wright, ed., The Moulin Rouge Hotel: History in The Making (Las Vegas: The Moulin Rouge Preservation Association, 1996). James B. McMillan, Fighting Back: A Life in the Struggle for Civil Rights (Reno: University of Nevada Oral History Program, 1997), 91–98.

CLAYTEE D. WHITE Claytee D. White is currently the Director of the Oral History Research Center, University of Nevada, Las Vegas. White is the author of “African American Women Migrants: A Las Vegas Odyssey,” which appeared in the Publication of the Nevada Women’s History Project and “Eight Dollars a Day and Working in the Shade: An Oral History of African American Migrant Women in the Las Vegas Gaming Industry,” in Quintard Taylor and Shirley Moore, eds., African American Women Confront the West, 1600-2000 (Norman: University of Oklahoma Press, 2003).

Casino & Gaming International ■ 21

CASINO SCENE

WGPC: SETTING SIGHTS ON THE FUTURE OF SECURITY BY WILLY J. ALLISON

There has never been an international conference dedicated entirely to casino game protection until now. On February 21-22, 2006, the inaugural World Game Protection Conference (WGPC) will bring together the latest surveillance technology as well as an impressive line-up of game protection experts to reveal and openly discuss the latest threats and opportunities in casino game protection. The two day conference will be held at the MGM Grand Las Vegas and is expected to attract casino executives from all over the world responsible for the integrity of their gaming operations.

he timing for the protection conference couldn’t be better. In the last two years more casinos around the world have reportedly fallen victim to organised cheating scams than any other period over the last twenty years. What’s more staggering is the amount of the losses being suffered. In the rapidly expanding Asian region where Baccarat tables are lined three deep with players, a number of multi-million dollar scams were reported last year alone. In the ‘cat-and-mouse’ game of casino game protection it appears the mouse is turning into the size of a rat. Highly organised groups of cheats and thieves are taking advantage of favourable conditions that currently exist for cheating due in part to the rapid expansion of casino gaming around the world. The globalisation of the casino industry has been a driving factor behind the establishment of the WGPC. The need for an event that focuses on game protection is long overdue and has been well supported by the industry. The format of the conference programme will focus on examining the latest threats and opportunities in game security and will attempt to address some of the following issues that exist in the industry today.

THE SHRINKING POOL OF EXPERTISE Like the country song ‘It’s 5 o’clock Somewhere’, there seems to be at least one casino opening every month somewhere in the world. The expansion of casino gaming around the globe presents a number of challenges to the industry. One of which is to produce more quality gaming managers with game protection expertise. When you first start working in gaming, you are taught early on that you have two main objectives: to look after the Casino & Gaming International ■ 23

CASINO SCENE

customers and look after the house’s money. Some people are born with natural customer service skills but not many are born with natural game protection skills. The art of game protection has to be learnt and sharpened like a knife on a regular basis to be effective in today’s casino environment. Good ‘game protectors’ are hard to find. Where do you get them? Unlike accountants, marketing and IT people, game protectors are not usually recruited from the annual pool of graduates from the countries top universities. Most game protectors earn their degree on the job. Like a fine wine, they usually take a little time on the vine before they are picked for a supervisory or management position. A unique situation exists in jurisdictions like Las Vegas where a large majority of front line gaming employees have no desire to move into management or surveillance because they can make more money in tips each year dealing the games. This environment doesn’t exactly foster an environment for future management and career development within the organisation. The rapid growth of gaming worldwide is putting a strain on expertise, especially in the area of surveillance management. Relocation and budgetary issues often force companies to hire one or two experienced surveillance people from overseas to manage and train a group of local people with little or no experience. In some cases, it is not unheard of to find trainees who had never been in a casino until opening day. This is one of the reasons the three-month post-casino opening (honeymoon) period is a favourite time for casino cheats. But one of the questions companies need to examine when recruiting surveillance managers/trainers is who trained the trainer? A large percentage of surveillance managers that are hired to set up surveillance operations in new casinos have never done so before. They may have managed in an established work environment but companies expect those recruited to design systems, recruit and train a team of ‘experts’ on a limited budget, adapt internal practices to reflect the local regulations and environment and make sure they don’t get hit when they open. To make things even more difficult, ex-patriot managers relocating to a different country may have the added challenge of having to overcome language barriers to train new recruits. The challenges that are facing surveillance managers of new casinos highlight the industry need for the development of specialised casino managerial and executive development programmes. Most progressive casino companies are searching for growth opportunities in new jurisdictions and would benefit from an international standard of education and qualifications for the specialised area of casino surveillance and game protection. CASTING A WIDER INTELLIGENCE NET Organised cheating teams have become more mobile and international. Casino surveillance departments rely on timely and accurate intelligence to protect their properties from organised outside threats. With the globalisation of casinos there is arguably a need for a more effective way to share information and intelligence on known cheats amongst casinos from around the world. Networking is essential for surveillance managers to stay in touch with potential threats. Most casinos these days get intelligence via electronic alert systems supplied by outside agencies as well as using an informal network or ‘buddy 24 ■ Casino & Gaming International

Foxwoods security nerve centre. © Foxwoods Resort Casino

system’ made up of old work mates in other nearby properties and company colleagues in sister properties. However, it has become more of a challenge for local and regional networks to keep abreast of highly organised international teams that are unknown to them or constantly recruiting new members. Last year an organised team cheated various U.S. East Coast casinos for over $1m. The team had previously cheated a West Coast casino less than a year before using the same modus operandi. Images of the suspects had been published by a West Coast regional surveillance network however the East Coast casinos did not have access to this information. Just as casino cheats have embraced the benefits of casino globalisation it is time for the casino industry to do so. Internet technology can be developed to provide a means of fast and accurate information around the globe. The key to the success of a network is the contribution of information by its members. This is where an agreement of understanding must be reached amongst network members. Sharing information, open discussion and building relationships with peers from around the world can boost the chances of receiving intelligence in the future that could save your casino money. As a smart casino man once said: “A wise man knows everything. A shrewd man knows everybody”. CREATING TECHNOLOGY STANDARDS Casino surveillance operations built in the last couple of years differ a great deal from operations built in the past. They have a distinct digital feel. Digital recording. Digital reporting. Digital communication. Surveillance Managers take pride in showing off their new high tech systems, but unfortunately this is not the case for our poorer cousins from the 20th century who are increasingly showing symptoms of the dreaded casino surveillance disease known as ‘digital envy’.

CASINO SCENE

For a great number of casino surveillance operations, it’s time for an extreme makeover. Longing for the benefits of digital speed and a loathing for the high maintenance analogue systems, the priority for most 20th century Surveillance Managers over the next few years is to cut the coaxial cord and make the transition to the digital world. It seems this priority has been on everyone’s three year plan for the last 10 years but the sense of urgency to make the transition may have recently been elevated to an orange alert. Sanyo recently announced that they have discontinued making analogue video recorders. The news didn’t make the front page of the local newspapers but it did make news in casino surveillance departments in the U.S. where surprisingly over 75% still use analogue video recorders. What’s even more significant is that up until that announcement, Sanyo supplied an estimated 60% of VCR’s to the casinos still using analogue recorders. Why is this news alarming to the industry? Didn’t we notice that the large consumer electronic stores are not stocking VHS products anymore? Didn’t we notice that there are no VCR’s being displayed at the gaming or security trade shows anymore? Didn’t we notice that the last things left in our neighborhood yard sale are the ten for a dollar V.H.S. movies tapes? In a recent market research study on the casino surveillance market, it was predicted that in the next five years, casinos in the U.S. will spend an estimated amount upwards of $500,000,000 on surveillance equipment. This is mainly due to plans by the casinos to upgrade to digital technology. With that type of investment in technology there is an obvious need for a regular forum that will bring vendors and customers together to discuss and ensure the development of such technology is in accordance with industry standards and needs. The Nevada Gaming Control Board is already leading the way in this area. In the last year they have initiated a series of open meetings involving casino operators, manufacturers and interested parties to develop a minimum standard for digital video recording in Nevada casinos. The development of such standards is a world first and is sure to influence the development of future products for the casino surveillance market. It also represents the first time casino security equipment manufacturers have had to comply with certain specifications for their product. The standards should clear up a lot of confusion that has existed over the last few years for casino operators who have been bombarded by companies claiming they have the right solution for their needs. The World Game Protection Conference will display some of the latest surveillance products on the market in an intimate environment conducive to vendors and casino operators learning more about each others product needs. It will be the only gaming industry show in the world that exclusively exhibits game security products only.

INTERNATIONAL BEST PRACTISES The ultimate goal of the World Game Protection Conference is to offer the industry a forum in which casino managers can get the latest intelligence on game protection and learn about best practices from around the world. Most casino surveillance operations around the world face similar challenges. Methods used by cheats are 90% of the time only a slight variation of recycled moves that have been used for years. Sophisticated computer and wireless technology is certainly helping cheats develop more sophisticated scams these days, but most of the time the mechanics of the move are the same. The Asian Baccarat scams mentioned earlier successfully pocketed the cheats over $10 million from various casinos. The scams involved different teams, not known to be associated, that used different variations of the same move – card mucking. Simply put they used different techniques to exchange cards of choice into the game and manipulate the outcome. Some involved high tech. Some employed old fashioned mechanical devices. Ironically, the scam that netted the most money used a simple sleight of hand move. The lessons learnt from these scams have resulted in various counter measures being introduced by the casinos ranging from stricter card controls, to the introduction of electronic card shoes that can track the cards being dealt and detect the introduction of outside cards to the game. As these and other reactive measures are implemented, the expanding casino game protection community must continue to learn from each other as well as take the initiative to search for ways to create a stronger line of defence for the future. Quality information, analysis, networking and sharing intelligence amongst peers is almost an unbeatable hand. In this exciting age of constant technological development, there is an opportunity to adjust our sights to create preventative measures and best practices that will deter and decrease the opportunity for high end organised cheating in our business. WILLY J. ALLISON Willy J. Allison is President and founder of Las Vegas based World Game Protection Inc, organisers of the World Game Protection Conference. Willy started in the casino industry in 1987 and specialises in casino surveillance. Willy has international casino management experience, having worked in the U.S., Australia, Asia and Argentina. He also gives casino game protection lectures, writes articles for various U.S. gaming publications and puts out a free monthly e-newsletter on casino game protection called The Catwalk.

<< Sharing information, open discussion and building relationships with peers from around the world can boost the chances of receiving intelligence in the future that could save your casino money. As a smart casino man once said “A wise man knows everything. A shrewd man knows everybody” >> Casino & Gaming International ■ 25

FOCUS ASIA-PACIFIC

SAVVY, EAGER AND INNOVATIVE ENTREPRENEURS PUSH NEW ‘HOT SPOT’ BOUNDARIES BY ROSS FERRAR

The Asia-Pacific is indescribably diverse, with a complex array of cultural and legal approaches to globalisation and the effects of instant worldwide communication on residents and businesses. A new breed of savvy, eager and educated professionals has in turn bred a dynamic and innovative class of entrepreneurs whose optimistic energy are making them world business leaders. And Asian business leaders are acutely aware of technology and the leverage available to consumers – particularly in the entertainment field.

he Australasian Gaming Machine Manufacturers Association (AGMMA) was formed in 1990. The first legally operated gaming machines in Australia had been operational in the state of New South Wales since 1956 and legal casinos had first appeared in Tasmania in 1973.

ESTABLISHING AN INDUSTRY Gaming in Australia grew dramatically during the late 1980s and early 1990s, with the opening of major casino properties in most major cities. With the legalisation of gaming machines in clubs and hotels in most states by the mid-1990s, the number of gaming machines nationwide grew to 200,000. At the time, the focus was on jobs, government revenue and other benefits which would provide a welcome boost to the States’ economic performance – along with the improvements likely for clubs and hotels whose financial burden would be eased as a result of increased diversity and entertainment appeal. The reality over-delivered on all promises. State government revenue from gaming grew to billions of dollars annually and hundreds of thousands of jobs were created. Hospitality industry operators – particularly hotels – were able to regenerate venues and extensively improve product and service offerings. This resulted in a vast increase in reasonably-priced entertainment options (particularly for the over 55s) and improvements in amenities, which all helped restore and increase patronage to hospitality venues. On reflection, some suggest that the industry grew too fast, with its massive popularity attracting sometimes illfounded criticism and political constraints. Industry supporters point to the massive flow-on benefits generated by the hospitality industry, from the recognition and Casino & Gaming International ■ 29

FOCUS ASIA-PACIFIC

<< Described as the ‘Las Vegas of the East’, Macau’s existing 17 casinos generate annual gaming revenue of more than US$5 billion. With another 20 casino projects planned or under development, Macau will soon become the world’s largest gaming market. Tens of billions of US dollars are currently being invested in Macau – as pundits say, more in 5 years than Las Vegas in 25 years >> support of worthy local causes to the contribution made to local and state economies by service providers and suppliers such as gaming machine manufacturers. AGMMA’S MEMBERS AGMMA’s members include Ainsworth Game Technology, Aristocrat Technologies, Aruze Gaming Australia, Global Gaming Industries, IGT (Australia), Konami Australia, and Stargames Corporation. These companies are well-known for their focus on research and development, their innovative approaches to the task of technology design and their awareness of delivery systems appropriate to the outcome. Since 1956 their major achievements have included the development of video reels, tokenisation and a range of security and integrity measures which have enhanced gaming machines’ justifiable reputation for providing high quality, robust gaming equipment with probity and integrity built-in. AGMMA’S GAMING EXPOS – FOR THE INDUSTRY An immediate tangible result of AGMMA’s formation in 1990 was the Australasian Gaming Expo, which was held in Sydney Australia and was the first event in the region focusing on gaming aspects of the hospitality industry. The ‘AGE’ as it has been known, quickly became a celebrated professional networking and educational event for gaming executives and by 2005 had grown to over 20,000 square metres (215,000 square feet) of exhibition space; along with an authoritative gaming conference. In 2004 the Australasian Gaming Expo was complemented by the inaugural Asian Gaming Expo and also the New Zealand Gaming Expo. These events share a common theme – to showcase the latest in gaming and related products and services – and are operated solely by AGMMA with the focus on members and their gaming industry operator clients. The events provide a backdrop against which a host of industry meetings, forums, discussions and social occasions are scheduled to attract the ‘cream of the crop’. ASIAN GAMING One of the many outcomes of AGMMA’s focus on Gaming Expo events has been an appreciation of the massive opportunities available in the Asian hospitality industry. The region is indescribably diverse, with a complex array of cultural and legal approaches to globalisation and the effects of instant worldwide communication on residents and businesses. But with well over four billion residents, the Asian region certainly has the human resources as well as the continuously developing economic capability to dominate business, culture and entertainment. 30 ■ Casino & Gaming International

Sustained economic growth in most of the region’s economies has seen recent escalation in available entertainment options. A new breed of savvy, eager and educated professionals has in turn bred a dynamic and innovative class of entrepreneurs whose optimistic energy are making them world business leaders. And Asian business leaders are acutely aware of technology and the leverage available to consumers – particularly in the entertainment field. The establishment of legalised casino gaming in Asia is intertwined with regional tourism. Competition in this arena is fierce, with a stream of tourist attractions opening in recent years, the evolution of lower-priced air travel and large newlyaffluent populations seeking quality recreational leisure and entertainment in numbers beyond comprehension to most tourism regions and hospitality operators. At the same time, the realisation has come about that gambling is no longer necessarily linked to the seedier side of life. International gaming operators – and their suppliers – are licensed in multiple jurisdictions around the world. One breach of a criminal code in any of the jurisdictions in which they operate could conceivably result in the loss of all licences – on which each of these company’s existence depends. Individual employees are personally licensed in multiple jurisdictions and cannot operate anywhere without complete (and regularly demonstrated) probity and integrity checks.

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THE SINGAPORE FACTOR Arguably, the primary evidence of this evolution of the perception of casino gaming is the recent decision by the Singapore Government to grant two licences for ‘integrated resort’ facilities, which will include casino gaming. Singapore has anticipated that the decision to issue casino licences will create up to an additional 100,000 jobs directly and in supporting industries; will increase the number of tourist arrivals from 8-17 million annually; and will deliver an estimated additional S$1.3 billion (about US$780 million) in annual tax revenues. In some other Asian countries where gambling operates outside legislation and regulation, the push for official recognition is becoming more evident as jobs and government revenue are delivered around the region, revitalising local economies and regenerating local communities. Macau is a primary example of this trend, with a range of recent government measures from heritage protection to free education for local residents. THE MACAU PHENOMENON After a decade of 9%+ GDP growth, China’s 1.3 billion residents have acquired a wish to participate in entertainment options. The progressive easing of travel restrictions to Hong Kong and Macau has seen visitor numbers soar, along with their leisure investment budget. Macau is rapidly reaping the benefits of its geographic proximity and (with Hong Kong) its unique Special Administrative Region status which permits relatively easy travel. In 2003, the Chinese national government eased travel restrictions and the total number of visitors to Macau each month has increased from less than one million to more than 1.5 million. Continuing significant growth is forecast in the number of visitors to Macau. Around one billion people live within a three-hour flight and about 100 million people live within a three-hour drive. Described as the ‘Las Vegas of the East’, Macau’s existing 17 casinos generate annual gaming revenue of more than

US$5 billion. With another 20 casino projects planned or under development, Macau will soon become the world’s largest gaming market. Tens of billions of US dollars are currently being invested in Macau – as pundits say, more in five years than Las Vegas in 25 years. During 2004, Sands Macau and the Galaxy Waldo Casino opened for business. By late 2007, major new casinos scheduled to open include Grand Emperor, Fisherman’s Wharf, Venetian Macau, Grand Lisboa, Wynn Macau, Galaxy Starworld and Crown Macau. Whilst all these are major properties (and some are integrated mega-resorts), this list is by no means exclusive with an array of smaller casinos and club-style operations due to open. Fisherman’s Wharf, in particular, is regarded as the first ever themed entertainment attraction in the tourism industry of Macau. The project occupies an area of over 93,000 square metres, combining entertainment, retail, food, hotel, marina, convention and exhibition facilities – including two indoor rides within the 40-meter man-made volcano. Another example of the extraordinary wave of development is Wynn Macau, which will house significant dining, entertainment and shopping facilities with a rich and elegant design. The 600-room hotel is scheduled to open in Autumn 2006 with the expansion phase open in early 2007. But Macau is by no means the whole story of Asian gaming. NEXT STEPS The topic in gaming circles is where the next hot spot will emerge – Korea, Thailand, Japan and India are all mentioned as likely to officially recognise gaming by issuing casino licences under legislation which demands complete operational probity and integrity. Among other reasons, the introduction of legalised casinos is a hot topic because of the highly competitive tourist industry in the region, the ongoing advent of budget price air travel and the increasing affluence of Asian residents. Industry commentators estimate that the number of gaming machines will increase from 45,000 in 2005 to around 182,500 in 2010 – with the number of casino gaming tables taking a similar leap – due largely to the legalisation of casino gaming as a legitimate entertainment option for Asian residents and tourists.

ROSS FERRAR Ross Ferrar has worked in the Gaming Industry since 1979. He has held senior management positions in casino table gaming, networked keno gaming and machine monitoring and networked jackpot operations; along with several influential industry representative roles from both the operator and supplier perspective. Ross is the Executive Officer of the Australasian Gaming Machine Manufacturers Association, which hosts several major annual Gaming Expo events and whose members provide technology and equipment to hospitality venues around the world.

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THE GAMING ECONOMIC VALUE OF INTEROPERABILITY AND OPEN COMMUNICATION BY PETER DE RAEDT

Standard setting activities currently pervade many aspects of the United States and world economy. While standards are common in numerous industries, to date the gaming industry has not embraced communication standards. By enabling numerous pieces of equipment to function together smoothly, open standards are allowing gaming operators to lower costs and work efficiently whilst offering them an exit strategy currently not available

he gaming industry is fascinating. In 2004 alone US gaming revenue reached $47.3bn. By 2009 one predicts that worldwide legalised gambling revenues will grow to over $100bn of which $64bn will be generated in the US alone. To a slot player the machine itself is all that matters when playing. But to casino owners and operators, gaming involves much more. To run their business, casino operators rely more and more on technology – from slot machine peripherals such as bill validators, card readers, and ticket printers to slot floor networks, currency counters, player-tracking solutions, food and beverage systems and central management systems. Unfortunately, the reality is that many gaming devices and the associated systems have been developed using proprietary protocol interfaces, resulting in almost as many communication languages as there are manufacturers of them. Because of this, the various devices and systems are unable to work together without significant and continuous engineering challenges, which are both time consuming and expensive. Not only does this create a barrier to entry, but also a barrier to exit. Clear, open communication between gaming devices and systems are critical to the gaming industry to ensure dynamic growth and innovation. Without this transparency, the operator will not have the 360º view nor will he get the best solutions in a timely and cost effective manner to make critical decisions and grow his business. It is amazing that an industry this size is still relying on communication technologies from the 80’s to manage their businesses. Standard setting activities currently pervade many aspects of the United States and world economy. While standards are common in numerous industries, to date the gaming industry

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has not embraced communication standards. However, things are rapidly changing. With the escalating dependence on computers in the gaming industry and the desire for ‘common’ components, the importance of standards and networks to the gaming economy has increased dramatically. The benefits that accrue from interoperability standards are well established. Interoperability increases consumer welfare by enhancing consumer choice and reducing the cost of goods. It was in May 1998 that a group of five manufacturers started a non-profit industry trade association then called the Gaming Manufacturers Association (GAMMA). Starting a standard setting association in an industry with relatively few players and a single large US market share holder, has not been without its challenges. As one can imagine, bringing competitors together to discuss technology was initially nerve-wracking. It takes time, education, patience and a clear focus to gain the support and trust of ones competitors. GAMMA’s founding members realised the technical benefits of developing standards, but without having the customer (operator) demanding them, it would take a long time before they would see the light of day. As such the organisation changed its bylaws to allow operators to participate. This was a pivotal moment in the association’s history and in 2000 GAMMA changed its name to the Gaming Standards Association (GSA). With the change in name came the change in vision and mission statement. In all its dealings GSA continues to stay focused on this which is to be an international trade association representing gaming manufacturers, suppliers, operators and regulators and to facilitate the identification, definition, development, promotion, and implementation of open standards to enable innovation, education, and communication for the benefit of the entire industry. GSA has grown to be recognised as the gaming industry’s leading standards forum with more than 70 members and affiliates. Headquartered in Fremont, California we continue to promote standards world-wide. GSA’s work is bringing increased benefits to the industry. By enabling numerous pieces of equipment to function together smoothly, open standards are allowing gaming operators to lower costs and work efficiently whilst offering them an exit strategy currently not available. They also allow operators to receive valuable information; helping them meet customer needs and run their businesses in the best way possible. Open standards are benefiting gaming developers and manufacturers. By encouraging competition and leveling the technical playing field, open standards lower costs and make solutions affordable. They drive innovation, making gaming a high-growth industry. GSA’s gaming standards are developed by member companies, working together; manufacturers, operators, regulators, and suppliers. This results in open standards that incorporate a wide range of ideas and richer protocols than would be developed by any one company or one group alone. All GSA members benefit from being allied with an association with a common goal. Once standardisation is in place, the costs associated with manufacturing gaming equipment will decrease across the industry. Once standards are created and implemented in gaming equipment, 34 ■ Casino & Gaming International

installation in casinos will be simplified and streamlined and more engineering time can be devoted to the design of new products, offering operators a greater selection of games. New equipment installations will work at the time of their installation. Standards will expand the market, allowing manufacturers to spend less time and money developing communication procedures. This will allow them to devote more time and effort to the development of innovations that enhance the experience of the patron and add value for the operator. As well, common specifications and verification services will allow equipment to be more reasonably priced and introduced to the market more quickly. Future enhancements will be introduced in more coordinated efforts because interfaces for their implementation will already exist when they are released. Standardisation will also eliminate power leveraging among gaming manufacturers in terms of proprietary technology, giving all operators an equal chance to use breakthrough technologies. MANUFACTURER BENEFITS ■ Reduced development costs ■ Faster approval cycle ■ Reduced cost to integrate systems ■ Can concentrate on added value OPERATOR BENEFITS ■ Wider choice of vendors ■ Exit strategy ■ Better tools to help increase the bottom line ■ Simple equipment integration through ‘Plug and Play’ implementation ■ Smoother integration ■ Easier maintenance ■ Reduced service costs ■ Increased operating time, less down time ■ Larger variety of games to choose from

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REGULATOR BENEFITS ■ Common features between Manufacturers simplifies testing and approval ■ Built-in compliance with increased security ■ Simple compliance verification for approval and auditing ■ Requires fewer resources to verify compliance ■ More approval resources allocated towards games ■ Cross trained regulatory engineers ■ Easier to train field regulators on one protocol ■ Easier to regulate the systems activities AFFILIATE BENEFITS ■ Complementary skill sets ■ Universal world-wide architecture and support ■ Coordinated roll-out of capabilities Shared expertise Three new GSA standards, developed after years of collaboration by GSA members, are having a positive impact on the gaming industry. The first, Best of Breed (BOB), is a standardised communication protocol that enables secure communications between gaming devices and gaming systems. After having analyzed all the current gaming protocols, GSA developed the BOB protocol that at a minimum encompasses all the features found in these protocols and as such have called it Best of Breed. The standard is based on proven industry technologies such as Ethernet, TCP/IP, and XML. BOB enables slot machines to talk to many different peripherals both within the game and outside. It allows operators/regulators to audit the games more accurately, manage game combinations more efficiently, download peripheral and game code and provide customers with many more options. Because BOB permits automatic data transmission of game information to a central database, human error is eliminated as is machine downtime. With the BOB protocol, operators can perform remote machine configuration and perform code download. Game offerings can be tuned to

match the combinations that are most popular at specific times. BOB also provides the capacity to change one slot game for another on the same machine, so customers can download and play the game they want without having to change machines. This offers a solution to game yield management never before possible. The second protocol, System-to-System, or S2S, allows casino operators to link their various management systems and easily connect them to hospitality and point-of-sale systems. Based on the commonly available technologies TCP/IP, SOAP, XML, and Ethernet, S2S allows gaming operators and system providers to use off-the-shelf network equipment and software rather than build custom interfaces to connect their systems. Using S2S standards, operators are able to measure real-time patron activities; table games, slots and food and beverage consumption, giving them a true picture of customer value. Developers and manufacturers benefit from S2S because they no longer have to spend countless hours engineering and producing equipment compatibility. The third protocol, the Gaming Device Standard, or GDS, is a standardised communication protocol that links peripheral devices to a gaming device. Devices such as note validators, coin acceptors, coin hoppers, touchscreens, card readers, and ticket printers all use GDS to talk to the slot machine. Based on the well-known standard interface Universal Serial Bus (USB), GDS enables true plug-and play capability All GSA standards are developed from the ground up and hence are aligned with one another, offering accurate and complete dataflow from the peripheral devices all the way to the back of the house systems. It provides organisations with comprehensive information to maximise efficiency as well as profits. As GSA’s three new protocols are adopted by more manufacturers, suppliers and operators, they will usher in a dynamic new era of gaming. Operators using BOB will have greater game and system configurability and more control over their operations and more game/system uptime. S2S will provide operators with more and better patron information so they can make better business decisions. As a result of seamless system integration, transition costs will significantly decrease and IT staffs will be able to act more strategically rather than constantly putting out fires. S2S will also make the consolidation of accounting information more efficient and provide the operator with the true worth of his customer. Finally, GDS will enable more peripheral choices and streamline peripheral control, service, and diagnostics. Functional gaming operations managers and property General Managers stand to gain considerable financial and operational benefits with the inception of the proposed standards. One would expect to see significant benefits on operating and capital budgets, given the changes derived from standards implementation. Placing the microscope on GSA’s stated ‘Operator Benefits’ listed earlier in the article; we can dissect and analyze the impact upon casino operations. We can assume that casino operators will continue to upgrade their product offerings over time in proportion to innovations in technology which drive either revenues or cost savings. Furthermore; gaming and system manufacturers will continue to compete with each other over system features and attributes as well as price point. Casino operators may choose the gaming devices, Casino & Gaming International ■ 35

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systems and kiosks which will tactically fulfill the needs of current operational standards or (as is being witnessed more frequently), their choices will be more strategic in nature. Strategic planning and purchasing decisions will determine each company’s future position within their respective competitive market places. In short, as more operators select open architecture technologies as their solution of choice, the manufacturing segment will respond by fulfilling demand and complying with standards that enable operators to compete more effectively at a lower cost. After surveying numerous casino operators across North America, it became apparent that many executives did not have a full appreciation for the financial savings which could be realised once the protocol standards set forth by GSA are realised across the industry. Typical casino properties use a series of applicationfocused systems: table games, slots, marketing, hotel, food and beverage, etc. To facilitate customer service and marketing efforts, these systems have been interfaced together to share critical business information. The Gaming Standards Association’s goal is to enable the gaming industry to build a foundation tailored to its technology, its market, the participants, and the many other factors that challenge gaming manufacturers and operators. The organisation will provide the gaming industry with a standards development community with the kind of service the times require, while maintaining its commitment to technical quality and excellence. GSA is uniquely positioned to establish new methodologies and means for producing standards, using its members’ technical and organisational assets as a foundation for quality and much needed services. The formation of GSA standards demonstrates GSA’s commitment to provide valueadded services that will meet the gaming communities’ demands while maintaining a commitment to quality and excellence. Once standards have been developed, one needs to ensure that their adopters correctly implement them. To support the industry GSA has developed a compliance programme. The primary purpose of the interoperability and compliance testing programme is to give members access to an impartial testing facility for integrated testing of GSA standards. Compliance with GSA standards is tested independently against pre-defined test scripts. It is important to note that compliance is a performance benchmark, and not a regulatory approval. Testing for compliance will allow products to bear the GSA Compliant seal. Being GSA compliant will decrease time to market, allow for more efficient installations on the casino floor (and in the case of S2S, around the entire property), reduce follow-up service calls, reduce the quantity and variety of required testing, reduce the regulatory cycle with enhanced pre-testing, and enable better forensic analysis that will allow more efficient dispute resolution. This is much the same way as when you buy a USB device in Europe and plug it into your computer in the US. Guess what…it works. The reason for that is the USB certification programme. GSA provides an infrastructure and forum under which industry-specific programmes and related technology development activities (e.g., marketing, accreditation, certification, specification development, branding, and 36 ■ Casino & Gaming International

conformity assessment) can be organised. Participant groups can mobilise and maintain their unique identity without the need to develop their own infrastructure. Participant groups can organise themselves within GSA and benefit from contractual arrangements for services from GSA experienced staff and members. Services for timely development of standards and specifications are in place to ensure quality, provide intellectual property protection, and reduce the heavy costs involved in establishing, staffing, and operating programmes. Timeliness and cost-effectiveness are two governing principles of the organisation. GSA can provide comprehensive management and operational services from formation to completion of each project’s deliverables. Marketing, certification, conformance testing, demonstrations at trade shows, and developers conferences are among the various activities that often take place in support of a standard or specification. GSA is able to support and initiate a full range of development and postdevelopment activities and services that the gaming industry requires. By continuing efforts to promote these and other open industry standards, the Gaming Standards Association is working to make the many existing, cumbersome protocols outdated. By encouraging open standard adoption, the association is working to make gaming operations more efficient, keep development costs down, provide new applications and get them to market more quickly, as well as increase gaming revenues and profits. The formation of these standards demonstrates GSA’s commitment to provide value-added services that will meet the gaming communities’ demands while maintaining a commitment to quality and excellence. For more information on the Gaming Standards Association, please go to www.gamingstandards.com. PETER W. DE RAEDT Peter W. De Raedt, 46, is an independent consultant who became the president of the Gaming Standards Association in October 2002. Peter has a degree in Electrical Engineering from the University of Antwerp, Belgium as well as a Business Management diploma from South Africa. He started in the gaming industry in 1986 for TCS. As Systems Manager / General Manager, Mr. De Raedt has been running the Systems division for TCS (UK) from Belgium. Peter joined Aristocrat in Sydney in 1997. As VP of Technology he was responsible for establishing the new R&D center in Tucson Arizona. In 2001 Peter left to take up the position as Corporate VP of Product Development and IP for the MIS Group of Monaco and at the same time he resigned as Chairman of the Board of the Gaming Standards Association, GSA (formerly known as GAMMA). He served as their chairman since GSA’s inception in May 1998. Peter is also active on the editorial advisory board of CEM publication and is a partner in a new startup company. Peter is married, has two sons and lives in Reno, NV.

INDUSTRY STANDARDS

SAFE, FAIR AND EFFICIENT: eCOGRA’S PATH TO PLAYER PROTECTION BY MICHAEL HIRST OBE & ANDREW BEVERIDGE

“What we all need to constantly remember is who really puts the bread on the table: it’s the player, and the industry needs to do a better job of making his or her online experience safe, fair and efficient. In a nutshell, that’s the eCOGRA goal.” Andrew Beveridge, Chief Executive Officer, eCOGRA.

ecause it has grown so swiftly from its pioneering days a mere decade ago, the Internet gambling industry today presents a fascinating study in contrasts: one of billion dollar companies, cutting edge technologies and highly sophisticated marketing versus disparate parochial regulatory bodies and little in the way of agreed standards. It almost seems as if, in the rush to achieve success, the geographically widespread industry strode past certain developmental stages that are now critical to its further advancement as a responsible and consumer-friendly business. The eCOGRA initiative is among the leaders in addressing this important standards and regulatory need, which embraces responsible gambling, effective disputes resolution procedures, fair gaming and efficient, player-sensitive operational practice at Internet gambling venues.

LOOKING BACK AT THE WILD, WILD WEST Online gambling burst onto the international gambling scene in the mid-nineties and its enthusiastic reception among players around the world took even the pioneers a little by surprise. It soon became obvious that this was a dotcom business that had both legs and potential, and the rapid growth in business and technology was consequently phenomenal. Not so a matching culture of standards and regulation and, as a result, opportunism appeared in some sectors of the industry, which was frequently described as ‘The Wild West of gambling’ by writers in those early days. It saw the emergence of many small ‘regulatory’ jurisdictions which were introduced mainly to harvest lucrative licensing fees without having to do too much in the way of enforcement or dispute resolution, and that bred a cynical demand in some quarters for ‘no hassles’ licensing as a player assurance marketing ploy rather than a genuine desire to be professional and accountable. Casino & Gaming International ■ 39

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Credibility took a further blow when some of the commercial interests went a step further and set up bogus player watchdog sites, again chiefly to reassure players for marketing purposes. Many of these became renowned not for assisting players, but for ignoring them when they appealed for help. Both the industry and the source of its success – the players – were disadvantaged as a result. The players too often experienced bad treatment and even dishonesty at the less reputable Online casinos that were answerable to noone, and the industry suffered from the adverse perceptions that this created in both a commercial and political sense. CRITICAL MASS It was against this background that top executives of two of the most successful companies in the industry, Casino On Net and Microgaming began talks in 2002 to improve matters. Between them, the companies handled most of the Online gambling business when it came to the Online casino sector, which gave the proposed initiative a significant advantage in terms of quickly building critical mass. The project would require a substantial financial commitment, and from the beginning it was acknowledged that any organisation with the goal of setting and enforcing international standards would have to be independent to achieve credibility. It could not be exclusive for the same reason, and the development of pragmatic but effective standards would have to be player-sensitive. The independent nature of the body was achieved through the appointment as operational directors of three internationally known and respected senior executives from the wider gambling world, Michael Hirst OBE, Bill Galston OBE and Frank Catania. Andrew Beveridge, the Chief Executive Officer and his London-based staff report directly to these three fiercely independent and experienced men, who control operational matters such as the acceptance of new members, the standards and probity inspection and monitoring processes, operational practice at seal casinos, awards of the eCOGRA ‘Play It Safe’ seal and player disputes submitted to the Fair Gaming Advocate. Following consultation with experts in relevant disciplines around the world, the first eCOGRA standards and requirements, called eGAPs (Generally Accepted Practices) were drawn up, enabling the organisation to offer itself to those operators with the determination and commitment to rise to a new level of professional practice. GOING THE EXTRA MILE FOR eCOGRA The response has shown that the industry can boast many companies prepared to go the extra mile to provide honest, player-sensitive and efficient services. eCOGRA now has three major softwares on board – Casino On Net, Microgaming and Ongame – as members, and 56 and counting quality Internet casinos and poker rooms that adhere to its standards and eGAPs. Some of the biggest and most successful companies on the Internet are among these, with millions of players on the books. Bringing this all together under a common and enforced operating standard is achieved through the use of an Audit Panel comprised of internationally respected professional services organisations. These major firms are charged with 40 ■ Casino & Gaming International

<< Considering the huge volume of transactions and the tens of thousands of players at the busy seal venues, the percentage of complaints is miniscule – less than 0.01 percent >>

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independently assessing and physically inspecting companies that apply for the eCOGRA ‘Play It Safe’ seal in a process that examines financial and management probity as well as operational facilities and systems to ensure compliance with the eGAPs. eCOGRA’s eGAPs embrace everything from efficient and internationally compliant financial and payout systems to customer service and fair gaming, and both the software in use and the casino or poker room itself comes under close and expert scrutiny. When the Audit Panel is satisfied, the three independent directors may issue the revocable ‘Play It Safe’ seal, which indicates to players and other interested parties that the holder has attained high standards of operational capability and professional conduct. The seal is the ultimate icon for safe Online gambling, and is presented as such to the player community through the work of the Fair Gaming Advocate and editorial and marketing initiatives. The Audit Panel’s work does not end there either – all transactions at seal bearing venues are continually monitored and regularly reviewed as part of an outcomes-based testing regime. FAIR GAMING – A KEY DEMAND FROM PLAYERS Fair gaming, which is an integral part of these monitoring activities is one of the most important player concerns, and is controlled through an analytical process called the Total Gaming Transaction Review (TGTR) This sophisticated system was developed by an independent audit group and records every transaction at a seal casino in order to analyse and identify any areas that may need investigation, including the performance of the gambling software. eCOGRA regards software fairness verification as a core element in its standards, and the TGTR is an advanced form of outcomes-based testing which the organisation regards as both fair and superior to source code testing. There are testing companies that argue that the only way to be certain that the random number generator (RNG) — the key to computer-based casino games, whether real-world slot machines or Online slots and table games — is operating properly is to study the source code of its programme. They maintain that such a time-consuming analysis is required for regulators to be assured that a game will perform as its supposed to. The problem is that these testing companies are too enmeshed in the mindset of land-based gaming. Traditional gaming has been with us far longer than Online gaming, and most regulators and testing company employees come from a background in traditional gaming. In a real-world slot machine, the RNG and the machine form a single, integrated unit of hardware that is locked to the outside world. Once the software is reviewed and burned into the EPROM chip of the unit, it cannot be physically changed. In addition to their access to surveillance cameras, regulators typically require casinos to keep detailed records of any incident of the machine being opened in order to minimise the chance that an operator could substitute one EPROM chip for another. By analysing the source code of the game, regulators, or the testing companies that they hire, can be confident that the game performs as specified. These procedures have Casino & Gaming International ■ 41

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worked well in the traditional gaming environment. SOURCE CODE TESTING VS TGTR The world of Online and network gaming, however, is far more complex. To begin with, no one except the player has any control over the hardware on which the game is being played, which is usually the player’s personal computer or laptop. The gaming server, the computer that runs the game, assumes a critical role for which there is no counterpart in real-world gaming. Companies such as Microsoft, Oracle and Sun spend hundreds of millions of dollars to develop and refine their proprietary server products. Likewise, gaming software developers invest huge sums in their proprietary gaming servers. The server does much more than house a random number generator. It has to link into a highly sophisticated transaction processor and controller that routes the millions of messages coming into the system each minute, providing each message with a response, creating complete records of all messages (in and out), while being able to provide summary information. All of this is done in real time. The design of these amazing servers is jealously guarded by software developers, who are constantly refining them to offer a better and faster experience for the end user, while increasing security and reducing maintenance costs. The server is the core competitive advantage for these companies. It is the culmination of the intellectual property that is their primary asset. Regulators and testing firms are aware of the need for the utmost confidentiality in their work. But consider the ramifications if a rogue employee were to steal this intellectual property, perhaps posting it on the Internet. Who would bear the legal liability and pay the enormous damages if this happened? Much of the modern world, in both business and government, depends on the products of companies such as Microsoft, Oracle, Sun and SAP. Yet they do not supply their source code to their customers. Their products are assessed on the basis of their total performance, not on their source code. This is the fallacy of certain regulators and testing companies who insist on source code review. They may be well-intended, but their model – land-based gaming – is obsolete in the Online gambling context. And they should be taking their cues from the software industry, not the gaming industry. The problems with source code testing extend far beyond the issue of intellectual property, for this approach is also impractical. Some regulators don’t appreciate how much maintenance work must be done on gaming servers. Nearly all of them rely on operating systems from Microsoft or Sun, who release security patches almost every week. These have to be added to the system. Hardware failures (in the form of network cards, memory card, power supplies) occur and need to be rectified. Unlike a traditional gaming machine, a network system has many more points of ongoing failure, which need to be monitored and fixed. This requires constant access to the server system, rendering quite impractical any suggestion of regulator-supervised access. Requiring the software provider to get approval from a regulator or testing house every time the provider needs access to the system would be an operational nightmare. Practically speaking, the software provider must have 42 ■ Casino & Gaming International

round-the-clock technical access to its system. But if such access is permitted, there is nothing to prevent a provider from temporarily replacing source code. The code could be tested and digitally signed by the testing company. But if the provider could temporarily bypass the tested code, what is the value of such testing? If the provider is trusted not to do that, why bother testing the code in the first place? Source code testing is fully capable of giving regulators, and players, a false sense of security. TGTR verification is not just an alternative; it’s the best way for regulators to handle their quite legitimate need for testing. Rather than attempting to test each individual component of the system, as source code testing tries to do, test the system as a whole. One of the best features of this approach is that it can be done on a continual basis. By collating and analyzing data on every single transaction at the gambling venue. WHY DO WE TEST? Let’s remember the purpose of testing. We all want to ensure that the player gets a fair game in accordance with the rules, that the government gets its correct tax allocation and that

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the regulators can easily ensure that all players adhere to the law. Fortunately, using the tried and tested practices of the software and auditing industries, this can be easily done. It does, however, require a shift of thinking away from ‘traditional gaming testing’ towards ‘systems testing.’ By continually checking both the input and output of the system, it is perfectly feasible to test that the system is meeting the regulatory requirements while providing the operators and software developers with complete operational flexibility. By checking each and every transaction for its completeness, together with spot testing of transactions, it is possible to verify that all transactions are faithfully recorded. By performing further analysis of the summary data and subjecting the vast amounts of data to rigorous statistical testing, one can further confirm the integrity of the random number generator in particular and of the system in general. After all, it’s the fairness of the final outcome that players, and the regulators who protect them, really care about. With TGTR verification, eCOGRA has a solution that goes far beyond trying to match the security of a real-world slot machine. This is a solution that allows for rapid advances in technology, reduces development and regulatory costs,

provides for easier dispute resolution and is easily implemented using existing methods from the broader commercial world. Among its core principles, eCOGRA recognises the need for rigorous regulation of Online gaming. Ongoing testing and review by independent parties is a key component of any regulatory regime worth its salt. The very fact that the industry is having this discussion about the best method of testing is a healthy sign. eCOGRA stands squarely behind the extensive and expert research that underpins the TGTR as a highly effective yet practical method of continuous software fairness testing. SERVING THE PLAYER Andrew Beveridge, the CEO of eCOGRA takes the representation of players’ interests in the industry seriously, saying: “What we all need to constantly remember is who really puts the bread on the table: it’s the player, and the industry needs to do a better job of making his or her Online experience safe, fair and efficient. In a nutshell, that’s the eCOGRA goal.” Aside from the obvious need for courteous and knowledgeable customer service centres, eCOGRA has recognised another important Online player requirement – an independent disputes channel, and that is the responsibility of the organisation’s Fair Gaming Advocate based in London. Any player at a ‘Play It Safe’ seal casino or poker room that has a complaint which is not addressed to his or her satisfaction by the management of the operation, has the option of lodging an Online complaint with the FGA. This carries with it the assurance that the matter will be rapidly and independently investigated and a fair solution will be brokered, typically within 48 hours – an industry benchmark few mediators have been able to match. It is a service which has proved to be quick and evenhanded, although considering the huge volume of transactions and the tens of thousands of players at the busy seal venues, the percentage of complaints is miniscule – less than 0.01 percent. The most common cause for disputes are bonus offers, which are governed by the casino or poker room terms and conditions, displayed prominently on the site and frequently emphasised on specific promotions. Regrettably, this has become such a contentious area and one vulnerable to abuse that the T&Cs have evolved into complicated documents requiring detailed study. Where players claim bonuses without reading the T&Cs properly, it can lead to disputes where winnings may be disqualified for failure to comply with the T&Cs in such areas as wager through minimums, financial histories or multiple accounts. The FGA’s work has become an industry example of what can be achieved and a valuable element in making seal venues attractive to a player community that not infrequently is ignored or subjected to delays, obfuscation and discourtesy when trying to lay a legitimate complaint. RESPONSIBLE GAMING IS MORE THAN LINKING TO A HELP SITE In percentage terms, the number of underage or problem gamblers that is encountered online is, like the land gambling industry relatively small at around two percent. However, given the growing thousands of players Casino & Gaming International ■ 43

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gravitating to the convenience of this form of gaming eCOGRA identified it as an area of concern from both a humanitarian and political perspective at an early stage in its development, and has made important strides forward in introducing systems to help seal venues deal with this sad and sometimes tragic aspect of gambling. Conscientiously addressing the problem demands more than the usual lip service of merely placing a link to a help organisation on the site. Following its customary policy of consulting with the best experts available before taking action, eCOGRA teamed up with the Global Gaming Guidance Group (G4) this year to plan and implement best practice processes in the field, and progress has been rapid. The first step was to introduce practical standards and requirements for compliance by eCOGRA regulated companies, and the second was educating the managers who would run the programmes. Senior casino and poker room managers from around the world attended a G4-led intensive training conference, returning home to frame and introduce recommended G4developed policies and procedures. Three of the major groups, Jackpot Factory, Belle Rock and Fortune Lounge already have programmes up and running, with more due to start in the near future. Other eCOGRA regulated operations like the Trident Group and PokerRoom.com have been proactive in this important area for some time, providing millions of players with a comprehensive range of responsible gambling services. In the near future all 56 eCOGRA regulated venues will have active systems. How big is the problem, and what is involved in a programme of this nature? Most research studies indicate that a remarkable degree of similarity exists in the profiles of current addictive gamblers across international boundaries. Between 1.5 to 2 percent of active players tend to be problem gamblers in Western societies, except in Australia where the numbers double. Of these, an average between 0.50 and 0.91 are in the critical, or ‘pathological’ stage where giving up gambling altogether is the only solution. And only one in every five problem gamblers (20 percent) is a woman. Uniquely to gambling addiction, an average 40 other persons are adversely impacted by the behaviour of a problem gambler – twice that of other addictions. And it can have serious health, stress and even suicidal consequences for the addict and his or her dependents. Problem gamblers are more likely to take their own lives than any other form of addiction. WHERE TO START Seriously addressing the problem requires financial investment in identification and verification systems, training and refresher courses for staff and creating an ongoing awareness at all personnel levels that out of control gambling

is a serious illness that can cause acute human distress as well as damage to business and reputation. That requires genuine buy-in and commitment from seal casino and poker room owners, and this has been forthcoming, with solid support for the eCOGRA Responsible Gaming project. Seal venues have to provide a specific section onsite devoted to responsible gambling and giving players the tools to privately test themselves for vulnerability in the form of expertly designed questionnaires. The site has to provide voluntary opt-out or time-out facilities for gamblers who recognise they have a problem, and in order to assist them personnel have to be able to identify the betting characteristics of players who may be developing into troubled gamblers. Advice or details of organisations that can help distressed gamblers have to be on hand if required by any player. Marketing departments have to be inculcated with the principle that every effort has to be made to avoid promoting gambling, even accidentally to the under-aged or gamblers who have been identified as having a problem. eCOGRA operations are equipped to screen out as many under-aged gamblers as possible, because people exposed to gambling for reward at an early age – usually lower than 18 years - are more vulnerable to developing an addiction. That means ID verification precautions and the use of several sophisticated outsourced databases that make the screening more effective. Unfortunately, young people can acquire credit cards from the banks without too much trouble, and this provides them with the financial tools for Internet transactions. In the era of the smart card, if the banks would code in information on age it could make a very valuable contribution to Online screening procedures. To give a perspective on age and gender, consider the survey carried out earlier this year by PokerRoom.com which studied the demographics of players who had voluntarily excluded themselves from gambling, using a facility for that purpose provided on the site. Eighty-five percent of these were males, and they came from 25 countries. However, 82 percent of them came from the Unites States. The site, albeit from a massive gambler base numbering several millions, was recording an average of 12.6 voluntary exclusions each day. When it came to age groups, the dominant category was players of 25 years or more (51.5 percent.) Those in the 18 to 21 year age group (22 percent) came next. Those aged 50 or more constituted a very low proportion of those studied. The features that make Online gambling such an appealing entertainment for the vast majority of players can unfortunately attract the problem gambler, too: accessibility, speed, autoplay, progressives, slick financial transactions, bonuses, loyalty programmes and ease of use all constitute risk factors for the small percentage of users who are problem gamblers. However, with modern technology and the right training,

<< It almost seems as if, in the rush to achieve success, the geographically widespread industry strode past certain developmental stages that are now critical to its further advancement as a responsible and consumerfriendly business >> 44 ■ Casino & Gaming International

INDUSTRY STANDARDS

Online gambling venues are also better able to identify, track, research and communicate with problem gamblers, using effective self-exclusion, assistance and awareness programmes. Responsible Online casino operators should commit both will and resources to using these positive elements and introducing genuine responsible gambling programmes. By confining underage and problem gambling to an absolute minimum, operators can help reduce human risk, protect their own interests and make an important contribution to the reputation and standing of the industry in the process. A BRIGHT FUTURE Most Online gambling executives, given reasonable tax regimes would prefer to be regulated and legally accepted, but this is not easily attained in a global business with few boundaries. There are beacons of regulatory hope ahead in the form of the UK Gambling Commission, which will soon introduce truly regulated Online gambling to the British Isles for the first time. And there are other and mainly European based jurisdictions which are making praiseworthy advances in the field, too. Unfortunately, the currently largest market, the United States remains in a confused limbo of federal and state legislation, unsuccessful attempts to ban or damage the industry and as yet untested claims of illegality by the Department of Justice. International Gambling and Wagering Business magazine recently published an assessment of the gambling situation in the country which illustrates just how confused the situation has become. Gambling is allowed in the following states: ■ Lotteries – 41 states. ■ Charitable Bingo - 47 states ■ Charitable Games - 40 states ■ Card Rooms - 13 states ■ Casinos and Gaming - 15 states ■ Indian Casinos - 24 states ■ Sports Betting - 4 states The parimutuel wagering scene is even worse - telephone wagering is allowed in California, Connecticut, Idaho, Kansas, LA, Nevada, New Hampshire, New Jersey, New York, North Dakota, Oregon, Pennsylvania, Virginia and Wyoming. Yet the federal government says that Online gaming is illegal? It is therefore unlikely that this mess will be unraveled any time soon, making private standards and controls a viable option for the protection of the millions of players who regularly log on to offshore sites from this country. Online gambling has come a long way in a short space of time, with revenues this year expected to pass the US$10 billion mark, and even conservative analyst estimates indicating a strong growth pattern for the now well established multi-million dollar firms in the years ahead. New technologies, such as multiplayer casinos, interactive TV and mobile gaming are evolving quickly into rewarding and commercially viable businesses. This all points to a real need going forward for practical, professional and enforced standards of business conduct, and eCOGRA has an important global role to play in this regard.

MICHAEL HIRST & ANDREW BEVERIDGE Michael Hirst OBE is Chairman of eCOGRA. He has extensive experience in the sector and provides strategic and business development advice to software and operating companies. He is also a consultant to several companies within the international leisure, hospitality and tourism industries. Michael Hirst is a former board member of the Ladbroke Group Plc, now known as the Hilton Group. He became Executive Chairman of its hotel division and Chairman and Chief Executive Officer of Hilton International in 1990. Having served on the UK’s Secretary of State for Culture, Media & Sport’s tourism advisory group, he continues to represent business tourism at government consultation meetings. As Chairman of the Business Tourism Partnership, he presides over a cross-industry and government group which represents the conference, meetings, exhibition, outdoor events, incentive travel and corporate hospitality sectors. He was voted ‘Personality of the Year 2003’ by the readers of Meetings & Incentive Travel for his work for Britain’s business tourism. Michael Hirst is also consultant to CB Richard Ellis Hotels, the world’s leading hotel real estate advisory firm, where he assists on asset management, financing, mergers and acquisitions, single property and portfolio transactions. Andrew was appointed CEO of eCOGRA in October 2002, following six years of experience in various areas of online gaming and betting. Andrew’s Online experience started in 1996 with MultiChoice, an international supplier of pay-television and interactive services. He played a major role in the start-up of MWeb, South Africa’s largest ISP, and then joined the management team of International Gaming Networks, the MultiChoice division created to develop interactive gaming technology across Internet and digital television platforms. Other responsibilities included the implementation of the SuperBet’s (South Africa’s largest sports betting operation) risk management controls and procedures, and business development for the sports betting operation. Andrew then assumed responsibility for a company called LiveBet Online (Pty) Ltd, which then together with eCompany Ltd was able to develop a successful online and telephone lottery and sports betting platform that has been successfully implemented at various UK, European and South African sports betting operations. Andrew qualified as a Chartered Accountant after completing articles at Coopers & Lybrand in Johannesburg. He spent six years abroad, working for major international banks in London and Hong Kong, including HSBC and ING Barings, and then completed a full-time MBA at Edinburgh University.

Casino & Gaming International ■ 45

Cashless Gaming – The Flagship Product of Atronic Systems With the increasing interest in cashless gaming systems, all over the world, Atronic Systems have seen a growing demand for their smart card cashless gaming solution. Pioneered more than a decade ago together with South African casino group Sun International, Atronic Systems have become a synonym for smart card gaming with their brand CHIP CASH™. While increasing customer satisfaction through various player tracking features, promotional and bonusing capabilities, CHIP CASH™ ensures higher turnover as well as a reduction in operating costs. Designed to meet the evolving needs of both the players and the operators, CHIP CASH™ offers maximum comfort for the players, high turnovers due to uninterrupted play and serves as a versatile marketing tool. In addition, CHIP CASH™ can be used for single sites or multi-site properties where players can use the same card in various operations of a casino group. And what is more, the same card can be used for both cashless gaming as well as loyalty programmes for marketing purposes. With more than 15.000 slot machines operating world-wide on Atronic Systems CHIP CASH™ solution, the company signs up new customers in various jurisdictions on a monthly basis. Prestigious gaming operators such as Sun International of South Africa, the Army Recreational Program of the US, the Golden Group in Russia, Casino Loutraki in Greece, Holland Casino of the Netherlands, the Comar Group in Spain and Schleswig-Holsteinische Spielbanken in Germany have chosen CHIP CASH as the payment tool for their casino operations, often combining CHIP CASH with their casino loyalty program, using the same card for both cashless gaming as well as player tracking. The continuing success of the CHIP CASH™ solution can be attributed to the overwhelming player appeal of Atronic Systems´ smart card solution: CHIP CASH™ is clean, easy to handle and offers high security aspects. Atronic Systems’ vast experience in the gaming industry helps the company in understanding the unique management needs of casinos and they developed and integrated a product that offers a reliable and seamless solution. For more information please contact: Atronic Systems GmbH Anette Jauch - Director of Sales & Marketing Phone: +31 528 370717 Mobile: +31 6 53835237 Fax: +31 528 372498 Email: mailto:ajauch@atronicsystems.com Web: http://www.atronicsystems.com

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SOCIAL & CORPORATE RESPONSIBILITY

BUSINESS SENSE OF EDUCATING FOR PREVENTION INTERVIEW WITH CONNIE JONES

Industry recognition of the adverse effects of gambling has grown with international expansion and increasing public involvement in gaming and gambling. CGI asked Connie Jones, Director of Social Responsibility for IGT, about the importance to business of tackling problem gambling.

CGI: Why was the post ‘Director of Social Responsibility’ created within IGT in particular, and is this trend-setting, or are you trying to set a precedent? Connie: At IGT (International Game Technology) we are passionate about our business. As the premier gaming machine manufacturer we endeavour to provide the finest gaming entertainment in the world. Our corporate Responsible Gaming Program (RGP) and the position of Director of Responsible Gaming came into existence as a result of IGT’s recognition of a growing public concern regarding problem gambling and its potential impact on our business and the communities in which we operate. We felt there was a critical need to educate the public and to promote awareness of responsible gaming, while seeking ways to help affected populations. Our RGP was not created in an effort to set a precedent or establish a new trend among gaming equipment manufacturers. Instead, we feel attention to this most critical issue is simply good business to help ensure the future of our industry. CGI: What do you consider to be the first priority of your social responsibility remit? Connie: Simply stated, “Our first priority in the establishment of this programme is to help problem gamblers.” In helping them we will help ourselves and our industry. CGI: Are you answerable in a regulatory sense above Casino & Gaming International ■ 49

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and beyond the level regulators would expect from company adherence to the rules? Connie: IGT is always accountable and responsive to public concern regarding our products. The mere existence of our RGP and the Director position is evidence of that commitment. The IGT RGP is above and beyond any regulatory requirement in this area. Currently, there is not another gaming equipment manufacturer in the world that has adopted and implemented a programme as comprehensive as ours. CGI: How do regulators view your position? Connie: While I cannot speak for the regulators, it is our hope that they will view us as a resource and an ally in the creation of sound public policy that is sensitive to public concerns regarding problem gambling. CGI: Presumably, your proactive engagement means you have the opportunity to put the industry’s ‘best foot forward’ to good effect? Connie: Absolutely! We welcome any opportunity to share our years of experience with the problem gambling community, the industry, governments, researchers, and treatment professionals to further the search for new means to assist problem gamblers as well as help establish safer gaming practices based on sound research.

Connie: Networking is the key. Social corporate responsibility requires that we coordinate our efforts with problem gambling organisations, researchers, treatment professionals, industry representatives, creators of public policy and most importantly, the problem gamblers themselves, to find solutions to the problem gambling dilemma. Perhaps a good example of networking might involve the use of machine modifications to help problem gamblers. These responsible gaming features on the screen of a gaming machine (GM) may include a digital clock, credits shown in dollar amounts, pop up reminders showing play time remaining and automatic shut down of the game when a predetermined amount of time has elapsed. While we are happy to incorporate any of these features on the GMs at the request of a customer, we would hope that the effectiveness of this strategy is backed by sound research. IGT is proud to be a major supporter of a problem gambling group treatment programme in Las Vegas. On occasion we participate in the group meetings to gain insight on industry strategies toward harm minimisation. Upon sharing the responsible gaming screens with the group we were surprised to learn that most felt while the features were largely ineffective, they may actually cause harm.

CGI: Many companies have ethical and governance policies and practices: what is the advantage of your approach?

In our networking efforts we share this type of information with our customers, lawmakers, regulators, researchers and other interested parties in order that they might develop sound RG guidelines/practices. I believe the significance of this type of networking is fostering a growing interest by other technology providers to follow our example.

Connie: IGT’s Corporate RG Program provides another layer of commitment to address a concern unique to the gambling business. Attention to corporate social responsibility is reflective of the ethics and values of our company. How could there not be an advantage to expanding your ethical practices to help those affected by problem gambling?

CGI: Do you think there is a fine balance to be struck between campaigning to create social credibility for the gaming industry (locally, IGT), on the one hand, and the risk of over-emphasising what can realistically be achieved on the other? Isn’t the secret to life about ‘balance?’

CGI: Does this mean that you are able more effectively to find industry-regulator common ground?

Connie: Yes it is a fine balance and in a perfect world gaming entertainment would only be appealing to those who could enjoy it without abusing it. The gaming industry’s effort to attract patrons has been characterised as similar to the tuna fishermen who inadvertently catch some dolphin in their nets. The dolphins were likened to problem gamblers. It may seem idealistic to create a form of gaming entertainment that will not attract ‘dolphins’ but we will continue our quest by working with others to find a common solution.

Connie: That is contingent upon the mandate passed down to the regulators by the legislators or other authorising body. If gaming statutes require regulators to incorporate responsible gaming guidelines into a new or existing programme we would certainly hope they would view us as a resource. Often members of the public perceive industry involvement in the development of public policy as ‘the fox watching the hen house.’ Contrary to media criticism, problem gamblers are never desirable as gaming customers. It is in our best interest to assist regulators in the creation of sound guidelines that will protect both the problem gambler and ourselves. CGI: This must involve a lot of networking with the possible benefits of influencing others to consider doing likewise. 50 ■ Casino & Gaming International

CGI: In the end would you say much depends on the level of management expertise and training that personnel receive in conjunction with enlightened company policy in order to achieve your aims? Connie: Certainly, this is particularly true of gaming operators (casinos and gaming venues) since their personnel interface directly with gaming patrons. As a manufacturer, IGT recognises the importance of employee awareness. We provide our employees with RG information and assistance through our Employee Assistance Program (EAP) if they or anyone in their family is impacted by a gambling problem.

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EUROPEAN GAMING

SEEKING AN OPEN, COMPETITIVE AND RESPONSIBLE MARKET BY DIDIER DEWYN

It is mainly in the UK and Malta that the private operators have legal certainty. If the prevailing situation, with legal uncertainty in the rest of the EU, is allowed to continue, the private operators might find it necessary to move offshore to jurisdictions where such legal certainty exists

n 2004 the leading companies in the betting industry formed EBA, the European Betting Association, based in Brussels, to represent the views and interests of the private betting industry. EBAâ&#x20AC;&#x2122;s main purpose is to promote a European betting market that is competitive and open to cross-border betting services. The goal of EBA is to create a market which offers fair competition between state-run and private betting operators. EBA also establishes ethical norms and a code of conduct to which its members should adhere. Up until 2004, the European Lotteries had roamed the EU institutions in Brussels relatively undisturbed. They were in

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full control of the lobbying and legislative processes and policy regarding gambling services. With the advent of the Commission’s proposal for a Service Directive including content about gambling, it became paramount that the private gambling industry organised itself with a focus on Brussels. Only through efficient trade bodies could it monitor and influence the development of the regulatory framework for gambling. Besides EBA, there are a number of organisations now lobbying the EU institutions, like ARGO and previously iGGBA on behalf of the private gambling industry (ARGO and iGGBA are now combined as RGA). The work of these organisations and individual gambling companies like Stanley Leisure has dramatically raised the awareness with all stakeholders in Brussels about the private sector of the gambling industry. The fact that several organisations are working in parallel to influence the European political scene is good, as it creates more attention and pressure. This is as long as the same arguments are being used which is currently the case. The role of a trade association is primarily to act as one voice for its members in relation to the outside world. For the EBA this is also the prime objective, but EBA has expanded its role as a trade association for gambling operators by introducing a code of conduct for its members and made the adherence to this code a condition of membership. Activities that EBA as a trade association has initiated or supported can be outlined thus: ■ study of the effects of changes in the betting tax structure for governments in terms of betting tax revenues and overall tax revenues; ■ cooperation with organisations to prevent problem gambling; ■ Memorandum of Understanding between members of EBA and the sports federations for exchange of information regarding irregularities in betting patterns; ■ the formation of a European Sports Security Agency (ESSA), with the purpose of incorporating an early warning system directed towards sports federations in case of suspicious betting patterns; ■ and the Commission to produce a study of the gambling market. EUROPE AND GAMBLING LEGISLATION ON AN EU LEVEL The main issue for future EU legislation is the Service Directive which was debated in July 2005 in the European Parliament and in the Council of the EU member states. In this debate the prevailing opinion has been that gambling should be completely removed from the Services Directive, leaving no reference whatsoever to gambling. The possibility of changing this opinion, as the process for the whole European Parliament agreeing on amendments to the Directive proceeded, went on until October last year. If gambling were to be left out of the Directive, then we will simply remain with the existing jurisprudence arising from the Gambelli case. In the Gambelli case the European Court of Justice interpreted the EU legislation with regard to the free movement of services and the free establishment of operations across borders. Instead of having gambling included in the Services Directive, the European Commission could at a later stage 54 ■ Casino & Gaming International

take the initiative for a sector specific Gambling Directive for harmonisation of the gambling sector, in part or as a whole. The fate of gambling as a part of the scope of the Services Directive might be influenced by the outcome of a number of national court cases against private operators in member states. There have also been at least seven infringement cases with the EU Commission about governments violating the EU Treaty when prohibiting cross-border gambling services. A third factor to influence the EU legislators’ mind will be the report that the EU Commission will issue in 2006 after completing the study of the gambling industry in Europe. THE NEED TO ESTABLISH LEGAL CERTAINTY The increase in Online gambling with private operators as well as monopoly operators shows no signs of flattening out. It is more that the monopolies and the beneficiaries of their revenues, the governments’ coffers, are worried about the continued success of the private operators and their Online gambling services. They see the private operators as becoming more and more of a threat. The increase in private operator businesses reflects the fact that their services enjoy a very positive attitude from customers. But it is mainly in the UK and Malta that the private operators have legal certainty. If the prevailing situation, with legal uncertainty in the rest of the EU, is allowed to continue, private operators might find it necessary to move offshore to jurisdictions where such legal certainty does exist. This is a development that would be a disadvantage for all stakeholders, consumers, government tax authorities, and

<< There is no doubt that the US market is very important, but already today we are seeing signs that major US players are shifting their focus from the more saturated US market towards new, mainly unexploited European markets >>

EUROPEAN GAMING

other parties for which the private operators continued work to be good corporate citizens is important. The legislators, who want the monopoly situation to remain, argue that it is only through such monopolies that gambling addiction, minors gambling, and money laundering can be prevented or controlled. With the Internet these problems can be dealt with only on an EU level. They are global issues and they can only be addressed with all parties involved, including the private operators. But if the EU legislators manage to exclude private operators from the future legislative framework, forcing them to go offshore, there will be no possibility of even tackling these problems in a satisfactory way on an EU basis. At this moment we see no signs of a unified EU policy on gambling, but only a patchwork made up of national legislation. Once the Commission study on the gambling industry is presented we will be able to assess whether there is a basis for working on a unified EU gambling policy, and therefore a harmonising of EU legislation. COULD UK LEGISLATION BE A ROLE MODEL FOR THE REST OF THE EU? To some extent the European private gambling industry had hoped that the UK Gambling Act would influence other EU member states to introduce similar legislation. This seems to be wishful thinking as national legislators try to protect their monopolies with all possible legal and public relations means at their disposal. The UK Gambling Bill will create regulatory and legislative

certainty for the operators licensed in the UK. The Bill will also give the operators, who offer their services on a crossborder basis into other EU member states, a legitimacy that truly cannot be questioned by other member states. This legitimacy includes demands on the operators to deal with social issues like age verification, gambling addiction and fraudulent behaviour. In this context the Act’s value cannot be overstated. The UK authorities have claimed many times that the UK Gambling Act is primarily socially-based legislation, and for this reason alone the social responsibilities contained therein are pushed to the forefront. EBA and its members are well aware of the necessity to act firmly on such issues and have agreed on a code of conduct that the members are obliged to follow. EBA has also initiated a number of additional activities to enhance the members’ ability to deal with their social responsibilities. There is no doubt that the US market is very important, but already today we are seeing signs that major US players are shifting their focus from the more saturated US market towards new, mainly unexploited European markets. The Antigua ruling will not change this as we expect the US to continue to be a very difficult market for gambling from a legal point of view. The EU legislators sometimes refer to the situation in the US, but they don’t see the legislation as a role model for future European legislation. During the next two years we will have to struggle with getting the Service Directive through the process and work on the conclusions of the Commission study. In five years time we will probably have a competitive market for gambling and in ten years time we may well have a global regulatory framework for gambling.

DIDIER DEWYN Didier has been appointed Secretary General of the European Betting Association (EBA), a newly established trade association of leading European sports betting operators. EBA is a Brussels based non profit making association. It promotes the right under EU law for members based and licensed in one member state to promote their services in, and accept business from, all other EU member states. EBA is focusing on european public affairs and works closely with the European Commission. EBA is the driving force behind a number of official complaints with the European Commission against member states in the field of betting. Didier also serves as CEO of MrBookmaker.com, the leading online sports betting company in the Benelux and France. Prior to joining MrBookmaker, he was a business lawyer with Deloitte & Touche, where he was involved in the Corporate Finance Department and responsible for major mergers & acquisitions in Belgium and Europe. Previously Didier acquired extensive experience in the field of national and international gambling and licensing law, when he was an associate lawyer at the Brussels bar for Linklaters & Alliance in the Corporate & Tax Department.

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REMOTE AND MOBILE MARKET DYNAMICS

SHIFTING INTO mGAMING GEAR: CONVERGENCE, OPPORTUNITIES AND FUTURE PROSPECTS BY GARETH WONG

At the beginning of the 1990’s the growth of GSM and other mobile standards seemed set to create a new edge in remote gaming gambling. Ten years down the line and that market began to shift into a new gear. The conclusion was inescapable: mobile and interactive TV betting/gambling would be destined to play a major role in bringing gambling services into the public domain.

espite being rather risk averse, I ‘gambled’ my career on a move from manufacturing to the mobile telecommunications industry in the early years of the 1990s. The growth of GSM and other mobile standards proved an ideal time to be involved in this nascent market. A decade on and my business focus shifted again, this time to the remote gaming gambling market (RGGM), but specifically targeting mobile gambling. The advantage of such a move was apparent: the remote gambling market was about to shift gear and move onto an exponential plane via mobile technology as key channel (growth engine) to reach the mass market. The conclusion was inescapable: mobile and interactive TV betting/gambling would come to play a major role in bringing the gambling services into the public realm and thereby potentially gain greater acceptance. However, there is another piece to the jigsaw puzzle which will also need to be tackled, namely what gaming operators can do to bridge the mass market’s ‘trust and confidence’ gap. So as the remote gaming gambling market enters its eleventh year, what does this mean for the industry’s lifecycle at this juncture? At the European iGaming Expo in November 2004, I presented the issue of industry convergence, ranging from media brands to major portals moving into the gaming and gambling world. Yahoo, for instance, launched bingo/skill games; others have since followed. All-in-all, over the last few years in this market, while I found my foresight paid off I have also learned some important lessons. The glitz and glamour attraction of bricks-and-mortar casinos, especially in Las Vegas, in effect enabled an immensely successful desert oasis to flourish. The early

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pioneers of the casino industry, of course, were largely responsible for establishing its persistent popular appeal. Along with a number of other categories, such as bingo or poker, the ‘casino estates’ are part-and-parcel of the wider gaming and gambling market today. The offline gaming gambling market is historically well established and regulated in most countries. As an asset and capital intensive business, casinos and their invariably linked hotel developments are by now both thoroughly familiar and the most extensively analysed gambling sectors in the worldwide market. We have however to bear in mind that one of its most influential people, Gary Loveman (CEO of Harrah’s and an exHarvard economics professor), almost single-handedly reinvented casino gaming. Arriving on the stage in 1993, Gary now runs the biggest casino group in Las Vegas. Above all, he realised that it was not purely about the big spenders – ‘whales’ in Vegas parlance – it was a question of focusing on running Harrah’s as though, so to speak, it were the next WalMart (US) or Tesco (UK), by tapping into the desires and interests of everyday consumers, backed-up by the best possible customer service systems. But can we draw any parallels with the remote gaming and gambling industry. The RGGM is quite different from casino bricks-andmortar businesses. The products/services have no national or international boundaries, which poses sharp challenges to national governments and their regulatory/monitoring authorities. The e-commerce industry at present is just beginning to go corporate; being accepted as a firmly founded, respected and profitable business recently exemplified by Yahoo! and Google taking a significant share of the Dow Jones and FTSE indexes. (See the table for highlights of the major differences). The global exponential growth of the mobile communications industry has been mainly due to the common standard of the second generation of mobile telecommunications (particularly noteworthy is the GSM3 standard). This is explained more fully in my mobile gambling report4. The equipment manufacturers producing mobile devices achieve economies of scale as a result of that commonality. Furthermore, due to the capital investment required, most of the successful mobile telecom companies are either government-owned or co-owned by major corporations/multinational companies like Hutchinson5, which means that trust and confidence is therefore an issue that is minimised. Consequently, competition within each market (initially country-based) is mostly ‘marketing led’. They all go through distinct phases, moving from network expansion (population or geographical coverage), to innovative billing to value added services (content). The use of limited resources (radio spectrum) and the historic nature of regulation of the telecommunication services to enable worldwide communication (international dialling codes via ITU6, for instance), means that telecom services, particularly mobile services, are heavily regulated nationally, regionally and internationally. The significant impact of these services usually requires that the national government, as regulator, police how the company performs in respect of creation, promotion and provision of its products and services. 58 ■ Casino & Gaming International

<< The key to success is for the industry to continuously work together to build on the present structure; bring further trust and transparency and thereby add fuel to the industry’s engine so that we can break into the mass market in a controlled and responsible manner >>

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The mobile market take-up is also revealing: where Nordic countries adopted the standard, partly due to the presence of the equipment manufacturers (Sweden’s Ericsson; Finland’s Nokia), and achieved 100% population coverage first, there are now hot pockets of high growth in Europe, something that has also occurred in Asia. The United States and South America are now ‘following’ the same trend and industry lifecycle, which is partly derived from a previous focus on the US military-derived CDMA standard. At present, the remote gaming gambling market could be construed as going through a similar process, if we consider the Internet (or http, download software for PC or on Java or Macromedia Flash) as a standard equivalent to GSM. However, I would argue that the industry will require a number of quite specific standards in the near future in order for it to really grip the minds of the general public of most nations. We have to consider the following, for example: ■ Recognised standards of ‘acceptable’ random number generators (RNG), in addition to independent testing of proprietary designed RNG codes; ■ Common or recognised ‘pre-approved’ (by regulators based on percentage accuracy or confidence) age or identity verification products; ■ Recognised or approved mediation/dispute resolution procedures that are recognised by law. The industry is in a state of flux at the moment, and the lack of understanding of the market by most of the value chain – ranging from governments, incumbent gaming operators, to banks and insurance industries – means there has, as yet, been no ‘coherent’ regulatory structure for the industry internationally. There are, of course, pockets of remote gambling friendly jurisdictions scattered across the globe, and they are mainly in the Caribbean countries, Channel Islands, UK and certain countries in the Asia-Pacific region such as Australia. Given the opportunity the market now poses, comparatively new jurisdictions like Malta and First Cagayan (Philippines) have also sprung up over the last few years. To complicate the matter further, most of these remote gaming gambling jurisdictions also have limitations imposed by their own licensing terms. A common feature is that the license would prohibit the licensee from targeting ‘local national residents’. For instance, with a license based in Curacao, it is not possible to target locals or Holland’s citizens. There is also the ‘cross-border’ issue of offering remote gambling services across different countries’ boundaries. Not surprisingly, legal test cases abound as services expand within the EU to the US and elsewhere. Since there is a comparatively low barrier to entry for new operations starting up, any major change in the regulations locally could affect major corporate decisions, and the remote gaming companies accordingly have the option of migrating to other jurisdictions. There was, after all, the remote casino companies’ mass exodus from the Isle of Man in 20037. But now, with the latest changes in the tax structure coupled with the acceptance of US bets, many companies are moving back! Hot zones for the RGGM are developing in the Nordic countries and the UK (Europe). This is mostly from offline betting and the casino estates; and it is paralleled by Canada and the Caribbean countries targeting the US. These are Casino & Gaming International ■ 59

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Bricks & Mortar

Remote gaming gambling

Regulations

Well defined: ■ Within national, states border, ■ tried & tested regulations, compliance and monitoring

Dynamic: ■ Country or special economic zone focused (mostly unilateral legislation). ■ Due to the relative short duration of existence, regulations change frequently to follow the public mood /politics/geopolitics etc.

Legality

Virtually set in stone: Acts of parliament, criminal code within national border dictates legality

Constantly adapted/ challenged: ■ Acts of parliament/criminal code dictates (sometimes 50+ year old law), ■ But as the remote services transcend borders, it is difficult to ‘collaborate’ with other countries (e.g., Antigua and the US) ■ UK being the most forward thinking with the Gambling Act 2005 (the world awaits results)

Business model

Generally understood: In the past 100 years , the investment community had dissected and put back together the many financial instruments that measure, invest, and leverage their business. Revenue growth had been mostly in the ‘non-gaming’ sector: restaurants, hotel/hospitality, and entertainment, which now accounts for 52% of revenue of an average casino operator in Las Vegas (increased from 20-25%) .

Developing: Due to reach and scale of remote gambling, even the operators themselves do not know where the next ‘Big Bang’ will come from, and what money it will make and how. What will be the next poker success? Revenue growth is mainly due to economy of scale, and scalability of technology. It is terribly cash generative and cash rich, but asset low (just computer hardware and associated cost, plus human resources), most spending on marketing like most FMCG business.

Asset

Capital intensive: Hence, getting ventures financed is much easier.

Capital requirement comparatively low: The cost of starting is low as is cost of equipment and bandwidth. Therefore, combined with legal uncertainty, the investment market had previously seen this market as ‘niche’ and some considered it to be too non-transparent and risky. One will also need to consider marketing cost as a major consideration within the capital requirement within the business case/evaluation, since that is the only differentiator between companies at present (i.e. brand equity and cost of maintaining it).

Demographics, spending

Typical/proven clients: Because the offline casino has been running for many years, the type of clients, their spending/playing behaviour are well understood. Business is about how best to ‘target’ and ‘farm’ the specific categories of clients. The spending, expectation, and products preferred may vary based on the players’ origin (e.g. West v Asian), but they clearly recognise this and the proposition could be adapted to target them.

Evolving/changing clienteles: Over past years, ‘early adopters’ of remote gambling were a special breed: risk takers who, in some cases, would not care where they deposited money before. As gaming operators would like to move into the mass market, it is now important to appreciate what the typical remote gaming gambling players would be expecting and needing, and their spending patterns and games preferences, among others. Potential synergies: would they prefer the same games in an Offline casino and expect exactly those games Online (or to finish them Online)? It is now well known that ‘non-gamblers’ like women are attracted to Online casino/poker because it is less ‘intimidating’.

Games preferred/ Killer games

Tried & Tested: Due to the client base mentioned above, the games preferred are already well understood and ‘innovation’ is comparatively limited.

Evolving: Due to the evolving nature, and low barrier to entry plus potential economy of scale, we ‘should’ see many new games categories and products offered in the remote market. However, the notable successes are mainly ‘exchange betting’ (new), and poker (from proven offline games with ‘rake’ model). P2P Bingo and Skill gaming are considered to be the next big thing, but only time will tell.

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essentially remote gambling companies operating in North America where presently there is a regulatory grey area. Some may argue that the RGGM pioneer was actually Australia. Indeed, it may have been but due to its location, and what some observers contend is over-regulation, the remote gaming companies domiciled there never managed to have as much of a worldwide impact. Given the lack of transparency and the fact that remote gaming gambling falls within this contentious area, legitimate gaming gambling operations tend to be driven underground or, more often, to offshore locations. They were generally structured in such a way as to ensure that the companies’ management were properly protected, often at the expense of transparency. This did not bode well initially for most governments when they considered investigating further with a view to establishing sound regulation. It is also difficult to appreciate the full extent of the market. If we are to be pedantic about it, there are no countries in the world that have a 100% usage of the Internet as yet; and the numbers of those using the World Wide Web for commerce is, relatively, still in its infancy (UK’s Internet use stands at 51%8). One could therefore argue that the remote gambling market is still in its infancy, especially if you consider, as a guide, that buying everyday essentials Online is still at the early stages of take-up. The advanced development of the Internet today with its predominant American influence and origins in the United Sates has meant that, despite there being an environment of legal uncertainty in the US over sports betting9, North America currently is reported to be the biggest remote gambling market in the world. In 2004, the legal worldwide gaming gambling market was worth US$238 billion according to Global Betting and Gaming Consultants’ (GBGC) research, while Christiansen Capital Advisors (CCA) estimated the market at US$243 billion in the same year. The proportion that Online represented – the largely viable and proven channel – for remote gambling in 2004 was estimated to be worth US$9 billion (GBGC), or US$8 billion (CCA), which is projected to reach US$ 16.2 billion (Citigroup) or US$ 22.9 billion (CCA) by 2009. However, as founder of GamBond (which provides a ‘bond guarantee’ for gaming operations), I have had many indepth discussions with governments, jurisdictional officials, banks and bank processors and e-wallet providers within the gaming gambling market worldwide, and it has been suggested that some of the established jurisdictions have already received a double-digit billion-pound turnover for 2004. If this is the case, no one really can have a definitive view of the actual size of the market, since there are many substantial gaming operators who are still privately owned, some by a myriad of trusts and holding companies. This means even if those companies get listed, it may only indicate a fraction of those conglomerates. The diversity of many countries and regions in the world that are involved, coupled with the fact that they are also at varying stages of lifecycle development and all maintaining differing views and policies as to the legitimacy of gaming and gambling, it is in a sense hard to see how the international community could fail to recognise the urgency of adopting collaborative worldwide regulation, especially given many other political priorities.

From an industry perspective the advantages of selfregulation are: ■ industry has greater influence in the scope and content of self-regulation; ■ self-regulatory measures can be reviewed and changed more readily; ■ self-regulation demonstrates industry responsibility to the community; and ■ an individual company’s adherence to an effective code generates public goodwill. Where the likely disadvantages may lie are: ■ resource costs on industry are greater, due to obligations to manage self-regulatory codes; ■ community cynicism may lead to distrust of self-regulation on some issues; and ■ the industry as a whole may well be blamed for the failure of an individual company to comply. Therefore, across all countries, the industry will need to adopt a ‘self-regulation’ approach, which it has in fact been doing since its inception over 10 years ago. There are drawbacks, however, as consumers – especially the mass market – will start asking questions before they signup to any offshore operators, unless they happen to be from trusted or household brands. A compounding factor is the fact that it may be nearimpossible to make the public fully aware of exactly what constitutes regulation, quite apart from the differences between various jurisdictions. Clearly, even the most prominent legal experts within the market are being kept very busy simply to stay abreast of changes within the worldwide market. Other private companies are moving to better or wellregulated and established jurisdictions, like Gibraltar. And many privately held gaming operations have based their marketing arm at ‘on-shore’ locations, like InterCasino group who have set up their marketing arm in the UK; similarly for PartyGaming, among others. In my short time with the industry, I have met a few companies which fell short of transparency: incidents where people with apparently different business cards/companies were, it seems, actually all in the very same company. There was definitely a feel of the Wild West about that. Ever since the beginning of 2005 however, we have seen many IPOs within the gaming gambling industry on multiple markets across the whole spectrum of the value chain of the remote gambling industry. You only have to observe PartyGaming on the LSE10, FireOne on AIM11, Betex on Ofex12, among others. It was rather telling that in the introduction to the June 2005 issue of eGaming Review13, the editor Alun Bowden reported that the industry and the Power50 event (an exclusive celebration for CEO-level executives) they organised “was disturbingly mainstream”! There is no doubt that corporate growth will continue especially once it converges with other industries/verticals. With the cash raised, and given the public valuation of the worth of each share (of a publicly listed company), the fragmented market of RGGM has definitely moved into the consolidation phase, despite the fact that it is still in its infancy. The synergies show the potential target and acquirers for Casino & Gaming International ■ 61

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established remote gaming companies, and/or service companies within the value chain. So what are the likely industry verticals and companies with whom one would consider moving into, or finding a partner in remote gaming gambling industries? The following examples are mainly from the UK since it is the most prolific and gambling-friendly market in the world despite the fact that at present there is no legal ‘onshore’ remote casino gaming license available to be applied for. Most of the games that are on offer are based on a bookmaker’s permit. Virgin launched their own remote gaming operation back in 200414, so now the whole world is waiting to see how they fair and are planning ahead to capitalise on the opportunity the market presents. As mentioned before, portals like Yahoo! had already offered skill-based gaming from the outset (games.yahoo.co.uk), so launching Bingo15 as a payfor-play product (chiefly the UK16), plus a betting exchange product17, was not a surprise. Newspapers like the Daily Telegraph in the UK already offer ‘instant-win games’18 while, on the other hand, the publishers of consumer magazines have also got in on the act by launching, in one case, a glossy gambling magazine called Inside Edge19, while Future Publishing20 has also launched Online Gambler. Some magazines or newspapers launched outright white-labelled casinos and poker rooms, as have Maxim, Racing Post, and so on. Many others would follow suit. Casino conglomerates from Las Vegas had previously started offering remote gambling in the Channel Islands (MGM & Kerzner International in the Isle of Man, for instance), but subsequently retreated in 2003 due to the uncertainties in the US jurisdiction which may have affected their ‘offline’ license. There are many similar gaming corporations and groups that are caught up in these circumstances, and they would certainly be major players capable of rolling up many of the current gaming companies once the legal situation is clarified. However, there are many who are in a more fortunate position, like Gala group who already own a portfolio of casinos and bingo halls. Although they have outsourced their Online operation, they are in the best position to leverage what they already have. There had been a trend where online operators bought into the offline Licensed Betting Shops (LBOs) business so that consumers could interact with their brand via offline means. For example, UKbetting purchased seven shops from Campbell21. Paddy Power had in fact used their LBOs as a ‘differentiator’ by offering punters a view of ‘Gaelic football’22. It would seem that some companies that had LBOs in their portfolio for a while, recognised what the real growth market was that can provide economies of scale, which could be the reason why Bet365 sold all of their LBOs this month23. We will wait to see what Bluesquare, UKBetting and Victor Chandler do with their LBOs. The well established leading suppliers of slot machines and lottery systems are in a similar position to the offline casino groups, where they had been considering the market and companies within, but would only decide the M&A target once the legal position became clearer. In fact, IGT purchased Wagerworks (software provider to Virgin) in the last week of July 200524. Hasbro launched Monopoly Live in June 200525, although 62 ■ Casino & Gaming International

it was part of an elaborate marketing campaign to promote the 70th anniversary edition of their board game, no doubt others would already have been planning how best to integrate entertainment/gambling to leverage what they already are well known for. Ogaki Kyoritsu Bank in Japan give their ATM users a chance to ‘gamble’ at the end of each ATM transaction whilst they wait for the cash, to see if they could ‘win’ by having their transaction charge (US$1) ‘waived’ or indeed, for those lucky ‘winners’, they could win up to US$9 (£5)!26. An Ogaki Kyoritsu Bank representative told the Mainichi Daily News. “Banks are part of the service industry. We want people to enjoy a ‘feeling of excitement’ with a sense of fun.” We will have to see if this will indeed be a ‘trend’ which other banks may follow. It is also important to bear in mind that remote/Online gambling is currently illegal in Japan. For media and consumer brands that are moving into the industry, it is a useful rule of thumb to recognise that the gaming gambling industry is rather akin to traitional shopping for groceries. In other words, with essentially low margin

REMOTE AND MOBILE MARKET DYNAMICS

product offerings (from sports betting, casino games, and poker to instant win games) they need to ensure the equivalent ‘footfall’, as it were, goes through their gaming ‘stores’. However, if we are talking about the Online retail model, then the challenge for existing media consumer brands is how best to ‘transfer’ their customer relationship management (CRM) knowledge from offline to the Online world, since there are few ‘experts’ or market leaders that are successful in both the offline and Online world (perhaps Tesco in the UK is an exception). For those facing the bigger uphill struggle – if they do not already have sufficient experience of the interactive Online business – they should put in place an experienced team that is well versed in the Online business environment. It would have to know how best to serve customers, collect data about their Online usage and habits, usefully assess that collated information, and devise products and services that suit customer interests and needs. They will also need to consider how gaming gambling

services may fit into their existing businesses, and whether it would strengthen or indeed dilute their market positioning. In the case of insurance or banking firms, for instance, they have to be mindful of the potential ‘reputation risk’ of offering gambling or casino gaming products/services. As previously mentioned, mobile and interactive TV will be the most important channels enabling the remote gambling industry to target and reach the mass market worldwide. Technologically speaking Mobile and TV gaming and gambling (interactive or broadcast TV combined with mobile as return path) came of age in 2005. In the TV betting market it could be argued that the world leader at present is SkyBet27, which capitalised on the interactive TV betting format pioneered by DITG/AVAGO. SkyBet, which promoted and led iTV space, adapted casino gaming in such a way that it proved acceptable to the regulators, from the gaming board through to the advertising authority. In respect of mobile betting, there was still no big ‘brand’ in mid-2005 pushing and leading this sector, since most major brands were busy expanding operations within the Online arena, achieving organic growth through aggressive marketing or M&A. Therefore, opportunity cost dictates that, due to competitive pressure, most of these companies cannot afford to divert investment in what some would argue is an as yet ‘unproven’ channel. Therefore, I would argue that for those well financed and strategically positioned gaming companies, mobile gambling could be their golden egg, if they fully recognise the opportunity it poses. If they put in the right team and devote resources they could, like SkyBet, end up leading the world’s mobile gambling sector. (More of my analysis is available in the mobile gambling section of the Internet Gambling Report). It is important to bear in mind that remote gambling enables gaming operators to break down cultural issues – negative images: that only males gamble or gambling shops perceived to be intimidating to women – by offering different types of games. One of the reasons for the exponential growth of the remote gaming gambling market is that, as the products are delivered via remote channels (Online, iTV or mobile), it reaches new markets with historically proven games as well as new gaming formats (bingo variants on TV, for instance). Gaming firms are ideally positioned to reach out, target and reap the rewards for the future, so long as they recognise where the limitations lie and act upon the potential of this development. Creating a new market may also mean there is a danger of ‘over-reach’. As responsible gaming operators, one should always work with problem gambling research institutions and adopt best practice principles and codes of conduct, such as those adopted by GamCare28. It is also important for gaming operators to enable gaming players to monitor, control and limit their spending/playing pattern, acting as an early warning system to help players avoid any additional problems. There will be opportunities where open standards can be devised and adopted across the whole industry, which should encourage innovation. At the moment, most of the gaming operators’ wares do look very similar. The good news is that common standards adopted by industry will also encourage problem gambling differentiation, forming the key Casino & Gaming International ■ 63

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enabler to aid in reaching new consumers. The ease and simplicity of use of remote gaming gambling services will be key, from sign-up (stringent knowyour-customer checks), to transaction, to pay-out – all should be geared up to conform to relevant regulations. However, it should also facilitate seamless player access to the right product. Ease of use tends to breed ‘word of mouth’ promotion, after all, which will assist in further proliferation of the service. In order to self-regulate, there must be a way of moving forward which works with, yet at the same time transcends, regulators. By analysing all the gaming companies on the web in the past year, GamBond’s research found that the Online default rate (gaming companies that vanished or go bust!) was in double digits; but based on our proprietary rating methodology, the default rate went down to a single digit and less. That is the reason why GamBond is now working with governments, banks, bank processors and e-wallet providers worldwide to gain the necessary insight into the gaming companies. Meanwhile, the Association of Remote Gambling Operators (ARGO) and the interactive Gaming, Gambling and Betting Association (IGGBA) merged to create the Remote Gambling Association (RGA). (See also Casino & Gaming International 2005). And for those companies that are bondable, for the payment of a premium to GamBond, their liability towards the consumer will be protected, should they go into administration or should their licence be revoked by a jurisdiction’s regulator. This will undoubtedly bridge the much needed trust-and-confidence gap which, at the moment, is only attainable via substantial financing in brand investments. Initiatives like Gambit (www.TheGambit.info) were formed to promote communication between the gaming gambling industry and governments, as well as other industries. It was formed with the Cass Business School, which is already involved with the insurance, government, police and film industry in the UK and internationally. From the forgoing analysis it is reasonable to conclude that the remote gaming gambling industry is still emerging from a sea of change. However, given its dynamics and the latest initiatives from the industry, there is no doubt it will continue moving in the right direction. The key to success is for the industry to continuously work together to build on the present structure; bring further trust and transparency and thereby add fuel to the industry’s engine so that we can break into the mass market in a controlled and responsible manner. 1 2 3

4 5

Las Vegas celebrates centenary, Daily Telegraph , 17 May 2005 The Battle for Las Vegas, Bloomberg Markets, April 2005 Global System for Mobile Communications within ETSI and collaborated within ITU, which was devised by collaboration of government agencies, equipment manufacturers and also mobile operators, initially within Europe. (See www.itu.org) Section on Mobile gambling, within the Internet Gambling Report, IIIV edition, July 2005, ISBN 0-9717718-3-9 Part of the conglomerate Hutchinson Whampoa (part of the Cheung Kong Holdings Ltd.) from Hong Kong whose chairman is the self-made billionaire Mr. Li Ka-Shing. International Telecommunication Union (www.itu.org), is an international organisation within the United Nations System where governments and the private sector coordinate global telecom networks and services.

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7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27

Worldonline Gambling Law Report Volume 2, Issue 10, October 2003, www.e-comlaw.com The Mintel report, Leisure on the Internet, June 2004, found that 23% of that is always on the Internet, while 22% of those sampled gambled. FT.com site: Confusion on internet gambling spurs US appetite for more facts, Amy Yee 17 June 2005. PartyGaming shares rise on debut, BBC news online, 27 June 2005 FireOne Group plc - Placing and Admission to AIM, Regulatory News Service, 27 May 2005 London Asia Capital PLC - Investee Companies, Regulatory News Service, 27 May 2005 eGaming Review Magazine, www.egrmagazine.com Virgin launches Virgin Games, iGaming Business, 1 July 2005 Yahoo! cries Bingo on its games channel , eGaming Review, 29April05 Confirmed as key strategy by my personal meeting with the Editor of Yahoo! May 2005 Betfair expands with Yahoo, iGaming Business, 7Feb05 Daily Telegraph Launches Win-Games, iGaming Business, 15Dec03 By Dennis publishing, the publisher of Maxim Future Plc, who publish technology magazines like T3, also published Online Gambler. High street opening for UKbetting, eGaming Review, 15Oct04 Betting Business, May 2005 Bet365 sells off its shop business, eGaming Review, 29July05 IGT Poised to Expand with Acquisition, Las Vegas Sun, 27 June 2005 Call a cab to play classic game online, The Times, 18 June 2005 Japanese bank turns ATMs into one-armed bandits, The Register, 21 July 2005 Skybet, BSkyB’s wholly-owned betting subsidiary, grew 40% to £186 million ($340 million) in the first nine months of the fiscal year through 31 March, Euro TV eye piece of gaming pie, Hollywood reporter, 28 June 2005 Responsible gaming charity in UK,

GARETH WONG Gareth Wong has established himself as a thought leader within the remote gaming gambling world after launching the world’s first most comprehensive mobile gambling proposition back in 2003. To help the remote gambling market gain further transparency, he founded GamBond (www.GamBond.com) in 2004, which provides ‘bond guarantees’ for the world’s remote gaming gambling market with the aim of bringing further global trust and confidence. Gareth founded Gambit (www.TheGambit.info) special interest group in conjunction with Cass Business School. It is an issue-based group that organises private and public events with the aim to educate, facilitate and promote communication between the gaming gambling industry with many bricks & mortar verticals and governments worldwide. For over 10 years he worked in multi-million pound B2B telecom sales to mobile operators in EMEA and Asia-Pacific. He specialises in identifying and filling market niches and has successfully devised a number of specialist products and services (see www.GarethWong.com). He was awarded Executive MBA from Cass Business School in London, MSc in Telecommunication Technology from Aston University and BEng (Hons) from Liverpool University. You can get in touch with Gareth on CGI@GarethWong.com

The Pentranic Group of Companies are specialist manufacturers and suppliers of displays, power supplies, BI-UPS and touch screen monitors for gaming, telecommunications, computer peripherals, point of sale, medical, automotive and industrial applications. We supply bespoke Visual Display Solutions and leading edge, patented, Battery Back-Up Power Supplies. The Group is also one of Europeâ&#x20AC;&#x2122;s largest integrators of touch screen monitors and technology and can integrate and supply touch screens solutions from the Worldâ&#x20AC;&#x2122;s Leading Touchscreen manufacturers Microtouch (3M). All General Enquiries PENTRANIC GROUP Head Office 4 Michaelson Square, Kirkton Campus, Livingston, Scotland, EH54 7DP Tel: + 44 (0) 1506 463330 Fax: + 44 (0) 1506 463320 Email: info@pentranic.com

OFFSHORE REGULATION

COMMERCIAL REALISM: ALDERNEY’S ‘STATE OF eGAMING’ BY ANDRÉ WILSENACH

Alderney offers a well-regulated banking, insurance and investment environment [and it] is convinced that given a level playing field and taking into account its relatively low tax levels, low levels of bureaucracy and pragmatic approach towards the regulation of the e-gambling industry, it is well positioned to compete with other e-gambling jurisdictions for investment.

lderney is situated in the Channel Islands, just off the French coast of Normandy. It is the third largest of the Channel Islands and is 8 miles from France and 60 miles from the south coast of England. Like Guernsey and Jersey, the island enjoys a mild climate and has its own independent Government. It has an established offshore finance and ecommerce sector, which maintains a high reputation in the international financial services industry. The Channel Islands are independent of and not subject to the Parliament of the United Kingdom. They have always been self-governing under the direct rule of the Crown. By constitutional custom, the Crown does not interfere in island politics, save when some vital constitutional change is necessary and it never interferes in local affairs. There is little bureaucracy in the Channel Islands and certainly not in

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Alderney. Although the United Kingdom looks after the Channel Islands in the field of foreign affairs, defence and their association with the European Community, which allows them to be free trade entities, the islands do not themselves form part of the European Economic Community. Alderney offers a well-regulated banking, insurance and investment environment. It has designated territory status under the United Kingdom Financial Services Act. As part of the Bailiwick of Guernsey for the purposes of taxation, it also has reciprocal agreements with Jersey and the United Kingdom. As a result, in Alderney there is no Value Added Tax, no tax on capital gains, no tax on exempt companies carrying on business outside the islands and no gaming and betting taxes. There is a maximum tax of 20% on profits and income, which will be reduced to 0% in 2008. The Government is an elected parliamentary body known as ‘The States of Alderney’, which considered the future economic development of the island in 1996 and concluded that the island presented an ideal environment to host egambling, provided that it was strictly regulated. The first legislation permitting electronic betting was passed in 1997 and has since expanded to embrace all forms of gambling. THE COMMISSION In 1999 the States of Alderney introduced a law which provides for the establishment of an independent body to regulate all forms of gambling on the island. In 2000, the Alderney Gambling Control Commission (AGCC) was established, consisting of persons with international experience of the gaming industry, finance and of regulation. In 2001 AGCC appointed its first full-time Chief Executive Officer and today has a total full-time staff complement of eight consisting of regulatory, technical, financial and administrative staff. The Commission has developed a regulatory framework for both electronic betting and interactive gaming. It is designed to apply the highest international standards and establish a well-regulated jurisdiction for reputable egambling operators who would respect the island’s reputation for competence and financial integrity – which applies to those who are licensed in any field by the island – and fairness to the public who may make use of the facilities offered by operators licensed by the Commission.

At 31st July 2005 the AGCC had thirteen licences in issue of which twelve are for interactive gaming and one for electronic betting. Ten of these licenses are operational: ■ Ritz Interactive Ltd www.ritzclublondon.com ■ Bonne Terre Ltd www.skybetvegas.com ■ WagerWorks (Alderney) II Ltd www.gamesextra.co.uk ■ WagerWorks (Alderney) III Ltd www.wptonline.com ■ WagerWorks (Alderney) IV Ltd www.thepriceisrightgames.com ■ Rank Interactive Gaming Ltd www.hardrockcasino.com ■ Blue Square Gaming (Alderney) Limited www.bluesqcasino.com ■ WagerWorks (Alderney) V Ltd www.virgingames.com ■ Paddy Power Alderney Ltd www.paddypowercasino.com ■ Cantor Casino (Alderney) Ltd www.cantorcasino.com ■ Samvo International Limited ■ Harrah’s Online Limited ■ CryptoLogic (Alderney) Ltd. In addition, the AGCC has issued Certificates of Prior Approval, to the following five companies, who are essentially suppliers of gambling software and services to licensees: ■ Chartwell Inc.; ■ Orbis Technologies; ■ Tribeca Tables Software Dev LLC; ■ Gaming Entertainment Group Inc; and ■ Secure G Holdings Limited. REGULATORY FRAMEWORK Three separate enactments regulate e-gambling. The Ordinances are respectively the Gambling (Interactive Gaming) (Alderney) Ordinance 2001, as amended and the Gambling (Electronic Betting) (Alderney) Ordinance 2002. The legislation is constantly under review for improvements considered by AGCC to be necessary; either of the

The Commission (John Buggy; Ray Birdseye; John Godfrey (Chairman); and John Clitheroe)

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Commission’s own volition or after considering any suggestions which are made to it. As the world of e-gaming never stands still, the AGCC, during 2004, conducted an extensive review of the legislation and regulatory procedures including consultations with the Licensees’ Forum and individual licensees. Wide ranging changes have been accepted by legislators in Alderney. These changes include: ■ The enforceability of gambling contracts, so that that gambling contracts made as a result of lawful e-gambling in Alderney will no longer be void and unenforceable; ■ The replacement of the current Ordinances covering two separate, but related licensing regimes (i.e. interactive gaming and electronic betting) with a single eGambling Ordinance; ■ Subordinate regulations may be made by the Commission to support this single eGambling Ordinance; ■ Applications for e-gambling licences will be made by corporate entities and not individuals; ■ More direct control over software suppliers and other service providers will be exercised by introducing a form of certification; ■ Key individuals will be approved personally, rather than through the relevant corporate licensee; ■ It will no longer be necessary for licence holders to appoint a nominee to be present on the island on their behalf; ■ Responsibility for seeking approval for gambling premises will be transferred from the licensee to the person who is in control of the premises where e-gambling equipment is hosted; ■ Licences will be issued without the need for periodic renewals; ■ License holders will be required to meet the direct cost of compliance; and ■ The cost of licences will be reviewed in order to make the above changes cost neutral. In addition to the ongoing improvement of the egambling legislation, the Commission also influences other legislation in support of the e-gambling industry. During the course of 2003, discussions took place between the States of Alderney and the States of Guernsey, to discuss disaster recovery resulting in the Alderney Internet Gambling (Temporary Relocation) Ordinance 2004. It permits Alderney licensees to conduct their games in Guernsey under their Alderney licences on a temporary basis should an event or incident outside the control of the licensee make it impossible to conduct their games in Alderney. The evolutionary process is continuing and the States of Alderney and the States of Guernsey have agreed to introduce legislation in July this year that will permit Alderney licensees to host their gambling servers permanently in Guernsey, should they prefer to do so. The ability to host e-gambling equipment in Guernsey will provide licensees with direct access to the telecommunication infrastructure available in Guernsey, which is linked by way of multiple fibre optic cables to both France and the UK over an SDH (Sonnet) system. Total bandwidth availability in Guernsey is in the terabit range, exceeding all comparable jurisdictions. Apart from the technical advantages associated with hosting e-gambling servers in either or both of Alderney and Guernsey, it is anticipated that the decision will also have commercial advantages for licensees and prospective

investors, such as lower costs of bandwidth and multiple telecommunication and hosting providers. PROVISIONS OF THE GAMING AND ELECTRONIC BETTING LEGISLATION Both the existing Interactive Gaming and Electronic Betting ordinances provide, in broad terms, for the following aspects: ■ Applications for licences ■ Conditions to licences; ■ General provisions about licences; ■ Suspension of licences; ■ Nominees; ■ Key personnel; and ■ Compliance controls. The sections on compliance controls deal in more detail with matters such as control systems; the approval of gaming equipment; monitoring and investigations, financial accounts, reports and audits. In addition to the above, the Interactive Gaming Ordinance provides for the issuing of an innovative Certificate of Prior Approval to e-gaming system vendors. A distinction is currently made between two categories of suppliers of e-gaming equipment, namely: ■ A person who both supplies the e-gaming software and who offers a turnkey solution, where the casino owner is responsible for the marketing of the casino, but the day to day operation of the games is performed by the supplier on the owner’s behalf. In terms of the Ordinance, only the holder of an interactive gaming licence is authorised to play interactive games. Therefore, a system supplier in this category will be required to obtain an interactive gaming licence; or ■ A person who acts as a system vendor, only, and takes no active part in the operation of the games. This type of supplier is considered as a business associate of an interactive gaming licensee (or applicant for an interactive gaming licence) and, as such, is required to pass probity checks to ensure that the company is fit and proper to be associated with the operations conducted by an interactive gaming licensee. This supplier may apply for a Certificate of Prior Approval. AGCC’S APPROACH TOWARDS REGULATING EGAMBLING The single most important policy of the AGCC is to provide a regulatory framework that meets ‘world-class’ standards and thereby both protects the reputation of Alderney and attracts reputable operators who seek a comprehensive and tightly controlled regime. These are for the most part the major gambling operators who have brands that they wish to protect and who wish to be able to demonstrate to the regulators of their immensely valuable terrestrial gambling operations that they observe similar high standards when operating outside their normal jurisdiction. In the longer term, it is these substantial and high quality companies that are likely to dominate the world wide e-gambling business. Following from the broad policy of the AGCC, its main objectives are to ensure that: ■ all forms of e-gambling is conducted honestly and fairly; ■ the funding, management and operation of e-gambling on Alderney remains free from criminal influence and exploitation; Casino & Gaming International ■ 71

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■ e-gambling activities are regulated and monitored so as to protect the interests of the public, in particular, ensuring that players understand what they are being offered when they take part in the gambling offered; and ■ the potential harm that e-gaming and betting may cause to the public, individuals and families is minimised. These objectives are reflected in the process leading to approval for the launching of an interactive site from Alderney, which is discussed later on. The Commission liaises with other international regulatory bodies such as the Gaming Board for Great Britain, the Nevada Gaming Control Board and the New Jersey Division of Gaming Enforcement, mainly in connection with probity and due diligence investigations. The Commission also actively participates in international regulatory bodies such as the International Association of Gaming Regulators, the Gaming Regulators European Forum and the Masters of Gaming Law. John Godfrey, Chairman of the Commission, is heading the eGambling Working Group within the International Association of Gaming Regulators, where international cooperation between e-gambling regulators is discussed. The Commission is supported by its three approved independent testing authorities, all of which are specialist companies in the field of testing gambling equipment and specifically e-gaming systems and software. These are Global Gaming Systems (GGS), Bellamy, Moneypenny and Millar (BMM) and Technical Systems Testing (TST). The Commission also maintains links with bodies such as Guernsey Financial Services Commission (GFSC), the Guernsey Financial Intelligence Services, Credit Bureaus and the Guernsey Police. It is important that potential licensees know what is required of them before they consider an application for a licence. Accordingly, the laws, guidelines and requirements applicable to the application process and operation of a licence are comprehensive and detailed. These laws and regulations are set out on the Commission’s website. HOW IT WORKS An applicant for a licence must be resident on Alderney. Effectively, this means that a company must be incorporated in Alderney. The regulatory framework of AGCC comprises three main components: licensing, approval to launch the site and compliance inspections. 1. LICENSING To obtain a licence, the applicant, its shareholders, key personnel and associates and its sources of funding must satisfy the ‘probity test’ or ‘the fit and proper test’. To pass the test, the company and those individuals must submit to probity investigations. Such investigations are not limited to the applicant company and its key personnel, but also extend to its system provider and such other persons as the AGCC determines at the time the application is lodged. However the AGCC reserves the right to investigate other parties as it sees fit or to request additional information provided by applicants. The AGCC prefers to meet with applicants, following the submission of their applications, to discuss the nature and extent of the investigations and the timetable for completion. The grant of a licence is conditional upon approval by the 72 ■ Casino & Gaming International

AGCC of the gambling equipment and internal control systems. APPROVAL TO LAUNCH E-GAMBLING SITE Prior to the launching of an e-gambling site, the licensee is required to obtain approval from the Commission for his egambling equipment and control system submission. APPROVAL OF E-GAMBLING EQUIPMENT Alderney was one of the very first and is still amongst only a few e-gambling jurisdictions to have developed a set of technical standards against which the electronic gambling system of a prospective operator is tested. Following the grant of a licence, the e-gambling system is tested by an independent testing authority, accredited by AGCC. Following approval and certification of the system, the licensee must submit all material changes to AGCC for approval, which can be done quickly under the procedures set up by the Commission. The Commission would generally expect the operator to make changes to the live system in accordance with its approved change management controls. Approving changes to a live system is generally regarded as a sensitive area for most e-gambling operators, as changes are often made quite regularly and if the operator has to await the approval of the relating body, it could slow down the process of changes, but more important could pose a risk to the security of the entire operation. During 2004 the Commission received 655 such requests. These requests fall into the following categories: ■ Promotional text and graphics 7% ■ New games and features 9% ■ ‘Bug’ fixes and patches 29% ■ Maintenance 29% ■ System infrastructure changes 8% ■ Configuration 18% Only about 10 % of all changes have any significant impact on either the outcome of the games or the security of the systems used. To facilitate the approval process a unique approach towards change requests was implemented towards the latter part of 2003, which grants prior general approval for defined low-risk changes and the evaluation of defined medium and high-risk changes by the Commission. During 2004 this approach was implemented successfully. Depending upon the complexity of the change the Commission may: ■ Approve the change and allow the modification to be implemented; or ■ Request further information such as software supplier change proposals, specifications or test reports or the opinion of an independent approved testing facility (ATF) before making a decision; and/or ■ In a relatively small number of cases, direct that the change be evaluated by the licensee’s preferred ATF before approval is granted. In dealing with an application for the approval of changes, the procedure followed is specific to each operation and is dependent upon the software used. In all cases however the following items are required to be in place prior to the procedure being undertaken: ■ The baseline certification of the e-gambling system by an ATF;

OFFSHORE REGULATION

■ The classification of the various components of the egambling system according to the risk to game outcome and system security by an ATF, in consultation with the Commission, the licensee and its software developer; ■ The establishment and approval by the Commission of an auditable change management process as part of the licensee’s control system submission; and ■ The availability of a facility to the Commission to verify checksums on demand. CONTROL SYSTEM SUBMISSION Before any interactive gambling operations are permitted to go live, the AGCC must approve the licensees’ Control System Submission (CSS), which provides for all the internal controls and operating procedures relevant to the day to day running of an e-gambling business. The objective of the CSS is to identify and describe the risks in areas such as physical security of information, service levels, financial accounting, protection of the player, including underage protection and money laundering, with a view to introduce controls and procedures aimed at mitigating the identified risks. 3. ONGOING COMPLIANCE INSPECTIONS Once a licensee is operational, regular and ad hoc inspections will be conducted to ensure on-going compliance with the approved technical standards and internal controls. The auditing and testing may be undertaken by the staff of AGCC or by independent agencies appointed by the Commission. The main focus of these inspections is as follows: ■ Review of post ‘go –live’ recommendations or temporary dispensations; ■ Adherence to approved control system submission; ■ Adherence to the conditions of the licence; ■ Adherence to the provisions of the Ordinance; ■ Review of security policies and procedures; ■ Review of audited accounts and monthly financial reports; and ■ Software verification. A complete checklist is normally prepared prior to the inspection which is based upon those areas of the approved control systems that are considered to present a risk. In addition to annual compliance inspections, the Commission reviews, on a quarterly basis, the operational and financial reports of all licensees to ensure that the licensees operate their business in accordance with both the conditions of the licence and their control system submissions. 4. COOPERATION WITH LICENSEES The AGCC maintains a regular and continuous dialogue with its licensees especially through the Alderney Gambling Licensees’ Forum, which meets quarterly. The Forum is a platform for the industry to discuss and debate matters of common interest and to facilitate communication between AGCC and the industry. The Commission believes that, while strict control is necessary, part of its remit is to understand and, where possible, accommodate the licensees’ concerns. Where these do not conflict with the requirements of good regulation, the legislation can be, and has been in the past, amended within a very short timescale. SUMMARY Since the Island of Alderney decided to make available

licences in 1996, initially only for Electronic Betting and subsequently also for Interactive Gaming, it has proceeded carefully to put in place legislation to regulate and control the e-gambling services to be offered from the Island. This was done in the light of experience of other jurisdictions. Careful planning has resulted in Alderney becoming the ‘home’ of operators who have substantial reputations that they wish to protect and who prefer a regulatory environment that supports both their commercial interests and that of the public alike, while maintaining the reputation of the Island as a financial and e-commerce jurisdiction. The AGCC believes that although it has introduced high regulatory standards in Alderney, it has a commercially realistic approach towards the regulation of the e-gambling industry, and that this combination accounts for its continuing expansion and success. The Commission is aware that the deregulation of gambling in the UK and the introduction of e-gambling there will have an impact on the international e-gambling industry, world-wide. Considering the nature of the e-gambling provisions contained in the UK Gambling Act of 2005, the Commission is convinced that the UK will make a positive impact on the regulation of egambling, something which is supported by Alderney, generally. Alderney is obviously aware that as an e-gambling jurisdiction it will come up against increased competition from other e-gambling jurisdictions for what is essentially a ‘footloose’ industry. However, Alderney is convinced that given a level playing field and taking into account its relatively low tax levels, low levels of bureaucracy and pragmatic approach towards the regulation of the e-gambling industry, it is well positioned to compete with other e-gambling jurisdictions for investment.

ANDRÉ WILSENACH André Wilsenach has been the CEO of the Alderney Gambling Control Commission, since 2002. He is also rendering advice and support to the Guernsey Gambling Control Commission, which is a separate body established to license and regulate terrestrial casino gaming in Guernsey. André is an economist by training, and worked for the Africa Institute of South Africa, the Development Bank of Southern Africa and Ernst &Young, South Africa from 1982 to 1994. In 1994, he was appointed as a member of the Commission that investigated the legalisation of gambling in South Africa. During the period 1995 to 2000 he was the CEO of a South African provincial gaming boards and a member of the National Gambling Board of South Africa. In 2001 he was appointed as the CEO of Zonke Monitoring Services, a private company established to render electronic monitoring services to the National Gambling Board of South Africa. He is a member of the International Masters of Gaming Law, the Steering Committee of the International Association of Gaming Regulators, the Gaming Regulators European Forum and former Chairman of the Southern African Gambling Regulators Association.

Casino & Gaming International ■ 73

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UK GAMBLING LAW

BRITISH CASINOS – A HAPPY NEW YEAR? BY JOHN HAGAN

These are exciting and formative times for the British casino industry. It is a period of transition but, strange though it may seem, the Gambling Act 2005 brings with it a greater degree of certainty than the industry has had for many years. We no longer have to speculate on the outcome of political negotiations and we no longer have to speculate on how the industry is going to find enough customers to fill the 30-50 regional casinos which were being forecast at

t is a time for optimism, reflected in the performance of gaming shares over the last couple of years, and a time of opportunity for existing operators and new entrants to the industry alike. The Gambling Act 2005 will, of course, create opportunities for the industry following its full implementation, scheduled for the third quarter of 2007, most obviously the opportunity to acquire one or more of the 17 new style casino licences – 8 small, 8 large and 1 regional. In the meantime, more immediate and tangible opportunities exist. The delay between enactment and implementation of the 2005 Act, the introduction of secondary legislation and the momentum of the legislative process itself has, perhaps inadvertently, created an excellent climate in which to make an application for a casino licence under the existing legislation in advance of the new regime. This particular window of opportunity will, however, be closed after April 2006 for reasons which I will explain.

one time. True, we still do not know the rate of taxation for casinos or the location of the 17 new casinos, but these are more manageable uncertainties.

RECENT DEVELOPMENTS Since the Gambling Act received Royal Assent on 7 April 2005, there have been the following important developments:1. The Independent Casino Advisory Panel was appointed by the Government on 30 September 2005 to advise the Government on the areas in which the 17 new casinos will be located. The Panel will make recommendations to the Secretary of State, who will decide which areas are to be designated, following consultation with the Scottish Executive and the Welsh Assembly. The Panel will decide on the basis of the following criteria: ■ A good range of types of area. ■ A good geographical spread of areas across Britain. Casino & Gaming International ■ 75

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■ Areas in need of economic development and regeneration and likely to benefit in regeneration terms from a casino. These criteria are designed to ensure that the subsequent assessment of the impact of the new casinos will be on the basis of a broad range of information and experience. The Panel will be chaired by Professor Stephen Crow, CB, formerly Chief Planning Inspector with the Planning Inspectorate. Professor Crow will be supported by four other members; Christopher Collison (an independent planning and regeneration adviser), James Froomberg (a former commercial director at British Waterways), Neil Mundy (a chartered public finance accountant) and Deep Sagar (director of Glasgow Employer Coalition). The Panel members had to demonstrate independence from any potential interested parties and an appreciation of the need for impartiality. In this regard, none of the appointees has undertaken any significant political activity in the last five years. It is clear from the make up of the Panel that considerations of planning and regeneration will be at the fore. The Panel started work on 3 October 2005 and is due to report by the end of 2006. Based on the Panel’s advice, the Secretary of State for Culture, Media and Sport will specify the areas for the 17 new casinos in a Parliamentary Order at the beginning of 2007. It would be surprising for the Secretary of State to depart from the Panel’s recommendations, but not inconceivable. The Order will then require the approval of Parliament. The Government has maintained throughout the legislative process that if local authorities do not want the new style of casinos in their area, those areas will not be considered. The Panel will be inviting expressions of interest from local authorities. There is likely to be considerable interest from local authorities for all the new licences, but the regional one will inevitably attract the most publicity.

“I know there has already been a great deal of speculation over the location of the new regional casino. This isn’t surprising given the regeneration benefits it will bring. The appointment of this Panel shows there are no favourites or front runners. The slate has been wiped clean and every local authority will have the chance to make its case”. Richard Caborn, Minister for Sport and Gambling 2. On 1 October, the Gambling Commission was formally established.It is now the central regulatory body for gambling in Great Britain. It has taken over the licensing and regulatory responsibilities of the Gaming Board for Great Britain in relation to casinos.The Chairman and other members of the Gaming Board were appointed as the Chairman and members of the Commission.This allows the Commission to undertake preparatory work for carrying out its licensing functions and becoming fully operational from September 2007. 3. On 17 October 2005, the Gambling Commission launched a major consultation on the licensing and regulation of gambling. 4. On 14 November 2005, it was announced that Victoria Square House in Birmingham is to be the new Head Office for the Gambling Commission. 76 ■ Casino & Gaming International

5. The 24 hour rule was abolished on 1 October. This does not, however, remove the membership requirement. The relevant provisions of the 2005 Act will, upon implementation in 2007, abolish the membership requirement, although it is likely to be retained in some casinos. It has been reported in the industry press that casinos were reporting a rise in attendances of up to 8% in the first five weeks, equating to approximately 100,000 new visits. 6. With effect from 1 October 2005, the gaming machine entitlement for existing casinos was increased from 10 to 20 and, with effect from the end of October, the maximum stakes and prizes were increased to £2 (previously 50p) and £4,000 (previously £2,000) respectively. Existing casinos will, therefore, have the same stakes and prizes on their jackpot machines as the new style large and small casinos, subject to review by the Secretary of State. 7. On 10 November 2005, the Secretary of State for Culture, Media and Sport, Tessa Jowell, told the British Casino Association AGM that:-

“Subject to consultation no further applications for Certificates of Consent for new casino licences should be allowed after April 2006. We have made it clear throughout this process that we want to avoid proliferation in the number of smaller casinos”. In other words, April is the deadline for casino applications under the 1968 Act. After April, you will have to

UK GAMBLING LAW

apply for one of the new casino licences. It is not clear whether “after April” means that the deadline for applications is 31 March 2006 or 30 April 2006. The prudent advice to clients is to proceed on the basis that an application submitted after 31 March 2006 will be out of time. It is important to note that this is the deadline for applications for Certificates of Consent, not the application for the gaming licence. SLOWLY BUT SURELY As anyone in the casino industry will tell you, the gambling law reform process has been tortuous and slow. But reforms have been happening in advance of the implementation of the 2005 Act, partly by way of secondary legislation. In recent years, we have seen the following developments:■ The advent of live entertainment in casinos; ■ The lifting of the restriction on alcohol on the gaming floor; ■ The introduction of electronic gaming, specifically electronic roulette, which has proved to be a phenomenal success; ■ Increases in stakes and prizes for jackpot machines; ■ The amendment of the 48 hour rule to the 24 hour rule and its subsequent abolition; ■ A more relaxed approach by the Gambling Commission to new casino licence applications, namely the introduction of a policy of only objecting where it has regulatory concerns; and ■ Increases in the number of gaming machines from 10 to 20.

SUBSTANTIAL INCREASE IN “1968 ACT” APPLICATIONS These developments coincide with a substantial increase in the number of casino licence applications throughout the country. Until relatively recently, the number of casinos in Great Britain has remained reasonably static. For example, only 5 new gaming licences have been granted in London in the last 7 years, 2 of those in the last 2 months - the Ritz Casino, the Hard Rock Casino, the Gala Tottenham Court Road Casino, the Ladbroke Casino (not yet operating) and the Empire Casino (not yet operating). Since May 2002, however, there have been 26 successful applications in Great Britain and this does not include relocations or enlargements of existing casinos. Blackpool, London, Bristol and Newcastle, for example, have all seen two new casinos during this time. Interestingly, almost every application made during this time has been successful. At the last count, there were 161 casino gaming licences in Great Britain and a substantial number of applications are in the pipeline. Following the announcement by Tessa Jowell of the April deadline, it seems reasonable to assume that there will be a further flurry of activity in the next four months. There is very good reason for making applications now, under the 1968 Act, if there is even a reasonable chance of success. Until the relevant parts of the 2005 Act come into force, there is no restriction on the number of licences which may be granted. The “demand” criterion does still apply but this is a nebulous concept by comparison to the imminent limit of 17 new style licences. Further, competition for the new style licences will be fierce and expensive, with the prospect of success for even large existing operators dependent to a large degree upon the local authority areas which are selected by the Panel. A sensible strategy is therefore to apply for licences for casinos under the existing regime which may at some time in the medium to long term future be converted to new, small or large casinos, assuming the pilot phase is a success. Plainly, as each new casino licence is granted, it will become more difficult to persuade local Licensing Justices that there is still unsatisfied demand for a further casino, although each case will always depend on its own facts which will involve detailed consideration of the target market, the Gambling Commission’s demand statistics, the nature of the proposed facilities, market research undertaken by the applicant and any other evidence of demand. 2006 –THE STORM BEFORE THE STORM? So what can we expect in 2006 and beyond: 1. The Commission will move to Birmingham and will begin fieldwork for its first prevalence study which is due to be published in 2007. The prevalence study will, in particular, explore attitudes to gambling and estimate the prevalence of problem gambling; 2. The Commission will consult extensively with the industry as it develops the important codes of practice (for example, in relation to advertising), guidance and technical standards (such as those relating to gaming machines); 3. The Commission will invite applications for operating and personal licences in late 2006. 4. Under the Gambling Act 2005 local authorities in England and Wales will for the first time have responsibility for Casino & Gaming International ■ 77

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granting casino licences.. On 16 December 2005 the Gambling Commission published draft guidance for these new licensing authorities covering the manner in which they are to carry out their new functions and the principles they should apply. Gambling Commission Chairman Peter Dean said: “This draft guidance will help licensing authorities find their way around the Gambling Act and get to grips with their new responsibilities. We want to encourage consistency in the way that premises licence and permit applications are handled throughout Great Britain, while at the same time leaving licensing authorities discretion to decide what is appropriate in their area.

“This draft is primarily aimed at helping the authorities develop their three-year statements of licensing policy. Those statements, together with our guidance, will ensure that gambling operators understand the requirements of individual authorities and know what they must do to meet them”. 5. A prediction; we will see an increase in the limit on the number of regional casinos, from 1 to possibly 4. We say this for a number of reasons. First, the history of the legislation shows that the Government has never been in favour of a limit on the number of regional casinos. It was clearly a political compromise to get the Bill through.

“We believe that regional casinos should be tested, primarily for any impact that they might have, because of the different nature of the regime, on problem gambling, but also for their power to regenerate rundown towns and cities. As the Honourable Member for Malden and East Chelmsford (Mr Whittingdale) is aware, we reserve the right to ask Parliament again what number of regional casinos is necessary to test their impact.”

“We are not prepared to go back to Parliament unless there is an indication from political parties that they want a move from one to eight”. Richard Caborn Minister for Sport and Gambling But we believe the case for an increase is too compelling, particularly if the Casino Advisory Panel reports that it is having difficulty in selecting a single location for a regional casino, to miss out on this opportunity. 6. Another prediction – we will see at least half a dozen further casino applications in London within the next 12 months and most, if not all, will be fiercely contested. 7. Speculation is rife in the industry that we will see consolidation amongst the major players, but at the very least there will be considerable investment as companies raise the finance to fund their development. 8. Poker clubs will attract significant publicity, whether as a result of the hearing of the prosecution of the Gunshot Club, which does not have a casino gaming licence, or as a result of an application to operate a poker club pursuant to a gaming licence. 9. There will be a transfer of a number of existing casinos into larger and better premises. CONCLUSION We are in the midst of a period of frenetic activity in the casino sector as the major operators and new entrants to the market jockey for position in the run up to implementation of the Gambling Act 2005. We are seeing a large number of new casino licence applications across the country but not, in our view, a proliferation. This period of activity will continue through to at least the end of 2006, whereupon the fierce

Tessa Jowell Secretary of State for Culture, Medial and Sport. Secondly, one pilot regional casino is not, in our view, sufficient properly to assess the impact in the range of areas and types of location that might be suitable for regional casinos. If there is one pilot regional casino in a City centre location in Manchester, how will that enable the Government to assess the potential impact on problem gambling of a regional casino in Torbay? If there is one pilot regional casino in Blackpool, how will that enable the Government to assess the potential for economic development and regeneration if a regional casino licence is granted in Greenwich? Thirdly, if there is only one regional casino, it follows that a regional casino licence is most unlikely to be granted in two out of England, Scotland and Wales until 2010 at the very earliest. This seems grossly unfair and unlikely to happen for all sorts of political reasons. Fourthly, the decision to reduce from 8 to 1 the number of regional casinos means the loss of very substantial investment to some parts of the country where that inward investment is most needed. It remains to be seen, however, whether there is the political will to bring the issue back before Parliament. 78 ■ Casino & Gaming International

JOHN HAGAN Partner and founder with Julian Harris of the first ever niche gambling and leisure law firm in the UK, located in the City of London, John qualified in 1993 and specialises exclusively in gambling law. The firm represents many of the world’s largest gambling and leisure operators, as well as UK operators in all areas of land based and remote gambling. The firm is frequently instructed by other leading City and overseas law firms to provide specialist gambling and leisure expertise in relation to substantial transactions. John is an experience advocate, a frequent and respected conference speaker and a regular contributor of articles to national and international gaming publications.

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SOCIAL AND MEDICAL RESEARCH

COMMON CAUSE FOR A COLLECTIVE WISDOM: SEEKING A FAIR AND BALANCED HEALTH POLICY

BY CHERYL LEWIN

The National Center for Responsible Gaming (NCRG) held its 6th annual conference on the 7th and 8th of December 2005 at the Mandalay Bay Resort and Casino, in Las Vegas, Nevada. It was founded in 1996 as an independent, not-forprofit organisation for the advancement of problem gambling science-based research. Boyd Gaming Corporation provided the initial funds. This year’s conference was designed to bring together individuals from the gaming industry, clinical treatment and research fields and policy makers to discuss and advance: ‘Finding Common Ground on Prevention, Treatment and Policy’.

r Howard Shaffer, Director of the Division on Addictions, Harvard Medical School, and Principal Investigator of the Institute for Research on Pathological Gambling and Related Disorders, revealed at the NCRG conference that its aim is to “find a common dialogue between those in the casino industry and the clinicians who treat problem gambling. If you have everyone at the table you can make a decision. You may not agree, but you are all involved.” The conference brought together individuals from the gaming industry, clinical treatment and research fields, and policy-makers with a diversity of viewpoints and perspectives, in a collaborative effort to incorporate the interests and knowledge of both parties in the promotion of fair and balanced public health policy based on sound, scientific research. Ambassador George S. McGovern, this year’s keynote speaker, shared an account of his own tragic experience of losing his daughter, Terry, in 1994 to alcohol addiction. He spoke of the need to improve how we deal with addiction in our families, government and society, and declared that issues are often viewed as a “contest between personal liberty against public opinion and safety.” He added that we are “looking for a balance between personal liberty and practical solutions.” Each year the conference offers programmes in two ‘tracks’: one primarily scientific, clinical and treatment oriented; the other, directed to government and industry issues. This year’s presentations give an idea of the depth of research conducted and the range of suggested solutions available:

SCIENTIFIC AND CLINICAL PRESENTATIONS: ■ “A Pathway for Finding Common Ground in The PatientClinician Relationship: The Self-Medication Hypothesis of Casino & Gaming International ■ 81

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Addictive Behaviors”, Edward Khantzian, M.D., C.A.S. ■ “Smoking and Substance Use Disorders: Lessons for Treating Gambling Disorders”, John Hughes, M.D. ■ “Self-help Organizations for Addiction: Toward Evidencebased Practice and Policy” Keith Humphreys, Ph.D. ■ “Gating lucky: Assessment Tools as Gates for Referral and treatment for Disordered Gamblers”, Ken C. Winters, Ph.D. ■ “Connected Science and Practice: Impact of New Gambling Research on Clinicians”, Anne Helene Skinstad, Ph,D. ■ “Pharmacological Interventions for Pathological Gambling: New Advances in Research”, Jon E. Grant, M.D., J.D., M.P.H. GOVERNMENT AND INDUSTRY PRESENTATIONS: ■ “Public Health Approaches to Gambling: The Reno Model in Action”, Nady el-Guebaly, M.D.,D.P.H., D.Psy., Vicki Flannery, Jeff Jojola ■ “Safe Gaming Machines? Science, Industry and Public Health Perspectives”, Alex Blaszczynski, Ph.D., Don Feeney, Connie Jones, Sara Neilson, Ph.D. ■ “Beyond Junk Science and Conventional Wisdom; Why Real Science is Vital to the Industry and Public Policy”, Frank Biagioli, Richard LaBrie Ed.D., Alan Feldman. ■ “EMERGE; Executive, Management and Employee Responsible Gaming Education”, Debi LaPlante, Ph.D., Christine Reilly. ■ “Building Alliances: What We Can Learn From the Alcohol Industry’s Responsible Drinking Programs”, Ralph Blackman ■ “Implementing a Self-exclusion Program: Logistical Challenges”, Norman DesRosiers. Mike Effner, Kevin Mullally In one of the plenary sessions this year the Reno Model was introduced, A Science Based Framework for Responsible Gambling: The Reno Model, co-authored by clinical psychologists Professor Alex Blaszczynski, Dr Robert Ladouceur and Dr Howard Shaffer. This study was published in the Journal of Gambling Studies in 2004. The collaboration began in Reno, Nevada as Phil Satre, then CEO of Harrah’s Entertainment, and three dedicated and esteemed authors, met to discuss and examine the need for a scientific framework to guide regulations in implementing and promoting responsible gaming practices. The result, through much collaboration, was a “strategic framework that set out principles to guide industry operators, health service and other welfare providers, interested community groups, consumers and governments, and their related agencies in the adoption and implementation of responsible gambling and harm minimization initiatives.” Alex Blaszczynski et al. This presentation set the tone for public collaboration and global representation throughout the conference. The challenge is finding a new perspective in order to achieve common ground in spite of the differing interests of all concerned. This task has often been met with confusion, as lack of funding has resulted in a focus on the conflicts, junkscience based information, methodological inconsistencies, and other distractions. The aim is to find a common dialogue so all interested parties can come to the table and discuss their diverse interests and needs. When all sides meet, new 82 ■ Casino & Gaming International

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<< While studies have shown that pathological gambling affects 1.5%-2.5% of the population, we cannot dismiss the suffering of those affected. In the words of Frank J. Fahrenkopf, Jr., president and CEO of the American Gaming Association, “one problem gambler is too many” >>

options can be generated. Public policy can then be founded on sound scientific data, leading to knowledgeable and cooperative policy making. While studies have shown that pathological gambling affects 1.5%-2.5% of the population, we cannot dismiss the suffering of those affected. In the words of Frank J. Fahrenkopf, Jr., president and CEO of the American Gaming Association “one problem gambler is too many”. The challenge then, is to respect the rights of individuals who safely engage in recreational gambling, while developing strategies that will prevent and reduce gambling-related harm to those individuals who excessively gamble. The conference was a great success, particularly due to the highly regarded speakers, treatment providers, as well as industry sponsors including Stations Casinos, WMS Gaming, Foxwood Resort Casino, G2E, Konami Gaming and Shuffle Master. In the end, who is ultimately responsible for safe gaming practices? The answer should be that all key stakeholders share responsibility. The first step is to identify the relevant needs of all. We must find empirically based policies for effective solutions that are minimally intrusive and restrictive, and a balance, guided by research. The final decision to gamble or not belongs to the individual, but it must be based on informed choice. We have a common cause, we need a collective wisdom.

CHERYL A. LEWIN Cheryl A. Lewin is the president of Gaming Solutions and Associates. She consults with responsible gaming operators and treatment professionals in the United States. as well as international locations. She has worked extensively in both the inpatient and outpatient field of mental health and addiction. Cheryl sits on the Board of Editors of BASIS, a Brief Addiction Science Information Source, at Harvard Division on Addictions, Harvard Medical School. She is a member of the Illinois Counseling Association. Cheryl received her Bachelor of Science at Loyola University Chicago and her Master of Science at National-Louis University Chicago. She is a Licensed Professional Counselor, CADC, National Certified Recovery Specialist, and has completed the training for Problem and Compulsive Gambling.

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ADDICTION TRENDS: INTERNET V CASINO GAMBLING BY MARK GRIFFITHS

Gambling addictions always result from an interaction and interplay between many factors including the person’s biological and/or genetic predisposition, their psychological constitution, their social environment and the nature of the activity itself (Griffiths, 1999). There is no precise frequency level of a gambling game at which people become addicted since addiction will be an integrated mix of factors in which frequency is just one factor in the overall equation. This brief paper attempts to examine whether Internet gambling is problematic, and more importantly, whether Internet gambling is potentially more problematic than casino gambling. To do this it briefly overviews the empirical research on Internet gambling. It also outlines the literature on ‘Internet addiction’ and examines whether Internet gambling is therefore ‘doubly addictive’.

o date there has been very little empirical research into Internet gambling and there have been only three academically published prevalence studies specifically investigating it. Griffiths (2001) carried out a UK prevalence survey examining Internet gambling. Of the 2098 random people surveyed (918 male and 1180 female), only 495 of them (24%) were Internet users. The results showed that not one person gambled regularly on the Internet (i.e., once a week or more) and that only one percent of the Internet users were occasional Internet gamblers (i.e., less than once a week). As noted, there has been speculation that Internet gambling will be addictive; there was no evidence from this study. However, the data for this study was collected in 1999 and is now very out-of-date in respect to the known rise in the number of people gambling on the Internet. In Canada, Ialomiteanu and Adlaf (2001) reported on the prevalence of Internet gambling among Ontario adults. Their data were collected by a random telephone survey of 1,294 Ontario adults. Overall, 5.3% had gambled on the Internet during the past 12 months. Although women were more likely to gamble Online than males (6.3% versus 4.3%), the difference was not statistically significant. Only marital status was significantly related to Internet gambling. Those previously married (divorced, widowed) were significantly more likely to report Online gambling compared to those who were married (10.9% vs. 4.9%). There were no dominant age, regional, educational or income differences. The study did not examine any aspects of problem gambling. In the US, Ladd and Petry (2002) carried out a survey into gambling among 389 self-selected individuals from university health and dental clinics. Embedded within their questions was the South Oaks Gambling Screen (SOGS). They reported

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that 90% of the sample had gambled within the last year and that 70% had gambled within the previous two months of the survey. It was also reported that 31 individuals (8%) had gambled on the Internet at some point in their lives and that 14 of them (3.6%) engaged in Internet gambling weekly. Mean scores on the SOGS showed that the Internet gamblers had significantly higher scores than the nonInternet gamblers (7.8 compared to 1.8). Ladd and Petry concluded that Internet gamblers were significantly more likely to be problem gamblers than non-Internet gamblers. However, there were a number of limitations to the study. Firstly, the individuals were self-selecting and were recruited from a dental clinic. This could have had a large influence on the results. Secondly, the study treated Internet gamblers and non-Internet gamblers as separate and distinct groups when in fact it is likely that most, if not all Internet gamblers, also gambled in traditional ways as well. Although it could be the case that gambling on the Internet leads to a higher prevalence of gambling problems it could equally be the case that those who already have gambling problems are more likely to gamble on the Internet, as well as at other gambling venues (e.g., casinos, racetracks, etc.). There are – of course – many studies currently being undertaken by research groups all around the world (including my own). However, until these have gone through the peer review process it is hard to assess the social impact and addictiveness of Internet gambling. INTERNET GAMBLING: SOCIAL ISSUES The uptake of gambling depends on many factors. Internet gambling is global, accessible and has 24-hour availability. In essence, technological advance in the form of Internet gambling is providing convenience gambling. Theoretically, people can gamble all day every day of the year. This will have implications for the social impact of Internet gambling. Here are some of the major areas of potential concern (Griffiths & Parke, 2002). PROTECTION OF THE VULNERABLE There are many groups of vulnerable individuals (e.g., adolescents, problem gamblers, drug/alcohol abusers, the learning impaired etc.) who in offline gambling would be prevented from gambling by responsible members of the gaming industry. However, Internet gambling sites provide little in the way of ‘gatekeeping’. In cyberspace how can you be sure that adolescents do not have access to Internet gambling by using a parent’s credit card? How can you be sure that a person does not have access to Internet gambling while they are under the influence of alcohol or other intoxicating substances? How can you prevent a problem gambler who may have been barred from one Internet gambling site, simply clicking to the next Internet gambling link? These are all serious concerns that both regulatory authorities and Internet gambling service providers will have to take on board. ELECTRONIC CASH For most gamblers, it is very likely that the psychological value of electronic cash (e-cash) will be less than ‘real’ cash (and similar to the use of chips or tokens in other gambling situations). Gambling with e-cash may lead to what psychologists call a ‘suspension of judgement’. The 86 ■ Casino & Gaming International

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suspension of judgement refers to a structural characteristic that temporarily disrupts the gambler’s financial value system and potentially stimulates further gambling. This is well known by both those in commerce (i.e., people typically spend more on credit and debit cards because it is easier to spend money using plastic), and by the gaming industry. It is the reason why ‘chips’ are used in casinos and why tokens are used on some slot machines. In essence, chips and tokens ‘disguise’ the money’s true value (i.e., decrease the psychological value of the money to be gambled). Tokens and chips are often re-gambled without hesitation as the psychological value is much less than the real value. Anecdotal evidence would seem to suggest that people gamble more using e-cash than they would with real cash. UNSCRUPULOUS OPERATORS Many concerns about the rise of Internet gambling concern unscrupulous practices operated by some Internet gambling sites. A major issue concerns the ‘trustworthiness’ of the site itself. For instance, on a very basic trust level, how can an Internet gambler be sure they will receive any winnings from an unlicensed Internet casino operating out of Antigua or the Dominican Republic? There are, however, other issues of concern including the potentially unscrupulous practices of (i) embedding, (ii) circle jerks, and (iii) Online customer tracking. These are briefly overviewed below. Embedding – One seemingly common practice is the hidden ‘embedding’ of certain words on an Internet gambling site’s webpage through the use of ‘meta-tags’. A meta-tag is a command hidden in the Web page to help search engines categorise sites (i.e., telling the search engine how they want the site indexed). One common way to get extra traffic flowing through a webpage is to embed common words that people might be searching for on the Internet (e.g.. ‘Disney’). Some Internet gambling sites appear to have used the word ‘compulsive gambling’ embedded in their webpage. In essence, what such unscrupulous sites are saying is “index my casino site in with the other compulsive gambling sites” so people will ‘hit’ this site when they are looking for other information related to compulsive gambling. Someone looking for help with a gambling problem will get these sites popping up in front of them. This is a particularly unscrupulous practice that is legal. Circle jerks – Another potentially unscrupulous tactic used by Internet gambling sites is telescoping windows often referred to as ‘circle jerks’. If someone Online accesses a particular type of site and try to get out of it, another box offering a similar type of service will usually ‘pop up’. Many people find that they cannot get out of the never-ending loop of sites except by shutting down their computer. Obviously, those sites that use ‘circle jerks’ hope that a person will be tempted to access a service they are offering while their site is on the screen. Online customer tracking – Perhaps the most worrying concerns over Internet gambling is the way sites can collect other sorts of data about the gambler. Customer data is the lifeblood of any company. Internet gamblers can provide tracking data that can be used to compile customer profiles. Such data can tell commercial enterprises (such as those in the gambling industry) exactly how customers are spending their time in any given financial transaction (i.e., which games they are gambling on, for how long, and how much money they are spending etc.). This information can Casino & Gaming International ■ 87

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help in the retention of customers, and can also link up with existing customer databases and operating loyalty schemes. Companies that have one central repository for all their customer data have an advantage. It can also be accessed by different parts of the business. Many consumers are unknowingly passing on information about their online behaviour that raises serious questions about the gradual erosion of privacy. Customers are being profiled according to how they transact with service providers. Linked loyalty schemes can then track the account from the opening established date. The technology to sift and assess vast amounts of customer information already exists. Using very sophisticated software, gaming companies can tailor its service to the customer’s known interests. When it comes to gambling, there is a very fine line between providing what the customer wants and exploitation. The gaming industry sell products in much the same way that any other business sells things. They are now in the business of brand marketing, direct marketing (via mail with personalised and customised offers) and introducing loyalty schemes (which create the illusion of awareness, recognition and loyalty). On joining loyalty schemes, players supply lots of information including name, address, telephone number, date of birth, and gender. Those who operate Internet gambling sites will be no different. They know your favourite game and the amounts you have wagered. Basically they can track the playing patterns of any gambler. They know more about the gambler’s playing behaviour than the gamblers themselves. They can send the gambler offers and redemption vouchers, complimentary accounts, etc. Supposedly, all of these things are introduced to enhance customer experience. Benefits and rewards to the customer include cash, food and beverages, entertainment and general retail. However, more unscrupulous operators will be able to entice known problem gamblers back onto their premises with tailored freebies (such as the inducement of ‘free’ bets in the case of Internet gambling). The introduction of Internet gambling has come at a price, and that price is an invasion of the gambler’s privacy. INTERNET ADDICTION AND INTERNET GAMBLING ADDICTION Gambling has long been known to be potentially addictive. Coupled with several research reports that the Internet may be addictive (e.g., Griffiths, 2000a), it has been speculated that Internet gambling may be ‘doubly addictive’. However, further examination of this appears to show no evidence for such speculations. Young (1999) claims Internet addiction is a broad term that covers a wide variety of behaviours and impulse control problems, and categorised by five specific subtypes. These are: ■ Cybersexual addiction: compulsive use of adult websites for cybersex and cyberporn. ■ Cyber-relationship addiction: over-involvement in Online relationships. ■ Net compulsions: obsessive online gambling, shopping or day-trading. ■ Information overload: compulsive web surfing or database searches. ■ Computer addiction: obsessive computer game playing (e.g. Doom, Myst, Solitaire etc.) 88 ■ Casino & Gaming International

Griffiths (2000a) has argued that many of these excessive users are not ‘Internet addicts’ but just use the Internet excessively as a medium to fuel other addictions. Put very simply, a gambling addict who engages in their chosen behaviour Online is not addicted to the Internet. The Internet is just the place where they engage in the behaviour. However, in contrast to this, there are case study reports of individuals who appear to be addicted to the Internet itself (e.g., Young, 1996; 2000b). These are usually people who use Internet chat rooms or play fantasy role playing games activities that they would not engage in except on the Internet itself. These individuals to some extent are engaged in text-based virtual realities and take on other social personas and social identities as a way of raising self-esteem. Nevertheless, to date there is no evidence that Internet gambling is ‘doubly addictive’ particularly as the Internet appears to be just a medium to engage in the behaviour of choice. Another concern that has been noted concerns the relative anonymity of Internet gambling, which may lead to disinhibition and increased levels of gambling. However, Griffiths (2003) has pointed out that using Online customer tracking Internet gambling operators can collect lots of data about the gambler. Rather than being used for potentially exploitative practices, such information could be used in a socially responsible manner by Internet gambling sites (i.e., they could target intervention measures to players that they identify as playing excessively). One of the benefits of the Internet is that it can also be used to provide information, and as such could help raise gambler’s awareness of the signs of problem gambling, or direct them to relevant help lines and treatment services. CASINO GAMBLING AND ADDICTION One of the problems in assessing whether casino gambling is potentially addictive is that just like Internet gambling, ‘casino gambling’ is not a type but a medium in which people gamble. Casino gambling can therefore refer to roulette gambling, slot machine gambling, gambling on table games (e.g., poker, baccarat, blackjack), and virtual roulette gambling etc. Very little research has specifically been done on casino gamblers mainly because empirical research tends to concentrate on the potential addictiveness of specific types of activity rather than where the gambling took place. Probably the most researched type of gambling concerns slot machines and their derivatives (e.g., fruit machines, poker machines, video lottery terminals etc.). However, empirical research does not tend to attach much importance to where the slot machine playing takes place in terms of addictiveness potential. The argument is that to a particular person, the potential addictiveness will be present irrespective of whether the slot machine was played in a casino, a betting shop, an amusement arcade or in an Online casino. There is no doubt slot machines are potentially addictive and there is now a large body of research worldwide supporting this (see Griffiths, 1995 and 2002 for comprehensive overviews). In the past ten years, slot machines (in all their different guises) have been the predominant form of gambling by pathological gamblers treated in self-help groups and professional treatment centres in Spain, Germany and Holland. There is also evidence that approximately half of all calls

MAKE AN IMPACT Reprinted articles from CGI are available as a low cost, highly effective marketing tool. Tailor made to meet your business requirements, they can be redesigned to include company logos, corporate statements and advertisements. For more information, please contact: Caroline Maguire, Publishing Services Manager T: +44 (0)1268 766 515 E: caroline.maguire@casinoandgaming.net

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to gambling helplines are for problematic slot machine gambling (e.g., Griffiths, Scarfe & Bellringer, 2001). Young males (particularly adolescents) seem to be particularly susceptible to slot machine addiction in the UK with up to 6% of adolescents experiencing problems with their slot machine playing at any one time using DSM criteria (Griffiths, 2002). However, there are big cultural differences. Obviously this does not mean that everyone who plays slot machines will become addicted (in the same way that not everyone who drinks alcohol will become an alcoholic). What it does mean is that given a cluster of factors (genetic/biological predisposition, social upbringing, psychological constitution, situational and structural characteristics) a small proportion of people will unfortunately experience severe problems. There is no doubt that the structural characteristics of the particular gambling activity contribute to this. In the case of slot machines, it has been argued (Griffiths, 1993) that a combination of the technological aspects of structural characteristics (event frequency, the near miss, symbol ratio proportions, light and sound effects, the suspension of judgement etc.) all contribute towards repetitive play in some individuals. Empirical evidence worldwide clearly shows that slot machine gambling is the most problematic form of gambling. To date, there is no empirical evidence that gambling on the Internet causes anything like the problems reported with slot machines and other traditional forms of gambling (such as gambling at casinos or on horse racing) but this is more likely to be because there is so little research into Internet gambling.

Griffiths MD. (1999). Gambling technologies: Prospects for problem gambling. Journal of Gambling Studies, 15, 265-283. Griffiths, M.D. (2000a). Internet addiction - Time to be taken seriously?

Addiction Research, 8, 413-418. Griffiths, M.D. (2000b). Does internet and computer “addiction” exist? Some case study evidence. CyberPsychology and Behavior, 3, 211-218. Griffiths, M.D. (2001). Internet gambling: Preliminary results of the first UK prevalence study, Journal of Gambling Issues, 5 located at: http://www.camh.net/egambling/issue5/research/griffiths_article.html. Griffiths, M.D. (2002). Gambling and Gaming Addictions in Adolescence. Oxford: BPS Blackwells. Griffiths, M.D. (2003). Internet gambling: Issues, concerns and recommendations. CyberPsychology and Behavior, 6, 557-568. Griffiths, M.D. & Parke, J. (2002). The social impact of internet gambling.

Social Science Computer Review, 20, 312-320. Griffiths, M.D., Scarfe, A. & Bellringer, P. (2001). The UK national telephone gambling helpline: Results on the first year of operation. Journal of

Gambling Studies, 15, 83-90. Ialomiteanu, A. & Adlaf, E. (2001). Internet Gambling among Ontario Adults. Journal of Gambling Issues. Located at:http://www.camh.net/egambling/issue5/research/ialomiteanu_adlaf_articl e.html Ladd, G.T. & Petry, N.M. (2002). Disordered gambling among universitybased medical and dental patients: A focus on internet gambling. Psychology

of Addictive Behaviours, 16, 76-79. Wood, R.T.A., Gupta, R., Derevensky, J. & Griffiths, M.D. (2004). Video game playing and gambling in adolescents: Common risk factors. Journal of

Child & Adolescent Substance Abuse 14, 77-100. Young, K. (1996). Psychology of computer use: XL. Addictive use of the internet: A case that breaks the stereotype. Psychological Reports, 79, 899902. Young K. (1999). Internet addiction: Evaluation and treatment. Student

CONCLUSIONS Over the past decade technology has continued to provide new market opportunities not only in the shape of Internet gambling but also in the shape of more technologically advanced slot machines, video lottery terminals (VLTs), electronic scratchcards, and gambling on video game based CD ROMS to name a few (Griffiths, 2003; Wood, Gupta, Derevensky, & Griffiths, 2004). Furthermore, other established gambling forms are becoming more technologically driven (e.g., bingo, keno). To what extent does technology facilitate excessiveness? There are a number of factors that make online activities like Internet gambling potentially seductive and/or addictive. Such factors include anonymity, convenience, escape, dissociation/immersion, accessibility, event frequency, interactivity, disinhibition, simulation, and asociability. In general, structural characteristics of gambling appear to be enhanced through technological innovation (Griffiths, 2003). Despite these factors, there is no evidence – to date – that Internet gambling is any more addictive than other types of gambling including casino gambling. REFERENCES Becona, E. (1994). Prevalence surveys of problem and pathological gambling in Europe: The cases of Germany, Holland and Spain. Paper presented at the Ninth International Conference on Gambling and Risk Taking, Las Vegas, USA. Geller, R. (1994). Dutch move to restrict gaming machines. Gaming and

Wagering Business, 15, 4. Griffiths, M.D. (1993). Fruit machine gambling: The importance of structural characteristics. Journal of Gambling Studies, 9, 133-152. Griffiths, M.D. (1995). Adolescent Gambling. London: Routledge.

British Medical Journal, 7, 351-352.

MARK GRIFFITHS Dr. Mark Griffiths is Professor of Gambling Studies at the Nottingham Trent University. He is internationally known for his work into gambling and gaming and was the first recipient of the John Rosecrance Research Prize for Outstanding scholarly contributions to the field of gambling research in 1994, winner if the 1998 CELEJ Prize for best paper on gambling and the 2003 winner of the International Excellence Award for outstanding contributions to the prevention of problem gambling and the practice of responsible gambling. He has published over 150 refereed research papers, two books, numerous book chapters and over 350 other articles. In 2004 he was awarded the Joseph Lister Award for Social Sciences by the British Association for the Advancement of Science for being one of the UKs outstanding scientific communicators.

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