Getting Ready to Fly!
Commercial opportunities in the USA, the world’s biggest online gaming market.
Scenarios. Forecasts. Milestones.
Enter Executive Market Forecasts – How will Business Models Key Industry & Contacts Summary Size the Market Evolve? and Value Chains Market themes
Contents
Section One: Executive Summary...... 3 Section Four: Business Models and Value Chains. . . . . 26
Market Barriers...... 26 Section Two: Market Size ...... 8 Cannibalisation...... 29 By State. By Population...... 9 Strategic Models...... 32 Land-Based...... 9 KPIs ...... 39 Mobile/Tablet...... 15 Social Gaming ...... 39 Product...... 16 Land-based...... 43 Section Three: Forecasts – How will the Market Evolve? 17. Section Five: Key Industry & Market themes...... 47 New Jersey...... 17 State-by-State...... 47 Nevada...... 18 Geo-location...... 53 Delaware ...... 19 Compacts...... 53 Federal...... 20 Federal Law ...... 55 The Axes of Uncertainty...... 22
Mobile/Tablet...... 25 Section Six: Contacts...... 58
2 Executive Market Forecasts – How will Business Models Key Industry & Contacts Summary Size the Market Evolve? and Value Chains Market themes
Section One: Executive Summary
Forecasts Exhibit 1: New Jersey Forecasts GGY licensed online gaming 334 The U.S. licensed online gaming market will be worth $285m GGY in 2014, significantly higher should compacts be created.
The New Jersey licensed online gaming market will be worth $186m GGY in 2014, significantly lower than official 0 State forecasts. This will rise to around $214m if interstate 2014 2015 2016 2017 2018 compacts are created. n GGY ($Ms) n With Compacts ($Ms) The licensed U.S. online gaming market will require California 2014 186 214 to push through proposed poker regulations and roll-out licensed web-sites to push through the $1bn GGR barrier. 2015 212 244 Regulation should occur by end 2014 with licensed operators 2016 241 277 dealing their first online poker hands by end 2H 2015. 2017 264 304 2018 290 334 The U.S. licensed online gaming market will be worth around Source: Clarion Events. Forecast modelling factors included in $3bn GGR in the next five years providing the State-by-State Section Three model is rolled out and significantly more should a Federal ruling prevail.
The roll-out of online gaming in the U.S. will be slower than Exhibit 2: Delaware Forecasts GGY licensed online gaming predicted in most cases. Even where legislation permits, 40.2 technical requirements specific to one State yet complying with interstate compacts will hinder growth.
Delivery of online gaming products that conform to all 0 minimum standards set by stringent U.S. regulations will take 2014 2015 2016 2017 2018 longer than expected. The USA’s first-ever online licensed poker bet (via Ultimate Poker) launched without players using n n Verizon – the country’s largest wireless provider – with Virgin GGY ($Ms) With Compacts ($Ms) Mobile and Cricket Wireless networks able to complete the 2014 22.4 28 registration process before Verizon eventually came on-board 2015 26.4 33 in May 2013. Equally, Nevada-licensed South Point Poker is at 2016 28.1 35 least six months behind schedule as its proprietary poker client 2017 30 38 is independently tested. 2018 32.1 40.2 The U.S. will be the first major online gambling territory to Source: Clarion Events. Forecast modelling factors included in be driven through mobile/hand-held/2nd-device platforms. Section Three Until now, all other major gaming markets have been driven through desktop PC Internet platforms.
While the online gaming industry has pioneered many creative routes-to-market worldwide, particularly for payment processing, in the U.S. transparency will absolutely be key. Anything else may result in a revoke of license. The licensing and due diligence process in the U.S. is particularly thorough.
Those operators with large scalable IT infrastructures enabling rapid distribution on a mass scale to new platforms including iPad, social media and, in particular, via mobile will win through.
3 Executive Market Forecasts – How will Business Models Key Industry & Contacts Summary Size the Market Evolve? and Value Chains Market themes
State-by-State online poker will not negatively impact on Exhibit 3: Nevada Forecasts GGY licensed online gaming the revenues of land-based operators. Pre-UIGEA land- 144 based poker revenues rose sharply alongside the growth of online poker. However, a Federal law or strong multi-State compacts could have a negative impact given that liquidity and jackpot pools would be bigger and more players would migrate online. This scenario threatens not just the core 0 2014 2015 2016 2017 2018 casino businesses but their adjacent resorts, hotels, shops and restaurants – which rely on a constant influx of gaming n GGY ($Ms) n With Compacts ($Ms) customers. 2014 77 96.25 New Jersey will be a significantly more valuable market than 2015 88 110 Delaware or Nevada, not just because of its larger population 2016 96 120 but because online slots and online casino is permitted 2017 107 134 alongside poker (as does Delaware). Online casino and slots 2018 115 144 generates significantly greater revenues for online gaming Source: Clarion Events. Forecast modelling factors included in operators than online poker on a per-player basis. Section Three Some Americans will continue to gamble with offshore companies even should State licensing or a Federal ruling occur as there are greater opportunities including wider sports betting markets. The U.S. is losing hundreds of millions of dollars in tax every year through unlawful online gambling.
Exhibit 4: Total U .S . licensed market value
3.06bn
0
2014 2015 2016 2017 2018
n GGY ($Ms) n With Compacts ($Ms) 2014 285.4 338.25 2015 (5 States inc California poker) 810 972 2016 (7 States) 1.3bn 1.56bn 2017 (9 States) 1.9bn 2.28bn 2018 (11 States) 2.55bn 3.06bn Source: Clarion Events. Forecast modelling factors included in Section Three
4 Executive Market Forecasts – How will Business Models Key Industry & Contacts Summary Size the Market Evolve? and Value Chains Market themes
Regulation Product More U.S. States will drive through regulations and join Online Online Online Exchange Delaware, Nevada and New Jersey as the U.S online gaming State poker casino sports wagering industry rolls out on a State-by-State basis. Licensing models California will vary. Delaware President Obama’s term ends in 2016. It is unlikely a Federal law will be passed by then. Longer term it seems inevitable Illinois that federal legislation will be introduced – particularly as Louisiana States push forward with regulation. There may be a ‘tipping point’ where enough licensed States forces a Federal ruling. Mississippi Federal legislation on online gambling cannot pass as a Nevada* stand-alone Bill, it will need to be attached to something New Jersey else. Individual States and the greater online gambling industry in the U.S. is sending mixed messages to the Federal New York government about the type of regulation it wants. Pennsylvania Compacts between some U.S. States will almost certainly occur. Larger States such as California stand to gain less from * Some, limited online sports such agreements and will either abstain or demand more Source: Clarion Events aggressive commercial terms.
International compacts with other countries is a more complicated issue and consequently much further away.
Most States will tie any future online gaming license to land- based licensed operators. This creates greater protection for the State and the customers because if online regulations are breached a Company’s core land-based license is threatened.
Monopoly online gaming operators in Europe have largely not been successful (relatively), are not commercially competitive and do not draw players as well as independent operators. U.S. States will not adopt this model. Regulation must create a regulatory environment that encourages competition and therefore ultimately serves consumers best.
Application fees or deposits from regulators will be revised. California has demanded a (refundable) bond of up to $30m from license applicants.
Unregulated States are increasingly having their hand forced by those States that are legalising online gambling. Most States are keen to shore up short falls in budgets.
The U.S. online gaming market remains unstable. An online gambling scandal could set back the market by years. Another UIGEA style prohibition can never be totally ruled out.
5 Executive Market Forecasts – How will Business Models Key Industry & Contacts Summary Size the Market Evolve? and Value Chains Market themes
OPPORTUNITIES Exhibit 5 . Which will be the next U .S . State to follow the lead set by Nevada, Delaware and New Jersey? Up to three-quarters of land-based operators have yet to choose suppliers. Opportunities still exist in the U.S. for international gaming and gambling operators, game developers and publishers, venture capitalists and equipment and technology suppliers. Further international gaming entrants to the U.S. market will need to buy-in at higher costs than the early movers. % Poker will be the driving product in most U.S. States, although n Colorado 0 online casino and slots games will also gain some traction. n Mississippi 4 Opportunities for the growth of online sports wagering will be more limited. n Massachusetts 5 n Other 5 U.S. land-based entities still hold the power. In particular brick- n Illinois 16 and-mortar casinos and Tribal entities will be best placed. In n Pennsylvania 23 States without these entities, lottery providers, racetracks, n California 47 card rooms and gaming equipment suppliers will prevail. Source: Clarion Events 2013 California is expected to become the most powerful U.S. State for online gaming and poker will be the online route. Tribes and card rooms will be the chief beneficiaries. Sports wagering is also unlikely to gain traction in California (outside Exhibit 6 . What’s the optimal market-entry strategy for the U .S ?. exchange wagering). A timescale for the introduction of online gaming has yet to be established. Richard Schuetz, Commissioner, California Gambling Control Board publicly stated that he did not expect to see online casinos ‘in my lifetime’ in California. Sports wagering is also unlikely to gain traction in California (outside exchange wagering).
The route for conversion of social money gamers into real % money gamers has still not been found. Real money gaming n Wait for further regulation 3 and social gaming can and will co-exist. n Via play for fun now to build databases 9 Late entrants are able to view the strategies of the existing n Develop own platfrom and software 14 entrants to the market (as outlined in this report) and assess n Via social gaming now to build databases 18 the marketplace on a State-by-State basis, with player data as n In partnership with a land-based operator/supplier 55 it becomes available in 4Q 2013. Much of the lobbying and Source: Clarion Events 2013 regulatory challenges have also already been met (although they still exist).
6 Executive Market Forecasts – How will Business Models Key Industry & Contacts Summary Size the Market Evolve? and Value Chains Market themes
What will characterise the winners? Exhibit 7 . U .S . land-based operators: Where are you in your online gaming plans? More than 75% of land-based operators have not yet n An online license via proprietary land-based operations or JV chosen a provider . . n Strategic land-based interests in the right U.S. States primed for licensing n Existing large databases n Strong, well-known brands n Large and scalable IT infrastructure able to deliver best-of- breed products to mobile platforms n Internal, sourced or JV partners experienced in licensed % online gaming n Not pursuing right now 1.80 n Integrated CRM and affiliate software, online gaming n Have already implemented 7.10 marketing technology n Have selected a provider/undergoing integration 10.70 n Politically influential, well-placed n Have begun process of selecting a provider 10.70 n Informally investigating the efficacy 30.40 Strategies n Formally researching 37.50 Source: The Innovation Group Company U.S. State Route 888 New Jersey Caesars casinos. Poker Exhibit 8 . U .S . land-based operators are outsourcing what functions of their online offerings?
Bally Nevada, Penn Casinos. Tribal 49.1 Exchange wagering. Betfair California, NJ TVG Caesars Nevada Facebook. Casinos. 888. Churchill Kentucky, Tracks. Casinos. Luckity. Downs California, Maine Poker Nevada, Tribal. Numerous online IGT Delaware gaming partners Lottomatica 25 States Lottery. Tribal 0 Casinos. Boyd. Bwin. MGM Nevada % Party, n Geo-location and age verification 49.1 Nevada, n Payment processing and fraud 48.1 Monarch Int Casinos Colorado n SEO 39.6 PokerStars New Jersey Casinos n Web-site maintenance 37.7 n Hosting 35.8 Bally. Amaya. SHFL Nevada n Affiliate management 32.7 GameAccount n Network chat management 24.5 South Point n Analytics 11.3 Nevada Poker client Poker n Selection of games 9.4 William Hill Nevada Sportsbooks. Mobile n Customer service 9.4 n VIP account management 3.8 WMS Nevada Poker n Bonus and loyalty management 3.7 Source: Clarion Events Source: The Innovation Group
7 Executive Market Forecasts – How will Business Models Key Industry & Contacts Summary Size the Market Evolve? and Value Chains Market themes
Section Two: Market Size
Exhibit 9 . Gaming across the USA
n Online Gaming Prohibited n Pending Legislation for Online Gaming n Legal Online Gaming
8 Executive Market Forecasts – How will Business Models Key Industry & Contacts Summary Size the Market Evolve? and Value Chains Market themes
State Casino Racetrack Tribal Casino Card Room Electronic Gaming Device State Lottery Alabama 3 yes Alaska 2 yes Arizona 26 yes California 70 88 yes Colorado 41 2 yes Connecticut 3 yes Delaware 3 yes Florida 6 8 25 yes Idaho 7 yes Illinois 10 1,194 yes Indiana 11 2 yes Iowa 15 3 3 yes Kansas 3 4 yes Louisiana 14 4 3 2,071 yes Maine 1 1 yes Maryland 2 1 yes Michigan 3 22 yes Minnesota 39 2 yes Mississippi 30 3 no Missouri 13 yes Montana 1 277 1,503 yes Nebraska 7 yes Nevada 265 3 2003 no New Jersey 12 yes New Mexico 5 21 yes New York 9 8 yes North Carolina 2 yes North Dakota 11 yes Ohio 3 1 yes Oklahoma 2 114 yes Oregon 8 2,323 yes Pennsylvania 5 6 yes Rhode Island 2 yes South Dakota 35 14 1,459 yes Texas 1 yes Utah no Washington 34 71 yes West Virginia 1 4 1,490 yes Wisconsin 31 yes Wyoming 4 no Total 464 49 466 413 12,042 Number of States 17 14 28 5 7 35
Sources: Clarion Events, American Gaming Association, National Indian Gaming Commission, State Gaming Regulatory Agencies
9 Executive Market Forecasts – How will Business Models Key Industry & Contacts Summary Size the Market Evolve? and Value Chains Market themes
The USA is the number one emerging market for the online Exhibit 10 . Actual market size of legal online gambling in USA (+18 in gaming industry. With an economy almost twice the size of regulated States 2Q 2013) the world’s next largest marketplace, solid technology and payments industries and a large and burgeoning population the infrastructure is in place to create the most valuable jurisdiction in global online gaming.
From the wreckage of UIGEA and the subsequent ‘Black Friday’ each obliterating the online gaming market in the Online poker USA, a Department Of Justice ruling has enabled the seeds of recovery to be sown and the promise of a steadier, regulated, n Actual 9,599,916 taxed and structured U.S. online gaming market. n Possible 236,809,854
In the absence of a Federal framework regulating U.S. online gaming at a national level, three U.S. States have taken the initiative and sought to gain first-mover advantage through the creation of intrastate regulation. On April 30 2013 Nevada-licensed Ultimate Poker dealt America’s first ever fully-legal, licensed and taxable online poker hand. Less than two weeks later the Company dealt its millionth hand, an early signal of the demand and potential of the marketplace. Online casino Delaware has declared a (perhaps unrealistic) launch date of n Actual 7,514,165 September 30 2013 for its first legal online games, including n Possible 236,809,854 casino games, and New Jersey is set to follow sometime after with a provisional target date of November 2013.
Online sports wagering* n Actual 2,791,911 n Possible 236,809,854 *Includes parlay-only in Delaware
Exchange wagering** n Actual 48,504,335 n Possible 236,809,854 **Still not live in California or NJ end 1H 2013 Source: Clarion Events
10 Executive Market Forecasts – How will Business Models Key Industry & Contacts Summary Size the Market Evolve? and Value Chains Market themes
As many as a dozen other U.S. States have also begun the Exhibit 11 . Which form of gambling have you taken part in over the process to follow suit, each in various stages of progress. past 12 months? (%) Heavyweight, California – the most important U.S. State of all in regards to online gaming – has made significant progress in the past 24 months and the regulation and roll-out of online poker to the State’s thirty-eight million population looks more probable than possible in the mid-term.
However, there are a number of significant hurdles to overcome before other U.S. States join the current three Gambling Population % pioneers. Industry agreement regarding regulations is one such hurdle. Congress will struggle to pass a Federal law n Lottery 46 when the industry as a whole cannot decide which regulatory n Casino 27 route is best. 50 different sets of regulations governing n Betting 21 the U.S. marketplace can only limit growth and confuse n Poker 18 customers. n Race wagering 7 Moreover, existing land-based operators must be re-assured n Internet gambling 4 that online gaming does not threaten their existing businesses and that they will be given a share of the new online marketplace. In particular, commercial and tribal casinos will require assurances that the revenues from their adjoining non-gaming businesses including restaurants, shops, bars and shows that feed off the customer base flowing through the casinos are not impacted by falling footfall as gaming customers migrate online and desert brick-and-mortar People establishments. n Lottery 108,932,532 n Casino 63,938,660 Elsewhere, a number of strong anti-gambling and religious n Betting 49,730,069 groups hold sway in U.S. politics and their influence should n Poker 42,625,773 not be underestimated. Incredibly powerful sports bodies n including the NFL, NBA and MLB actively oppose the roll-out Race wagering 16,576,689 of sports betting and such is their influence it is unlikely the n Internet gambling 9,472,394 U.S. will see any significant growth of the limited (currently Source: Clarion Events/Howzitch 1Q 2013 Nevada and Delaware) online sports wagering industry in the U.S. any time in the short or mid-term. Of the traditional online gaming products that have dominated in Europe and beyond it is poker that has the greatest chance of online regulation in any given U.S. State or at Federal/national level.
11 Executive Market Forecasts – How will Business Models Key Industry & Contacts Summary Size the Market Evolve? and Value Chains Market themes
While a Federal ruling enabling national licensing of online Exhibit 12 . Legal sports wagering in the USA* (US$bn) poker in the U.S. would prove a significant boost to the 3.451 online gaming industry, comparatively the U.S. will be of less importance than it was pre-UIGEA. In the seven years since UIGEA online gaming has grown exponentially in many global territories. Moreover, poker is of less importance to most generic online gaming operators than sportsbook or casino, typically contributing less to the bottom line. Intrastate, or 0 State-closed liquidity pools will hamper growth. Pre-UIGEA, 2007 2008 2009 2010 2011 2012 online gaming in the U.S. was experiencing unrestricted growth with many of the leading operators including Amount wagered Margin% Sportingbet (through Paradise Poker and Sportsbook. n 2007 2.596 6.47 com), PartyGaming, PokerStars and 888 openly advertising n 2008 2.578 5.27 their brands in the U.S. market. Following the exit of n 2009 2.57 5.29 most leading brands after UIGEA a number of offshore, n 2010 2.761 5.47 unlicensed companies stepped in to fill the void. UIGEA was n 2011 2.879 4.9 directly responsible for a drop of around $7bn in the market capitalisation of the world’s largest online gaming companies. n 2012 3.451 4.9 Party Gaming, easily the market leader in the U.S. pre UIGEA *Nevada only – therefore not including Delaware’s parlay bets on NFL reported that global poker revenues dropped by nearly two- Source: Nevada Gaming Control Board thirds in 2007 to $295m.
As things stood at end 1H 2013, the market size of the licensed U.S. online gaming industry was very small. With just Exhibit 13 . All land-based U .S . casino revenue three licensed States – and Delaware and New Jersey still to accept their first ever legal, licensed online bet – the target market is small. People of gambling age in Nevada stands at a fraction over two million people. This is the roughly the same size as the populations of Latvia or Slovenia and hardly worthy of the significant investments to date in online gaming across the U.S. % Delaware, with its very small population of less than one n Indian tribal 43 million people (around 700,000 of gambling age) will n All other 57 follow sometime in 4Q 2013 and then New Jersey with a more significant gambling age population of close to seven Source: NIGC 4Q 2012 million will follow sometime after. Where market size begins to become significant is when these States create mutual compacts allowing pooling of liquidity. For land-based, online international operators and suppliers, where the market becomes particularly significant is when other U.S. States follow suit. The simple addition of California as a poker- licensed marketplace would instantly promote the U.S. into the top-tier of global online poker markets. As many as ten other U.S. States are considering regulation and a Federal ruling would create an online market size of 237 million people of gambling age.
12 Executive Market Forecasts – How will Business Models Key Industry & Contacts Summary Size the Market Evolve? and Value Chains Market themes
Factor in an infrastructure that can readily support online Exhibit 14 . Growth of Indian gaming revenues (national, $bns) gambling including national wealth, Internet penetration, smart phone and tablet penetration, propensity to play poker, 27.5 payment processing and existing large casino databases and the U.S. is the number one emerging gaming market in the world.
Significantly, the U.S. will be the first major online gambling market to be rolled out via ‘out-of-home’ devices including mobile phones and tablets. Online gambling in most European countries was initially driven by desktop PCs. 0 Hence the rapidity that legalised online gaming can grow ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12 in the U.S. relative to other developed nations in a much 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 faster manner than anything seen before. Already more than 16.8 19.5 22.6 24.9 26.1 26.7 26.5 26.5 27.2 27.5 half of Americans use a Smart phone – the most significant Source: NIGC technology in the rapid rise in mobile gambling in Europe over the past two years. More than a third of Americans also access the Internet via a tablet device and nearly eight-in-ten Americans are online. These devices will enable Americans to play online poker anytime, anywhere, as opposed to the Exhibit 15 . Spending in U S. . commercial casinos past decade ‘at-home’ restrictions under which online poker in Europe (nationwide, $bns) launched via desktop PCs almost a decade ago. 37.34 An improving economy and increased consumer spending was responsible for a 4.8% increase in revenues at non-Indian U.S. casinos in 2012. Fifteen of the twenty-two U.S. States with offline casinos saw an increase in revenues last year as confidence begins to return to the U.S. economy.
0 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 28.72 31.17 32.77 35.27 37.52 36.22 34.28 34.6 35.64 37.34 Source: State Gaming Regulatory Agencies
Exhibit 16 . World’s largest economies 2013 ($bns)
US $16.2 China $9.0 Japan India $5.1 Germany France Brazil UK $2.0 $3.6 Russia Italy $2.7 $2.5 $2.4 $2.2 $2.1
Source: CNN
13 Executive Market Forecasts – How will Business Models Key Industry & Contacts Summary Size the Market Evolve? and Value Chains Market themes
Exhibit 17 . Online gaming market size: By scenario
Population at gambling age in Delaware 706,160 n Plus Louisiana 51,270,951 n Population at gambling age in Nevada 2,085,751 n Plus Mississippi 53,503,675 n Population at gambling age in New Jersey 6,808,005 n Plus New York 68,768,478 n Compacts: Population at gambling age in n Plus Massachussets 73,952,470 3 licensed States 9,599,916 n Plus Pennsylvania 83,946,318 n Compacts: Gambling population in 3 licensed States plus California 38,019,602 n Population at gambling age 236,809,854 n Plus Illinois 47,791,920 n Population USA 311,591,917 Source: Clarion Events 2013
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Exhibit 18 . U .S . Broadband penetration Exhibit 20 . U .S . Tablet Users End 2013
Population Population % n Population 311,591,917 n Tablet User 34 n Internet Population 245,203,319 n Non-Tablet User 66 Source: Internet World Stats 4Q 2012
Exhibit 19 . Smart Phone user penetration USA end 2Q Exhibit 21 . Smart Phone platforms 1Q 2013 USA
% % n Smart Phone 43.1 n Symbian 0.5 n Non-Smart Phone 55.5 n Microsoft 3.2 Source EMarketeer n Blackberry 5.4 n Apple 38.9 n Google 51.7 Source: ComScore
15 Executive Market Forecasts – How will Business Models Key Industry & Contacts Summary Size the Market Evolve? and Value Chains Market themes
Most popular sports and gaming products Exhibit 22 . What sports do Americans bet on?*
Expansive data released by the Nevada Gaming Control Board indicates that nearly one in two bets in licensed State sportsbooks are placed on football. Basketball is the next most popular sport followed by baseball. Typical bet types include parlays (Delaware racetracks are permitted this bet type at the State’s racetracks) Daily lines (straight bets, money lines and totals), match-ups, futures, and propositions. % $ Slot machines and video poker are still easily the most popular n Other 6 215.90bn products in land-based casinos and where most revenue is n Baseball 20 693.17bn generated. In terms of table gaming, blackjack is much more n Basketball 28 975.01bn popular that poker in terms of customer numbers. With poker n likely to be the licensed product in most States as and when Football 45 1.567bn regulation permits, it is Texas Hold ‘Em that is easily the most *In licensed Nevada sports wagering sportsbooks popular among all poker types. Source: Nevada Gaming Control Board
Exhibit 23 . Favourite casino product? (offline)
% n Craps 3 n Roulette 3 n Poker 7 n Blackjack 23 n Slot machines/video poker 36 Source: VP Communications Inc 1Q 2013
Exhibit 24: U .S . online gamblers’ favourite type of poker
% n Don’t know 1 n Omoha 8 n Five Card Draw 13 n Seven Card Stud 13 n Texas Hold ‘Em 65 Source: AGA State of the States
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Section Three: Forecasts
New Jersey Forecasts Exhibit 25: New Jersey Forecasts GGY licensed online gaming 334 The delivery of online gaming products is not a quick process. Complicated integration projects coupled with stringent U.S. regulations that dictate thorough testing of IT systems mean that delivery of such IT projects are delayed more often than not. The online gaming industry in New Jersey will unfold 0 significantly more slowly than State Governor Tony Christie 2014 2015 2016 2017 2018 has predicted: Christie officially predicted a market worth $1.2bn online in New Jersey in the first year alone. n GGY ($Ms) n With Compacts ($Ms) 2014 186 214 What makes Christie, and the industry as a whole, bullish 2015 212 244 about New Jersey when comparing it with the other two 2016 241 277 licensed online gaming States in the U.S is the comparative size of the population and the green light for casino and slot 2017 264 304 games, not just poker. However, the online gaming market 2018 290 334 in New Jersey will likely launch later than the 4Q 2013 Source: Clarion Events. provisional deadline that the State has earmarked – or if it does stay on schedule, the market will launch without the full remit of games and slots that are officially licensed. The European online gaming industry is seeing up to 50% of its traffic through mobile, and games providers will need to ensure that not only all games are ready, but that they are available on all platforms – issues that may further delay a launch date.
Should New Jersey launch with only a fraction of available games or platforms, much of the fanfare that will be created in the media in New Jersey, potentially giving the industry an explosive start, could be lost. Moreover, front-loaded marketing budgets aiming at a land-grab of first-movers to online will also be wasted in this scenario. Therefore, indications are that the arrival of licensed, online gaming in New Jersey will be later than the November 2013 deadline the State has predicted so that the full remit of games are available for customers and the novelty factor and front- loaded marketing budgets can be fully maximised. Nevada made the mistake of launching its online poker industry with a product unfit-for-purpose with players using Verizon – the country’s largest wireless provider – Virgin Mobile and Cricket mobile networks that were unable to complete the registration process.
Caesars and Boyd control around two-thirds of the land- based gaming market in New Jersey between them and will be seeking to replicate this online, particularly given the problems that poker heavyweight PokerStars has experienced in securing a land-based casino in New Jersey. For PokerStars, the equation is simple: no land-based casino, no online gaming license. Without PokerStars’ expertise the online poker market in New Jersey will suffer as a whole.
17 Executive Market Forecasts – How will Business Models Key Industry & Contacts Summary Size the Market Evolve? and Value Chains Market themes
Those land-based operators that have secured a license will also Exhibit 26: Nevada Forecasts GGY licensed online gaming face another issue; persuading New Jersey-based customers of 144 (illegal) offshore unlicensed operators that they should switch their accounts to them. Although every effort will be made to ensure that these unlicensed operators will be squeezed out of the market, they will continue to take some market share. The online pari-mutuel horse racing market in the U.S. is a direct 0 2014 2015 2016 2017 2018 comparison; U.S.-licensed advanced deposit wagering companies (ADWs) have fought against unlicensed operators targeting U.S. n GGY ($Ms) n With Compacts ($Ms) horse racing customers for years, with only limited success. 2014 77 96.25 New Jersey’s online gaming market will be worth around 2015 88 110 $186m in 2014, around 20-25% higher should interstate 2016 96 120 compacts be in place. 2017 107 134 2018 115 144 Nevada Forecasts Source: Clarion Events. Nevada stole a march on the other two licensed U.S. states in 2Q 2013 when it took America’s first ever licensed online poker bet. Even taking into account the novelty factor as the industry rides the crest of a wave and the supporting media coverage that has been gained as a result, the early signs are that demand for online poker in Nevada is even stronger than expected.
However, online slots or casino games are not permitted in Nevada which will severely restrict forecasts. Despite a small population with a little over two million people of gambling age in Nevada, the State is significantly boosted by huge numbers of tourists visiting Las Vegas each year and who are naturally inclined to gamble – factors impacting on forecasting for the Nevada online gaming market. This also creates a unique dynamic where the standard of poker play in Nevada is likely to be higher than in other U.S. States and as such these players may be less interested in a State-limited ring-fenced online marketplace where liquidity levels are low, preferring instead to play in land-based poker rooms and casinos. Nevada will significantly benefit from interstate online gaming compacts encouraging more poker ‘professionals’ to sign up to larger liquidity pools.
Nevada made the mistake of launching its licensed online poker industry with a product not fit for purpose, with many customers unable to complete the registration process for Ultimate Poker due to technical errors. Nevada’s sports wagering industry is also in a ‘period of education’ as mobile wagering operator William Hill attempts to educate a population, largely inexperienced at mobile wagering, as to how exactly how the concept works.
With State compacts in place Nevada is predicted to generate a little under $100m of GGR in 2014.
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Delaware Forecasts Exhibit 27: Delaware Forecasts GGY licensed online gaming 40.2 Delaware set a deadline of September 30 2013 for the launch of its online gaming industry to include casino games and slots and poker – but not online sports wagering. Its chosen primary vendor, a conglomerate of 888/Scientific Games 0 and Williams Interactive has a vested interest in meeting this 2014 2015 2016 2017 2018 deadline, with penalties imposed on the operator(s) for every day missed. n GGY ($Ms) n With Compacts ($Ms) The Primary Vendor is charged with providing white label 2014 22.4 28 online gaming products to Delaware’s three racetracks, with 2015 26.4 33 the most well-known being the Dover Downs Hotel and 2016 28.1 35 Casino. These racetracks can then target Delaware’s gaming 2017 30 38 population estimated at around 700,000 people. 2018 32.1 40.2 Current gaming revenue from these three venues is significant Source: Clarion Events. with tax contributed to the State of $225m in 2012. The databases and established gaming market already in existence in Delaware together with its shrewd selection of gaming partner should see the State surpass its official estimates of $7.75m tax from online gaming in the first financial year. The State is on target to undertake America’s first ever licensed, taxable online casino or/and slots wager (Nevada took America’s first ever licensed online poker bet in 2Q 2013).
Even given delays in the roll-out of online gaming in Delaware (the State is already officially behind schedules outlined in the Lottery’s Request For Proposals document issued in 1Q 2013) predictions for 2014 are bullish and is expected to generate $22.4m GGR in 2014.
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Total Licensed U .S . Market Size Forecasts Exhibit 28: Total U .S . licensed market value 3.06bn While a media scandal instigating another UIGEA or, at the opposite end of the scale, creating a Federal ring-fenced licensed U.S. market can never be ruled out, the likely development of the U.S. online gaming market in the short-term is on a State-by- State basis. The most likely scenario will see just three U.S. States 0 2014 2015 2016 2017 2018 actively taking some form of licensed online casino/sports/poker wagers in 1H 2014. 2H 2013/1H2014 is also likely to see one/ n GGY ($Ms) n With Compacts ($Ms) two other U.S. States pass legislation enabling online gaming 2014 285.4 338.25 before roll-out within that State in the following 12 months. Further States will then follow. 2015 (5 States inc California poker) 810 972 Short-term is also likely to see interstate compacts. Delaware 2016 and Nevada, with their small populations, will be particularly (7 States) 1.3bn 1.56bn keen to create these agreements. As more U.S. States regulate 2017 and begin taking licensed wagers online these compacts will become more and more significant. California is the only U.S. (9 States) 1.9bn 2.28bn State where such compacts may be counter-productive and 2018 the sunshine State is likely to either abstain or demand more (11 States) 2.55bn 3.06bn aggressive commercial terms with State partners. Source: Clarion Events.
To break through the $1bn GGY per annum barrier quickly, the U.S. will need California to become licensed. The creation of California licensing and subsequent roll-out of online poker is the single most important factor in the development of U.S. online gaming (outside a Federal ruling) such is the size and wealth of America’s most populous State. Any forecast of the U.S. market that fails to predict the timing of Californian legislation is likely to be a long way out. Poker will be the route for California via card rooms and Tribal governments (with ADWs and racetracks missing out) and for forecast purposes is predicted to create legislation through 2H 2013/1H 2014 and deal its first online licensed poker hand in 2015.
While accurate market size forecasts can be undertaken for existing licensed States and predictions can be made for other States based on proposed gaming legislation, the modification of these proposals, their inclusive gaming products and the timing of licensing is more difficult to predict. Where national market-size predictions have been made, these are based on the most likely legislative scenario modelled on current Bills and proposals.
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Forecast Modelling Factors Exhibit 29 . Which will be the next U .S . State to follow the lead set by Nevada, Delaware and New Jersey? Market value forecasts are based on a number of factors, including (but not exclusively): n The specific online gaming products licensed in that particular State n The number of people of gambling age per State n Likely market take-up penetration rates based on percentage of users in other established licensed gaming % markets and audited pre-UIGEA data of major brands n Colorado 0 operating in U.S. n Mississippi 4 n Average revenue per user, per product from audited online n Massachusetts 5 gaming operators in licensed territories. Typical value rates n Other 5 per market based on value for every man, women and child per population. n Illinois 16 n Pennsylvania 23 n ‘Novelty’ factor, exaggerated media coverage in early stages n California 47 n Marketing budgets of licensed online operators likely to be front-loaded to enable land-grab Source: Clarion Events 2013 n Size of existing databases of land-based operators licensed to operate online and likely conversion rates n Market value size of the UK’s online gaming sector in 2012 and online market value of Italy’s online gaming sector in 2012, broken down by product (sports, casino, poker), relative population size against U.S., take-up rates, market forces n The impact that the unavailability of certain products (e.g. no online casino in Nevada) will have on available products in that market n The likely migration rate of U.S.-based customers from (illegal) offshore, unlicensed operators across to State- licensed operators (the actual market size per State will be bigger than that represented here which illustrates the licensed market only. Some users will not switch across). n Nevada forecasts are more bullish as online gaming was already launched and running in 3Q 2013, as opposed to in-development n ‘Passing through’ trade from tourism (in Nevada particularly) n Internet penetration, Smart phone penetration n Market forces, political pressure, lobbyists, sports governing bodies n Forecasts include online sports wagering, poker, casino and slots, but not online pari-mutuel or exchange wagering n Forecasts are per calendar year rather than State financial year, which may be different
21 Executive Market Forecasts – How will Business Models Key Industry & Contacts Summary Size the Market Evolve? and Value Chains Market themes
Exhibit 30 . The Axes Of Uncertainty: Four Scenarios
22 Executive Market Forecasts – How will Business Models Key Industry & Contacts Summary Size the Market Evolve? and Value Chains Market themes
Key Industry Developments In Europe – Lessons Exhibit 31 . How likely is another UIGEA-style crash in the U S. . market? For The U .S? n Media companies and social media companies are increasingly encroaching into the space traditionally occupied by gaming companies n In-play sports betting is responsible for up to 50% of overall turnover n Poker is the ‘poor cousin’ when compared against sports % products and casino products regarding revenues n It will happen again in the next five years 5 n Online poker turnover has declined in Europe in the last n It will never happen again 13 two years n It’s probable 16 n Licensing in key European markets has checked the growth n It’s possible 30 of most operators and suppliers with strict regulatory and n Won’t happen in the next five years 36 taxation challenges severely impacting on profits Source: Clarion Events 2013 n Mobile wagering has rocketed since 2011 and is now responsible for up to 50% of all wagers n Product differentiation is generally poor – most online gaming companies offer ‘vanilla’ indistinguishable products n Those with the most productive and scalable IT development functions are the most successful gaming businesses n Greater focus and resource has been placed on CRM and the management of key customers with the brand-building, land-grab days in many European jurisdictions long-gone n Many B2C gaming operators have launched B2B businesses supplying ROW ventures n Consolidation has and is taking place with established brands winning through
Who will be the winners? Key Industry Players (U .S . rankings only) Caesars Bicycle Churchill Zynga Foxwoods Brand üüü üü ü üü üüü Scale üüü üü üü üü üü Databases üüü üü üü üüü üüü Online license üüü üü üü üü ü Positioning üü üüü üü üü ü (emerging States) Partnerships üüü ü üü üüü üü IT infrastructure üü üü üü üüü üü Product üü üüü ü üü üü Total 21 17 14 19 16
Source: Clarion Events
23 Executive Market Forecasts – How will Business Models Key Industry & Contacts Summary Size the Market Evolve? and Value Chains Market themes
In research prepared specifically for Clarion Events, existing Exhibit 32: What effect will regulated online gambling have on land-based casinos will NOT see a cannibalisation of their Atlantic City visits? players or revenues when licensed online poker is underway in New Jersey.
U.S. Gaming Survey asked 3,100 respondents from New Jersey who had experience wagering online via offshore, illegal web-sites what impact online licensing would have on their land-based play in New Jersey and no impact was found. Male % n Decrease 3 Mobile n Increase 10 Regulation of the online gambling industry in the U.S. has n Don’t go to Atlantic City 35 arrived at a time when mobile gaming and mobile gambling n No effect 52 have become the dominant platforms for their industries.
For example, Gibraltar-based online gaming operator Stan James PLC reported just 2% of its gaming turnover coming from mobile gaming in 2011. In 2012 that grew to 22% of total revenues. “This year that figure is growing exponentially,” said Ben Colley the Group’s Chief Marketing Officer. “We’re on course for 40% of our revenues to be generated through mobile in 2013.” Female % n Decrease 2.50 The situation is similar for other European-based online n Increase 2.50 gaming companies. “Around half of our revenues will be n Don’t go to Atlantic City 42 generated through mobile in 2013,” said Malcolm Graham, n CEO of poker brand PKR during GIGSE 2013. No effect 53 Source: US Gaming Survey 2Q 2013 At the same conference, Charles Cohen, CEO of mobile entertainment company Probability, said: “All the major online gambling markets in Europe have one thing in common; they were driven by desktop-based Internet gambling. The USA will be the first mass-market jurisdiction where online gambling will be rolled-out through mobile devices. Desktop is dead.”
The explosive growth of mobile gambling since 2011, arriving many years after analysts initially predicted, can be attributed to several key factors: First and foremost is the proliferation of suitable devices such as Smart Phones and tablets appropriate for the purpose. At the end of 1Q 2013, ComScore research suggested that 133.7 million people in the U.S. owned Smart Phones (57% mobile market penetration) up 8% since end 4Q 2102. Google Android ranked as the top smart phone platform with 51.7% market share, while Apple’s share increased 3.9 percentage points to 38.9%.
Another stumbling block that traditionally held back the mobile gaming and gambling industries was a lack of suitable payment processing options, an area largely resolved now in Europe and unlikely to hinder the U.S. online gaming market.
24 Executive Market Forecasts – How will Business Models Key Industry & Contacts Summary Size the Market Evolve? and Value Chains Market themes
“The U.S. has the huge advantage of learning from the many Exhibit 33 . Smart Phone user penetration USA mistakes that have been made in European mobile gaming.” 192.4 said Cohen. “Progress will be swift.”
Propensity to play games online
EMarketeer suggests that 137.5m or 55.5% of mobile users 0 2013 2014 2015 2016 in the U.S. were using a Smart Phone device in 2Q 2013. More than a third of the population – and closing in on half of people (Ms) n % mobile phone users n % population all Internet users – in the U.S. owned a tablet. 2013 137.5 55.5% 43.1% Another contributing factor is the roll-out of faster and more 2014 157.7 62.5% 48.9% reliable wireless networks. Informa Media & Telecoms predicts 2015 176.3 68.8% 54.2% that 50% of Americans will be using a 4G connection by the 2016 192.4 74.1% 58.5% end of 4Q 2016. Source EMarketeer
Mobile route according to Probability n Browser based is the only route for mobile. Apps require approval from Apple and Android and the offering can be xhibit 34 . U .S . Tablet users and forecasts switched off without notice 154.5 n The gaming or gambling product should be as simple and intuitive as possible. Research suggests that most users interact with their phones absent-mindedly while doing something else 0 n Most functionality should come from the central control 2012 2013 2014 2015 2016 button on Smart Phones as users typically use their thumb to navigate/play/wager. Exit options should be located as Users (Ms) n % population n % internet users far away as possible from here. Tablet functionality should 2012 79.1 25 33.1 be located in specific ‘thumb areas’ covering just 15% of 2013 108.6 34 44.3 the screen. 2014 129 40 51.3 n Customers want a ‘one-stop shop’ rather than 2015 143.2 44 55.7 downloading multiple apps 2016 154.5 47 59 n Average length of a mobile gambling session on a Smart Source: ComScore Phone is 12.5 minutes n Average number of minutes spent on a Smart Phone in a year is 32,850 (Source cnet.com) or 547.5 hours a year or 90 minutes a day.
4G Penetration
More than 80% of mainland USA was covered by 4G in the 1Q 2013. Around 20 million Americans were using 4G at this time.
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Section Four: Business Models And Value Chains
Market Barriers n Commit to a delivery date for the roll-out of the U.S. online gaming product with penalties imposed for late integration/ It is likely more U.S. States will follow the lead taken by delivery. On submitting a proposal an online gaming Delaware, Nevada and New Jersey in the short-term and roll- operator is, typically, legally committing to the delivery out licensing for online gambling. While a National or Federal dates for an online product as part of that proposal. In ruling is not in place, each State will continue to follow its many cases these delivery dates may cause logistical issues own procedures and protocol. Broadly speaking, in those for the proposing company. Most online gaming operators U.S States where land-based gambling is offered by private and suppliers will ordinarily have an IT schedule planned State-licensed businesses such as casinos, those same entities months in advance and, should their proposal for U.S. will most likely also be granted online licenses. Meanwhile, licensing/partnership be accepted, contingency plans will in those States where land-based gambling is managed by need to be deployed. In the case of the Delaware Lottery a State-run entity such as a lottery, it is those entities that RFP, the deadline for initial proposals was March 15 2013 will run, manage and disseminate licenses, as has occurred with the winning bidder (888/Scientific) expected to deliver in Delaware via the Delaware Lottery. Those States with a the full casino and poker products to three white label mixture of the two models are more complicated and the partners by September 30 2013. Penalties are in place for legislative process to licensing will be slower. failure to meet this deadline. Regardless of the licensing model, non-U.S. land-based n Have all key staff undergo a strict due diligence and businesses looking to enter the market will either need a background check. Any past criminal activity is likely partnership strategy or will need to formally apply for a to result in failure. Background checks in the U.S. are license – and this is likely to take the form of a “Request for typically much more stringent than in most other gaming Proposal” (RFP) from the licensing entity. jurisdictions. n The partner/potential European partner should not have European online and offline gaming operators will be required actively targeted US citizens with illegal gaming products to fulfil a number of criteria to qualify for minimum standards since the enactment of UIGEA. In most cases any activity in most RFPs or/and to partner with land-based U.S. operators, pre UIGEA will be tolerated. namely: n Have experience of offering similar products in regulated In the case of an RFP, applicants will likely need markets. Operators should hold all licenses as required and to submit: typically only operate in transparent licensed and regulated markets. 1. A Technical Proposal: Comprehensive reports on a prospective partners’ configuration, transaction processing, n Have undertaken 3rd party IT integrations successfully. Be database, administration, failover, disaster recovery, back- able and willing to provide details of these integrations up, equipment and software, network design, game and/or supply references or points of contact for third party software requirements, software security and control companies. These third-party integrations may be ‘white- features, accounting. label’ partnerships where the operator builds a ready- made branded product for a marketing partner or may be 2. Vendor Credentials: Detailed description of the company, product integrations (i.e. poker, casino, bingo, financial) executive teams, organisational charts, jurisdictions, with an online industry supplier. gaming licenses, service level agreements, integrated CRM and marketing software, wallet management, player n Offered identical products for real money wagering. As identification, fraud prevention measures, affiliations, discussed, poker has the greatest chance of licensing in responsible gaming procedures, staff training, marketing most U.S. States in the short-term. and promotions, third-party integrations. n Submit a returnable deposit (a proposal bond anything 3. Company Financials, audited reports. from $50,000 to $30,000,000). If an online gaming operator or supplier pitching for a license fails to satisfy the 4. A Pricing Proposal: A commitment to the cost of integrating strict criteria laid out in the RFP then this proposal bond is and launching the proposed product, revenue shares and at risk. The issuing body is at liberty to keep the bond in on-going costs. such a scenario.
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U .S . Land-Based Concerns & Barriers Exhibit 35 . What’s the optimal market-entry strategy for the U .S ?. n U.S. casinos are legally required to protect their player databases. Online operators or suppliers seeking to partner with U.S. land-based operators will need to demonstrate state-of-the-art security and transparency when dealing with player databases. n U.S. casinos need to ensure that footfall to their land-based operations does not drop as a result of online offerings. % Many U.S. casinos operate as resorts and if their casino n Wait for further regulation 3 customer base is cannibalised by online offerings the n Via play for fun now to build databases 9 accompanying hotels, spas, shows, bars and restaurants n Develop own platfrom and software 14 are at risk. To protect resort footfall land-based operations n see online gaming as a route to recruit more people to Via social gaming now to build databases 18 their land-based operations – rather than replace via a n In partnership with a land-based operator/supplier 55 new delivery method. Many leading U.S. casinos have Source: Clarion Events 2013 announced their intention to give their customers a ‘full 360 degree experience’. n There is much more competition online that there is offline. Land-based operations are aware that the roll-out of online casino and poker gaming means that competition is just a mouse-click away. In the offline world their existing customers will need to physically travel, often long distances, to move to a competitor. n U.S. casinos typically already have strong, large databases. Given that many online gaming operators spend anything up to 50% of their budgets building these databases, land- based casinos already have this in place and are keen to protect these players. n Online operators and suppliers seeking to enter the U.S. marketplace should demonstrate state-of-the-art integrated online marketing. Land-based operators are usually inexperienced in this sector in the U.S. following UIGEA. n Online operators and suppliers will need to understand the culture of the U.S. casino and poker player. Multi-national online gaming operators are aware that the culture of their customers is different in each region. A typical customer in Spain is different from a typical customer in Denmark, who is different from the customer in Greece. Products, sports and trading margins will be different in each market and operators entering the U.S. market should be aware that the typical U.S. customer will be intrinsically different in the way it behaves. n Most U.S. land-based operators are wary of international online gaming operators and suppliers entering the U.S. marketplace. New regulations and partnership agreements will likely ensure that the power remains with U.S. land- based businesses.
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Lack of Local Expertise & Opportunities for Exhibit 36 . U S. . land-based operators have what concerns over International Operators partnering with online gaming companies?
The seven-year long prohibition since 2006 has resulted in a lack of local expertise in the fledgling online gaming industry in the U.S. Non-U.S. (predominantly European) online gaming operators have survived in an ultra-competitive environment and their expertise in this area is the fundamental reason why U.S. land-based businesses now require partnerships as they roll-out online operations. % n Flexibility/open architecture 5 While land-based U.S. operators in many cases may have n Regulation/Compact/legality concerns 7 strong brands, large-scale reach and huge databases, key n Integration 11 shortcomings may include: n Cost 14 n Content provision: Key online products include poker n Data protection/reliability/security/stability 30 clients/software, casino table games, video lottery games, Source: The Innovation Group keno/bingo. Many online gaming operators also manage proprietary online sportsbooks. Though regulations in the U.S. are likely to render this unimportant in the short-term at least, many land-based operators may seek to future- proof their businesses by partnering with operators that boast a sportsbook among their portfolio. n Platform Provision: Player management and reportal tools, cashier, registration, single-wallet (including land-based/ retail shops), integration APIs. n Operations management: Account management, fraud, security, collusion, background checks. ADWs in the U.S. are familiar with online methods. Compliance standards in the U.S. are particularly high. n IT Infrastructure: Most online gaming operators have large and scalable IT infrastructures often representing around 50% of total employees. Senior IT staff in particular at those organisations are familiar with the particular technical issues that creating online gaming products present. n CRM: Most operators have invested in expansive CRM technology and expertise enabling multi-player segmentation, player profiling and a maximisation of player lifetime value and spend together with reduced customer churn. While online CRM is a common marketing tool in the U.S., local understanding of the particular CRM issues facing online gaming is not advanced. n SEO, PPC: Local expertise in generic online marketing is available, but there’s very little expertise or experience of how to apply these techniques to online gaming.
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n Affiliate marketing: An understanding of affiliate marketing Exhibit 37 . Will online gaming cannibalize brick-and-mortar gaming in in the US does not compare with the experience of the U .S .? UK retail has NOT been affected by the growth of online . . European online gaming operators. U.S. ADW Company Twinspires alongside chief competitor TVG launched the 11.9 first affiliate schemes for the online pari-mutuel wagering industry in 2012. Most European online gaming operators have sophisticated, integrated affiliate software and affiliates typically generate anywhere between 25-50% of new customers, depending on territory. n VIP: Most global industries typically operate on an 80-20 rule where 20% of customers generate 80% of profits. The online gaming industry typically portrays even greater extremes. AIM-listed Sportingbet Plc. has said that 90% 0 of revenues are generated by 8% of customers. While ‘03 ‘05 ‘07 ‘09 ‘11 ‘13 land-based U.S. operators are extremely familiar with the concept of VIPs or Key Account clients (especially in n UK Retail (£bn) n UK Online (£bn) casinos), the particular methods and software used in E2003 8 0.4 online gaming in this field are largely unfamiliar. E2005 8.3 0.8 n Payment processing: The number one priority for gaming E2007 8.9 1.2 businesses expanding into new territories is the creation E2009 8.8 2 of best payment methods for customers. Unless operators E2011 9 2.2 can create a workable route for getting money into the E2013 9.2 2.7 business and back to customers it cannot succeed. Creative methods have been used the world over, predominantly Source: Gambling Data cash-based in unlicensed markets. The U.S. presents its own particular set of issues but, unlike unlicensed markets, transparency will be the prerequisite. The online ADW companies have pioneered the way in this sector in the U.S. Exhibit 38 . U .S . ADW (online) cannibalisation? New Jersey horse racing over recent years. 694.7
Cannibalisation or Growth?
The single key question for established land-based gaming 0 operations in the U.S. is what impact the roll-out of online gaming will have on existing revenues. Will online n Total $694.7M developments cannibalise existing gaming revenues? n Money bet at state racetracks $379.8M Moreover, will online gaming threaten their non-gaming, n Money bet at off-track wagering sites $152.5M attached resort businesses such as restaurants, bars, shows n Account wagering (online and phone): $99.2M and retail or can it create opportunities to leverage benefits n Money bet at Atlantic City casinos on horse races $63.2M across the virtual and non-virtual gaming floor? Regulators Source: New Jersey Sports and Exposition Authority also need to consider exactly what benefits online gaming may bring through taxation and whether this threatens taxation at existing land-based establishments.
Studies into the likely impact vary wildly. In the UK, the roll- out of online gaming over the past decade has not affected brick-and-mortar High Street bookmakers. The amount wagered in High Street shops has steadily increased over the past decade, despite the more rapid growth of online gaming.
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Moreover, many of the High Street bookmakers in the UK Exhibit 39: What effect will regulated online gambling have on (e.g. Ladbrokes, William Hill, Paddy Power) also have online Atlantic City visits? sportsbooks and therefore have a share of this sector also.
However, it can be argued that the growth of retail betting in the UK – and the lack of impact from online gaming – is largely attributed to the roll-out of the controversial fixed- odds-betting-terminals (FOBT’s) during this period. Many bookmakers have reported that these roulette-type gaming Male % terminals, limited to four terminals per shop, are now responsible for up to half of retail revenues, yet they did n Decrease 3 not exist a decade ago. Should the revenues from FOBT’s be n Increase 10 discounted, retail betting has actually declined in this period. n Don’t go to Atlantic City? 35 n No effect 52 The demographic of those that gamble online in the UK is somewhat different from the demographic that visits High Street bookmakers. Frank Fahrenkopf, the outgoing chief of the AGA, in a report on the impact of online gaming on land- based operations, cites this as the key factor in concluding that U.S. land-based operations have nothing to fear: “We did studies on Internet poker and asked if it were legal in Nevada, would it cannibalize land-based casinos,” Fahrenkopf advises. “We concluded that looking at the demographic, young men Female % with higher income, most of whom don’t go to casinos, it n Decrease 2.50 could be viewed as a new profit centre.” n Increase 2.50 n U.S. Gaming Survey studies also appear to echo that notion, Don’t go to Atlantic City? 42 for the short-term at least, with only a negligible amount of n No effect 53 respondents stating it would decrease the amount they spent Source: US Gaming Survey 2Q 2013 in casinos and many saying it would actually increase their spend overall.
However, Fahrenkopf warned that Federal legislation or even multi-state compacts would have a negative impact as pool liquidity would be such that it could create jackpots that land- based operators would struggle to match.
Choosing the Right Partner
For both U.S. land-based operators and international gaming, software and technology companies looking to enter the U.S. gaming marketplace, choosing the right partner first time is fundamental to success.
30 Executive Market Forecasts – How will Business Models Key Industry & Contacts Summary Size the Market Evolve? and Value Chains Market themes
Exiting or switching software provider is an incredibly Exhibit 40 . U .S . land-based operators: Where are you in your online time-consuming and costly process and should be avoided gaming plans? More than 75% of land-based operators have not yet chosen a provider . . wherever possible. Typically if an online gaming business is required to change software provider it will result in lost- ground on competitors (as any improvement of the existing online product is frozen), lost revenues and lost opportunities. Switching providers can take anywhere up to two years. Land- based operators initial check list for partners includes: n Proprietary technology n A strong and scalable IT infrastructure and exemplary % integration track record n Not pursuing right now 1.80 n Experience in a variety of gaming markets n Have already implemented 7.10 n Have selected a provider/undergoing integration 10.70 n Be a trustworthy and transparent business n Have begun process of selecting a provider 10.70 n Have all necessary gaming licenses, service-level agreements and third-party contracts in place n Informally investigating the efficacy 30.40 n Formally researching 37.50 n At least some understanding of the comprehensive U.S. licensing process Source: The Innovation Group n Excellent player relationships n Integrated online software for marketing, affiliates, CRM, Exhibit 41 . U .S . land-based operators are outsourcing what functions payment processing etc. of their online offerings? n Enable U.S. land-based operators to maintain ownership of 49.1 their players. A back office system that supports protection of player data, report delivery etc. n Clearly defined roles: Who is doing what e.g. who is taking customer service calls, who is covering fraud, who is building the web site, etc. n Provide value in the pricing models n Be scalable to take advantage of other gaming opportunities as U.S. legislation permits
0 Barriers: Payment processing % Debit and credit cards n Geo-location and age verification 49.1 n Payment processing and fraud 48.1 Following UIGEA in 2006 payment processing companies n SEO 39.6 servicing the online gaming market have largely steered n Web-site maintenance 37.7 clear of the U.S. Among others, Neteller, Citadel, Instadebit, Moneybookers, Click2Pay, PayPal and ECOcard all exited the n Hosting 35.8 marketplace. n Affiliate management 32.7 n Network chat management 24.5 The licensed and regulated online horse racing wagering n Analytics 11.3 industry in the U.S serviced by Advanced Deposit Wagering n Selection of games 9.4 businesses (ADWs) have paved the way somewhat ahead of a licensed online gaming market in the U.S and were given a n Customer service 9.4 carve-out banking code following UIGEA, which is designed n VIP account management 3.8 to prevent automatic transaction declines. n Bonus and loyalty management 3.7 Source: The Innovation Group
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However, U.S .banks, processors and Visa and MasterCard Key Players, Strategic Partnerships and Value Chains have typically not recognised this banking code and declines in the ADW industry are high. The situation has improved 888 somewhat and decline rates for debit and credit card transactions funding ADWs have improved through 2012 888 has online gaming licenses in both Delaware and Nevada. and 2013. In Nevada, Visa and MasterCard do not need to In 2Q 2013 in a joint bid with Scientific Games/Williams, 888 apply for an online poker licence as licensed operators are won the license to be Primary Vendor for the Delaware Lottery responsible for any errors or fraud in payment processing. as it rolls out online poker and online casino via the States’ three racetrack VLTs. The real interest for 888 will be when Credit and debit card processing will, as in most established the State of Delaware secures compacts with other States markets, be paramount. However, alternate funding methods and 888 is able to offer its white-label VLT-driven web-sites to have been pioneered by the ADW industry. The most common other U.S. States with much larger populations. of these are: 888 has joint ventures with Caesars, the owner of four MoneyPak/Green Dot Atlantic City casinos, as well as a strategic deal with WMS, a gaming machine manufacturer. The Company has also Widely used in the U.S. ADW industry MoneyPak enables launched an online poker operation in Nevada after agreeing customers to reload a prepaid card or add money to a PayPal a deal with Treasure Island, a Las Vegas gaming group, and account without a bank account. A customer first needs to expects the product to be live by the end of 3Q 2013. buy the card at $4.95 and then it can be reloaded in cash at thousands of retailers across the U.S., including Walmart, up In 2Q 2013, 888 signed a JV deal with hedge fund group to a maximum of $1,000. Avenue Capital, which owns casino operator Trump Entertainment, to operate B2C online gaming in the U.S. where regulation permits. The agreement effectively forms Automated Clearing House (ACH) the All American Poker Network (AAPN) where 888 will offer online poker (and casino where permitted) to U.S. citizens. America’s national electronic funds transfer system allows for fast direct receipt of funds from a checking account and “This is the perfect deal for 888, providing the ideal platform can be accepted online or via the phone. Cheaper than wire through which to launch our business-to-customer brands transfer, customer costs depend on volume. into the U.S. market, once regulated,” said Brian Mattingley, chief executive, 888, who added that the move “completed EZMoney our online strategy.”
Marketed in the U.S. as a ‘short-term loan’ company, Amaya EZMoney supplies services to the ADW business whereby customers typically require no credit check. If approved, cash Canada-based Amaya, which owns and operates the Ongame is deposited directly into the wagering account on the same B2B poker network, and which acquired Cryptologic in business day. 2012, provides the full suite of online gaming products predominantly in Europe to some of the world’s largest online PinPocket gaming operators including Bwin.Party, William Hill, Bet365 and Sportingbet. The company recently made its move into E-wallet, PinPocket is a federally registered money services the U.S. opening offices in Georgia and undertaking a number business that supports the transfer of funds using a credit or of strategic partnerships in the jurisdiction. debit card to most of the USA’s ADW industry. Customers are able to deposit and fund instantly. In 1Q 2013 Amaya struck an agreement to integrate the Ongame poker platform into Bally Technology’s Platform in the U.S. and In 2Q 2013 struck a similar agreement with Aristocrat and also opened a play-for-free online poker room following a partnership with Mohegan Sun. Mohegan has a brick-and-mortar gaming establishment in Connecticut and is seeking further establishments in New York and
32 Executive Market Forecasts – How will Business Models Key Industry & Contacts Summary Size the Market Evolve? and Value Chains Market themes
Massachusetts in a bid to drive its online gaming strategy in The second-largest legal online wagering ADW businesses in two U.S. States widely tipped to be among the next to license the U.S. (behind Twinspires), customers can bet from home online gaming. In 4Q 2012, Amaya agreed a deal with SHFL online, by phone and with a web-enabled mobile phone in entertainment in which the Ongame platform would be most U.S. States. exclusively distributed in the U.S. by SHFL entertainment over a 10 year term. The TVG racing channel, which is broadcast in approximately 35 million U.S. homes, takes its content from more than 100 U.S. tracks and enables customer to wager using their remote Bally Gaming controls via a set-top box.
Claiming to be “the oldest slot manufacturing company in the It was widely assumed that the TVG agreement would be world,” Bally has launched an ‘iGaming platform’ enabling a pre-cursor to the company’s wider strategy of rolling out it to provide its range of games to strategic partners. In 2Q exchange wagering in California. However, the service 2013 Bally Technologies, Inc. signed a deal to provide its cannot go into effect until approved by California’s Office iGaming platform and mobile platform to the Confederated of Administrative Law. In 2Q 2013, the OAL cited ‘extensive Tribes of the Colville Reservation. The tribe operates three faults’ to a set of rules approved in 2012 by the California casinos in Washington – Mill Bay, Okanogan Bingo and Horse Racing Board. Coulee Dam. Effectively exchange wagering cannot begin until the racing Bally also provides content to the Golden Nugget casinos board completes the implementation of oversight technology in Las Vegas and Atlantic City, Mohegan Sun’s casinos in and the State’s racetrack and horsemen group reach a Connecticut and Pennsylvania and American Casino & financial agreement with Betfair and receive approval from the Entertainment Properties’ Stratosphere Casino, Hotel & board. The roll-out of exchange wagering is already delayed Tower, Aquarius Resort and Casino, and two Arizona Charlie’s and many believe could be pushed back to 2014. casinos.
The Company has also sought partnerships with: Bicycle Casino n Amaya Entertainment The Bicycle Casino has two distinct advantages over many of n Ainsworth the other online and offline gaming operators and suppliers in n Openbet the U.S.; it is a poker business and it is based in California. Of n Aristocrat Technologies all gaming products, poker has the greatest chance of gaining traction for an online license and of all U.S. States California n GameAccount will be easily the most lucrative. n Unity Technologies (middleware) The Los Angeles club has one of the largest poker rooms Headquartered in Las Vegas, the business is diverse employing in the U.S. with 175 tables and is positioned to leverage its more than 3,000 staff in all areas of the world and holds reputation as a live card room in the online sector should an Alderney gaming license. It became one of the first two regulation permit. The group launched a play-for-fun poker companies to be awarded an online gaming license from site at Thebike.com several years back allowing customer to Nevada in 3Q 2012. rack up loyalty points that can be redeemed for prizes.
Together with Tribal entities, card rooms will likely be granted Betfair online poker licensing ahead of other entities in California. Betfair entered the U.S. market in 2010 through the lock- The California Lottery will not be given control of gaming stock acquisition of TVG, a U.S.-licensed online pari-mutuel in California as in some other States and Richard Shuetz, advanced deposit wagering site and horse racing channel, for Commissioner of the California Gambling Control Board, has a sum reported in its company results at £53.5m. publically said that he does not expect an online casino “in my lifetime.” Sports wagering (not including exchange wagering) is also unlikely to gain support and racetracks and ADWs are also unlikely to be given precedent, leaving card rooms (alongside Tribes) in prime position in California.
33 Executive Market Forecasts – How will Business Models Key Industry & Contacts Summary Size the Market Evolve? and Value Chains Market themes
Boyd Churchill Downs
Boyd was also granted an online license from Nevada in 4Q Already a heavyweight in the licensed online advanced- 2012. It owns and operates 22 brick-and-mortar gaming deposit-wagering (ADW) business in the U.S. via Twinspires. establishments across eight U.S. States and is particularly well- com, Churchill Downs owns its namesake racetrack and others placed to take advantage of the roll-out of online gaming in in Kentucky, California and Florida. With racetracks among the U.S. those brick-and-mortar establishments likely to be among the winners in the roll-out of online gaming in the U.S. (e.g. the The Company has compounded this advantage undertaking licensees for Delaware Lottery’s regulation of online gaming are strategic partnerships with Bwin.Party, the Wilton Rancheria racetracks) Churchill Downs was already well-placed. tribe near Sacramento, and Sunrise Sports Entertainment in Sunrise, Fla. However, the business is seeking to diversify its portfolio and has also acquired brick-and-mortar casinos in the past 12 In a stock report in April 2013, financial analyst group Morgan months. It completed its approximately $141m acquisition of Stanley, reported: “We view BYD as best positioned stock the Riverwalk Casino in 4Q 2012 and in 1Q 2013 acquired in our U.S. coverage to benefit from the U.S. online gaming Oxford Casino in Maine for $160m – subject to being granted opportunity given its positioning and relative size. BYD a gaming license by the Maine Gaming Control Board. currently has a $710 million market cap, is 7x levered, and we expect it to generate $634 million of 2013 EBITDA.” In 2012 Twinspires controversially launched Luckity.com, which permits its customers to wager real money on casino games. The Company has publicly announced that it plans to utilise its However, customers are not permitted to withdraw that money Borgata brand to drive online gaming in New Jersey following – but are able to wager their winnings through the race pools the State’s Division of Gaming Enforcement plans to regulate at Twinspires.com. Churchill Downs currently owns/operates: by 4Q 2013. In 2Q 2013, Keith Smith, president and CEO of n Four racetracks; Boyd Gaming, said “We intend to be among the first to offer online gambling in the state of New Jersey and are confident n Three casinos; the Borgata brand will allow us to capture a substantial share n ADW TwinSpires.com; of this lucrative market.” n A video poker business; n A poker media and brand company; Caesars n A multi-state network of off-track betting (OTB) facilities The established U.S. brick-and-mortar group which claims to be the world’s largest land-based gaming company, operate Fertitta Interactive primarily under the Harrah’s, Caesars and Horseshoe brand names. Las Vegas-based Fertitta Interactive LLC was approved for an interactive gaming license from the Nevada Gaming Caesars controls around a third of casino revenues in New Commission as a service provider of online poker in Nevada in Jersey and is seeking to secure a similar stake of the online 3Q 2012. The license permits Fertitta Interactive to provide real- gaming market. In 3Q 2012 the company secured a Nevada money online poker under its newly acquired Ultimate Poker online license via strategic partner 888’s software and is the brand and the company made history on April 30 2013 when it process of launching a real-money online poker offering. dealt America’s first ever licensed and taxed online hand. However, it is likely the new poker business will move to French platform Barriere des Jeux after launch. The Company Initially a CyberArts Licensing LLC brand, Ultimate Poker, has embraced the social media angle and in 1Q 2013 a free platform was launched on Facebook in 2Q 2012. partnered with Electronic Arts (EA) to launch a World Series of American land-based casino and restaurant operator Station Poker (WSOP) social poker game on Facebook. Casinos has since taken a controlling interest in Fertitta. Marc Falcone, Executive Vice-President and CFO for Station Together with its ownership of the World Series of Poker Casinos commented: “It is critically important to us that we brand Caesars also owns the London Clubs International own the technology, which allows us to control the perpetual family of casinos. innovation cycle. We are one of the only United States gaming companies to develop and own its technology.”
34 Executive Market Forecasts – How will Business Models Key Industry & Contacts Summary Size the Market Evolve? and Value Chains Market themes
Foxwoods Spielo holds more than 300 gaming licenses. Of those, it is licensed to sell machines in 25 U.S. states, including Nevada, Claiming to be “the largest resort casino in the United as well as 142 Indian gaming tribes. The GTECH Corporation, States,” Foxwoods has strong brand awareness in the U.S. which Lottomatica acquired in 2006, is a gaming technology and a huge database to capitalise upon should an online and services company and also one of the world’s largest gaming license be secured. Owned and operated by the commercial lottery operators. Amongst other interests, GTECH Mashantucket Pequot Tribal Nation, the Connecticut resort owns online gaming platform provider Finsoft, which provides has more to lose should online routes cannibalise players the sportsbook platform for Sportingbet Plc. and Stan James given that there are six casinos on site together with hotels, Plc. together with a number of other European online gaming restaurants, spas, a golf course, theatres, and shops. businesses.
In 2Q 2013, the group partnered with Game Account The Lottomatica Group also provides services to most U.S. Network and will launch an online casino product as well as State Lotteries including Arizona, Indiana, Illinois, South B2B and B2C online gaming services to other United States Dakota and Oregon. In 2Q 2013 the New Jersey Treasury casino operators. The product will be free-play until a real- Department issued a notice of intent to award a contract money online license is secured. Foxwoods claims to have to Northstar New Jersey Lottery Group, a JV of GTECH more than a million visitors each month to Foxwoods.com. Corporation, Scientific Games International, Inc.; and, OSI LTT NJ Holdings Inc. The Services Agreement has a term through IGT June 30, 2029. The Company also has rights to the Caesars brand in the USA for Lottery games. Gaming equipment and games provider IGT’s list of interactive partners reads like a who’s who of the European online MGM gaming industry including Betfair, Bwin.Party, Bet365, BetVictor, Paddy Power and William Hill among others. In 4Q 2011 MGM partnered with Bwin.Party and Boyd Gaming in anticipation of legalized online gambling. As part IGT acquired Wagerworks in 2005 for its online gaming platform of the joint venture, Bwin.Party owns 65% of the company and games and purchased Manchester-based mobile gaming for providing and maintaining the software for both gaming company Million-2-1 in 2008, whose software it uses today to companies. MGM holds 25% ownership and Boyd 10%. power IGT’s casino games with operators across Europe. With HQ in Las Vegas and offices throughout North America, South As a stand-alone brand the MGM empire is vast. Amongst America, Europe, Asia and Africa the Company also acquired its portfolio it counts the Bellagio, MGM Grand, Mandalay Swedish gaming supplier Entraction AB in 2011, but disposed of Bay and The Mirage. The Company operates 15 properties the poker network in Q2 2012 due to poor liquidity. and has 50% investments in three other properties including CityCenter, which features the ARIA Resort & Casino. MGM Domestically, IGT has traditionally created close links with also has a 51% interest in MGM China Holdings Limited, the Tribal Indian gaming industry, not only as an equipment which owns the MGM Macau resort and casino and is in the provider but financer of fledgling businesses. This strategic process of developing a resort on Cotai. relationship is likely to be played out in full as online gaming rolls out across the U.S. The scope and scale of the MGM business dictates that a Federal online gaming law in the U.S. would be a better IGT is actively seeking online gaming licenses in the U.S. in business model for MGM. CEO Murren said. “We feel strongly Nevada and Delaware and was short-listed, alongside 13 that if it is in fact state-by-state, the states themselves need other companies, by the Delaware Lottery in 2Q 2013. to compact with one another to create a more viable business model. Any one state going on its own presents an economic Lottomatica challenge, particularly in a small state like Nevada.” The Lottomatica Group has extensive and expansive gaming roots. It employs over 8,000 individuals worldwide in 52 countries with offices in 46 countries. Its expansion in the U.S. is primarily driven through the wholly owned GTECH Holdings Corporation and Spielo International LLC.
35 Executive Market Forecasts – How will Business Models Key Industry & Contacts Summary Size the Market Evolve? and Value Chains Market themes
MTR Gaming Only Atlantic City casino license holders are eligible to operate online gaming in New Jersey. PokerStars has therefore also MTR Gaming Group has pledged to position itself in the experienced significant opposition from Boyd Gaming and online social gaming space to complement its brick-and- Caesars Entertainment who between them control up to mortar portfolio. As owner and operator of a large-scale two-thirds of casino gaming in New Jersey and are seeking casino resort and thoroughbred racing track in West Virginia, to protect revenues and create similar market share through together with a further casino and thoroughbred racetrack in online gaming as it is rolled out in New Jersey. As one of the Pennsylvania and owner/operator of Scioto Downs, a harness world’s largest poker brands, PokerStars would represent a horse racing facility in Columbus, Ohio, the company is well significant threat to that market share if it were eligible for an placed for the roll-out of online gaming on a number of online license through acquisition of a brick-and-mortar casino counts. Pennsylvania is among the favourites to be the next in the State. U.S. State to regulate online gambling and, if the Delaware model is replicated, it will be racetracks that will be licensed. The Company has experienced fewer issues expanding into other areas of the word including Macau, Spain and London Jeffrey Dahl, MTR Gaming Group CEO, said: “MTR is uniquely and boasts Rafa Nadal among its brand spokesmen. positioned to take full-advantage of any opportunity that online gaming coupled with new technology, new marketing platforms, new legislation, or state regulations, provide for.” SHFL Entertainment Inc.
Citing ‘shifting sands’ as the main reason why the Company Formerly known as Shuffle Master, the Company’s new has yet to secure one of the existing online gaming licenses, department Shuffle Interactive, features online versions the company has taken a wait-and-see approach relative to of its traditional table games, social gaming and mobile many of the other land-based and online operators targeting applications. The company owns the intellectual property for the emerging U.S. online gaming industry. a number of online casino games including Three Card Poker and Let it Ride, potentially very lucrative as online regulation is rolled out. Pokerstars Official partners include GameAccount, Amaya and Bally PokerStars has experienced more trouble than most as it seeks Technologies, the latter critical to the roll-out of its U.S. online to gain a foothold in the US. Owned by the Isle-of-Man based strategy. Via this partnership, SHFL entertainment obtained an group Rational, which also owns Full Tilt, PokerStars reached online gaming license from the State of Nevada in 4Q 2012 a $731m settlement with the U.S. Justice Department over and will aim to drive its established offline products via its new allegations of money-laundering and fraud related to its now- license and newly established Shuffle Interactive business. The closed real-money online poker service in the U.S. However, Company has also secured online gaming licenses in Alderney legislation in some U.S. States blacklists those gaming brands and Gibraltar. that have taken money in the U.S. post-UIGEA and there is uncertainty that Rational’s U.S. strategy can now be played out in full in the short-term. South Point Poker LLC
The Company’s proposed purchase of the Atlantic Club In 3Q 2012, South Point Poker LLC became the first company Casino and Hotel in Atlantic City finally failed in 2Q 2013 to receive a license to operate an online poker room from the after coming up against strong opposition from the American State of Nevada. The launch of its online poker service was Gaming Association and other Atlantic City competitors. A delayed as regulations dictate that the site must be approved successful purchase of the casino would have subsequently by an independent testing process by the State authorities. allowed PokerStars to apply for an intrastate online poker Unlike most other license holders, South Point Poker has licence from the New Jersey Casino Control Commission. developed its own poker client rather than partnering with The Black Friday indictments had also previously scuppered a developer. The site was scheduled to go live in September PokerStars’ plans to partner with Wynn. 2012, but a holding page was still in place in June 2013.
36 Executive Market Forecasts – How will Business Models Key Industry & Contacts Summary Size the Market Evolve? and Value Chains Market themes
South Point Poker has existed as a nationwide, third-party approval and downloading the mobile app. Alternatively, free-play site since 3Q 2011 and has a brick-and-mortar for customers depositing $500, a representative from the establishment in Las Vegas. Key to the success of the business company will meet the customer and sign them up. Once will be the ability to offer the site to residents outside signed-up, the range of wagers available to customers is more of Nevada in an interstate agreement. Currently, these limited than in Europe. The service is available in Nevada only. agreements are not in place. William Hill acquired 100% of the shares of American Wagering and Club Cal Neva Satellite Race and Sportsbook Webis Holdings (European Wagering Services) Division in a deal reported in the media to be worth $39 million and was reported to have paid $0.90 per share – or EWS is the 100% owner of WatchandWager.com LLC in the $9.4 million – plus a $4 million settlement and injection U.S., incorporated in Nevada, licensed by the North Dakota of $4.25 million. Cal Neva Sportsbook Division, a privately Racing Commission (NDRC) to accept advanced deposit owned casino and sports betting operator, was reported wagers (ADW) through its U.S. Tote supplier into global to generate profits of $10 million per annum from its 31 racetrack pools. The Company also owns Link2bet.com, sportsbooks. William Hill paid $21 million to acquire this another U.S.-licensed ADW and holds simulcast agreements business. to transact wagers with over one hundred racetracks globally, located in the U.S., Canada, UK, Ireland, Australia, Sweden Through its acquisitions William Hill now controls around and several other jurisdictions. 11% of the Nevada sports wagering market. The Company also serves as the exclusive risk manager for the State of In 3Q 2012, WatchandWager also took out a five year-lease Delaware’s Sports Lottery via its Brandywine acquisition. to operate Cal Expo, licensed by the California Horse Racing Board, a harness race track in Sacramento in California. Given The British bookmaker has also expanded its reach into New the model adopted in Delaware where the Delaware Lottery Jersey via Monmouth Park racetrack and will provide a full Las chose its three State racetracks as recipients of the expanded Vegas style sportsbook should sports betting be permitted in online gaming opportunities in the State, WatchandWager is the State. seemingly well placed for any identical roll-outs in California. EWS is particularly well-positioned because it is owned by William Hill’s land-based plans were thrown into doubt in Webis Holdings listed on AIM in London and also owner 2Q 2013 when Assembly Bill 360, which would ban race of BetInternet, an Isle Of Man licensed European gaming books and sports kiosks from locations with restricted gaming operator offering fixed-odds sportsbook, poker and casino. licenses, such as neighbourhood bars, passed a legislative committee. Another Bill SB 416, like AB 360, would prevent However, it is widely assumed that racetracks will miss out on restricted licensees from installing race and sportsbook kiosks. online licensing in California with card rooms and Tribes the key beneficiaries.
William Hill
William Hill was the first British bookmaker to be licensed in Nevada and, in 2Q 2013, had 164 brick-and-mortar betting locations across the State through its acquisitions of American Wagering Inc., Brandywine Bookmaking LLC and Club Cal Neva sports books. Sportsbooks are typically not stand-alone as in Europe but predominantly located in casinos, bars, hotels and restaurants.
William Hill also offers mobile wagering in Nevada – although in practise this is not as straightforward as in Europe. U.S. customers can sign-up online but before wagering are required to print and sign an application form, drop the form off at a ‘mobile app activation location’ before being granted
37 Executive Market Forecasts – How will Business Models Key Industry & Contacts Summary Size the Market Evolve? and Value Chains Market themes
Business Models
Company U.S. State(S) Key Partnerships Strategy Pennsylvania, New York, Bally. SHFL. Aristocrat. Amaya Poker. Exclusivity Massachusetts Mohegan Sun. Bwin.Party. 888 New Jersey. Nevada. Caesars. WMS. Delaware State Online license in Delaware Lottery. Scientific Games Treasure Delaware. & Nevada. Land-based U.S. Island. Trump Entertainment. partners Bingosland (social) Confederated Tribes. Amaya. Bally Nevada, Penn, Washington Tribal and commercial casinos Ainsworth. Golden Nugget TVG. Governmental. Exchange wagering. ADW Betfair California, New Jersey Kabam! (social) acquisition Facebook. 888. Electronic Caesars Nevada, New Jersey Social. Nevada licensing Arts. Playtika ADWs. Racetracks. Play-for- Churchill Downs Kentucky, California, Maine Tracks. Casinos. Luckity. Poker fun. Commercial casinos Foxwoods Connecticut Game Account Social/play-for-fun Tribal. Numerous European IGT Nevada, Delaware online gaming partners. Social. Tribal Internal Double Down social Provision to 25 U.S. State Lottomatica 25 States lotteries. Provision to Tribal Lotteries. Tribal entities MGM Nevada, NJ, PA Boyd. Bwin.Party, JVs. Social Requires partnerships with Monarch Interactive Nevada, Colorado Nevada license software provider PokerStars New Jersey In-house (Rational, Full Tilt) Acquisition land-based casino SHFL Nevada Bally. Amaya, GameAccount Online license Nevada Own land-based casino. South Point Poker Nevada Organic. Proprietary Proprietary online poker client Sportsbooks. Mobile, Acquisition of sportsbooks. William Hill Nevada and New Jersey Monmouth Park Online mobile betting
Source: Clarion Events
38 Executive Market Forecasts – How will Business Models Key Industry & Contacts Summary Size the Market Evolve? and Value Chains Market themes
WMS Gaming Inc . Exhibit 42 . Bwin Poker: Yield per unique active poker player in 2012 87.9 In 4Q 2012 WMS Gaming Inc. was approved for both an interactive gaming manufacturer license and a service provider license in the State of Nevada. The interactive gaming licenses enable the Company to partner with Nevada casino operators to provide online poker to players.
The Company, a subsidiary of WMS Industries Inc. a games manufacturer and distributor of games, digital gaming content and gaming machines, is permitted to offer casino operators in Nevada an online, real-money poker platform 0 along with white-label, casino-branded interactive play-for- fun gaming entertainment products and managed services Converted to $U.S – effectively providing software services to established land- n Q1 87.1 based operators. n Q2 87.8 n Q3 81.2 Social & Play for Fun n Q4 87.9 Worldwide there are more than fifteen times as many Source: Bwin.Party social and play-for-fun players compared with real-money players (source SuperData). Social gaming is particularly well established in those jurisdictions where real-money online gaming is prohibited as operators do not face the same level Exhibit 43 . Bwin Casino: Yield per unique active casino player in 2012 of competition from real-money gambling operators. 224.4
The U.S. is exactly such a marketplace and many social gaming companies have been able to build large databases making them ideal acquisition and JV targets for real-money companies.
However, social gaming represents something of a double edged sword for traditional land-based and online real gaming operators and suppliers in the U.S. While the social sector enables these companies to create large gaming databases in 0 preparation for convergence to legal, licensed online gaming in the U.S., established social gaming companies such as Converted to $ U.S. Zynga are increasingly expanding into traditional real-money n Q1 205.7 areas through play-for-fun poker and casino games. Social n Q2 223 media sites such as Facebook are also looking for their share of the marketplace and represent a new threat to real-money n Q3 224.4 online gaming operators. n Q4 176 Source: Bwin.Party Consolidation between the emerging legal and licensed online gaming industry in the U.S. and the comparatively established social gaming industry is already taking place. The business models of the two industries are largely the same including key-performance-indicators such as CPA (cost-per-acquisition) LTV (lifetime value) and conversion rates from sign-up to real money players.
39 Executive Market Forecasts – How will Business Models Key Industry & Contacts Summary Size the Market Evolve? and Value Chains Market themes
For those European real-money online gaming companies the Exhibit 44 . Cost per acquisition – Ladbrokes attraction is largely the wider demographic that social gaming represents, potentially a new market segment to attack 2009 outside of the existing ultra-competitive real-money sphere. In the U.S. in particular, as individual States are licensed, these 2010 databases represent excellent sales leads for conversion to real money. 2011
The drive towards regulation of the real-money gaming 2012 industry in the U.S. will drive higher conversion rates (from play-for-run to real money players) and boost industry growth 0 164 allowing social and real money gambling to converge. While the social industry is already generating significant revenues Converted to $US in its own right, most real-money sites see social as a route n 2009 135 to a new demographic and as a marketing tool to widen the n 2010 139 funnel of acquisition. From here, conversion to real money is n 2011 127 key. While there are significantly more social gaming players n 2012 164 only 1.8% actually play for real money (source SuperData). Adjusted CPA = minus CRM costs According to Superdata.com, social gaming revenue in the U.S. will exceed $650 million by year end with average monthly revenue of more than $78 per player.
Those social gaming companies with the biggest scale Exhibit 45 . What do you consider the most important factor in and the most well-known brands will benefit most from choosing an online wagering company? industry growth. Viral marketing on social media sites is self- perpetuating and the best brands and products will dominate. As in real-money gaming, those operators with large scalable IT infrastructures enabling rapid distribution on a mass scale to new platforms including iPad, social media and, in particular via mobile will win through.
% Why take the social route? n Site selection, menu 7 n Less legal restrictions (although in the U.S. regulations will n Payment options 10 be in place) n Customer service 11 n Significantly greater player base n Speed of payment 12 n Greater advertising, marketing and acquisition routes n Reputation 60 n Conversion rates to real-money are increasing Source: US Gaming Surveys 2012 n Technology and software required is similar to real-money n KPIs largely the same as real-money
Zynga
As the U.S. online poker marketplace becomes regulated Zynga is best placed of all social gaming companies to take advantage with 253 million average monthly active users, or MAUs, in 175 countries, in 2Q 2013.
40 Executive Market Forecasts – How will Business Models Key Industry & Contacts Summary Size the Market Evolve? and Value Chains Market themes
In 4Q 2012 Zynga applied for a real-money license to offer Exhibit 46 . Global real-money gaming versus social gaming players online poker in the State of Nevada and expects to launch 800 this service sometime in 2014. The Company is well-placed to understand the real money sector given it already has in place a partnership with the world’s most powerful real money online gaming operator Bwin.Party to develop and operate real money online and mobile poker and casino services in the UK.
0 Playtika (Caesars)
Launched in 4Q 2010, Playtika’s growth has been rapid $ Millions and the company is now owned by Caesars Interactive n Real-Money 49 Entertainment, a subsidiary of Caesars Entertainment n Social gaming customers 800 Corporation. Available in 10 platforms the Company has Source: SuperData Research 4Q 2012 largely been driven by its Slotomania brand, which claimed to have more than 10 million fans on Facebook within three months of launch on the social network and is already the biggest games portal in the U.S. The DAU (daily active users) of Slotomania exceeds 2,000,000 according to Socialbakers. Exhibit 47 . Social gambling: World’s most popular products com and AppData.com.
The company also operates more than 50 other video slot brands and its Total Rewards loyalty program is available on the branded Caesars Casino, ready for real money launch as Caesars positions itself for regulation through Nevada licensing and its other strategic partnerships including 888. % n Other 1 Tribal Indian Gaming n Bingo 8 Tribes will be at the forefront of online licensing in all n Casino 17 U.S. States where they exist. In 1987 the Supreme Court n Slots 27 permitted tribal governments to establish gaming operations n Poker 47 independent of state regulation. In 1988, Congress passed the Source: SuperData Research 4Q 2012 Indian Gaming Regulatory Act (IGRA), providing a regulatory framework for Indian gaming.
Regulatory authority over Class II gaming (including bingo, pulltabs, and certain card games) is at the sole discretion of the Tribes. The State is given some influence regarding Class III gaming (casino gaming) which require Tribal-State compacts. Although a compact is negotiated between a tribe and a State, the Secretary of the Interior must also approve the compact. Both Class II and Class III gaming are subject to the provisions of the IGRA and oversight by the National Indian Gaming Commission (NIGC).
Indian gaming must take place on Indian lands, where a tribe has jurisdiction and exercises governmental power
41 Executive Market Forecasts – How will Business Models Key Industry & Contacts Summary Size the Market Evolve? and Value Chains Market themes
In 2011, there were 242 Native American tribes operating Exhibit 48 . Which are the best known poker brands in the U .S .? over 341,000 gaming machines and 7,700 table games in 460 (prompted awareness) gaming facilities across 28 states. 69
End 2011 Native American Tribal Gaming Native American Tribes with gaming 242 (of 560) Gaming Machines 341,000 Table Games 7,700
Gaming facilities 460 0 States 28 n Full Tilt Poker 69 n PokerStars 67 Class II and Class III gaming as defined by Congress n PartyPoker 44 Class II: “When played in the same location as bingo – pull n Bodog Poker 38 tabs, lotto, punch boards, tip jars, instant bingo, other n WPT Poker 33 games similar to bingo; and non-house banked card games n PokerRoom 21 authorised or not explicitly prohibited by the State in which n AbsolutePoker 16 the tribal operation is located. All other games are Class III, except for certain social or traditional forms of gaming. n DoylesRoom 16 Class III games include, but are not limited to the following: n ClubWPT 10 baccarat, chemin de fer, blackjack, slot machines, and n Paradise Poker 10 electronic or electromechanical facsimiles of any game of n PKR 5 chance. The NIGC Office of General Counsel reviews games n Everest Poker 5 on request by a tribe or a game developer and issues advisory n Bwin poker 3 opinions on whether they are Class II or Class III.” n Cake Poker 3 Indian tribal businesses are required to pay taxes on wagering, n True Poker 3 occupational taxes, and employment taxes. However, n Victory Poker 2 Indian tribes are not required to pay taxes on the income n Victory Poker 1 generated by the Indian tribes, including income generated by Source: Clarion Events commercial activities.
A full list of tribal Indian gaming companies, telephone numbers and emails addresses can be found here: http://www .nigc .gov/Portals/0/NIGC%20Uploads/ readingroom/listandlocationoftribalgamingops/abc .pdf
Pechanga Tribe
Of the official 242 Tribes scattered across the U.S. one of the most powerful and eminent is the Pechanga Band of Luiseno Indians based in California. Set in a reservation of 5,500 acres, in 2002 the Tribe opened an 85,000-square foot casino featuring 2,000 slot machines, 60 card tables and 15 poker tables. The resort also boasts a 1,200-seat bingo hall, 522- room hotel and 38,800 square-foot convention centre, 1,200- seat showroom and seven restaurants.
42 Executive Market Forecasts – How will Business Models Key Industry & Contacts Summary Size the Market Evolve? and Value Chains Market themes
Like most Indian gaming Tribes, Pechanga is self-governed Exhibit 49 . As USA online gaming regulation is rolled-out, who is but given the importance of gaming revenues to the Group, best placed? regulatory standards are particularly high. Pechanga has established its own gaming commissions and developed tribal police forces, security and a surveillance department. Moreover, the California Nations Indian Gaming Association has promulgated regulations that it claims “either meet or exceed standards adopted by States, such as Nevada and New Jersey.” % n US race tracks 0 Land-Based Casinos n The State 10 n In a legislative model likely to be adopted in other States, the US lotteries 12 proposed New Jersey regulatory stance would permit only n Indian Tribal groups 16 brick-and-mortar casino license holders and their affiliates to n International online gaming companies 25 be eligible to operate online gaming. n US land-based casinos and card rooms 35 Source: Clarion Events 2013 There are nearly 1,000 casinos in the USA of which around 50% are commercial casinos (rather than Tribal). While most States do not have commercial casinos (only 17 States did in 3Q 2013) where casinos are in operation, it is highly likely that they will be first in line to benefit from any online licensing roll-out.
The U.S. casino industry is particularly powerful and is fiercely protective of any threat that exists from online gambling and international online gambling operators and suppliers. In 2012 U.S. casinos generated $37bn in revenues and $8bn in taxes. The industry also employs over 340,000 workers in the U.S. Hence, should the casino customer base be challenged online or cannibalised by the existing casinos, their resort revenues will be threatened as less people will frequent the ancillary resort services such as restaurants, bars, shops etc.
U .S . Lotteries
State Lotteries will be among the winners in the roll-out of online gaming across the U.S., as exemplified by the Delaware State Lottery which is governing the roll-out of online casinos and poker in the State. By their nature State lotteries are politically very well connected and likely to be in a position where they can exert influence on who will control gaming should a State undergo deregulation. However, many States lotteries will have little or no influence over the roll-out of online gaming. For instance, Nevada does not have a State lottery and in California, ultimate control over State gambling will not be influenced by the lottery.
43 Executive Market Forecasts – How will Business Models Key Industry & Contacts Summary Size the Market Evolve? and Value Chains Market themes
A U.S. National Lottery does not exist. 43 U.S. States plus the A decision was made on the choice of Primary Vendor first District of Columbia conduct their own lotteries (some have which was won by a joint-bid from 888/Scientific Games/ ‘compact’ agreements pooling jackpots). These States are: Williams. Delaware originally short-listed 14 applicants in 2Q 2013, among them PokerStars, 888 and Stan James plc. Arizona, Arkansas, California, Colorado, Connecticut, The Primary Vendor, together with the Lottery then chose Delaware, District Of Columbia, Florida, Georgia, Idaho, secondary vendors, in a process likely to be replicated in other Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, States. Maryland, Massachusetts, Michigan, Minnesota, Missouri, Montana, Nebraska, New Hampshire, New Jersey, New In 3Q 2013, 888/Scientific Games/Williams are in the process Mexico, New York, North Carolina, North Dakota, Ohio, of creating white label web offerings for Delaware’s Licensed Oklahoma, Oregon, Pennsylvania, Rhode Island, South Video Lottery Agents with branded content through their Carolina, South Dakota, Tennessee, Texas, Vermont, web-sites. The deadline outlined for launch of these web- Virginia, Washington, Wisconsin, West Virginia. sites is September 2013, with penalties in place for any delay in launch of these sites. The VLTs that will offer these online Of these 43 State Lotteries only a handful are accessible gaming services to (currently) Delaware-only residents are online. For the most part, customers are required to physically (Delaware may disseminate through more VLTs in future): attend a licensed lottery retail outlet and purchase their 1. Delaware Park tickets. The National Association of Convenience Stores has presented evidence suggesting that lottery ticket buyers spend 2. Dover Downs Hotel & Casino about 30% more at convenience stores than customers who 3. Harrington Raceway and Casino don’t buy lottery tickets and are actively lobbying against the roll-out of online lotteries in the U.S., with some success. Racetracks
Delaware Lottery Post UIGEA in 2006 and prior to online licensing in 2013 the only form of online wagering permitted in the U.S. was on On 28 June 2012 the State of Delaware signed into law a Tote pools servicing the U.S. horse racing industry. While not Bill to legalise and regulate online gaming within the State. quite nationwide, U.S. citizens in (<>) 32 States have been The legislation permits the Delaware State Lottery to operate able to place wagers online into U.S. and international Tote online slots and table games, including poker, via websites pools through licensed online advanced deposit wagering branded, marketed and controlled by Delaware’s three companies (ADWs). racetrack casinos. No provisions were included for online sports wagering. The legislative model in Delaware has granted licenses for expanded online casino and poker gaming in Delaware to In 1Q of 2013 the State of Delaware issued a Request For the State’s racetracks. While this model will not necessarily be Proposals (RFP) to deliver a number of online gaming partners adopted in other States, racetracks are generally well-placed for the State. Applicants were asked to apply for one or/and to take advantage of the roll-out of online gaming in the U.S. all of the following licenses: The full list of tracks and horse fairs includes: 1. Primary Vendor: To include Operations Management (fraud, collusion, promotions, CRM, segmentation, customer service, SEO) and Platform Provider (registration, reporting, Arizona cashier, player management) Prescott Downs – Prescott, AZ 2. Non-Primary Vendor: Supply of casino, poker, keno, bingo Turf Paradise – Phoenix, AZ and video lottery games Yavapai Downs – Prescott Valley, AZ 3. Non-Primary Vendor: Geo-location 4. Non-Primary Vendor: Hosting Arkansas Oaklawn Jockey Club – Hot Springs, Arkansas 5. Non-Primary Vendor: Player identity 6. Non-Primary vendor: Payments
44 Executive Market Forecasts – How will Business Models Key Industry & Contacts Summary Size the Market Evolve? and Value Chains Market themes
California Indiana Alameda County Fair – Pleasanton, CA, USA Hoosier Park – Anderson, IN, USA Bay Meadows Racecourse – San Mateo, CA, USA Capitol Racing at Cal-Expo – Sacramento, CA, USA Iowa California Authority of Racing Fairs – Northern CA Prairie Meadows – Altoona, IA, USA Del Mar – Del Mar, CA, USA Fairplex Park – Pomona, CA, USA Ferndale Race Track – Ferndale, CA, USA Kansas Fresno – Fresno, CA, USA Anthony Downs – Anthony, KS, USA Golden Gate Fields – Albany, CA, USA Eureka Downs – Eureka, KS, USA Hollywood Park – Inglewood, CA, USA Woodlands Race Tracks, The – Kansas City, KS, USA Los Alamitos Race Course – Cypress, CA, USA Oak Tree Racing Association 2002 – Arcadia, CA, USA Kentucky Pleasanton – Pleasanton, CA, USA Churchill Downs – Louisville, KY, USA Sacramento CARF – CA, USA Ellis Park – Henderson, KY, USA Lexington, KY, USA San Joaquin County Fair – Stockton, CA, USA Santa Anita Park – Arcadia, CA, USA Santa Rosa – Santa Rosa, CA, USA Keeneland, KY Solano County Fair -Vallejo, CA, USA Kentucky Downs – Louisville/Franklin, KY, USA Sonoma County Fair – Santa Rosa, CA, USA Red Mile, The – Lexington, KY, USA Stockton – Stockton, CA, USA Turfway Park – Florence, KY, USA
Colorado Louisiana Arapahoe Park – Aurora, CO, USA Delta Downs – Vinson, LA, USA Evangeline Downs – Lafayette, LA, USA Fair Grounds Race Course, The – New Orleans, LA Delaware Louisiana Downs – Bossier City, LA, USA Delaware Park – Wilmington, DE, USA Dover Downs Harness Racing – Dover, DE, USA Harrington Raceway – Harrington, DE, USA Maryland Laurel Park – MD, USA Maryland Jockey Club – MD, USA Florida Ocean Downs – Ocean City, MD, USA Calder Race Course – Miami, FL, USA Pimlico – Baltimore, MD, Gulfstream Park – Hallandale, Florida, USA Rosecroft Raceway – Fort Washington, MD, USA Hialeah Park – Miami, FL, USA Timonium – Timonium, MD, USA Pompano Park – Pompano Park, FL, USA Tampa Bay Downs – Oldsmar, FL, USA Massachusetts Northampton County Fair – Northampton, MA , USA Idaho Plainridge Racecourse – Plainville, MA, USA Les Bois Park – Boise, ID, USA Suffolk Downs – East Boston, MA, USA
Illinois Michigan Arlington International – Chicago, IL, USA Great Lakes Downs – Muskegon, MI, USA Arlington Park – Chicago, IL, USA Hazel Park Raceway – Hazel Park, MI, USA Balmoral Park Harness Racing – Crete, IL, USA Jackson Harness Raceway/Racetrack – Michigan, MI Fairmount Park – Collinsville, IL, USA Mount Pleasant Meadows – MI Hawthorne Race Course – Chicago, IL, USA Saginaw Harness Raceway – Saginaw, MI, USA Maywood Park – Maywood Park, IL, USA Sportsman’s Park – Cicero, IL, USA
45 Executive Market Forecasts – How will Business Models Key Industry & Contacts Summary Size the Market Evolve? and Value Chains Market themes
Minnesota Ohio Canterbury Park – Shakopee, MN, USA Beulah Park – Grove City, OH, USA Lebanon Raceway – Lebanon, OH, USA Northfield Park – Northfield, OH, USA Montana Raceway Park, Toledo, Ohio, USA Metra Park River Downs – Cincinnati, OH, USA Scioto Downs – Columbus, OH, USA Nebraska Thistledown – Cleveland, OH, USA Aksarben Coliseum – Ak-Sar-Ben, Omaha, NE, USA Toledo Raceway Park – Toledo, Ohio, USA Columbus Park – Columbus, NE, USA Fonner Park – Grand Island, NE, USA Oklahoma Horsemen’s Park – Omaha, NE, USA Blue Ribbon Downs – Sallisaw, OK, USA Lincoln Nebraska – Lincoln, NE, USA Fair Meadows – Tulsa, OK, USA Remington Park – Oklahoma City, OK, USA New Hampshire Will Rogers Downs – Claremore, OK, USA Rockingham Park – Salem, NH, USA Oregon New Jersey Portland Meadows – Portland, OR, USA Freehold Raceway – Freehold, NJ, USA Meadowlands Racetrack, The – East Rutherford, NJ Pennsylvania Monmouth Park – Oceanport, NJ, USA Ladbroke at the Meadows – Pittsburgh, PA, USA Penn National Race Course – Grantville, PA, USA New Mexico Philadelphia Park – Bensalem, PA, USA Downs at Albuquerque, The – Albuquerque, NM, USA Pocono Downs – Wilkes-Barre, PA, USA New Mexico State Fair – Albuquerque, NM, USA Summerside Raceway -Summerside, PA, USA Ruidoso Downs – Ruidoso, NM, USA Sunland Park – Sunland Park, NM, USA Texas SunRay Park and Casino – Farmington, NM, USA Gillespie County Fair & Festivals Association Inc.- Fredericksburg, Texas, USA New York Lone Star Park – Grand Prairie, TX, USA Aqueduct – New York City, NY, USA Manor Downs – Manor, TX, USA Belmont Park – New York City, NY, USA Retama Park – San Antonio, TX, USA Buffalo Raceway – Hamburg, NY, USA Sam Houston Race Park – Houston, TX, USA Finger Lakes Race Track – Farmington, NY, USA Monticello Raceway – Monticello, NY, USA Virginia New York Racing Association (NYRA Tracks) – New York City Colonial Downs – New Kent, VA, USA Saratoga Equine Sports Center, The – Saratoga Springs, NY Saratoga Racetrack – Saratoga Springs, NY, USA Vernon Downs – Vernon, NY, USA Washington Yonkers Raceway – Yonkers Harness Drivers Club, NY, USA Emerald Downs – Seattle, WA, USA
West Virginia Charlestown Races – Charles Town, WV, USA Mountaineer Race Track & Gaming Resort (MNR) – Chester, WV
Wyoming Wyoming Downs – Evanston, WY, USA
46 Executive Market Forecasts – How will Business Models Key Industry & Contacts Summary Size the Market Evolve? and Value Chains Market themes
Section Five: Key Industry And Market Themes
The following represent commercial overviews of U.S. States 37,691,892 that have regulated or begun the legislative process in some Population (gambling population 28,419,686) form regarding online gaming or/and wagering. Those States not covered here have shown little or no movement in the Yes. State Lottery of California Lottery roll-out of online gambling. (not Internet) Land-Based 88 card rooms California Tribal Gaming 59 tribal gaming venues and casinos Poker via Tribes or card-rooms is the most likely online route Online ADWs. Six venues in California. State senator Jose Luis Correa has introduced Pari-Mutuel legislation through Senate Bill 678 that would legalise online including racetracks poker and establish a regulatory framework through the Sports Wagering None California Gambling Control Commission. On 27 May 2013 up to 50 representatives from 15 Californian Tribes agreed on ADWs. Proposal for online poker. Proposal for sports wagering. a third bill draft to create intrastate online poker legislation. Internet Tribal leaders appeared closer than ever to a compromise over Exchange wagering expected to regulating online poker, agreeing that differences between go live by end 2013. the Tribes were now ‘only minor.’ Under the proposals ADWs No commercial casinos. Tribal casinos and racetracks in California would miss out on licensing. Tax make unspecified contribution to It is expected that online poker could go ahead in California tax revenue as soon as 2014. However, Richard Schuetz, Commissioner, Source: Clarion Events California Gambling Control Board told Clarion Events that he did not expect to see online casinos ‘in my lifetime’ in California. Delaware Las-Vegas-inspired tribal casinos currently dominate the Californian land-based gaming market and have multiplied in Delaware State Lottery issued an RFP to recruit online gaming the past two decades from just 11 in 1991 to 59 in 2Q 2013. partners in 1Q of 2013 following legislation that effectively There is also a State lottery, 88 card rooms and online pari- legalised online gaming in 2012 and opted for a joint bid from mutuel/advanced deposit wagering (ADW) on horse racing, 888/Scientific Games/Williams as Primary Vendor. harness racing and dog racing and at the State’s six race In 4Q of 2013 the State Lottery together with its three tracks and other horseracing fair venues. licensed racetracks Delaware Park, Dover Downs and Technically, exchange wagering is also permitted in California Harrington Raceway will offer online poker and online casino but has yet to be rolled-out. The service cannot go into effect games to State residents with sites built by 888/Scientific until approved by the Office of Administrative Law which issued Games/Williams. Licenses are for a minimum of five years a report stating that the new exchange wagering law currently and it is possible that further licenses will be issued in the fails to comply with ‘government rule-making standards for mid-term depending on how online gaming is received in the clarity, consistency, and administrative procedures.’ ADW State. Strict sign-up procedures are in place for customers and operators TVG (100% owned by Betfair) and Churchill Downs advanced geo-location technology will be rigorously tested have been approved to offer the service once procedures are ensuring that all gaming is restricted within State borders. complete. It is possible that exchange wagering in California With a population of less than one million people it is could be delayed until 4Q 2013 or 2014. expected that Delaware will enter into compact agreements California is also considering regulating online sports with other U.S. States. There are no provisions currently to wagering. Senator Wright’s Bill would effectively enable any roll-out online sports wagering in Delaware. existing licensed gaming establishment, horseracing track, or satellite wagering facility to accept sports bets. All Indian gaming tribes would also be given the go-ahead. Currently there is a ban on bookmaking in California and any regulation of sports betting is unlikely in the short or mid-term.
47 Executive Market Forecasts – How will Business Models Key Industry & Contacts Summary Size the Market Evolve? and Value Chains Market themes
Taxation Exhibit 50 . America should roll-out which legislative model? n Once an initial $3.75m has been contributed to the Delaware State Lottery fund, provisions for taxation of Internet gaming in Delaware are similar to brick-and-mortar taxation in the State. Online table games 29.4% plus an additional 4.5% purse supplement. n VLT revenue returns circa 44% to the tracks. n Lottery sales (including online) at a minimum 30% % n Italy 2 Population 907,135 (gambling population 712,344) n Denmark 4 n Delaware 10 Lottery Yes, including online lottery games n UK 24 Land-Based Casino style gambling at three racetracks n New Jersey 25 n Tribal Gaming None Nevada 35 Source: Clarion Events 2013 Pari-Mutuel At tracks. Not regulated online Sports Wagering None Internet Online poker and online casino permitted
Source: Clarion Events
Illinois
Internet gambling in Illinois is expressly prohibited with notable exceptions. The State lottery permits some online sales and the online pari-mutuel horse racing industry is driven via advanced deposit wagering (ADW) businesses.
However, in 2Q 2013, described as the ‘kitchen-sink’ bill because of the breadth of its proposals, Senate Bill 1739 would permit electronic gaming machine operators and ADW betting businesses to obtain licenses to offer online gambling (under the oversight of the Illinois Lottery). The Bill would also permit land-based casinos. Currently Illinois only permits riverboat casinos, of which 10 were in operation in 2Q 2013. The Bill had yet to be passed as the House adjourned at the end of May 2013.
Sports wagering, both online and offline, are expressly prohibited.
48 Executive Market Forecasts – How will Business Models Key Industry & Contacts Summary Size the Market Evolve? and Value Chains Market themes
Taxation (Riverboat) GGR Taxation n 15% up to $25m. n Riverboats: 21.5% and an additional 4-6% to local n 22.5% $25 to $50m. governing authorities n 27.5% $50 to $100m. n Land-based: $60m or 21.5% GGR (whichever is greater). n 37.5% $100m to $150m. 4,601,893 n 45% $150m to $200m. Population (gambling population 3,479,031) n 50% $200m. Yes including online games and Lottery 12,875,255 scratch cards Population (gambling population 9,772,318) One land-based casino and Land-Based Lottery Yes. Some products also available online 15 riverboat casinos 10 riverboat casinos. Also gaming Tribal Gaming Three tribal casinos Land-Based machines in licensed venues Online ADWS and four racetracks/ Pari-Mutuel Tribal Gaming None race venues Pari-Mutuel Seven venues including racetracks Sports Wagering None Sports Wagering None Internet Prohibited other than ADWS and Lottery Internet Some lottery, ADWs Source: Clarion Events
Source: Clarion Events Massachusetts
Louisiana There is a general ban on Internet gaming in Massachusetts, but this is being challenged. The State has recently given the ‘Gambling by computer’ is expressly forbidden in the State of go ahead for land-based casinos for the first time, which are Louisiana. However, in 1Q 2013 Representative Mike ‘Pete’ currently being constructed and expected for completion in Huval Introduced a resolution for a study of the ‘feasibility’ of 2015. License holders of these casinos are lobbying State legalising online wagering. officials for their inclusion in any roll-out of online gaming.
Louisiana-based gaming attorney Paul West called it ‘a long- Steve Grossman, Massachusetts State Treasurer who oversees shot’ that online gambling would be legalised ‘any time soon’ the lottery, has commissioned a task force report on the given the complexities involved and was more hopeful that a possibility of introducing Internet gaming legislation. The Federal stance would be rolled out nationally. Lottery would be at the centre of any online gaming roll-out with casinos and racetracks the likely benefactors. There are Offline, Louisiana has one of the most extensive gaming also plans for the State’s first Tribal casino. However, no such portfolios in America. With the full remit of tribal casinos, legislation has yet been passed regarding Internet gaming for riverboat casinos, a land-based casino, online pari-mutuel any licensees. horse racing, racetrack gaming parlours and a State lottery. Video draw poker is also offered at bars, restaurants and hotels throughout the State.
49 Executive Market Forecasts – How will Business Models Key Industry & Contacts Summary Size the Market Evolve? and Value Chains Market themes
Taxation 2,984,926 n Category 1 Licenses: 25% of GGR and an annual $600 fee Population per slot (gambling population 2,232,724) n Category 2 Licenses: 49% of GGR and annual $600 fee Lottery None per slot Land-Based 30 commercial casinos 6,646,146 Tribal Gaming Three Tribal casinos Population (gambling population 5,183,992) Pari-Mutuel None Lottery Yes (not online yet) Sports Wagering None Land-Based In 2015 Internet None Tribal Gaming None Source: Clarion Events Pari-Mutuel Yes racetracks and online ADWs Sports Wagering None Nevada Internet None Of all U.S. States, Nevada has the most expansive gaming portfolio. Gaming contributes more than a third of the State’s Source: Clarion Events total tax revenue. According to the Nevada Gaming Control Board there were 443 casino locations in Nevada at the end of Mississippi 2012. Pari-mutuel/advanced deposit wagering online on horse and dog racing is also permitted alongside charitable gaming In 1Q 2013 Democrat Bobby Moak proposed House Bill and tribal gaming. 254 or the ‘Mississippi Lawful Internet Gaming Act of 2013’ which, if passed, would enable land-based casino license In 2011 regulations were enacted to permit online gaming. holders to operate online games, including poker. However, a A number of Internet poker operations have been licensed few days after introducing the Bill Moak reported that it had and more are scheduled to go live in 2013. The very first ever ‘died in committee’ and that passing an Internet gambling bill legal and licensed online poker bet in the USA took place on in the Conservative State would be ‘politically difficult.’ April 30 2013 through Ultimate Poker. Within two weeks the company had dealt more than one million hands. Nevada Offline, the State has less gambling establishments that most officials are now actively aiming to create compacts with other other U.S. States with land-based and Tribal casinos the only licensed U.S. States in a bid to create greater liquidity in their permitted form of gambling. There is no State lottery. poker pools.
What sets Nevada apart is that it is the only State to offer full Taxation service sportsbooks (Delaware offers very limited wagers – n Corporate tax at 3% on the first $5,000, 4% on the next parlays – on NFL games) and even the option to wager online $5,000 and 5% above $10,000; and in-play for some sports markets. n Gaming Taxation More than 45% of sports wagering is placed on the NFL. • 4% GGR up to $50,000 PCM However, according to the American Gaming Association, • 6% GGR between $50,000 and $134,000 PCM overall, Nevada’s legal sports wagering represents less than • 8% GGR above $134,000 PCM 1% of all sports betting nationwide. In 2011, $2.88 billion was legally wagered in Nevada’s sports books; the National Gambling Impact Study Commission (NGISC) estimated that illegal wagers are as much as $380 billion annually.
Despite this most liberal attitude to gaming, Nevada does not have a State lottery, one of only seven U.S. States that does not.
50 Executive Market Forecasts – How will Business Models Key Industry & Contacts Summary Size the Market Evolve? and Value Chains Market themes
Playtech and Bwin.Party have both claimed Nevada will be U.S. land-based casinos and a strategic partnership with ‘too competitive’ with as many as 20 online licenses. 888 European gaming giants Bwin.Party. PokerStars is also seeking has publicly raised concerns that Nevada-only online poker market share but has been beset by problems securing a land- will not create the liquidity needed to make the venture based entity. successful. However, Assembly Bill 114, signed into law in 1Q 2013, in theory permits Nevada to enter into compacts with Sports wagering, though initially approved in New Jersey was other States to offer interstate poker. blocked by a Federal judge following a joint complaint from the NFL, NBA, NHL and MLB and will be delayed at best. If it does get pushed through the legislative process, it is likely Taxation: GGR that betting will be restricted to sporting events that take n 3.5% GGR to $50,000 PCM place outside New Jersey and not involving teams from New n 4.5% GGR between $50,000 and $134,000 PCM Jersey. The State’s Division of Gaming Enforcement entity has pencilled in online wagering for November 26, 2013 n 6.75% GGR above $134,000 PCM but legislation remains in the balance given the strength of opposition. However, mobile gaming while physically 2,758,931 Population at racetracks and casinos is permitted and already in use. (gambling population 2,085,751) Exchange wagering has also been approved in New Jersey, but Lottery None has yet to be rolled out. Land-Based 450 commercial casinos There is still time for the legislation to be derailed in New Jersey. The State’s pari-mutuel and advanced deposit wagering Tribal Gaming Four tribal casinos industry has publicly declared that it is considering action Permitted on and off-track. against the Internet gambling bill. Unlike Delaware, where the Pari-Mutuel Online ADWs racetracks have been given the opportunity to expand into online gambling, New Jersey racetracks will not get gaming Sportsbooks in casinos, bars, hotel Sports Wagering licenses. The most widely touted legal contention is that the and restaurants New Jersey constitution is violated by the new Gambling Bill. The constitution specifically restricts gambling in New Jersey Being rolled out. Inclusive of mobile Internet to Atlantic City – whereas the proposed new Internet law sports wagering permits gambling across the whole State. Source: Clarion Events 8,864,590 Population New Jersey (gambling population 6,808,005)
In 1Q 2013 New Jersey Governor Chris Christie signed an Lottery Yes, including online games Internet gaming bill into law permitting online slots, poker Land-Based 12 casinos and table games. The State’s Division of Gaming Enforcement authority is now constructing a legislative framework ahead of Tribal Gaming None a provisional launch date in 4Q 2013. The proposal will launch Four racetracks. ADWs online. Exchange Pari-Mutuel a 10-year trial period with a 15% tax on winnings. wagering permitted but not live There are likely to be nine licenses issued in the first round Sports Wagering None with casino operators in Atlantic City getting the contracts. Caesars Entertainment and Boyd Gaming accounted for nearly Internet 4Q 2013 including poker and slots two-thirds of casino win in Atlantic City in 2012 and will New Jersey’s Internet gambling bill likely also go head-to-head online given their strong brands, Taxation proposes a 10% GGR annual large databases and strategic software partners. Caesars taxation policy owns the Harrah’s and World Series of Poker brands and has an agreement in place with 888 for software development. Source: Clarion Events Meanwhile, Boyd is backed by huge databases from its many
51 Executive Market Forecasts – How will Business Models Key Industry & Contacts Summary Size the Market Evolve? and Value Chains Market themes
New York 19,570,261 Population With an eye on their neighbours in New Jersey, New York (gambling population 15,264,803) State included a proposal for the legalisation of online poker Yes. Proposals to permit online in its initial version of the state budget in 1Q 2013. However, Lottery the proposal didn’t make it to the final budget voted on State Lottery later the same quarter. Despite the setback, the mere initial 9 racetrack VLT venues. Proposal for inclusion is seen as marked progress from a State that had led Land-Based land-based casino the charge to prohibit online gambling across the U.S. Tribal Gaming Seven tribal casinos (from three tribes) “I think what we’ve done is successfully lay groundwork for the introduction of online poker to be part of the larger casino Pari-Mutuel 10 racetrack venues. Online ADWs debate that is going to happen,” said John Pappas, executive Sports Wagering Bookmaking prohibited director of the Poker Players Alliance. “It’s a meaningful accomplishment that we actually had the senate include the Internet Prohibited except ADW. language as it did in the outset. We have a lot more work to do on the Assembly side.” Source: Clarion Events
New York State would have a greater chance of passing Pennsylvania Internet poker into law if the game was deemed a ‘game of skill’ as opposed to a ‘game of chance’ according to most Sports wagering and Internet wagering were not permitted analysts. Sports betting is forbidden in New York. However, in 1H 2013. However, the State is considering a number of that law is under appeal from the Third Circuit Law of Internet gambling bills and Democrat Tina Davis is looking Appeals. Proposals are also in place to enable the State Lottery to establish intrastate gaming legislation via a measure that to offer a section of its products online. would set license fees at $5m with a 28% gross revenue tax.
Offline, New York gambling is diverse with tribal casinos, If passed, Bill HB 1235 would make any slot machine licensee pari-mutuel racetracks, race track video lottery terminals, a eligible for an “Internet Gaming Certificate,” or license. State lottery and the much-publicised debate concerning the Hence, existing brick-and-mortar casinos would be the possible construction of a land-based casino in New York City. chief benefactors together with the State. As in Nevada’s regulations for mobile sports wagering, the proposal would Taxation mean that Pennsylvania customers must first register their online account physically at the gaming venue first before n Racetrack owners retain around one-third of VLT revenues being eligible to play at home/online. n 55% of slot revenues in tax n License holders pay 12% gross game revenue and 34% on HB 1235 also sets out regulations for the possibility of electronic gaming tables interstate or even international compacts, provided that this does not specifically contradict existing Federal or state laws. Pennsylvania borders both New Jersey and Delaware, two of the three States to have regulated online gambling, hence the State is particularly keen to secure its share of this potentially lucrative new revenue stream.
It is likely that the Pennsylvania Gaming Control Board would be the agency vested with the responsibility to oversee Internet gaming and, as other States have experienced, it will be the existing land-based casino operators within Pennsylvania that benefit from any changes. “The conversation with online gaming, we feel, has to begin and end with us as the licensees,” Jay Snowden of Penn National Gaming said at a U.S. conference.
52 Executive Market Forecasts – How will Business Models Key Industry & Contacts Summary Size the Market Evolve? and Value Chains Market themes
Pennsylvania has a strong gaming pedigree and boasts the Geo-location technology provision is all the more relevant given biggest lottery in the U.S. together with the second largest that the U.S. will be the first major online gaming market that commercial casino market, behind only Nevada. There are will be first rolled-out via mobile devices. All the European currently 11 commercial casinos (with licensing for a further gaming jurisdictions have been driven initially by desktop-based one) together with regulated online pari-mutuel/ADW PCs. Smart phones have a GPS chip inside, and the chip uses wagering. satellite data to calculate the user’s exact position.
While this technology is critical for legislative reasons, there 12,763,536 Population are many commercial advantages to knowing the exact (gambling population 9,993,848) location of a customer. Some geo-location technology can Lottery Yes, including online games identify where a person is (via their mobile device) to within a few feet. At GIGSE 2013, XY Verify, a geo-location solution, Land-Based 11 commercial casinos presented a product that offered an authentication process Tribal Gaming None invisible to customers that enables highly relevant marketing messages to be texted to mobile devices depending on where Pari-Mutuel Yes, including online ADWs a customer is located. Given that the technology can identify a customer to within a few feet; the marketing message may Sports Wagering None refer to specific gaming machines very nearby. Internet None
Source: Clarion Events State compacts In 1Q 2013, Nevada’s Gaming Control Board opened a Geo-location public consultation to design regulations for interstate gambling. Assembly Bill 114 would allow Nevada to enter into When Delaware Lottery issued its request for proposals agreements with other U.S. States specifically to pool liquidity (RFP) to take on gaming operators in 1Q 2013 one of the for online poker rooms. A number of international online stand-alone licenses was specifically related to geo-location. gaming operators and suppliers including Bwin and 888 have It is likely other States will follow suit. Most online gaming taken part in the consultation and progress is likely. operators are able to provide this service, typically through an integrated provider. The development is particularly important for those States with smaller populations such as Delaware and Nevada with Exact location Identification of Internet connected devices populations of around 900,000 and 3m respectively. is critical to the roll-out of online gaming in the U.S. In particular, given that roll-out increasingly looks likely to be “Liquidity is important because poker players do not want to undertaken on a state-by-state basis, blocking residents of hang around waiting for a full table when they join an online non-participating States is fundamental to regulation and sit-and-go poker tournament,” said A.G. Burnett, Chairman, any failure in geo-location risks a media scandal and the very Nevada Gaming Control Board at GIGSE in 2Q 2013. “Unless license that gaming companies operate under. For instance, we have enough players ready at the stake or buy-in that players while Delaware has licensed online poker and casino games want and a tournament kicking off pretty much immediately, we within the State, it is unlawful for any resident just over the will lose players. They will get bored hanging around and go do border in Maryland to access or use these products. The something else. So these compacts will help negate that.” geo-location, therefore, needs to be exact. Equally, Delaware also borders with New Jersey where only some of Delaware’s Decision makers speaking at the conference all expressed online gaming products are permitted. The technology is also their commitment to making sure that State compacts will go critical for tax reasons regardless of any Compact agreement ahead in the short-term. The issue is particularly important between States where theoretically online gaming legislation for international gaming operators and suppliers entering the is identical. U.S. market as the relative size of the State where a license is gained becomes less important. For instance a Delaware licensed operator will not only be available to the 900,000 State residents, but will also be accessible to customers in other, larger States where compacts are in place.
53 Executive Market Forecasts – How will Business Models Key Industry & Contacts Summary Size the Market Evolve? and Value Chains Market themes
A number of issues will need to be resolved first before compacts Exhibit 51 . Do you believe the national government should are rolled out. Key challenges include how to share online regulate gambling or do you believe that states should each make their own regulations? gaming tax revenues, as well as overcoming possible divergent licensing suitability criteria between jurisdictions. It is understood that input from international operators also highlights technology concerns and the significant investment that would be involved in establishing servers or data centres in multiple states.
Interstate agreements “are not problematic from a legal standpoint” and probably will not require any federal approval, % Control Board chairman A.G. Burnett told GiGSE delegates. n Refused 1 It is expected that these issues can easily be overcome n Unsure 5 particularly given that a precedent for interstate gambling n Government 14 already exists with a number of pooled State lotteries. n States 80 “California already has substantial regulatory experience in Source: PublicMind, New Jersey 1Q 2013 linking dozens of complicated inter-jurisdictional gaming compacts with the state’s Indian nations,” said Richard Schuetz, California Gambling Control Commissioner. “And we have a little place called Silicon Valley located in the heart of California so we think we will be able to overcome the technical issues.” Exhibit 52 . Do you believe the national government should regulate gambling on sporting events or do you believe that states should each When voting on the likelihood of interstate compacts going make their own regulations? ahead, Shuetz was less certain than his contemporaries in other States. California, with a population of nearly 40m people will have more than enough liquidity and will not be as reliant on compacts as smaller U.S. States. It’s unclear whether California would be willing to concede this advantage. Meanwhile, Andrew Governar of the California Online Poker Alliance, said that California ‘isn’t likely’ to enter into % Interstate compacts. n Refused 1 New Jersey, with around 8.9m people, may also be able to n Unsure 5 support a viable online casino and poker market on its own. n Government 16 n States 78 Assembly Bill 114 does not make any provisions for compacts Source: PublicMind, New Jersey 1Q 2013 with other countries. The scenario where U.S. States are able to pool liquidity with licensed and regulated international gaming markets is unlikely in the short-term.
Lottery Compacts
Multiple-state (interstate) lottery games are commonplace in the U.S. For instance the Hot Lotto product is played in the District of Columbia, Iowa, Minnesota, Montana, New Hampshire, North Dakota, South Dakota and West Virginia. Taking into account all lottery products, in 2Q 2013, 33 U.S. States took part in some kind of multiple state agreement. These agreements are undertaken to pool liquidity and create more appealing jackpots for customers.
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The creation of State compacts will be critical to the roll-out of ‘Federal Tribal’ online gaming in the U.S. (most notably poker) and the precedent of these agreements represents one less hurdle to clear. In 2011, there were 242 Native American tribes operating over 341,000 gaming machines and 7,700 table games in 460 gaming facilities across 28 states. A carve out in legislation Federal Law in 1987 and 1988 permitted tribal governments to establish gaming operations independent of state regulation providing A number of efforts have been made to introduce a national that gambling takes place on tribal lands. gambling law in the U.S., without success by end 2Q 2013. To date, proposed Federal legislation has sought only to regulate Regulation is unclear whether this extends to online gambling. Internet poker and prohibit other forms of online gambling. In theory Tribes could target U.S. citizens nationally with While these efforts have failed, of all gaming products, poker online poker providing that their servers are on Tribal lands has the best chance of driving a Federal law. – in the same vein as the Khanawake Mohawk Tribe has undertaken in Canada. Speaking at GIGSE 2013, Congressman Jon Porter, said the biggest obstacle preventing Federal law is the mixed Two Indian tribal groups are understood to be considering message the U.S. government is receiving from the U.S. launching their own Internet poker operations via servers gaming industry: “How can Congress deliver a nationwide based on tribal lands. The Inter Tribal Online Gaming law when the industry cannot decide what it wants? When Association, based in California and the Inter Tribal Online each individual State cannot decide what it wants? While I am Gaming Alliance, a group including the St Croix Chippewa aware that there are many moving parts and the whole issue Indians of Wisconsin. is complex, the industry needs to get agreement on the way forward before progress on Federal law can be made.” The Axis of Uncertainty: Legal Extremities Porter believed it was ‘very unlikely’ that Federal law would be passed in the current Session and that the Federal regulation When UIGEA was passed in 2006, effectively prohibiting all of U.S. gaming cannot happen in a stand-alone Bill: “It will forms of online gaming and gambling (except pari-mutuel) it fail. This can only pass if it is attached to something else.” did so with very little warning and the industry lost the U.S. as its key marketplace literally overnight. Fast forward seven Proponents of a Federal law believe that such legislation years and huge sums of money are being invested in U.S. would create uniformity and impose safeguards against fraud online gaming; creating products, strategy and partnerships while protecting players and limiting illegal offshore gaming and undertaking lobbying and licensing. However, despite sites that target U.S. citizens, thereby protecting tax revenues. these huge investments, another UIGEA-style crash in the U.S. marketplace can never be ruled out. More than half of those Opponents to any regulations claim such a law would usurp responding to a Clarion Events survey said that another crash states’ power, siphon off local tax revenues and in many cases was either “inevitable” or that it was “possible/probable.” go against the wishes of the State electorate. Long-term, the roll-out of online gaming in the U.S. is more certain with the younger generation seemingly much more Porter believes that the best chance of progress for Federal liberal in their attitudes towards gambling, according to the Law – either regulation or prohibition – is scandal. “All it research. would take is one scandal and the industry could be pushed back by years. Proponents would run for cover.” However, There are a number of very powerful groups and organisations the Congressman also said that, conversely, a scandal where including the major sports leagues NFL, MLB, NBA and NHL illegal gaming sites targeting the U.S. were seen to be funding that strongly oppose the proliferation of gambling in the U.S. terrorism would ‘unite the industry’ and ‘speed up’ a Federal – in all its forms. Many politicians are wary of backing online law to cut off this threat. gaming bills as they are generally not seen as a vote winner, despite the obvious taxation benefits licensing of the industry would bring.
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The biggest threat of another UIGEA is an online gambling Exhibit 53 . How likely is another UIGEA-style crash in the U S. . market? scandal widely reported in the U.S. media. For instance, if those States that have licensed various forms of online gaming were proven to be failing in their fraud, security and customer due diligence safeguards and ineligible persons – minors and those located in U.S. States where online gaming is still prohibited – were able to register and partake in (illegal) gaming activity, then the entire industry would be placed at % risk. “It’s not inconceivable that the media could run and run with a gambling scandal story,” said ex-Congressman Jon n It will happen again in the next five years 5 Porter at GIGSE 2013. “The entire industry would then come n It will never happen again 13 under national scrutiny, in full glare of all Americans and we n It’s probable 16 may well find ourselves back at square one.” n It’s possible 30 n Won’t happen in the next five years 36 Conversely, Porter also spoke of another scenario where Federal legislation – that would effectively license online Source: Clarion Events 2013 gambling on a national scale in the U.S. – could be pushed through. “The opposite gambling scandal could easily involve one of the many, many offshore, unlicensed and illegal gaming operators targeting Americans every day. If these companies, who take money off Americans every day, were known to be funding terrorism in some way then any resulting media scandal could provide the motivation that Federal government needs to cut off the lifeblood of these businesses by regulating and licensing a national online gaming business and taxing reputable businesses.”
Illegal online gambling
The American Gaming Association estimates that American citizens wager more than $5bn a year on illegal gaming sites. Estimates for the number of Americans illegally playing online poker online vary wildly, but average forecasts are around 1.5m people a year.
‘Black Friday’ April 15, 2011, saw online gaming operators PokerStars, Full Tilt and Absolute/Ultimate indicted and online poker officially outlawed in the U.S. Despite this, the AGA estimates that more than 300 businesses operating more than a 1,000 poker sites still continue to target the U.S. and have actually seen their turnovers increase as a result of the biggest poker brands exiting the marketplace.
Many of the world’s major online gaming markets have decided to legalise, license and regulate online gaming for the following reasons. All reasons are valid in the U.S.: n To ensure exclusion of minors or underage gamblers n To create taxation/revenues for the State n To exclude individuals from territories (States) where online gambling is illegal
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n To ensure protection of players from credit card fraud etc. industry and has spent several years lobbying in the U.S. to n To ensure integrity of the services, games and products on create an exchange wagering law. The Company will make offer so that they all comply with a minimum standard, are monetary contributions to U.S. tracks and horsemen. free of robots and other unscrupulous activity The situation is not dissimilar in New Jersey. In 2011 New n To ensure that gambling addiction customers can be Jersey Republican Chris Christie put his signature to measures identified, exclusion procedures are in place and assistance S-2229 and A-2926 effectively passing exchange wagering is offered for problem gamblers into law. However, as in California, the State is still waiting for n To prevent the use of online gambling sites for money its first exchange bet. The New Jersey Sports and Exposition laundering purposes Authority is governing the roll-out. n To identify and exclude known cheats, arbitrators and other unscrupulous persons Sports betting
The roll-out of legalised online gaming in Nevada, Delaware The major professional sports league federations of NFL, and New Jersey also potentially increases the levels of illegal MLB, NBA and NHL exert huge political pressure in the U.S. to and ‘predatory’ activities in neighbouring States. New York ensure that sports betting online will not be permitted in the Democrat Tim Kennedy is concerned that licensed gambling foreseeable future in the U.S. The fundamental conviction of sites in neighbouring New Jersey may target New York these bodies is that betting on matches may compromise the residents via illegal and unlicensed middle-men establishing integrity of their sports. ‘virtual private networks’ who would host online casinos – and target citizens in New York where online gambling is The 1992 Professional and Amateur Sports Protection Act still prohibited. banned betting on sports in all but four states, Nevada, Delaware, Oregon, and Montana, whose legislatures were “There are some websites that have lured customers into able to meet a 1991 deadline to approve sports wagering – using their online casino platform. They have built a customer and thus were granted an exemption. base, but very few people are aware of the egregious actions they have taken over the years,” he said. Kennedy believes In 3Q 2013, the only caveat to sports wagering is in the U.S. is New Jersey regulations do not offer enforcement mechanisms in the State of Nevada (and Delaware for a very limited parlay to deter illegal sites from entering the New York market and is NFL wager) where brick-and-mortar sportsbooks are licensed demanding better protection. and prevalent across the State and millions is wagered daily. There are restrictions on the type of sports bets that can be accepted and all bets must be placed physically within the Exchange Wagering State borders. UK bookmaker William Hill, which operates a Exchange wagering, or peer-to-peer betting, has been signed number of brick-mortar U.S. sportsbook businesses in Nevada, into law in both New Jersey and California. However, in 3Q also offers a limited mobile betting service in the State 2013 no bets have yet been taken and the roll-out of the allowing users to place certain sports bets via their mobile concept continues to be delayed by bureaucracy and political devices – but only once a customer has completed a stringent pressure. sign-up process in-person rather than online as is typically the case in Europe. In California, exchange betting cannot go into effect until approved by the Office of Administrative Law which issued a While New Jersey Gov. Chris Christie announced that his report in 2Q 2013 stating that the new exchange wagering state would defy the Federal ban on sports betting and an law currently fails to comply with ‘government rule-making Iowa State committee has published similar proposals, sports standards for clarity, consistency, and administrative wagering is by far the least likely of the traditional online procedures’. 3Q 2013 has been touted for the new go-live gaming products – poker, casino, sports – to gain traction. date, but 2014 appears more likely. While many of the strategic partnerships being undertaken in the U.S. involve a generic online gaming operator that offers Advanced Deposit Wagering operator TVG (100% owned by a full online sportsbook service in many other areas of the Betfair) and Churchill Downs have been approved to offer the world, it is very unlikely that these products can be utilised service once the legislation passes its final hurdle. Betfair is by and rolled-out in the USA, in the short-term at least. far the dominant operator in the world’s exchange wagering
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Section Six: Contacts
USA GAMING COUNCILS AND ASSOCIATIONS Gaming Standards Association
North American Association of State and Executive Director: Michelle Olesiejuk Provincial Lotteries (NASPL) Headquarters: Fremont, Calif. David B. Gale www.gamingstandards.com Executive Director 440-466-5630 Media Contact: [email protected] Leslie Kefer, Marketing Project Manager Interactive Gaming Council (IGC) 510-492-4062
John Kennedy FitzGerald International Association Of Gaming Regulators (Iagr) Chief Executive 604-732-3833 [email protected] Chairman: André Wilsenach www.iagr.org American Horse Council
Jay J. Hickey, Jr. Media Contact: President Susan Hensel 202-296-4031 Secretary [email protected] 717-346-8300
National Indian Gaming Association (NIGA) International Gaming Institute, University Of Nevada, Ernie Stevens, Jr. Las Vegas Chairman 202-546-7711 Executive Director: Patricia Becker, J.D. [email protected] Headquarters: Las Vegas, Nev. http://igi.unlv.edu American Gaming Association (Aga)
Media Contact: President and CEO: Geoff Freeman Gian Galassi, Sr. Public Affairs Specialist Headquarters: Washington, D.C. 702-895-3104 www.americangaming.org
California Gaming Control Commission Media Contacts: 2399 Gateway Oaks Dr., Suite 220 Holly Thomsen, Director of Communications Sacramento, CA 95833 202-552-2686 Phone: (916) 263-0700 Brian Lehman, Communications Manager 202-552-2680
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California Bureau of Gambling Control Illinois State Lottery
4949 Broadway, Rm E231 Lottery Central Sacramento, CA 95820 101 West Jefferson Street Phone: (916) 227-3584 Springfield, IL 62702 (800) 252-1775 (217) 557-6493 Colorado Gaming Association
Executive Director: Lois A. Rice Iowa Gaming Association Headquarters: Denver, Colo. www.coloradogaming.com President: Wes Ehrecke 303-237-5480 Headquarters: West Des Moines, Iowa www.iowagaming.org 515-267-9200 Delaware Lottery Office
McKee Business Park Louisiana Casino Association 1575 McKee Road, Suite 102 Dover, DE 19904 Executive Director: Wade Duty Phone: (302) 739-5291 Headquarters: Baton Rouge, La. Fax: (302) 739-6706 www.casinosoflouisiana.com 225-344-0037 Delaware Thoroughbred Racing Commission Louisiana Gaming Control Board 777 Delaware Park Boulevard Wilmington, Delaware 19804 9100 Bluebonnet Centre Boulevard Phone: (302) 994-2521 (extension 8970) Suite 500 Baton Rouge, Louisiana 70809 Phone: 225-295-8450 or 1-888-295-8450 Delaware Harness Racing Commission Fax: 225-295-8479 2320 South DuPont Highway Website: http://lgcb.dps.louisiana.gov/ Dover, Delaware 19901 Email: [email protected] Phone: (302) 698-4500 Office of the Attorney General-Gaming Division Illinois Casino Gaming Association 1885 North 3rd St. Illinois Gaming Board Baton Rouge, LA 70802 Springfield: Phone: 225-326-6500 101 West Jefferson Website: http://louisiana.gov/ Post Office Box 19474 E-Mail: [email protected] Springfield, IL 62794 (217) 524-0226 Massachusetts State Lottery Commission
60 Columbian Street Chicago Braintree, MA 160 North LaSalle, Suite 300 Email: [email protected] Chicago, IL 60601 Phone: (781) 849-5555 (312) 814-4700
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Massachusetts State Racing Commission New York NYS Gaming Commission
One Ashburton Place Main Office: 518-395-5400 Boston, MA General Questions or Comments: [email protected] Email: [email protected] Media Inquiries: (518) 388-3415 Phone: (617) 727-2581 Freedom of Information Requests: [email protected] 573-634-4001 Massachusetts Gaming Commission
84 State Street, Suite 720 Nevada Resort Association Boston, MA Phone: (617) 979-8400 President: Bill Bible Headquarters: Las Vegas, Nev. www.nevadaresorts.org Mississippi Casino Operators Association 702-735-4888 Executive Director: Beverly Martin Headquarters: Biloxi, Miss. Nevada – State Gaming Control Commission 228-388-0087 Administration – Webmaster: [email protected] Administration – Human Resources: [email protected] Mississippi Gaming Commission Audit – Internal Control Inquiries: [email protected] 620 North Street, Suite 200 Audit – General Audit Inquiries [email protected] Jackson, MS 39202 Audit – Live Entertainment Tax Inquiries: [email protected] Tel: (601) 576-3800 Electronics Lab – Las Vegas Office: [email protected] Fax: (601) 576-3929 Investigations – General Board Inquiries: [email protected] ITAudit Group – Assoc. Equipment Inquiries: [email protected] Tax & License – Gaming Research: [email protected] New Jersey Legalized Games of Chance Control Commission
P.O. Box 46000 The Pennsylvania Gaming Control Board Newark, NJ 07101 Tel: (973) 273-8000 Website: www.pgcb.state.pa.us PO Box 69060 Harrisburg, PA 17106-9060 New Jersey Casino Control Commission Phone: (717) 346-8300 Arcade Building North Fax: (717) 346-8350 Tennessee Avenue & Boardwalk South Fax (Licensing): (717) 703-2988 Atlantic City, NJ 08401 OEC Fax: (717) 214-5467 Tel: (609) 441-3799 OPR Fax: (717) 703-2986 BIE Fax: (717) 214-9292 10th Floor Executive Offices Fax: (717) 265-8323 New Jersey Lottery Commission EMAIL: [email protected] PO Box 041 Trenton, 08625-0041 Tel: (609) 599-5800
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Pennsylvania Lottery Commission – The lottery Atronic Americas, Llc commission has 8 locations including the headquarters based in Middletown, Pennsylvania) COO: Ken Bossingham Lottery Headquarters Headquarters: Las Vegas, Nev. 1200 Fulling Mill Road, Suite 1 www.atronic.com Middletown, PA 17057 Phone: (717) 702-8000 Toll Free: (800) 692-7481 Media Contact: Fax: (717) 702-8024 Marco Bertolin, Senior Marketing Manager 506-870-1384 Casino Association Of New Jersey
President: Joseph A. Corbo (also General Counsel, Bally Technologies, Inc . Borgata Hotel Casino & Spa) Headquarters: Atlantic City, N.J. President, CEO and Director: Richard Haddrill Media Contact: Noel Stevenson Headquarters: Las Vegas, Nev. Director of Media Relations www.ballytech.com 609-317-7380 Media Contact: Usa Land-Based Operators Ameristar Casinos, Inc . Laura Olson-Reyes, Director of Corporate Communications 702-584-7742 CEO and Vice Chairman: Gordon R. Kanofsky
Headquarters: Las Vegas, Nev. Boyd Gaming Corporation www.ameristar.com President and CEO: Keith Smith Media Contact: Headquarters: Las Vegas, Nev. Rebecca Theim, Vice President of Communications www.boydgaming.com 702-567-7053 Media Contact: Aristocrat Technologies, Inc . Rob Stillwell, Vice President of Corporate Communications 702-792-7353 President, Americas: Atul Bali
Headquarters: Las Vegas, Nev. Caesars Entertainment Corporation www.aristocratgaming.com Chairman, CEO and President: Gary Loveman Media Contact: Headquarters: Las Vegas, Nev. Joanna Enrique, Advertising and Promotions Manager www.caesars.com 702-270-1458 Media Contact:
Marybel Batjer, Vice President, Public Policy and Communications 702-880-4710
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Isle Of Capri Casinos, Inc . Pinnacle Entertainment, Inc .
President and COO: Virginia McDowell Chairman and CEO: Daniel R. Lee
Headquarters: St. Louis, Mo. Headquarters: Las Vegas, Nev. www.isleofcapricasinos.com www.pnkinc.com
Media Contact: Media Contact:
Jill Haynes, Director of Corporate Communications James W. Barich, Senior Vice President, Public Affairs 314-813-9368 949-250-3166
Las Vegas Sands Corp . Station Casinos, Inc .
Chairman and CEO: Sheldon Adelson Chairman and CEO: Frank Fertitta, III
Headquarters: Las Vegas, Nev. Headquarters: Las Vegas, Nev. www.lasvegassands.com www.stationcasinos.com
Media Contact: Media Contact:
Ron Reese, Vice President of Communications Lori Nelson, APR, Director of Corporate Communications t. 702-414-3607 702-495-4248
Mgm Resorts International Trump Entertainment Resorts
Chairman and CEO: James J. Murren CEO: Mark Juliano
Headquarters: Las Vegas, Nev. Headquarters: Atlantic City, N.J. www.mgmresorts.com www.trumpcasinos.com
Media Contact: Media Contact:
Alan Feldman, Senior Vice President of Public Affairs Mary Moyer, Public Relations Manager 702-650-6947 609-449-6437
Penn National Gaming, Inc . Wynn Resorts, Limited
Chairman and CEO: Peter M. Carlino Chairman and CEO: Stephen A. Wynn
Headquarters: Wyomissing, Pa. Headquarters: Las Vegas, Nev. www.pngaming.com www.wynnresorts.com
Media Contact: Media Contact:
Eric Schippers, Vice President of Public Affairs Jennifer Dunne, Vice President of Public Relations & Advertising 610-378-8321 702-770-2121
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Formerly a journalist, Russell has since worked in offline and online gambling for twelve years. He sat on the Senior Management team at StanJames.com for several years with overall responsibility for all international regions, white-label & JV partners and expansion into new regions including the USA. Russell also spent several years at Sportingbet Plc and is a Consultant with B2B gaming operator Optima.
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