Volume 14, No.15, September 28, 2009

Midweek p. 4 room rates sag,

A SPECTRUM GAMING GROUP PUBLICATION The most recent regulatory action involved the dumping drunken customers in the casino unat- Las Vegas trends … Prive nightclub and the Living Room ultralounge at tended, drug use that was ignored or tolerated, the Planet Hollywood resort. The Nevada Gaming employees and customers beating up and sexually Clubs that flout rules Commission in July levied a $500,000 fine against assaulting other patrons, and admitting minors and Could get clubbed Planet Hollywood for a nine-count complaint filed allowing them to drink. By regulators by the Gaming Control Board, with an additional One count cited a citation from Clark County $250,000 fine if the Board issues another complaint allowing topless and lewd activity while others dealt evada gaming regulators have begun cracking involving a Planet Hollywood nightspot before the with a significant increase in fire/rescue and police calls Ndown on casino operators that fail to ade- end of July 2011. linked to the clubs, an increase in prostitution-related quately supervise their clubs and lounges, following Planet Hollywood admitted that it knew or should activity in and around the club and allowing the clubs years of warnings about and investigations of illegal have known about the activities cited in the com- to employ workers with significant criminal records. and unsavory activities in the Las Vegas nightspots. plaint. The counts cited the clubs’ employees for see LAS VEGAS on page 3 Operational trends ... Executive decisions: These gaming destinations have a bright future 70%

60% Smokefree gaming spreads 2002 2003 Through states, countries; 50%

56% 2004 58.4% 57.5% Poor economy tempers trend 53%

54.6% 2005 54.1% 50% 50% 49% 40% 49% 46%

2006 46% 47.8% 43% 46.7% 41% 2007 45.0% Editor’s note: The following analysis is by Karen 30% 39.9%

2008 40.0% Blumenfeld, Executive Director of Global Advisors on 2009

20% 32.5% 30.2%

Smokefree Policy, and the group’s Associate Director, 25% 22% 22% 22% 24.4% 7.5%

10% 21.9%

Ruth Boorujy. GASP, as the group is known, advocates 16% 20.1% smoke-free workplaces but is not opposed to gaming. 0% Las Vegas Atlantic City California Native-American lmost a decade ago, Las Vegas took the first Casinos Astep in smokefree gaming. Sin City casinos voluntarily created smokefree poker rooms, brought 2009 Executive window on a rainy day and assuming that it will rain on by consumer demand. This poker trend travelled Satisfaction Survey tomorrow, next week and throughout 2012. quickly to Atlantic City and spread rapidly, meeting That pessimism-breeds-pessimism view — prob- little resistance. Prospects are dimmer, ably cultivated by reduced or flat compensation, Fast forward to 2009. Smokefree gaming — and But executives still seek while seeing others receive pink slips — is apparent not just for poker — is an established trend, albeit Warmer climates in the ninth annual Bristol Associates/Gaming tempered by the poor economy. In the United States, Industry Observer Executive Satisfaction Survey. As 18 states along with Puerto Rico and the District of wo truisms about the mindset of gaming the accompanying chart on p. 5 shows, the pessi- Columbia require smokefree gaming venues, and Texecutives have emerged since we began mism about future prospects has even seeped into Wisconsin starts on July 5, 2010. studying their attitudes nearly a decade ago: views about California gaming and Native-American Eleven states require smokefree gaming venues: • Casino executives tend to view future scenarios casinos, albeit not as bad as in mid-2007 when bad California, Colorado, Delaware, Florida, Illinois, through the prism of the present day. In other words, times first spilled forth. Maine, Maryland, Minnesota, Montana, Nebraska, they are optimistic about the future when times are While pessimism was rampant in the 2007 survey, New York and Washington State. good, and vice versa. it was not universal. Las Vegas still held out hope of Seven more states, along with the District of • They are resigned to the fact that, Hey, you a bright future. Many months of bad numbers later, Columbia, that only offer bingo require the venues to gotta live somewhere. however, have fostered what can be described as a be smokefree: Arizona, Hawaii, Idaho, Ohio, The first phenomenon is particularly interesting, culture of pessimism. Right now, the view is that the see SMOKEFREE on page 7 and particularly puzzling. It is akin to looking out the see SURVEY on page 5 1 Gaming industry Observer/September 28, 2009 The Deal ... will provide Harrah’s — which is lobbying Congress were the major downfalls, economically, of those to overturn the online-gambling prohibition — with particular casinos.” When gambling expands, its Dragonfish business-to-business service for sup- How much is too much? port and payment software. Dept. of Haste Makes Waste: Illinoisans may have an answer 888 investors no doubt were excited by the Ohio racinos face headwinds prospect of cracking the U.S. market, which could Ohio is feeling the pain of rushing to implement s more states look to legalize or expand open in the foreseeable future (see last issue, p. racetrack VLTs on an ASAP basis. Acasino-style gaming in the chase for 1). We believe, however, there is more than the First, Governor Ted Strickland bowed to pres- untapped gambling dollars or gambling dollars that direct profit opportunity at play in the 888 stock sure and increased the minimum gaming age to 21 are crossing state lines, people are increasingly — bump. from 18 (see last issue, p. 2). and reasonably — asking, “So, what happens when The quality of online gambling regulation is Second, only two of seven racetracks had sub- gambling is everywhere?” largely unknown due to the lack of transparency, and mitted the required $13 million non-refundable first The obvious answer is that market forces will its havens in places such as Antigua, Gibraltar payment with their application, subjecting them to a determine how much gambling is too much. (where 888 calls home) and Malta help to relegate late fee of $100,000 per day. The tracks’ investors Gambling, however, is unique among leisure it to third-world status within the community of or lenders were uncomfortable making a $13 million activities because its spread is tied to societal mores, respected gaming regulators. commitment, fearing successful legal challenges to and in that regard sometimes the people — and not By partnering with Harrah’s — which is the the VLT measure or fearing that Issue 3 — which necessarily economic forces — say that enough is world’s largest gaming company and which is tightly would authorize four full-service casinos — would enough. regulated by nine U.S. states, among other jurisdic- pass in November. Such a scenario could be unfolding in Illinois. tions — 888 has received a major infusion of credi- The Lottery Director, Kathleen Burke, has the The state has a $1.5 billion casino industry and is bility. If 888 passes muster with regulatory discretion to modify or waive the late fees, and there almost surrounded by other gambling-rich states authorities in the United States, it could become a are indications that both she and Strickland recog- including Indiana, Missouri, Iowa and Wisconsin. provider of choice for other land-based gaming com- nize the racetracks’ predicament. Whether that actu- Yet in a Chicago Tribune/WGN statewide poll this panies that will, inevitably, make the leap into the ally leads to a deadline extension remains to be seen. month, Illinoisans said by a margin of 58 percent to online sector. Then came the biggie: The Ohio Supreme Court 34 percent that they would vote to ban retail video ruled by 6-1 that approval of racetrack slots must be lottery terminals — up to 45,000 which were autho- When big money is not enough: through voter referendum, not gubernatorial rized by legislation last summer at bars, restaurants States contend with industry directive. As a result, the earliest it can get on the and social clubs. They are legion these days: Casino critics, legis- ballot is May 2010. The poll did not ask respondents why they lators, reporters and others who wonder why any Ohio could have avoided these clearly foreseeable opposed the expanded gambling. For sure, retail state would want to legalize gaming in light of the situations by giving more careful deliberation to the VLTs are often less palatable than casinos poor results in many jurisdictions across the gaming measure and not taking what was essentially because of the in-your-face aspect, but it could be country. unilateral action. that Illinoisans simply believe that their state has One reporter’s question this month to Massachu- its fill of slot machines or casino-like gambling setts House Speaker Robert DeLeo was perfectly Analyst’s Corner: Wells Fargo’s locations. sophomoric in that regard. Noting the poor results Farrell likes regional casinos This underscores a point that we have made in and financial condition of some casinos in Connect- Dennis Farrell, a high-yield senior analyst at Wells this space before: Public officials should consider the icut, Rhode Island and Atlantic City, the reporter Fargo Securities, believes that regional casino operators pulse of the people before authorizing gambling in asked: “What does Massachusetts know to make a are better positioned than those in Las Vegas. the name of a quick budget fix. Illinois Governor casino work for the state that the others who have “Regional gaming demand remains the most Pat Quinn signed the VLT measure in July as part tried and failed?” resilient segment of the domestic gaming industry, of a $31 billion public works bill. Two states to the The obvious answer is lost in the blizzard of daily as we believe gaming patrons see local casino enter- east, Ohio Governor Ted Strickland issued a media stories about reeling casino revenues: Casinos tainment as a value proposition, especially with free directive to the state Lottery to commence racetrack still generate a lot of money ... just not as much as slot play promotional offers.” Farrell said in a note VLTs — even though voters have repeatedly clob- they did a year ago. We can only guess at how many to clients. bered casinos at the ballot box. businesses or industries would love to be generating “If unemployment continues to rise, we believe In Illinois, however, counties and municipalities the gross revenue that casinos do, even in these eco- visitation could actually increase at many local can opt out; the law also allows voters to request a nomically depressed times. casinos due to greater leisure time, which supports referendum to decide the matter. In other words, if Massachusetts were to gen- the thesis that gaming demand is more resilient than erate, say, only $100 million in gaming revenue per other consumer cyclical sectors in periods of eco- 888 investors see 777 with deal month vs. $125 million, it’s still a big win for the nomic weakness,” he said. for online services to Harrah’s state. “Two main concerns we have looking forward The stock price of 888 Holdings Plc rose 14 The less-obvious answer comes from DeLeo him- are, firstly, spend per gaming person in 2010 percent, to £97.50, on the London Stock Exchange self, in direct response to that reporter’s question: and, secondly, level of promotional activity. the day after it disclosed that it signed a deal with “A major factor was they over-invested and made Demand in August was flat to slightly better than U.S. casino company Harrah’s Entertainment. 888 some poor business decisions. It appears like those the July figures.” n

2 Gaming industry Observer/September 28, 2009 las vegascomplaint will preempt further discipline, as regula- a much better job policing their clubs, lounges and continued from page 1 tors suggest additional cases are already far along the topless pools. Regulators say there are another eight or nine path toward disciplinary settlements and fines. Sayre leveled the operators with a laundry list ongoing investigations into other nightclubs and Nevada gaming regulators have the power to insist of problems that have surfaced over the past few lounges, and they expect at least some of those to that clubs and lounges and their employees and years, including excessive drunkenness, drug result in disciplinary action. patrons act appropriately, even though almost all of dealing and abuse, violence, public sex acts and The recent crackdown and the promise of future the clubs and lounges in question don’t themselves “acts deemed lewd, indecent or obscene,” pres- discipline follows ongoing trends in the resort night- offer gaming, by virtue of state gaming regulation ence of minors, the mishandling of drunken or life business, some of which have long troubled regu- 5.011, which reads: drugged patrons (“dumping” them into the casino lators. Fueling the problems is the incredible amount “The board and the commission deem any or out of the club without taking action to protect of money that customers are willing to spend at activity on the part of any licensee, his agents or them), date rape, extortion and the misquoting of nightclubs and lounges. While the trend has cooled employees, that is inimical to the public health, service charges, failure to make sure club security a bit — as the ongoing recession has slowed all rev- safety, morals, good order and general welfare of cooperates with casino security and law enforce- enue streams — the lure of club the people of the State of ment, and prostitution. and lounge revenue is nonethe- Nevada, or that would reflect Sayer advised operators to make sure clubs and less a powerful incentive for Nevada regulators or tend to reflect discredit lounges were complying with all regulations and laws, resort operators looking to cap- have written letters to upon the State of Nevada or recommending licensees visit their nightspots “as typ- ture discretionary spending as the gaming industry, to be an ical customers.” customers spend less on long- licensees warning unsuitable method of opera- “No matter what the ownership and operational standing entertainment options them of their liability tion and shall be grounds for circumstances are, business and criminal conduct as such as shows and headline disciplinary action.” described above reflect poorly on Nevada gaming performers. if clubs allow Regulation 5.011 is a pow- licensees and the State in general,” Sayre’s letter The heart of the problem is illegal activity. erful weapon and the biggest noted. twofold: The casinos’ practice stick regulators have when it “In conclusion, indifference to illegal acts or of leasing nightclubs and lounges comes to club and lounge opera- unsuitable business practices within your properties’ to outside operators, and the failure of casino man- tions. Of course, Gaming Control Board agents nightclubs or similar establishments will not be toler- agement to ensure that those club operators are aren’t the only folks enforcing state and local laws in ated and may be considered an unsuitable method of compliant. the clubs. The Las Vegas Metropolitan Police operation. Please be proactive and take the appro- Contributing to the problems faced by regulators Department and Clark County also have jurisdiction priate steps to ensure the well being of your patrons, and operators is the pervasiveness of the drug culture and are getting involved. avoid damaging the reputation of the State and its that accompanies modern nightlife, particularly the Clark County followed the Gaming Commission’s gaming industry, and steer clear of potential disci- use of cocaine — a longtime problem — as well as action against Planet Hollywood by yanking Prive’s plinary measures.” prescription painkillers and so-called club drugs such and the Living Room’s liquor licenses, moves that The smart money says that regulators mean as ecstasy. Some club managers and the people asso- forced resort executives to scramble to satisfy county business. n ciated with club culture embrace drug use or at least officials that stricter resort oversight and the removal tolerate it. of a couple of club managers justify the issuance of Another contributing problem is the public’s new liquor licenses. Register now increased appetite for public nudity and sexual The Clark County Sheriff wrote a letter in 2006 Gaming Industry Observer behavior, fueled in part by sexually charged nightclub to the Gaming Control Board on behalf of his co-produces the promotions. Metro police, advising regulators that he was con- Nevada regulators have written letters to licensees cerned about illegal activity in the casino-connected warning them of their liability if clubs allow illegal nightspots, and the GCB followed with a letter to activity. They have also called operators in for meet- casino licensees reminding then that they needed ings to warn them even more strongly that they were to make sure illegal activity wasn’t taking place at responsible for policing their clubs even if operated their clubs, whether the casino operators were run- by outside companies. But the letters and the meet- ning them or not. ings did not — as far as regulators are concerned “Of particular concern to the board are incidences — prompt operators to clean up their acts, and the of excessive inebriation, drug distribution and abuse, regulators are fed up. violence, the involvement of minors, and the handling Thus, the crackdown has begun. Whether the first of those individuals who become incapacitated while disciplinary actions will prompt swift changes is still at the club,” the 2006 letter stated. unknown, but seems likely. The Rio, for example, And just this past April, Board member Randall called Metro police in for a check of its Sapphire Sayre sent another, more strongly worded letter to October 19 - 20, 2009 topless pool club and the resort closed the venue after license-holders, noting that “a few licensees were Seminole Hard Rock Hollywood police made numerous prostitution and drug-related found to be indifferent to the conduct or welfare of www.floridagamingsummit.com arrests. It seems unlikely that the Planet Hollywood patrons,” and advising them that they needed to do 3 Gaming industry Observer/September 28, 2009 J.P.Morgan Survey: Las Vegas Strip average midweek room rates, 3rd quarter

$350

$301 $300 2008 $250 $232 2009

$238 $203 $225 $200 $205 $161 $187 $184 $177 $175 $145 $137 $150 $169 $170 $172 $131 $157 $121 $115 $113 $139 $136 $99 $99 $96 $87 $100 $117 $84 $104 $97 $95 $94 $58 $94 $53 $43 $78 $50 $69 $62 $69 $67 $65 $56 $37 $37 $30 $0

Rio Paris Wynn Bally’s Luxor Encore Mirage Planet Island NY-NY Palazzo Bellagio Caesars Hilton Venetian Treasure Harrah’s THEhotel Las Vegas Flamingo Excalibur Tropicana Hollywood MGM Grand Monte Carlo Mandalay Bay Circus-Circus So u r c e : J.P.Mo r g a n “LV St r i p Ro o m Ra t e Su r v e y ”; Se p t e m b e r 8, 2009 Jo s e p h Gr e f f , a n a l y s t

Las Vegas trends ... Citywide midweek occupancy has averaged 79.7 down has been a steady increase in room capacity, percent for the first seven months of the year, down with new resorts and expansions boosting the city- Midweek room revenues 8.2 percent year-to-date from the same period last wide room inventory to 141,520, up 8,500 rooms Remain big challenge year. (Weekend occupancy was 90.7 percent, from December 2007. Deutsche Bank estimates For Strip operators down only 1.4 percent.) Third-quarter midweek that the room count on and near the Strip will jump room rates among the largest Strip resorts declined by about 15 percent — or by 10,000 rooms — to as Vegas Strip operators find that their most 24 percent to $112, according to the J.P.Morgan 77,000 rooms during the next year. That includes Ldifficult challenge in recovering from the weekly survey (see accompanying chart). By com- CityCenter, Cosmopolitan and the Hard Rock recession is how to boost midweek room revenues. parison, weekend rates declined only 7 percent, to Hotel, but does not include almost 4,000 rooms at Consumer retrenchment combined with a sharp $207. the stalled and bankrupt Fon- drop in convention attendance have weakened a cor- The convention slowdown Third-quarter tainebleau. The capacity nerstone of their profit formula. hurts other revenue streams as increase also excludes thou- Beginning in January 2008, average Las Vegas well, particularly food and bev- midweek room sands of relatively new condo- room rates began declining (on year-over-year basis) erage, as conventioneers are hotel towers ( Tr u m p every month, a trend that accelerated along the way. much more likely to run up big rates declined International, Palms Place, The declines hit double digits in June (down 16 checks in high-end restaurants 24 percent MGM Signature, Platinum percent to $113) and five of the six remaining than the budget-minded tour- and others) and timeshare units months of the year also recorded double-digit and-travel guests that operators to $112. that have added additional declines, including a 21 percent drop in September have been forced to rely upon non-hotel capacity. 2008, to $113. to fill rooms as best they can. With the convention slowdown Hotel occupancy followed a similar path, with Harrah’s President and CEO Gary Loveman showing no immediate signs of reversing, and with a every month experiencing year-over-year declines — predicted that companies and institutions will not looming capacity increase that will further pressure widening to a decline of 10.7 percent in December begin ramping up their Las Vegas conference and occupancy and room rates, operators are employing 2008, when occupancy was just 76.7 percent. convention plans until 2011 or 2012. both tested and new techniques to keep rates and other The drop-off in convention attendance began in “The consequence of that loss of that demand is revenues from falling further. August 2008, but once the trend started, it con- we’re filling rooms that would otherwise be dedi- “Businesses responded to the difficult economic tinued every month through July 2009 (most recent cated to those customers with a more value-oriented conditions by reducing travel budgets.” MGM month available). Total 2008 convention attendance promotional market,” Loveman told the Las Vegas Mirage reported in its second-quarter filing with the was 5.9 million, down 5 percent. This year, Las Review-Journal. “That is, to a large degree, why Securities and Exchange Commission. “This factor, Vegas experienced monthly declines in convention you can go online day and night and see these unbe- along with perceptions surrounding certain types of attendance of between 21 percent and 35 percent lievably attractive offers coming in from all of us to business travel, negatively impacted convention for the first five months, slowing to declines of 18.9 try to fill these rooms. That’s the hole that has to get attendance in Las Vegas. Dramatic drops in conven- percent in June and 5.5 percent in July. plugged. Then I think you will see the rest of the tion attendance in late 2008 and early 2009 led to The convention slowdown has had a severe business firm up.” significantly lower room rates as we reacted quickly impact on midweek occupancy and room rates. Exacerbating the impact of the convention slow- see MIDWEEK on page 7 4 Gaming industry Observer/September 28, 2009 Executive decisions: Preferred locations, overall survey 30%

2000 25% 2002 27% 2003 25% 25% 20% 2004 23% 2005 15% 2006 19.6% 19.2% 17% 17% 2007 16% 16% 17.1% 17.2% 16.9% 2008 15.8% 14% 10% 15.2% 14.6% 2009 13.5% 11% 9% 9% 4.4% 9.0% 3.5%

5% 7% 7% 3.2% 7% 7% 3% 2.8% 2.6% 6% 2.1% 2% 2% 5% 5% 6.8% 5% 5% 4% 4% 4% 4% 4% 4% 4% 0% 3% Las Vegas California Atlantic City Mississippi Reno Florida

surveylive somewhere, so it might as well be warm. the addition of table games in Pennsylvania. Any of continued from page 1 California is now the leader among locales of these will certainly buoy the industry, creating more house always loses — and that is from coast to coast, choice, with Florida on the rise. opportunity for all gaming executives. at least by contrast. Jim Bright, president of Bristol Associates, the Las Vegas and Atlantic City are at all-time lows Los Angeles-based executive search firm, has 34 Methodology in our survey, which shows a great wave of despair years of experience as a recruiter, including almost The survey was conducted via the Internet. about low-tax destinations. Carving up those num- 20 years in the gaming industry. He observes that The total number of responses collected was 547, bers a bit further by income level shows that the candidates are certainly more pessimistic about the representing a sampling of industry executives pessimism, particularly with respect to Atlantic City, job market reflecting the overall view of the survey. from across North America, This is the largest has moved beyond despair. Of 65 executives who More are unemployed, and those unemployed are response rate in the nine years we have been con- earn at least $200,000 annually, only one believes often out of work longer than in the past and feel ducting this survey, and the respondents are Atlantic City has a bright future, and that executive frustrated by the lack of available work. diverse in terms of geography, executive responsi- offered a simple “agree.” None of these high-level Furthermore, those who are employed and in bilities, years of experience and other meaningful executives would voice a “strongly agree.” stable positions are much less likely to want to con- criteria. The number of responses increased by 26 Using the same measure for Las Vegas showed 15 out sider leaving their current employer. over the previous year. of 65 highly paid executives believe it has a bright future, Casino executives have become increasingly flex- The survey was posted on www.bristolassoc.com, with only four of them voicing a “strongly agree.” ible in the career opportunities they are willing to the website of Bristol Associates, as well as on our Yet these highly paid executives are much more entertain as a result of the uncertainty in the mar- website, www.gamingobserver.com. The responses sanguine about tribal gaming, with 27 of 65 — or ketplace. Candidates have expanded their range were collected over several weeks in the spring and 41 percent — expressing optimism. However, only geographically and are less likely to turn down a summer. We publicized the survey in a press release four would go so far as to “strongly agree.” career opportunity due to a property’s location. and through e-mail, largely to inform and encourage The cautionary point here is that gaming operators While many do prefer warmer weather, unem- executives to participate. The survey collected data face an unanticipated but potentially very grave risk. If ployed executives are much more willing to go to designed to ensure, among other things, that the their executives are pessimistic about the future because areas that they simply would not have considered individuals who participated were indeed employed of an uncertain present, that could permeate their entire two years ago. in the casino industry and that no one responded to organization, creating an atmosphere of despair. Car- As a result of this increased flexibility, casino prop- the survey more than once. At the same time, how- ried to its extreme, it could mean that operators that face erties in more remote areas are receiving an increased ever, we did not ask questions that could identify present challenges may face future challenges as a result, number of quality applicants for their job openings. respondents by gender, age or other criteria that generating a self-fulfilling negative prophecy. This pattern has led to the hiring of more experienced could be useful in a pure analysis — but would be The good news, though, is that many executives personnel than these properties have been able to perceived as potentially discriminatory in hiring. still prefer to live in some of the same markets in attract in the past. Unfortunately, this pattern is more (Subscribers who need more information can con- which they are pooh-poohing the future prospects. than likely perpetuating the pessimism we are seeing tact Gaming Industry Observer at 609-926-5100 or For example, using that high-income segment as a with casino executives in each jurisdiction. Bristol Associates at 310-670-0525.) n barometer, we see that 15 out of 65 — the same Still, we do see light at the end of the tunnel. In percentage that gives it low marks for future growth recent months, Bright has seen an uptick in the — still wants to live there. Indeed, when we com- number of casinos willing to bring in additional Feedback ... pare those two groups, we see that three individuals talent. It is still too soon to call it a trend but the aming Industry Observer always welcomes are actually straddling this divide: They want to live employment picture does seem brighter. However, your questions, comments, concerns and in a market that has dim prospects. Four of the 15 Las Vegas and especially Atlantic City lag behind G suggestions. who want to live in Las Vegas give it high marks, other jurisdictions. Email [email protected]. while the rest are simply neutral. Another reason for optimism is the probability of This returns us to our second truism: You have to legalized gaming in Ohio and Massachusetts and 5 Gaming industry Observer/September 28, 2009 Letter from Macau ... concerning their ability to sell residential property way to remedy this is to amend the agreement, and this on the Strip — but times have changed. requires government approval. Las Vegas Sands looks Further complicating the issue is that under Sensible people in Macau realize that it is in every- To regain growth momentum Macau law, the Four Seasons Private Apartments one’s interest that Parcels 5 & 6 are completed and As market outlook improves and Four Seasons Hotel Macao are considered as that building of the Cotai Strip moves ahead. The one entity and indivisible for the purposes of legal IPO presents high hopes of an injection of capital to Editor’s note: The following analysis is by Norman title. Of course, individuals and companies are free achieve this. Now that a reprieve has been granted on MacKillop, Country Manager — Macau for Spec- to enter into contracts concerning land use and title, the loan covenants, time may not be of the essence. trum Gaming Group, publisher of this newsletter. but in Macau such contracts are difficult to enforce, The outlook for the casino business in Macau, because strict property laws concerning registration meanwhile, is improving. There is a good likelihood s Macau begins a new era under recently of title means that, in a dispute, the court will focus that Beijing will approve easing single-entry visa Aappointed Chief Executive Fer­nando Chui only on the title deeds of the property. restrictions from one visit every two months to one Sai On (see last issue, p. 6), the city’s former ‘engine An entity may be able to purchase the right to use visit per month beginning this month. room of growth’ — Venetian Macau Limited — is an apartment by buying a share in the company On an even brighter note, gambling revenue also preparing, and hoping, for a new era of its own. which owns the hotel or apartments. But without surged to its highest-ever monthly figure in August, The half-finished shells of buildings that comprise clear title, such a shareholder would be subject to rising 17.2 percent from a year earlier, and marking Parcels 5 & 6 of the Cotai strip present a sad view for the danger of changes in the shareholding structure the second straight month that revenue has risen some residents of Lawrence Ho’s Hard Rock Hotel of the company and consequential changes in the against last years figures. Gambling revenue for and the plush City of Dreams next door. Sheldon rules such as an increase in payment for the right of September could rise as much as 40 percent over Adelson, Chairman and CEO of Venetian parent use, etc. Not such an attractive deal for anyone last year’s monthly figure. [email protected] Las Vegas Sands, needs about $2 billion to complete wishing to “own” a piece of the Cotai Strip. There is also a brighter outlook for the chaotic the project. In addition to the credit crunch, other Monetizing the Venetian shopping mall could junket business, as after a damaging junket war problems bedevil attempts to get back on track. present similar problems in that the mall is an inte- fuelled by spiraling commission rates, the six con- The company may be looking to sell some equity gral part of the casino building; whether it can be cession holders have agreed in principle to cap the through an IPO, as $600 million of capital has pur- hived off for sale like the company did with its rate at 1.25 percent. The government has also portedly been pledged as convertible bonds. There Grand Canal Shoppes in Las Vegas remains to be finally promised to tighten its control over the are, however, some hoops to go through on the seen. market by promulgating regulations that give the journey to raising the capital. Yet another headache, which seems to have been Secretary for Finance power to declare a commis- Although construction on the site is well advanced, overlooked by the press and analysts, is that building sion ceiling and to impose penalties on casinos that we hear that the government has not yet granted land- in Parcel 3 next to the Four Seasons should have break the rules. The rate has been set at 1.25 per- use rights. Indeed, informed sources have told us that been completed in July of this year with a hotel and cent. It remains to be seen if the regulations can be there is technically no building there, as permission casino complex. Nothing has moved on the site properly enforced, as there are many ways to cam- was never officially granted to commence work. Typ- except grass, and consequently LVS could be in ouflage junket operations, including under the guise ical of the norms at that time, building proceeded on a breach of the concession agreement. of travel agencies. ‘wink and nod’ basis that all would be well and the All of these problems could have been fixed a few With hints of loosening visa restrictions and mas- necessary permissions would follow. Our sources tell years ago with some recrafting of the concession agree- sive celebrations for the 60th anniversary of the com- us that the only permission that has been officially ment, some creative legal interpretations, and a little munist rise to power in China, October could be a granted is to build the perimeter fence. help from senior government officials. In this new cli- bumper month for Macau. n The Au Man Long scandal — in which the mate of strict adherence to the law, it will be interesting former Secretary for Lands and Works was sen- to see how the government will address these issues. Register Now tenced to almost 30 years in jail for corruption — Venetian Macau Limited last month filed an Gaming Industry Observer subscribers receive a 10 percent discount off the registration fee. has significantly impaired the ability for these application to list shares on the Hong Kong Stock Email [email protected] promises to be honored unless strictly conforming to Exchange. The caveat to investors reported by LVS for the discounted rate. the law. No one is willing to grant informal permis- in a filing with the U.S. Securities and Exchange sions until and unless 25 percent of the cost of com- Commission was that “No decisions have been made pleting the project is lodged with the government as regarding the timing or terms of any such offering or a bond; otherwise, the site will stay as it is. Perhaps whether the subsidiary will ultimately proceed with that is why rumors of potential saviors abound but such a transaction.” This is a sensible caveat, as there nothing concrete has emerged thus far. are lots of hurdles to cross between filing for an IPO LVS hopes to raise $3.5 billion to $4 billion by and the sale of the shares on the market. The most important events for Eastern Europe and the Balkans selling some non-core assets in Macau. This likely One of these hurdles is Macau government approval in gaming and entertainment means the Four Seasons Private Apartments and for the change in corporate structure brought about by October 5-7, 2009 the Venetian Grand Canal Shoppes. Cotai Strip a share issue. Until the election is over, the government Inter Expo Center zoning is strict and prohibits residential property will make no decisions that might attract criticism, in Sofia, Bulgaria other than hotels. Verbal promises may have been particular LVS issues, which includes making contro- www.balkangamingexpo.com given by certain government officials some years ago versial changes to the concession agreements. The only www.eegamingsummit.com 6 Gaming industry Observer/September 28, 2009 Changes in Atlantic City, Las Vegas Strip GGR vs. changes in Consumer Confidence Index

30%

10%

-10%

-30% Consumer Confidence Index

Year-over-year change Year-over-year Las Vegas Strip -50% Atlantic City

-70%

Jan-07Feb-07Mar-07Apr-07May-07Jun-07 Jul-07Aug-07Sep-07Oct-07Nov-07Dec-07Jan-08Feb-08Mar-08Apr-08May-08Jun-08 Jul-08Aug-08Sep-08Oct-08Nov-08Dec-08Jan-09Feb-09Mar-09Apr-09May-09Jun-09 Jul-09Aug-09 So u r c e : D a t a f r o m T h e Co n f e r e n c e Bo a r d , N e v a d a Ga m i n g Co n t r o l Bo a r d , N e w Je r s e y Ca s i n o Co n t r o l Co mm i ss i o n

ortunately for operators in the two largest U.S. gaming markets, consumers’ sentiment has not matched their action during the recession. The chart above Fshows the year-over-year change in the Consumer Confidence Index in comparison to the year-over-year changes in gross gaming revenue on the Las Vegas Strip and in Atlantic City. Confidence plummeted during the recession while gambling revenues declined much less precipitously. In fact, Spectrum Gaming Group (publisher of this newsletter) has compared multiple economic indicators against gross gaming revenue in multiple regions and found strong linkage.

smokefree The casino industry has also been successful in a bingo parlor. Tobacco-growing Louisiana passed continued from page 1 delaying or rolling back a few smokefree laws. South smokefree-casinos legislation in the Assembly, losing Oregon, Utah and Vermont. Dakota temporarily delayed the implementation of in the Senate by a small margin. Indiana, Michigan, (Tribal casinos in many states are exempt from its smokefree law. Atlantic City rescinded its smoke- Missouri and Texas are considering smokefree air state laws and have instituted their own smoking free ordinance, returning to 25 percent smoking- laws that include gaming venues. policies.) permitted. Some Pennsylvania casinos have New Jersey’s attempt to close its casino smoking Outside of the United States, 11 countries mandate expanded to 50 percent smoking. loophole may be heard in the lame-duck session after smokefree gaming: England, France, Ireland, Italy, Still, strides continue in favor of smokefree this year’s November elections. The state’s Favorites Northern Ireland, Netherlands, New Zealand, Scot- gaming. Richland, SC, recently held firm in support off-track wagering facilities are smokefree by law, land, Uruguay and Wales. Most Canadian and several of its smokefree legislation, denying an exemption for see SMOKEFREE on page 8 Australian provinces also require smokefree gaming. The ultra-chic Principality of Monaco jumped on the midweekrooms filled without attracting guests who don’t gamble bandwagon in November 2008. Hong Kong’s mahjong continued from page 4 or spend much elsewhere in the casino. Las Vegas Sands parlors went smokefree on July 1, and Bulgaria plans to to re-occupy rooms with leisure travelers.” said that it is comping more rooms to slot players and implement smokefree gaming on June 1, 2010. Almost all operators reacted to the slowdown by other gamblers instead of cutting room rates because it Some states with strong smokefree air laws are aggressively cutting costs, collectively laying off thou- wants to maintain rates as high as possible. drafting creative compact agreements for tribal sands of workers, cutting hours for thousands of others, Major operators are employing a new tactic of using gaming venues. Washington state offers financial reducing the hours of operation or closing poorly per- credits for F&B, spas, table play and slot play to lure incentives to tribes with smokefree policies. forming F&B and retail outlets, and reducing some visitors. Instead of slashing rates — which Wynn said Still, some jurisdictions are reticent to move for- services. But in a service-intensive business like casino attracted customers who cannot afford to, or choose not ward with smokefree gaming, creating a patchwork of resorts, there are limits on cutting costs. to, spend on his resorts’ other amenities — operators exemptions in their smokefree air laws. Denmark, Wynn Resorts Chairman Steve Wynn said hope that keeping rates higher while offering incentives Finland, Slovenia, Sweden, a few German states, during his second-quarter conference call that his will attract higher-worth customers. and some Australian and Canadian provinces permit company has cut about $100 million in annual costs Las Vegas has traditionally boosted visitation with smoking on their gaming floors, in varying degrees. for its two Las Vegas hotels, but Wynn said he properties that create incremental demand. MGM Stateside, Atlantic City, Pennsylvania and Rhode cannot go much further. Mirage CEO Jim Murren said that he expects his Island allow a percentage of their gaming floors to be “There is a surreal question here,” Wynn said. company’s CityCenter to boost citywide visitation smoking-permitted. Nevada restricts smoking by the “Is it intelligent to ruthlessly grind every last dime significantly, more than enough to offset the impact number of slot machines in a venue. Iowa and New out of this place when it involves dislocating groups of the capacity increase. Jersey require simulcast facilities be smokefree, yet of your employees? Oh, yes, the quarter looks better “I have no doubt that CityCenter is going to do permit smoking on casino gaming floors. Arkansas and you have one of these fancy phone calls. But is well itself,” he told CNBC. “But if it’s simply taking and Tennessee allow smoking if the establishment is that good business? I think not.” market share from the rest of the town … it’s not a age-restricted to 21 and older. On the revenue side, operators are trying to keep success.” n

Gaming industry Observer/September 28, 2009 7 smokefreelegislation may be on the horizon. In the past, the continued from page 7 industry focused mainly on any impact on casino rev- with the Woodbridge venue considered one of the enues and government tax receipts. However, a recent most successful OTW venues in the country. Revel article in The Regional Economist alluded to applying ­M i c h a e l J. Po l l o c k Entertainment, a new Atlantic City casino being an overall analysis that also includes public health Ex e c u t i v e Ed i t o r a n d Pu b l i s h e r built, is considering being smokefree. benefits. J o s e p h S. We i n e r t For one month ending November 15, 2008, Legal options for workers and patrons exposed to Ed i t o r

Atlantic City’s City Council mandated smokefree secondhand smoke are expanding, and attorneys are M i c h a e l D. Di a m o n d casinos, except for separately ventilated smoking taking note. This year, the Americans with Disabili- As s o c i at e Ed i t o r lounges with no gaming, or food and beverage ser- ties Act was amended to include temporary and per- G a i l Pa g a n o vice. How did Atlantic City casino operators adjust ceived disabilities. A person who suffers an asthma s u b s c r i b e r r e l a t i o n s m a n a g e r to the smokefree month? attack from secondhand smoke exposure on a gaming The on-premises transition was relatively smooth, floor may be classified as disabled under the Act. B a r r y S. Wi z o v due to management planning and employee imple- Gaming venues are workplaces and places of public La y o u t a n d Gr a p h i c De s i g n mentation. Patrons were directed where to smoke, accommodation, needing to be accessible to disabled Michael Pollock’s Gaming Industry Observer and explained how a player holds a seat at a table or people. is a division of Spectrum Gaming Group, LLC. slot machine. Some casinos built attractive smoking While the debate continues, Delaware’s smokefree 1201 New Road, Suite 308 lounges, with flat-screen televisions and comfortable Dover Downs Hotel was named a 2008 Best of Linwood, NJ 08221 USA chairs, while others offered uninspired indoor or out- Gaming winner in a reader and critic poll by Casino All editorial and circulation inquiries, as well as door smoking areas. Player magazine, and 2008 Best of the East Award requests for information service should be directed The casinos had six months to create a strategic by readers of Meetings East magazine. These recogni- to 609-926-5100. The annual subscription rate is external marketing plan prior to October 15, to tions show that smokefree gaming can be desirable $495 per year. Archives are available online at www.gamingobserver.com attract new clientele that prefer smokefree environ- and, as Dover Downs’ financial results have shown, ments. Considering that the overwhelming majority profitable. of gamblers do not smoke, we noted that that casino Additionally, many organizations will host confer- operators did not develop any media campaign in the ences only in cities with smokefree indoor air laws. tri-state area to create a positive buzz for the smoke- Opposing smokefree air laws may result in lost con- free transition. vention business and undermine visitor and conven- Interestingly, casino operators asked City Council to tion bureau outreach. • Conferences rescind the smokefree law, prior to its implementation. Two key myth-busters were uncovered in the 2008 • Publishing and research Even so, dealers shared with us anecdotally that their Atlantic City Visitors Profile Study conducted by Spec- • Feasibility and economic studies tokes or tips were higher during the smokefree month. trum Gaming Group (publisher of this newsletter): • Regulatory and professional services Despite the reluctance of most gaming operators nonsmokers spend more money in Atlantic City than to embrace the smokefree gaming trend, a blast of smokers, and only 23 percent of gamblers smoke. F r e d r i c E. Gu s h i n M i c h a e l J. Po l l o c k fresh air was felt by the casino industry in January Whether they embrace smokefree air or begrudg- m a n a g i n g d i r e c t o r s 2009: The National Council of Legislators from ingly comply with it, casinos can make lemonade out Gaming States overwhelmingly voted in favor of a of their perceived lemons. n resolution to support smokefree gaming initiatives. H a r v e y B. Pe r k i n s The National Institute for Occupational Safety J o s e p h S. We i n e r t Se n i o r v i c e p r e s i d e n t s and Health also recommended a ban on smoking in casinos, based on its May 2009 study. The NIOSH research detected lung carcinogens from secondhand M i c h a e l J. We s t smoke in nonsmoking, non-poker Las Vegas casino Subscribe to c h i e f f i n a n c i a l o ff i c e r dealers, after their work shifts. Gaming Industry Observer www.spectrumgaming.com Some casino operators try to adapt by installing Annual rate: ❑ $495 expensive, newfangled equipment such as air curtains ❑ or slot machines that have built-in air filtration. Two-year: $795 Do Not Forward, Fax or Otherwise Unfortunately, none of these mechanisms rids the air Reproduce this Newsletter: of secondhand smoke hazards. Gaming Industry Observer This product is protected by federal and Some casinos introduce smoking-cessation treat- GIO2 premium service ­international copyright laws that prohibit the ments into their wellness programs, to reduce sky- ­unauthorized replication of this product. The Copyright rocketing health care costs among employees. Annual rate: ❑ $1,635 Act imposes liability of up to $100,000 per issue for such violations. If you would like to ­reproduce any part Unfortunately, smoking-permitted workplaces are of this newsletter, just give us a call at 609-926-5100 proven to hinder and undermine successful comple- and we can authorize For more information, call 609.926.5100 or visit reproductions under limited circumstances. tion of the quit program. www.gamingobserver.com/newsletter/gio2 A shift to big-picture analysis of smokefree

Gaming industry Observer/September 28, 2009 8 Directory of Affiliates

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