Global Gaming Business February 2014

GGB Global Gaming Business Magazine

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February 2014 • $10 • Vol. 13 • no. 2

EYE IN THE SKY

The increasingly important role of surveillance and security in the gaming industry— real life and online

DiGGinG Deep Why player development should be a focal point for all casinos

Merger Mania

Consolidation in the slot supplier sector

Competitive nature Has saturation come to the northeast U.S. market?

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CONTENTS

Vol. 13 • No. 2

february

Global Gaming Business Magazine

COLUMNS

COVER STORY Page 24

Safe and Secure

16 Fantini’s Finance Will the Banner Year Be Repeated?

Our annual World Game Protection expert report on security and surveillance in the gaming industry.

Frank Fantini

24 Surveillance for Profit The best surveillance methods return a profit on investment.

Here’s a look at the new discipline 34 Opening the Nest of ROI Surveillance.

How can casinos battle the

By Jeff Murphy “Nesting Doll Syndrome” in which scams involve several layers of 30 Marking the Deck internal and external participants?

Table game cheats continue to

By Jesse Silva find new ways to mark cards.

38 Agnostic Hardware Here’s how to Using a technology-agnostic prevent your approach to assembling surveillance losses. hardware can save big money.

By Willy Allison

FEATURES 18 Competitive Pressures With saturation in the Northeast, new gaming states and emerging online gaming, coping with competition is a continuing challenge for operators.

By Marjorie Preston

50 Power Mergers Analysts give their take on last year’s big mergers in the slot sector, and whether it means more consolidation is on tap.

By Frank Legato

By Darrin Hoke

48 Operations Three Steps to World-Class Player Development Stephen R. Marshall

54 Global Gaming Women The Power of Education Phyllis A. Gilland

DEPARTMENTS 4 The Agenda 6 Dateline 14 Nutshell 56 Frankly Speaking 57 Cutting Edge 58 New Game Review

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

60 Emerging Leaders

Feature 42 Securing iGaming As internet gaming unfolds in the first three U.S. states, operators look to creating security standards for new iGaming programs.

62 Goods & Services

By Gus Fritschie

44 iGNA Outlook And the Answer Is...

With Mountain Gods Resort’s Elena Artiaga, Hnedak Bobo Group’s Nathan Peak, and Regulatory Management Consultants’ Robert Russell

65 People 66 Casino Communications With Grant Govertson, Managing Partner and Lead Analyst, Union Gaming Research Macau

Paul Girvan

46 iGames News Roundup

Cover photo by Donavon Lockett

FEBRUARY 2014 www.ggbmagazine.com

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THE AGENDA

Foot In The Door Roger Gros, Publisher

nyone who has followed the expansion of gaming in the U.S. down through the years understands the pattern very well. Gaming became legal in most U.S. states gradually, step-bytentative-step.

In the riverboat states, the boats had strict regulations. Most of them had to cruise or at least simulate a cruise. As an astute gaming observer once said, “as if 6 feet of water would somehow cleanse the state of allowing the evils of gaming.”

Other states permitted slot machines at racetracks, ostensibly to bolster the sagging racing business.

Ironically, it was often hard to find the grandstand once you got into the trackside casino. And still other states morphed from lottery tickets to video lottery terminals, which were, of course, merely slot machines called something else.

Meanwhile, Native American tribes used paper bingo games as a springboard to Class II slots and eventually full gaming.

Today, of course, most of these states and tribal properties host full casinos with the full complement of real (or reel) slot machines and a full slate of traditional table games. This was all accomplished by negotiations with state representatives that fed the gluttonous appetite for more tax revenue and fees.

That same pattern is about to be repeated with online gaming. The first three states to legalize iGaming have each gone about it in a different manner. Nevada legalized just online poker.

Delaware legalized full online gaming but it is run by the lottery with help from contractors. And in New Jersey, online casinos must be linked to the Atlantic City casino licenses, but are run by traditional online gaming companies for the most part.

Since Delaware and Nevada have such a small population base, we have to turn to New Jersey to try to determine what lessons other states will learn when they consider the legalization of online gaming. Of course, the lesson we learn from Delaware and Nevada is that we’re going to need interstate compacts that pool the player bases in order to make online gaming in small states possible and profitable.

In New Jersey, however, the first month of online gaming produced more than 150,000 accounts in 13 up-and-running online gaming

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websites. Most of those accounts were acquired with little or no marketing (although that is changing rapidly), so the future looks bright once the glitches and hurdles can be overcome.

But those glitches, at this point, are still pretty formidable.

Thankfully, the geolocation challenge hasn’t been that much of an issue. The ruling of the state’s Division of Gaming Enforcement that requires multiple methods of geolocation has been very effective. Sure, there are 10 percent of players inside the state who may get barred, but to date there have been no cases of out-of-state gamblers being permitted to play. Compare that with Nevada, where experts say 35 percent of players are wrongly rejected, even though they are far from the border.

Payment processing remains the thorniest issue, particularly since most banks and credit card companies refuse to participate. There are a lot of other options, but they are somewhat confusing and it’s not clear how to use them. This will remain a problem until there is some legal clarification the banks can trust.

Licensing in the U.S. will be required of all participants. In fact, licensing requirements were stiffened in New Jersey at the last minute, causing some confusion in how the online casinos can market themselves and utilize affiliate partners. This is a fact of life in the U.S. that European players will have to consider.

Other issues in New Jersey include a difficult process to set up accounts and then to sign in. One online casino insists on sending a four-digit code every time you sign in. Others have problems with the Mac-vs.-PC issue, and still others aren’t up to speed with mobile devices at this time (neither Delaware nor Nevada currently uses mobile devices at all).

So you can see that online gaming is still a work in progress in the U.S. There aren’t many parallels with the European industry because licensing, geolocation and payments aren’t really an issue there. The U.S. industry is going to evolve and grow on a different track, so anyone who wants to participate is going to have to pay close attention.

But the foot is now in the door, so the potential for iGaming in the U.S. is limitless at this point.

Global Gaming Business FEBRUARY 2014

Vol. 13 • No. 2 • February 2014 Roger Gros, Publisher | rgros@ggbmagazine.com Frank Legato, Editor | flegato@ggbmagazine.com Monica Cooley, Art Director | cooley7@sunflower.com David Coheen, North American Sales & Marketing Director dcoheen@ggbmagazine.com Floyd Sembler, Business Development Manager fsembler@ggbmagazine.com Becky Kingman-Gros, Director of Operations bkingros@ggbmagazine.com Lisa Johnson, Communications Advisor lisa@lisajohnsoncommunications.com Columnists Frank Fantini | Paul Girvan Stephen R. Marshall | Phyllis A. Gilland Contributing Editors Willy Allison | Kimberly Arnold | Gus Fritschie Darrin Hoke | Christopher Irwin | Jeff Murphy Marjorie Preston | Robert Rossiello | Jesse Silva

EDITORIAL ADVISORY BOARD Rino Armeni, President, Armeni Enterprises

• Mark A. Birtha, Vice President and General Manager, Fiesta Henderson Casino Hotel

• Julie Brinkerhoff-Jacobs, President, Lifescapes International

• Nicholas Casiello Jr., Shareholder, Fox Rothschild

• Jeffrey Compton, Publisher, CDC E-Reports

• Geoff Freeman, President & CEO, American Gaming Association

• Michael Johnson, Industry Vice President, Global Gaming Expo, Reed Exhibitions

• Dean Macomber, President, Macomber International, Inc.

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

• Jim Rafferty, President, Rafferty & Associates

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

• Steven M. Rittvo, President, The Innovation Group

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

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

• Roy Student, President, Applied Management Strategies

• David D. Waddell, Partner Regulatory Management Counselors PC Casino Connection International LLC. 921 American Pacific Dr, Suite 304, Henderson, NV 89014 702-248-1565 • 702-248-1567 (fax) www.ggbmagazine.com The views and opinions expressed by the writers and columnists of GLOBAL GAMING BUSINESS are not necessarily the views of the publisher or editor.

Copyright 2014 Global Gaming Business LLC. Las Vegas, Nev. 89118 GLOBAL GAMING BUSINESS is published monthly by Casino Connection International, LLC. Printed in Nevada, USA. Postmaster: Send Change of Address forms to: 921 American Pacific Dr, Suite 304, Henderson, NV 89014

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DATELINE TRIBAL february2014

The planned Mashpee Wampanoag casino in Taunton

Good to Go

BIA OKs Massachusetts compact

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he Mashpee Wampanoag tribe last month cleared a major hurdle in efforts to build a casino in the southeastern section of Massachusetts. The Bureau of Indian Affairs approved a compact (by failing to reject it) recently negotiated between the state and the tribe.

The BIA rejected the initial compact, which called for 20 percent of the gross gaming revenue to be paid to the state. The new compact gives the state 17 percent of the revenues if the tribe is the only casino in the southeastern region, and 21 percent if it is the only casino in the state, an unlikely outcome.

Mashpee Chairman Cedric Cromwell called the approval a “monumental, historic day” for the tribe. He said the tribe hopes to break ground this year.

“It’s also great news for the city of Taunton,” Cromwell told the AP. “It advances the tribe’s mission of moving forward with the destination resort casino.”

While the tribe celebrated the approval, it will most likely come as a disappointment to Foxwoods.

The southeastern zone was late coming to the party, because that region of the state was originally set aside for a tribal casino, in an attempt by lawmakers to discourage a fifth casino that wouldn’t have to pay state taxes. A federally rec-

MICHIGAN MOMENTUM Federal appeals panel backs Lansing casino

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ognized tribe is allowed to operate a casino in a state that allows gaming by applying to the Bureau of Indian Affairs.

However, the awarding of the license was contingent upon the tribe meeting several requirements in a timely manner, one of them being that it put land into federal trust. It has met its other requirements, including obtaining a gaming compact from the state, and winning an election of Taunton voters. The Bureau of Indian Affairs continues the process of determining whether the land in Taunton is eligible to be put in trust, but approval of the gaming compact by the BIA was crucial.

An additional complication is the possibility that the 2009 Supreme Court ruling in Carcieri v. Salazar would prevent the tribe from putting land into trust.

That decision said that tribes recognized after 1934 cannot put land into trust.

The Mashpees only achieved federal recognition several years ago.

Because of the tribe’s delays, the commission in April opened the bidding to commercial developers, while not precluding the possibility of eventually awarding the license to the tribe.

Round Two The $245 million Kewadin Lansing would offer a 125,000-square-foot casino and create 700 construction and 1,500 permanent jobs.

three-judge panel of the U.S. 6th Circuit Court of Appeals in Cincinnati recently ruled that the Sault Ste. Marie Tribe of Chippewa Indians can move forward with its plans to build an off-reservation casino in downtown Lansing.

Overturning a lower court’s ruling that essentially froze the project, the federal appeals court stated that a federal district judge in Grand Rapids erred in granting the state an injunction because it “lacked jurisdiction” and based its ruling on “contingent future events that may never occur.”

The Sault tribe now can proceed with its application to the U.S. Department of the Interior to have land it bought from the city of Lansing taken into trust for gaming. The $245 million Kewadin Lansing would offer a 125,000-square-foot casino and create 700 construction and 1,500 permanent jobs. A portion of gaming revenue would help fund a scholarship for Lansing high school students.

Tribal Chairman Aaron Payment said, “The ruling is a victory for the Sault tribe and the people of Lansing. While our patience and perseverance have been rewarded, two things are certain: We will now move expeditiously to file our trust application with the federal government to open the casino, and this project will continue to face legal and other challenges that will seek to delay and block it. Nothing worth doing is ever easy, and we will continue to pursue and defend our legal rights.”

The appeals panel noted its ruling does not prevent the state from suing to block the Lansing casino. Also, the judges said the state does not “have to wait until such gaming is already occurring” to file suit.

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Global Gaming Business FEBRUARY 2014

New Mexico legislature gets Navajo compact he New Mexico legislature is getting a second crack at the gaming compact negotiated between the Navajo Nation and Governor Susana Governor Susana Martinez.

Martinez The compact, which would be in force until 2037, would allow the nation to operate five casinos in New Mexico.

Lawmakers first saw the compact in last year’s legislative session, when they complained that they didn’t have enough time to deal with it.

This year’s session, which was scheduled to begin January 21, will only last 30 days. The tribe submitted the compact on January 15. Although advised that some lawmakers would like a different compact, tribal leaders say they like the compact just the way it is.

Neighboring tribes are concerned by the number of casinos the nation would be allowed and that some of them might impinge on their own casinos.

The legislature is only allowed an up-or-down vote on the compact, and cannot amend it. It can ask the governor and tribe to renegotiate the compact, however.

If no compact is approved, the current one will run until June 30, 2015, the same time that four other gaming compacts expire.

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DATELINE EUROPE february2014

LV Sands’ EuroVegas will not happen now.

Labor Declares War on FOBTs Wide opposition to the machines includes many gaming proponents ritain’s Labor Party plans to call on Parliament to impose restrictions on the spread of a controversial class of electronic game in the country’s high-street betting shops.

With the casino-style machines, known as fixedodds betting terminals, decried by problem gambling and community activists as a major social ill and opposed by local councils trying to stem a tide of betting shop license applications, Labor is joining the opposition Liberal Democrats in making a campaign issue of Labor Party Leader Ed Miliband the machines.

A report by the BBC said the party will use an upcoming Opposition Day debate in the House of Commons to force the debate into the national spotlight.

Leader Ed Miliband said FOBTs are “becoming an epidemic” and has vowed to amend planning laws in England, Scotland and Wales to curb their growth if Labor regains power. The current limit of four machines per shop had led to “clusters” of shops opening together, he said, with councils powerless to stop them. He said his government would review the number of machines allowed per license and would legislate to place shops in a separate zoning class, which would allow councils to use planning powers to control their numbers. In some cases, he said he wants councils to have the power to ban the machines outright, and he is pushing to slash the maximum bet size from £100 to £2 and implement technologies to limit play and remind gamblers of their spending.

It was Tony Blair’s Labor government that relaxed decades-old regulations to allow the FOBTs to mushroom in the first place. However, the party has accused bookmakers of exploiting the reforms to target poorer areas of the country.

There are about 33,000 of the machines in operation in the U.K., where they generate in excess of US$2.46 billion annually for the larger bookmakers, or about half their annual profits.

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What happened?!

LV Sands Spain withdrawal analyzed

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he dream of Las Vegas Sands Chairman and CEO Sheldon Adelson to reproduce his successes in Macau and Singapore in Spain came to an end in December, and the implications are large for the nation and the company.

After conducting a spirited competition between Madrid and Barcelona to be the site of the $30 billion multi-use development that included multiple hotels and casinos, a convention center, restaurants and shopping, Las Vegas Sands sought assurances from the Spanish government that the rules would not be changed and the massive investment would be protected.

Among Adelson’s demands were a low gaming tax and a guarantee that the tax rate, gaming regulations and government policy toward the project would not change. In addition, the company wanted an exemption from the strict nosmoking policy instituted by the government several years ago.

Deputy Prime Minister Soraya Saenz de Santamaria said the government was taken aback by some of the demands and could not agree to them.

“New conditions were put forward concerning taxes and legal protection, which could not be taken on board by the administrations involved,” she said.

“The government needs to preserve the general interests of all Spaniards.”

Adelson said there was no chance that the government would see it his way.

“While the government and many others have worked diligently on this effort, we do not see a path in which the criteria needed to move forward with this large-scale development can be reached,” he said.

Adelson said his company will now concentrate its expansion efforts in the Asia markets, mentioning specifically Japan and Korea.

Investors were not disappointed in the decision. Shares in Las Vegas Sands rose more than 5 percent in the week following the announcement.

Resorts World Birmingham

BIGGER AND BETTER Genting building U.K.’s largest casino

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onstruction has started on a £150 million casino in Birmingham that will be the U.K.’s largest.

The seven-story, 538,000-square-foot Resorts World Birmingham is due to open in early 2015 next to the city’s LG Arena with 170 four-star hotel rooms, 45 retail outlets, an 11-screen cinema, bars, restaurants and convention and meeting facilities.

Owner Genting Casinos U.K., a division of Malaysian resort conglomerate Genting Group, said the resort will create 1,750 construction jobs and another 1,100 full-time jobs when it opens. It also is expected to provide a significant boost

to the National Exhibition Centre, which draws 70 percent of its visitors from outside the Birmingham area and 10 percent from outside the country. Economic spinoffs are estimated by PricewaterhouseCoopers at £58 million during construction and £32.8 million a year after the complex opens.

The venue is one of eight large casinos that have been approved by the national government for cities around the country, and will be the first of Genting’s Resorts World chain to open in Europe. Genting operates the brand in Singapore, Manila and New York City. In Britain the company operates more than 40 casinos and sponsors the city’s Aston Villa Football Club in England’s Premier League.

FEBRUARY 2014 www.ggbmagazine.com

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DATELINE ASIA february2014

Machine cap in Macau?

COTAI CONTAINED

No gambling for Macau neighbor Hengqin Island

First it was tables, and now the number of slots may be limited

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acau’s Secretary for Economy and Finance Francis Tam Pak Yuen has said it’s possible the government will impose a cap on the growth of electronic gaming in the city’s booming casino market.

Speaking at a recent question-and-answer session in the Legislative Assembly, Tam also hinted that restrictions on the numbers of traditional livedealer tables might continue after 2022 when the current 10-year annual cap expires.

His remarks came in response to a question from lawmaker Wong Kit Cheng as to why there was no cap on EGMs to mirror the 3 percent annual cap on the addition of conventional tables.

“We have actually started some studies on this, as the current slots are so much different from what we had in the past due to the rapid growth in the development of electronic gaming equipment,” he

said. “We hope we can introduce to the public the Macau’s economy government thoughts on chief Francis Tam this at an appropriate Pak Yuen time.”

It wasn’t clear whether Tam was referring to a popular form of e-table that connects scores of individual player terminals in various configurations to a live dealer or to conventional slot-style machines. The live-dealer e-tables are proliferating rapidly as an affordably priced alternative to traditional mass-market tables whose limited numbers have sent minimum bets into the stratosphere in response to demand.

Tam said imposing growth limits on EGMs was not contemplated at the time the table cap was devised.

$ Record Breaking Macau books $45 billion in 2013 banner December helped boost Macau gross gaming revenue to MOP360.8 billion in 2013 (US$45.1 billion), an 18.6 percent increase over 2012.

The total surpasses the consensus forecasts of analysts, which tended to range between 14 percent and 15 percent, and is likely to equate to more than seven times the GGR generated on the Las Vegas Strip once that is calculated.

Strip revenues stood at $5.8 billion through November.

The results are a new record for the Chinese casino enclave, beating the US$38 billion record set in 2012 with the help of a December that was the second-best month in the industry’s history, up 18.5 percent year-on-year to MOP33.5 billion ($4.2 billion).

Union Gaming Research Macau is forecasting 14 percent revenue growth across the board for 2014, based on a projected 10 percent increase in VIP revenue and 22 percent in mass market and slots.

Wells Fargo analyst Cameron McKnight is projecting a more conservative 10 percent on the view that a slowdown in growth in credit on the mainland could begin to make itself felt on returns in Macau by the middle of the year.

Similarly, he expects a relatively modest 5 percent growth in visitation, but says this will have less of an impact as the city focuses more on attracting higher-spending, longer-staying tourists.

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Global Gaming Business FEBRUARY 2014

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engqin Island, perched between the gambling mecca of Macau and the Chinese province of Zhuhai, is being developed aggressively. Niu Jing, director of the administrative committee of the Hengqin New Area, pinpointed seven industries that will be permitted to expand on the island, which is several times the size of Macau—tourism, commercial services, finance, creative culture, traditional Chinese medicine, science and education research and high-technology.

“Investment covering these industries will be welcomed,” Niu said.

What will not be welcomed, says Niu, are casinos, even though several of the casino operators own land on the island that they will designate for non-gaming resorts. The exclusion of gaming was included in the Overall Development Plan of Hengqin, which was approved by the State Council in 2009.

Hope Fades for Taipei Casinos Casinos in Matsu could be open in five years

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eep divisions among naTaipei, Taiwan tional lawmakers in Taiwan appear to have doomed prospects for casinos in the populous capital of Taipei or anywhere on the main island.

The Legislative Yuan’s Transportation Committee has struck down 83 of 114 provisions contained in a draft Tourist Casino Management Act that has been under consideration since last spring. The surviving articles include a framework to guide casino licensing, but only on islands in the Taiwan Strait where local residents have granted their approval. This has occurred so far only on the Matsu archipelago, which lies about 10 miles off mainland China’s Fujian province. A similar referendum to bring casinos to the larger island group of Penghu was voted down four years ago.

The committee further endorsed, together with its amendments to the act, a proposal to block government investment in casino operations under the new regulations.

The articles that didn’t make the cut aren’t entirely dead, but have been tabled for negotiations by a broader group of legislators before being presented to the full Yuan for review. So there is a chance the negotiations could result in the resurrection of casinos on the main island, but it’s considered unlikely.

Meanwhile, a top official with Taiwan’s Transportation Ministry says a regulatory framework for casinos on the island of Matsu will be passed early this year and the first casino will open in about five years.

Lin Kuo Shian, director-general of the ministry, which is charged with regulating gambling on the island, acknowledged that his assessment is optimistic.

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DATELINE USA february2014

Maryland: It’s MGM National Harbor location will give casino D.C. monopoly

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he long road to the award of Maryland’s sixth casino license ended in late December when the Maryland Video Lottery Facilities Location Commission awarded the Prince George’s County license to the MGM Resorts International mega-resort on the Potomac River.

The commission voted 5-2 in favor of the MGM project, a $925 million casino, retail and entertainment complex at the National Harbor mixedused development just downriver from Washington, D.C., with the Washington Monument and other iconic structures in view from the planned hotel.

The project will include a 300-suite hotel with a 100,000-square-foot-plus casino (the exact footage

has not been publicly reported) featuring 3,600 slots, 140 table games and a poker room. It will include seven restaurants.

The main building will be understated and subtle, more akin to the government buildings in D.C. than a glitzy neon-clad casino property. It will include a rooftop pool, a spa, luxury-branded retail, a 1,200-seat theater, 35,000 square feet of meeting and event space, and a 5,000-space parking structure hidden by a seven-story plinth.

MGM has pledged to create 4,000 direct jobs and 7,400 indirect jobs with the project.

MGM will be adjacent to the National Har-

OK, How About This?

Genting launches new Florida strategy alaysia-based Genting Re- Gulfstream Park racetrack sorts World recently announced it hopes to open a slots-only casino-resort at the 14-acre Biscayne Bay property the company purchased in 2011 for $236 million from the Miami Herald. To make it happen, Genting Resorts World would enter into a four-way partnership that would allow them to use a permit owned by Gulfstream Park racetrack to open a slots casino.

If approved by Florida legislators or state gambling regulators, the Resorts World property would offer 2,000 slot machines and off-track betting. Proceeds would go toward thoroughbred purses at Gulfstream’s racetrack as well as to the nonprofit Gulfstream Park After Racing Program, which benefits Florida horse breeders, owners and trainers. Genting and Gulfstream would keep some of the revenue as administrative fees.

“I think it’s game-changing,” noted Lonny Powell, chief executive officer of the Florida Thoroughbred Breeders and Owners Association. “This is the first partnership where the revenue stream and investment would actually go back into the horses.”

At issue is that Gulfstream’s property straddles the Miami-Dade and Broward county lines. Therefore, Gulfstream officials argued, the permit it obtained last year for the nonprofit Gulfstream Park After Racing Program allows it to operate in both counties. The nonprofit would run horse races at Gulfstream, and Resorts World would manage slot and card room operations at the downtown property.

State regulators rejected that plan and told Genting that legislators would have to clarify the law, or parimutuel regulators would have to change their ruling. Otherwise Genting could file a lawsuit.

The plan is much smaller than the $3 billion luxury destination casino Resorts World proposed in 2011. Resorts World plans to build three condo towers, a waterfront promenade and a 500-room luxury hotel, about one-tenth of the original 5,000-room proposal.

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Global Gaming Business FEBRUARY 2014

bor entertainment complex, with visitation to be shared between the two attractions.

The decision ends a yearlong bidding war between MGM and two rivals, Penn National Gaming and Greenwood Racing. Penn National purchased the Rosecroft Raceway in nearby Fort Washington in 2011 with the express intention of adding a casino.

Penn reopened the track, which had been shuttered due to the decline in the popularity of horse racing, and officials have said more than once that continued operation of the Rosecroft facility is not viable long-term without an attached casino.

One Down

Atlantic Club demise to impact Atlantic City he Atlantic Club Casino Hotel, the white gaming palace at the southwest end of the Atlantic City Boardwalk that began life in 1980 as the Golden Nugget Atlantic City, closed its doors permanently on January 13, after its sale to Caesars Entertainment at a bargain-basement price of $15 million.

The Atlantic Club incarnation of the property, which had been Bally’s Grand, The Grand, the Atlantic City Hilton and ACH over its long and troubled history before its last name change in 2012, had actually begun to turn its years of losses around through a value-based marketing program that featured good odds, cheap rooms and reasonably priced food.

But the improvements were too little and too late for a struggling property in a chronically struggling market, and its owner, real estate trust Colony Capital, filed for bankruptcy protection last year, putting the property up for sale.

There was a ray of hope when online gaming operator PokerStars signed an agreement to buy the

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property from Colony. PokerStars was one of the operators whose sites were shut down with executives indicted in the so-called “Black Friday” federal indictments in 2011, for continuing to accept U.S. wagers after passage of the 2006 Unlawful Internet Gaming Enforcement Act. Atlantic Club executives canceled the purchase agreement when PokerStars was late with a payment, and the Atlantic Club was able to keep the initial $11 million in payments.

Few other suitors appeared with any interest in buying the property at auction. Ultimately, Caesars agreed to buy the property and land for $15 million, and Tropicana Entertainment agreed to purchase the property’s 1,641 slot machines and 48 table games and customer database for $8.4 million, in what is the lowest price ever paid for an Atlantic City property.

Caesars officials have not revealed any plans for the property, other than the fact it will not continue operations as a casino-hotel.

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DATELINE GLOBAL february2014

OK, SOrt Of…

No Vote

Sri Lanka approves Crown Resort, two others

Bermuda casino referendum nixed

t

he government of Sri Lanka has ap“The applications are for mixed develproved a plan by Australian gaming opment projects, which include convenmogul James Packer’s Crown Resorts for tion centers, shopping malls, and a $400 million mixed-development comfive-star hotels,” Mustapha told Reuters. plex, along with two similar projects.

“This gazette notification has no menWhile the approval does not include tion about a casino anywhere. So it doesexpress permission to operate casinos at n’t deal with running a casino, operating any of the three projects, Sri Lanka a casino, or approving a casino.”

Deputy Investment Promotion Minister It appears that each project is going to Dhammika Perera Faizer Mustapha said Packer would be perhave a separate casino partner that almitted to operate a casino in his project ready possesses a Sri Lankan casino lithrough a local partner, according to a Reuters report. cense. Two entities currently hold approvals for The government altered the terms of Packer’s the five existing casinos on the island. Packer’s deal after critics in the government complained that partner in the resort, Ravi Wijeratne, owns two of Packer was receiving concessions not offered to local the casinos, and Perera owns the other three. Perentrepreneurs. era is also working with John Keells to account for The Crown project and two others—by Sri all the approved resorts.

Lankan conglomerate John Keells Holdings and local Mustapha said a separate mechanism for operbusinessman Dhammika Perera—are not approved ating a casino exists under regulations passed in overtly as casino projects.

2010, which would apply to this situation.

Upping the Ante Echo unveils billion-dollar plan for Brisbane ustralian casino operator Echo Entertainment has unveiled plans for a major redevelopment of its Treasury Casino site in the Queensland capital of Brisbane as part of its A$1.4 billion proposal for creating an inBrisbane’s Treasury Casino tegrated entertainment precinct in the city’s central business district.

The project includes a six-star, 90-room hotel, a 600-seat function room, gourmet restaurants and other tourist attractions. The plan also calls for scrapping the Treasury name for one Echo believes will better reflect the luxury status of the new complex.

Queensland’s Deputy Premier Jeff Seeney has announced that the state is accepting expressions of interest for redeveloping a ninehectare area of the central business district, and Echo rival Crown Resorts already has presented a competing proposal that includes a large-scale resort similar to the company’s Crown Melbourne.

The state is hoping for a significant amount of international interest in redeveloping the area, and the developers will have to prove their plans will be world-class. Plans must also protect and enhance the precinct’s heritage buildings, officials said.

A

12

Global Gaming Business FEBRUARY 2014

ermuda has halted plans for a referendum next year to legalize casinos.

Parliament was expected to approve casi- Bermuda Premier Craig Cannonier nos if the referendum passed, but the threat of a boycott by opponents has apparently derailed the referendum. However, casino opponents denied the boycott threat and said they support a referendum.

Bermuda Premier Craig Cannonier announced that casino gaming will be addressed instead through an upcoming bill. A public information campaign to sway public support would follow.

The proposed wording of the ballot question, however, sparked controversy, as some said the wording practically ensured a “yes” vote from voters.

B

BC Because

Vancouver OKs Edgewater casino move

P

aragon Gaming of Las Vegas and Vancouver, British Columbia has earned a preliminary permit to build a $535 million casino complex in downtown Vancouver. The development will include two hotel towers, restaurants, a conference center and a gaming floor.

The existing Edgewater Casino will be moved from a smaller location across the street to the new complex next to B.C. Place Stadium. The controversial move will double the casino’s gaming area but not increase the number of slot machines and table games.

“Today’s decision by the Development Permit Board ensures that the proponent will have to align operations with the concerns raised in the recent Provincial Health Officer’s Report on Gambling,” said Vancouver Mayor Gregor Robertson in a statement last month. He added that if proponents of the casino do

not “address the health concerns raised

by Dr. Perry Kendall,” they may not proceed with the relocation.

The plan has raised concerns that more people will be drawn in to gamble and compulsive gambling will increase.

The Vancouver Development Permit Board decided December 16 to support the proposed casino expansion, which will increase Edgewater’s gaming floor area from about 36,700 square feet to 72,000 square feet. That does not change the limits of the casino’s license, which caps the number of slot machines at 600 and table games at 75, according to the Journal of Commerce.

Opponents of the new casino plan argue that the move is the first step toward further expansion of gambling at the property, which will now have more space per slot machine than any other casino in North America.

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NUTSHELL

“They Ohio welcomed two more racinos before the end of 2013 with the opening of Miami Valley Gaming in Lebanon and the Hard Rock Rocksino Northfield Park, near Akron. Miami Valley Gaming, operated by Churchill Downs Inc. and Delaware North Cos., opened December 12 with a five-furlong track and an indoor grandstand that can seat more than 1,000 spectators, and 1,600 VLTs. They spent about $162 million in upgrading the former Lebanon racetrack. The $268 million Hard Rock Rocksino Northfield Park opened December 18 with the traditional smashing of several acoustic guitars (instead of a ribbon-cutting). VIPs at the grand opening included casino President Jon Lucas, Hard Rock International Chairman Jim Allen and Bernie Kosar, formerly of the Cleveland Browns, who owns the Wood-Fired Grill at the venue. The “rocksino” has 2,242 VLTs and employs 750. Lawmakers in Kentucky have begun debate on two measures that would call for a constitutional amendment on gaming. Expanding gaming in Kentucky has been a failed effort for several years under Governor Steve Beshear, who has consistently said casino gaming is needed to make the state’s storied racetracks competitive with those in surrounding states. In December, state Rep. Larry Clark pre-filed two gaming bills for the 2014 session, one that would allow five racetrack-operated casinos, and another that would allow three stand-alone casinos. The second bill would permit tracks to compete against non-racetrack developers for the casinos. Both measures would provide for a simple ballot question to amend Kentucky’s state constitution to allow casino gambling. Unlike former failed amendment efforts, the horse racing industry would not be mentioned. The New Hampshire legislature convened last month with new expanded gambling bills under consideration, including a bill that would allow electronic keno games in bars and restaurants that serve alcohol. The bill’s lead

sponsor, state Rep. Keith Murphy, said unlike casino gambling, which could hurt local bar and restaurant owners, keno mostly would help small businesses by giving patrons an incentive to stay and spend more on food and drinks. Macau’s Melco Crown Entertainment has guaranteed a US$340 million loan to ensure completion of its City of Dreams Manila resort casino in the Philippines capital. MCE Leisure, the Philippine subsidiary that is developing the project, was expected to issue the debt at the end of January. CoD Manila, pegged at $1.3 billion, is slated to open this summer as the second of four integrated resorts licensed for the Entertainment City complex on Manila Bay. The government of Mexico has decreed a 15 percent tax on the importation of slot machines. “The gambling industry is a social and economic phenomenon that is growing in our country, whose exposure increases the risk of the activity interfering at the family level, socially or on the working relationships of the people involved,” said a statement from the government accompanying the decree. The Association of Licensees, Operators and Providers of the Entertainment and Betting Industry in Mexico (AIEJA) reported that by mid 2013, there were around 90,000 slots operating in the country, in 750 betting venues. John Ascuaga’s Nugget in Sparks, Nevada, sold last year for $23 million and then temporarily closed, has hired Cuningham Group Architecture to oversee its redesign. Penn National Gaming and Carnival Cruise Lines announced a new marketing alliance under which Penn will offer cruises as benefits to player’s club members at 18 of its casinos in the U.S. Beginning in mid-April, guests of Penn National’s casinos will be eligible to receive complimentary Caribbean and Mexican cruises or other cruise offers and discounts throughout the year aboard Carnival’s 24 ships, based on their level of play.

CALENDAR

Said It”

“There is no reason to put a casino on everybody’s kitchen table, in the bed of every young person, whether they are underage or of age, or on mobile phones. I don’t want people to get addicted.”

—Las Vegas Sands Chairman Sheldon Adelson, on his effort to ban online gaming through a new lobbying group

“In fact, Indian gaming has influenced— some might say corrupted—every level of government and nonprofit groups from the state Capitol to local Boy Scout troops, as the checks are doled out, both large and small.”

—Hank Plante, a Palm Springs journalist, asserting that gaming tribes have gained too much influence in California politics

“Young people have little inclination to play slots.”

—Deutsche Bank, in a report about the changing face of gaming

“I can’t underscore enough that we’re going to appeal to the gaming customer.”

—Rob Oseland, president, SLS Las Vegas, saying the new property’s emphasis on young customers does not mean it will ignore gamblers

“We are not viewing this as a locals casino.

We’re viewing this resort the same way we view our resorts in Las Vegas. We are looking to attract visitors from outside the state and outside the country.”

—MGM Resorts International spokesman Gordon Absher on MGM’s plan to market its new Maryland resort at National Harbor as a tourist attraction for the D.C. metropolitan area

February 24-26: World Game Protection Conference, M Resort, Las Vegas. Produced by World Game Protection. For more information, visit worldgameprotection.com.

March 19-20: Caribbean Gaming Show 2014, San Juan de Puerto Rico Convention Center. Produced by the CGS Group. For more information, visit caribbeangamingshow.com.

“Overall, people are not uncomfortable with gaming. But people also realize that you don’t necessarily need to be the host community to get that spinoff of the impacts of it.”

February 27: iGaming Legislative Symposium, Sheraton Grand Sacramento Hotel, Sacramento, California. Produced by Pechanga.net and Spectrum Gaming. For more information, visit iGamingsymposium.com.

March 19-21: iGaming North America 2014, Planet Hollywood Resort & Casino, Las Vegas. Produced by the Innovation Group, BolaVerde Media, Lewis and Roca LLP and eGamingBrokerage.com. For more information, visit igamingnorthamerica.com.

—Steve Rittvo, principal with the casino consulting firm Innovation Group

March 19-21: ENADA Spring, Rimini Fiera, Rome. Produced by National Association SAPAR. For more information, visit enadaprimavera.it.

14

April 23-24: Andean Gaming and Entertainment Trade Show, Corferias International Business and Exhibition Center, Bogata, Columbia. Produced by FADJA. For more information, visit fadja.com.

Global Gaming Business FEBRUARY 2014

“Corporate America is sending people to Las Vegas. That end of the business is quite healthy.”

—Joel Simkins, Credit Suisse analyst, on the state of the convention business in Las Vegas

WWW.SPIELO.COM United States Casino Markets 1.800.864.7670 or 702.896.8500 Canada and International 1.800.561.GAME (4263) or 506.878.6000 | casino.gaming@spielo.com Photo of Howie Mandel courtesy of Alevy Productions, Inc. Š Endemol International B.V., Deal or No Deal is a registered trademark of Endemol International B.V. Used with permission. All rights reserved.

Š 2014 GTECH. All rights reserved. All trademarks and logos noted herein are trademarks owned by, or licensed to GTECH Corporation.

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FANTINI’S FINANCE

Will the Banner Year Be Repeated?

Gaming sector dwarfed the market in 2013

S

tock prices soared in 2013. The Dow Industrials jumped over 26 percent, the S&P 500 over 29 percent and the Nasdaq Composite over 38 percent.

Chump change compared to gaming stocks.

The Fantini North American Gaming Index soared 74.29 percent, and the Fantini World Index 59.63 percent.

Much of the gain came late in the year, a fact evidenced on the very last day by the number of companies hitting 52-week or all-time closing highs as itemized in the markets section below.

The big jumps came in every sector of the industry: • Las Vegas and Macau megaresort operators—MGM Resorts 102.06 percent, Wynn 80.91 percent, Las Vegas Sands 74.8 percent.

• Suppliers—Scientific Games 95.27 percent, Bally Technologies 75.46 percent.

• Domestic casino operators—Caesars 211.27 percent, Boyd 69.58 percent, Pinnacle 64.18 percent.

By Frank Fantini

likely to rise, and could stumble: • Online optimism is way overdone. Eventually, online gaming in the U.S. might be a big contributor to bottom lines. But not this year. And certainly not to the degree that caused CZR to triple and Boyd to rise 70 percent.

The fact is that online will grow slowly and spottily this first year. And while attention focuses on revenues, there also are considerable costs in the launches, and in player acquisition.

Already, New Jersey airwaves are filled with ads trumpeting online gaming. And TV ads in New York and Philadelphia aren’t cheap.

• Slow U.S. casino expansion. The story of the past two years has been cannibalization, as many new casinos do more to take business away from incumbents than to grow their markets.

Expansion slows starting this year. That should provide some relief to regional casino operators, but it also means less top-line growth for companies without new projects, and far fewer new placements

ditching the stocks.

A few years ago, it was popular to write about black swans based on a popular book about unpredictable events. That led to lots of columns and research notes trying to identify possible black swans.

That in itself was interesting because if black swans cannot be predicted, how can one write a note predicting them?

That contradiction aside, it is true that negative surprises often are unpredictable. But what is predictable is that, when valuations are stretched and investors see only blue skies, stocks are set up to get slammed come negative events.

• Stretched valuations.

So, let’s say there are no negative surprises.

Indeed, let’s say things proceed just fine: • Regional gaming revenues rebound, as they did at the end of 2013.

• Las Vegas booms again, which seems increasingly likely.

• Macau continues to boom and the Chinese

‘It is true that negative surprises often are unpredictable. But what is predictable is that, when valuations are stretched and investors see only blue skies, stocks are set up to get slammed come negative events.’

• Asia operators—Melco Crown 131.71 percent, NagaCorp 82.7 percent.

• Internet companies—Playtech 82.75 percent, Betfair 62.96 percent.

No doubt, those numbers cannot be repeated in 2014. Valuations are stretched. Bullish projections for continued stock appreciation include higher valuations, no stumbles, and no negative surprises. In other words, priced to perfection.

Yet, there appears to be positive fundamental underpinnings to the rise of the stocks—Las Vegas and American economic recoveries, Macau continuing to tap its rich Asian market at double-digit growth rates, convention business and hotel pricing rebounding in the U.S., internet markets regulating throughout the world, including the U.S., the possibility of mega-resort approval in Japan, and perhaps elsewhere.

Having said that, 75 percent gains will not repeat, and the risks have grown.

Here are some thoughts as to why prices are un16

for slot machine companies.

• Japan. Much like online gaming boosted some American stocks on sheer speculation, others have gotten a rise in the expectations of Japan legalizing casinos.

We’ve raised cautions about Japan before. Let’s repeat here: There is no assurance Japan will legalize casinos. If they are legalized, there is no assurance the rules of the game will favor American casino operators.

As we’ve mentioned, companies that control the multibillion-dollar pachinko industry aren’t just going to roll over for foreign casino operators.

It simply isn’t a given that Las Vegas Sands and Wynn are going to operate Japanese casinos. An investor who makes his calculations based on probability can ascribe some probability to LVS and WYNN, but not a lot.

• Negative surprises. Valuations are stretched throughout the gaming industry. It wouldn’t take too many negative surprises to stun investors into

Global Gaming Business FEBRUARY 2014

government remains accommodative.

• The various Macau and China infrastructure improvements do, indeed, pour millions of new visitors into Macau.

• Japan legalizes casinos with laws that are tailored to the big, public casino operators such as LVS and WYNN. • Online gaming grows at a rapid—and profitable—clip in the U.S. Given all of that, how much higher can stocks go?

We are fans of a number of gaming companies, and own stock in them.

But, realistically, prices will not appreciate this year anywhere near the 2013 pace.

Frank Fantini is the editor and publisher of Fantini’s Gaming Report. A free 30-day trial subscription is available by calling toll free: 1-866-683-4357 or online at www.gaminginvestments.com.

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From Monopoly to Pac Man:

Coping with Competition the pipeline, With casinos in dozens of states and more in operators are bracing for a fight. And what about the “casino in the air,” internet ga ming?

By Marjorie Preston

or years, the casino industry in the United States was limited to Nevada and Atlantic City, and the business was remarkably resilient; from 1970 until the start of the economic downturn in late 2007, Las Vegas experienced just one blip in casino revenues, in the year following the September 11 terror attacks. During that turbulent time, the numbers dropped a single percentage point.

Today, nearly half of the states in the U.S. have legal casinos, and almost all offer some kind of wagering. Increased competition has turned the two-jurisdiction game of Monopoly into a version of Pac Man, with Pennsylvania gobbling up New Jersey, California gnawing away at Northern Nevada, Massachusetts poised to take a bite out of Connecticut, and so on. And more contests are shaping up as state governments hunt for additional tax streams.

On this broader playing field, it’s fair to say not all players will remain competitive. In Atlantic City, once the nation’s second largest gaming market (now ranked third behind Pennsylvania), observers routinely bet on which of a handful of aging properties will close next. (The first answer came last month: The Atlantic Club.) In Delaware, competition from Maryland has proven so fierce that the state’s three casino operators asked for a 6.5 percent reduction in the gaming tax (instead, Governor Jack Markell offered a one-time $8 million payback split three ways, which one analyst likened to “applying a Band-Aid to a bullet wound”).

Doomsday predictions aside, this industry is nothing if not inventive. Smart operators undoubtedly will find ways to not only survive but flourish by improving their houses, expanding their holdings, diversifying their operations and in some cases, neutralizing competition by partnering with would-be competitors. And the smartest will throw a lasso around virtual gaming and figure out how it can work to their advantage.

F

Ready to Rumble In June 2007, Mohegan Sun in Connecticut was going strong. In its 10th year, the mammoth tribal casino in Uncasville posted third-quarter gaming revenues that beat the previous year by almost 16 percent. Gross slot revenues were up 17.8 percent, and tables were up 12.3 percent.

18

Global Gaming Business FEBRUARY 2014

What a difference a recession makes. The combination of a weak recovery and new competition has changed everything at Mohegan Sun, which recently endured a 19-month slide in year-over-year slot win, followed by a modest bump in August. Revenue has plunged 28 percent in the past five years, from a peak of $10.6 billion in 2006-07 to $7.6 billion in the fiscal year that ended June 30.

“For a long time it was just us, Foxwoods and Atlantic City (in the Northeast),” says Mitchell Etess, CEO of the Mohegan Tribal Gaming Authority, which operates the casino. “We knew it wouldn’t last forever.”

While gamblers are spending less per visit due to the straitened economy, they also are migrating to newer casinos closer to home. Many Mohegan Sun diehards, particularly those who live in Massachusetts, have switched their allegiance to Resorts World in New York City, the Aqueduct racino that’s been breaking records since it opened in 2011. When Massachusetts opens up in the next few years, Mohegan Sun and Foxwoods could forfeit an additional 15 percent in revenue, according to a report in Hartford Business. And at that point, Resorts World, the Genting slot parlor that’s done gangbuster business from day one, may also have to tighten its belt.

In an end-run strategy, Mohegan Sun and Foxwoods vied for one of three Class III licenses in the Bay State, proposing billion-dollar developments in Milford and Palmer, respectively; both were shot down by voters last fall.

“We’re trying to expand our footprint and get in additional jurisdictions,” says Etess. “We have Pocono Downs (in Pennsylvania). We own 10 percent of Resorts in Atlantic City. We’re pursuing the license in Palmer and will continue to look at other things such as a management company”— including operation agreements with Indian tribes in Washington state and Wisconsin.

‘More Attraction than Casino’ That’s not all. Mohegan Sun is also a contender for Philadelphia’s second casino license, to be awarded in the coming months. It also got a jump on the game in New York. Last November, voters there approved Governor An-

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Atlantic City

Foxwoods

Mohegan Sun

drew Cuomo’s casino expansion plan. MTGA had already partnered with developer Louis Cappelli to build a casino at the old Concord Hotel on Kiamesha Lake. It’s “the gold buckle of the Borscht Belt,” says Etess, a member of the famed Grossinger family of Catskill hoteliers.

Once again, the tribe’s No. 1 competitor in the Catskills is the Mashantucket Pequot tribe, now working with Muss Development to develop a resort on 500 acres in Liberty, New York.

New York, Philadelphia and Massachusetts are “the cherries on top” of the Northeastern casino market, says Etess.

But the Mohegans are also working overtime on their flagship property, adding a $65 million retail development due to break ground this winter.

“What we’re doing is building more of an attraction than a casino,” explains Etess. “We have the biggest concert venue in the world, which has kind of become the entertainment center for this part of country. We own a basketball team (the Connecticut Sun of the WNBA). We’ve increased our restaurant product. We built a golf course nearby.

We’re combating competition by complementing our destination. But I like to think we’ve been preparing since day one as far as having a great guest experience, a great players club program, and building up customer loyalty.”

With multiple properties, the operator can now offer special deals and discounts to entice Connecticut customers to Pennsylvania and Atlantic City, and vice versa.

Not to be outdone, Foxwoods, which posted its first year-over-year revenue gain since December 2011 last September, is working on a $115 million retail outlet center. The 300,000-square-foot facility provides “entertainment for the non-gambling spouse,” according to Steven B. Tanger, CEO of Tanger Outlets, which also runs a successful outlet corridor in Atlantic City.

Both strategies are designed to protect and build market share, an ever more precious commodity in the casino business.

The Tipping Point Of five applicants for Philadelphia’s second casino license, Mohegan Sun’s planned Market8 development has already won praise from the city’s deputy mayor for economic development. Alan Greenberger has called the proposed project at the once-vibrant retail corner of 8th and Market, which includes a hotel tower and lower-level retail component, a potentially “transformative project for the city.”

Is Greenberger overstating his case? There are already four casinos in the immediate vicinity: SugarHouse, the city’s first gaming hall on the Delaware River; Harrah’s Philadelphia, also on the waterfront but located in the city of Chester; Parx, a 20-minute drive from the city; and Valley Forge, a small Category 3 casino near the historic battlefield in Chester County.

Though Pennsylvania has collected more casino taxes than any other state in recent years—$5.4 billion from 2009 through 2012—revenues were flat during fiscal 2013. Can the region support a fourth property?

“There hasn’t been slot growth in Pennsylvania for many months,” says Wendy Hamilton, general manager of SugarHouse, which is privately owned. “I’m waiting for someone to show me that Philadelphia can sustain another license.”

SugarHouse, built on the site of a former Jack Frost sugar refinery, is in the midst of a major renovation, not necessarily as a hedge against future competition—the second Philly casino is at least several years away—but to “give the existing building a fresher feel,” says Hamilton. “We’re replacing all the surface finishes, redoing carpets, blowing up the bathrooms, replacing all of that.” It is also embarking on a long-deferred expansion that will add a parking garage, new restaurants and a banquet hall as well as add slots, tables and a new poker room.

“We’re very small for this market, and we don’t have a lot of the ameni-

While gamblers are spending less per visit due to the straitened economy, they also are migrating to newer casinos closer to home.

FEBRUARY 2014 www.ggbmagazine.com

19

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ties people are used to in a gaming experience,” says Hamilton. “We can’t get those things fast enough.”

She seems frankly aghast at the push for new casinos in a flat market.

“Anyone with an understanding of economic forces can look at complete lack of slot growth in the area and wonder why it’s a good time to add another casino,” says Hamilton. “Competition is good for everybody, but we have enough of it—we’re already on our toes, delivering the best possible product at the best possible price.”

Domino Effect

Town, West Virginia, and also has struggled with new competition in the Midwest.

“Their Hollywood casino in Lawrenceburg, Indiana is down 30 percent since the Horseshoe opened in Cincinnati,” says Fantini. “The same is true of the Argosy Riverside in Kansas City, Missouri, which suffered the greatest losses to the Hollywood casino on the Kansas side.” The irony, Fantini says, is that Penn National owns 50 percent of the Hollywood Casino at Kansas Speedway, which is decimating its property in Missouri. In this case, owning the competition isn’t working out in the company’s favor.

“It’s shifting a dollar from one place to get to 50 cents from another place—well, they do have the management contract so they probably get 70 percent of the cash flow—but it’s a loss,” says Fantini. “That’s been the pattern with Penn National,” which has modified its earnings outlook for the year from $2.56 to $1.37 per share, and revised its revenue forecast from $3.14 billion to $2.98 billion for the year.

Frank Fantini, of Fantini Gaming Research in Delaware, agrees that Philadelphia and Atlantic City are “pretty well saturated,” but adds there is “a fair amount of virgin territory” still to be mined in the Northeastern U.S. “The new casinos in Massachusetts should do very well, and obviously that’s going to hurt Connecticut and may also have an effect on New York,” says Fantini. The Baltimore-Washington metro area has “significant room to The Fix grow,” and developers are In 2004, the Great Recession wasting no time delivering was unimaginable, and casino new product competition at current levels This year, Maryland Live! may have seemed unlikely. But in Hanover, which enjoys a even then, the Mohegan Tribal virtual monopoly in its marGaming Authority had the foreket and routinely beats the sight to anticipate the chalnearest competition (in Perlenges of today. According to ryville, Maryland and Charles that year’s annual report, the Town, West Virginia) will go tribe realized that its rate of head-to-head with the Horse—2004 Mohegan Tribal Gaming Authority annual report growth would be “difficult to shoe Casino Baltimore, a Caesustain with just a single propsars Entertainment property erty. under construction on the “With the increasing comcity’s south side, near M&T petitive pressures caused by the impending spread of gaming throughout the Bank Stadium and the Inner Harbor.

Northeast,” the report went on, “we have developed a diversification strategy An MGM gaming hall, planned for National Harbor, Prince George’s that will allow us to take advantage of the expanding national gaming market.”

County, will “tap an underserved market in terms of the District of ColumAt the time that strategy included the acquisition of Pennsylvania’s Pocono bia and northern Virginia,” says Fantini. “But that’s not good news for the Downs and a plan to “assist other American Indian tribes throughout the Charles Town and Delaware casinos, which are the most likely losers as country in the development and management of their own casino projects.”

Maryland casinos expand.”

The smart approach for today’s operator is certainly proactive and in some Among the hardest-hit operators companywide is Penn National Gamcases, defensive, says Fantini. “Of course you’re always trying to grow your ing, which operates Hollywood casinos in Perryville, Maryland and Charles

“With the increasing competitive pressures caused by the impending spread of gaming throughout the Northeast, we have developed a diversification strategy that will allow us to take advantage of the expanding national gaming market.”

20

Global Gaming Business FEBRUARY 2014

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River Downs

business in any industry, but when you see potential competition you’ve got to turn that into opportunities.”

He cites the case of Pinnacle Entertainment, which lost some revenues at its Belterra casino in Indiana to new casinos in Ohio, but has responded by buying the River Downs racetrack in Cincinnati, which will reopen as a racino this year. The company has also bought a majority stake in a racetrack near San Antonio, Texas. So if Texas ever legalizes casino gaming—a notion that sends shudders through adjoining states that have clustered casinos along the Texas border—a racino at the location could offset probable losses at the company’s properties in Lakes Charles and Shreveport, Louisiana. “They’re hedging their bets,” says Fantini.

amenities all the more important. But for people who just like to game without the amenities, well, they can sit at home in front of their tablets.”

Financial consultant John Restrepo of RCG Economics in Las Vegas says the answer likely lies somewhere between the old-style gambler—that 50something slot player—and the generation that follows, aka Generations X and Y and the millennials.

“Look around on the Strip,” he says. “You won’t find them sitting in large numbers on the casino floor; they’re hanging out at the restaurant and lounges—everything but sitting in front of a slot machine. The question as they get older is will they still want to be online all the time, with the kind of isolation that comes with using a phone or tablet?

“Will they desire more human interaction?”

The X Factor says Restrepo. “Is this a generational thing or a And what about internet gambling? It got off true technological sea change, where people are to a sluggish start in Nevada in 2013. At one not going to sit in casino as they did in past? It’s point, the first online providers out of the hard to say if online gaming is going to compete gate—Station Casinos’ Ultimate Poker and with bricks-and-mortar or just add on to it.”

Caesars Entertainment’s World Series of He notes that Amazon, the mega-online rePoker—shared a meager pool of just 500 playtailer, is now “going in reverse,” opening physical ers. Does virtual gaming have the potential to stores to satisfy the need of consumers for both unseat physical plants? Right now, no one types of interactions. “Right now the focus is on—John Restrepo, RCG Economics knows. line,” says Restrepo, “but over time it will probaThe first months of iGaming in New Jersey bly be a blend of both. Assuming online gaming have been positive, and other states are watchis legalized across the U.S., over time those who ing that nascent internet industry and the innovate and include an online component to smaller one in Delaware—the first jurisdictions offrering all casino games their properties will do just fine.” online—for effects on the brick-and-mortar operations.

Which brings to mind a remark made in 2010 by Steve Perskie, former “We are obviously interested in seeing how it works out,” says Etess, chairman of the New Jersey Casino Control Commission, who weighed in “but I’m not feeling it will be a big minus for the bricks-and-mortar casion the perceived competition between Las Vegas and Atlantic City. nos.”

“A lot of what was going on in Las Vegas in the late 1970s and early “We think about it a lot,” says SugarHouse’s Hamilton, “and have hired 1980s was in response to what was going on in Atlantic City,” said Perskie. some capable people whose job is to be on top of it, understand the com“Everyone was saying, ‘Las Vegas isn’t concerned about Atlantic City, but petitive risk and make sure we’re ahead of the curve. I don’t think it will Caesars is putting an ocean in.’ What Atlantic City wound up doing was ever take the place of coming to the casino, but it makes the peripheral helping Las Vegas to improve itself. It pushed the industry to be creative.”

“Will they desire more human interaction? Is this a generational thing or a true technological sea change, where people are not going to sit in casino as they did in past? It’s hard to say if online gaming is going to compete with bricks-and-mortar or just add on to it.”

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SURVEILLANCE SPECIAL REPORT

ROI Surveillance $ Promoting CEO awareness and business continuity

By Jeff Murphy

“Imagination is more important than knowledge.” —Albert Einstein

D

oes every department in a hotel casino have to have a return on investment? Having directed table games, poker and surveillance departments while owning restaurants makes me believe they all can be profitable.

Surveillance has a significant role in growing the business. You may call me a crazy, clueless dreamer, but I have met the CEOs investing in surveillance.

These trend-setting folks strongly value surveillance. Of course it’s not the surveillance we’ve grown to know; it’s a new brand of surveillance based on return on investment. Hence the name ROI surveillance.

A couple of years ago a progressive-thinking CEO asked me for help. His problem: little to no return from surveillance. His surveillance department didn’t catch anything, support anything, know anything, or do anything. It was bad. Surveillance actually generated serious reports regarding wet willies. No joke, actual reports on wet fingers in ears. This CEO saw a sinkhole where he knew an ally, a confidant, a business partner, and above all a truth teller could exist. He knew, with investment, he could literally place an angel on his shoulder that could help him make a difference and a profit. He and an ROI surveillance team ultimately made significant differences for the company.

Making a Difference CEOs need not understand everything about surveillance. They must simply be wise enough to imagine the huge resource and potential. Surveillance has the capability to positively influence the casino industry. We need real commitment from company leaders, operational leaders and surveillance leaders to 24

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change the dynamics of surveillance from perceived “review station with small return value” to “business enhancer with major returns on investments.”

Imagine this: specialized surveillance division evaluating the true value of players without limiting the protection from the live business. We’re talking an independent group of gaming intelligence specialists housed within a surveillance department that work in complete correlation with the table games and casino marketing teams to competitively compensate the players in a manner that eliminates expensive casino reinvestment errors, marketing scams, and hard-to-detect, high-end advantage play.

Surveillance Gaming Intelligence Divisions (GID) can perform in-depth gaming studies which, in turn, assist casino operations and progressively build business revenue. Here are a few case study examples to showcase surveillance’s potential.

Case Study 1: A well-organized group worked in teams of two players on

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Surveillance is the intelligence resource where a company’s operational and informational segments collide, and from that central point are monitored, audited and investigated in an effort to protect— and more importantly help create— company assets. We are in the asset creation business, not the asset protection business. six-deck blackjack games with a 0.26 percentage house advantage. After 40 hours of play, they collected compensation from the casino and a new team would enter the following week (changing players to keep the suspicion low as a single player never hit the radar as a big winner).

GID began to evaluate their value and found distinct areas where the groups were taking high-level advantage of the casino. Patron management systems have limitations. The system rated blackjack players for 80 decisions per hour. These players only played an average of 36 decisions per hour. They deliberately slowed game pace dramatically, played every spot, and spent an excessive amount of time making otherwise simple decisions. Another issue was found in the system, which was set to rate players for a 1.33 percent house advantage.

These players played almost perfect basic strategy, giving the house a mere 0.26 percent advantage. These factors created higher averages and qualified the players for much higher levels of complimentaries and incentives without them actually risking money. The theoretical losses from this high-level advantage play equaled $136,000. Now, consider the potential losses if the play remained undetected and had more advantage teams kept arriving to capitalize on a flawed system. These issues are riddled throughout all casinos. Who’s catching it?

Case Study 2: A craps study revealed that the casino department elected to rate craps players on entire wagers (pass line and come bets plus full odds) as opposed to only rating the wager portions with house advantages (pass line or come bets without odds). This trend was noticed at several properties in Las Vegas after the financial crisis, in order to bring high rollers back to craps.

The mistake made was a failure to adjust the house advantage to compensate for this benefit. Craps players were rated at a generous 1.4 percent. The actual house advantage when rating the entire wager is 0.37 percent. This 1 percent disadvantage against a real savvy player was detrimental to the bottom line (especially when one considers odds carry no house edge). A seemingly small issue became magnified because most properties use the system’s theoretical win to determine a player’s worth.

A routine flaw in the rating system led to over-compensating the player and offering generous discounts on losses. The study helped plug a major hole.

If you don’t believe investing in surveillance is worth it yet, this case study of one player provided $372,000 worth of reasons to start.

Case Study 3: GID reviewed every game, breaking down all house procedures.

GID searched for loopholes that advantage players or scam artists could pursue and combed for ways to save money and increase profitability while remaining competitive in the casino market. During one review, an abnormality on the game Three Card Poker concerning house rules was noted.

The house paid tie hands when the player and dealer held the same hand.

This seemingly slight alteration of rule lowered the house advantage by 0.13 percent from 3.37 percent to 3.24 percent. Being the only property to pay for ties made little sense, and the adjustment added $65,000 per year to the bottom line.

These three case studies, from a larger portfolio, indicate the powerful resource a well-organized and invested-in surveillance department can achieve. Has creating profits and solidifying business applications with surveillance piqued some interest by our CEO readers?

Six months ago, another progressive division was added to the realm of the surveillance department in the form of a Fraud Investigations Division. After all, the majority of today’s financial resources come from outside of gaming and are found in restaurants, retail outlets, bars and nightclubs.

To date, Surveillance’s Fraud Investigations Division has observed $14,986.22 in actual theft combined with another $815,477 in theoretical savings. These two specialized surveillance divisions provide round-the-clock business support and data-mining to areas of high financial traffic, and also free up surveillance operations to assist and protect the live casino operation.

Over a 12-month period the Surveillance Operations Division made a $1,610,000 difference, and actually received $448,000 for the casino in restitution from catches. ROI surveillance provides true accountability and establishes a no-nonsense reputation. Every CEO could use assistance with accountability, because like it or not, logically he knows unfound theft and scams grow.

Some CEOs are probably asking why ROI surveillance isn’t already occurring. Good question.

“Sometimes when you innovate, you make mistakes. It is best to admit them quickly, and get on with improving your other innovations.” —Steve Jobs

Trending Problem: Surveillance is Not Security To understand what ROI surveillance is, we must first understand what it is not.

Surveillance is not security. Stockholders should be alarmed when a company cuts corners regarding surveillance, one of the primary regulatory oversights of their investments. Decisions our casino forefathers instilled were for very specific FEBRUARY 2014 www.ggbmagazine.com

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SURVEILLANCE SPECIAL REPORT

A surveillance health check is the core basis toward creating something great and worthy of investment.

The foundations to review are Community, Operations, Training, Information and Department Marketing.

reasons, including the importance of checks and balances between surveillance and casino operations which, like it or not, include security. A CEO’s expectation of surveillance must grow, while holding surveillance professionals accountable instead of shipping this valuable asset to security.

New Beginnings and Modern Expectations No more monitor zombies! The days of hanging cameras simply because it’s required, with surveillance personnel blankly staring at a monitor screen, are over. We know what surveillance should not be and saw an insight of what it can be, but how do we make great surveillance happen?

A defined modern ROI surveillance expectation is a good start. Surveillance is the intelligence resource where a company’s operational and informational segments collide, and from that central point are monitored, audited and investigated in an effort to protect—and more importantly help create—company assets. We are in the asset creation business, not the asset protection business.

One minor twist on words can provide a CEO with a better understanding of who they need leading surveillance, and it can also create a major change in surveillance’s attitude, goals and results. A progressive surveillance department is a critical partner in business growth.

“There are no great limits to growth because there are no limits of human intelligence, imagination and wonder.” —Ronald Reagan

Next Step: Surveillance Health Checks My surveillance brothers and sisters may not love this suggestion; however, they will agree they need the help of their CEOs. Surveillance needs a serious investment in a variety of ways. Areas in dire need of investment also need audits of actual value and the foreseen opportunities.

Thus, every CEO should commission an independent expert of ROI surveillance to perform a surveillance health check audit. To be fair, one can’t suggest surveillance is the check and balance for casino operations and security without realizing that surveillance needs a solid review, and more accountability, too.

Do you really think CEOs would have allowed companies to even have considered combining security and surveillance if surveillance had been perceived as a valued asset? The cold hard truth is that most surveillance departments have a considerable amount of growth opportunity to become ROI surveillance-worthy.

A surveillance health check is the core basis toward creating something great and worthy of investment. The foundations to review are Community, Operations, Training, Information and Department Marketing: 26

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Community: A review of community begins with an assessment of the surveillance organizational chart. Two important elements: First, surveillance must report independently of operations, achieved through reporting directly to a CEO, CFO, board of directors, or a tribal gaming commission. Second, ROI surveillance must have layers to include trained leaders and specialized divisions monitoring specific areas with specific goals. All occupations have specialists, and so does surveillance. Police departments have patrol, vice, homicide, etc. The medical field has specialists for everything from orthopedics to neurology. ROI surveillance commits to direct intelligence and business support.

Operations: Here are the three big questions for the CEO: Is the surveillance department productive? Does surveillance have the tools necessary to be productive? Is the room environment conducive to the goals of investigations and business support?

Training: Basically, if the people watching the monitors don’t know what they are watching, they essentially aren’t doing anything. My surveillance brothers and sisters will either cheer or cringe, but this needs saying—surveillance professionals just aren’t that knowledgeable these days. CEOs who are not investing in surveillance training may as well give themselves a wet willy, because ultimately the joke’s on them for not utilizing a powerful tool already paid for each year.

Information: News flash: Surveillance rarely receives the information necessary to protect or investigate potential issues; never mind attempting to help business growth. Progressive CEOs want surveillance to have all the access required to get the job done. A good rule of thumb: If casino and business accounting teams and internal audit have access to a report, or access and training for certain programs, so should surveillance.

Department Marketing: How is a CEO going to help make ROI surveillance if they don’t know what surveillance is doing? CEOs should require reports from surveillance that matter, and ask why when the reports don’t show progress. ROI surveillance is not a hidden secret, as nothing protects assets better than a successful reputation. Surveillance must also assist the growth of other departments by auditing them and providing useful and constructive insights.

Be mindful, surveillance insights cannot be utilized as big brother. In other words, operational management must still step up and manage, or surveillance quickly becomes the embattled enemy rather than a resourceful tool.

Jeff Murphy is the director of surveillance and gaming intelligence at a high-end hotel and casino on the Las Vegas Strip.

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SURVEILLANCE SPECIAL REPORT

5 ElEmEnts of RoI suRvEIllancE LEADERSHIP: Surveillance needs real leaders, not the likable guy or the guy needing placement somewhere in the organization, or the guy that fits best politically. Surveillance needs a trusted and true leader that can confidently grow teams, build businesses, and compromise without ever being compromised.

I once reported to a CEO whom I quickly left. We met sparingly (twice). This particular day it was over lunch at a restaurant of my choice. As we caught up, I pointed out overtly suspicious activity involving numerous cocktails leaving the bar with cash going directly into the tip buckets without even a glance at the cash registers. We witnessed an entire culture requiring change.

I thought it would be an easy fix, especially once the CEO observed it firsthand. But I was clearly told, “Surveillance only watches gaming.

Sit back and take it easy. Just be liked and don’t make waves.” Obviously, he had already planned to curb my enthusiasm with his guidance, so I responded by leaving the organization.

If CEOs don’t expect more from surveillance, why would surveillance ever provide more?

Herein lies the problem with surveillance: a lack of expectation and quality leadership. Answer this question: Do you have the person in surveillance that fits John Maxwell’s description of a leader— “A leader is a person of influence?” Over years I’ve broadened Maxwell’s definition, creating my own expectation of a surveillance leader and my

preferred CEO. “A leader is a person of positive influence and integrity that commits to building people, winning teams, engaged environments, and cultures that matter.” Do you have that person working for you? More importantly, are you that person?

ENVIRONMENT: Intelligence investigations instead of review call centers. “Hello, how may I assist you? Hello. Hello. Hello.” is dialogue expected to be heard from a resort operator call center but not a data-mining, intelligence and investigations center. ROI surveillance does not occur in an environment of distraction. The CEO wanting everybody to think surveillance is watching because they have been notified every time somebody moves, touches or says the word money needs to know that kind of surveillance is watching absolutely nothing. Review all the protocols and free up surveillance to perform actual surveillance.

PEOPLE: People are the biggest asset. The core of surveillance is its people and their ability to produce. Hiring quality over quantity will build a surveillance department. Over a period of time, their

The core of surveillance is its people and their ability to produce. Hiring quality over quantity will build a surveillance department. Over a period of time, their quality of work will provide the quantity as a CEO recognizes brilliance and productivity, and rewards it with more resources.

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quality of work will provide the quantity as a CEO recognizes brilliance and productivity, and rewards it with more resources. After recruiting an essential group of game protection experts and fraud investigators, vast surveillance experience matters very little.

The team’s aces will help grow the staff quickly. Why even attempt to hire from the same pool others are failing with? Look for good, intelligent, resourceful, trainable people. These difference-makers will care more about the good of the company, others, and making their leaders proud than anything else. Find that core, develop the core, and pay that core group extremely well. They will be the ones creating ROI surveillance.

TRAINING: Require it. A full-time surveillance training manager and training team are essential because once you hire good, quality people, they need the knowledge and skills to produce regularly. Surveillance departments not required to continuously train and possess advanced knowledge and skills make about as much sense as using money as toilet paper.

Cheats and scam artists are learning new ways

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every day to defraud casinos. There is only one way to keep up, and that is to train up.

TOOLS: You could crack a walnut with your head, but why would you?

Quality surveillance systems and programs should always possess the capabilities to remain adequate for 10 years from the time purchased. (Surprise, not many are!) Why? Someone once said, “Surveillance is a non-revenue-generating department.” That person either didn’t understand business or they had something to hide.

Proper equipment and tools are the keys to ROI surveillance. If the business is important enough to hire large consulting firms, finance teams, audit teams and business strategy teams, why not provide the surveillance team the best possible trade tools, resources and equipment to assist the overall business effort?

I was asked in an interview by a CEO I highly respect, what is your main job? For some reason, this expected question caught me by surprise. A typical sheltered surveillance response would have been, “observe and report.”

Decades ago, observe and report was a great answer, as it meant, “We had a problem, it’s fixed, and please continue your business without any worry.”

Today, “observe and report” is an excuse to do nothing.

With this in mind, my response was, “My job is to make you the smartest person in the room at all times, the person who knows about issues that are being resolved prior to ever being asked. My job is to make you sleep better at night.” He must have been pleased; I got the job. Together, this leader and dedicated CEO and I are making a difference, and our team is changing the expectation of surveillance. We’ve created ROI surveillance.

—Jeff Murphy

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By Willy Allison

On Your Mark The resurgence of marked cards

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ccording to the Chinese, 2013 was the year of the snake. From a game protection perspective you could have called it the year of marked cards.

An unusually high number of cheating cases involving marked cards hit the news last year. Among them was the arrest of high-profile Las Vegas gambler Archie Karas. Another player was arrested in two states and labeled a “serial card cheater” by the media. Two dealers in a major East Coast casino were accused and charged of marking cards for players on a baccarat game.

So are we on the verge of a card-marking zombie apocalypse or should we ignore the whole thing like the Korean guy who sang “Gangnam Style?”

Before I offer my take on this, let’s start with a little perspective. 1) Card marking isn’t new. If there were a Mount Rushmore of cheating techniques, it would be Abraham Lincoln. It’s always been a threat in table games, and until we make table games digital, it always will. 2) There are a gazillion ways to mark cards. However, recently some cool stuff has emerged. New technologies are allowing cheats to run wild with their imagination. 3) Card marking is not hard to detect—if your staff pay attention.

Card Marking Isn’t New There is a lot of information out there on how to mark cards. A lot of it is written for Chris Angel wannabes—bored college students and wise guys who like to cheat their friends in private poker games. In a casino environment it’s a little tougher to get away with it, regardless of how easy the authors of such information may imply that it is. However, indications are that it may be getting easier.

In casino land, it is not uncommon to see players marking cards using the most simple of techniques. They’re embarrassingly low-tech: card bending, nicking, scratching, knuckling and fingernailing. All names that are self-explanatory.

One of my favorite card-marking moves is the chip indent. It’s a great way to mark cards on games where players are not permitted to touch the cards. The cheat simply uses his chips to mark cards. The move usually takes place during the dealer’s “take and pay” procedures.

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While the dealer is engaged in the payout process, the cheat, under the premise of placing the chip as a wager for the next hand, will take the edge of his chip, lean forward and place an indent on the target card as it lays face-up on the table. Cheats have also been known to use this technique under the premise that they are giving the chip to the dealer as a tip. I’m guessing any suspicion by the dealer of foul play was quickly overcome by the gratuitous gesture from the player.

I remember my first card-marking observation in surveillance. It was a guy playing double-deck blackjack. He was sticking his fingers in his ears and using earwax to mark the backs of 10s and aces. Moral of that delightful story: throw away the books. Cheats don’t play by the book.

Chemicals and Concoctions That brings me to “substance abuse.” Although earwax and other bodily fluids are readily available and accommodating to the low-budget low-life, they’re not as sexy as chemical substances and the so-called invisible inks. An online cottage industry has sprung up over the last few years where anyone can buy chemical substances that can be used for marking cards.

The most common substance is daub. Mainly used by magicians, it’s a substance that can be smudged on a card that allows only the trained eye to see. It is not invisible, but it is very difficult to detect unless you know what you’re looking for. You can buy the stuff online for around $50. Most vendors suggest that their products should be used for entertainment purposes only. I guess gambling is entertainment.

If you want to step up to the sports car of card-marking systems, try the new high-tech invisible inks. The word ink is a little misleading. These are substances that are concocted by guys that like to blow things up. This stuff is going for big bucks. I’m talking hundreds, even thousands. Vendors use cool names to market their magic concoctions but give very little detail on what the stuff actually is.

Regardless of whatever the stuff is, it works. It’s undetectable to the human eye unless you view it through a special lens.

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Nowadays, cheats are exploring new high-tech card marking systems. The method that is hot right now is infrared (IR) card marking. Without getting too scientific, IR basically works better because a UV light will not detect the markings.

In the old days, the most common invisible ink marking systems were ultraviolet (UV)-based. UV chemicals were used that could only be viewed with UV lenses or lights. You could spot those guys a mile away. They were the ones with the rose-tinted sunglasses who should have been arrested by the fashion police. To combat the threat, we went out and bought UV black lights and introduced them into our card inspection processes. If we suspected someone was marking cards, we simply waved the light over them and the cheat was busted. It didn’t take long for cheats using UV marking systems to give up the caper once they knew we had the equipment to detect the markings.

But that was so ’80s and ’90s. Nowadays, cheats are exploring new high-tech card marking systems. The method that is hot right now is infrared (IR) card marking. Without getting too scientific, IR basically works better because a UV light will not detect the markings. Casinos should not make the mistake of relying on UV lights only to detect marked cards these days. Cheats will take advantage quicker than management can say, “You can’t touch this.”

Infrared substances cannot be seen with the invisible eye, a UV black light or a standard surveillance camera. IR chemicals can be purchased that can only be seen at 900 nanometers on the visible light spectrum. This makes detection almost impossible. To see the markings, a player has to use a special IR lens usually fitted in a pair of glasses or contact lens. Often they look like designer glasses and don’t draw as much negative attention from fashion police. The contact lenses used to identify the markings look just like normal contact lenses. Don’t expect a cheat using IR contact lenses to look like Michael Jackson in the “Thriller” video.

What’s In It for the Cheat?

So, why do cheats mark cards? What is the return on the risk? Lets face it, marking cards doesn’t guarantee the cheat will win; however, it does offer inside information that can lead to a pretty sizable advantage if betting and playing strategies are adjusted to exploit the information. There are three reasons a cheat marks cards: 1) to gain knowledge of the first card out of the shoe for determining bet size; 2) hole card knowledge; and, 3) next-card knowledge for hit and stand decisions.

Here are some of the ways cheats can gain an advantage by marking valuable cards on some of our more popular games: Baccarat: Mark the high cards Six through Nine. If the first card out of the shoe can be identified as a high card—bet the Player. If it’s a low card—bet the

Banker. A player’s overall advantage if they bet this way for the entire shoe is almost 7 percent. Alternatively, to save time but still gain a reasonable advantage, just mark the Eights and Nines.

Blackjack: Mark the Aces and Tens. Sit on the first box to allow you to get the first card out of the shoe. Whenever it’s a 10 you have about a 13 percent edge over the dealer. If it’s an Ace, you have a whopping 52 percent edge over the dealer. Hole card and hit/stand knowledge can also be exploited to gain an edge.

Mississippi Stud Poker: Mark the Jacks. A player can gain an edge of about 38 percent if they adjust their playing strategy.

Three Card Poker: Mark the Aces, Kings and Queens. A player can gain an edge up to16 percent if they adjust their playing strategy.

Caribbean Stud Poker: Mark the Aces and Kings. A Player can gain an edge of about 7 percent if they adjust their playing strategy.

Scary New Technology Right now there is some scary technology coming out of China that incorporates IR marked cards, concealed cameras and computer analyzers. Combined to create a high-tech card marking system, I must say that this device could do for cheats what silicon did for the cosmetic surgery business. The devices are being marketed as poker analyzers.

The technology works like this. The long edge of every card in the deck is marked with an invisible IR marking. Each mark identifies an individual card.

In collusion with a poker dealer, the special marked deck is swapped into play.

The player sits opposite the dealer on the table. He positions a concealed camera on the table (usually disguised as a cell phone). The camera has an IR lens that is used to transmit an image of the edge of the deck of cards to a small computer located in a smart phone (the poker analyzer) in his pocket. The image is transmitted during the period after the dealer has shuffled the cards and the deck is FEBRUARY 2014 www.ggbmagazine.com

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SURVEILLANCE SPECIAL REPORT

resting in front of the dealer before cards are dealt to the players. The IR snapshot of the cards looks like a barcode. The poker analyzer identifies every card in the order that they will be dealt to the players in less than a second. A computergenerated voice message is sent to the player via a Bluetooth mini earpiece communicating the rankings of all the hands on the table.

The device is constantly being improved to cover a variety of games, to be even more easily concealed and to increase the range of the distance the camera can be away from the cards.

The hard part of pulling the scam off is recruiting the dealer. Not really. Nowadays, employee collusion in casinos is as common as car insurance commercials on TV—a sad byproduct of the reduction of supervisor levels on the floor and an ethos of literally giving the gambler whatever they want.

The question we have to ask ourselves is, could this technology and card-marking system be used to cheat in other table games we offer, like baccarat and blackjack? I say yes. Recruit the dealer and control the table.

The capabilities to beat other card games in the casino are only limited by software design.

Time for an Eye Test Here’s my take. Last year we caught a few cheats who arguably weren’t the sharpest tools in the shed. They got busted using chemicals to mark cards.

I suspect they were like kids with new toys. The good thing is they brought attention to the development of new cheating technologies that should be taken seriously by game protection professionals around the world.

Generally over the years, the casino industry has been able to keep a reasonably tight lid on card marking. Dealers, floor supervisors and pit managers used to be trained to be vigilant and on the lookout for indications players were marking cards. Reductions in floor supervisor levels, a lack of proper job-specific specialized training and a generally lower management emphasis on game protection are arguably providing more opportunities for organized cheats.

Moving forward, I suggest a casino’s strategy for combating the threat of card marking should include a two-pronged attack combining an oldschool and new-school approach.

Old-school approach: Train all staff in table games and surveillance to recognize the “tells” of a card marker. Watch player’s hands, in particular their fingers. The same goes for dealers. Let’s not forget that dealers have the ability to mark cards and collude with players. Watch the betting strategies of players. Are they betting in correlation with a first-card advantage? Do they appear to be playing with hole-card knowledge? Are they varying from basic strategy on blackjack? These are all indications that marked cards may be in play.

New-school approach: Surveillance, this one’s for you. If you suspect someone is marking cards, it’s time to fight fire with fire and bring in a little technology of your own. Put your black light back in your holster for a

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Could this technology and card-marking system be used to cheat in other table games we offer, like baccarat and blackjack?

I say yes. Recruit the dealer and control the table. The capabilities to beat other card games in the casino are only limited by software design. moment and consider this. Most surveillance cameras, in their natural state, actually have infrared viewing capabilities. The problem is the picture is not so good, so manufacturers add a cut filter over the CCD chip to block out infrared light.

The good news is the cut filter can be removed to convert it into an IR camera. A number of major surveillance camera systems provide end users the ability to remotely change the IR status of the camera via the operator’s keyboard. This allows the operator who suspects someone is marking cards at a table to use a PTZ camera assigned to the table to switch to IR mode so the cards can be checked live on the game. If you currently don’t have this feature, speak to your manufacturer.

Final Thoguhts I’ve heard of cheats using radioactive chemicals to mark cards. What next— DNA? As some experts have told me, there’s no one method of detecting all the possible chemicals that could be used. This is why in my opinion, the oldschool approach of paying attention to how the game is being played should be first and foremost in any game protection strategy to combat marked cards.

In saying that, like organized cheats, we should be proactive in exploring new technology opportunities. When you look at the development of products like Google Glass, it isn’t hard to imagine that one day we may all be wearing contact lenses to help process information more quickly and accurately. The key to many emerging analytic technologies will be cameras and lenses. The ability for computers to analyze images from video to provide useful information is exciting.

Smart camera technology could be a game-changer. Mark my words.

Willy Allison is a game protection consultant/trainer and founder of the annual World Game Protection Conference. Allison’s website is willyallison.com. The conference website is worldgameprotection.com.

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The Russian Nesting Doll Syndrome Understanding and acting on surveillance reports

T

he surveillance report appears suddenly in your in-box, as it does every so often. But this one looks different, and after a few moments of reading the synopsis, you learn that there was an arrest of a few employees. It sounds interesting, so you click to open the attachment.

The document tells of a couple of the property’s employees who were charged with crimes following a lengthy investigation.

They were working covertly with a few patrons, and you further read that these other individuals are being sought by law enforcement. As you read deeper, you learn that this investigation uncovered a number of dastardly deeds committed by a few very well-liked employees and patrons.

The value of loss that they were responsible for shocks you, but as you read, you become even more shocked to learn how often they were engaged in this fraud, how cleverly they got away with it for such a long time, and exactly how they constructed and carried out their plot. You even learn that this entire plot was discovered through a routine random surveillance audit of one of the involved employees.

When additional auditing was completed through both live observation and video review of the same employee, some odd behaviors were discovered as well as normal behaviors. The report explained that this provided contrast in the despicable employee’s overall actions and behaviors, and led surveillance staff to question the reasons for the normal and abnormal behaviors.

They found the reasons in system software that had been integrated into the surveillance room—software used to manage table game processes, slot machine processes and cash-handling areas. Each of these software branches was data-mined to find similarities between the times that the audited employee was behaving oddly and any other patron’s visitation times on property.

The report points out that each time matched and implicated three patrons, and some of their visits indicated two of the other arrested employees.

You remember that the surveillance leaders had sold you and the executive staff on the benefits of full integration as a means to “protect the assets.” You are glad they did.

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Global Gaming Business FEBRUARY 2014

By Jesse Silva

You might not quite realize the depth to which your surveillance staff can go in detecting, investigating, evidence-collecting and executing the final steps with law enforcement and human resources in bringing the truth to your computer screen. Many intricate steps and tricks of the trade can and are likely employed to finding an end to losses by a property, but many within our industry know very little about these processes.

Still reading line after line of the emailed report, you learn that connections were discovered between the employees and their accomplices using Facebook, Google and other common social media websites. You learn that the employees and patrons had actually become a conspiring group more than a year ago, which means it is likely that they had been engaged in their ripoff scheme for possibly that long.

It is also likely that you stop for a moment to calculate the annualized loss that this scam could have had, might have had and probably did have on the bottom line.

Further reading reveals some of the details of the scam, the cover-up, the distractions, the intricate moves—all apparently captured on video, as each detail in the report now is preceded by a military time, all the way down to the seconds.

The last few paragraphs of the report detail an elaborate plan by surveillance, along with the security counterparts, in quietly apprehending the employees so they were not only caught off-guard but missed the chance to communicate with any of their co-conspirators. You read that they are each interviewed alone, and you learn that they each fully confess, and even provide handwritten statements fully admitting their actions and naming the non-employee members of the “team.”

All of this, along with the detailed archived video images and the highlighted reports, data-mined results and surveillance records, led to the employees’ arrest by local law enforcement.

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IF WE BRAND IT,

THEY WILL

It is absolutely possible and completely beneficial to engineer a solution to merge every data-based system in the operation of a gaming property or resort with the video management process. This focus will move the surveillance department from “observe and report” to “investigations.”

Results-Oriented

Vertical Integration

How likely is it that this story and its details could actually take place in one of today’s modern gaming facilities? Does your surveillance department have the tools necessary to achieve these results?

The fact remains that most people in our business will likely answer something similar when asked the question, “What does surveillance do?” However the answer is formulated, it will address some basics regardless of the person’s background.

“They protect the assets” or “watch people and try to catch them doing something wrong” are two common responses, and while correct, only scratch the surface. Present-day surveillance rooms already do more than those of a few years ago did, and in some of the differences, there are benefits which impact the entire property. However, few outside the surveillance monitor room walls may know.

Even those who do know what takes place in the covert surveillance world seem to agree that we need to raise the expectation of surveillance. And then we need to far exceed the new expectation.

Many also agree that the first key to building the surveillance engine to a force that righteously and proactively protects the assets starts with support— support from the executives whose leadership can move the surveillance ability into the future and expect great and continuing results from its staff.

The next step is to step out of the box and find the following concepts as the expectations:

The surveillance staff should use every available database and software system on property. Even more effective is the culture that new digital tools are brought to property and surveillance is always a partner in the venture. This ensures that besides the primary user fully utilizing the purchase to achieve the return on investment, there is always someone else (surveillance) finding ways to mine data or integrate the tool. Surveillance may explore either integrating the software or utilizing it as a support tool for auditing.

It is absolutely possible and completely beneficial to engineer a solution to merge every databased system in the operation of a gaming property or resort with the video management process. This focus will move the surveillance department from “observe and report” to “investigations.” This is already proven in some gaming environments around the world.

System integration—such as customer tracking accounts, slot data systems, hotel management systems and reporting software from every available source—would allow the surveillance department to utilize these systems to create virtual timelines within an investigation. Then the timelines could be married to the time-mirrored video, and a more complete story line is created.

Additionally, the video can confirm the databased timeline and vice versa; the data timeline

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Surveillance departments today can complete audits at a blistering rate, building an audit database of information related to employee behavior, which can be mined for future investigations. verifies the video. While video can be the best evidence in any criminal or liability case, using digital data streams created separately and without bias to verify the information displayed on the video screen in a courtroom takes the best evidence into the arena.

Data Mining In this digital age, surveillance departments have the ability to develop data mining acumen to a tremendous level. Besides the already-integrated software systems, add to the mix a few “pay for results” internet websites, and there is a powerful investigative brew stewing in that dark cave. Performing even simple Google or Facebook searches can produce some amazing results, which could tie some investigative elements together. An excellent example of this is a surveillance employee who was able to connect a number of known advantage players together by discovering through Facebook that they each had listed the same place of employment under their personal information.

Data mining combined with system integration creates a powerful multilevel tool. Still better, video integration is a powerful multi-tool that not only becomes a primary weapon against fraud and loss, but has the potential for future marketing uses.

Auditing Many years ago, I remember a director of the surveillance department storming into the room to announce, in a large, booming voice, that we were “tossing out the clipboards” on which we documented our activities and we were “entering the digital age!” It was a surveillance-life-changing moment for all of us in the room. Today, we have taken those first attempts at digital clipboards and seen them transformed into cavernous databases, which are some of our future information mines.

The ore is going into these digital backups as audits of human behavior.

While an audit is simply the observation and documentation of a person’s activities and behavior against a set of criteria (their job), what the accumulation of hundreds of audits will be used for in the future is actually much larger. Surveillance departments today can complete audits at a blistering rate, building an audit database of information related to employee behavior, which can be mined for future investigations.

In the story described at the beginning of this article, the investigative process might have tied together the employees related to the scam given similar behaviors which were documented, discovered and found through data mining.

This doesn’t even begin to touch on the value of surveillance-based auditing towards human resource issues or management concerns, but that frankly has been an existing part of the surveillance world for many years.

Surveillance Investigators So with all of these great integrated systems and new tools added to the mix, who are these strange souls who barely turn their heads to look at someone entering a surveillance monitoring room? Better yet: Where do surveillance people come from?

If you’ve spent any time in a surveillance room, you’ll likely agree that it takes a special kind of person to commit to such work. While the same thing could be said about many other professions, gaming surveillance professionals have some very unique responsibilities for which they are charged, and without some special characteristics, those responsibilities would not receive due attention. So the answer to finding surveillance people is a possible change in focus: We must discover these attributes and place them high on the list when considering applicants for the position.

One of these attributes is focus—or more specifically, the ability to avoid being distracted and mindful. Another is an open mind, and an understanding that crazy-high expectations will be placed upon them and they will be expected to deliver on them, and to exceed them.

They are also future surveillance leaders, and quite possibly gaming leaders in any position. This is because the lid is gone from what, as surveillance professionals, they will learn, master and do to protect the assets of their property.

To the point: There is a growing number of current surveillance leaders who ensure that their departments complete many of the property investigations from “cradle to grave.” While they might work closely with other departments, once an investigation is initiated and is supported by video, the surveillance department may see the investigation through to the interview of the suspected individuals.

This culminates in a tremendously valuable place, as the people who watched the suspects through the duration of the investigation are the right people to conduct the interview. This is, of course, with proper ongoing training and development.

The future of surveillance has it touching every aspect of a gaming property. Whether it is the video images or fully integrated investigative systems, or the innovative culture which resides within its walls, the surveillance department of the future maintains a vast number of layers which will be used in many ways to protect the assets.

Once discovered and utilized, those layers may even help to improve the bottom line through protection of profit and improvement in customer service. Actually, your own surveillance department may be doing those futuredeeds right now; you need only open the Russian nesting doll’s first shell to find out.

Jesse Silva is the director of surveillance at an East Coast casino.

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Global Gaming Business FEBRUARY 2014

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Hardware Agnostic How to fit a square peg in a round hole

By Darrin Hoke tech·nol·o·gy ag·nos·tic: A software program that is not dedicated to a single hardware platform, but instead is flexible enough to work with any hardware device.

I

recently had a couple of conversations regarding my technologyagnostic approach to surveillance.

These conversations gave me an opportunity to re-examine what we have done, and more importantly, they provided confirmation that this approach brought value to our organization without sacrificing quality.

Putting Things In Context So what does technology agnostic mean as it relates to surveillance?

The idea is to have a stable and reliable operating system that works on readily available hardware platforms versus an operating system that is specifically designed to work with the hardware. Think Windows OS versus Apple iOS. Both operating systems have their pros and cons but only one will work with off-the-shelf hardware components.

If you choose a system that is a one-box solution, where the software is specifically designed to work with specific hardware, then you are forced into a never-ending cycle of obsolescence, expensive upgrades, and even more expensive system changes. If you choose a system that is technology agnostic the range of flexibility is much greater, giving the business more options moving forward.

Small Talk In both of my conversations, one to our new VP of security and surveillance and the other to an integrator, I was explaining a project we recently completed for our video area network (VAN) in surveillance that is saving us thousands of dollars.

Our system was already technology agnostic but we needed to decide if we would purchase the hardware from the video management system (VMS) manu38

Global Gaming Business FEBRUARY 2014

facturer, purchase the hardware from someplace else, or build it ourselves. I explained that we were essentially building our own servers and storage to replace the original manufacturer’s servers and storage.

Our original VMS software came preconfigured on the manufacturer’s provided servers and storage devices, and some of those hardware components were becoming obsolete, so we needed to make some decisions about the direction we would take for replacing these devices.

Our surveillance technicians approached me with a plan to replace the original equipment by designing and building their own servers/storage from readily available off-the-shelf hardware. They felt they could build a device that was more robust and could be easily upgraded in the future.

They wanted to test the concept first by building the device and running it in parallel to an existing piece of hardware. We executed our plan and every-

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The VMS manufacturers usually develop their own software and use original equipment manufacturers’ (OEM) hardware that is re-branded with their label. This means that the VMS provider negotiates a volume price for the hardware, marks it up by X percent based upon their relationship with the integrator who also marks it up by X percent, and re-sells it to the end user. thing worked out exactly as we had envisioned. We slowly began the process of switching out the entire system with the new servers and storage.

The best part of our plan was that we saved 6070 percent in costs by building our own devices versus purchasing them from the VMS manufacturer or someone else. Essentially, we just paid $50,000 to replace 500 channels of video servers and storage.

I could tell the VP had some nervous excitement about the concept because he used the analogy of a wheelbarrow to describe the boldness of executing such a plan. More importantly, he understood the value of what we had done, because he had seen his fair share of capital requests that were in the hundreds of thousands if not in the millions of dollars for similar projects.

The integrator was little more pessimistic about our approach, suggesting that this was risky and could be considered a little reckless. He also stated that his team builds and sells similar hardware solutions and will load our VMS onto their hardware. So I asked, what was the difference if they built and provided the hardware or if we handled this inhouse? His response was that they had the technical expertise to handle such a project.

I replied by suggesting that his technicians weren’t the only ones with the skills to be able to pull this off, and that I had the same level of guarantee from the manufacturer as they have. Silence…

Real Talk What is important to you is not necessarily aligned with the manufacturer, and when we consider the availability of open-source VMS solutions there is a clear disconnect between what the end user wants and what the manufacturers want to provide.

Navigating a system purchase for surveillance is very different than buying a system for IT. In IT, you can buy direct from the manufacturer for both hardware and software. In surveillance/security, you have to use an integrator to buy everything from cameras to your VMS. You have to hand it to the manufacturers and integrators for developing a sustainable business model that is based on “convenience” for the customer.

The reality is that this business model is based on relationships between the manufacturers and the integrators and what kind of margins they work on.

The VMS manufacturers usually develop their own software and use original equipment manufacturers’ (OEM) hardware that is re-branded with their label.

This means that the VMS provider negotiates a volume price for the hardware, marks it up by X percent based upon their relationship with the integrator who also marks it up by X percent, and re-sells it to the end user.

The incentive is strong for the integrator to push a product that gives them excellent margins, so you really don’t know if you are getting the best solution FEBRUARY 2014 www.ggbmagazine.com

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SURVEILLANCE SPECIAL REPORT

for your money. If the manufacturer and integrators’ relationship sours during the installation or shortly after, then the customer suffers the consequences.

If there are problems during the installation or shortly after, then the finger-pointing starts, with each company blaming the other for the problems. Ultimately, you could end up with a system that your integrator no longer supports, leaving you alone to deal with any future problems or issues that may come up.

I am not suggesting that all manufacturers and integrators are secretly scheming to try and take over the world.

Most integrators have a multitude of vertical markets from schools to prisons that they support on a regular basis. It only makes good business sense to have a wide variety of technologies that can appeal to such a diverse group of customers.

In many cases, the integrators will work very hard to earn your business and get certified on many different VMS platforms so you can make a good buying decision for your property. If you are confident in the services that your integrator and manufacturer provide, that’s a good thing for your business—as long as you understand the consequences if things start to fall apart.

If you are confident in the services that your integrator and manufacturer provide, that’s a good thing for your business—as long as you understand the consequences if things start to fall apart.

Tech Talk After the original purchase of our VMS nine years ago, we rarely used the services of an integrator again. Instead, I hired technicians that had a strong background in IT who could design and maintain a stable video and access control network. They’re not CCTV technicians, but they understand IT networks, hardware, software and circuitry.

They possess a different mindset than the traditional CCTV tech, and aren’t afraid to experiment with new technologies. In addition, we purchase most of our network equipment through big-box sales companies, and purchase our CCTV equipment through larger integrators with a strong background in box sales. We have been making smart decisions for our business ever since, by creating a future-proof network that is scalable to new technologies and can be easily updated. We make adjustments as we go by identifying simple solutions to expensive problems.

I knew what we were doing was not new or innovative, because traditional IT departments had been doing this for years. The problem was that in our zeal to keep surveillance segregated from IT, we had become conditioned to buying our hardware and software from the VMS provider through an integrator.

I am sure a number of IT directors weighed in on the subject and tried

40

Global Gaming Business FEBRUARY 2014

to talk us off the ledge by proposing other solutions that were fairly standard in their world. I am also sure they were told to mind their own business because this was how things were done in surveillance. It was easier this way.

Before my brothers and sisters in surveillance call me out, I am not suggesting that IT has oversight of surveillance. I am merely suggesting that if you don’t have the in-house technical knowledge to navigate such a project, you either have to obtain that knowledge or use someone in IT who already possesses the knowledge to help you make a sound business decision for your organization.

Basic Benefits The immediate benefit of a technology-agnostic approach to surveillance is the cost of ownership. Using a very conservative estimate, we saved over 50 percent on a single project. In addition, we have a better product for half the cost, because we specified the hardware ourselves and used the latest technology to help future-proof our network.

All of this translates into results for our property by having a stable platform that is dependable and scalable. This has given the surveillance department the tools they need to provide information to the rest of the operation in an accurate and efficient manner. When we talk about value, it has to be more than perceived; it has to be tangible and quantified. By re-examining your operation, there are a number of ways this can be accomplished; and for me, a technology-agnostic approach is just one of many that makes sense for our business.

There isn’t a “one size fits all” approach. Whether you use a singlesource platform and an integrator or go a little rogue by doing it yourself, you have options. As a stakeholder in your operation, you are responsible for weighing these options and making the best decision for your property.

Darrin Hoke is the surveillance director at the L’Auberge Casino Resort in Lake Charles, Louisiana.

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iGaming Security

Good start in the three states that have legalized iGaming

Standards

By Gus Fritschie

B

ack in January 2012, I wrote an article for Global Gaming Business discussing the role that information security would need to play in the upcoming regulated iGaming environment in the United States. Since that time, much has changed in the iGaming landscape.

We now have three states which not only have laws passed legalizing online gaming, but where the sites are live and players are actively playing. Those states are, of course, Nevada, New Jersey, and to a lesser extent Delaware (due to its small population). Nevada currently only offers online poker, while the other two have full casino games online.

The road was long, perhaps longer than many expected. Especially for Nevada, where quite some time passed from when the law was enacted to when the first online poker room went live. The reason for this was the abundance of caution that the regulators took in the testing and licensing process.

Both the Nevada Gaming Commission (NGC) and the New Jersey Division of Gaming Enforcement (DGE) put together strict guidelines on the standards that the operators must meet and be held accountable to. I have spent most of my time researching and analyzing these two regulatory bodies due to their size and influence, but most of my opinions hold true for Delaware as well.

In both states’ regulations, there are specific information security requirements and standards that operators must meet. However, I feel that for the most part, they are not as strong as they should be. I have the impression from talking to people in the industry that when security in iGaming is discussed, the focus is about geolocation and identity verification. Obviously, these are two major issues when dealing with intrastate iGaming and ensuring that underage players are not allowed access.

Password Protection This is not to say that the regulations do not have some positive information security requirements.

For example, there are password strength, account lockout, session termination, and multi-factor authentication requirements. However, in reality it is all about how they get implemented. In some of the sites I reviewed, the password requirement was at least eight characters with at least one letter uppercase and one numerical value. Strangely enough, special characters were not 42

Global Gaming Business FEBRUARY 2014

allowed on some of the sites. There is no technical reason why this can’t be implemented, and it seems to indicate that the developers did not code the application to deal with special characters as input in the password field. While this is not the worst password policy I have seen, I believe it can be strengthened.

On a more positive note, one of the tested sites after 10 deliberate unsuccessful login attempts required entering a pin that was sent to my mobile before I was able to successfully log in. This is a good defense against brute-force attacks.

Also positive was to see New Jersey’s requirement to make multi-factor authentication available to its users. The standard authentication method for logging in is a combination of a username and password. However, users will also be given the option to utilize “strong authentication.” The specific regulation states: “‘Strong authentication’ means a method that has been demonstrated to the satisfaction of the division to effectively provide higher security than a user name and password alone. “‘Multi-factor authentication’ means a type of strong authentication that uses two of the following to verify a patron’s identity: 1. Information known only to the patron, such as a password, pattern or answers to challenge questions; 2. An item possessed by a patron such as an electronic token, physical token or an identification card; or, 3. A patron’s biometric data, such as fingerprints, facial or voice recognition.”

Pinpoint Location From the initial review I performed, it appears that the majority of sites have implemented this requirement by sending a pin to the user’s mobile phone.

This method is satisfactory, and does meet the requirements of the New Jersey

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Why spend effort attempting to bypass a site’s security when you can “trick” a user into clicking on a malicious link (i.e., phishing attack) and installing a backdoor on their computer, which allows you to see their hole cards? While not a direct attack at a site, I feel the operators still bear some of the responsibility to protect the players.

DGE—and is used in other sectors (e.g., finance). However, upon closer review I determined that one of the site’s multi-factor implementations could be bypassed, and the pin brute-forced without causing the account to be locked out.

These items outlined above are all controls that will help protect players from client-side attacks. However, what about security requirements on the server side and the application?

There are some components in the regulations that do address these areas.

For example, here’s a section on encryption from New Jersey’s regulations: 13:69O-1.7 Communications standards for gaming systems (a) All gaming systems authorized by this chapter shall be designed to ensure the integrity and confidentiality of all patron communications and ensure the proper identification of the sender and receiver of all communications. If communications are performed across a public or third-party network, the system shall either encrypt the data packets or utilize a secure communications protocol to ensure the integrity and confidentiality of the transmission.

But my question and concern is how and to what level these iGaming applications are tested. We know that in Nevada, before being certified, the operators must pass testing performed by a certified independent testing lab, namely either GLI or BMM. New Jersey also has the following in its regulation: (q) Each casino licensee offering internet gaming shall perform a network integrity and security assessment conducted by an independent network professional selected by the licensee’s external auditor. The independent network professional’s report on the assessment shall be submitted to the Division prior to the commencement of internet gaming operations, quarterly for the first year of operations and annually thereafter.

Being a provider of security assessment services, I found this point very interesting. Of course, what it means by security assessment is open for interpretation. Is this just a network security assessment, or does it also look at the application layer? What about penetration testing? Security code review? Again, it is good as a starting point, but needs to be further defined.

Shortly after iGaming launched in New Jersey, I passively examined a couple of the iGaming sites. (Passive testing indicates no active testing or intrusive scans.) I was surprised to find some serious WordPress (a content management system) misconfigurations that could potentially lead to significant security incidents. I notified the operator and the issues were quickly fixed.

What I find troubling is how such vulnerabilities actually made it into production. What type of testing, if any, was performed? I ask because this was an item that by simply running a basic security scanner would have been detected.

If this was missed, I am concerned about what other problems that require more detailed testing, such as security code reviews, might still remain or get introduced with new versions of the gaming software.

Potential Problems Am I raising a bigger cause for concern than is warranted? After all, there have been no reported major security issues that have impacted a site’s integrity. My answer would be that I do not feel that in today’s climate an iGaming operator

could survive a security breach the size and sensitivity of, say, the recent Target security incident. Not only would players lose faith in that operator, but it could affect the industry as a whole. Additional ammunition would be given to opponents of iGaming who claim it cannot be offered in a safe and secure manner.

Today, what we mostly see reported is not attacks against an operator’s gaming infrastructure but attacks against the players themselves. The reason for this is clear—the players are an easier target.

Why spend effort attempting to bypass a site’s security when you can “trick” a user into clicking on a malicious link (i.e., phishing attack) and installing a backdoor on their computer, which allows you to see their hole cards? While not a direct attack at a site, I feel the operators still bear some of the responsibility to protect the players.

It is also in the sites’ best interest because the negative publicity could impact their reputation. In some of the recent regulations, we see player protection mechanisms such as enabling multi-factor authentication, account lockout, and displaying last login being required.

However, we still see these attacks occurring, and they seem to be getting more organized. For example, there was an incident during the EPT Barcelona last year that was first reported on the popular poker forum Two+Two. This attack involved numerous online players whose laptops were infected with a backdoor while staying at a sponsored hotel. You can read more about this incident over at Pokerfuse. In order to stop these types of attacks, more aggressive security controls at the client layer are needed and better security awareness training has to be developed and disseminated to the players.

Looking forward to 2014, I predict that while we will not see any major security incidents at those regulated sites in the United States, we will see an increase of targeted phishing attacks at players. While I do not predict any attacks directly against an operator, I do feel that there will be some major security incidents that will affect mobile iGaming platforms.

Mistakes that were made 10 years ago in traditional web applications are now being made on mobile platforms. The iGaming industry is one that moves quickly with the adoption of new technologies. However, the security controls do not typically keep up. With the increase of security breaches, like Target and recently the compromise of 4.6 million SnapChat accounts, only sites that are able to best protect themselves will be in the position the gain their players’ trust and confidence.

Gus Fritschie is an information security professional and avid poker player living in Washington, D.C. He is the chief technology officer at SeNet International (senet-int.com). Fritschie has experience leading and performing numerous vulnerability assessments and penetration tests in support of financial audits, FISMA, and other compliance-related efforts. Clients included Fortune 500 companies, civilian agencies and the Department of Defense. Follow Fritschie on Twitter, @gfritschie.

FEBRUARY 2013 www.ggbmagazine.com

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iGaming North America

And The Answer Is… New Jersey will answer key iGaming questions.

F

By Paul Girvan

inally, a significant U.S. jurisdiction has gone live with a comprehensive iGaming offering. The advent of iGaming in New Jersey operated under the auspices of the existing land-based casinos offers the nascent industry, and especially analysts like me, the first real-life test of theories developed out of primary research, both as a stand-alone model and in comparison to the longestablished precedents based in Europe.

The two primary questions for which New Jersey will provide some answers: First, what is the revenue potential of iGaming in the U.S., where casino gaming has become so popular in its bricks-and-mortar format?

I have personally conducted over 10 surveys on behalf of the Innovation Group, both regionally and nationally, where we asked players how likely they are to go online to engage in casino games for real money, how frequently they would do so and what volume of dollars they would be willing to wager.

Assessing these findings in association with trends from comparable spends in Europe, we have developed proprietary models and made revenue projections. However, as anyone with experience in primary research knows, it is difficult to extrapolate quantitative research findings into workable revenue models, especially in the gaming industry.

Using European data is also problematic given the large section of iGaming that is related to sports wagering, which is not permitted in the U.S. nor utilized to cross-market land-based operations. This is part of the reason we have seen variations in revenue projections ranging from $200 million to over $1 billion for New Jersey.

Our opinion is that the higher number is overly optimistic to say the least, while the lower number is more realistic.

Ultimately, we believe that the first 12 months of gross gaming revenue (GGR) for New Jersey will be lower than $200 million, primarily because of the need to identify and/or pressure credit card

companies and banks to participate, and the natural ramp-up period that will occur with any new venture over the first two to three years. Regardless, the outcome in New Jersey will go a long way to providing a key benchmark for iGaming nationwide in the U.S. For what it is worth, and to go on record, we believe that the New Jersey market could generate between $150 million and $200 million in the first full year of operation, depending on how quickly and to what extent payment processing issues are resolved. We believe this will ramp up over a threeto-five-year period to a stable state market worth between $275 million and $325 million in GGR. Second question: In New Jersey, iGaming is re-

“I would caution everyone not to jump to conclusions as the first few months of data becomes available since—given the vast range of expectations in the state—hitting the ‘mark’ is all but impossible.”

44

stricted to existing casino license holders, which is the model that most U.S. states are now looking at.

The most significant question surrounding this approach has been, will there be cannibalization of land-based gaming revenues?

This is an operator concern which we have addressed in all of our primary research work and one to which we have received differing answers. Nationally and in some regional surveys we found that there would be a small positive uptick in landbased revenues. This is typically attributed to the ability to reach players that might not otherwise come to a land-based casino via online incentives, as well as the encouragement of more committed players whose participation is reinforced through the online experience, particularly because of reward offerings.

However, in some regional surveys, the data suggests minimal declines in land-based revenues.

While we think this can likely be attributed in large part to the difficulty of communicating iGaming

Global Gaming Business FEBRUARY 2014

incentives for encouraging land-based trips via a survey format, it does inject a measure of uncertainty which operators, legislators and analysts would like to see some clarity around.

New Jersey will offer some indication as to the directional impact on land-based gaming, and we urge that the regulators publish the revenue data that would allow this type of analysis.

I am eager (now that I have gone on record with a number) to see the outcome in New Jersey, as it will provide a benchmark for other states considering iGaming. It may also offer some comfort to those concerned about the impact on existing land-based operations. I would caution everyone not to jump to conclusions as the first few months of data become available, since—given the vast range of expectations in the state—hitting the “mark” is all but impossible.

I anticipate the numbers will most certainly be lower than expected given the issues the process has had to overcome, but what will be important to watch is how the revenue numbers grow (or not) over the ensuing months and years. From this information we hope to be able to develop a model for projecting iGaming revenues, which is as accurate and robust as our land-based gaming models.

We will also be watching closely the land-based gaming revenues in Atlantic City looking for cannibalization and/or growth in land-based casino revenues. Again, caution needs to be exercised, for as we have seen over the last few years, competition from land-based casinos in surrounding states has seriously cut into Atlantic City’s land-based casino revenues.

Determining the real impact of iGaming on land-based casinos in Atlantic City may only be possible at a micro level where the operator can track the success, or lack thereof, of an iGaming-toland-based promotional effort.

Paul Girvan is a partner and managing director of the Innovation Group, in charge of its New Orleans office.

Girvan has been providing feasibility analyses to the gaming industry since the early 1990s and in the last five years has increasingly focused on iGaming. The Innovation Group is co-producer of the iGaming North America Conference held in Las Vegas each March.

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Feds Shut Down Oklahoma Online Tribal Casino

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here are several organizations seeking to operate tribal online gaming citing various federal and state rulings permitting some kinds of online gaming. Last month, it was revealed that the federal government has been blocking a website operated by an Oklahoma tribe seeking to do just that.

The Cheyenne and Arapaho Tribes of Oklahoma seek to operate an online casino for international players. The website pokertribes.com has been approved via compact with the state government, but was blocked last month by the Department of the Interior. The tribe has filed suit against the department, citing Sally Jewell, secretary of the Interior, and Kevin Washburn, assistant secretary of Indian Affairs, as defendants.

The tribe believes it has the right to offer online gaming because of the relationship with the state.

“It’s pretty groundbreaking,” said Richard Grellner, an attorney representing the tribe. “In Oklahoma, we have the Native American culture we can sell to the world, and the state and the tribes can really benefit.”

A study conducted for the tribe estimates that it could generate $132 million in revenue in 2018 if it could attract just 2 percent of the world’s online gaming customers.

Under the tribal compact with the state, it would pay the state 4 percent of the first $10 million in annual net revenue from electronic gaming, 5 percent of the next $10 million and 6 percent of any subsequent amount, plus a monthly 10 percent from non-house-banked card games, or games in which the casino or host has no stake in the outcome.

Borgata COO: New Jersey iGaming Exceeding Expectations

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he Borgata Casino Hotel & Spa is one of the clear winners in the early days of online gaming in New Jersey, and the casino’s president and COO says the numbers are exceeding expectations.

In an interview with CNBC’s Squawk Box, Tom Ballance said Borgata has seen more than 20,000 on46

Tom Ballance, COO of the Borgata Casino Hotel & Spa

line accounts opened by gamblers—the state’s casinos as a whole have seen nearly 150,000 accounts opened—and most of those customers rarely gamble in person at the Borgata’s brick-and-mortar casino.

“Borgata was uniquely positioned to be at the forefront, primarily because of efforts by our managing partner, Boyd Gaming Corporation,” Ballance told Squawk Box. “Boyd’s strategy is to engage in online gaming nationwide. We weren’t out hunting for a service provider, when others were. We were all set up and ready to go.”

More importantly, online gaming seems to be bringing in new customers to the Borgata brand.

“When we match up databases, the great majority of players who were playing online have not been to Borgata in well over a year,” he said. “And the vast majority have made fewer than two trips in the past year. So it’s a different customer. It also skews more male than the conventional brick-and-mortar customer.”

When online gaming in New Jersey was first proposed, many questioned if the move would siphon off gamblers that usually play in person at brick-and-mortar casinos. The state will release its first report on online gaming revenue later this month.

Ballance also answered critics who say online gaming will lead to more problem gambling.

“Online we actually have more controls,” he said. “You don’t extend credit online. You’ve got to fund your account somehow—through your checking account or through a credit card.”

Meanwhile, the Borgata Hotel Casino & Spa and its online gaming partner bwin.party entertainment, owners of PartyPoker, are off to a fast start in the New Jersey online gambling market, and they’re not letting any grass grow under their feet.

The two companies announced last month that new apps for both company’s gambling platforms— PartyPoker.com, BorgataPoker.com and BorgataCasino.com—have been developed for iPhones and are available for free.

Global Gaming Business FEBRUARY 2014

A gambling app for iPhone, iPad and iPod Touch, supported by iOS 4.3 or later, is now available at PartyPoker.com and is free to download and install. The same apps are available at BorgataPoker.com and Borgatacasino.com.

The tool allows players to engage in poker and casino games while moving from room to room or as they roam around within the Wi-Fi-enabled areas of New Jersey, the companies said in separate press releases.

The poker apps include a “Quick Seat” feature that allows players to find a seat when choosing from hundreds of real-money Texas Hold ‘em tables accessible at the sites. It also has the “Fast Forward” feature, designed for players who prefer to compete with a pool of players for fast and intense poker action, as opposed to seating in fixed cash games.

With BorgataCasino.com, players have access to their favorite slot games and jackpot promotions, including Borgata’s $1 million progressive slots as well as a variety of table games, such as blackjack and roulette, all on an easy-to-navigate interface.

The mobile gambling apps also enable users to access the site’s cashier and process transactions using payment methods like Visa, MasterCard, Skrill or direct bank transfers.

California May Legalize Online Poker in 2015

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or the first time in four years, supporters of online poker in California are not predicting that the practice will be legalized in the upcoming year. Instead, they are predicting that it will be legalized in 2015.

The reason for the delay California Gambling in a push for online gambling Control Commissioner in the Golden State is the upRichard Schuetz coming national election in November, which tends to push most parochial concerns to the back burner. Of course, the other two legal gaming groups in the state, card clubs and racetracks, have some say in it too, but not much compared to the tribes.

Although some gaming tribes who hope to profit from it are driving legalized online poker, other tribes who worry that it will cut into the revenue of their brick-and-mortar casinos are opposing it.

According to California Gambling Control Commissioner Richard Schuetz, “I think there’s a belief among our tribal partners that the internet as a distribution network for gambling products could in some ways cannibalize the brick-and-mortar environment.”

Other industry observers think online gaming might actually create more business for physical casinos.

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Colorado and Pennsylvania Considering Online Poker

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wo states are eyeing the introduction of legal online gaming in light of the success the industry seems to be experiencing in New Jersey.

An effort last year to legalize online poker in Colorado may have failed, but a recent report suggests the idea is far from dead in the Colorado statehouse.

And with Nevada now offering online poker, many in Colorado are watching carefully to see if they should make another attempt to legalize the game.

“This is something we are monitoring very closely,” Troy Stremming, executive vice president of government relations for Pinnacle Entertainment, owner of Colorado’s largest casino, Ameristar Black Hawk, told the Denver Post. “Internet gaming continues to evolve state by state and through everchanging technology. With respect to Colorado, when there is a piece of legislation to review, we can make decisions based on whether or not participation will be beneficial to the company.”

However, any move to start online gambling suffered a significant setback after the report came out, when Colorado Attorney General John

Suthers issued a legal opinion that lawmakers cannot expand gaming within the state without an amendment to the Colorado state constitution.

The constitution prohibits games of chance, but a constitutional amendment in 1990 allowed for “limited gaming” in three districts—Central, Black Hawk and Cripple Creek. The Colorado Supreme Court has ruled that poker is a game of chance.

Meanwhile, the Pennsylvania State Senate has passed a resolution to initiate a study of the potential of legalizing internet gaming in the state.

The resolution, though simply a procedural step, could initiate an effort to create a new iGaming industry in response to the internet gaming program set up in neighboring New Jersey, which went live in late November. Proponents of the measure last month pointed to the recent levelingoff of gaming revenues from Pennsylvania’s 12 casinos, as well as new competition in New York and Massachusetts, as a motive to stay ahead of the curve in competing with New Jersey’s nascent iGaming industry.

The measure calls for an impact study of internet gaming, to measure the potential effects on the land-based casino industry, on employment, and on the gaming revenue tax the state enjoys, which has topped the nation. The study also would estimate benefits of potential revenue from online gaming

against a growing budget deficit. The resolution does not identify which games should be offered online.

Bulgaria Revamps Online Gaming Laws

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he Bulgarian Parliament has passed amendments to the country’s Gambling Act that include doing away with its 15 percent take on gambling revenues and elimination of the country’s online gambling blacklist.

Earlier, Parliament moved to allow gambling operators to apply for licenses online in an effort to make it easier for foreign operators to operate online gambling sites in the country.

One amendment abolishes the country’s 15 percent take on gambling revenues and replaces it with a one-time licensing fee of about $70,000 along with a 20 percent tax on gambling profits— defined as “the difference between the bets made and the winnings paid out.” In the case of poker tournaments or other games that rely on fees and commissions to make a profit, 20 percent of revenue will be taxed.

According to published reports, the amendments will also end Bulgaria’s blacklist of operators who are not allowed to operate in the country.

More than 50 different websites were on the list.

FEBRUARY 2013 www.ggbmagazine.com

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OPERATIONS

Three Steps to WorldClass Player Development Don’t ignore your best players; empower your hosts

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n my role as a senior vice president with the Fine Point Group, I have the pleasure of interacting with tribal and commercial casino marketing departments in gaming jurisdictions across the country, and, literally, around the world.

When meeting with a client’s marketing team, it’s always exciting to hear about how they want to use data to be more efficient with customer reinvestment, or to be more targeted with direct marketing and to conduct analysis of marketing programs to make ongoing incremental improvements.

Certainly these are all good and productive ways to use data to improve a casino’s bottom line; however, player development is rarely mentioned in these discussions. This omission has always puzzled me, because casino hosts, at least theoretically, manage the relationships of the casino’s most valuable customers.

After a recent focus group with a client’s casino host team, it dawned on me why player development is often omitted from these strategic planning discussions—some senior-level casino industry executives still view the hosting function as a non-strategic, reactive operating function instead of the proactive, sales-centric function that it should be. In many cases, the player development department doesn’t even report to the head of the marketing department; it reports through the table games department.

No matter where player development reports, you likely have an opportunity to extract significant revenue improvement from your VIP customer database by using simple data analysis coupled with a proactive sales approach to guest hosting.

Late last year, our firm was asked by a multiproperty tribal casino operator in the upper Midwest to assist them with an overhaul of their player development program. The tribe owns and operates multiple casinos and restaurants, hundreds of hotel rooms, thousands of slot machines and table games, entertainment venues and even golf courses. They have all the amenities that would cater to VIP-level guests, but had hired only two

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Global Gaming Business FEBRUARY 2014

By Stephen R. Marshall

casino hosts who had never been given any clear direction on how they should be spending their time.

In fact, they spent a good deal of time handling customer complaints, giving breaks to rewards-club representatives and generally serving as a “catch all” department when someone didn’t know how to handle a guest request. This left very little time for them to do the job for which they were hired—building relationships with high-value gamblers.

Neither host was thrilled with the direction of their careers. As we began working collaboratively with the hosts and the tribe’s management, the organization was totally committed to the process and the final player development strategy was reflective of that commitment and collaboration. By diagnosing the issues and creating a new plan, we utilized the following three steps to guide us through the process: Define a VIP at your property and assign guests to hosts using a data-driven player development segmentation. Is a VIP a person who visits two or three times a week and is worth $50 a trip or is it a person who visits twice a year and spends $750 per trip?

The answer is probably both, and is unique to your property and company based on your market, competitors and customers. How your team manages those accounts is what makes the difference in terms of maximizing the value created by your host team. In the case of the lowworth/high-frequency guest, hosts don’t need to spend a lot of time trying to convince them to visit more frequently. In fact, you may decide not to assign this type of guest to a specific host because everyone that works on property is their host. Everyone from the general manager to the slot attendant is likely familiar with these highfrequency guests and their preferences. On the other hand, the lower-frequency/high-value guest may be loyal to one of your competitors, and it’s the host’s job to convince that guest that there is value in consolidating his or her play at

your casino. Simply put, your segmentation should be a guide to help your hosts focus their efforts on guests with revenue upside (new, low-frequency and inactive) and not just on “regulars.”

Make sure you have the right human resources and train them on techniques designed to drive desired guest behaviors within your player development segmentation strategy. Quickly manage out those that don’t buy in or just aren’t aggressive sales people.

Train your hosts to liberally communicate and reinvest in new loyalty program enrollees that play at a VIP level. Empower hosts to comp rooms and other perks to guests that live regionally, play at a VIP level and don’t visit your property that often.

Hold your host team accountable for results. Set baselines and develop standard analysis designed to illustrate each host’s progress toward the goals of your player development segmentation strategy. Meet with each host on a regular basis and review progress relative to their assigned revenue targets within your segmentation. Use these meetings as an opportunity to understand any challenges they are having from a product or service perspective. Open lines of communication can go a long way in creating loyalty within your VIP customer base and your host team.

Because our client was totally committed to flawless execution of a data-driven, proactive player development strategy, the revenue results far exceeded client expectations. In the first five months after implementing the new player development strategy, VIP gaming revenue was up 30.4 percent year-over-year, which translated into millions in incremental gross gaming revenue. Needless to say, you have nothing to lose by using these simple and cost-effective techniques to steal VIP market share from your competitors within this highly profitable business segment.

Stephen R. Marshall is a senior vice president at the Fine Point Group. He can be reached at smarshall@thefinepointgroup.com.

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THE

MERGER GAME With two big mergers in the past year and a slot sector crowded with new players, analysts gauge further consolidation

by Frank Legato henever a huge merger or acquisition occurs among slot suppliers, there’s a tendency in the industry to speculate whether or not the deal is indicative of a larger trend toward consolidation.

When two big deals occur within a year, the urge to look at the bigger picture is irresistible.

The two biggest news items from the slot sector during 2013 were, of course, merger deals. Early in the year, lottery industry giant Scientific Games announced it was acquiring one of the big-five slot manufacturers, WMS Industries. The New York-based firm was steeped in lottery history, from introducing the first instant lottery ticket in 1974 to securing system and ticket deals with many of North America’s largest state and provincial lotteries, as well as lotteries in Europe.

Along with the former GTECH Corporation, Scientific Games has been credited for practically creating the government-sponsored lottery industry in North America. Now, the company was following GTECH into the casino supply business. But while GTECH bought into a conglomerate of small suppliers including the former Atronic and Spielo (along with Italian lottery giant Lottomatica), Scientific Games was merging with one of the top slot-makers in the business.

In the middle of the summer, as the Scientific Games/WMS deal was being finalized, the year’s second big M&A announcement came: Bally Technologies, the industry’s second-largest slot manufacturer and top slot systems provider, would acquire SHFL entertainment, the industry’s top supplier of proprietary table games.

It was the last piece of the puzzle for Bally—acquiring SHFL, which began life as Shuffle Master on the strength of its introduction of the ubiquitous automated shuffler, transformed Bally into the most diverse casino supplier on the planet.

Both deals made a lot of sense for the four companies involved, and created two companies that are much more prominent in the industry than before.

Analysts say that as far as mergers of large suppliers go, these two deals are

W

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Global Gaming Business FEBRUARY 2014

probably the last such mega-mergers, at least for the foreseeable future. However, that doesn’t mean supplier consolidation is over. A combination of international slot-makers moving into North America and former Class II suppliers and amusement companies targeting the Class III casino market has translated into a slot supply sector that is more crowded than ever.

“We still have a lot of emerging players in the equipment space,” comments analyst Todd Eilers, head of Eilers Research, LLC. “If the larger companies are looking at growth, with the North American market being flat or slightly up, the thought is that there needs to be fewer competitors. You’re likely to see more emerging players, and that bodes well for more M&A from a domestic standpoint.”

The Big Deals The competition among emerging players got a lot tougher with last year’s two big acquisitions, which were universally praised by analysts.

“If you look at these two mergers, each really fulfilled a strategic purpose,” says gaming stock analyst Frank Fantini, CEO of Fantini Research. “Bally accomplished some very important things. No. 1, they dramatically increased their international exposure. Bally for a long, long time has had the need to increase internationally in their head, but has had a challenge doing it. Now, they almost automatically have doubled their exposure internationally, and have a lot more feet in a lot more doors in casinos worldwide.”

Neil Davidson, senior vice president and chief financial officer for Bally Technologies, notes that the SHFL acquisition instantly moved international sales from 16 percent of overall revenues to 25 percent.

“We now have more of a focus on international business, and we are even focusing more on product development for international markets,” Davidson says. “Prior to the acquisition, we did good when looking into international markets; I wouldn’t say we did great. But now, we’re looking forward to a broader international footprint.”

“For Bally, the international business itself was not all that large,” says Eilers.

“So the acquisition makes sense from a strategic standpoint.”

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There is a consensus that the next consolidation in the slot business will not involve large companies like last year’s two big transactions, but will involve any of a variety of smaller companies.

Fantini says another point of logic to the Bally/SHFL combination is the addition of a completely separate product line for Bally that is completely complementary to its current products.

“SHFL in no way cannibalizes or competes with Bally products,” Fantini says. “But now, Bally has got the leading table game company in the world; plus, it’s got the electronic table games. As you know, electronic table games are increasingly important as casinos either try to cut costs as in the United States, or try to overcome the caps on live table games as you see in Macau.”

He adds that this complementary product line is replete with that most desirable commodity among suppliers: recurring revenue. “Bally dramatically increased the amount of recurring revenue they have, because so much of SHFL’s business is on lease,” says Fantini. “Every month, those checks are going to be coming in to Bally. So this was a very strategic purchase on Bally’s part.”

“When we were looking at this deal and considering whether we were going to put it together, what we realized very quickly was that the two companies are very complementary,” recalls Davidson. “Both companies’ history of innovation and the people were very similar. From a financial aspect, you look at both companies and SHFL has done a tremendous job of increasing their recurring revenue. About 50 percent of their revenue was from recurring sources, as well as ours.

“We were pretty excited about that, and then you layer on top the fact that both of our companies were generating combined free cash flow, and overall, we’ve got a great opportunity to scale up with this recurring revenue and cash flow generation.”

“I love the Bally-SHFL combination,” says Bill Lerner, principal of Las Vegasbased Union Gaming Group, “but what I think is intriguing about it is that Bally is able to immediately get into the electronic table business. SHFL is able to deploy its slots with dramatically greater and deeper distribution. I think both parties have the opportunity to move content and intellectual property back and forth, on one another’s products.

“Broadening the depth of distribution there vis-à-vis SHFL’s relationships will be helpful. It also gets into the social gaming business. Bally was initially licensing content into that, or at least contemplating doing that. Now, they’ll be competing with Double Down and others, because SHFL has organically developed that business.”

As with the Bally/SHFL deal, the combination of Scientific Games and WMS provided key benefits to each company. “Historically, Scientific Games is basically an auto-tote company that bought a lottery company,” comments Fantini. “They’ve tried through their fixed-odds betting terminals and elsewhere to get into the machine business, but now with this purchase, in one fell swoop,

they have become one of the worldwide leaders in slot machines and related products.”

Eilers adds that while WMS had experienced a recent downturn in ship share, the company had turned a corner with its most recent new products.

“A lot of the data we were seeing earlier this year showed that some of their new platforms were definitely an improvement and were gaining some traction,” Eilers says. “So I think the timing from Scientific Games’ standpoint was pretty favorable for them.”

The best thing Scientific Games gets in the deal, he says, is access to WMS content. “WMS, even on a downswing, has great content,” he says. “Scientific Games has a lot of distribution capabilities, but on the game side, never had great content. It helps their existing business in the U.K., and allows them to go after new VLT opportunities with WMS in their back pocket—which makes them a more viable candidate to win new deals on the video lottery side going forward.”

WMS also gives Scientific Games an immediate inroad into interactive gaming, adds Eilers. “On the interactive side, WMS is really taking off with its social product,” he says. “Scientific Games can leverage that, and use a lot of that expertise for their lottery customers as well. I think you will see, in addition to content, an improvement in Scientific Games’ interactive offering as well.”

From the WMS side, the benefit is the flip side of the benefit to Scientific Games: more distribution for that formidable content. “WMS, quite simply, gets international distribution vis-à-vis Scientific Games’ network that they simply didn’t have,” says Lerner.

“One of the things that struck us and excited us from our first look at WMS was how complementary our businesses and capabilities are,” says William Huntley, executive vice president and chief executive of gaming at Scientific Games. “We have a global footprint of customers in approximately 50 countries and our customers are largely government agencies. WMS is one of the top gaming machine designers and manufacturers in the world. Collectively we are well positioned to blanket the world with a complete range of gaming products.

The potential is very exciting.”

Coming Together There is a consensus that the next consolidation in the slot business will not involve large companies like last year’s two big transactions, but will involve any of a variety of smaller companies.

At least, some say, future deals will involve acquisition of a smaller company by a larger one, either as a tuck-in buy to fulfill some need of the larger company, or as a function of the convergence of brick-and-mortar and interactive FEBRUARY 2014 www.ggbmagazine.com

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“One of the questions for a long time is who has the advantage moving forward on the internet. Is it internet companies like Zynga and Facebook? Or is it brick-andmortar companies that happen to have huge game libraries and gaming licenses in jurisdictions throughout the world, with deep experience with dealing in regulated environments?”

technologies.

Ainsworth and others moving into the “We don’t have neat little separate market, North America is becoming a silos anymore, with slot machines over crowded place for slot suppliers. here, and internet gaming over there, in“Part of consolidation is simply the ternet software and platforms over question of how many competitors you there,” says Fantini. “They’re all kind of can have in a single space,” says Fantini. converged, and if you’re looking for a “Several years ago, it was very popular to broader reason for all of these acquisithink that there had to be consolidation tions, convergence is one of them.” among the gaming suppliers because One recent example, he notes, is there were basically four of them. You Canada’s Amaya Gaming Group, which had IGT, Bally, WMS and Aristocrat in recently completed a spate of acquisiNorth America. And IGT had 65-70 pertions culminating with the purchase of cent market share.” slot-maker Cadillac Jack.

Many thought the other three would “I think Amaya is a case of a small consolidate simply to mitigate all of the company that just decided that it was R&D, licensing, manufacturing and going to become like a mini-conglomerother costs going into the fight for the 35 ate,” notes Fantini. “They have put topercent market share that was not held by gether a company that has slot machines, IGT, he says. internet platforms, internet technology, “Well, IGT doesn’t have 65 percent —Frank Fantini, CEO, Fantini Research software technology… The CEO of anymore, but what we do have is we now Amaya had a vision for this company have a whole bunch of other companies that integrates all of these converging that have come into this space,” Fantini technologies.” notes. “Ainsworth, Aruze, Multimedia Games, Incredible Technologies, all “I think you will continue to see some acquisitions along those lines,” of these Class II companies that now want to become Class III compaadds Eilers, “whether it be land-based suppliers acquiring interactive companies—the field is even more crowded than it was before, and it’s even more nies or the other way around.” fractured, because now instead of four companies dominating North Amer“One motivation you can see for consolidation is to converge all of our ica, you’ve really got five or six, because Konami belongs in that mix, and technologies, like IGT has already done.,” Fantini says. “Social gaming is anMultimedia Games is growing rapidly.” other example of that. We saw where Caesars bought Playtika and is doing With Aruze on the rise and companies like Novomatic trying to capvery well with it. IGT bought Double Down and is doing very well with it. ture market share in North America, Fantini says smaller companies will “One of the questions for a long time is who has the advantage moving find it more difficult to compete without combining resources. forward on the internet. Is it internet companies like Zynga and Facebook?

“After a while, you have to say wait a minute—not all of them can sucOr is it brick-and-mortar companies that happen to have huge game libraries ceed,” he says. “Some of them are going to have to go by the wayside or be and gaming licenses in jurisdictions throughout the world, with deep experibought out by someone. And some of these new competitors have deep ence with dealing in regulated environments? pockets. Novomatic is a big company. Aruze is a big company. If they so “So far, IGT, at least on social gaming side, seems to be absolutely corchoose, they can pour huge amounts of resources into North America.” rect. That experience and knowledge and connection with brick-and-mortar casinos is helping them tremendously. And they have a library. They don’t Who’s Next? have to go out and create games from scratch or buy them from somebody; Given the challenges of today’s crowded slot market, combined with the they have the richest library in the world.” need of companies to diversify into interactive technologies, analysts say “As the social casino gaming space continues to grow,” adds Eilers, “and that while further consolidation is sure to occur, it’s difficult to identify the as more U.S. markets open up on the real-money internet gaming side, I companies that may be on the hunt or may, in fact, be acquisition targets. think you’ll continue to see a push in the direction of convergence between However, there are a few companies that are on the lists of several anathe land-based equipment sector and the interactive sector.” lysts as a potential M&A player. One such company is Austin, Texas-based Multimedia Games, both as a potential target and as a company on the Staying Alive hunt to strengthen through acquisition.

If convergence of land-based and interactive technologies is one aspect that Union’s Lerner says Multimedia could be one of the companies looking will drive future mergers and acquisitions, another aspect is simple survival in to respond to the recent Scientific Games and Bally acquisitions. a North American market that continues to gather new players.

“If I’m on the public side of this whole story—the investor/Wall Street From growing companies like Multimedia Games, Aruze and Cadillac side—you’ve got to be looking at MGAM as the company that makes sense Jack to international companies like Novomatic, Casino Technology, within this context for someone who wants to scale,” Lerner says. “Essen52

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tially what you have is four companies that are now two, that are fundamentally more competitive. So, if I’m Aristocrat or MGAM, from a competitive perspective it’s something to note, and I want to do something to be more competitive.”

Fantini says MGAM also frequently pops up as a buyout target, but in that respect, the company’s own success may be a barrier. “Normally when you talk about who’s buying and who’s being sold, the name Multimedia Games pops up,” Fantini says, “because we all know they’ve got some good products; they’ve got TournEvent and High Rise and other products. And now, they increasingly have licenses throughout the country. The difficulty with buying MGAM is that their stock price is up. They’re expensive now; they’re not the bargain they were a few years ago.”

As far as moves based on convergence of technologies, Fantini identifies some of the big European internet companies as potential acquisition targets. “As these industries converge, will some of the big internet companies get bought out by bricks-and-mortar?” he says. “Will some of the big bricks-and-mortar companies get bought out by the internet companies?

“888 Holdings, for example, has a very successful poker platform. It would not surprise me to see a bricks-and-mortar company buy 888 Holdings. Likewise, you’ve got companies like Betfair and bwin.party that are very strong in their particular online space. They may want to complement that with bricks and mortar.

Certainly in the United States, what we’re seeing is that legislatures are saying ini-

tially that you can be an internet company in our state if you have one of our licenses. We saw PokerStars try to buy Atlantic Club (in Atlantic City) for that reason. But there may be some motivation for some of those other companies to buy some bricks-and-mortar properties in the United States.”

Among suppliers, though, there is a consensus that future consolidation will not involve the large slot-makers, unless it involves very targeted buys. “Looking at the big players, Konami traditionally does not do any sort of large deals,” comments Eilers. “I get the sense that probably not much is going to happen with them.

“I look at Aristocrat, and they recently have hired a bunch of high-profile executives to beef up their game content. So, I would be surprised if they went out and bought someone; it looks like they’re looking to drive growth internally.

IGT is just focused on the interactive side. They view that as their growth area. If there were any M&A in that case, it would be on the interactive side.”

Bally’s Davidson predicts the likely M&A action going forward will involve the small, emerging slot-makers, at least in the near term.

“I don’t know if you’ll see any of the larger guys swooping in and snatching up smaller guys,” Davidson says. “It makes more sense in my head for some of those guys to band together to create more compelling content.

“It’s a pretty big feat, and you’ve seen some go bust. It’s not easy to be a small guy.”

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GLOBAL GAMING WOMEN

The Power of Education Don’t miss the opportunity to add to your learning.

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here is something incredibly powerful in the ability to encourage and support professional development in other female professionals. From the front desk to the C-suite, women in various industries are leading a call to bolster the advancement of other women.

Recent research confirms that when women are more equally represented in leadership roles, companies report a measurable impact on their bottom line. Additionally, equal gender representation results in greater levels of innovation, a better resistance to financial crisis and higher levels of productivity and satisfaction. I believe that a vital component of professional advancement is education—which is something that shouldn’t be taken for granted.

I am a relative newcomer to the gaming in-

By Phyllis A. Gilland

ment within that specialty, it is often harder to break out into general casino or enterprise management. There is statistical evidence that advancement may be even more difficult for women wanting such opportunities.

A lack of opportunities for professional development shouldn’t be a barrier for females to succeed in the gaming industry. When the American Gaming Association’s Global Gaming Women initiative began in 2011, one of the goals was to create opportunities for women in gaming and related fields to continue their education, thereby creating and increasing opportunities for advancement in gaming ventures.

Creating professional development opportunities is one thing, but extending those chances to a larger female workforce is another.

In 2010 Patricia Becker, formerly an executive

“

When the American Gaming Association’s Global Gaming Women initiative began in 2011, one of the goals was to create opportunities for women in gaming and related fields to continue their education, thereby creating and increasing opportunities for advancement in gaming ventures.

dustry, but not to heavily regulated industries.

Having worked in banking, insurance, international mergers and acquisitions and now gaming, one of the things I have learned about regulated industries is about perceptions. The gaming industry is a bit unique. The size of the industry, while large in numbers, has a much smaller feeling when it comes to opportunities to advance.

My perception of this is due to the specialization that is often required to enter the gaming business. Often the pathway to a career is through specialized entry-level positions, such as a dealer for gaming or front desk clerk. While each of these entry points may lead to advance54

Global Gaming Business FEBRUARY 2014

”

with what is now Caesars Entertainment, also the first (and only) woman on the Nevada Gaming Control Board and at that time dean of the International Gaming Institute, saw the lack of support among women and wanted to do something about it.

Becker, with the assistance of her gaming contemporaries, created the “Kick Up Your Heels” fundraiser reception in an effort to develop networking opportunities for women in the gaming industry. The ultimate goal of the event was to provide scholarships for women in the gaming field by asking ladies from around the world to attend a premier reception during

Global Gaming Expo.

Four years later, Global Gaming Women has officially taken over the reins of Kick Up Your Heels and awarded 17 scholarships in 2013 and raised over $30,000 in what will be used toward scholarships for 2014. With the invaluable support of International Gaming Institute and the University of Nevada Las Vegas, scholarship award recipients are able to attend undergraduate and graduate courses either in person or online. In addition, it is important to note that the gaming industry itself has been a big part of the scholarship program’s success as financial sponsors, location sponsors and sponsoring their women executives’ attendance.

Most importantly, the women who have been the beneficiary of these scholarships have inspired all of us. They have come from all areas of gaming, from dealers in the pits to housekeeping, from hotel and from legal, risk management, regulators and even the convention sides of the house.

They have been young and more mature, newer to the industry and experienced veterans, and have been amazed that this opportunity has become available to them. The gratitude and enthusiasm they have expressed toward the program has emphasized the need for the support of the Global Gaming Women initiatives.

For me, it has been exceptionally gratifying to be part of the Global Gaming Women scholarship process. By joining together with women from all walks of the industry, we are empowering a new generation of leaders.

Female professionals are encouraged to apply for a Global Gaming Women Scholarship before the March 31 deadline at www.globalgamingwomen.org. I look forward to watching the success of the next group of Global Gaming Women Scholarship recipients, and I hope to see you at this year’s Kick Up Your Heels reception at G2E. Phyllis A. Gilland is the senior vice president and General Counsel at American Casino & Entertainment Properties, LLC.

IGPExpo Media Kit

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er f y a o Pl ds ew g e in ndr m N ! am hu fro os G i ve Y sin e A th cei PL ca to e E e e nd r RE nlin m F o Co po a in y’s s Ex llar erse do J

EXPO 2014 APRIL 5

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A T L A N T I C C I T Y, N J

Visit the iGaming Player Expo, at the Atlantic City Convention Center on April 5, 2014 and be among the first to register to play on the online casinos in New Jersey.

•Learn how to navigate the online casinos in New Jersey

•Meet professional poker players who will offer advice on how to play online poker

•See demonstrations of live online gambling play •Hear experts in blackjack, roulette, video poker and other •Learn how online play is different casino games explain how to from land-based gambling gain the best edge online •Register to win valuable prizes and extra gambling money at the online casinos •Learn how gambling online can be rewarded in the Atlantic City casinos •Be among the first to experience the thrill of online gambling in New Jersey

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FRANKLY SPEAKING

by Frank Legato

Kids, Paris and DJs

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n that extremely rare occasion when I don’t have a burning gaming-related issue on my radar that commands my immediate commentary, buffoonery and haberdashery, I sometimes turn to the old gaming industry news ticker, which sits right here on my desk, chattering away. (“FLASH… Naked man in casino… Lost shirt at craps table… Unclear when pants lost… Details to come…”)

Our first news item is from Pennsylvania, where the Sands Casino Resort Bethlehem has announced it is adding a Kids Quest. Popularized in Mississippi casinos, Kids Quest is a licensed, fully staffed, professional day care and entertainment center for children of all ages. Parents leave their kids there while they gamble. Every casino should have a Kids Quest, if only to prevent damage from total idiot parents like the one described in our second news item, from Florida: A guy was hauled in front of a judge for leaving his toddler and baby in his truck while he was in a casino for more than an hour. Both of these children were under 2 years old. They were found by a security guard, crying. (The kids, not the guard.) It says the judge gave the guy a “lecture.”

What, before he was flogged? If I was the judge, I would have given the guy life in front of a firing squad.

Actually, the man is being charged with “child neglect without great harm.” I don’t know what goes through the minds of some people. You’d think that instead of leaving them in the truck, the guy at least could have brought the kids inside the casino—as my parents did with me, leaving me to be raised by slot attendants, which ultimately resulted in my distinguished gaming-writer career.

Of course, I’m joking. (I was raised by wolves.)

In our next news item, the lovely Paris Hilton is being employed by Caesars Entertainment in a “DJ residency” at the Pool After Dark nightclub at Harrah’s Resort Atlantic City. Apparently, Paris does have a skill that goes beyond signing a credit-card receipt.

In fact, Paris reportedly bills herself as “one of the top five DJs in the world.” Apparently, it is a skill she honed at a couple of parties for which she “spun the discs,” or whatever it is that DJs do, at the Amnesia nightclub on the Spanish island of Ibiza.

Paris talked to the “In The Mix” website about the kinds of music that have made her one of the top five DJs in the world: “I really love Nicky Romero and Avicii’s ‘I Could Be The One;’ I just think the lyrics are really great and I love the drop,” she said. She also likes “Animals” by Martin Garrix: “He’s a really young DJ, he’s very talented and upcoming, and I think that song is really dope.”

OK, these are the first words that have come out of Paris Hilton’s mouth that I’ve ever paid attention to, and I am totally confused. She “loves the drop” in one song. What the heck is that? Is it the sound of a shoe dropping? Does the song stop in the middle?

She thinks another song is “really dope.” Is that some sort of DJ-hipster lingo? I think I like the expression. Maybe I’ll use it during my next casino supplier roundtable discussion: “Sir, the general opinion in the investment community is that your recent merger was really dope.

Can you comment?”

“Absolutely, Frank. Our board of directors agreed that the transaction was totally dope.”

Finally, Paris described the really-dope song as being “by” a young DJ. Are DJs now taking credit for songs that they play as if they actually performed the songs themselves? Geez, why did I take all those guitar and music theory lessons? If I could have just taken credit for songs written and played by other artists, my music career may have led to something other than me being a magazine editor.

By the way, Harrah’s is paying the multimillionaire heiress $100,000 a night to be a resident DJ. Kind of makes you want to go to the garage and sit in the car with the motor running, doesn’t it? OK, maybe not, but in any event, I am clearly in the wrong racket.

Yes, there is a lot of other casino news this month, such as the blinding charge toward the establishment of casinos in Massachusetts, which, evidently, could happen in time for my greatgrandchildren to enjoy them. But I can’t tell you about that right now.

I’m heading to school. I’m training to become a DJ. It will be totally dope.

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CUTTING EDGE

by Frank Legato

Quick Shuffle

Product: DeckMate 2 Manufacturer: Bally Technologies

he DeckMate 2, the latest automated shuffler from Bally Technologies, is designed to provide poker rooms with enhanced speed, improved performance, and security while protecting game integrity. The incredibly fast shuffle time will appeal to players who enjoy a faster-paced game of poker.

Debuting in 2002, the DeckMate poker shuffler has been a staple in the poker market and one of the best-selling shufflers of all time. At 22 seconds, the DeckMate 2’s shuffle time is twice as fast as the original, and the unit features optical card recognition.

The optical card recognition will provide peace of mind to both operators and players by verifying that not only the correct amount of cards are in the deck, but also that each individual card is accounted for.

Operators will see cost savings on cards due to the DeckMate 2’s new shuffling method, which allows a deck to be used longer than a typical shuffler. Game speed will increase with the on-board timer, which will provide operators the option to set time limits on how long a player is allowed to play a hand. The touch-screen display will provide optical proof of card verification.

For more information, visit shfl.com.

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Club on the Move Product: Mobile Enrollment Manufacturer: Playersoft Technologies

layersoft Technologies’ Mobile Enrollment casino software is designed to let casinos take the player’s club to the guests. Proven to grow revenue and player satisfaction, the software features advances in mobile technology that are creating new and affordable ways for casinos to manage the identification, enrollment and tracking of players.

The Mobile Enrollment system allows hosts or other casino employees to sign players up for the club on the spot, anywhere in the casino, relieving players of the requirement to wait in line at the player’s club center. Mobile enrollment has been proven to increase the rate of carded play wherever it has been implemented.

Features include the following:

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• Highly configurable to fit any casino’s operation and eliminate lines at the player’s club.

• Sign up guests on the floor in less than 10 seconds with 100 percent data accuracy.

• Scan IDs for completely accurate and automatic age verification based on state-issued records.

• Capture cell phone and email on every player.

• Capture photos of players or ID cards.

• Reprint cards for existing accounts and eliminate duplicates.

Mobile Enrollment works with the Apple iPhone, iPod Touch, iPad and iPad Mini. For more information, call 866-925-0777 or visit playersoft.com.

FEBRUARY 2014 www.ggbmagazine.com

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NEW GAME REVIEW

by Frank Legato

Game of LIFE Pay Day WMS Gaming

hancements, including full wild reels, symbol enhancements and other special features.

If the player lands on the color matching his career choice, an extra bonus is awarded. Landing on the “Career Day” space triggers a picking mini-bonus in which the player matches cards for credits and multipliers.

B

illed as a “modernized” take on the classic Hasbro “Game of LIFE” board game, the WMS interpretation of the game is laid out in a dualmachine setup, with a common game board for bonuses spread across the top via two adjacent LCD monitors. WMS calls it the “Bluebird xD Metascreen.” The board contains a variety of mini-bonuses depending upon where a player lands during the main bonus.

Upon buy-in, the player is prompted to select a “career,” which will apply in various bonus features. Certain combinations on the reels advance the player’s “rank” in the career, leading to higher bonus awards during a free-game bonus.

A special feature during the 17-line base game increases a pool of credits when an arrow plus L, I, F or E lands on the reels. When the player lands a “Break Time” symbol, the accumulated amount is awarded. Another base-game feature called “Bank of LIFE Paytable” awards extra wins for various specific symbol combinations.

There are also random full-reel wilds during the base game, and a “Flight Attendant” symbol “upgrades” low-paying symbols to “First Class,” or higherpaying symbols.

The main “Pay Day” feature occurs when a “Wild Wheel” lands on the third reel. The wheel spins to a random number of moves around the top game board. The game board contains spaces revealing any of five different game en-

Manufacturer: WMS Gaming Platform: CPU-NXT3 Format: Five-reel, 17-line video slot Denomination: .01 Max Bet: 350 Top Award: 50,000 Hit Frequency: Approximately 50% Theoretical Hold: 4%—12%

Kunoichi’s Fortunes Konami Gaming

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his latest game on Konami’s KP3 operating system is one of the slot-maker’s “Xtra Reward” games. This is a series of video slots offering extra bonus features or wild symbols in exchange for an extra ante wager.

The minimum bet to activate the Xtra Reward feature is 30 credits—one credit per line plus a 10-credit ante wager. The feature comes to play in the base game. On random spins, a number of adjacent symbols are replaced with one symbol. All replacement positions are filled with the same symbol, making line wins more probable.

When the same symbol appears in every position on the first reel with Xtra Reward activated, at least one of the remaining four reels is selected at random and replaced with the symbol appearing on the first reel, leading to

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likely multiple winning combinations.

There also is a free game feature, including a special feature called “Balance of Fortune.” When three, four or five “Mark” symbols land, the player is awarded five, 10 or 15 free games, respectively. All wins are doubled during free spins, and the feature can be re-triggered within the free spins.

When the free-game round is triggered, the player can select the Balance of Fortune feature by pressing “Credit Prize.” The player will then be awarded a random credit amount instead of the free spins.

The player also can select Credit Prize at any point during the free-game round to exchange the remaining free spins for a credit award, providing at least 20 free games remain. On average, the award is greater when more free games are exchanged for a bonus award. The minimum award value is 15; the maximum is 85,200 credits for each credit wagered per line.

Manufacturer: Konami Gaming Platform: KP3 Format: Five-reel, 20-line video slot Denomination: .01 Max Bet: 1,000 Top Award: 50,000 Hit Frequency: Approximately 50% Theoretical Hold: 4%—14.8%

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Liberty 7s Revolution American Gaming Systems

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ith this game, AGS takes the classic patriotic theme and injects it with the slot-maker’s typical lineup of multiple bonus events, including an integral bonus wheel on top of the game.

The five-reel, 27-line base game contains two random bonus features.

When a rocket symbol lands in the last position on the third reel, it shoots up to the top screen to reveal a number of wild symbols, which are placed on the reels, after which the win is re-evaluated. Also, randomly during the base game, two or three reels will turn into firecrackers. They explode to fill the reels with wild symbols, after which the reels spin again to reveal an enhanced win.

The top base-game award is a progressive resetting at $1,000, triggered by five scattered red 7s.

There are two main bonus events. The “Hyper Wild Super Spin” prompts the player to choose among 14 coins to reveal reel symbols. The chosen symbols are then added to a special set of reels, along with wild symbols, for a bonus free-spin round with wins enhanced by the wilds and extra symbols.

When two wheel symbols land on the reels, the Revolution Wheel Bonus is triggered. The top wheel spins to either a credit amount, a 2X multiplier applied to the bet, or one of two secondary bonus events: “Patriot Spins” causes wild symbols to freeze in place during a free-spin round. The spins with wild symbols in place continue until the player lands a five-of-a-kind combination.

The “Tea Party Bonus” replaces the reels with a scene of crates floating in

Boston Harbor next to a boat. The player is prompted to choose crates to reveal bonus prizes. If all of the crates are opened without a symbol to end the bonus, it triggers another minibonus called “Liberty Star,” in which the player chooses from three stars to reveal another credit award.

Manufacturer: American Gaming Systems Platform: Roadrunner Format: Five-reel, 27-line video slot Denomination: .01, .02, .05 Max Bet: 250 Top Award: Progressive; $1,000 reset Hit Frequency: Approximately 50% Theoretical Hold: 6%—12%

Wild Alaska Multimedia Games

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his new five-reel, 50-line video slot from Multimedia Games includes two of the manufacturer’s signature special features, “Straight-Shot Multipliers” and “Must-Hit Jackpots.”

Straight-Shot Multipliers, active both on base-game and free-game spins, award automatic multipliers for winning combinations on designated paylines.

In this case, Payline 4 awards 10 times the normal pay for a winning combination; Payline 3, seven times the normal pay; Payline 2, five times the normal pay; and Payline 1, three times the normal pay.

There are two levels of progressive jackpot, resetting at $20 and $150. Each bears a “Must Hit By” number—$40 or $300, respectively—before which that particular progressive will always hit. This generates anticipation and excitement among players—not to mention greatly increased coin-in—as the jackpot amount approaches the “Must Hit By” level. According to the manufacturer, that occurs every 309 spins for the secondary jackpot and every 2,272 spins for the top progressive, on average.

There is a free-spin bonus, triggered by three or more bonus symbols. Triggering the bonus awards an initial prize of 150 credits multiplied by the line bet, plus seven free spins. Free spins can be re-triggered throughout the bonus, up to a maximum of 70 free spins.

Manufacturer: Multimedia Games Platform: Multimedia Operating System Format: Five-reel, 50-line video slot Denomination: .01, .02, .05 Max Bet: 250 Top Award: 399,100 Hit Frequency: Approximately 50% Theoretical Hold: 2.05%— 14.67%

FEBRUARY 2013 www.ggbmagazine.com

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EMERGING LEADERS Youth Movement

Peak Performance

Elena Artiaga

Senior Associate, Hnedak Bobo Group

Chief Financial Officer, Inn of the Mountain Gods Resort Casino lena Artiaga has grown accustomed to hearing from her industry peers that she doesn’t look like the typical gaming resort CFO. A 31-year-old female senior executive for the Inn of the Mountain Gods Resort Casino in Mescalero, New Mexico, Artiaga has some keen and friendly advice for the numerous CEOs, CFOs and COOs from other properties who feel compelled to comment on her age: “Watch out for us young people.”

A member of the Mescalero Apache Tribe, Artiaga grew up on the reservation in New Mexico, and is extremely proud of the way she has positioned herself to make such a significant impact on the success of her entire community.

“Growing up on a reservation, there are many distractions that could derail a young person’s life,” Artiaga explains. “I came face to face with many challenges that could have prevented me from graduating from high school and college, but I never gave up. I worked diligently to earn an associate degree in pre-business, a bachelor’s degree in accounting and finally a master’s degree of accountancy. I persevered through a great deal to obtain my education, and then earned my first position as casino controller before assuming my current CFO role.

“Success in my job is not just about me; every achievement is something I am able to share with my family and my tribe,” she adds. “I have a personal stake and vested interest in our collective success. I encourage all Native Americans to seek education and/or experience that can open doors to opportunities that may not exist otherwise.”

While Artiaga is quick to offer witty comebacks to peers who challenge her for her age, she recognizes that she needed specific skill sets and personality traits to offset her lack of experience in the beginning. “Versatility, ambition and hard work helped me achieve my goals,” Artiaga asserts. “I am always eager to learn and ask questions, and encourage all of my emerging industry peers to never let yourself feel like you know more than everyone else. The only way you can be out of your league because of your age is if you refuse to ask questions and learn. Sitting on the sidelines will prevent you from growing and achieving even greater things. A true leader—at any age—has to be committed to ongoing learning as well as teaching. ” Proving that you are never too young to be a mentor to others, Artiaga works closely with other young professionals at Inn of the Mountain Gods and the Mescalero Tribe to help advance their careers. “I encourage my emerging peers not to fear change or failure, because it is failure that teaches us the greatest lessons,” she says.

Artiaga’s professional achievements are all the more impressive when considered in conjunction with another role she balances—mother of four children, including one just born in 2013. “My highest priority is being a good role model for my children,” Artiaga says. “My husband is my No. 1 fan, and I could not have achieved what I have at such an early age without the love and support of my family.”

Watch out for the young people, indeed. The best from Artiaga is likely yet to come.

—Kimberly Arnold, The Innovation Group

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Nathan Peak, AIA f all the skills a leader can exhibit, listening is often noted as the most valuable—and for Nathan Peak, his career as one of the industry’s emerging architectural design leaders has been sharply focused on learning by listening.

“This might sound strange coming from an architect, but designing for the gaming industry is not all about architecture,” says Peak. “It’s about stepping back and listening to what an owner believes are the biggest issues faced every day in operating a casino. It’s about what market conditions and competition tell you; and most importantly, what casino customers say they want in their entertainment experience.

“You have to remove yourself from the possible solutions and literally become immersed in understanding casino operations and customer expectations from a variety of perspectives to truly grasp the real issues and opportunities— then you can start designing.”

It’s a philosophy that’s clearly working for him, his clients and his firm, Hnedak Bobo Group (HBG), where Peak is a senior associate and shareholder.

Peak has been the lead designer on three of HBG’s four recent GGB Casino Design Award-winning projects, winning the latest two in consecutive years.

Early in his design career at HBG, Peak was chal“This might sound strange lenged by how complex the coming from an architect, gaming industry was. Every operator ran their facilities but designing for the differently, trends and techgaming industry is not all nologies were constantly about architecture. It’s evolving, and gaming cusabout stepping back and tomers were always looking listening to what an owner for “what’s new and what’s believes are the biggest next.” issues faced every day in “At first, gaming really operating a casino.” tested me; there was so much depth in understanding the business—from elements like surveillance and security, slot and table game layouts, to cage operations and food and beverage design,” recalls Peak. “I credit the clients from across the country who let me inside their operations to give me such an incredible education on the business of gaming.”

One such client was Matt Harkness, chief operating officer of Four Winds Casinos in Michigan. Peak and Harkness have built a trusted relationship over the

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past three years.

“Having frank and open dialogue with Matt about what works and what doesn’t in the casino environment has had a significant impact on my career,” says Peak. “When you have that kind of real-time information from gaming operations at your fingertips, it makes the design process very collaborative, and a lot of original, forward-thinking ideas emerge from it.”

Today, Peak is having an impact on both young designers and veteran staff within his firm as a leader in HBG’s “Design+” program.

“Listening to multiple perspectives contributes to better outcomes,” says Peak. “Design+ is a program centered around the idea of bringing every person connected to the project process together to talk about how people interact and engage with built space—and how we each contribute to making that experience better.”

As he describes it, the program opens up a constructive, open dialogue on design among everyone from junior designer to the most senior documentation architect.

“We get a 360-degree critique that generates a lot of great discussion on what’s possible—from concept to execution—in the creation of customer-centered solutions. It’s an excellent tool to help mentor and involve every member of the team.”

—Christopher Irwin, The Innovation Group

troit/Windsor Casino Management Association in 1999 to support the newly developed casino market in the state. Under his leadership, the association provided over 100 educational workshops and afforded thousands of members new to the industry the opportunity to learn about the dynamic aspects of gaming. Of equal importance, it helped Russell develop relationships with key industry executives relocating from such jurisdictions as Nevada and New Jersey that he still maintains.

“I met so many individuals who took time to attend our events that I continue to work with today, either in support of their professional roles or as RMC clients,” Russell says.

Russell is quick to credit a number of key mentors that provided him with guidance and direction throughout his career. “Three individuals that are of specific note are David Waddell, with whom I began working with in 1995 and continue to this day; David Schugar, who is a present business partner and who provided guidance on the formation of the Casino Management Association; and Roger Gros, publisher of Global Gaming Business magazine, who had faith in me at a young age. These individuals opened a number of doors for me.”

“Without the opportunity to succeed

Experience Counts

on one’s own, and experiencing the inevitable failures along the way, people are prevented from finding their greatest talents.”

Robert Russell Partner, Regulatory Management Consultants obert Russell has committed the majority of his professional career to gaming, earning him nearly two decades expertise and experience that rivals industry peers many years his senior.

A partner with Michigan-based Regulatory Management Consultants (RMC), this 39-year-old veteran leads government and private-sector initiatives focusing on compliance, licensing, management, legislative and lobbying efforts specific to the casino industry.

Russell says 16 words of advice offered early on in his career helped him realize the importance of quickly establishing his professional path: “Be prepared to give up your 20s in order to enjoy the rest of your life,” he recalls. “I took it to heart. Staying committed to my career and the tasks in front of me for the last two decades proved fruitful, and it is a piece of advice I continue to share with others.”

Just two years out of college and recognizing the opportunity related to the approval of gaming in Michigan, Russell helped launch the De-

R

Acknowledging the impact that his mentors had on his own trajectory, Russell now commits himself and his firm to helping other emerging leaders that he works with.

“I make it a priority to provide opportunities for my young colleagues to encourage them to make independent decisions and support them even when the outcome is not always perfect,” Russell says. “Without the opportunity to succeed on one’s own, and experiencing the inevitable failures along the way, people are prevented from finding their greatest talents.

“RMC has a long-term strategy of training and mentoring the next generation of gaming professionals. We frequently involve young staff in meetings, hearings and projects with a team approach emphasizing a knowledge base that benefits clients through cost savings and efficiencies.”

Regardless of a professional’s age, Russell emphasizes the importance of keeping balance between career and life.

“I had the opportunity to learn from parents and other family members at an early age that equally valuing professional and personal commitments is extremely important as life evolves,” he says. “Helping those around you, building a strong family foundation and staying committed to one’s goals, and having the willingness to take a risk on occasion, are a few items that are keys to my success.”

—Kimberly Arnold, The Innovation Group FEBRUARY 2014 www.ggbmagazine.com

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GOODS&SERVICES ECHO INSTALLS KONAMI CMS

JAPAN TRADE SHOW EYED BY AGA, REED lobal Gaming Expo, the world’s leading G trade show and conference for casino gaming, announced that it has aligned the industry’s most significant forces behind a Japan educational conference should the recently submitted Integrated Resort Acceleration Legislation bill pass in Japan in the coming year.

The American Gaming Association and BallyExhibitions Technologies President Reed (Reed Expo), organizers of the and CEO Ramesh Srinivasan G2E family of events, partnered with Union Gaming to bring the symposium to Japan as early as practical following passage of the legislation. The event organizers are joined by sponsors, supporters, and a global advisory board that includes prominent Japanese gaming companies such as JCM Global and Konami Corporation, as well as top Japanese advertising and public relations company Dentsu, Inc. “Should the Japanese government choose to proceed with the first stage of casino gaming legalization in 2014, the AGA and its prominent industry partners will bring our best-in-class educational services to this critical market,” said Geoff Freeman, president and CEO of the AGA. “Our decades of experience in industry regulation, operations and responsible gaming can be of enormous value to the Japanese as they consider building what could be one of the world’s most significant gaming markets.”

“Gathering industry leaders together in Japan is more important now than ever before,” said Bill Lerner, principal at Union Gaming, a boutique investment and securities firm. “To that end, we are honored to join with G2E to expand on the Union Gaming Development Conference we hosted in Tokyo this September.

Our goal is to create an annual event that advances the industry’s interest and builds on that success year after year.”

In addition to G2E’s Japanese supporters, global support is also being provided by Aristocrat Leisure Ltd., Bally Technologies, Gaming Partners International, Interblock, International Game Technology, WMS Gaming and others to be announced shortly.

Additional information and dates for G2E Japan will be announced if and when the Integrated Resort Acceleration Legislation in Japan is passed.

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lot and system manufacturer Konami Gaming Scompleted announced that its Konami Australia Pty Ltd has the simultaneous installation of the Konami gaming enterprise management systems at the two premier Queensland venues of Echo Entertainment Group, Jupiters Hotel & Casino and Treasury Casino & Hotel.

“Our two Queensland venues have been in business for nearly 50 years combined, and we are thrilled to now have Konami’s management system, because it provides us with a powerful set of tools to help us bring our customers the best entertainment experience possible,” said Kel Telford, chief information officer at Echo Entertainment Group.

CANTOR IS NOW CG TECHNOLOGY antor Gaming, a leading supplier of sports C book systems and operations and mobile technology to the gaming industry, has changed its name and corporate identity. The company is now CG Technology.

According to a statement from the company, the new identity “reflects CG Technology’s position as one of the world’s leaders in mobile casino gaming technology and race and sports book technology products and services.”

The new identity represents a commitment to develop and deliver bestin-class technology products and services for the gaming industry, the company said.

The former Cantor Gaming has experienced CGT President explosive growth since Lee Amaitis 2009, when it began operations in Las Vegas as a provider of sports book systems that featured ingame wagers and a variety of propositions while events are in progress. Cantor also introduced mobile devices to Las Vegas sports books, which have allowed patrons to wager on events from any approved location within a resort.

The company now claims more than 30 percent of the Nevada sports wagering market and more than 40 percent of Nevada technology-based wagers.

Cantor Ventures, the venture capital arm of Cantor Fitzgerald, L.P., has been CGT’s lead venture capital lender. Cantor Ventures, which has no equity interest in CGT, has enabled CGT to develop its strong position in the gaming technology

Global Gaming Business FEBRUARY 2014

marketplace.

CGT provides private networks, systems, operations, management services, system licensing, and hardware and software design and development.

Other news for the newly named company came last month, when the company announced an agreement with the Nevada Gaming Control Board to settle a complaint filed by the agency involving President and CEO Lee Amaitis. The complained alleged that Amaitis failed to supervise Michael Colbert, the company’s former VP of race and sports risk management, sufficiently to prevent Colbert’s illegal sports gambling activities. In the agreement, CGT agreed to pay $5.5 million, the largest settlement ever agreed to by a Nevada gaming company.

“Matters in the complaint stem from the illegal activity of a former employee,” CG Technology said in a statement. “The company conducted its own extensive internal analysis of Colbert’s actions and of the company’s systems, operations and procedures, and has implemented additional compliance processes.”

WMS AWARDED PATENT FOR ‘MY POKER’ lot manufacturer WMS Gaming has been Sgameawarded a U.S. patent for “My Poker,” a multivideo poker product that allows players to customize features like the design of the cards, the graphic setup and button placement.

WMS Gaming, since late last year a division of lottery giant Scientific Games, was issued the patent for what the patent title calls “a multi-game video poker machine and system with asymmetric customization features.”

The notice of the action by the U.S. Patent and Trademark Office calls My Poker “a gaming system with asymmetric customization capabilities and a method of enabling asymmetric customization of a wagering game. A plurality of selectable game-play features are provided for utilization during the wagering game.”

INTERBLOCK COMPLETES FIRST BULGARIAN INSTALLATION nterblock Luxury Gaming Products announced the Iplayer first installation of its workhorse G4 brand of multiautomated table tames in Bulgaria. With partner Casino Trade BG, the company installed the 12-player G4 Organic Twins product in the Imperia Gaming Club in the city of Plovdiv.

The game features two automated roulette wheels and 12 electronic wagering stations, laid out in the shape of a football.

“We are very proud to announce the first installa-

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don’t gamble tion of G4 Organic Football Roulette,” said Daniel Moskov, manager of Casino Trade BG. “Together with our partner Interblock, we have placed 12 play stations and two roulette wheels in one of the most profitable gaming halls in Plovdiv, Bulgaria. The installed product also supports a virtual blackjack generator. With this installation we have started our cooperation with Imperia Gaming Club, and we believe players’ response will be fantastic.”

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NEWAVE LICENSED IN WISCONSIN ompliance software supplier C NEWave has been licensed by the state of Wisconsin’s Division of Gaming to sell its myCompliance software and other compliance products in the state.

“We are very pleased to be licensed by the Wisconsin Division of Gaming,” said NEWave COO Tom Bechtel. “Earning a gaming license is a challenging process, and we are happy to have met the division’s stringent criteria. Maintaining the very highest levels of compliance is of utmost importance to casinos everywhere, and we are excited now to be able to offer our award-winning myCompliance Manager software, including our leading Title 31 Manager software, to casinos across Wisconsin.”

NEWave has a large and growing presence throughout the Midwest with clients in all states that surround Wisconsin, including Illinois, Indiana, Iowa, Michigan, Minnesota, Missouri and Ohio. The company has nearly 300 clients across the United States, and according to the company, after more than 20 years, not one client has ever been fined for non-compliance.

FEBRUARY 2014 www.ggbmagazine.com

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PEOPLE CASINOS AUSTRIA ANNOUNCES BOARD CHANGES

NEW PRESIDENT FOR WYNN MACAU

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W

ong-planned changes to the board of directors of Casinos Austria International Holding were announced last month. Chairman Karl Stoss and direcChairman Karl Stoss and tors Bettina Glatzdirectors Bettina GlatzKremsner and Kremsner and Dietmar Hoscher are Dietmar Hoscher now members of the CAI Supervisory Board. Alexander Tucek and Christoph ZuruckerBurda are now members of the CAI Executive Management Board.

Tucek joined Casinos Austria AG in 1971 and was appointed chief executive officer in December 2013. In this capacity, he manages the group’s extensive international activities, including its existing operations and development projects.

Zurucker-Burda is a qualified auditor and certified tax adviser. Since December 2013 he has been chief financial officer of Casinos Austria International.

Glatz-Kremsner’s position as director was renewed for another five years. She was also appointed to the Executive Management Board of Casinos Austria International Holding in May 2011.

McGILL IS NEW JOINGO PRESIDENT

M

obile platform supplier Joingo has named Seamus McGill, who for five years was chief operating officer of the U.S. division of slot manufacturer Aristocrat Technologies, as the company’s new Seamus McGill president.

As Joingo’s president, McGill will oversee the sales, marketing and overall growth efforts of the mobile software company, which was formed several years ago to offer operators a simple software solution to enable mobile gaming.

Prior to his stint at Aristocrat, McGill was CEO of server-based gaming supplier Cyberview Technology, and also was executive vice president of sales and marketing at WMS Gaming and executive vice president of Mikohn Gaming Corporation.

ynn Resorts Chief Operating Officer Gamal Aziz has been named president of Wynn Macau in a move that signals the company’s increasing focus on its US$4 billion expanGamal Aziz sion into the booming Cotai resort district.

Aziz, who replaces Steve Wynn in the position, will remain COO of the parent company, while Wynn, as Wynn Resorts’ chairman and chief executive officer, will continue as chairman and CEO of the Hong Kong-listed Macau subsidiary.

Aziz rejoined his former boss last January after several years at Las Vegas Strip rival MGM Resorts International, where he served in a number of top roles, the last as president and CEO of MGM Hospitality, the division responsible for developing and operating luxury hotels around the world under the Bellagio, MGM Grand and Skylofts brands. Prior to joining MGM he was senior vice president at Bellagio, the Strip flagship of Wynn’s Mirage Resorts, which was bought out in 2000 by MGM, then known as MGM Grand Inc.

AGA ANNOUNCES SIGNIFICANT HIRES

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• Allie Barth, senior director of communications: Barth joins the AGA from the U.S. Travel Association. She will execute the AGA’s communications platform.

• Elizabeth Cronan, Jim Messina director of gaming policy: Cronan previously worked as director of global government relations and public affairs at IGT. She will lead the AGA’s public policy activities, including regulatory reform and anti-money laundering initiatives.

• Virginia Hurt Johnson, general counsel: Johnson brings 30 years of experience in the private and public sectors and has extensive knowledge of the executive and legislative branches. As part-time general counsel, Johnson will address the AGA’s day-to-day legal needs, manage outside counsel and guide the organization as it attracts new members and opportunities.

In addition, the Washington D.C. publication The Hill reported that the AGA has hired Jim Messina, Barack Obama’s campaign manager in 2012, to help develop proactive campaigns.

“We have hired Messina to work on grassroots initiatives. Online gaming is one of those.

Jim is as politically astute as they come, and he will be a great resource for us,” Geoff Freeman, AGA president and CEO, told The Hill.

February 2014

Index of Advertisers

he American Gaming Association last month announced five significant staff additions, providing a jolt of industry experience and political savvy. The new staff members are part of a reorganization placing an emphasis on proactive, campaign-style trade association advocacy.

The five new staff members bring diverse backgrounds, including a combination of industry expertise, public-sector acumen and association experience.

• Sara Rayme, senior vice president of public affairs: Rayme previously worked with MGM Resorts International, and will oversee all AGA communications, research and campaign-style initiatives.

• Chaka Burgess, vice president of government relations: Burgess brings nearly 20 years of experience in coalition building, lobbying and ally development. Burgess joins Whitaker Askew, vice president of government affairs, and the two will work closely with Rayme to lead the AGA’s advocacy efforts.

AGA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37 Aruze Gaming . . . . . . . . . . . . . . . . . . . . . . . . .23 Bally Technologies . . . . . . . . . . . . . . . . . . . . . .2 Fantini Report . . . . . . . . . . . . . . . . . . . . . . . . .62 G2E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33 G2E Asia . . . . . . . . . . . . . . . . . . . . . . . . . . . . .49 GLI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17, 47 GTECH . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15 Honeywell . . . . . . . . . . . . . . . . . . . . . . . . . . . .27 iGaming Player Expo . . . . . . . . . . . . . . . . . . .55 iGaming Symposium . . . . . . . . . . . . . . . . . . . .64 iGNA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .45 IGT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5 Konami Gaming . . . . . . . . . . . . .13, Back Cover LT Game . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39 Macquarie . . . . . . . . . . . . . . . Inside Back Cover Multimedia Games . . . . . . . . . . . . . . . . . . . . . .9 NEWave . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29 NIGA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .53 Ortiz Gaming . . . . . . . . . . . . . . . . . . . . . . . . .21 RPM Advertising . . . . . . . . . . . . . . . . . . . . . . .35 TCSJohnHuxley . . . . . . . . . . . . . . . . . . . . . . . .11 Up All Day Creative . . . . . . . . . . . . . . . . . . . .63 Rymax Marketing . . . . . . . . . . . . . . . . . . . . . .35 World Game Protection Conf. . . . . . . . . . . . .41

FEBRUARY 2014 www.ggbmagazine.com

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CASINO COMMUNICATIONS

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Grant Govertson Managing Partner and Lead Analyst, Union Gaming Research Macau

hen partners Bill Lerner, Grant Govertson and Rich Baldwin formed Union Gaming Group, the boutique gaming industry research company became the first gaming analysts actually located in Las Vegas. And when Govertson relocated to Macau, the company was also the first to make the Asia gaming capital home. The company is now deeply embedded in the gaming industry around the world, and it’s no wonder that they’ve become the recognized experts in new markets, principally Japan. Union Gaming held the first conference in Japan in September, examining the process and the markets, and has now partnered with G2E to hold a more significant event once gaming is legalized there. Govertson answered questions from GGB last month about Japan and its gaming prospects.

GGB: Anyone who has been in the gaming industry for some time recognizes the excitement about legalizing gaming in Japan. But we’ve all been here before. What makes this time different from the others?

Govertson: There is a confluence of factors that make it “different” this time, not the least of which was the awarding of the 2020 Olympics to Tokyo, which will require significant infrastructure investment. In part, it is possible that some of this infrastructure investment could either 1) be borne by casino developers, or 2) be paid for by casino tax revenue. In addition, you’ve got a dynamic where legislators and civilians are all more familiar with and comfortable with the concept of casino gaming, due to its prevalence and expansion throughout Asia.

How important was it that there was an actual bill that was introduced into the Diet late last year?

Not necessarily important, but a good placeholder and a positive step forward for casino legalization in Japan.

What’s in that bill in terms of specifics?

This is not the important bill from a details per66

spective. It is important as it will be the trigger for a bill next year that would represent the meat of Japan’s gaming law (things such as number of licenses, locations, tax rates, etc.).

How about market size? Are the Japanese as gambling-crazy as the Chinese? Do you see lots of Chinese visitation if casinos are legalized?

In all likelihood, it will become the second largest gaming market in the world (behind Macau) on an overnight basis. We believe it could easily exceed US$10 billion in gross gaming revenue, perhaps just from IRs in Tokyo and Osaka. We think there will be broad-based visitation to IRs in Tokyo, although we think they can be very successful even if there is limited Chinese play.

How about locations? Certainly the major cities would be great places for casinos, but some of the more remote islands that are currently tourist destinations want to get in on the action. How will that play out?

There should be room to accommodate many interested geographies. It is likely that Japan will create two different types of IR licenses, big and small. The big licenses would go to cities like Tokyo and Osaka, while small licenses would go to either remote islands like Okinawa or other smaller cities. In the first wave of IR development, we would not be surprised to see two big licenses and perhaps two or three small licenses.

What role is the powerful pachinko industry going to play in this process?

It is unlikely they will play a major role in the legislative process. However, it is possible that some may wish to participate in IR development, perhaps by partnering with an international casino developer. We think it is important to point out that we believe the pachinko industry will not see a notable decline in revenues should IR gaming come to Japan. We think the pachinko customer base— and its behavior (high frequency, convenience gaming)—suggests they will not face major competition from IRs.

Global Gaming Business FEBRUARY 2014

Japan seems to be strongly considering using the Singapore model of building IRs and fairly strong regulations. What implications does this have for a Japanese industry?

We suspect that any IR bill in Japan will contain public safeguards, although perhaps not as restrictive as those in Singapore. It will also mean a very robust regulatory system, although we do not think this will preclude IR operators from offering VIP gaming.

So, what’s the timeline as we see it now?

As of now, we are looking at the legislature (hopefully) passing the IR bills in early/mid 2014 and early/mid 2015. This would then be followed by a prefecture/host-city selection process in late 2015/early 2016. The next step would be the RFP process for IR licensees in 2016/early 2017, which would then be followed by IR construction from early 2017 until early 2020. This timing would coincide nicely with the summer 2020 Olympics in Tokyo.

You’ve recently announced that Union Gaming is partnering with G2E to produce at least one event in Japan. Give us the details on that agreement.

As the Asian gaming market continues to grow and evolve, and as we look toward potential expansion of casino gaming into Japan, we recognize that gathering industry leaders together in Japan is more important now than ever before.

For this reason, we hosted our Union Gaming Development Conference—Japan 2013 this past September in Tokyo. From the outset, our goal has been to create an annual event in Japan that advances the industry’s interest and builds on that success year after year. Partnering with the American Gaming Association and Reed Exhibitions to produce G2E Japan as early as practical following passage of the legislation allows us to expand on, and enhance our previous conference.

Macquarie: Your blueprint for success in Gaming.

macquarie.us Advisory | Debt | Equities | Principal Investing David Berman Global Head of Gaming, Lodging & Leisure +1 310 557 4343 david.berman@macquarie.com

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These examples may not be representative of every client’s experience. Past performance is not a guarantee of future performance or success. Macquarie Capital (USA) Inc. (Macquarie Capital) is a registered broker-dealer and member of FINRA and SIPC. This document does not constitute an offer to sell or a solicitation of an offer to buy any securities. This document does not constitute and should not be interpreted as either an investment recommendation or advice, including legal, tax or accounting advice. Macquarie Capital is not an authorized deposit-taking institution for the purposes of the Banking Act 1959 (Commonwealth of Australia). Obligations of Macquarie Capital do not represent deposits or other liabilities of Macquarie Bank Limited ABN 46 008 583 542 (MBL). MBL does not guarantee or otherwise provide assurance in respect of the obligations of Macquarie Capital.

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