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Thinking Outside the Box

Consultants play a changing, yet steadying role in the casino and gaming industry

Thinking Outside the Box

In any industry with a changing financial and regulatory environment, the role of consultants is critical to keep businesses ahead of the curve with their legal and organizational structure. This is definitely true for the gaming industry, as each state looks to add revenue and job growth as part of the economic stimulus package experienced by casinos during the past two decades.

The clientele of industry consultants range from privately held gaming operators to large publicly traded gaming corporations, local, state and federal regulatory agencies and commissions, independent nonprofit groups, non-government organizations, investment banks and venture capital firms.

“Our fundamental value is to provide an experienced, independent opinion,” says Eugene Christiansen, owner of Christiansen Capitol Advisors, an independent research and consulting firm with expertise in the economics, management, operations, taxation and regulation of the leisure and entertainment industries. “Often we are asked to review potential projects or substantiate financial or revenue findings. It is the experience and unbiased nature of our consultants that brings the value to explain the nature of these industries. The casino and gaming landscape has changed dramatically, because 20 years it was an unknown entity that government did not understand.

“The question has gone from, ‘Why shouldn’t we do this?’ to, ‘Why haven’t we done this already?’ Unfortunately, now everyone thinks they know the industry because of its new mainstream appeal.”

Industry Influence

According to Christiansen, by the end of 2012, there are only three large population centers without access to a casino in their immediate area: Atlanta, Oregon and Texas.

“Everywhere else there is a casino, and that is a fundamental change,” he explains. “Wall Street seems to be the last people to figure this out, as they often use outdated models to predict a casino’s revenue stream. Those models are irrelevant because of the widespread competition across the country now.”

This competition has put a premium on current, quality market analysis and research, something that the consulting firm The Innovation Group prides itself on. The Innovation Group, founded by gaming visionary Steve Rittvo, provides both surrogate services for in-house functions for operators in need of supplemental support, and highly specialized services not typically provided within operating companies.

“Market analysis and strategic planning, together, represent our highest value in servicing our clients, and forecasting revenue is as much as an art as a science,” says Michael Soll, president of The Innovation Group. “In many cases our models reflect hypothetical activity where predicting future outcomes involves a multitude of variables. The ability to anticipate the impact of market influences, competitive scenarios, changes in infrastructure, macroeconomic forces, government actions and behavioral trends in consumers has been critical. However, sitting at the table with our clients to determine how to respond to such influences has been our value-add.”

Whether talking to owners, managers, investors, tribes, brands, government or other interests, The Innovation Group and other high-quality consultants provide consistent messages and findings based on the experience of their firms’ personnel.

“We come from a regulatory background, which helps our culture and

mindset; we never forget who we work for,” says Michael J. Pollock, managing

director of the consulting firm Spectrum Gaming Group. “We are very proud to have the experts on the regulatory systems that have came through the states working for us.”

Pollock began analyzing the casino industry in 1978, and served as spokesman for the New Jersey Casino Central Commission from 1991 through 1996.

Partner Fred Gushin worked for the state’s Division of Gaming Enforcement during the industry’s formative years, and together they bring a wealth of knowledge on regulations. Their efforts in examining gaming policy in Connecticut, Guam, Indiana, Korea and Massachusetts are examples of the various demographics consultants have to cover to be considered a high-quality firm or adviser. Through their staff and global network of affiliates and associates, Spectrum employs experts in every facet of the gaming industry, from research to regulation.

“Our findings, conclusions and recommendations are based solely on our research, analysis and experience,” says Pollock. “We do not tell clients necessarily what they want to hear; we tell them what they need to know.”

What all clients need to know is that effective regulation is what has taken gambling from the dark shadows of the 1970s to the widely accepted, mainstream activity it is today. To maintain knowledge about these effective regulations, consultants offer dozens of services to educate both the public and private sectors. Compliance auditing, license investigations, the implementation of anti-money laundering systems, developing investigation protocol and public policy evaluation all are necessary, especially with state-run casinos. Tribal gaming has the need for most of the same services, but each casino or tribal nation has to be evaluated on its own.

“We visit a lot of properties,” says Andrew Klebanow, co-owner of Gaming Market Advisors. “We have been to 67 casinos in both domestic and international markets this year alone. Being in a lot of properties gives us a lot of broad views, because we see a lot of good and bad practices. We bring a perspective that you don’t see by being in the same casino every day. We identify the best practices of regional operators, including how they capture and engage new VIP players.”

Along with providing operational reviews, public policy consulting and hotel feasibility analysis, Gaming Marketing Advisors also offers player reward program design and studies, as well as consumer research and marketing audits.

“We have to be accurate with all clients and extremely accurate with public casinos, because these state governments are already budgeting their tax revenue well into the future,” says Klebanow. “We have a big advantage because we know how to explain our industry to people and let them know what the numbers really mean. We can explain the numbers, spot the trends and do it in a responsible way that benefits our clients.”

Serving the Segment

The services offered by consultants have been on a parallel level of expansion with the gaming industry the last two decades. Legal consulting and support services are still a staple for all properties for the obvious reasons. Spectrum’s services range from internal in-service training for police, prosecutors and casino security to an overview of casino crime. They also offer extensive litigation support for both civil and criminal cases. Evidence review, trial preparation and expert witness services are all utilized by their clients.

“When you work with government entities, you have to always keep in mind that their constituents are the public,” says Pollock. “You have to make sure everything is about the public best interest and avoid any conflicts of interest. As your government work expands, your private clientele will shrink to avoid conflict of interest.”

Avoiding conflict of interest is key in legal consulting, and one of the industry’s key players is the full-service consulting firm Regulatory Management Counselors (RMC). With an emphasis on legal and consulting services in the gaming industry, the firm is made up of dedicated legal, business, consulting and public relations experts who are able to serve the diverse needs of clients in heavy regulated industries.

“We have a unique blend of talents that are particularly well-suited in assisting companies that are working to improve financial performance in an effort to avoid restructuring, design business structures, debt or equity financing and working with regulators to assure full compliance with applicable rules and regulations,” says Robert Russell, one of the principals in the firm, along with Dave Waddell, a gaming attorney with almost 40 years of experience in the business.

RMC also specializes in introducing new companies and individuals to the gaming industry and helping to navigate the treacherous waters of regulations and compliance.

“We work closely with our clients,” says Russell, “in the development of methods to ensure that governmental requirements are fully complied with in a timely manner.”

“The casino is one of the most data-rich environments you will ever find, and a slot machine is just a formula in a box. Most
operators don’t even scratch the surface to utilize those who frequent the property the most, who spend the most money, and seize those opportunities.”
—Randy Fine Fine Point Group

Banking on Success

Whether the client is public or private, consulting firms offering financial services are also common in today’s gaming landscape. The Innovation Group’s investment banking affiliate, Innovation Capital, “has had numerous success stories over the past five years working with clients where the firm’s advice and execution turned distressed situations into a win-win for all stakeholders,” says Matt Sodl, president and managing director of Innovation Capital. “While opportunistic transactions have been limited in recent years due to the economic meltdown, the past 24 months have been particulary active for Innovation Capital’s distressed mergers and acquisitions practice.”

These transactions have included the 363-bankruptcy sales of Siena Hotel Spa Casino in Reno, Nevada, Fortune Valley Hotel and Casino in Central City, Colorado and the Valley View Downs development project in Lawrence County, Pennsylvania, as well as the recently completed sale of slot manufacturer Cadillac Jack to the Canadian company Amaya Gaming.

“While both opportunistic and distressed merger and acquisition activity remains at heightened levels, our firm continues to advise both companies and tribal clients in unique situations requiring highly structured capital,” says Sodl. “Innovation Capital has proven our ability to deliver unique sources of capital to support these transactions, even when traditional markets are not accessible.”

The business intelligence, financial evaluations and overall insight provided by consultants in this area have been vital for the industry to navigate not only the last five years of economic turmoil, but the past two decades of extreme growth.

One of the tools key during this growth is the use of expanded and more complicated analytics for more accurate modeling and prediction of performance by new markets or individual properties.

“Because of the expansion of casinos in the U.S., the gaming industry is no longer just, ‘Open the doors and they will come,'” says Steve Gallaway, co-owner of Gaming Market Advisors. “We can now capture geographic market analysis and trends down to the street block. The greater the formula level the more accurate the forecast, and that is what we always want to provide the client.”

The Fine Point Group, an independent group of casino managers and consultants, uses the rapid advanced development of casino gaming analytics to serve other industries. Many other industries admire the precise and specialized analysis implemented in gaming.

“Over the years, we have been approached by companies in other industries that find much of the analytic techniques we developed for gaming could be translated to their industries,” says Randy Fine, managing director of the Fine Point Group. “In industries as varied as cruise lines, technology and health care, we have leveraged decision science to determine how to change employee behavior, improve length of interaction or product purchase and improve patient outcomes.

“The casino is one of the most data-rich environments you will ever find, and a slot machine is just a formula in a box. Most operators don’t even scratch the surface to utilize those who frequent the property the most, who spend the most money, and seize those opportunities.”

There are also opportunities for consultants in the fast-growing technology sector of casino and gaming consulting. Since technology is truly the thread that runs through an entire operation, the types and packages of services are growing every day. Spectrum Gaming Group offers network security review, technology concept operational impact or implementation review and analysis, and electronic revenue analysis, procedures and implementation.

“Technology is revolutionizing casino floors around the world, from cashless systems to server-based gaming,” says Pollock. “For our firm to experience success, we have to be continuously positioned at the cutting edge of new technology, providing services for equipment manufacturers, gaming operators and regulators.”

The Fine Point Group has recently integrated technology with the data they gather, producing a product called LaserPointCRM, utilizing the company’s proprietary algorithms to come up with something that can instantly assist casino operators.

“It is a solution-in-a-box,” says Fine. “It is not a ‘tool’ that gives casino marketers one more thing to add to already busy schedules, but an answer for how to drive more business in ever-more-competitive markets. Given that it leverages scalable cloud-based software, we are able to offer it at a fraction of our customized, high-touch consulting services. It is our hope that with LaserPointCRM, we take relationship marketing across our industry to a new level, allowing both large and small players alike to put the best, and most targeted, communications into the hands of consumers.”

The Commitment to Clients

The client list of a consulting firm can be a wide variety of organizations and locations, from the Netherlands to New Jersey. Regardless, there is a high level of trust needed from government entities that are entering the casino and gaming industry for the first time.

“We do not go into any assignment knowing the answer,” says Fine. “We know how to ask questions and run analysis to get answers. Data is most important for new clients, and once we receive the proper information to make recommendations, then we can tell them the variables for increasing revenue, cost, or whatever their needs are.”

To broaden its reach, RMC has recently unveiled RMC Gaming Management, under the direction of gaming management veteran David Shugar, designed to provide clients with expert advice on how to operate their gaming floor efficiently, effectively and professionally.

Russell says the RMC GM will assess and analyze any gaming situation to improve it for clients.

“Time is too valuable to waste going down the wrong roads when poor performance requires a turnaround,” he explains. “While we are surveying the landscape of operations in the context of market conditions, conducting a Client Needs Analysis (CNA), and a Strengths-Weaknesses-Opportunities-Threats (SWOT) analysis, we are also meeting with management to get their gut feel of the challenges before them. Our approach identifies the disconnects in the processes of strategy and execution. Finding the communications breakdown and motivational factors that ultimately define the customer service focus of the company allows us to concentrate on fixing what is broken without dismantling what is not.

“Often, we help clients to avoid going down unrealistic paths, thereby saving them unnecessary expenses and time, and assist them in designing structures that will work both from a practical standpoint and from a gaming regulatory perspective.”

Figuring Out the Future

Like almost every industry in the current global business environment, the future of the casino gaming industry is closely tied to developing Asian markets.

“The growth that we are seeing in international markets is totally different, especially in Asia,” says Gallaway, who has visited Macau, the Philippines and southeast Russia in recent months. “Domestically you will see increasing performance from casinos as the economy expands. Gaming will do better as consumer confidence increases.”

Gallaway’s partner also believes there will be a fundamental shift on the horizon for domestic gaming.

“How casinos are used by state governments will change, where before jobs and taxes were the top priorities,” says Klebanow. “Starting now and in the future you will see a change into a casino being a source for economic and urban development, especially in middle markets.”

Klebanow points to the Hollywood Casino in Toledo, Ohio as an example, along with the new Horseshoe Casino in Cleveland. Although many operators do not prefer a downtown or urban setting because of the obvious competition, this preference is growing in demand.

“The map is filling up with casinos and nobody’s afraid anymore; that is well understood,” says Christiansen. “The need and value of consultants will still be in demand—not in the previous ‘soothsayer’ role, but as an independent expert to paint a realistic picture of return on investment for growth and tax revenue. There will be more of a premium for advisers who think clearly and understand the changing needs of our clients.”

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