Casino & Gaming International: Issue 21

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CASINO | POKER | BINGO | NETWORK GAMING | MOBILE

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WELCOME

ACHIEVING CERTAINTY AND HARMONISATION? Publisher Jamie Kean Email: jamie.kean@casinoandgaming.net Editor Stephen Lawton Email: stephen.lawton@casinoandgaming.net Publishing Services Director Tracie Birch Email: tracie.birch@casinoandgaming.net Advertising Susan Coleman, Sales Manager Email: susan.coleman@casinoandgaming.net Daniel Lewis, Sales Manager Email: daniel.lewis@casinoandgaming.net

Business Development Manager Mike McGlynn Email: mike.mcglynn@casinoandgaming.net

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Disclaimer The views and opinions expressed in Casino & Gaming International magazine do not necessarily represent the views of the editor, editorial assistants, or of CGI Global Media Ltd. © 2010 CGI Global Media Limited (except where otherwise stated). All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written permission of CGI Global Media Limited.

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fforts across the European Union (EU) to achieve online gaming harmonisation can sometimes seem like a Max Escher puzzle: You appear to be able to get from A to B under the impression there are no insurmountable barriers, but on closer inspection it turns out to be an impossible structure to negotiate and you are certain to get nowhere. That and the more urgent revenue needs for some Member States is largely why over half of them are taking reform and regulation into their own hands, and the result at present is a very qualified, piecemeal way for the egaming industry to enter the EU arena. Equally, establishing cross-border standards and protections for players remains a persistent concern.

“On the plus side”, Julian Harris explains, “it seems that more jurisdictions are seriously considering opening their markets to a mass licensing system, most recently Greece. I believe that this trend will continue. Whilst very expensive for operators, having to obtain multiple licences, to say nothing of paying exorbitant tax rates, as in France, operators will no doubt welcome the opportunity to enter new markets and to profit from them. Who knows – in time European Member States may realise that national monopolies are not necessary to protect their citizens and that an open unified market would actually generate greater revenues for State treasuries.”

At present, the marked differences in licensing approaches in and out of Europe, especially in the case of state monopolies, is causing operators to tread warily even though it is proving to be an opportunity not to be missed. France, mindful of Italy’s approach among others, has been notable in developing geolocation technical and monitoring standards. This places an obligation of transparency on operators and is restrictive which doesn’t necessarily make for an easy partnership, or figure as a highly lucrative milestone in commercial advantage in the short term. But it does mean the potential for expansion through the EU hub and beyond is there to cultivate through the adoption of albeit varied regulatory norms.

Julian concludes: “In a way, whether gambling will be regulated on a national licensing model or whether it will continue to be restricted in some Member States and ‘Illegal’ in others, is not the point. We cannot rely on ECJ rulings to regulate the gambling sector. What most regulators and gambling operators require is a degree of certainty and harmonisation. With the continued lack of EU presence and the negative approach of EU Member States, it may be time to turn away from the ECJ and towards initiating constructive negotiations with gambling regulators, while at the same time increasing pressure on Brussels before the Green Paper causes more damage to the freedom to provide services across Member States.”

Without a doubt, how that turns out will impact beyond Europe. Even though there remain entrenched positions against online regulation in the United States, at the State level there is a growing and uneven acceptance of gambling. Europe opening up will surely hasten change there too. It is also noteworthy that, quite apart from the well known players in online gaming, established land-based names like Harrah’s in America and Casinos Austria International (CAI) in Europe are now in the early stages of developing an online market presence including in the highly influential interactive media sphere. It is a measure of how inter-connected gambling is becoming that CAI, after recently completing their role in the historic Corinthian Club refurbishment in Glasgow, should then announce an online casino venture with the UK’s Daily Express. That diversity of business development points all the more to the need for rational regulation.

Operators in Europe are aware of the practical difficulty in achieving regulatory consistency, but their growing experience of the often contradictory requirements placed upon them suggests they are capable of a balanced, responsive approach to balanced cross-border regulation. China, with its relatively unscathed economic capabilities amid the current financial crisis, is becoming a formidable confidence factor for the industry globally. The gravitational force of Macau through to Vietnam and Japan over the next 10 years, progressing toward regulation and liberalisation, is creating an ever expanding competitive environment as dominant resources, innovation and logistics shift inexorably East. The EU needs a flexible egaming policy that enables egaming enterprise the basis for responsible growth in such a global marketplace.

E

Stephen Lawton is Editor of Casino & Gaming International.

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2010 Issue 4

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CONTENTS

21

11

35

FEATURES 11

FIRST CORINTHIANS: CREATING A SUBLIMINAL AND INCLUSIVE JOURNEY INTERVIEW WITH JIM HAMILTON

17

AMERICAN GAMING SATURATION VS THE ALLURE OF LAS VEGAS BY PAUL HERETAKIS

21

GAMING EMBRACES A SEASON OF CHANGE

BY FRANK J. FAHRENKOPF, JR.

29

A DIFFERENT PROSPECT: WORKING THROUGH AND EXITING THE FINANCIAL CRISIS BY DEAN MACOMBER

35

THE RISING CHALLENGE OF GLOBAL LEGISLATION

BY JUSTIN WOLFF

41

49

REMOVING BARRIERS: CREATING RUGGED YET FLEXIBLE SOLUTIONS FOR TOMORROW BY ERIK DE

KAT

ACHIEVING CHOICE AND FUNCTIONALITY OVER CHALLENGING COMPLEXITIES BY ROELANT PRINS Casino & Gaming International I 5

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CONTENTS

57

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FEATURES 53

LACK OF CERTAINTY AND HARMONISATION, SO WHERE NEXT? BY JULIAN HARRIS

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THREE PILLARS OF SUCCESS TO CO-INVENT THE FUTURE BY JOSE MICALLEF

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MECHANICAL TO CONTENT FOCUS ENABLES REPOSITIONING FOR GROWTH INTERVIEW WITH TONY OLIVER

67

UNDERSCORING TRUST AND AFFINITY IN EGAMING BUSINESS GROWTH INTERVIEW WITH GARTH KIMBER

73

FOSTERING GROWTH THROUGH SKILLS AND KNOWLEDGE PROVISION INTERVIEW WITH EMMA ALLARD

77

THE EFFECT OF WINNING LARGE JACKPOTS ON HUMAN BEHAVIOUR BY MARK GRIFFITHS

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CASINO DESIGN

FIRST CORINTHIANS: CREATING A SUBLIMINAL AND INCLUSIVE JOURNEY INTERVIEW WITH JIM HAMILTON

When the rare opportunity arises to transform an historic city landmark into a premier casino and entertainment venue, while preserving its original splendour, architects and designers who get to seize that moment no doubt know their good fortune. For the casino industry, the blend of sophistication offered by a grandly redesigned environment and thoughtfully created entertainment and gaming club facility, is something sure to impress and resonate with its visitors and players.

>>

C

GI: What are your thoughts about the historical background to The Corinthian Club?

JH: Well, this is one of Glasgow's most elaborate and richly decorated buildings - inside and out - dating back to 1752 when one of the finest private residences in Glasgow was built on this site for merchant George Buchanan. In 1842 it was virtually demolished to make way for the Glasgow and Ship Bank and in the 1920s judiciary courts were created, but many of the building's finest features were hidden from public view behind false walls and ceilings. And now, 260 years later, a fitting transformation has opened a new chapter to this exceptional place in the city.

The Corinthian Club, following painstaking restoration in 1999 by G1 Group and the Graven Images eight-month project more recently, has become one of Glasgow's premier entertainment venues. We have brought new glamour, style and intrigue to the City: The Club's entertainment spaces, a variety of meeting and event rooms on four floors with bar, dining and gaming facilities, are individually very distinct in character, providing an unparalleled experience where people can meet, eat, socialise and game in a single location.

CGI: From bank to casino club seems symbolic today, but how did the idea come about?

JH: G1 Group has always been at the cutting edge of entertainment provision in Glasgow and wanted to Casino & Gaming International I 11

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provide a more sophisticated gaming option in the city.

The company also saw the potential of one of Glasgow's best-loved and most prominent Victorian buildings to be given a new lease of life as an entertainment venue, incorporating a casino.

CGI: Were you constrained by the fact that the building is 'Grade A-listed'?

JH: I wouldn't say constrained, although obviously working within a listed structure presents its own challenges as well as opportunities! We had the advantage that G1 Group had recreated many of the building's interior features 12 years before, so they knew the building well. This allowed us to examine all the characteristics of the internal architecture with some knowledge and make design decisions that we felt would complement the existing building as well as challenging it where appropriate.

CGI: Preparation is everything: was that the most time consuming part?

JH: The Corinthian was Graven Images first casino project so we had a lot to learn about casino design. We met with Casinos Austria International (CAI) to have a crash course in the workings of and the technical aspects of casino design and as this was CAI's first 'boutique style' casino (it is relatively small by their standards), we had to sit down with them to look at how to maximise the potential of the space available, incorporating the permitted number of gaming tables and slot machines as well as all the more invisible operational requirements, as well as creating an attractive, contemporary casino environment as part of a bigger venue. We also needed to liaise throughout with Historic Scotland and other conservation bodies.

CGI: Would you say the restoration was a compromise with modern adaptation?

JH: We would say that what we have done is more of a modern intervention, rather than an adaptation. This building has already enjoyed several lives, with several different functions - as a private home, a bank, a courtroom and also night club - so this is another episode in its history. An important part of creating a more attractive modern and multi-purpose venue was to accept and recognise that history, and at the same time move the building on.

CGI: How have you retained design continuity, between the original features of the building and the modern interventions that were necessary?

JH: By liaising throughout with the relevant conservation bodies and by dealing with the building sympathetically to ensure that the interventions do not jar with the building but sit comfortably within it, whilst remaining

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quite clearly contemporary. The existing interior architectural features are independently so strong that the introduction of some new contemporary detailing was never going to be an issue.

CGI: Was the external appearance a very separate demand from the internal design?

JH: The existing exterior is also 'Grade A' listed so there was very little we could do to it, but one of the building's clear issues in the past was that the windows didn't afford any views in, both in daytime and at night.

We looked at how we could create various internal focal points within the windows with a range lighting techniques and features to make the building look more appealing from the outside. We also added various ceiling and feature wall treatments in rooms to the front to add depth to the spaces when viewed from the street.

On the ground floor we opened up the pavement level windows so that people walking by can look down and see activity in the prep kitchens, wine cellar and also the ladies and gents bathrooms. At night in particular the building really comes to life. The winter can be long in Glasgow and the warmth of the new interior is now far more focused and inviting for passers by on the street.

CGI: What mix of ideas and concepts determined the overall interior plan?

JH: We wanted to create a series of journeys throughout the building leading to a wide variety of entertainment spaces that each afford a different mood and encourage different kinds of social interaction - so that discovering and exploring the building becomes an integral part of the evening's entertainment!

CGI: How did you solve the segregated spaces variations, so that people could wander and mingle?

JH: One of the biggest barriers to wandering around the building was the main staircase which gave a sense of a 'red carpet' journey, only available to the privileged few.

By redesigning this area we broke down that distinction so encouraging customers to venture further up the original dwelling house section of the building and being a typically Scottish trait it allows people to nosey around spaces that they previously wouldn't have thought they could.

The bigger architectural move was to introduce a staircase and lightwell into the centre of what was previously the main banking hall, giving direct access from the restaurant to the basement area of the building. This again allows people to venture into previously uncharted territory in normal hours. This space formally housed the original nightclub. The food for the main Tellers Bar also comes up through this space via the new staircase aperture and the basement has taken on a new life as a wine and beer cellar with small club and adjacent bar.

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CGI: Are lighting atmospherics a significant factor in the various entertainment rooms?

JH: Yes, and we have used different techniques throughout the building, from the more vintage industrial style Parisian telescopic scissor lights in the basement bar, to the intricate zinc reproductions of the original chandeliers from the main banking hall which we have had reproduced locally for the casino. These are two-thirds of the size of the original chandeliers that hung in the larger banking hall adjacent to the casino during the building's life as a bank.

CGI: What was involved in designing the casino space?

JH: The first thing to note here is that the main banking hall adjacent to the new casino was originally intended for use as the casino before we settled on the current area, which was formally the Corinthian's restaurant.

The main hall was eventually rejected as this has always been the hub of the entire building, and G1 Group wanted the casino to integrate itself within the new operation and not to dominate the venue. We then considered how best to incorporate all the gaming tables and slots etc permitted under the license awarded to G1 while at the same time providing adequate back-ofhouse facilities.

Our design in many ways flaunted our simple understanding of the casino designers' set of golden rules! Because of the existing large scale windows and very light delicate features we chose to embrace this and to create a light airy space that was as much about the holistic environment as it was about catering to the average casino customer. Glasgow has many casinos and most have the same ambience, dark and moody! We did question this and we have tried to create a product that has a point of difference in that local market.

We feel that by blending the casino in with the adjacent main banking hall that we would encourage customers who wouldn't normally frequent a casino to come in and engage with the space. This has worked very well with the casino operators reporting that they have captured the big players where appropriate but also filled lots of the gaps with a customer base that wasn't normally accessible to them. The casino has taken on the role as a clear extension of the bigger Corinthian Club but with the attitude of a 'boutique casino' which is new to the Scottish casino scene.

CGI: Enhancing gaming performance through design must have required operator consultation?

JH: We visited some other casinos both at home and abroad and also spent time at some of the casino exhibitions and events in the UK. We felt quite strongly that given the fact a lot of the elements we were designing for the bigger Club were bespoke, we should at least examine the idea of designing as many bespoke

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items for the casino as possible.

In close consultation with Casinos Austria International we were able to design all of the gaming tables and associated chairs. These now fit in perfectly with the interior of the building and don't stand out as foreign objects. This overriding atmosphere we were aiming to create for the entire Club was one of inclusive social interaction. In enhancing the customer base by subtle and subliminal design moves then we felt that this would increase the potential revenue stream and hence associated performance.

As much as we believe that naivety can be a good thing when tackling design projects we also didn't want to be seen to be trying too hard to reinvent the wheel.

We feel that sometimes designers can spend too much time in particular sectors and hence get stuck in their ways. On the casino we felt that getting involved in the intricate detailing as well as playing around with some of the intrinsic casino rules we could genuinely make a difference.

CGI: Does the gaming floor centre-piece meld well with the overall design?

JH: Yes - The Corinthian Club experience is about the holistic environment, not just the individual parts, which appeals to a much wider range of customer. The casino is one of the little gems hidden within the bigger jewellery box.

CGI: It must have been quite a task coordinating the different levels of craft expertise involved?

JH: It was. We were lucky to work with a great team led by the client's construction chief Jim McMillan who we have worked with for over 20 years on other projects.

The entire project was completed in eight months - from start to finish - with similar projects we have been involved in taking twice that time.

We felt very privileged to work alongside a wide range of skilled craftspeople involved with the project and who spent hundreds of hours painstakingly creating different aspects of the building. That included a mosaic floor requiring half a million tiles, over a thousand hand moulded acanthus leaves, fitting hand carved panels, restoring ornate wooded detailing, renovating original features such as sculptural plasterwork and intricate gold-leaf work. Materials such as timbers cut from old whiskey barrels, brass, moulded and cast concrete, cut glass and heated and patterned corian finishes we felt created a diverse mix of textures and visual surprises throughout the building.

Our mission has been to take a series of segregated spaces dating from different periods, with different original functions, and create new journeys throughout the building to encourage people to wander and mingle.

The journey is enhanced by passing through a series of rooms which have all been given their own character and allure, from the intimate vaulted space of the Mash Casino & Gaming International I 15

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& Press Room at basement level to the decadent girlie 'Boutique' room on the ground floor.

After all, as a designer a big part of your job is experiencing new things every day as well as observing and listening carefully. On this job we were able to observe at close quarters all of these fantastic craftsmen using their personal bags of tricks to pull together a very testing interior. We take our hats off to all of them.

learn more about the technical aspects of designing casinos. At the same time we were able to apply the same philosophy we apply to every project - of taking people on a journey through a building in an almost subliminal way...so that the awareness of the journey doesn't detract from the experience and delight of it.

We needed to attract people to use the casino, who might otherwise not do so, and I think we have succeeded in doing that. CGI

CGI: To what degree have green energy and environmental factors played a part?

JH: That we have helped to give a new lease of life to an old building is very important. All the craftspeople involved in the renovation aspect of the work are local and The Corinthian Club employs 200+ local people. As much as possible we sourced and used local materials and got involved with the mechanical and electrical engineers to look at the energy efficiency and consumption of the building going forward. We don't profess to being experts in the Green field but we like everyone else we are conscientious and are trying hard to see where we can help. We do believe that a willingness to learn and embracing small changes will ultimately make a difference. Not everyone is in the position to make massive global decisions but if all us small guys can do our bit then we feel we can make a difference.

CGI: What do you take from this experience, going forward?

JH: This was our first casino project so it was great to 16 I Casino & Gaming International

JIM HAMILTON Jim Hamilton, Dip. Id, Design Director, Hotel and Leisure Projects is Design Director of Graven Images' Hotels & Leisure team. During his 17 years with the studio, he has helped to create inspiring places that are both popular and practical. Jim is currently working on a number of hotel projects in the UK, Europe and the US. He is leading the design team for the Arne Jacobsen Radisson Blu Royal Hotel in Copenhagen and a range of projects in the US for Carlson Hotels. Closer to home, recent projects he has worked on include the design of Tigerlily, a multi award-winning boutique hotel for Montpeliers in Edinburgh, and Blythswood Square, Glasgow's newest five-star boutique hotel and spa. Jim also led the transformation of Glasgow's Grade A Listed The Corinthian Club, which recently underwent a complete renovation by skilled artisans to provide a range of new facilities including a casino, bars, restaurants and meeting rooms.

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AMERICAN GAMING SATURATION VS THE ALLURE OF LAS VEGAS

BY PAUL HERETAKIS

Crisis times have a tendency to turn expectations on their head and for bestlaid plans to fall to Plan B. Previously shunned tax revenues from gambling are suddenly sought after; while casino gaming operators re-examine cost efficiencies in preparation for the undoubtedly resurgent times ahead. Las Vegas continues to reinvent itself to mixed reviews; and Macau – Asia generally – is forging ahead. Across the board, prospects remain as strong as ever.

>>

ith the disaster known as the American economy, many states have turned to gaming to solve their budget shortages. States such as New York, Pennsylvania, Ohio and many others have opened up bidding for legalised casinos within city borders. The catch is a tax rate of over 50 percent. The states supply nothing other than the license to build a casino. The bidders supply the land, building capital and operation of the casino. They carry the entire financial burden and risk; the state sits back and collects the majority of the revenues. Most major cities in the United States have, or are considering, these types of gaming opportunities to generate additional tax dollars. States that once considered gaming as the work of the devil are greeting it with open arms as the saviour of their futures – very ironic!

Pennsylvania is an example of a major metropolitan city that has legalised gaming, has emphasised convenience gaming and had virtually destroyed what was the No2 gaming market, known as Atlantic City. The state is now collecting the most gaming revenue from taxes on casinos outside of Nevada. The customer is willing to bypass free hotel rooms and fancy restaurants (most of them don’t have these offerings) for cash give backs and immediate satisfaction. These people want to gamble on the way home from work, on the way to the supermarket or as a replacement for a night out at the cinema. These are more local market focused casinos, not destination resorts that focus solely on gaming. They have proven in many cases that people just want to

W

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>> PEOPLE ARE LOOKING FOR A NEW FORM OF ENTERTAINMENT AND IT IS THAT CHALLENGE THAT WILL DRIVE HOW LAS VEGAS CASINOS WILL DELIVER GAMING IN THE FUTURE. GAMING OPERATORS ARE GOING BACK TO BASICS AND FOCUSING ON THEIR CORE BUSINESS – GAMING…MANY CASINOS ARE ADDING RESTAURANTS AND BARS THAT OFFER MORE AFFORDABLE ALTERNATIVES. THEY ARE ALSO BRINGING THIRD PARTY COMPANIES IN TO PAY FOR AND OPERATE THESE AMENITIES, SINCE MOST CASINO CORPORATIONS DO NOT HAVE MONEY TO DO THESE PROJECTS BY THEMSELVES. MANY AGGRESSIVE YOUNG COMPANIES ARE CREATING MANY OF THESE OUTLETS ON SOME OF THE MOST PRIME REAL ESTATE ON THE STRIP. >> gamble and aren’t interested in non-gaming related amenity offerings. They would rather eat at home and maximise their time and money on gaming. Which brings us to the question - Why go to Las Vegas?

LAS VEGAS – IS IT STILL OPEN FOR BUSINESS? Las Vegas has been one of the hardest hit economies with the highest unemployment rates in the country.

Restaurants and hotels are closing daily. The people are still coming but they don’t spend like they used to, so Las Vegas is adjusting and is once again reinventing itself as an inexpensive vacation destination. This was the historical plan of success for Las Vegas, but which was recently replaced by high end golf, hotels, meals and entertainment offerings. Beautiful casinos that opened recently and based revenue on $400 hotel nights, $500 meals and $200 show tickets, are foreclosing everyday.

City Center was the culmination of this upscale lifestyle offering. Great architecture, high design, new stores and restaurant offerings as well as an Elvis show were meant to dazzle us. Unfortunately, there is nothing on property that the rare-employed American can afford. While the project as a whole is impressive, there is really nothing interesting inside the building that draws people or keeps their interest. Condos are unsold, restaurants are empty and if the casino was bright enough to see, I’m sure the empty seats would be more prevalent. With 50 percent of the revenue sent off to Dubai it is against the best interest of the company to push their players to that property vs. one of their solely owned establishments. With no money to fix these core problems, the property will languish for years. It loses money at an alarming rate and creates a drag on the rest of the company.

The economy has destroyed the market it was aimed at exploiting. Its expectation of bringing culture and intellectual offerings to Las Vegas and create something that it was missing has not really come to fruition. Most people do not view it as the citychanging property that it was promoted as, more like the titanic on its way into an iceberg that is too big to 18 I Casino & Gaming International

change direction at this point.

WHAT WAS ONCE OLD IS NOW NEW AGAIN A city once known for 99 cent shrimp cocktails, buffets and cheap entertainment is back again. Mid-priced restaurants are all the rage and cheaper nightlife spots are springing up everywhere. Steve Wynn has recently said that Las Vegas is turning into a “boardwalk arcade” – a collection of lower class offerings meant for commoners. Everything that he invented, developed and cultivated that was embraced by the rest of the developers of the city in the past two decades is being reversed in a matter of months.

The redistribution of wealth that was promised to us by President Obama has hit the famous Las Vegas strip in full force. The cutting edge city known for design that developed unique shows, world class restaurants and the best retail in the world, has been replaced by slushy yard sticks of alcoholic slime and allyou-can-eat buffet yuck! The pendulum has swung quickly from 5-star luxuries to 3-star survival. Change and hope have been replaced by despair and depression.

SO HOW DO WE SAVE THE FUTURE OF LAS VEGAS? Salvation is pretty simple and mirrors how all businesses evolve over time to meet the ever changing desires of their customers. Las Vegas, the chameleon, has always changed its personality over the last 30 years - faster than any other American city. The free spending conventioneers and Wall Street darlings have been replaced with frugal tourists and fanny pack wearing bargain hunters. A shift in peoples spending and saving habits are affecting travel and hospitality throughout the world. Besides China, the rest of the world is suffering.

Non-gaming amenities like golf, restaurants, retail and the convention business went from being ignored into a complete set of revenue producing amenities that outpaced gaming 70 to 30 percent. It turned the business plan of many casinos from giving food and rooms away for free to promote gaming into advertising

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that focused solely on these retail offerings. Everybody had money back then and spent it freely, like drunken sailors in Wan Chai. Convention business expense accounts were spent on $1,000 meals.

This all worked very well for Las Vegas until the recession hit and all revenue in the casinos are down across the board. The problem is restaurants that were built to serve average cheques of $100 are hard to pay for when they are empty. Lowering prices won’t cover expenses. Hotel operators are faced with protecting high room rates with 20 percent occupancy or lower prices to fill rooms. Unfortunately, this brings a customer to the properties that were never meant to stay in those rooms and will not spend money on the property. The more expensive the resort, the harder it is to downgrade the offerings in order to attract the new spending habits of the customer. The casinos are filled with amenities that people can no longer afford and can’t rely upon gaming only as the draw. How does Las Vegas package gaming in a manner that people will travel great distances to partake in?

People are looking for a new form of entertainment and it is that challenge that will drive how Las Vegas casinos will deliver gaming in the future. Gaming

operators are going back to basics and focusing on their core business – gaming. Party pits are one of the newer developments and are all the rage. Adding go-go stages situated in the middle of the gaming pit with DJ music pumping in the background have created some of the highest revenue generating tables in the casinos.

Many casinos are adding restaurants and bars that offer more affordable alternatives. They are also bringing third party companies in to pay for and operate these amenities, since most casino corporations do not have money to do these projects by themselves. Many aggressive young companies are creating many of these outlets on some of the most prime real-estate on the strip. The casinos are auctioning these spaces off to the highest bidder while they focus on their core business and get rid of the businesses they are not as good at operating. Reduce their risk and exposure while partnering with more creative people that know how to operate those businesses. Las Vegas must be all things to all people. It has done that very well over the past 20 years. Unfortunately, they charged a high price for this excellence. People don’t have the money anymore.

More cost attractive amenities must be created.

That said, a unique trend is still alive even though

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>> THE CUSTOMER THAT HAS LESS MONEY TO GAMBLE AND IS INTIMIDATED BY THE PRESSURE OF A LIVE TABLE, CHOOSES THE COMMUNAL AND SLOWER GAMING OFFERING. THIS FREES UP THE LIVE TABLES FOR A FASTER GAME WITH HIGHER HAND BETTING. LARGE CHOREOGRAPHED DANCING TROUPES ENTERTAIN THE GAMBLERS ON THE MAIN FLOORS OF SOME OF THE MORE SUCCESSFUL MASS GAMING CASINOS. THE MACAU GAMING OPERATORS NEED TO PUSH THE GAMING TO THE MAX UNTIL THE CUSTOMER EVOLVES INTO A DESTINATION VISITOR THAT ENJOYS SHOWS AND DINING. GIVE THE PEOPLE WHAT THEY WANT AND SAVE ON THE EXPENSE OF RARELY USED BUILDING INFRASTRUCTURE. >> the experiences are not cheap; nightclubs are still working very well. Wynn has the four hottest night clubs under one roof. He recently spent over $70m on a new outdoor beach club that transforms into a late night hot spot. But I warn, this is Wynn, he has his own very loyal following that is very well heeled. There is only one Wynn and the road is littered with those that thought they could out do him. We have all learned never to doubt him and his very acute vision for the future of Las Vegas. He forges ahead while the rest of us are in full-on retreat mode.

DOES DESIGN STILL EXIST Our once proud field of design that was built on outdoing each other has turned into the proverbial “Lip stick on a pig” approach to create the elusion of new and approved. Full remodels are a distant dream of the past. None of the casinos or independent operators has the money anymore. Add a splash of colour and a twist on menu and music and you have a new restaurant or bar. It does work if done correctly, but how long will the illusion last? Is the change enough to capture the interest of a well trained customer that is used to dramatic changes and over-the-top design? Time will tell, but the days of the $1,000-a-square foot budget will not be seen again, replaced by paint and vinyl.

MACAU Macau still has a monopoly on gaming in China and shares it with Singapore in the Asian region at large.

The customer for the most part only wants to gamble and those numbers have shot through the roof in the past year. Many of the American operators created beautiful shows, dining and retail experiences, but they are not often used. The people only want to gamble.

They have been very successful at egaming as well as entertainment; and egaming terminals are very profitable and are coming on strong.

The customer that has less money to gamble and is intimidated by the pressure of a live table, chooses the communal and slower gaming offering. This frees up the live tables for a faster game with higher hand betting. Large choreographed dancing troupes entertain 20 I Casino & Gaming International

the gamblers on the main floors of some of the more successful mass gaming casinos. The Macau gaming operators need to push the gaming to the max until the customer evolves into a destination visitor that enjoys shows and dining. Give the people what they want and save on the expense of rarely used building infrastructure.

In the past 30-year history of gaming in Las Vegas we were able to lead the market and be far ahead of the needs and desires of our customers. We created trends and spending habits. We were the true meaning of the word trendsetters; the rest of the world looked to us for the latest and greatest of everything. Now the economy had overcome us all. We now react directly to depressed economic conditions, just trying to survive and see another day. Keep your eyes on Macau where the future is limitless and the players are lining up! But rest easy Las Vegas we will be back; better and stronger than ever…. CGI

PAUL HERETAKIS Paul Heretakis, RA, Vice President of WESTAR Architects based in Las Vegas, Pheonix, Pennsylvania and Macau, has over 15 years experience overseeing hospitality design and mixed use master planning projects throughout the World. His portfolio includes over 1,000 casino, restaurant, retail and hotel projects throughout the US, Europe and Southeast Asia, many of which have been published in industry books and magazines. Paul has also designed an award winning textile line and is currently developing lighting, carpeting and wall covering collections. WESTAR Architects continues to be ranked as one of the top 30 hospitality companies in the country by national industry magazines Interior Design and Hotel Magazine. Global Gaming Magazine has named Paul “one of the top 25 people to meet in 2009”. www.wagnarchitects.com

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GAMING EMBRACES A SEASON OF CHANGE

BY FRANK J. FAHRENKOPF, JR.

Despite the great economic uncertainties and unevenness of the recent past affecting the US gaming industry and beyond, there is no question about the solidity with which it has been embedded as a major source of popular and permanent entertainment. However the gaming world continues to emerge, the immense strides achieved to date provide ample evidence of both widespread gambling interest and industry confidence in response to new international market challenges.

>>

recent announcement from the National Bureau of Economic Research made headlines worldwide: The Great Recession – the most severe and protracted economic downturn since the Second World War – officially ended last summer. But though this news inspired confidence among Wall Street investors, it surely provided little comfort to the many American families that continue to feel the recession’s sting.

By virtually any calculation, the fortunes of millions of Americans have declined drastically since the economy turned sour. According to a recent report from the US Census Bureau, an astounding one in every seven Americans now lives in poverty. The US Bureau of Labor Statistics offers equally sobering data: In August, nearly 15 million Americans were out of work; in addition, the average duration of unemployment was longer than eight months.

Without a doubt, the toll of the recession is far greater than most predicted. And while everyday Americans struggle to make ends meet, entertainment industries – like gaming –will continue to struggle as well. Recent spending reports indicate that consumers are focused on purchasing the essentials rather than spending money on recreational hobbies or activities.

The Las Vegas Strip offers a powerful example of the impact of diminished consumer spending. Though visitation increased 4.7 percent in July – the largest year-over-year monthly jump in nearly five years – gaming revenues were virtually identical to the totals recorded last July. So, while people are now visiting the city in greater numbers, they are spending far less at its casinos than they once did.

It is virtually certain that a complete rebound of the US

A

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gaming industry is still many months – if not a few years – away. This summer, Moody’s Investors Service upgraded its view of our industry from “negative” to “stable;” however, it also predicted that gaming will neither erode nor dramatically improve within the next year or so. The Moody’s forecast confirms what many of us in the gaming industry already know: We are traversing a long and uneven road to recovery.

Thankfully, gaming has been buoyed somewhat by revenue increases at casinos in several regional markets.

Growing revenues at casinos in Colorado, Michigan, Missouri and South Dakota certainly have given our industry a lift.

Pennsylvania, in particular, remains a bright spot for the US gaming industry. Through July, year-to-date revenues at the state’s casinos were $1.34bn, topping last year’s already record-breaking totals. New table games have created thousands of job opportunities and, in their first full month of operation in July, raked in more than $17m. As more games are added in the coming months, those numbers are likely to climb even higher.

The recent grand opening of SugarHouse Casino in Philadelphia – now the largest US city with casino gambling – also is sure to boost the state’s gaming revenues. The $390m, ultra-modern venue boasts thousands of slot machines and a variety of table games. And it is expected to take yet another substantial bite out of Atlantic City’s gaming revenues, which already are severely depleted. Indeed, the success of Pennsylvania’s casinos has come at a steep price for the state’s neighbor to the east.

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Unfortunately, August marked the 24th consecutive month of decline for Atlantic City’s casinos. Long the only gambling destination in the region, the city is now battling growing competition in nearby states, particularly Pennsylvania. During the recession and its aftermath, many of the city’s casinos have experienced tremendous losses.

For example, days after Donald Trump resigned in February as chairman of Trump Entertainment Resorts, the company filed for bankruptcy. And, this summer, Pinnacle Entertainment sold several deeply discounted parcels of land along the famed boardwalk, formally abandoning its previous plans to build a new mega resort.

But the city’s woes certainly are not limited to struggling casinos. For years, Atlantic City has been plagued by political corruption, and the city’s leaders have made negligible headway in the ongoing battles against crime and blight.

The city spends four times the money that comparable cities spend per capita, and it has little to show for it.

In July, New Jersey Governor Chris Christie decided that these issues had gone unchecked for far too long.

Recognising that the city’s casinos will thrive only if nearby areas are safe and clean, and if there are other entertainment options available in addition to the casinos, he proposed a state takeover of local government functions in a zone surrounding the gaming establishments. And he called for the development of a private-public partnership – supported by the already existing Casino Reinvestment Development Authority – that would encourage investment along the boardwalk.

Though Governor Christie’s plan is unconventional –

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IT IS VIRTUALLY CERTAIN THAT A COMPLETE REBOUND OF THE US GAMING INDUSTRY IS STILL MANY MONTHS – IF NOT A FEW YEARS – AWAY. THIS SUMMER, MOODY’S INVESTORS SERVICE UPGRADED ITS VIEW OF OUR INDUSTRY FROM “NEGATIVE” TO “STABLE;” HOWEVER, IT ALSO PREDICTED THAT GAMING WILL NEITHER ERODE NOR DRAMATICALLY IMPROVE WITHIN THE NEXT YEAR OR SO. THE MOODY’S FORECAST CONFIRMS WHAT MANY OF US IN THE GAMING INDUSTRY ALREADY KNOW: WE ARE TRAVERSING A LONG AND UNEVEN ROAD TO RECOVERY. >> and certainly not without its flaws – the US gaming industry applauds his approach. Drastic measures are required to get the city back on track; without question, the status quo is not sustainable. The legislature will debate the merits of Christie’s plan in the coming months. And as state and local leaders begin work to rebuild the city’s infrastructure and image they can rest assured that they have our industry’s full support. We are steadfastly committed to doing what we can to help the struggling city regain its footing.

In addition to steadily climbing gaming profits in some regional markets, several emerging gaming jurisdictions offer our industry encouragement. Despite the poor economy, the first casino in Kansas has exceeded revenue projections and drawn customers from throughout the Midwest. Since it opened in December 2009, the Boot Hill Casino & Resort in Dodge City has earned approximately $24m and averaged more than 60,000 visitors each month. And the Kansas Lottery is now weighing proposals for the state’s second gaming establishment.

In New York, after nearly a decade of false starts, inquiries and disqualifications, plans to renovate the Aqueduct Racino finally are moving forward. Genting New York – a subsidiary of Genting Group, a Malaysia-based casino giant – recently won the rights to transform the facility into world-class gaming venue; it will be the first US property developed by a major Asian gaming company.

According to plans, by next spring, more than 1,500 slot machines will open at Aqueduct, and, before the end of 2011, more than 4,500 machines will be available to patrons.

Expectations for the reimagined facility, which is located in Queens, will be extremely high.

In Ohio, ground recently broke on the state’s first casino, Hollywood Casino Toledo, which will be operated by Penn National Gaming. Described by Toledo Mayor Mike Bell as a “life preserver,” the casino will employ more than a thousand people, pump millions into the Toledo government and attract tourists to the city. Plans also are underway for Penn National’s new casino in Columbus.

Likewise, Rock Ventures, the company backing casino development projects in Cincinnati and Cleveland, recently announced a partnership with Harrah’s Entertainment, which will manage the day-to-day operations of its gaming establishments. The casinos, which will be fully integrated with their surrounding urban communities, are expected to open their doors within the next two to three years.

This summer, the National Center for Responsible Gaming (NCRG), the affiliated charity of the American Gaming Association (AGA), seized an opportunity to promote its crucial message while gaming in Ohio is in its

infancy. Representatives from the NCRG traveled to Cleveland to encourage local leaders – including executives at Rock Ventures – to work together to implement state-ofthe-art responsible gaming programmes and to adopt research-based policies to minimise gambling-related harms.

They encouraged them to learn from the hard work of other gaming states, and to be leaders on these important issues from the outset.

The opportunities – and challenges – facing burgeoning gaming jurisdictions like Kansas or Ohio is just one of the many topics that will be explored in great depth during Global Gaming Expo (G2E) in Las Vegas this November. As always, the conference and trade show will provide exhibitors and attendees access to cutting-edge technology, valuable networking opportunities and unmatched educational programming.

This year marks the 10th anniversary of the flagship G2E event; during its first, formative decade, the show brought together the US gaming industry, as well as our colleagues overseas, more effectively than ever before.

When the AGA, along with our partners at Reed Exhibitions, debuted G2E just a few weeks after 11th September, 2001, we were cautiously optimistic about our chances for success.

The inaugural show featured 133,330 square feet of show floor space and 375 exhibitors.

Now, 10 years later, G2E has shattered initial expectations. Overall attendance for G2E 2009, including those who attended and exhibited at the show and participated in the conference event, was nearly 26,000. A total of 571 exhibitors showcased their products and services in 257,922 square feet of show floor space.

G2E’s success largely is due to its unwavering commitment to remaining an event “by the industry and for the industry.” By staying true to that goal – and soliciting and incorporating feedback whenever possible – G2E has provided exhibitors and attendees experiences tailored to their specific needs. The fact that G2E managed to hold its own during the recent recession – when many trade shows for other industries struggled to stay afloat – speaks volumes about its relevancy and value.

During the past decade, there have been countless innovations that have changed the face of the US gaming industry. Ticket-in/ticket-out (TITO) technology has eliminated the sound of clinking coins and streamlined customer payout options. Likewise, nongaming amenities are no longer just luxurious components of Las Vegas Strip properties; rather, they are vital to casinos of all sizes and in every jurisdiction. And server-based games have the potential to change the make-up of casino floors and Casino & Gaming International I 23

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>> AS WAS WIDELY REPORTED IN THE NEWS EARLIER THIS YEAR, THE AGA HAS REVISED ITS POSITION ON INTERNET GAMBLING. WHILE OUR ORGANISATION HAS LONG REMAINED NEUTRAL ON THE ISSUE, IT HAS FOLLOWED ITS EVOLUTION VERY CLOSELY. UNTIL RECENTLY, THE AGA WAS SKEPTICAL ABOUT THE ADEQUACY OF TECHNOLOGICAL SAFEGUARDS TO PREVENT ILLEGAL ACTIVITIES – INCLUDING UNDERAGE GAMBLING – WHEN PEOPLE GAMBLED ONLINE. BUT AFTER CONSIDERABLE STUDY, OUR CONCERNS HAVE BEEN ELIMINATED BY ADVANCEMENTS IN THE FIELD. WE NOW BELIEVE THAT INTERNET GAMBLING CAN BE PROPERLY REGULATED, THOUGH NO US LAW CURRENTLY IN PLACE MANAGES TO DO SO. >> enhance the efficiency of gaming companies worldwide.

G2E has been at the forefront of these changes and played a major role in bringing these advancements to market. Through the years, G2E has embraced new trends by adding features such as F&B at G2E and the Entertainment Arena, as well as tailoring its conference content to address the most pressing issues and needs of our industry.

This year is no different; G2E is introducing a variety of new programming that reflects the trajectory of our industry in the coming decade. Among the most highly anticipated additions to G2E 2010 is the iGaming Congress, a two-day conference addressing the potential legalisation of Internet gambling and how best to take advantage of the opportunities it might provide.

As was widely reported in the news earlier this year, the AGA has revised its position on Internet gambling. While our organisation has long remained neutral on the issue, it has followed its evolution very closely. Until recently, the AGA was skeptical about the adequacy of technological safeguards to prevent illegal activities – including underage gambling – when people gambled online. But after considerable study, our concerns have been eliminated by advancements in the field. We now believe that Internet gambling can be properly regulated, though no US law currently in place manages to do so.

This summer, Democrat Representative Barney Frank’s (Massachusetts) bipartisan measure to legalise online wagering – the Internet Gambling Regulation, Consumer Protection and Enforcement Act – made greater headway than ever before. The bill, which has 70 co-sponsors, was approved by the Financial Services Committee in July.

Yet, despite clearing these crucial hurdles, the future of the bill remains unclear. It is unlikely that the measure will reach the House floor before the midterm elections, and, if it fails to do so, it may be lost in the shuffle during the forthcoming lame-duck session. Nevertheless, the AGA’s eyes and ears in Washington are trained on this potentially groundbreaking piece of legislation, which could have significant impacts on our member companies.

Turning back to G2E, this year’s conference tracks have been carefully developed to provide practical advice for navigating current economic conditions. New sessions have been added to address the latest trends, such as networked gaming and marketing through social media. Attendee 24 I Casino & Gaming International

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>> DURING THE PAST DECADE, THERE HAVE BEEN COUNTLESS INNOVATIONS THAT HAVE CHANGED THE FACE OF THE US GAMING INDUSTRY. TICKET-IN/TICKET-OUT (TITO) TECHNOLOGY HAS ELIMINATED THE SOUND OF CLINKING COINS AND STREAMLINED CUSTOMER PAYOUT OPTIONS. LIKEWISE, NONGAMING AMENITIES ARE NO LONGER JUST LUXURIOUS COMPONENTS OF LAS VEGAS STRIP PROPERTIES; RATHER, THEY ARE VITAL TO CASINOS OF ALL SIZES AND IN EVERY JURISDICTION. AND SERVER-BASED GAMES HAVE THE POTENTIAL TO CHANGE THE MAKE-UP OF CASINO FLOORS AND ENHANCE THE EFFICIENCY OF GAMING COMPANIES WORLDWIDE. >> feedback also drove changes to the Advanced Gaming Institute, which will feature interactive, workshop-style sessions for the most immersive education experience possible. Also new this year is a conference keynote address

by Gary Loveman, president, CEO and chairman of Harrah’s Entertainment, Inc., who will discuss why correcting misinformation about gaming should be one of the industry’s highest priorities.

However, G2E 2010 signals more than the 10th anniversary of the event. It also marks the final year that G2E will take place in November at the Las Vegas Convention Center. Beginning next year, G2E will jump one month ahead on the calendar; it will take place in early October, shifting only occasionally to accommodate the Jewish holidays. And, in order to lock in this date pattern, G2E will move to the Sands Expo and Convention Center beginning next year.

The revised schedule brings with it numerous advantages, including allowing exhibitors more breathing room between major international gaming events. It also will help purchasing decision-makers at gaming companies plan for the year ahead with greater ease and, ultimately, enhance exhibitors’ bottom lines. In addition, moving to the Sands’ state-of-the-art facility will provide G2E exhibitors more space to promote their products and allow the show to grow.

Important changes also are happening to G2E’s events abroad. Beginning in 2012, G2E Asia will move to a new date pattern in late May. The 2012 show will take place May 2224, several weeks earlier than in previous years; it will, however, remain at the Venetian Macau.

The US gaming industry continues to watch with awe the tremendous success of Macau’s casinos. For more than a year, gaming revenues have multiplied at a heady pace, and they show little sign of slowing. In August, revenue surged 40 percent from a year earlier; in July, the industry posted revenue growth of more than 67 percent. In addition, several large-scale developments along the Cotai Strip are slated to open next year, and they are expected to boost the peninsula’s gaming revenues even higher.

Macau certainly isn’t the only Asian gaming jurisdiction outperforming expectations. Singapore’s two new casino resorts are expected to contribute $2bn to its economy this year, and, already, they have drawn more than one million visitors to the country. Not surprisingly, US gaming Casino & Gaming International I 25

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companies with interests in Asia – including Las Vegas Sands, which operates Singapore’s Marina Bay Sands integrated resort – are outperforming their competitors stateside.

Gaming in Latin America continues to expand, also providing US gaming companies with potentially lucrative investment opportunities. According to a report produced

by Research and Markets LLC, Latin Americans spend approximately $10bn each year on gambling activities. Costa Rica, Brazil, Mexico, Argentina, Chile, Columbia, Peru and Venezuela are the most prolific gambling countries in the region, where casino gambling, lotteries, horse-racing and other gaming activities grow more popular every year. In addition, the recent economic recession did not hit Latin American nearly as hard as the US; the World Bank estimates that the region’s recovery has been among the strongest around the globe.

The state of gambling in Europe varies dramatically by jurisdiction. Online gambling remains a hot-button issue and several cash-strapped governments, looking to plug budget holes, are beginning to embrace it. This summer, France and Denmark began permitting online wagering; Greece also recently introduced legislation to regulate and tax Internet gambling. In addition, a key ruling regarding gaming monopolies took place in early September. The highest court in the European Union determined that Germany’s efforts to protect state-run gambling monopolies violated the Union’s laws. The decision was good news for private gaming companies eager to break into the promising market.

Clearly, the past season has witnessed extreme 26 I Casino & Gaming International

volatility, both within the US gaming industry and abroad.

Unpredictable economic conditions, fluctuating legislative agendas and the emergence of new gaming jurisdictions indicate that the future holds great change as well. One constant, however, is sure to remain unchanged in the coming months and years – gaming has secured a permanent place within the broader landscape of mainstream entertainment. Whatever the future brings, casino gambling will remain a fun and exciting activity that entertains billions of people throughout the world. CGI

FRANK J. FAHRENKOPF, JR. Frank J. Fahrenkopf, Jr. is President and CEO of the American Gaming Association (AGA) in Washington, DC. In his role as chief executive of the AGA, Fahrenkopf is the national advocate for the commercial casino entertainment industry and is responsible for positioning the association to address related regulatory, political and educational issues. A lawyer by profession, Fahrenkopf gained prominence during the 1980s, when he served as national chairman of the Republican Party during the presidency of Ronald Reagan.

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W H AT ’ S N E

T ?

We’ve spent ten years on the cutting edge to help you face today’s challenges.

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REGISTER AT WWW.GLOBALGAMINGEXPO.COM

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MANAGEMENT

A DIFFERENT PROSPECT: WORKING THROUGH AND EXITING THE FINANCIAL CRISIS

BY DEAN MACOMBER

Casino properties and companies seeking the optimal route to securing cost-effective survival solutions for the duration of the present financial crisis are increasingly focused on managing priorities created by a more complex global economic environment, greater marketplace risk, reduced margins for error, and changing customer gaming, leisure and entertainment behaviour.

Under the microscope, following a defined set of management structure, planning and strategy principles can make all the difference to growth success in the post-recovery environment.

>>

he financial crisis, a perfect storm of a circular financial cum economic cum consumer cause and effect, has adversely impacted virtually every person, country, industry, and company in the world in one way or another. The gaming industry has not been spared. Virtually everywhere except for Asia and a small number of other pockets, demand for the gaming product and accompanying non-gaming activities has diminished both in terms of physical visitor count and per-trip budgets.

If after 24 months since the onset of the financial crisis your property and/or company are still in Survival Mode then cost cutting, balance sheet restructuring, and any compendium of other remedial actions must be your only priority because your consuming, inescapable singular goal is and must be to escape death. How to do so is a big topic that deserves an article devoted to it but this phase of the financial crisis is not the focus of this piece. This article concentrates on what survivors can and should do during the intra-financial crisis we are still in and to prepare for the recovery and post recovery period to follow.

For anyone not in Survival Mode but still in financial constraint, the driving imperative is to claw back the financial and management flexibility needed to make and execute decisions that will improve results. Put another way, for an industry that creates, produces, and delivers leisure and entertainment experiences the long term strategy to recover lost ground and restart growth cannot be based upon cutting costs; this is a survival not a growth strategy. For the gaming industry to recover, it must reset and focus on those elements that create, produce, and generate relaxation, anticipation, fun, excitement, anticipation, romance, and things that make you involuntarily go “hmmmmmmmm.�

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>> IT IS DIFFICULT TO PRODUCE FUN AND EXCITING LEISURE AND ENTERTAINMENT EXPERIENCES IF THOSE INVOLVED DO NOT ENJOY WHAT THEY ARE DOING AND RESPECT THE COMPANY THEY WORK FOR. RECENT MONTHS HAVE BEEN DIFFICULT FOR EVERYONE, CUSTOMERS, EMPLOYEES, AND COMPANIES ALIKE. ONE CRITICAL ELEMENT OF THE RECOVERY WILL BE TO RECOVER THE FUN AND EXCITEMENT THAT ATTRACTED MOST OF US TO THIS BUSINESS IN THE FIRST PLACE. SOME MIGHT SAY THIS IS THE MOST IMPORTANT STEP TO RECOVERY OF THEM ALL. >> To do so, decision makers must be aware that the environment in which they operate has changed and continues to change. Continuing business ‘as usual’ will not work. This does not mean throwing out the aspects of the gaming industry that work, of which there are many. But, it does mean recognising the following: • For gaming, the financial, economic, and consumer world is more complex today than it was pre-financial crisis. For most, gone are the days where the business plan can be myopically focused on a capacity driven ‘Build it and they will come’ mentality.

• There is less room for error than ever before because of diminished demand that may linger for some time, balance sheet overhang, and a pall of timidity that hangs over the industry as a by-product of the financial crisis.

• Consumer’s lives, behaviour, and attitude toward leisure time and gaming have changed for many semipermanently but for others permanently.

• There is more uncertainty and therefore risk than ever before in the Marketplace.

The implications of the new dynamics outlined above are that if a company or property is not already, they need to think about: • Taking a more holistic (i.e., across all Key Success Drivers), ‘product’ vs. department centric, cause rather than result oriented, granular, and sophisticated approach to the way they conduct business.

• Embedding into the organisation and the ways of doing business a willingness and ability to change, nimbleness, and flexibility emotionally, structurally, design-wise, and financially.

• Ensuring management is a Process, a ‘70/30 Management Process.’ The ‘70’ refers to a target 70 percent of the management effort practiced as a proactive, contemplative, Team oriented, closed loop self-correcting system, and iterative process. But, and this is an important ‘but,’ the remaining 30 percent is just as critical: leaving room for reactive, spontaneous, individual, gut/intuition, creative and innovative thinking, and individual/group exceptions. The 70/30 represents an average. In gaming, certain decisions must be 99 percent reactive and other decisions are best based upon intuition gained from experience than anything else that can be measured or proscribed.

• Marketing must also be a process constructed around two primary roles, responsibilities, and objectives: Product Marketing and Demand Stimulation Marketing.

Both objectives must be achieved by Marketing to 30 I Casino & Gaming International

Market Segments individually, in affinity groupings, and in aggregate.

To respond to these new dynamics, several preparatory steps are warranted if not required.

STEP ONE – FILL IN KNOWLEDGE AND SKILL GAPS: This first step is all about ‘knowing what you don’t know’ and its sibling, ‘knowing what you need to know.’ Here is a quick test: Do you know what the following terms and principles mean and how they impact your business?

The Macro-economic Model of Gaming, Key Success Drivers, Product Production and Delivery Elements, Fish Bone charts, elasticity, results-at-the-margin, costbenefit/risk-reward, the interplay between all of the financial statements, Debt Covenants, Equity Expectations, Quality of Work Life, Value Propositions, the Value Chain, kaizen, terabyte, psychographics, Asset Turnover, digital, Gravity Models, and social marketing ... to name a few.

If not, keep working but get thyself to a classroom or Internet, buy a book, bring in trainers, and/or hire people that do.

Never before has it been so important that the entire organisation have such a high levels of individual and collective knowledge and skill, that it be shared and commonly embraced.

STEP TWO – GATHER BUSINESS INTELLIGENCE: In execution, this means not just gathering data but conceptualising, maintaining, and using an entire business intelligence system. To prosper today means knowing everything about the external factors that affect your business, your competition, the consumer, and the internal performance of your team and business in terms of both causes and results. Daily, you need to know where you (and others) are, trends, and where you are likely to be. This intelligence must be known, accessible, and usable by all.

STEP THREE – IMPROVE THE EFFICACY OF MANGEMENT: This step begins with accomplishing basic cultural shifts if they do not exist already: one of willingness/tolerance for change, flexibility, and nimbleness. It also means implementing the aforementioned 70/30 Management Process that to work, will require careful definition, execution, and oversight of ‘loose-tight’ working environment. The ’70’ portion of the 70/30 Management Process will require certain support systems and practices to be implemented.

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>> GAMING IS A STRONG PRODUCT: OPEN A CASINO IN A NEW MARKET AND ADULTS THRONG TO THE OPPORTUNITY. BUT CREATING, CONSISTENTLY PRODUCING, AND DELIVERING THE GAMING PRODUCT AND ITS ASSOCIATED NON-GAMING ACTIVITIES TO PRESET STANDARDS IS A COMPLEX UNDERTAKING. GIVEN ALL OF THE CHANGES IN THE MARKETPLACE, COMPANIES ARE WELL ADVISED TO GO BACK TO THE ROOTS OF EACH ACTIVITY THEY OFFER AND THE FULL ACTIVITY MIX OF THE CASINO AND REEVALUATE THE DRIVING CONCEPT BEHIND THEM, THEIR PROGRAMMING, POSITIONING, AND VALUE PROPOSITIONS RELATIVE TO CURRENT CONDITIONS. >> The alluded to closed loop system, for example, refers to an iterative process that begins with an explicit Goal Set, then develops Strategies to achieve the Goal Set, Tactics to execute the Strategies, embeds a Monitoring and Measurement programme to monitor progress, embedded Reinforcement Programmes to recognise/award/reward performance at or above expectations, Remedial Action Programmes that immediately address sub-performance, Learning Initiatives that lead to constant incremental performance improvements, and Growth Programmes that look for expansion and acquisition opportunities. There is more, much more but you get the idea.

STEP FOUR – IMPROVE THE EFFICACY OF MARKETING: Random Acts of Marketing ‘won’t get it’ in today’s fragile Marketplace. Marketing, too, needs to be a process although not one so cleanly delineated as the declared 70/30 Management Process ratio. With the right Chief Marketing Officer it is enough to proscribe Marketing as a Process but then ensure that the marketing effort of a company takes place across two fronts: Product Marketing and Demand Stimulation Marketing. Product Marketing is the creation, production, and delivery of goods and services that meet or exceed the needs, wants, and expectations of the consumer at a price that creates a real or perceived value. Overly simplified, the Product of a casino is the gaming and nongaming Customer Experiences it produces.

The goal of Product Marketing is to exactly align your gaming and non-gaming experiences (Products) to the Marketplace, or more preferably to Targeted Market Segments. Executed correctly, Product Marketing extracts the greatest natural demand from the Marketplace. Product Marketing is not done just once; rather, it is a constant effort that recalibrates to changes in Target Market Segment demands and the demands of new Target Market Segments that can be found and brought into the fold.

Demand Stimulation Marketing takes over where Product Marketing leaves off, i.e., it extracts the demand that remains in the Marketplace for the casino’s Product Set by using such marketing tools as press and public relations, branding, advertising, perquisites, promotions, incentives, events, sales teams, hosts, loyalty/Customer Relations Management/database programmes, and use of third-party marketing resources (e.g., travel agents, wholesalers, and casino junket representatives). Demand Stimulation Marketing should be executed aiming at Targeted Market Segments as well not just for accuracy/validity, cost-benefit, and optimal yield reasons but also for the purpose of

providing a valuable and usable tracking scheme from which to learn and base future decisions upon.

STEP FIVE – RESETTING EMPLOYEE MORALE: After some 24 months of cost cutting, employee morale at many casinos is at an all time low. Thus, the fifth step is to restore the morale, initiative, respect, and fun that have been gutted from the industry. After all, employees are the medium through which casinos produce and deliver their Product(s). For many visitors, the employees are the Product.

What could be more important?

The next set of tasks – or parallel tasks that can take place while the preparatory steps are being implemented – are more tactical in the context since they primarily deal with the way things are currently and do not require any significant amounts of capital expenditure, if any, or ramp up in operating expenses.

GETTING THE CURRENT PRODUCT RIGHT AND CONSISTENTLY DELIVERING IT TO PREDETERMINED STANDARDS Gaming is a strong Product: open a casino in a new market and adults throng to the opportunity. But creating, consistently producing, and delivering the gaming Product and its associated non-gaming activities to preset standards is a complex undertaking. Given all of the changes in the Marketplace, companies are well advised to go back to the roots of each activity they offer and the full activity mix of the casino and reevaluate the driving concept behind them, their programming, positioning, and value propositions relative to current conditions.

It also means checking each production and delivery element to ensure target guest experiences are being consistently generated for every customer to predetermined standards.

Getting ‘what is’ perfectly aligned and then delivered right each and every time, creates real value for your customers that is critical in these price-value times. It also gives you the opportunity to take back or steal market share away from your competitors who may have become complacent.

MICRO RIGHT-SIZING AND INCREASING ASSET TURNOVER BY ADDING ACTIVITIES Presumably, the cost cutting efforts of the previous 24 months have already uncovered all of the opportunities to increase utilisation by removing and/or reducing capacity.

But, even so, a finely tuned utilisation evaluation scheme may Casino & Gaming International I 31

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be able to extract some additional opportunity. Essentially, this involves determining the investment, revenue/cost/profit, physical demand (visitor count, playing hours, and the like), capacity, and utilisation of each activity by the hour, day, month, season, year, peak and off-peak periods. The goal is to look for micro opportunities that should not adversely affect service but reveals niche opportunities to improve utilisation further and that in sum could have a material overall improvement.

On the numerator side of utilisation, focus should also be given to increasing demand within the capacity you already have in place. This is generally referred to as improving Asset Turnover. Some examples of this might include offering poker if poker is not already in the mix of gaming offerings. Those who offer classical Race and Sports Books with staffed bet windows might consider adding new hand-held technology. Being careful not to cannibalise existing food operations, portable food carts can be used to expand the food mix and buffets can be added in unused or little used meeting rooms.

A ‘dead area’ in the casino can be turned into a lounge for those in your loyalty club. Restaurants and bars can be turned into late night/after hour clubs. Outdoor pool and softscape areas can be used for free or admission-based entertainment. Without much a big capital budget, existing meeting or other space can be modified to accommodate weddings and/or wedding receptions. The list goes on. This is another cultural practice to instill, i.e., an asset review does not happen once but continuously.

MICRO DEMAND STIMULATION MARKETING Objectivity applied to the iterative process of Demand Stimulation Marketing puts a casino in position to reap another source of micro-opportunities. This approach does not necessarily imply increasing the marketing spend but spending it more effectively. The caveat is to be careful not to make marketing too robotic because, after all, marketing is part art, part science and part voodoo, the alchemy of which is very situational and mercurial.

Micro marketing can only take place by clinically defining each Target Market Segment, quantifying its maximum potential, determining current penetration of that maximum potential, reviewing the growth trend, assessing resistance/risk, and determining the potential marginal revenue/cost/profit associated with the next possible increase in demand. The final step is to handicap and execute the opportunities among all Target Market Segments. This is a continual, iterative process. As opportunities diminish among existing Target Market Segments, new ones are sought, identified, and entered into the queue.

activities. Enough is known about managing casinos to confidently state that there are multiple Key Success Driver categories, elements, sub-elements, and sub-sub-elements that lead to the optimal and sustainable success of a gamingcentric enterprise. Today, casinos need to manage holistically across this entire map. Once mapped, each node on the map can be evaluated, room for improvement identified and the cost to improve determined so that a rank order ‘to do list’ is developed. And, as you may already be thinking, this too is a continuous, ongoing exercise.

Once all of the discussed steps are taken, preparing for the recovery and post-recovery period is more of the application of the same. As a property and/or company increases the distance between just surviving and regaining solid performance, management constraints will dilute and fall away, risk capital and operating/marketing dollars will become progressively available, and management will have the freedom and flexibility it needs to restart growth. As this occurs, the planning horizon will increase. This allows management to be more strategic, establishing not just short but mid and long term initiatives to optimise performance.

Bigger, bolder, and more expensive new initiatives can be considered and implemented. These efforts increasing in scope and complexity overlay on top of ongoing micro efforts. The key distinction is that the management infrastructure is now in place to provide the confidence and wherewithal to make it happen.

Anticipating naysayers, what is recommended may appear to be very rigid and administrative; it need not be, and if correctly executed, is not. Throughout the article statements have been made about leaving room for the creativity, innovation, individuality, and sometimes elusive Xfactors that ignite a gaming-centric operation taking it from an average or even above average operation to a great, world class operation. There is plenty of room for it in what has been proposed. Nurturing the tangible and the intangible, the objective and the subjective, proactive versus reactive, process versus experienced intuition is the job of leadership.

A final admonition and a bit of begging on behalf of the industry: it is difficult to produce fun and exciting leisure and entertainment experiences if those involved do not enjoy what they are doing and respect the company they work for.

Recent months have been difficult for everyone, customers, employees, and companies alike. One critical element of the recovery will be to recover the fun and excitement that attracted most of us to this business in the first place. Some might say this is the most important step to recovery of them all. CGI

PE Unlik believ as yo a com guara A pa

DEAN MACOMBER APPROACH YOUR BUSINESS HOLISTICALLY When demand exceeded supply and balance sheets were aligned to hyper demand levels that seemed bottomless, not every Key Success Driver had to operate at peak performance. This has changed. Today, the heretofore masked impact of a sub-performing element or elements has become exposed by a lowered demand waterline. The problem is that this impact may not have been identified and is silently doing harm.

This is a time to put your business under a microscope and disaggregate it into a comprehensive cause-and-effect map following Key Success Driver pathways for each of your

Dean M Macomber, president of Macomber International, Inc. has 35 years of diversified experience in the gaming industry ranging from dealer to president, development to operations involving mega-destination resorts to locals-oriented casinos in numerous domestic and international venues. Approximately half of his consulting work has involved international projects with the other half in North America. Dean may be reached at macomberinc@aol.com

WEB w E-MAI

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Oliver Koch is an IT specialist and responsible for network infrastructure and integration. “Through interfaces and versatile integration possibilities from and into third-party systems such as cash registers, card readers, slot machines etc you get a high-performance video information system which, apart from performing classic video surveillance, also controls and analyses complete operations flows in the back-of-house area.

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SECURITY

THE RISING CHALLENGE OF GLOBAL LEGISLATION

BY JUSTIN WOLFF

As gambling market expansion – especially in Asia – continues to unfold, international operators need to be aware of both the trend to government enforcement and the growing risks to business from fraud. While the realities of the evolving global gambling market make that international growth extremely attractive, gambling companies should enter new territories, joint ventures, partnerships and agency agreements with their eyes wide open.

>>

ometime in June 2011, the CEO of a multinational gaming company in Nevada is pulled from a meeting to take an urgent call from a UK anti-corruption enforcement agency. One of the contractors involved in the construction of their new resort in the Far East has been accused of trying to bribe a government official. As the gaming company has a small office in the UK, it falls under the new UK Bribery Act and is now the subject of an international anti-corruption investigation involving the UK’s Serious Fraud Office (SFO) and the US Department of Justice (DOJ) and Securities and Exchange Commission (SEC). The CEO is surprised to learn that the accusation came to light when one of his foreign employees tipped off the SEC and now stands to make up to 30 percent of any settlement amount reached.

At about the same time, the managing director of a London-based online casino is escorted from his offices by the police. It is explained to him that the entertainment offered by an agent trying to secure a gaming licence in Turkey has been deemed excessive. The bribery is alleged to have taken place with the director’s consent and he is being held personally liable and faces up to 20 years in jail. The company is also facing prosecution for failing to have adequate procedures in place to prevent the alleged bribe.

A few months earlier, a busy European gaming executive receives an expletive-ridden email from his US partner. It points him to that morning’s Wall Street Journal, where a front page article names their company for having dealings with a company with ties to Iran. The new casino they are developing in eastern Europe sourced fittings that were shipped by a Chinese intermediary with links to Iran. The intermediary in question does not appear on any official sanctions list as, since its prior listing, it has operated through a shell subsidiary with

S

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>> A LEADING EUROPEAN EGAMING COMPANY LOST $3.22M IN 2007 WHEN ATTEMPTING TO SECURE A SPORTS BETTING LICENCE IN TURKEY. THE COMPANY SUBSEQUENTLY LAID CRIMINAL CHARGES AGAINST THE THREE AGENTS INVOLVED IN THE LOBBYING, CLAIMING THAT THEY WERE UNRELIABLE AND HAD FAILED TO RETURN ADVANCE PAYMENTS. UNDER THE NEW BRIBERY ACT, DEALING THROUGH ‘UNRELIABLE’ OR CORRUPT AGENTS CAN EXPOSE A COMPANY TO SERIOUS RISK. IT PAYS TO HAVE A COMPREHENSIVE UNDERSTANDING OF THE PEOPLE AND ENTITIES THAT WILL BE REPRESENTING YOUR COMPANY. >> a slightly altered name.

While the international gaming industry has had more than enough to worry about in the last few years, developing trends in both the gaming market and international legislation look to make the operating environment even more challenging than ever before.

2009 was not a year that the international gaming industry is likely to think back on fondly and fortunes in 2010 seem to have split between those geographic areas enjoying a welcome rebound in volumes and those still struggling to find growth. With access to credit a major issue in 2009, many major projects were postponed, affecting revenue projections going forward.

While the overall situation seems to have improved somewhat in 2010, there are still questions around the strength of the recovery in the traditional markets of western Europe and North Amercia with the likelihood of a double dip recession growing. Options for growth at a suitably shareholder-friendly rate look to be limited to expansion into online (where legislation permits), and expansion into new geographies.

THE RISE OF ASIA The obvious destination for expansion is the East with the success of Macau held up as the golden example. Gambling revenues in Macau have consistently grown at the kind of trajectory that make Western gaming houses spill their chips with envy and now eclipses Las Vegas as the highest grossing gambling venue in the world. Even in the rollercoaster that was 2009, Macau grew its income in double figures while North America and Europe showed losses. In the year to August 2010, revenues in Macau rose 63 percent with the last three months its best ever.

But the success of Macau could be hard to replicate, sitting as it does at the doorstep of a veritable avalanche of avid gamblers. The continued government ban on gambling in China and the arrest of hundreds of thousands of illegal gamblers over the years have done little to dampen the ardour of the millions of Chinese citizens keen for a flutter.

Estimates of the amount gambled illegally on the mainland run into many billions of dollars. With rising wealth levels and increased mobility in China, the only finger in the dike holding back the potential flood of gamblers is the Chinese Government’s control over the issuing of permits for its citizens to enter Macau.

Online gaming is also huge - more than 2000 foreign and domestic websites target residents of the mainland and the Chinese Centre for Lottery Studies estimates that more than 36 I Casino & Gaming International

$87bn is gambled through offshore betting networks.

India also combines a population desperate to gamble with a government equally hell bent on limiting it. Casinos are restricted to only two states - Sikkim and Goa - although horse racing is allowed throughout the country. Currently, even with these restrictions, the operators of the legal gambling options in India turnover around $20 billion a year.

Estimates of the black market in sports betting alone (especially on cricket) are more than double that. Little wonder, then, that international sports betting companies like Betfair and William Hill are jockeying to secure the first online gambling licence in the state of Sikkim. The bet is that once other states see the huge revenues generated, and the ensuing state tax windfall, there’s a good chance they will follow suit.

Further afield in Asia, Singapore recently opened its doors to gamblers for the first time, with two new casinos costing nearly $10bn. Despite a levy of $75 on local Singaporeans, more than a million local residents made use of the new casinos in the first seven months of operation. South Korea has an established gambling infrastructure and the Philippines, Vietnam and Taiwan are planning significant new developments in the near future. Then there’s Japan – with a population of more than 125 million currently gambling only on pachinko and its variants, some experts believe it has the potential to be many times larger than even Macau.

While the mega-developments in eastern Europe hold promise, it seems likely that the major growth in the industry will come from the East, with Asia set to overtake North American gambling revenues sometime early in the next decade.

This shift in the balance of power will require those chasing growth to tread carefully. Not only will a thorough understanding of the new territories entered and their unique business cultures be essential, but a close eye will have to be kept on developments in international legislation. This is especially true in the case of the risks that will attach to the actions of agents and partners and great care will have to be taken to fully understand exactly who you are going into business with.

ANTI-CORRUPTION LEGISLATION Companies with any ambitions for international expansion are more than likely already aware of the provisions of the US Foreign Corrupt Practices Act (FCPA). Broadly applying to US citizens, US companies and other companies with close links to the US, it bans bribery of foreign public officials. While it has been in place since 1977, enforcement actions by the

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DOJ and SEC have really taken off in the last few years with the rising global focus on eradicating corruption. Penalties under the FCPA can theoretically run up to $100,000 for individuals and $2m for companies. In practice, however, the enforcement agencies have secured settlements far in excess of these figures – running into the hundreds of millions of dollars – by applying a range of acts and provisions where possible. They have also shown an intense desire to prosecute individuals where possible.

The start of 2010 saw the first use by the enforcement agencies of more traditional law-enforcement methods. A major sting operation netted 22 suspects and signalled a desire to draw out corruption at its source, rather than to wait for self-declarations by companies suffering a sudden attack of scruples. With 140 active investigations reportedly on their books, more high-profile prosecutions are a certainty.

CONSTRUCTION IN THE SPOTLIGHT While none of the enforcement actions under the FCPA have thus far involved players in the gambling industry, the construction industry has featured very prominently over the years. Construction is an industry particularly suited to corruption, combining as it does significant scope and opportunity for corrupt acts with little chance of detection.

The construction of a major project like a casino involves multiple steps, many different employees and contractors.

There are plenty of opportunities to hide the costs of bribery in the huge contracts. Unique, ‘one-off’ construction projects are difficult to benchmark in terms of cost and time taken. Many parts of the process involve government permits or certification resulting in many opportunities for fraud and corruption and much temptation on both sides of

each interaction.

An instructive instance of the intersection between gaming and construction came to light at the end of 2006 when Ao Man-long, Macau’s former secretary for transport and works, was arrested on charges of money laundering and accepting bribes totalling $100m. He was accused of speeding up government approval for construction companies involved in the construction of hotels and casinos, including the world’s largest casino – the Venetian Macau.

He also liked to charge a three percent introduction fee for recommending companies to western developers. In 2008, he was found guilty and sentenced to 27 years in prison.

BEYOND FCPA In April 2011 the new UK Bribery Act comes into full force.

The new act aims to become the gold standard for anticorruption legislation and points to the likely future of anticorruption enforcement. It reaches further, geographically, than the FCPA by applying not only to UK companies and individuals, but also to any non-UK company that conducts any business in the UK. And it applies to the actions of such a company wherever in the world they take place. It covers bribery of public sector officials as well as private sector bribery and, unlike the FCPA, it does not allow facilitation payments (small bribes made to ‘grease the wheel’ to ensure that public officials perform their functions speedily and efficiently). The Bribery Act will also punish a company for not having adequate procedures in place to prevent bribery.

Senior officials of the company can be held liable in their individual capacities where the bribery happens with their consent or connivance. Penalties are harsher than the FCPA too – up to 10 years imprisonment and unlimited fines.

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Most worryingly for many industries, it applies to anyone who ‘performs services’ on a company’s behalf – covering employees, agents, subcontractors and even subcontractors of those subcontractors.

Had the new Bribery Act been in force at the time, it is possible that the corrupt actions of the construction companies that bribed Mr Ao could have been imputed to the gaming companies that contracted them.

CHOOSE YOUR PARTNERS CAREFULLY Many new markets stipulate that foreign companies must take a local partner in order to secure a licence to operate.

Joint ventures feature in several high-profile FCPA enforcements, most recently the Bonny Island joint venture in the – wait for it – construction industry. Where JV partners or agents perform services on behalf of a company, it is essential to fully understanding exactly who one is partnering with, and what their history is, to avoid potentially unpleasant and extended interactions with international enforcement agencies.

MGM Mirage was pressured for years by New Jersey gambling regulators to cut its ties with its Macau partner, Pansy Ho. The regulators questioned her suitability as a business partner due to the allegations of corruption surrounding her father, Stanley Ho, the Macau gambling czar.

Support for the allegations included a DOJ report going back to 1988 linking him to Asian organised crime. In March 2010 the regulators concluded that her father had ‘extensive ties’ to organised crime. In the end, MGM Mirage chose to exit its Atlantic City interests rather than give up its 50 percent share in the hugely lucrative MGM Grand Macau DANGER IN THE LOBBY In Poland in late 2009, allegations of corruption involving a casino company and several senior politicians cost the ruling Civic Platform Party two of its leading lights. Recorded conversations appeared to show senior politicians agreeing to alter a pending law that promised higher gambling taxes on the industry at the insistence of the head of a casino company. While no one was ever charged, the reputational damage for the party was severe and this intense lobbying trod perilously close to corrupting a public official. The Bribery Act does not require money to change hands – an offer or promise of a bribe is sufficient to trigger its provisions.

EFFECTIVE AGENTS A leading European egaming company lost $3.22m in 2007 when attempting to secure a sports betting licence in Turkey.

The company subsequently laid criminal charges against the three agents involved in the lobbying, claiming that they were unreliable and had failed to return advance payments. Under the new Bribery Act, dealing through ‘unreliable’ or corrupt agents can expose a company to serious risk. It pays to have a comprehensive understanding of the people and entities that will be representing your company.

INCENTIVISING WHISTLEBLOWERS The compliance noose looks to tighten further with the signing of the Dodd-Frank Wall Street Reform and Consumer Protection Act into law in July 2010. While not aimed at anticorruption enforcement, the whistleblower provisions in the act offer a bounty to whistleblowers that pass information on 38 I Casino & Gaming International

offences to the SEC of 10-30 percent of the monetary sanctions over $1m. In the settlement reached between Daimler and the SEC and DOJ in April 2010, 30 percent of the amount settled would have exceeded $60m.

Whistleblowers will have a very strong incentive to bypass a company’s internal fraud reporting mechanisms and go straight to the authorities.

BUSINESS LINKS TO IRAN The Comprehensive Iran Sanctions, Accountability and Divestment Act of 2010 (CISADA), signed into law in the US in July 2010, was quickly followed by similar sanctions in the EU, Canada, Australia, South Korea and Japan. US companies have been banned from dealing with Iran since the late 70s and more recently, from having any dealings with companies that deal with Iran. CISADA forces non-US companies to choose between dealing with Iran or with the US. Penalties are severe and enforcement looks likely to be vigorous and high-profile. Companies are obliged to scrutinise not only their customers and suppliers, but also to understand who their customers and suppliers are doing business with.

Understanding where the risk lies is the biggest challenge.

A January 2010 article in the Wall Street Journal severely embarrassed several companies importing goods from China when it revealed that the Chinese state-owned shipping company that transported the goods to the US had links to Iran. While the shipping company had been listed on official sanctions lists, it had subsequently set up subsidiaries with different trading names to circumvent the sanctions.

Understanding the networks of associated companies in multiple foreign languages is a challenging task.

INCREASING CO-OPERATION Increasingly, international regulators are working together to enforce legislative breaches wherever in the world they occur. In 2008, the DOJ reported that it had made at least 45 contacts with legislators in other jurisdictions to explore enforcements and reported at least 23 multi-jurisdictional investigations, involving the UK, Finland, Germany, Greece, Japan, Norway, the Czech Republic and several others. The recent combined settlement of a major anti-corruption investigation with the US DOJ and SEC, and the UK’s SFO early in 2010 clearly shows this trend.

While the realities of the evolving global gambling market make international expansion extremely attractive, gambling companies should enter new territories, joint ventures, partnerships and agency agreements with their eyes wide open. CGI

JUSTIN WOLFF Justin Wolff , BSc.Med, BCompt (Hons), CA is a Chartered Accountant who has worked in varied financial services roles over the last ten years, from asset management to business services and consulting. He is a communication consultant to World Check, a risk management services provider to multinational companies. www.world-check.com

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PAYMENT SYSTEMS

REMOVING BARRIERS: CREATING RUGGED YET FLEXIBLE SOLUTIONS FOR TOMORROW

BY ERIK DE KAT

Secure transaction systems with timely responses to player pay outs and transparency in execution are expected in today’s fast moving gaming environment. But sustaining standards of efficiency and ensuring sufficient flexibility to meet changing market demands requires constant attention to innovation and customer relations.

Achieving that generates that allimportant confidence needed to cement business growth.

>>

reativity is the engine of our innovative solutions.

Celebrating its 125th year in business in 2010 underlines how vital this company philosophy has been to the success of our company, HESS. Creativity can be nurtured and allowed to grow when it belongs to a strong group with excellent financial backing. This is precisely the case for us as part of the German Gauselmann Group.

The Gauselmann Group is a leading manufacturer and operator of amusement and gaming machines. The company comprises of three major divisions – the Merkur Division (panEuropean development, production and global sales of amusement and gaming machines and money-management systems), the Spielothek Division (pan-European Entertainment) and New Business Segments (sports betting, Internet-based games, prize games). HESS is part of the Merkur Division.

The company founder and chairman, Paul Gauselmann, took his first entrepreneurial steps back in 1957. The Gauselmann Group has played both an extensive and unique role in defining the German amusement and gaming machine (street) market. The laughing MERKUR sun is the trademark of the Gauselmann Group and this sun has been successfully shining for decades. The first gaming machine – the MERKUR B – set the path of the group of company’s success story with over two million produced gaming and amusement machines.

Furthermore, the Gauselmann Group defines the arcade market in Germany and beyond and introduced its very first arcade in Germany back in 1974 under the brand name ‘MERKUR-Spielothek’. Today the Spielothek Division operates 200 arcades in Germany and over 150 in ten further European countries.

Today the Gauselmann Group employs over 6,000 people

C

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>> OUR TERMINALS CAN BE ENTIRELY INTEGRATED INTO THE GAMING SYSTEM. A JACKPOT WIN OR HIGHER PAYOUT WIN IS TRANSFORMED INTO A SIMPLE SERVICE. THE WHOLE PROCESS IS CONTROLLED SO THAT NO HUMAN HANDS GET BETWEEN THE PLAYER AND HIS OR HER WINNINGS. TICKETS CAN BE REDEEMED AT THE TERMINAL AND NATURALLY WINNINGS ON THE PLAYER CARD AS WELL. SUCH FLEXIBILITY REQUIRES EXTREME SECURITY TO SUCCEED. THE ULTRA-SECURE LINK BETWEEN THESE TERMINALS AND THE GAMING MANAGEMENT SYSTEM HAS CREATED A SIMPLE PAYMENT AND REDEMPTION FLOW FOR THE PLAYER. >> with a business volume of €1.27bn during the 2009 business year.

The Gauselmann Group remains a family-managed enterprise. We remained in family hands right from its incorporation in 1885 until 1998 when the Gauselmann Group bought a major shareholding. The company was completely acquired in 2001 by the Gauselmann Group.

The CeBIT, the world’s largest exhibition for the digital world, has seen our company introduce real innovations to the market. The self-service terminals have become a firm favourite in the banking and retail world. This ‘made in Germany’ technology has been nurtured throughout the years. The gaming industry has welcomed us with open arms and is seeing real value in adopting the self-service solutions we offer.

The Polaris Scorpion and Sirius product ranges are indeed enthusing casino and gaming operators around the world. Our products are in operation in all the continents of the world.

Suzo Happ is the industry’s leading component supplier.

Our products fit completely in to the ‘best-in-class’ corporate strategy of Suzo Happ. Marc Aarts is responsible for sales in the Benelux for Suzo Happ. He explained the strong growth of HESS in gaming in his markets: “The Polaris Scorpion is the ideal product for both casinos and arcades. The amount of possibilities has made it a real favourite. Players can change their coin winnings into notes and they can change large denomination notes into smaller denomination notes. The added security is essential to my customers. The fact that hand pay or jackpot pays can be carried out via the Polaris Scorpion means that personnel can simply and easily pay out the player winnings. Operators can see in real-time the transactions made on the machine. Indeed, each employee can only operate the machine when their ID card and PIN number are successfully entered. The operator can control each and every employee card individually, setting a maximum payout value per day, for example”.

Suzo Happ has already distributed the Polaris Scorpion strongly throughout casinos and arcades in the Netherlands.

“We call it the CCC or Casino-Cash-Center Polaris here”, explained Marc Aarts, “as this really has become the cash centre for casinos and arcades. The feedback is excellent and all our customers appreciate the HESS technology, made in Germany. Indeed, Holland Casino fits a CCC for every 150 slots in operation”. Suzo Happ has a very strong service network which has been key to the product growth. “Our service staff – headed by my colleague Johan Somers - can answer or solve up to 95 percent of questions on the 42 I Casino & Gaming International

telephone. This underlines our experience and the ruggedness of the Polaris to operate in environments 24/7”.

Such intelligent technology is exactly what operators of casinos and gaming halls are looking for. The increasing move to cashless gaming requires new solutions to ensure not just its player acceptance. Only when players embrace this technology will the gaming experience rise and the market grow. The Polaris Scorpion is playing an important part here.

Cash needs to be transferred to a cashless payment form and vice versa. This has to flow in an obvious and simple way.

Ulrich Bauer joined us as Managing Director in 2006. He underlined the company philosophy: “We place the utmost importance on vertical integration. That means that we control in-house each stage of the product process. All the research and development, whether for hardware, software or electronics, is done in-house. Furthermore, we manufacture all our products ourselves and provide the customer service ourselves. This not only secures the excellent quality we are renowned for but provides real value for our customers”.

Operators have the distinct advantage of knowing that the idea, conception, development and production of our products are all interlinked. The gaming market is indeed a very dynamic market and lives and breathes through innovation. We not only keep pace with such innovation but help to define innovation. Ulrich Bauer explained: “Our distinct advantage is that we have the capacity to provide innovations to the market, whether this means adapting current products or developing new products; keeping the whole process in-house means that we can react in a very quick and flexible way to new market requirements”.

German products have a reputation for excellent quality and real user value. Companies such as Mercedes, Siemens and Bayer are just a few that have grown to be global players, having once been small and medium-sized companies. The focus on quality has seen our company become a growing force in the gaming market. Quality is the key. This can be seen in the component choice as only premium brands are integrated into our products, such as MEI, Talaris and Wincor Nixdorf. This is also true of the choice of distributors. For example, Suzo Happ also represents us in South America as well as the Benelux.

Trade Game is a leading gaming company in Portugal.

The recent partnership with us is already showing success.

Marcos Pinto, International Operations Manager at Trade Game, noted: “In a short space of time HESS has attained almost a 25 percent market share for Ticket In/Ticket Out (TITO) redemption machines. The business perspectives are

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>> OPERATORS HAVE THE DISTINCT ADVANTAGE OF KNOWING THAT THE IDEA, CONCEPTION, DEVELOPMENT AND PRODUCTION OF OUR PRODUCTS ARE ALL INTERLINKED. THE GAMING MARKET IS INDEED A VERY DYNAMIC MARKET AND LIVES AND BREATHES THROUGH INNOVATION. WE NOT ONLY KEEP PACE WITH SUCH INNOVATION BUT HELP TO DEFINE INNOVATION. >> very good in the near future”. And the reason for the success of our products in the Portuguese casinos: “Polaris Scorpion is an extremely secure redemption terminal. The philosophy of adapting their products to fit each individual market is really paying off here. We can offer precisely the right TITO redemption terminal our customers need. Our customers are very impressed that we can provide answers and solutions in such a quick and professional manner”.

It is this flexibility that allows our products to be operated in completely different gaming conditions. Our terminals can be entirely integrated into the gaming system.

A jackpot win or higher payout win is transformed into a simple service. The whole process is controlled so that no human hands get between the player and his or her winnings. Tickets can be redeemed at the terminal and naturally winnings on the player card as well. Such flexibility requires extreme security to succeed. The ultra-secure link between these terminals and the gaming management system has created a simple payment and redemption flow for the player.

We are bringing real value and solutions not only to the players. The back-office solutions are creating a real stir in Australia. Sprintquip, the Australian distributor of HESS, knows the value the Sirius product range brings the gaming world. Jonathan Evans from Sprintquip enthused: “We can offer real solutions on two gaming levels to the operator. The Polaris range gives the players the necessary confidence to accept the cashless gaming world. The pressure on the cage has reduced dramatically. No player likes standing in a queue.

Exactly the same is true for casino staff. Those handling money, such as bar and restaurant staff, need to be equipped with the right amount of cash to serve the customers. With the Sirius range, casino staff can deposit surplus takings and withdraw coins or coin rolls when required. There is no longer any need for staff to queue at a cage. The staff cage becomes redundant, money processing is speeded up. Bar and restaurant staff are more satisfied with this process and the cost savings naturally positively affect the casino bottom line”. Staff are equipped with their own ID card; therefore, entering or withdrawing cash to the device is immediately documented. Staff and management both have the piece of mind that only the cash that is really required is held by the staff. Each transaction is immediately traceable, providing clarity and enhancing employee trust.

Our terminals are being successfully operated around the world. Jonathon Evans noted: “During our five year relationship we have been continuously impressed by the quality of the products and the level of support we receive.

HESS provides fantastic responses to our needs. We are very grateful for the excellent training we have been given. Thus, we can support their products here in Australia, on the other side of the globe from the manufacturer”.

The move to cashless is going in two different directions – via player cards or TITO. We support both solutions,

regardless of whether they are used in isolation or in tandem.

With its focus on customer-oriented solutions, we provide individual solutions as well. The Polaris Scorpion Compact is the ideal solution for dispensing day cards to players. It sells fast with secure chipcards going to anonymous players and day visitors. This product thus solves the problem of providing cards to such guests. In South Africa it has proved its worth time and again.

Markus Prader of GPT, our exclusive distributor in South Africa, commented: “The Polaris Scorpion Compact has closed a gap that was worrying casino management – how to provide cards to the spontaneous visitor. It has been so well accepted that our customers report that spontaneous visitors like to return. It is fair to say that the Scorpion Compact has removed a barrier to entry for the player. That’s great for the player and great for the casino. The latest successful implementation of the Polaris Scorpion Compact was at the Emperors Casino in Johannesburg”.

We are well equipped for the future. “We are very excited about our prospects in the casino and gaming market”, Ulrich Bauer said. With products that provide real solutions 24/7 to both players and staff and a dedicated team behind him, he has every right to be so. CGI

ERIK DE KAT Erik de Kat is a Dutch citizen and has built up a truly international career.

Having studied languages at the Rhedens Lyceum in the Netherlands, Erik began his career in the familyowned plastic moulding company, bearing the family name De Kat bv. Erik followed the entrepreneurial spirit of the De Kat family and set up his own company, Veka Systems bv, in 1983.

From day one the company specialised in selling refurbished and new currency handling equipment. The quality and innovation within the Veka Systems range led the company to focus on the amusement and casino markets, distributing brands such as CatCoin and Brandt.

In 1999 Veka Systems bv was integrated into the Suzo Happ Group and Erik led this division as managing director for five years. In 2004 HESS Cash Systems presented Erik with the opportunity of leading new business development in the casino and banking markets, and he heads up the global marketing and sales division for the POLARIS and SIRIUS product range.

Casino & Gaming International I 43

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Ukash - Casino and Gaming Ukash, the global e-money network, has rapidly established itself as the fastest growing online cash payments company in the world with more than 420,000 physical points of purchase in 33 countries across six continents.

From starting out solely as a voucher-based method for people to spend their cash online, Ukash is now creating an holistic range of products and services. In particular, Ukash is developing concepts that provide complete flexibility allowing consumers to obtain and use their e-money in a wide variety of ways, on a wide variety of different platforms, for a variety of different purposes. This evolution, together with rapid geographic diversification, has enabled the Ukash offering to become a truly ubiquitous e-money proposition.

As Paul Coxhill, Ukash Marketing Director, says, “The demand for Ukash grows by the day across an increasingly diverse range of geographies, sectors and merchants. This brings opportunities for innovation in both how we enable consumers to obtain their Ukash vouchers as well as in how we enable our partners to leverage our platform to reach new consumer groups with new solutions.”

With the launch of Ukash PayOut, a new product which the company promises will shake-up the gaming industry by offering instant payouts to all players with 0% processing costs to operators or customers, Ukash has responded to a particular challenge raised by many gaming operators – namely, how to simply and efficiently distribute winnings.

Ukash has successfully operated in the gaming sector for many years across numerous different global territories. The primary function for Ukash historically has been facilitating ‘cash-in’ to gaming sites, which has introduced the lucrative cash consumer to operators. Additionally, Ukash has also allowed for prepaid cards and, increasingly, popular e-wallets such as Neteller to be loaded with cash, providing online gamers with far greater flexibility. By creating Ukash PayOut the company has completed the circle and now offers a 360 degree solution for online gaming operators and consumers alike.

Ukash PayOut is the latest in a growing line of exciting products to be developed by Ukash, and the company believes it will transform the way players and operators manage their winnings. Smart Voucher, the holding company of Ukash, has operated a white-label cash-in and payout solution with William Hill for many years and Ukash has more recently launched its new PayOut solution through 2 existing redemption partners, UB.com and Absolute Poker. Feedback from consumers suggests that the convenience of withdrawing funds instantly has been a major advantage of the new product. Industry feedback sees Ukash PayOut providing an opportunity to enable operators to benefit from reduced overheads while enhancing their consumer experience by providing a solution that makes withdrawing funds easy.

The new product, which is live now, simply pays out a Ukash voucher instantly regardless of the deposit method used.

The company says that the new product will mark the end of costly cheques, bank transfers and other traditional payment methods as it provides operators with an instant pay out option at the lowest available cost.

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Head of Betting and Gaming, Tyrone Perry, said, “The international gaming market is an important part of our business and we believe that in Ukash PayOut we have a product that can truly revolutionise the way payments are made to players. Offering an instant, convenient and easy to use product at a lower price than competitors is a magic combination. It will also help to increase player conversion, loyalty and retention, so we are expecting Ukash PayOut to be in high demand.”

Asked whether Ukash had a particular focus on the gaming sector, Coxhill said, “Our goal is to be the leading provider of e-cash payments in all sectors. In particular, the gaming sector has been and continues to be hugely important to our business. However, rather than focussing on one market we are strengthening our product line to generate growth across our entire business. We can now operate in a wide-range of sectors, in numerous geographical locations, on different platforms and with a growing number of partners, which means that the company is now stronger, as well as nimble; something that is attractive to both partners and the end user.”

Headquartered in the UK and regulated by the Financial Services Authority (FSA), Ukash has grown dramatically over the last few years and particularly the last 18 months. Major developments have included its launch into Australasia and North and South America, while the company’s presence in its core European market has also continued to grow.

Ukash has traditionally had a strong presence within the VoIP, financial wallets and gaming sectors, as well as online games and virtual currencies, and the company’s priority now is to build on its expertise and existing partnerships to leverage greater market share. Working with major brands such as Ladbrokes, PokerStars and Skype, the Ukash proposition has become increasingly popular internationally, and is now considered one of the world’s leading alternative payment mechanisms.

As Ukash provides consumers with a convenient, flexible and secure way of spending cash online, it has traditionally been popular with the underbanked, those that wish to spend discretely and people with fears regarding online identity theft. However, due to the rapid evolution of the payments industry and the ongoing challenge of creating robust ways of monetising new platforms, the Ukash proposition is becoming increasingly relevant to a wider audience.

Using its sophisticated payments systems, Ukash is able to develop payment methods that can tie-in with the latest trends in consumer spending. The emergence of micro-payments for example, which are becoming more mainstream largely due to the creation of News International’s ‘Paywall’, are leading customers to seek the most convenient method of payment, and Ukash is well placed to service that need. Likewise the continued development of Mobile Commerce brings another opportunity for innovative companies to target certain consumer groups with m-site or mobile wallet payment options.

Coxhill explained, “Ukash has always had the vision of being the world leader in electronic cash-payment transactions and empowering everybody, anywhere in the world, to maximise the functionality of their cash. Our evolution from single-purpose cash payments provider to a more universal online cash management solution takes the company closer to achieving these goals.”

You can learn more about Ukash at www.ukash.com and gaming operators can visit www.ukashbusiness.com/payout or email david@ukash.com for more information on Ukash PayOut.

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NOW YOU CAN ACCEPT CASH ONLINE To find out how easy it is to start accepting Ukash, visit: www.ukashbusiness.com or call us at: +44 (0) 20 7089 4067

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PAYMENT SYSTEMS

ACHIEVING CHOICE AND FUNCTIONALITY OVER CHALLENGING COMPLEXITIES

BY ROELANT PRINS

As one of the most profitable industries in the world online gaming has, in payment system terms, operated on the basis of two fundamentals: Receiving money in a secure and efficient manner and paying out winnings effectively. But there are a number of other critical factors to be considered as the gaming and payment industries have advanced, leaving operators with little or no margin for error where trust in the appropriate software system is concerned.

>>

plethora of innovations has meant that online gaming is now one of the most profitable industries in the world, worth an estimated $49bn. We’ve certainly come a long way since the old Cincinnati 10 Percent Houses of the 1830’s and this is largely thanks to key technological advances, improvements in chat capabilities, customer service and software. But as the industry has grown, so have the challenges.

The online payment landscape represents one such challenge.

This is an area full of unexpected happenings. Choosing the right payment system for a business is one of the most important decisions that can be made, and it is rightly the one that is worth losing the most sleep over. Merchants simply cannot afford to make any mistakes with the technology entrusted to handle their money.

A

THE CURRENT PAYMENTS LANDSCAPE To simplify a little, an online payment system combines a payment gateway and a merchant account that enables consumers to purchase products and services online.

Merchants can then process these transactions and receive money. As Internet volume has increased, so the major banking institutions recognised the potential for growth and began to develop online payment systems to offer to their corporate customers.

There are, of course, numerous payment methods available to online merchants, from the traditional credit card to newer technologies such as digital wallets and mobile payments. But as the online payment sector has evolved, so have the complexities.

Credit cards are susceptible to fraud, whilst debit cards Casino & Gaming International I 49

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>> RESEARCH HAS SHOWN THAT A ‘SINGLE-SCREEN’ PAYMENT PAGE IN CERTAIN CIRCUMSTANCES CAN LEAD TO OVER 200 PERCENT MORE ONLINE CONVERSION, WHEN COMPARED TO THE MORE TRADITIONAL 3-4 PAGE PAYMENT PROCESS. ALSO, WHEN OFFERING ‘ONE-CLICK’ PAYMENT FUNCTIONALITY, IT IS LIKELY TO INCREASE PAYMENT CONVERSION BY AS MUCH AS 30 PERCENT IN THE GAMING INDUSTRY. >> are often subject to instances of issuer blocking. Local bank transfers and SEPA payments suffer from slower processing and reporting. Additionally, the ever-changing nature of online gaming rules and regulations can harm a merchant’s ability to act in certain markets and can leave them in awkward situations if their licence is under pressure.

Traditional banking institutions are actually quite reluctant to become too involved with an industry that consistently suffers from regulatory threats and interventions, and this has led to a degree of instability in their relationships with fast growing online businesses, particularly online gaming merchants.

More flexible alternatives were required.

RISE OF THE PAYMENT SERVICE PROVIDER Over the past decade or so, the ecommerce sector has changed significantly. More and more, merchants have been

50 I Casino & Gaming International

looking to optimise processes and focus on increasing conversion rates and this has led to different requirements for payment platforms.

Added to this has been the introduction of the Payment Card Industry Data Security Standard (PCI DSS), a worldwide information security standard created to help payment card industry organisations prevent instances of credit card fraud.

This has become an essential element in the online payment strategy for many merchants who have sought to outsource handling of payment processes (including the handling of all card data) to specialist companies in an attempt to circumvent its complexities.

These specialist companies are known as Payment Service Providers (PSPs): Third party organisations with software designed to revolutionise cross-border ecommerce by offering a more streamlined payment experience for consumers. They have in-built functionality to handle multi-

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banking channels, and a wide range of acquiring banks, cards and payment networks to ensure that the merchant is covered from almost every angle. The more up-to-date PSPs can also address PCI compliancy issues via a hosted payment page, whilst still enabling merchants to maximise online conversion and retain overall control.

PSP’s do this by managing all the technical connections and relationships with external networks and bank accounts, making the merchant much less dependent on financial institutions and free from the task of having to establish connections directly, which can be a significant advantage when operating across international borders. For example, in the event of a bank informing a merchant that they can no longer process gaming transactions, the PSP will switch payment processing to another bank without the merchant losing out on possible transactions.

Ultimately, gaming merchants tend to have two main priorities – receiving money in a secure and efficient manner, and paying out winnings effectively – but there are a number of other critical factors to be thrown into the mix when it comes to outsourcing payments...

THE PAYMENT CARD INDUSTRY DATA SECURITY STANDARD As mentioned previously, PCI DSS compliance is now here and is striking fear into the hearts of many. Its strict security requirements present a significant challenge for smaller online merchants, but it is a standard to which all organisations will need to follow when storing, processing and transmitting customer credit card data.

There are concerns that PCI compliancy has the potential to adversely hit merchants’ conversion rates, as some compliant payment systems leave the customer feeling less than confident about making and completing an online purchase. There is a tendency for this to happen when online businesses redirect customers away from the main page at the checkout stage to an externally hosted payment page.

Advances made with processing technology means that PCI DSS does not need to be a conversion killer. By providing merchants with the option to bury the URL in redirects and the capability to fully customise the payment pages, the payment process can be completely transparent to the customer. This encourages consumer trust and can boost conversion rates when PCI has been outsourced.

More and more gaming merchants are now considering fully outsourcing the handling of online payment to alleviate the burden that PCI compliance brings.

THE FIGHT AGAINST FRAUD Initially, the greatest challenge faced by businesses when it came to online fraud was a simple lack of information about the customer.

Without the multi-layered approaches that now exist – technologies such as address verification, identity authentication systems and IP geo-location – the only identifiable information that could be attached to a transaction related to card numbers. Given that ecommerce increasingly presents a highly lucrative target, online fraud has come to be dominated by organised crime and international cyber-gangs. An underground economy has emerged in which illegally obtained detailes are swapped and sold while targets and strategies are shared. Online fraud is big business.

Thankfully, the technology to fight the problem has become more advanced, and most online businesses have already taken precautions. But it can be difficult to know if anti-fraud measures have been set too tightly. It has been estimated that most online businesses are incorrectly rejecting up to six percent of orders due to what is known as ‘false positives’ – transactions that initially appear fraudulent and are subsequently rejected, but are actually entirely legal.

Outsourced PSPs have evolved to offer in-built fraud risk modules that can look at the number of times a card has been used in a specific time frame; transactions are matched, linked, analysed and scored in real-time; IP addresses, delivery address are all checked and flagged if the information doesn’t check out.

PAYMENT COVERSION RATES For online gaming merchants, losing customers at the transaction stage is a massive disappointment. Often, if the payment page is not user-friendly, similar in appearance to the rest of the check out page, or fails to do the utmost to ensure that a customer’s payment is approved, the payment will often be lost. This hits the merchant’s all-important conversion ratio.

Research has shown that a ‘single-screen’ payment page in certain circumstances can lead to over 200 percent more online conversion, when compared to the more traditional 34 page payment process. Also, when offering ‘one-click’ payment functionality, it is likely to increase payment conversion by as much as 30 percent in the gaming industry.

Clearly, small innovations such as these can have an enormous impact on the bottom line.

Timing is also crucial, as merchants need to consider the length of time that a payment will take to implement. Third party solutions are often designed to be nimble and more flexible, and as such, can be ready in just a few days, work through established bank accounts and financial systems and will come with reporting systems that can be easily customised.

AN INDUSTRY THAT WILL CONTINUE TO EVOLVE There is still a lot of ongoing activity and consolidation in the industry, but as online payments increasingly becomes more of a commodity, it is likely that third party providers will continue to differentiate on the basis of value added services, offering innovative solutions to the multitude of challenges presented by the gaming sector.

For the gaming merchants, this should mean far greater choice and a lot more functionality. CGI ROELANT PRINS Roelant Prins is Chief Commercial Officer at Adyen. Having started his career as a consultant Roelant began working in the online payments industry in early 2000. He has held various management roles in sales and business development for organisations specialising in payment solutions and international ecommerce. Prior to joining Adyen as CCO, Roelant lived in London and worked in the Royal Bank of Scotland Group’s payment division, managing the team responsible for corporate sales in the UK. www.adyen.com

Casino & Gaming International I 51

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EUROPEAN REGULATION

LACK OF CERTAINTY AND HARMONISATION, SO WHERE NEXT?

BY JULIAN HARRIS

The trend in jurisdictions seriously considering opening their markets to a mass licensing system, most recently Greece, is likely to continue. Whilst very expensive for operators having to obtain multiple licences, to say nothing of paying exorbitant tax rates, as in France, operators will no doubt welcome the opportunity to enter new markets and to profit from them. In time perhaps European Member States may realise that national monopolies are not necessary to protect their citizens and that an open unified market would actually generate greater revenues for State treasuries.

>>

n the last issue of CGI (2010 Q3, Jul/Aug), I sought to put together the various developments affecting online gambling in the European Union and – whilst maintaining crossed fingers – predicted that the future was clear: a system of national licensing for the EU. Though that article appeared only three months ago, the pace of developments in Europe is such that it is already time for an update. It is also appropriate to see whether the latest developments support the view that I previously expressed that the new model established in Italy, France and Denmark is indeed on track to become a European model.

With the exceptions of Malta and Great Britain, all EU Member States have, in varying degrees, opted to control their gambling markets, with many protecting their monopolies by restricting and controlling internal and external competition. Those different degrees of control derive from the interpretation of Article 52 (formerly Article 46(21)) of the EC Treaty, which permits derogations from Article 49 (Freedom to Provide Services) by allowing restrictions to be justified on grounds of public policy, public security or public health.

It therefore makes sense to “go back to basics” to ascertain how EU law and principles have been applied to online gambling and how these developments are indeed changing the European gambling landscape.

I

EU PRINCIPLES: THEORY The EU Treaty incorporates the overriding principle, that within the EU, each Member State may freely trade with the others, and that unjustified restrictions on supply and movement of goods, services and capital are therefore not permitted. Crucially, EU law takes precedent over the domestic law of any Member State, and Article 49 of the EC Casino & Gaming International I 53

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Treaty states that no member may impose restrictions on the freedom to provide services from one Member State to another. As everyone’s favourite Meerkat would say: “Simples”!

However, and this is where the difficulties arise, EU law also recognises that national sensitivities may differ between Member States in the area of gambling. As a result, if a Member State determines that restrictions should be imposed to safeguard their public interest, then justified proportionate and consistent derogations are permitted. In the context of online gambling, what has evolved is a seemingly endless debate as to the legitimate parameters of such measures, amounting of course to a form of perpetualism, based on set EU principles and confirmed by case law.

•

•

•

•

The relevant principles are: •

•

•

•

Proportionality: any restriction on the freedom to provide services must be proportionate to the aim that it is intended to achieve: Equality and Non-Discrimination: any restriction cannot be discriminatory towards foreign operators vis-à-vis national operators; Subsidiarity: the right of Member States to retain “exclusive jurisdiction” over areas of consumer protection and crime must be considered. This principle will frequently determine whether a national gambling monopoly, or liberalisation of gambling markets, are in fact “protecting the citizen”; and Objective Justification: any restriction must be justified on these grounds: (1) in legitimate public interest, which is not incompatible with EU aims; (2) equally applicable without discrimination and (3) suitable in achieving its legitimate aim on the public interests.

The way in which these fundamental principles, and the permitted limitations on the freedom of citizens to provide services across Member State borders within the EU apply to online gambling, can be illustrated by the decisions of the European Court of Justice (ECJ).

ECJ DECISIONS: A SIMPLE GUIDE Given the confusion in having to trawl through numerous decisions to ascertain what the ECJ has decided, it is worth briefly summarising the extent of permitted restrictions on cross border services.

According to the ECJ, the legal position in the EU is as follows: •

•

•

•

Gambling has morally and financially harmful consequences and member states therefore have a margin of discretion to limit gambling activities.

In the absence of EU harmonisation, each member state is free to set its own gambling policy objectives, provided that any restrictive measures do not go beyond what is necessary to achieve those objectives and must be applied without discrimination .

National legislation must be genuinely directed at limiting the harmful effects that are given as reasons to justify restrictions on cross-border services A monopoly system may be compatible with EU law where justified (with the objective of combating fraud and crime) and proportionate . However, monopolies are unlawful if the restriction is based on purely financial grounds.

Restrictions can only be justified on public policy grounds

54 I Casino & Gaming International

•

•

•

•

and where the protection of the public is their main purpose , Restrictions on the number of operators must reflect a “genuine diminution of gambling opportunities”; it must be consistent and systematic .

The principle of mutual recognition does not apply in the gambling sector: operators licensed within one Member State are not automatically permitted to provide the same services in other Member States .

Any restriction must be one which is equally applicable to persons established within the State, and which must be applied without discrimination” The restriction imposed must be proportionate to observe the legitimate rules in question . The proportionality test entails examining whether the rule is “suitable or “appropriate” in achieving its legitimate aim .

The obligation on persons to have their seat in a particular member states constitutes a restriction on the freedom to provide services and discriminates against companies which have their seat in another member state and is also found to be disproportionate. There are less restrictive measures available to monitor activities and accounts of EEA based operators .

The absence of a competitive gambling licensing procedure does not comply with freedom of establishment and freedom of services. The absence of transparency is contrary to the principle of equal treatment and the prohibition of discrimination on grounds of nationality and therefore prohibited by EU law.

A member state undermines its consumer protection argument by letting state run gambling companies engage in intensive advertising campaigns thereby undercutting the argument that its monopoly is limiting addiction. A State, which pursues the objective of preventing incentives to squander on gambling and of combating gambling addiction, but fails to pursue this objective in a consistent and systematic manner, acts in violation of EU law .

As regards single-operator licensing scheme, member states have sufficient discretion to determine the level of protection sought in relation to games of chance. However, it must be based on objective, non-discriminatory criteria known in advance, in such a way as to circumscribe the exercise of the authorities’ discretion so that it is not used arbitrarily .

In light of these ECJ judgments, the recent German and Austrian rulings are not a surprise to many. In fact, these cases only confirm the underlying principles previously addressed and highlight the ECJ’s position that it will not get involved in political decision-making and that it will continue favouring monopolies as a means to protect the citizens.

RECENT CASELAW – GERMANY AND AUSTRIA Most recently, on 8th and 9th September respectively, the ECJ made rulings in cases involving Germany and Austria.

GERMANY On 8th September, the ECJ ruled that Germany’s Inter State Gambling Treaty is in breach of the fundamental principles of EU law. In its ruling, the ECJ held that the German Government had undermined its consumer protection argument by allowing state controlled gambling companies to engage in intensive advertising campaigns in order to lure customers, in contradiction to the German States’ argument

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EUROPEAN REGULATION

>> WE CANNOT RELY ON ECJ RULINGS TO REGULATE THE GAMBLING SECTOR. WHAT MOST REGULATORS AND GAMBLING OPERATORS REQUIRE IS A DEGREE OF CERTAINTY AND HARMONISATION. WITH THE CONTINUED LACK OF EU PRESENCE AND THE NEGATIVE APPROACH OF EU MEMBER STATES, IT MAY BE TIME TO TURN AWAY FROM THE ECJ AND TOWARDS INITIATING CONSTRUCTIVE NEGOTIATIONS WITH GAMBLING REGULATORS, WHILE AT THE SAME TIME INCREASING PRESSURE ON BRUSSELS BEFORE THE GREEN PAPER CAUSES MORE DAMAGE TO THE FREEDOM TO PROVIDE SERVICES ACROSS MEMBER STATES. >> that its monopoly was designed to limit addiction.

However, the Court also found that monopolies are sometimes justified and Member States have the right to establish public monopolies, on the basis that “a monopoly is likely to overcome the risks connected with the gaming industry more effectively than a system under which private operators are authorised to organise bets subject to compliance with the relevant legislation”.

In summary, the Court held that: The German Government has undermined its consumer protection argument by letting State run gambling companies engage in intensive advertising campaigns. German monopoly’s intense advertising of its gaming operations called for the regulations to fall outside the scope of consumer protection. The Court concluded that the “public monopoly of the organisation of sporting bets and lotteries in German does not pursue the objective of combatting dangers”. This contrasts with the monopoly in Portugal which was found to pursue those objectives in the Santa Casa case.

Betting at race tracks has been in commercial hands since 1920 and there is a continuous expansion of land based casinos and slot machines. This also undermines the argument of consumer protection, which must be achieved in a consistent and systematic manner; otherwise it is in violation of EU law. The regulation is in violation if private participants are allowed to offer certain types of gambling (slot machines) whilst other gambling activities (sports betting) are strictly reserved to the state monopoly.

It follows from EU law on the Freedom to Provide Services that a German court is not obliged to apply the Inter State Gambling Treaty, if it comes to the conclusion that the monopoly is not justified in the particular case. However, the ECJ has no jurisdiction to disapply national law. It therefore confirmed that the prohibitions in the Inter State Gambling Treaty must continue to be observed by gambling operators, even after the current judgments. This will be the situation until Germany and the German courts agree suitable amendments.

EU law does not apply in Member States to recognise licences issued in other Member States: this was a restatement of views previously expressed in earlier decisions of the ECJ. AUSTRIA In the Austrian case on 9th September, the Engelmann case,

the ECJ found that Austrian gambling law was in breach of EU law. The court held the obligation on persons holding concessions to operate gaming establishments to have their base in Austria, constituted a restriction on freedom of establishment and freedom to provide services. This discriminated against those companies having their seat in another Member State and was also found to be disproportionate.

With regard to the grant of 12 concessions (casino licences), the ECJ considered that the absence of a competitive procedure when concessions were granted to Casinos Austria AG, did not comply with freedom of establishment and freedom of services. The obligation of transparency requires the concession granting authority to ensure a degree of publicity sufficient to enable competition and impartiality. In the absence of such transparency, and the award for 12 licences to an Austrian company, the Austrian law was found to be contrary to the principle of equal treatment and the prohibition of discrimination on grounds of nationality and therefore prohibited by EU law.

The decision did not deal with the aggressive marketing activities of the monopoly, which has the third largest advertising budget in Austria. This was contrary to previous ECJ rulings, according to which a Member State may not “incite and encourage” its consumers to participate in games of chance, if it has monopolised those.

AUSTRIA AND GERMANY: HELP OR HINDRANCE? No case that has come out of the ECJ has proved to be definitive, and the German and Austrian cases are no exception. In any event, it appears that the Englemann case in Austria applies only to land based, and not to online gaming. Moreover, it is less than helpful that in the German cases, the ECJ opined that monopolies are the most appropriate means of controlling gambling and addressing social responsibility.

Nevertheless, the ECJ has determined that there must not be an inconsistent approach over products remaining the preserve of monopoly, and the tendering process for licences must be open and transparent. On balance therefore, these are worthwhile developments for the gambling industry generally. It is only unfortunate that these decisions are piecemeal and applicable only to one jurisdiction at a time.

THE POLITICAL (AND COMMERCIAL) REALITY Unfortunately, none of these developments shed light on or clarify the European gambling landscape or indeed facilitate

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>> IT SEEMS THAT MORE JURISDICTIONS ARE SERIOUSLY CONSIDERING OPENING THEIR MARKETS TO A MASS LICENSING SYSTEM, MOST RECENTLY GREECE. I BELIEVE THAT THIS TREND WILL CONTINUE. WHILST VERY EXPENSIVE FOR OPERATORS, HAVING TO OBTAIN MULTIPLE LICENCES, TO SAY NOTHING OF PAYING EXORBITANT TAX RATES, AS IN FRANCE, OPERATORS WILL NO DOUBT WELCOME THE OPPORTUNITY TO ENTER NEW MARKETS AND TO PROFIT FROM THEM. WHO KNOWS – IN TIME EUROPEAN MEMBER STATES MAY REALISE THAT NATIONAL MONOPOLIES ARE NOT NECESSARY TO PROTECT THEIR CITIZENS AND THAT AN OPEN UNIFIED MARKET WOULD ACTUALLY GENERATE GREATER REVENUES FOR STATE TREASURIES. >> the work of gambling operators and regulators alike.

“All Quiet on the Western Front” some might say. This may be true if we focus on ECJ rulings only, however, there have been some “disturbing” moves on the European level which do not indicate an easier future for the gambling industry. It all started with the definition of “Illegal gambling” which was approved by all the Member States and published in the recent EU Presidency Report. Having only just digested the negativity of the Schaldemose Report on the inappropriate condemnation of online gambling, regulated and licensed gambling operators are now automatically “Illegal”, if they are breaching national law.

Internal Market Commissioner Michel Barnier has indicated that the Green Paper, in effect a consultation, will be launched by the end of this year. This may be decisive in settling the direction of any future EU wide legislation, or policy on online gaming. As an indicator of what to expect, it should be borne in mind that the Commission’s move to launch the Green Paper followed pressure from EU Member States and the EU Parliament and not from gambling operators. I would not put my shirt, nor indeed any substantial bet, on a change to the European system. The ECJ supports my caution with its rulings on subsidiarity and proportionality, which in effect entitle Member States to continue to protect their monopolies.

On the plus side, it seems that more jurisdictions are seriously considering opening their markets to a mass licensing system, most recently Greece. I believe that this trend will continue. Whilst very expensive for operators, having to obtain multiple licences, to say nothing of paying exorbitant tax rates, as in France, operators will no doubt welcome the opportunity to enter new markets and to profit from them. Who knows – in time European Member States may realise that national monopolies are not necessary to protect their citizens and that an open unified market would actually generate greater revenues for State treasuries.

In a way, whether gambling will be regulated on a national licensing model or whether it will continue to be restricted in some Member States and “Illegal” in others, is not the point. We cannot rely on ECJ rulings to regulate the gambling sector.

What most regulators and gambling operators require is a degree of certainty and harmonisation. With the continued lack of EU presence and the negative approach of EU

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Member States, it may be time to turn away from the ECJ and towards initiating constructive negotiations with gambling regulators, while at the same time increasing pressure on Brussels before the Green Paper causes more damage to the freedom to provide services across Member States. CGI

JULIAN HARRIS Recognised as a leading expert in national and international gambling and licensing law, Julian Harris is highly regarded by both operators and regulators throughout the world. He and John Hagan are the founder partners of Harris Hagan, the first and only UK law firm specialising exclusively in legal services to the gambling and leisure industries. He, John and other members of the firm have been at the forefront of those advising UK and international operators alike on the opportunities presented by the UK Government’s major reform of gambling law.

With over 25 years experience of gambling law Julian has advised some of the world's largest gaming and entertainment industry corporations, he and his team have also advised governments, trade associations and private equity houses in both online and land based gaming. Julian came to specialise in this area representing the Gaming Board for Great Britain (the then UK regulator) for five years early in his career. Julian is an experienced advocate, a respected and sought after conference speaker and the author of numerous articles and papers for gaming and legal publications and the national press. He is recommended in all guides to the legal profession, and has been described by Chambers Guide as “the best gaming lawyer in London”.

Julian is a Trustee and Treasurer to the International Association of Gaming Advisors.

Contact Julian: harris@harrishagan.com

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MALTA

THREE PILLARS OF SUCCESS TO CO-INVENT THE FUTURE

BY JOSE MICALLEF

Perhaps the most valuable 'products' in the egaming entertainment industry are the professional teams and staffs who, within an enlightened management structure that has strategic and innovative clarity, add daily value to the overall success of egaming industry growth. Get that right and the only limitations on what can be done to meet customer requirements are what you decide they should be. From Malta, such a possibility is becoming the norm.

>>

he recent restructuring changes within our company B3W Group solidified its customercentred culture within its team as we strongly believe that our customers are the ultimate source of our reputation. Every person within the organisation, at all levels, has a commitment to deliver an excellent service. In fact, each employee within the Group has a customer to serve irrespective of their role in the Group.

Every role within the organisation has customers that can be any of the following three types: external customers (i.e. our B2B customers), internal customers (i.e. colleagues who depend on each other to get things done), and executive customers (the executives within the Group who rely on fellow teams to execute business strategies). We give high importance to each type and these three together make up a successful formula. We created teams within teams and we brought together specialised skilled people who we know can deliver a high quality product. Our business model is founded on these three customeroriented pillars. This model unifies the external and internal forces into one team, and with specific communication strategies together with our customers, we co-invent the future of our business.

The vision and strategy we created resulted in concrete development measures with a precondition for the management to succeed: That of creating a two-way communication system between itself and its personnel (a shared understanding of the vision). In this way personnel respond positively to the development and progress of the

T

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>> A CUSTOMER-CENTRED APPROACH IS VITAL IN THE IGAMING ENTERTAINMENT WORLD AS IT ALIGNS TECHNOLOGY, BUSINESS MODELS, AND PLAYERS' TRENDS INTO ONE STRATEGY WHERE EVERYONE HAS A WINNING FORMULA. THIS APPROACH TRANSFORMS THE CUSTOMER INTO A PARTICIPATIVE PARTNER. THE COMMUNICATION CHANNELS WE USE BOTH INTERNALLY AND EXTERNALLY FEATURE OPENNESS, HONESTY AND DIRECTNESS. >> process.

By keeping this in mind, it was possible to commit oneself to the final vision and to define the right targets and measures. The growth evolution, like any other company in this industry, is not only within the product sector but also within technology, the business approach, marketing and internal processes. The main beneficiaries of all of this are our customers.

A customer-centred approach is vital in the igaming entertainment world as it aligns technology, business models, and players' trends into one strategy where everyone has a winning formula. This approach transforms the customer into a participative partner. The communication channels we use both internally and

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externally feature openness, honesty and directness.

The first and most important part of this process is listening. By listening to what our customer has to say we get to know the requirements in detail. We find out the different needs and what is the best possible way to satisfy them; what makes a game or casino an attractive product and how it can be delivered and sold to different customer segments and how a gaming site differs positively from other sites. This is the first step where we get to know the customer and its markets.

Nowadays market research is easier with the amount of tools in hand than in the pre-Internet period. The sources of market data come from country scouting, conferences, trade shows, meeting industry people from

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>> THE GROWTH EVOLUTION, LIKE ANY OTHER COMPANY IN THIS INDUSTRY, IS NOT ONLY WITHIN THE PRODUCT SECTOR BUT ALSO WITHIN TECHNOLOGY, THE BUSINESS APPROACH, MARKETING AND INTERNAL PROCESSES. THE MAIN BENEFICIARIES OF ALL OF THIS ARE OUR CUSTOMERS. A CUSTOMER-CENTRED APPROACH IS VITAL IN THE IGAMING ENTERTAINMENT WORLD AS IT ALIGNS TECHNOLOGY, BUSINESS MODELS, AND PLAYERS' TRENDS INTO ONE STRATEGY WHERE EVERYONE HAS A WINNING FORMULA. THIS APPROACH TRANSFORMS THE CUSTOMER INTO A PARTICIPATIVE PARTNER. >> the target market and also analyzing competition in the same market. On consolidation of data, the following step will be that of market data analysis, although one must be very careful not to get into what I call 'analysis paralysis', by being too consumed with analytics.

From here one has to change the analytic mindset into a get-things-done mindset. The market research data is converted into an action plan and assigned to the competent people to implement the plan within an established time frame agreed with the client. We always involve the customer in each process since we are

ultimately developing his/her product. All this will help us develop an end-user based product.

Within this formula we never assume anything. We base our project management on known facts to both parties and we regularly check-in with our customers to ensure that we are meeting their needs. This way we avoid any misunderstanding that might lead to unnecessary delays. However, as the perfect world does not exist even in the gaming industry, we still do experience some minor hitches, but we immediately take measures to put things right - the customer remains our top priority and is kept

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fully aware of any corrective actions. We do also have the experience of customers who ask for changes to be made to the original plan; but we accept this as part of the process considering the development of a game or a casino is an evolution of creative ideas and therefore to be expected. Fluid ideas will eventually solidify into one good product.

Having said that, we only promise what we can deliver.

Saying 'yes' to something that you cannot deliver will inevitably end up frustrating the customer. However, a blunt 'no' is rarely advisable. Instead, we offer alternative solutions that may accommodate the customer's need.

Hence, expanding our probability of serving the customer, and most of the time this is where we come up with new ideas and co-invent our future together.

In today's competitive world, disseminating quality culture in its full meaning can assure the survival of organisations in global market hyper-competition.

Commitment to quality, whether in game development or related services, can assure achievement of the strategies and policies of a successful organisation. This culture is constantly transmitted to our customers and we allow them to contribute to continuously improve our product. We are partners in success. The team behind this success is made up of professional gaming enthusiasts that our Group nurtures through continuous training. The human resources element is the engine of this success.

Identifying and recruiting the right people is not always a straight forward process. We do not only look at the skills of the individual but also seek to understand if we have compatible values, especially when one creates a team with multicultural differences. The induction process is crucial for any new team member who has been chosen to integrate within our Group. So we always try to create the right environment so they feel comfortable in order to create and develop what is required. By having our offices in the island of Malta we benefit from having regular social events after office hours where we relax and have fun together.

Once the team finishes with the product, and after it passes through numerous rigorous tests, the client is asked to give their final input prior to the product going live. This is the end of the first stage in our relationship with our client. From hereon we share the product's success and through this journey we constantly monitor product performance. Customers benefiting from our White Label solution will concentrate only on attracting players to their site while we take care of the operations, i.e. hosting, fraud monitoring, payment solutions, data management and 24/7 multilingual customer care services.

This is an exciting stage for us as we observe our products providing online entertainment to players from all over the world. As we have been around in this industry for over a decade, we forward our recommendations to our customers to attract new players through various bonus schemes and VIP campaigns to reward loyal players. In due course, we keep the casino alive by regularly introducing new games and hence the players are spoilt for choice as to 60 I Casino & Gaming International

how to entertain themselves and increase their possibilities of winning.

This is why I believe that this is an exciting industry as all partners eventually end up winners; we as developers and operators, our customers and the players themselves who entertain themselves with our products. Our product portfolio will continue to grow with our Group, and penetrating new markets is within sight. Our structure will continue to strengthen in readiness for the new challenges ahead.

With more governments regularising their markets, this industry is reaching new heights and our Group, like most other market players, will be there to contribute to the industry's growth. Will it be easy? I guess not, but we are confident of our potential and believe strongly in our team. Our current and future customers will remain at the centre of our existence, and we will always do our utmost to exceed their expectations.

The customer-centred culture we embrace is a success story and we shall be investing more in this model. At the end of the day, we are paid to lead our customers to their success. We are not the type of operation wanting to reach the Everest of igaming product success tomorrow. Our gradual growth is consistent and in the right direction. We know our destination, we know how to get there and we are enjoying the ride. CGI

JOSE MICALLEF Jose' Micallef is the Business Development Manager of B3W Group, a gaming software platform company licensed in the gaming jurisdiction of Malta. He joined the gaming software company in early 2009 in an administrative position. He is a graduate in business management and has extensive international business development experience in various industries and markets. After nine years as business development executive in the petrochemical industry in North Africa and Middle East, he then spent four years working in the Internet TV sector as Marketing Manager in the European market. He was then appointed Regional Manager in the Middle East for an environmental engineering company after which he took the role of General Manager for a fire & safety engineering company with the overall responsibility of running a company in Malta and another one in North Africa.

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DIGITAL

MECHANICAL TO CONTENT FOCUS ENABLES REPOSITIONING FOR GROWTH INTERVIEW WITH TONY OLIVER

Staying on top of the rapid pace of change in the online gaming markets is imperative for egaming industry growth.

Digital interactive prospects look particularly enticing to some operators with its recurring revenue opportunities – bolstered by accumulating partnerships – that can take advantage of the accelerating media possibilities ahead. And this, of course, has global scale.

>>

C

GI: Did you outlive the Bell Fruit ‘home’?

TO: It’s not really a question of outliving the Bell-Fruit home. We still reside there in Leen Gate, Nottingham and will do so for the foreseeable future. Our decision to re-launch the company as Mazooma Interactive Games was, in the main, influenced by what the market was dictating. We wanted to focus our business on the growing content market, we felt that the UK machine market, whilst still resource intensive, was in decline.

CGI: How does the move affect your Danoptra relationship?

TO: Mazooma Interactive Games will no longer be part of BellFruit Group, which remains the leading slot machine manufacturer, but we will remain part of parent group Danoptra. The split from Bell-Fruit Group reflects the Mazooma Interactive Games’ focus on providing quality digital content and its move away from mechanical gaming development.

CGI: Why the strategy to concentrate on the digital interactive route?

TO: This is an area of growth: An estimated 2.8 million people gambled online in 2009 and the growth continues, whilst the LBO market is a mature and lucrative one for good games.

Both these markets are recurring revenue opportunities which takes away some of the volatility you see in machine markets.

CGI: Is this in some way part of an inevitable interactive industry shift?

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>> [DIGITAL INTERACTIVE] IS AN AREA OF GROWTH: AN ESTIMATED 2.8 MILLION PEOPLE GAMBLED ONLINE IN 2009 AND THE GROWTH CONTINUES, WHILST THE LBO MARKET IS A MATURE AND LUCRATIVE ONE FOR GOOD GAMES. BOTH THESE MARKETS ARE RECURRING REVENUE OPPORTUNITIES WHICH TAKES AWAY SOME OF THE VOLATILITY YOU SEE IN MACHINE MARKETS. >> TO: No – we don’t think it is inevitable and there are many people out there who will continue to play traditional slot machines. However, no one can ignore the Internet and how it has changed gaming and that is going to continue. Indeed, we believe it will accelerate further new media opportunities.

CGI: How significant is the digital gaming content market?

TO: If you look at the pub sector, it has been a slow process for player adoption. That is not to say it won’t happen. The LBO (Licensed Betting Office) market with over 8,800 shops has enjoyed significant growth in FOBT (Fixed Odds Betting Terminals) digital gaming income. The UK online market is estimated to reach £1.6bn in 2010.

The other markets we focus on, such as Italy, where there are approximately 350,000 Comma 6a and 49,000 Comma 6b machines, and South America are growing rapidly. This level of opportunity drove us to withdraw from mechanical development to focus on content.

CGI: While creating the new focus, is this expanding your horizons?

TO: Very much so. We are developing bespoke content for our online partners in Europe, as well as working on iphone applications for UK centric online partners.

We have also developed a Cops N Robbers Community game for skyvegas.com which allows multiple players to play and when one player triggers the feature, all the players get it.

This was a very complicated development and the first of its kind for Openbet.

Align this to our venture into the Italian and South American markets then you can say the learning curve has been very steep indeed which, of course, adds to the fun.

CGI: And will a new impetus to innovation follow this change?

TO: Our games are designed to offer the player a familiar and exciting gaming experience by taking the best titles and features from our extensive analogue back catalogue and then transferring them into a digital game. We approach each game design from the player’s perspective and so far the results have been extremely positive.

We have a dedicated team of developers looking at new and innovative ways of delivering great games and we are testing new products all the time. However, the lesson we have learned from innovation is that some products will be great successes while others will be less so. But that’s the nature of the entire gaming sector.

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CGI: So could the pub/arcade gaming range widen now?

TO: The pub and arcade gaming market is not a priority for Mazooma Interactive Games. We plan to leverage our extensive back catalogue of machine titles, to provide quality games, with familiarity and a trusted brand across various platforms, to supply the LBO, online and export markets.

CGI: Does this mean a general expansion in the range of platforms for digital content now?

TO: We are in advanced negotiations with several other operators, to expand our portfolio of online customers and we are currently developing an application for the iphone and ipad. We will continue to explore areas of new media and opportunity to expand our player base.

CGI: But what suggests you are currently at the forefront of the digital market?

TO: The skill set required for development of online games are not unique but the knowledge of how to integrate them onto the various platforms is very scarce. And I am happy to say our developers and programmers are among the best in the country.

Moreover, our expertise in the gaming industry has allowed us to bring innovative games with enhanced features which give the player a good experience. This is illustrated by the fact that we have developed the first community game, Cops N Robbers, which is among the top performing games on Sky. There have also been developments such as Little Devil, where the bonus feature is on a timer and triggers automatically, this offered a different dimension to the player.

Our next generation of developments, due out soon, will build on this innovation.

CGI: Has this had a positive impact on your current diverse partnerships?

TO: They key to developing our business is to find the right partnerships where we can develop our game ideas, enhance the player experience through innovation and grow revenues.

Our strategy is to underpin our business with strong relationships with key partners such as Skyvegas, BetFair, and Paddy Power in UK online market, Unibet and Bet24 in the European online market, Coral in the UK LBO market, as well as Hitgame in Italy and TCS John Huxley, for South America.

We expect to make some announcements shortly on further partnerships we are forging across the UK, Europe and South America.

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CGI: Are there new market entries under consideration – the UK/European market will presumably remain important to your operation?

TO: There are always new markets. You can’t sit still. We are exploring other potential markets and will be demonstrating our content at the TCS John Huxley exhibition in Las Vegas next month. There is a lot of business potential out there.

CGI: Asia is an enormous growth area – is that being tapped?

TO: The Asian market is huge and we would be remiss not to be looking at. It forms part of our blue sky strategy but we need to take one step at a time and ensure the content is correct for each market we enter.

CGI: Could the mobile gaming market be in your sights?

TO: We are currently developing applications for the iphone and ipad and there will be other developments for the mobile market in the coming months.

CGI: Do you have a timescale for demonstrating your growth advantage ahead?

TO: We do but I am not about to disclose it here. Suffice to say that we are very confident over the next 12 months of significantly growing revenues for ourselves and our partners while at the same time pushing out new innovative content.

CGI TONY OLIVER

CGI: Is it actually a global market approach you are aiming at?

TO: We are taking each market opportunity on its merits. We are currently concentrating on Europe and South America.

We have several new markets currently under consideration, but we have to balance opportunities with the immediate requirements in our existing markets.

Tony Oliver is Managing Director of Mazooma Interactive Games and has many years experience in the online marketplace. Prior to joining Mazooma he was Business Development Director at Danoptra having been recruited from the IT Industry where he spent 15 years.

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ISLE OF MAN

UNDERSCORING TRUST AND AFFINITY IN EGAMING BUSINESS GROWTH INTERVIEW WITH GARTH KIMBER

The expanding environment of the Isle of Man's ecommerce and egaming industry is testament to the Island's sustained international push to become the home of choice for some of the industry's top players. With the sense that success breeds success, the right technical infrastructure and clustering of service companies is steadily consolidating the Island's reputation and with it, that of businesses venturing within.

>>

GI: For nearly 10 years the Isle of Man has been foremost in marketing itself as an egaming first choice for innovative gaming and betting operators, so are you easing off the marketing drive now?

C

GK: The Isle of Man is actually increasing our push as we believe the Island has never been better placed to understand the industry. We adapt as new requirements and technologies appear and our regulation and assistance can be tailored to the most up-to-date needs. We have also learnt a great deal from the new business that we have brought in and worked closely with them, so we feel we can cope with more and help them to a greater degree to be successful.

CGI: From a marketing perspective have the challenges changed significantly since the Island began to venture into egaming?

GK: We have been committed to raising our game as there are other great jurisdictions out there. The changes in regulations in other countries have made the industry more complex and thus the needs of businesses are more complex. We now have to deal with start ups in a very competitive environment, or with companies moving from other jurisdictions who need continuity. Trade shows are an important platform for us to promote ourselves as an approachable jurisdiction and open to conversations with well-run businesses. However, exhibitions and shows proliferate and we have to select where our budget can produce the best return.

CGI: Novigroup's Novibet represents one of the latest public/private partnership egaming licensing successes for the Casino & Gaming International I 67

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Island. What are the mutual benefits of such an arrangement?

GK: The accessibility business to key decision makers is of vital importance. Ministers and Members are easily accessible and therefore ideas can be actioned swiftly when necessary. In the same way, by keeping an open dialogue with business and encouraging networking, we can ensure that any decisions made are mutually beneficial.

CGI: Would you say there is a strong balance of the range of egaming interests on the Island, or are there particular strengths emerging - how do they compare?

GK: There is a strong balance but within that there are areas that, as you would expect, are stronger than others. For example, we now have four major Asian gaming companies here and more are on their way. We are also strong and have been for a long while on UK and Irish sportsbetting business.

We have network companies and in Microgaming and Playtech, the world's two strongest B2B software companies.

CGI: Bearing in mind competitive factors in the egaming sector, would there nevertheless be a significant degree of inter-business cooperation with Government to facilitate more growth - from companies now well established in particular?

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GK: Yes - a large part of the job is to assist growth of the companies already here. It is not a case of just bringing more companies to the Island. Looking after the needs and wishes of those here and growing their businesses will lead to greater and stronger overall growth. This will be more than the new ones generate each year.

Companies here spend over ÂŁ100m on the Island each year and that is a highly valuable part of what the industry contributes to IOM PLC. CGI: Some operators have suggested that one of the important factors for confidence in the Isle of Man is the fact the Government has a close, every day understanding of business needs. Is that your experience?

GK: It is my experience and to a major extent it is me that provides this. Our Director of Regulation, Steve Brennan, also has developed an understanding of what our businesses need and want and is striving to ensure that the balance between a high standard of regulation and openness to allow new technologies and business methods is maintained. Good quality regulation has become a benefit to operators rather than them seeing it as a necessary evil.

CGI: Tax issues may be a lynch pin for companies attracted to any chosen jurisdiction, although in the Isle of Man would you argue that other benefits over time become more decisive?

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>> THERE IS A STRONG BALANCE [OF EGAMING INTERESTS] BUT WITHIN THAT THERE ARE AREAS THAT, AS YOU WOULD EXPECT, ARE STRONGER THAN OTHERS. FOR EXAMPLE, WE NOW HAVE FOUR MAJOR ASIAN GAMING COMPANIES HERE AND MORE ARE ON THEIR WAY. WE ARE ALSO STRONG AND HAVE BEEN FOR A LONG WHILE ON UK AND IRISH SPORTSBETTING BUSINESS. WE HAVE NETWORK COMPANIES AND IN MICROGAMING AND PLAYTECH, THE WORLD'S TWO STRONGEST B2B SOFTWARE COMPANIES. >> GK: Obviously, it is the whole financial equation that is important, not just taxes. The clustering of major world players and suppliers of skills on the Isle of Man is an attraction. Also, a major cost to an online business is bandwidth. A recent investigation by the Isle of Man Government shows the Isle of Man bandwidth compares very favourably with jurisdictions of a similar size. As well as the cost of bandwidth, sophistication and reliability are also important and the Isle of Man has invested £50m over the last five years in order to maintain these high levels of reliability.

We look for our gaming companies to have a management presence on the Island and I believe that the actual home of a company will become more important in the future. The VAT on the Island is the same as the UK as the two countries share a customs and excise agreement.

The Government here works hard and closely with our gaming companies to deliver what they need to thrive.

stands at trade shows and are constantly introducing them to potential business partners. With a close relationship we know what they are looking to do and can then spot potential opportunities for them.

We also assist companies with the process of locating here, discussing proposed business plans, introducing them to relevant contacts and helping them through the application process.

The major element though is the ability to give quick answers as to new business models and their fit with legislation. Where they don't fit but are sensible and have clear ideas we have the ability to amend the legislation fairly quickly and allow our operators to stay at the cutting edge.

This is probably the most important element of the assistance because the open door policy of myself and our regulators really does allow quick entry to new market areas rather than the longer term lobbying for change that is needed in larger less agile jurisdictions.

CGI: In what way has the Government's Department for Economic Development assisted new egaming operator's innovative potential over the years?

CGI: What is the egaming sector growth trend in the context of the Island's economy?

GK: We have assisted with grants and financial assistance for new businesses and also for growth projects within established businesses.

The Isle of Man encourages inward investment through its Finance Assistance Scheme. Grants offered by the Government: > Capital grants - Up to 40 percent of costs of new buildings, building improvements, new plant and machinery > Operating grants > Special First Year Expenses - Up to 40 percent of nonrecurring costs associated with the establishment of a project > Training Costs - Up to 50 percent of special training costs incurred by employers operating an approved training scheme > Marketing Costs - Up to 40 percent of the costs of specific new marketing ventures > Efficiency Measures - Up to 40 percent of the costs of implementing quality standards, energy conservation etc. > Rent Reduction - Up to 40 percent of the cost of renting a factory from a private developer for the initial period of a new project > Loans - Up to 50 percent of working capital requirements Additionally, we have promoted our companies, provided

GK: The sector has continued to grow at around 20 percent per year when judged on money spent in the local economy and employment. The number of applications and the plans of present Island based companies indicate that this will continue. The growth is the fastest in any sector in the local economy and thus highly important and this year alone seven companies have gone live under an Isle of Man egaming license.

CGI: This must have had quite an impact on job creation and the future for next generation employment within and ancillary to egaming?

GK: At present the sector supports 550 jobs, an increase of 18 percent over the last year, with an increase of 20 percent (to 650 jobs) forecasted in 2010. As well as creating a number of jobs, the total spend (excluding capital spending) by the industry in the Island last year was £123m which is estimated to increase to £154m this year.

Growth is predicted to be over 100 new jobs during 2010. They are in a range of areas including ancillary but importantly are long term jobs and offer synergies with other areas such as banking that have gone through tougher times.

CGI: The diversity of egaming presumably has a quantifiable impact on the legal, financial and IT sectors?

GK: The legal sector is doing well out of not only the increased applications but also the complexity of all the Casino & Gaming International I 69

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different countries introducing legislation. It is one of the areas the Isle of Man has a very high quality base in. IT is expanding with one start up IT business taking over ÂŁ1m of business from a number of sources in its first year. The financial sector still needs to understand gaming but for those who are already involved, it's going very well.

CGI: To what extent does AIM listing continue to hold a particular significance for the Isle of Man based egaming companies?

GK: Less so than a couple of years ago as AIM listings are less of a priority. Companies do look at it as a future requirement and it obviously helps attract some because the Island is good at assisting with listing. I can see this becoming important again but good regulation and an accessible Government are the major elements in relocation decisions at this point in time.

CGI: Are your expectations for the Isle of Man's egaming expansion based in part on how global online gaming and betting revenues are likely to continue growing?

GK: This is obviously important to established companies here and along with providing better products and taking market share is a major part of growth. However, the major elements we concentrate on as a Government is making the jurisdiction competitive and an easy place to do business from whilst making sure we keep standards high. The other major element is the cost of doing business here continues to fall compared to other jurisdictions.

CGI: Players seem more comfortable these days with well established companies that observe regulatory and legal norms. That responsibility is something you increasingly experience in a B2B context as well?

GK: Absolutely. There are obviously still companies that sail close to the wind but the Isle of Man is not attractive to them.

The regulatory regime here is important and the communication channel with us is a major element in attracting business. When choosing a jurisdiction companies like the fact we offer grant assistance. However, it isn't even the money in most cases it is the general assistance, communication and willingness to continue positive contact and working with them to achieve growth they like. Trust and the affinity they have and the help we provide is important when looking to base a company somewhere new.

CGI: Since being White Listed what benefits have Isle of Man egaming companies derived from advertising into the UK for both the terrestrial and remote markets?

GK: I can't comment on the terrestrial market but with online player acquisition it is all about marketing in its various forms.

It isn't just nice to have it is a major requirement to be able to advertise into the largest market in Europe.

CGI: In terms of your international strategy, where do you consider the most interesting egaming developments to be emerging?

GK: There is still a lot of business from Asia that is looking for 70 I Casino & Gaming International

a quality jurisdiction in this part of the world. Growth areas also include other jurisdictions where changes either in the jurisdiction or the maturity of the company mean they are looking for a better regulated and communicative place in which to base themselves.

I believe having a real base with people working and making decisions is becoming much more important in defining where a company is based and the Isle of Man is a great place to live, has the right technical infrastructure and clustering of service companies and people can move here and buy houses as they would at home. As this becomes more important I believe the Island will attract businesses that have perhaps not been fully committed to their present jurisdictions.

CGI: As the Island's reputation has gone global, Asia-based operators began to respond. Are you expecting greater interest ahead?

GK: I expect continued interest at the present rate. We work hard to integrate the Asian business with our requirements.

Adapting models is a process that takes time and understanding so I wouldn't want to go to fast. The companies we have here at present have picked up excellent local people as CEO and senior management in their operations here and that is one of the keys to success.

The companies also come here with a different attitude to many of the European ones. They asses the Island and when they decide to commit they do it on a long term and open basis.

CGI: Looking ahead, do you have in your mind's eye a sense of what aspects of the egaming industry you expect to show strong growth?

GK: I expect continued growth in casino, bingo and B2B supply of different games. The B2B section of the industry supplies a wide variety of products and operators are now more comfortable in picking up different products from different suppliers rather than hooking themselves to only one supplier for the full stable.

I also see White Label as a growth area as smaller companies realise that they can control costs better and concentrate on customer acquisition and care better if a chunk of the work is being done for them by a quality supplier. CGI

GARTH KIMBER As the Head of eGaming with the Isle of Man DTI, Garth Kimber has a wealth of business development experience globally. Previously, he set up a company in 2004 to supply major brand owners and the Outdoor Advertising Industry with innovative interactive communication solutions to increase customer attraction.

Prior to this Garth was International Operations Director with the US Media giant Clear Channel. Garth has tendered for major contracts and set up new businesses across Asia, Australasia and South America.

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FOSTERING GROWTH THROUGH SKILLS AND KNOWLEDGE PROVISION

INTERVIEW WITH EMMA ALLARD

Nurturing and deploying the right human resources is an essential basis for commercial success, and with the continuing expansion of the egaming industry in particular, creating the right ethos and professional commitment through training is ultimately vital to the operators' cutting edge. It also demonstrates the seriousness with which egaming is establishing a sustainable future.

>>

C

GI: What is the background to launching the Isle of Man egaming training programme?

EA: A key element in the Isle of Man's armoury in attracting new egaming business to its shores is its ability to swiftly respond to the needs of ebusiness and egaming companies.

The light touch approach has been a major factor in attracting big players to its shores, as has been the Island's innovative approach.

A recent example of this was the Isle of Man Government's Department of Economic Development in conjunction with the Hamblin Employment Group, major recruiters on the Island for the egaming industry, and their recent launch of the first ever egaming Foundation Course.

The course was designed for those wishing to acquire the knowledge and skills necessary for entry into the sector, and followed research into what egaming employers on Island were specifically looking for from prospective candidates and why some of the roles and departments were being outsourced elsewhere.

CGI: What is the purpose of the egaming training programme?

EA: This introductory course has been designed to educate, prepare and equip individuals with an understanding of the industry. Although now well embedded on the Island, the egaming industry remains a fairly unknown entity to those working outside the sector. The course was developed with cultural, behavioural and service skills being the primary needs for employment within the industry's customer services Casino & Gaming International I 73

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>> WITH THE EGAMING SECTOR BEING THE FASTEST GROWING SECTOR ON THE ISLAND - IT IS NOW HOST TO 25 ACTIVE LICENCE HOLDERS AND EMPLOYS MORE THAN 600 PEOPLE IN A MYRIAD OF DIFFERENT ROLES, IT WAS RECOGNISED THAT THE INDUSTRY NEEDED ASSISTANCE WITH ITS RECRUITMENT PROGRAMME - ESSENTIALLY DIVERSE CUSTOMER SERVICES SKILLS AND THE EDUCATION OF THE EGAMING BUSINESS IN ITS ENTIRETY. >> segment.

The course aims to provide those wishing to enter the egaming industry with a basic knowledge and understanding of the sector and the skills and personal attributes required of those engaged within it. Having the right attitude, work ethos and high levels of self-awareness are considered by egaming operators here as essential pre-requisites. Possession of such therefore gives individuals a real advantage in securing employment in egaming.

The course consists of four modules designed to increase the participant's awareness and understanding of the egaming sector and how they might position and present themselves to a potential employee.

- Module 1 - What is egaming?

- Module 2 - The ideal Employee - Module 3 - eGaming: Risk and Social Responsibility - Module 4 - CV Skills and Interview Techniques

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CGI: How did this come about?

EA: It followed research from the Isle of Man Government's Department of Economic Development - under whose remit development and retention of the egaming on the Island falls, into what the egaming companies on the Island were specifically looking for in candidates and the subsequent identification of skill sets that were lacking from entry to mid management level.

Representatives of the Department learnt on visiting various egaming companies that they were finding it difficult to recruit employees with a basic level of customer service and, more importantly, the right attitude and work ethic.

The Hamblin Employment Group as major people providers to the Island's egaming industry, are also aware of the industry's needs. Hamblin has since been working closely with the Department for over a year to develop a Foundation

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>> WE RECOGNISE THAT ANY EGAMING OPERATOR WHEN CONSIDERING THE ISLE OF MAN AS A POSSIBLE LOCATION IN WHICH TO MOVE OR SET UP ITS OPERATION TO BENEFIT FROM ALL THE ISLAND HAS TO OFFER THEM - NOT LEAST BEING A SUPERB QUALITY OF LIFE, MUST BE ASSURED THAT THE ISLAND IS GEARED UP TO PROVIDE THEM WITH SUITABLY TRAINED PEOPLE POSSESSING THE RIGHT ETHOS. >> Course for those wishing to obtain employment within the egaming industry without any prior experience.

It is confidently expected that the programme will assist greatly in meeting the industry's needs in this area and largely remove the need for egaming companies to recruit from off Island with the associate work permit requirements.

CGI: Why undertake this now?

EA: With the egaming sector being the fastest growing sector on the Island - it is now host to 25 active licence holders and employs more than 600 people in a myriad of different roles, it was recognised that the industry needed assistance with its recruitment programme - essentially diverse customer services skills and the education of the egaming business in its entirety.

CGI: What do you hope to achieve through this programme?

EA: To equip individuals seeking employment in the egaming industry, heightening the understanding of the businesses and educating the Islands' people with the basic knowledge, tools and skills to build on, in order to deliver the high level of customer service required by this ever evolving industry.

CGI: Is it expected to build and develop industry involvement?

EA: Yes. We are fortunate in already having the support and involvement of several of the larger egaming companies and have every confidence that this support and involvement will continue. It is very much in their

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>> AWARE OF ITS NEED TO ASSIST AND FURTHER DEVELOP THE EGAMING INDUSTRY ON THE ISLAND, THE ISLE OF MAN GOVERNMENT, THROUGH ITS DEPARTMENT OF ECONOMIC DEVELOPMENT HAS BEEN KEEN TO SEE THE ESTABLISHMENT OF EGAMING RELATED TRAINING ON THE ISLAND WHICH IT HAS ACTIVELY ENCOURAGED AND SUPPORTED. IN ORDER TO BRING THE TRAINING COSTS WITHIN THE REACH OF POTENTIAL PARTICIPANTS AND THUS MAXIMISE THE ENGAGEMENT POTENTIAL OF LOCAL WORKERS, THE GOVERNMENT HAS AS A FIRST STEP, AGREED TO FUND 50 PERCENT OF THE PILOT COURSE FEES. >> interests to raise the knowledge and competence levels of candidates.

CGI: What role does IoM Government play?

EA: Aware of its need to assist and further develop the egaming industry on the Island, the Isle of Man Government, through its Department of Economic Development has been keen to see the establishment of egaming related training on the Island which it has actively encouraged and supported. In order to bring the training costs within the reach of potential participants and thus maximise the engagement potential of local workers, the Government has as a first step, agreed to fund 50 percent of the pilot course fees.

CGI: How does this impact the recruitment drive?

EA: With the initial group of participants only just through the first course it is too early to judge the impact the course will have on the industry's recruitment drive. However, it is confidently expected that it will progressively have a very positive impact as more people pass through the course. The feedback from course participants and industry representatives who contributed to the various modules in this initial course was that it had proved most beneficial.

CGI: What segments of gaming are you particularly concerned with?

EA: Hamblin has initially addressed the industry's primary training need at this point in time, namely the dynamics and ethos of the individuals and responsible gaming. As previously referred to, it is the intention to later progressively introduce a wider range and level of training courses to cover a broad range of skills within the various industry segments.

CGI: What part does this play within eCommerce development on IoM? EA: Along with the Isle of Man Government and the industry itself, we see this Foundation Course as a most important and beneficial training provision and contribution to ensuring that the local recruitment needs of this developing and increasingly demanding industry are properly met.

CGI: Is this designed to further attract business to the Island?

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EA: Yes of course. We recognise that any egaming operator when considering the Isle of Man as a possible location in which to move or set up its operation to benefit from all the Island has to offer them - not least being a superb quality of life, must be assured that the Island is geared up to provide them with suitably trained people possessing the right ethos.

CGI: Do you see the programme expanding over the years?

EA: It is intended that with continued industry as well as Government input and support, we will be able to build upon the Foundation Course with the introduction of more advanced and specialised courses, educating and/or further enhancing the various industry segment, knowledge and skill sets. The hope and expectation is that this will ultimately lead to the awarding of professional egaming qualifications. The programme would be provided within the framework of what is intended to become an egaming Centre of Excellence on the Island from which the industry globally would be able to benefit. CGI

EMMA ALLARD Emma Allard FIRP CertRP is the CEO of The Hamblin Employment Group. She is responsible for the overall management and further development of Hamblin, maintaining and building upon the Group's position as the Island's largest and most prestigious recruitment and employment business. Hamblin has a comprehensive portfolio of people related services Executive & Permanent Recruitment, iGaming recruitment, Temporary Staffing, HR Consultancy, Training & Development. Emma possesses almost 19 years recruitment industry experience, gained mainly in the UK with ADECCO and Select Appointments in London followed by several years' offshore recruitment experience, much of it with Hamblin where she was previously responsible for executive and iGaming recruitment.

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THE EFFECT OF WINNING LARGE JACKPOTS ON HUMAN BEHAVIOUR

BY MARK GRIFFITHS

Relationships that reveal whether gamblers' needs are satisfied and what determines the type of gambling they undertake - or the circumstances that may encourage that to excess - has great practical importance in identifying potentially 'risky' forms of gambling. It may therefore be possible to understand more about gambling motivations and behaviour, which can have useful clinical, academic and commercial implications.

>>

ne of the most basic structural characteristics that may determine whether someone gambles on a particular type of game in the first place is the size of the jackpot that a game has to offer. This article briefly examines what the scientific and empirical literature says about winning large amounts of money from gambling. It also briefly examines the role of probability and event frequency in gambling and their implications when combined in relation to winning money.

Most of the research in this area has been carried out on lottery gambling as this form of gambling tends to have the largest jackpots. However, there is no reason to assume that these general findings should not be any different in other types of gambling such as winning a million dollars on a slot machine.

O

STRUCTURAL CHARACTERISTICS IN GAMBLING Structural characteristics in gambling are typically those features of a game that are responsible for reinforcement, may satisfy gamblers' needs and may (for some 'vulnerable' players) facilitate excessive gambling (Griffiths, 1993; 1999). Such features include the event frequency of the game, jackpot size, stake size, the probability of winning, and the use of 'near misses' and other 'illusion of control' elements. By identifying particular structural characteristics it is possible for researchers (and the gaming industry) to see how needs are identified, to see how information about gambling is perceived, and to see how thoughts about gambling are influenced (Griffiths, 1993; Parke & Griffiths, 2007).

Showing the existence of such relationships has great practical importance as potentially 'risky' forms of gambling can be identified. Furthermore, by identifying particular structural characteristics it may be possible to understand Casino & Gaming International I 77

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>> WHAT MOST GAMBLERS CONCENTRATE ON IS THE AMOUNT THAT COULD BE WON RATHER THAN THE PROBABILITY OF DOING SO. WE ALSO KNOW THAT THE GREATER THE JACKPOT THE MORE PEOPLE WILL GAMBLE. THAT IS WHY MORE LOTTERY TICKETS ARE SOLD ON 'ROLLOVER' WEEKS BECAUSE THE POTENTIAL JACKPOT IS HUGE. ALSO, BY PROVIDING LOTS OF COVERAGE FOR THE HUGE WINNERS, IT HELPS US FORGET THE MILLIONS OF PEOPLE WHO LOST! >> more about gambling motivations and behaviour, which can have useful clinical, academic and commercial implications (Parke & Griffiths, 2007). It has been widely accepted that structural characteristics have a role in the acquisition, development, and maintenance of gambling behaviour.

However, it would appear that the role of structural characteristics has become even more significant within the past decade and has led to increased empirical research on structural gaming features (Parke & Griffiths, 2006; 2007).

DOES WINNING MAKE GAMBLERS HAPPY? One of the main reasons that people gamble is that it provides the chance of winning money. But does winning large amounts of money actually make people happy? People often dream about winning large life changing amounts of money on games like a national lottery (Wood, Griffiths, Derevensky & Gupta, 2002). The winners hopefully look

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forward to a long life of everlasting happiness although studies have found that lottery winners are euphoric very briefly before they settle back to their normal level of happiness or unhappiness (Griffiths, 2009). This is because happiness is relative.

There is a popular belief among some psychologists that in the long run, winning large amounts of money on gambling activities will not make someone happy. Researchers who study happiness say that everyone has a certain level of happiness that stays relatively constant but can be changed by particular events that make the person happy or sad (Griffiths, 2009).

Thankfully, this change only lasts for a short period of time. For instance, if someone is a generally happy person and a close relative dies, research shows that after a few months or so, the person will go back to the same happiness level that they were previously. However, this works the other

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way too. If a person is not very happy in their day-to-day life, they could win a large amount of money gambling and they would probably be happy for a couple months but then they would 'level out' and go back to life at their normal unhappiness level (Griffiths, 2009).

Research by Brickman, Coates and Janoff-Bulman (1978) compared a sample of 22 major lottery winners with 22 controls and also with a group of 29 paralysed accident victims. They found that major lottery winners were no happier than control groups. In another study, Eckblad and von der Lippe (1994) investigated 261 Norwegian lottery winners who had won more than one million Norwegian Krone (approximately £100,000). There were few typical emotional reactions to winning apart from moderate happiness and relief. Their gambling was modest both before and after winning the lottery and their experiences with winning were almost all positive. The researchers reported that their quality of life was stable or had improved. They concluded that their results support earlier research by Kaplan (1987) who found that that lottery winners are not gamblers, but self-controlled realists.

One of the infamous questions in social science is whether money makes people happy. Gardner and Oswald (2001) carried out a longitudinal study on the psychological health and reported happiness of approximately 9,000 randomly chosen people. Their research reported that those who received financial windfalls (i.e., by large gambling wins or receiving an inheritance) had higher mental wellbeing in the following year.

In another longitudinal data study on a random sample of Britons who received medium-sized lottery wins of between £1,000 and £120,000, Gardner and Oswald (2007) compared lottery winners with two control groups (one with no gambling wins and the other with small gambling wins).

They reported that big lottery winners went on to exhibit significantly better psychological health.

Two years after a lottery win there was an improvement in mental wellbeing using the General Health Questionnaire.

Other data have also been analysed by Apouey and Clark (2009) who also found increased health benefits among lottery winners when compared to non-lottery winners.

However, they also showed that lottery winners also drank and smoked more socially than non-lottery winners. Similar findings that lottery winners have better health indicators have also been reported by other researchers (e.g., Lindahl, 2005).

ARE THERE DOWNSIDES TO WINNING LARGE AMOUNTS THROUGH GAMBLING? On a more practical day-to-day level, most of the research on big winners has shown that their lives are much better as a result of their life changing wins but there are always a few winners who find other problems occur as a result of their instant wealth (Nissle & Bschor, 2002; Griffiths, 2009). They may give up their jobs and move to a more luxurious house in another area. This can lead to a loss of close friends from both the local neighbourhood and from their workplace.

There can also be family tensions and arguments over the money and there is always the chance that winners will be bombarded with requests for money from every kind of cause or charity.

There are also case reports in the literature of people becoming depressed after winning life-changing amounts of money (Nissle & Bschor, 2002), although these are presumably the exception as no researcher(s) would get case

reports published showing people were happier after winning a large amount of money! However, despite potential problems, most of the psychological research (perhaps unsurprisingly) indicates that winners are glad they won (Griffiths, 2009).

Interestingly, one large study of 1,163 lottery winners in the USA showed that the vast majority of lottery winners (63 percent) carried on working in the same job after their big win, with a further 11 percent carrying on working part-time in the same job after their big win (Arvey, Harpaz & Liao, 2004). The mean average amount won by those who carried on working was $2.59m. This appears to show that winning the lottery does not necessarily lead to a change of lifestyle for the vast majority of winners although smaller scale studies have tended to show that the majority of lottery winners give up work following a big win of over $1m (Kaplan, 1985; Imbens, Rubin & Sacerdote, 2001).

There are also those groups of people who will view the acquisition of instant wealth as 'undeserved'. Basically, when people win large amounts of money through gambling, other people around treat them differently even if the winners do not move neighbourhood or carry on in their job. This can lead to envy and resentment not just from people who know the winners but also from those in the locality of where the winners may move to (Griffiths, 2009). However, most gaming operators have an experienced team of people to help winners adjust to their new life and to minimize potential problems.

THE ROLE OF PROBABILITY IN GAMBLING It is unlikely that the downsides of winning large amounts of money through gambling would be enough to put people off playing. Neither is the unlikely probability of winning. For instance, the chance of winning the EuroMillions lottery is 1 in 76 million. Why then - despite the huge odds against - do people persist with their dream of winning the high jackpot?

Part of the popularity of lotteries in general is that it offers a low cost chance of winning a very large life changing amount of money. Without that huge jackpot, very few people would play (Griffiths & Wood, 2001).

The probability of winning a large lottery prize is one of the basic risk dimensions that may help people decide whether to gamble in the first place. However, the probabilities of winning something on the National Lottery are fairly high in comparison with other gambling activities although the chances of winning the jackpot are very small.

Therefore, most players do not think about the actual probability of winning but rely on "heuristic strategies" (i.e., 'rules of thumb') for handling the available information (Griffiths & Wood, 2001).

What most gamblers concentrate on is the amount that could be won rather than the probability of doing so. We also know that the greater the jackpot the more people will gamble. That is why more lottery tickets are sold on 'rollover' weeks because the potential jackpot is huge (Griffiths & Wood, 2001). Also, by providing lots of coverage for the huge winners, it helps us forget the millions of people who lost!

It is also known that as humans we tend to overestimate positive outcomes and underestimate negative ones (Griffiths, 2009). For instance, if someone is told they have a one in fourteen million chance of being killed on any particular Saturday night they would hardly give it a second thought because the chances of anything untoward happening are infinitesimal. However, given the same Casino & Gaming International I 79

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probability of winning a prize through gambling, people suddenly become over-optimistic (i.e., the "it could be you" phenomenon often exploited by lottery operators when advertising their products). Furthermore, studies have found that around one-fifth of people think they would win the UK National Lottery jackpot in their lifetime (Adam Smith Institute cited in English, 1996; Wood & Griffiths, 1998). This highlights some mathematicians' claims that national lotteries are a tribute to public innumeracy!

THE ROLE OF EVENT FREQUENCY IN GAMBLING Rapid event frequency is widely accepted as one of the most influential factors for vulnerable gamblers developing gambling problems (Griffiths, 1993; Parke & Griffiths, 2007).

This is largely because a rapid event frequency provides the opportunity for chasing behaviour (one of the major risk factors of problem gambling) and dissociation (Griffiths, Wood, Parke & Parke, 2006).

Another consequence of rapid event frequencies is that they produce short payout intervals. This means that any guilt or frustration about losing on an individual gamble is quickly forgotten as the gambler is already staking money on the next gamble (Parke & Griffiths, 2006; 2007). Therefore, the potential for winning large amounts of money gambling are most likely to be of concern if coupled with a game that has a high event frequency. For instance, high event frequency lottery games like 'keno' where the lottery draw is every few minutes have a much higher association with problem gambling than bi-weekly or daily lottery draws (Griffiths, 1999).

CONCLUSION Research into the effects of high jackpots on human behaviour has been relatively sparse. The research that has been carried out suggests that huge jackpot winners do not suffer negatively as a result of winning. There is little research that indicates that high jackpot causes people to develop problems unless the large jackpot is combined with other structural features such as high event frequencies. CGI REFERENCES Apouey, B. & Clark, A.E. (2009). Winning Big but Feeling no Better?

The E_ect of Lottery Prizes on Physical and Mental Health.

Fondazione Eni Enrico Mattei Working Papers (Paper 357). Berkeley Electronic Press.

Arvey, R.D., Harpaz, I. & Liao, H. (2004). Work centrality and postaward work behavior of lottery winners. Journal of Psychology, 138, 404-420.

Brickman, P., Coates, D. & Janoff-Bulman, R. (1978). Lottery winners and accident victims: Is happiness relative? Journal of Personality and Social Psychology, 36, 917-927.

Eckblad, G.F. & von der Lippe, A.L. (1994). Norwegian lottery winners: Cautious realists. Journal of Gambling Studies, 10, 305-322.

English, S. (1996). Skye's no limit in lottery giveaway. The Times, October 4, p.3.

Gardner, J. & Oswald, A.J. (2001). Does money buy happiness? A longitudinal study using data on windfalls. Warwick University Mimeograph.

Gardner, J. & Oswald, A.J. (2007). Money and mental well-being: A longitudinal study of medium-sized lottery wins. Journal of Health Economics, 26, 49-60.

Griffiths, M.D. (1993). Fruit machine gambling: The importance of structural characteristics. Journal of Gambling Studies, 9, 101-120.

Griffiths, M.D. (1999). Gambling technologies: Prospects for problem gambling. Journal of Gambling Studies, 15, 265-283.

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Griffiths, M.D. (2003). Internet gambling: Issues, concerns and recommendations. CyberPsychology and Behavior, 6, 557-568.

Griffiths, M.D. (2009). The lottery of life after a jackpot win. Western Mail, November 11, p.16.

Griffiths, M.D. & Wood, R.T.A. (2001). The psychology of lottery gambling. International Gambling Studies, 1, 27-44.

Griffiths, M.D., Wood, R.T.A., Parke, J. & Parke, A. (2006).

Dissociative states in problem gambling. In C. Allcock (Ed.). Current Issues Related To Dissociation. pp.27-37. Melbourne: Australian Gaming Council.

Hayer, T., Meyer, G. & Griffiths, M.D. (2009). Problem Gaming in Europe: Challenges, Prevention, and Interventions. New York: Springer.

Imbens, G. W., Rubin, D. B., & Sacerdote, B. I. (2001). Estimating the effect of unearned income on labor earnings, savings, and consumption: Evidence from a survey of lottery players. American Economic Review, 91, 778-794.

Kaplan, H. R. (1985). Lottery winners and work commitment: A behavioral test of the American work ethic. Journal of the Institute for Socioeconomic Studies, 10, 82-94 Kaplan, H.R. (1987). Lottery winners: The myth and reality. Journal of Gambling Studies, 3, 168-178.

Lindahl, M. (2005). Estimating the effect of income on health and mortality using lottery prizes as an exogenous source of variation in income. Journal of Human Resources, 40, 144-168.

Nissle, S. & Bschor, T. (2002). Winning the jackpot and depression: Money cannot buy happiness. International Journal of Psychiatry in Clinical Practice, 6, 181-186.

Parke, J. & Griffiths, M.D. (2006). The psychology of the fruit machine: The role of structural characteristics (revisited).

International Journal of Mental Health and Addiction, 4, 151-179.

Parke, J. & Griffiths, M.D. (2007). The role of structural characteristics in gambling. In G. Smith, D. Hodgins & R. Williams (Eds.), Research and Measurement Issues in Gambling Studies. pp.211-243. New York: Elsevier.

Wood, R.T.A. & Griffiths, M.D. (1998). The acquisition, development and maintenance of lottery and scratchcard gambling in adolescence Journal of Adolescence, 21, 265-273.

Wood, R.T.A., Griffiths, M.D., Derevensky, J.L. & Gupta, R. (2002).

Adolescent accounts of the UK National Lottery and scratchcards: An analysis using Q-sorts. Journal of Gambling Studies, 18, 161-183.

MARK GRIFFITHS Dr Mark Griffiths is a Chartered Psychologist and Professor of Gambling Studies at the Nottingham Trent University, aw well as Director of the International Gaming Research Unit. He has spent over two decades in the field is internationally known for his work into gaming and gambling. He has published over 250 refereed research papers, three books, 65 book chapters and over 1000 other articles. He has served on numerous national and international committees and gambling charities (e.g. National Chair of GamCare, Society for the Study of Gambling, Gamblers Anonymous General Services Board, National Council on Gambling). He has won ten national and international awards for his work including the John Rosecrance Prize (1994), CELEJ Prize (1998), Joseph Lister Prize (2004) and the US National Council on Problem Gambling Research Award (2009).

He also does a lot of freelance journalism and has appeared on over 2000 radio and television programmes.

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