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Test of Time

While no one can be sure what the future hold, Global Gaming Business identifies 10 trends for 2011

Test of Time

Still mired in the most difficult economic situation in anyone’s memory, the gaming industry is looking forward to 2011 for some resolutions. If the recession is to continue, will it be at the bottom or are we looking at another decline, the infamous double-dip. And while most of the major gaming companies that barely survived 2009 have shored up their financial situations, what happens if the economy remains flat through 2011 and beyond.

There is no crystal ball on the gaming floor, so anyone’s guess is valid. But when it comes to opinions of the Global Gaming Business Editorial Advisory Board, those guesses move to the level of hypothesis and even theory. So the subjects contained in this year’s 10 Trends that winds up every year in the magazine are well thought out and researched. Evidence is provided and the conclusions explained.

No, these aren’t earth-shaking predictions. You’ll find no “death pool” as regards casinos or gaming jurisdictions. What you will find are hints that will help you do your jobs more effectively given the probabilities that these things will occur.

So sit back and ponder along with us. After all, the trends will only occur if they make sense and follow a path to a logical conclusion. Come back next year and find out whether the Global Gaming Business 10 Trends for ’11 was on the mark.

 

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1: i-Mazing!

Online gaming continues to draw attention as legalization considered

Even if last month’s midterm elections threw cold water on expectations that online gaming could possibly be legalized in the United States, it still has the attention of land-based casino operators as well as all the major slot manufacturers. Most feel it is still a question of “when” not “if” but after the elections the “when” seems a bit farther off. Nonetheless, the potential for online gaming is already starting to become evident.

At press time, it was uncertain whether the bill sponsored by Rep. Barney Frank, which earlier in the session had become the first bill that would legalize online gaming of any kind to clear a legislative committee, would pass during the “lame-duck session” before the new Congress is seated in January. Although most of the Republicans who supported the Frank bill were re-elected, a Republican-controlled House is traditionally not very gaming-friendly.

Mark Balestra, the director of the BolaVerde Media Group, is the premier expert on internet gaming in the U.S. He says the failure of the Frank bill would have little impact. 

“In that case, we’re looking at maintaining the status quo,” he says, “slow growth for the unregulated market under UIGEA. The real impact would have been changes brought on by passage of the Frank bill. In 1998, you might have asked ‘How will the failure of the Kyl bill affect the future of internet gambling in the U.S.?’ It’s a slow process, and unless something gets done in the final months of 2010, it will be further retarded by leadership changes in Congress.”

But progress is being made on other fronts. Bills in New Jersey, Florida and California are aimed at legalizing “intrastate” online gaming. In New Jersey, another bill is being considered to create exchange wagering, which has already been approved in California. The new governor in Nevada, Brian Sandoval, is a former chairman of the state gaming commission and is solidly behind legalized and regulated online gaming.

Some of the major gaming companies, led by Harrah’s Entertainment and MGM Resorts, have lobbied Congress for a bill. Harrah’s operates a Caesars online casino in the U.K. and has all the infrastructure ready to go at a moment’s notice.

Harrah’s has so far opposed all intrastate gaming efforts, but Balestra speculates that may change if the Frank bill goes down.

“Will industry supporters of a federal solution get behind state efforts if a federal solution is no longer realistic in the short term?” he asks. “New Jersey looks the most promising at the moment, and it wouldn’t surprise me to see a few additional states take a run. The issue of potential problems with the Department of Justice remains unresolved. Despite the seemingly airtight argument that federal law does not prohibit intrastate internet gambling, the states remain very concerned about the DOJ in this area.” And Native Americans are serious about online gaming as well. Despite a highly publicized split between pro- and con-online gaming tribes in California, most Native nations are determined not to get left behind should online gaming get approval. Tribes were very interested observers at the Frank hearings, and offered several amendments that eventually made it into the final bill.

But even before the legalization of online poker or other casino games, land-based operators are learning that non-cash games, promotions and contests can draw potential customers to their websites. Companies like GameLogic and Red Planet have developed innovative games and systems that capitalize on traffic and cleverly attract new players with promises of rewards at the end of the line.

Gaming may have arrived late to the table when it comes to promoting the business on the web (possibly because the customers didn’t reside there on a regular basis), but it is catching up quickly.
—Roger Gros

 

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2: Gaming Expansion
New and existing jurisdictions consider even more casinos

The first big wave of gaming expansion in the U.S. occurred in the early 1990s as a reaction to a slumping economy and more need for tax revenues for the states. Places like Iowa, Missouri, Illinois, Mississippi and Louisiana jumped on the gaming bandwagon and never looked back.

With the current worldwide recession, gaming is again in an expansion mode for the same reasons, but this time not only in the United States but internationally when governments realize that, along with taxation, their current tourism attractions can only be enhanced by casinos.

Just a few of the international destinations where gaming expansion is being considered or is actually under way include Japan, Thailand, Taiwan, Jamaica, Fiji, Samoa, Saipan and Bermuda. Countries that already host gaming and are expanding it include Italy, Vietnam, Cambodia, the Bahamas, South Korea, the Northern Marianas islands, Chile, Peru, Ecuador and others, including a possible return in Ukraine, where gaming was outlawed two years ago.

The “Singapore model” that features a measured examination of how gaming could fit into a nation’s culture in a controlled manner, thereby minimizing any detrimental aspects and accenting the positive impacts, has convinced many of these countries that casinos can work for them. Japan, for example, is currently studying how the Singapore model can be adapted for their purposes.

In the United States, gaming expansion has been revved up by the bad economy and the desire to keep gambling dollars within a state rather than see them crossing the border into other states. Maryland just opened its first casino. Massachusetts, which last year experienced a deadline between the governor and the legislature over the shape of a Bay State gaming industry, will revisit the issue in 2011. The state fathers want to keep their gambling dollars from riding to the two casinos in western Connecticut. Ohio has already broken ground on one of its four casinos in the state’s major cities. The election of a Republican governor has thrown the issue of VLTs at the state racetracks into uncertainty, but Ohio will become a major player. Maine OK’d another casino as well as a racino in the November elections to go along  with Penn National’s Hollywood Casino in Bangor. This should give impetus to gaming legalization in New Hampshire, which narrowly was defeated in 2010. The newly elected governor in Minnesota favors a state-owned casino near Minneapolis if he can blunt the objections from the state’s powerful gaming tribes. Even Illinois, the poster state for bad gaming legislation, is once again considering expanding its casino industry, likely seriously damaging the existing gaming halls.

Unfortunately, not many of the new jurisdictions learn the most important lesson of the Singapore model: establishing a low tax rate means you get greater investment, more jobs, more economic activity and, in the long run, more tax revenue because a greater chance at a decent profit gives a casino company incentive to do more. Singapore has an effective 9 percent tax rate, allowing the construction of multibillion-dollar integrated resorts, which have resulted in gross gaming revenue in two integrated resorts that already rivals the Las Vegas Strip. But politicians rarely think long-term, and are looking for the biggest bang for the buck in the short term.

However, these new states and nations considering gaming have, in some respects, waited too long. For example, Massachusetts has been flirting with gaming for almost five years. At the beginning of the process, the state was considering a $500 million license fee and resorts that would cost well in excess of $1 billion. Today, those estimates have been cut in half and more.

So while gaming will continue to expand, the gaming pie keeps getting cut into smaller pieces. The most successful jurisdictions will be those with the critical mass of customers combined with the most innovative gaming tax structure and enlightened outlooks from the controlling authorities.
—Roger Gros


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3: Below Normal
Operating in a new economic reality

When the economy began to go south in late 2007, gaming operators expected it to be a shallow and short recession and that things would begin to return to normal in about a year. Now, almost three years later, it’s obvious that things are not going to return to normal any time soon.

For at least a year, operators were content to cut costs—labor, operations, marketing—and ride it out. Now that the recession appears to be much longer lasting than anyone anticipated with no end in sight, operators are beginning to accept the reality of this economy as the “new normal.” There are signs that the revenue declines have ended and most casino jurisdictions are bumping along the bottom, with no more massive declines but certainly no huge upswings.

Cory Morowitz is the principal with the Morowitz Gaming Group, which advises casinos on budgeting, optimization and other operating strategies that take advantage of the data, resources and equipment available.

Morowitz rejects the notion that casinos will never return to the performance they enjoyed just three to four years ago.

“I think  the word never might be too strong,” he says. “It depends on which jurisdiction you are speaking of. Revenues have certainly dropped in destinations like Las Vegas and Atlantic City and it is unlikely that those revenues will come back in Atlantic City. Las Vegas is dependent to a large extent on the convention market and I do believe that market will rebound to some extent. There is clearly more competition for high-end table play with Macau and Singapore online, and Las Vegas may have to live with a smaller share of that market.”

The revenue projections for all casinos are much more reasonable than they were even just a year ago, and Morowitz believes that it will impact how they operate.

“I think operators in Atlantic City have certainly changed their expectations and are now working actively to change their business models toward a cash-paying customer,” he says. “In Las Vegas, profitability is very dependent on room occupancy and ADR. With significant new product in the market and increased room capacity, it will be some time before room revenues come back and again, I think operators realize this, but the fact of the matter is you cannot change your staffing models and business models that much. The problem in Las Vegas revolves around driving revenue, not driving out costs.”

For locals markets, Morowitz says it will all depend on the local economies and how customers and potential customers fare in their own economic universe. 

“Locals markets are driven purely by consumer economics,” he says. “In markets with high unemployment, revenues will be challenged for some time. Combine that with consumers going through a period of deleveraging, and it will be a few years before gaming revenues recover. Operators can only do so much in these markets. The typical locals casino is built around a gaming-centric model. These casinos are not positioned to drive significant non-gaming revenues. I think operators recognize this and have adjusted their cost structures where possible, and will just have to ride things out until the consumer recovers. In some markets, however, we are starting to see positive revenue growth.”

Some observers believe that tribal gaming operations will revive slightly this year, easing concerns that debt obligations will strangle some tribes. But the struggle to stay ahead of the debt will not ease until the economy roars back—a prospect that no one is willing to predict.
—Roger Gros

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4: Social Mystery
Networks like Twitter, Facebook, MySpace and others offer casinos a marketing bonanza; but how?

It sounds like a marketer’s paradise. Communicate with your customers on a daily basis. Target your products and services to specific market segments. Reward them while they are on property. Be able to get your message across instantaneously. And the cost? Almost nothing!

The gaming industry has been late coming to the table on many electronic trends over the past 20 years. The first casino website trailed other industries by several years. Online reservations only came about in the past 10 years or so. And direct mail to a physical mailbox is still the industry’s principal method to communicate with its customers.

There are several reasons for this trend. The average age of a casino customer is higher than other industries. Many of them aren’t technically literate or even amenable to using these devices. Casino marketers are generally resistant to trying different things, usually sticking to tried and true methods that work. But maybe the biggest reason is that the casinos’ core component—gambling—isn’t legal in cyberspace in most places in the world.

The legal definition of gambling on the web is quickly being defined. What is not gambling is quite clear these days. “Play for fun” games designed by companies like GameLogic and Red Planet are permissible and drive players to casino websites for non-cash rewards that can often only be redeemed onsite. This trend is still developing and casinos are anxiously reviewing early results.

But the world is changing quickly. As casino customers get even older, marketers realize that they need to grow their demographics. And the perfect way to reach these new generations of gamblers is the social networks. The transition has often been tentative and disjointed.

David Schwartz, the director of the Center for Gambling Research at the University of Nevada Las Vegas, studied 47 Las Vegas casinos and their pattern of adopting the social network Twitter, and discovered several patterns. MGM Resorts, he said, launched the first casino Twitter account at the Luxor, in May 2008, while Bellagio was the last in the time frame of his study, August 2010.

“Harrah’s Entertainment embarked on a more cohesive strategy,” he reported, “experimenting first with an account for Caesars Palace (February 17, 2009), adding them for Rio, the Flamingo, and O’Shea’s during the summer, and bringing in their other properties (minus Bill’s Gamblin’ Hall) in October/November 2009.”

Schwartz says that the proclivity to “tweet” has nothing to do with just getting the message out, but is part of an overall marketing strategy.

“Properties that have the most active Twitter accounts do so out of a property-specific marketing plan or customer relations vision, not because they are following any established industry pattern,” he concludes.

Of course, there are many more social networking sites than just Twitter. Facebook is probably the most prevalent one, with virtually all casinos having a page on the popular site. A quick perusal of the sites once again shows Luxor on top with almost 40,000 people “liking” the page.

But because there are dozens of other social networking sites—MSN, Google, Yahoo, Digg, StumbleUpon, Delicious, MySpace and more—casino marketers need to be technologically astute and electronically socially savvy.

In this time when marketing budgets are being slashed left and right, the time for casinos to understand how to promote their casinos on the web is long past.
—Roger Gros


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5: Gaming Contraction
The downsized (right-sized) casino floor

Casinos coast to coast are rethinking how they measure success, and one of those measurements is the right number of slots and table games on the casino floor. Thanks to a combination of competition and technology, many casinos find that right-sized means downsized—meaning fewer and smaller may add up to more revenue.

Obviously, technologically speaking, as more slot machines come prepackaged with multiple games and denominations, fewer machines will be required on the gaming floor. And server-based technology, already a reality in some markets, could lead to efficiencies that will result in slot machine reductions as well.

The other force driving right-sizing is competition—from other casinos and from non-gaming amenities. Although there are more slot machines in the U.S. today (833,000 now vs. about 600,000 in 2005), there are fewer in specific casinos. In fact, the gigantic gaming floors at many older casinos are practically becoming slot museums—or being transformed into new profit centers.

That’s what happened at the MGM Grand Resort in Las Vegas, which has 1,200 fewer slots now than it did in 2001.

“There’s no question there has been a gradual reduction in the number of slot machines at several of our resorts,” said Alan Feldman, senior vice president for public affairs at MGM Resorts International. “Each casino has its own personality and makes decisions within its own space. At the MGM Grand in particular, we have added significant new or enhanced features, including lounges and restaurants, in areas that used to be casino space.” 

The Mississippi Band of Choctaw Indians also is right-sizing at the Golden Moon Casino in Philadelphia, where 80,000 square feet of gaming floor is being converted into a 4,500-seat event center, making it the largest casino entertainment venue in the state. Tribal spokesman Warren Strain said the Golden Moon, which opened in 2002, had been a drain on gambling revenues and never lived up to expectations. The center will open on New Year’s Eve with a concert featuring Cannibal & the Headhunters and Mitch Ryder.

Some casinos are right-sizing not by converting space but by opening it up. For example, the Tropicana Casino & Resort in Atlantic City now has just under 3,000 slot machines, down from a peak of 4,500.

“We’ve been able to make the floor much more efficient, spacious and comfortable. We’ve done the same thing on the table game side as well,” said Mark Giannantonio, president and COO.

Is right-sizing truly a trend—or a fluke?

“Clearly in the last couple of years, as overall casino revenues have declined, there have been reductions in the number of games and gaming floor space. But these changes are not necessarily permanent,” Feldman said. “Everyone makes the decisions that are right for their operation and that may even mean increasing the number of games or space. Success still is based on providing the proper mix of gaming and non-gaming features.”
—Pam Jones


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6: Sell Side
Casino transactions are heating up as investors return to the gaming market

When MGM Resorts (then MGM Mirage) sold Treasure Island to former New Frontier owner Phil Ruffin for $775 million in 2008, it was thought to be the first of many transactions that would see the major gaming companies shed underperforming or non-core properties to smaller companies or individual owners. But it was not to be. For the next two years, it stood alone as an anomaly as buyers expected bargain-basement prices, but owners wouldn’t take less than they thought it was worth.

Not to mention that most of the investment banks, private equity firms and wealthy individuals put their wallets away as operational and valuation uncertainties plagued the industry.

In late 2010, however, things began to loosen up. Matt Sodl, managing director of Innovation Capital, a boutique investment bank, explains what changed.

“The main reasons for the increase in activity are the return of the capital markets and overall investor confidence.  Those factors have translated into an increase in valuations levels and therein the bid/ask spread has narrowed to a point where transactions can get done. Also, we have seen a pickup in distressed asset sales, which is being driven by the fact that opportunistic buyers are getting more aggressive—taking advantage of the fact that creditors in distressed situations want liquidity rather than long-term equity positions.”

While it depends upon the market and the individual casino, there was a flurry of activity, with several mid-America properties changing hands and one Atlantic City distressed casino going for as little as $35 million. Sodl says investors are doing their homework.

“One of the by-products of the dislocation of the capital markets over the past few years is that investors are doing much more diligence today,” says Sodl. “They are spending much more time on market analysis, competition, diligence of operations, management teams, contractors, and the like.”

Still, Sodl says, money is becoming available.

There is a significant amount of institutional capital seeking yield (i.e., attractively priced opportunities). However, that capital is selective in the risk profile of the borrowers. As market risk appetite increases, higher-risk borrowers will be able to attract capital. Banks continue to be conservative in their underwriting approach; however, that too is loosening up a bit.”

Cory Morowitz, who heads Morowitz Gaming Group, which advises casinos in operational and financial matters, explains that the book value of casinos has changed dramatically since the boom years of the early 2000s.  

“Individual casino valuations have declined,” he says. “Individual property valuations in the past were driven by cash flow (EBITDA), real estate growth options, and cheap money. Cash flows are down, and real estate growth options are almost non-existent. We are starting to see money become cheap again, but it will be some time before individual property valuations recover significantly.”

Even tribal gaming, once the darling of high-yield investors and small investment banks, has taken a hit, as the crashing economy didn’t discriminate between commercial and Indian casinos. Claims of sovereignty further complicated those lending options.

“Debt investors actively trade their positions when there is sufficient market liquidity,” says Sodl. “The universe of investors for tribal gaming credits is more limited, which has resulted in less liquidity for trades. That said, improving operating fundamentals of certain Native American operators is impacting the quoted pricing levels of the debt securities. Tribal borrowers who demonstrate solid fundamentals (strong operating performance and low leverage) will be able to refinance their debt and attract capital.  The cost of that capital may have a premium attached to it due to the heightened sensitivity over sovereign immunity in a couple of the tribal distressed credits; however, once the restructurings of those situations take place, that too should have a positive impact on the tribal debt markets.”

For multi-jurisdictional gaming companies, the calculations are even more difficult, says Morowitz.

“On a firm basis, companies with exposure to Macau and Asia are getting outsized valuations. We will see what happens in the long run.”
—Roger Gros


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7: Beyond the Casino
Non-gaming amenities continue to be a central part of any gaming property, even during a recession

The past decade will go down in the history of the gaming industry as the decade in which non-gaming amenities began to be viewed not as niceties to keep gamblers happy, but as profit centers in their own right.

Before the credit bubble burst a few years ago, there seemed to be no end to the concentration on amenities such as high-end restaurants, spas, luxurious hotel rooms, big-ticket revue shows and ultra-lounges with $400 bottle service. On the Las Vegas Strip, revenue from non-gaming amenities actually began to outstrip revenue from the casino games for the first time.

Many thought the recession of the past three years would send the revenue pendulum swinging back to the casino, and back in time to the days when $3 prime rib and cheap shows were used solely to draw in the gamblers to the casino.

However, if new properties and expansions are any indication, the shift to non-gaming amenities is as strong as ever, albeit within the framework of limited capital availability. From construction projects at California Native American casinos to new additions to London’s G Casinos chain, from Casinos Austria to Holland Casinos, from integrated resorts in Singapore and Macau to improvements at Crown Casino’s SkyCity casinos in Australasia, large non-gaming attractions are still a required element of new and expanded casino properties.

The trend shows no signs of slowing in 2011, despite the lingering effects of the global economic slowdown. Michael Soll, executive vice president of leisure and hospitality consultancy the Innovation Group, says the recession actually is helping to fuel the trend toward non-gaming amenities.

“As larger expansions and new projects were put on hold, there was more openness by default to look at re-purposing facilities with more creative approaches to expansions—which naturally led people to think about amenities,” Soll says. “The recession didn’t dampen the (non-gaming) trend, but may have exacerbated it in terms of the use of capital. More of the available capital was channeled to non-gaming amenities in lieu of big projects.”

Soll says with less financing available for large projects, money is being spent on amenities meant to draw people in—to distinguish a property from competitors, which offer the same gaming product. He points to projects such as the 45,000-square-foot indoor water park currently under construction at the Chippewas’ Soaring Eagle casino in Mount Pleasant, Michigan, set to open in the spring; and comprehensive redevelopment plans at other Midwest tribal casinos.

“The trend will continue in markets that began initial development after the Midwest, markets like California,” says Soll. “When markets are around 10 years old, there is a tendency to say, ‘What do we do next?’”

The trend can also be seen in Asian markets, but for different reasons, he adds. In Macau, casino resorts are adding attractions to move from a VIP market base to more of a mass market. “As Asian properties moved from VIPs to determine how to please the mass market, non-gaming amenities became more important,” he says. “However, how different amenities would play out culturally, and how they would generate revenue, was all experimental—and that’s still the case.”

The integrated resorts of Singapore, on the other hand, were built specifically to attract tourists, which was a stipulation in the bidding process. “They didn’t have the pressure of looking at amenities as incremental,” he says, noting that the non-gaming amenities were central to the gaming concept.

Soll predicts these trends will continue in the new year. “Additions of amenities will still be attractive as opposed to major expansions and green-field development,” he says. “That’s the bottom line.”
—Frank Legato



8: Come One, Come All
Slot machines will continue to thrive with server-based options and community gaming

There are several trends in the slot machine sector that have been developing for years, but which appear ready to come to fruition in 2011.

The first is the emergence of server-based applications on the slot floor. With some estimates showing that more than 40 percent of slot floors are now Ethernet-equipped, the slot-makers are beginning to partner with casinos to explore the capabilities of the new technology. Major slot manufacturers including Bally, IGT and WMS Gaming all arrived at last month’s Global Gaming Expo with demonstrations of networked gaming applications that are already in the field.

For Bally, it is the enterprise-wide mystery bonus game, which has been generating excitement at San Diego’s Barona Valley Ranch casino, where everyone playing with slot club cards inserted picks a horse every hour on Saturday night for a video horse race with winners splitting $10,000 in free play.

For IGT, it is the sbX server-based system, in place on an enterprise-wide basis at the Aria casino at CityCenter on the Las Vegas Strip, and on a smaller scale at many other locations thanks to the “Tier One” setup that allows smaller groups of 100 games or fewer to be linked to a server, allowing games to be changed remotely according to the preferences of players.

For WMS, the world of networked slots is on display in the form of its “Lord of the Rings” series, which allows players to advance through levels to unlock bonus games while playing online at home—with bonus games earned at home available to players the next time they’re in a casino.

Among the other emerging trends on the slot floor next year surely will be further expansion of community-style play. All of the major slot manufacturers have games that involve several players at a bank in a bonus event—a horse race, a car race, as a judge on American Idol, or even in so-called “cooperative” bonus events that have players working together toward a common goal of a higher bonus.

The end result of this is a degree of social interaction on the slot floor that has never been seen in the past. There are still plenty of games that offer the old, solitary slot experience. But expect more enthusiastic crowds around a single game next year than ever before.

Finally, one revolutionary trend on the slot floor this year is the introduction of skill—real skill; actual hand-eye coordination, and not simply “perceived skill.” IGT’s “Blood Life” contains an actual Pac-Man-style game as a bonus, operated through a joy stick mounted on the button panel. Konami’s “Jackpot Island” includes buttons that double as pinball flippers, making skill at pinball finally worth something other than a few free games on a pinball machine.

Some of the new server-based applications to come over the next year are sure to incorporate elements of skill to one degree or another, but 2011 will go down as the year that true skill entered the slot floor in a big way.
—Frank Legato



9: Europe Arrives Online
When it comes to operation, legalization and taxation of internet gaming, the continent excels

The gambling business is one of Europe’s real success stories online. This is a business in which Europe leads the world.”

That was Tim Phillips, director of European public affairs for online betting exchange Betfair, quoted in a piece in the New York Times last summer. No matter that elsewhere in the article he was criticizing the tax formula of the then-recently opened French online betting market. The fact is, regulators and finance ministers throughout Europe are finally responding to the strong public demand for online gaming. Now it is up to each individual nation to decide on the balance between how much protection its citizenry needs and how much revenue can be gleaned from the activity. And in both cases, where lies the tipping point between success and failure.

In recent years, industry participants and outside observers awaited each decision from the European Court of Justice. One week the court’s ruling would seemingly come down on the side of the operators, and the online news sites and forums would be filled with optimistic predictions that all signatories to European Union trade treaties must now be open for business. Then, on the following case, the court would come with a ruling that justified a monopoly operator, and government representatives would be trumpeting the end of the cross-border argument for commercial gaming providers.

In reality, each of the cases before the ECJ turned on very specific details. How serious were a government’s efforts to protect its people from the supposed harm of gambling? Was the monopoly operator merely satisfying a need or driving the public to ever-higher levels of gambling through advertising and promotions? As the court’s rulings swung back and forth, it became clear that there would be no single, defining answer to the question. Each nation was going to have to come up with its own unique path forward.

One by one, governments began to draw up and pass legislation. One model from which to take lessons was the U.K., which was essentially the first major nation to license online gaming providers whose target market was intended to include residents of the licensing jurisdiction. Just as with land-based casino legislation a few decades earlier, regulators could look to the U.K. to see what worked and what could be improved.

Two areas that would appear to be weaknesses in the U.K. model are the tax rate and the advertising rules. The high tax rate of 15 percent on gross profits, imposed by then-chancellor Gordon Brown, has driven away poker and casino sites. Now, the well-intentioned “white list” of off-shore jurisdictions whose licensees are allowed to advertise in the U.K. threatens to do the same for sports betting. Operators feel there is little incentive to pay 15 percent tax when they could just as easily move offshore, pay next to nothing and still have the right to advertise.

As the E.U. member states and other European governments continue down the same road as France, Italy and other online jurisdictions, we can expect to see a lot of experimentation with tax rates, advertising rules and player pools—single-jurisdiction or borderless—in the coming year.
—Rich Geller


10: Service Masters
Casinos seek the true secret to stellar customer service

It’s been a long-held truism that casino customers are more motivated to return when they receive excellent service than all the restaurants and “wow” factors you can imagine. That fact is easy to know but hard to grasp.
 

“With the current economic climate, lack of available capital and ongoing expansion of gaming, retaining customers (or at least getting more than your share of their play) will clearly be crucial,” states Dave Newton, a former casino HR executive and now partner with Hospitality Resources. “But this isn’t simple. To create and maintain a culture of service, you need to establish certain leadership practices and human resource systems.
 

“The companies that have made customer service a priority in the past will have a huge competitive advantage, because there is nothing harder than changing human behavior once those behaviors have become habits.”
 

Destination properties in particular have always stressed customer service. The buildings and associated gimmicks such as themes, water and fire features are the marquees that intrigue people to visit once. However, enticing guests to come back and spend more time has always relied on employees and the services they provide.
 

Executives need to find the time, money and motivation to do more… when they have less.
 

“Cultural changes will be even harder to make as revenues and profits slip, because staff will get cut, people will be expected to do more with less, and pay increases will be small or non-existent,” explains Newton. “So motivating employees to change, and finding the time and money to do the things that are needed to support change (involvement, clear expectations, feedback, recognition), will be pretty
problematic.”
 

There’s no question that the onus is on the company to hire for service-oriented personality traits and to train for job skills and cultural expectations. However, the most overlooked aspect of the company’s responsibility is internal communication.
 

“The No. 1 complaint voiced by employee survey respondents is, ‘I just don’t know what’s going on around here,’” says Arte Nathan, former leader of the human resources departments at Mirage Resorts and Wynn Resorts, and now president and COO at Strategic Development Worldwide. “Casino companies spend vast amounts of money on marketing to customers. If only they spent even a small fraction of that on internal communications, branding and PR. The best PR you have is employees talking to guests when they are on property.”
 

And recognition of employees isn’t always accomplished solely with money.
 

“Surveys indicate that money isn’t the top motivator of employees,” says former Tropicana Atlantic City HR VP Donald Hoover, now a professor with Fairleigh Dickinson University. “Training and opportunity for advancement are. Companies need to develop talent mapping for who goes where next. This must be transparent to employees and must be discussed in each performance review. Regrettably, very few are actually practicing these approaches.”

Hoover says that customers need a smooth and comfortable experience.

“All you really want is for your guests to find the fastest, friendliest way to get in your doors and start enjoying themselves as quickly as possible,” he says. “Unfortunately, we sometimes put roadblocks in their way.”

When selecting employees, all the experts agree on the basics: Hire for service-oriented attributes. Provide ongoing training. Explain what you want employees to do, show them how, and reinforce it day after day with effective supervision. In frequent performance reviews, show a clear map of career progression and discuss necessary steps and how to overcome current performance challenges. The “Service Profit Chain” theory indicates that happy employees make happy customers resulting in happy shareholders. The chain doesn’t break just because the economy has.

“If you’re not willing to do this stuff, you may want to consider closing the doors,” says Nathan. “In the end, the protracted agony of a slow death isn’t worth it.”
—Nicole Wolf