News

14 August 2012

European Gaming: The New Image

Image is everything, so some people say, especially when a product goes to market. But the image of European casinos hasn’t always been good. Cultural prejudices have definitely played a part in stunting casino growth. However, the downturn in the financial market seems to have persuaded some countries to relax their gaming regulations to encourage growth. Since deregulation, opportunities have arisen to offer a variety of gaming environments to people from different social and cultural backgrounds. This has promoted a move toward more integrated—and interesting—gaming. Investors, whose eyes were once set on the Far East, would now appear to have their sights firmly aimed at the new rising casino markets. This is especially true of the U.K.

The U.K.
Members of the British monarchy are well known for their love of horseracing—the sport of Kings—and there are few in the land who don’t put a bet on The Grand National, the biggest horse race of the year. But to go to a casino? In the U.K., especially in London, casinos have historically been sited in exclusive areas, like Mayfair, for the very rich and famous, or in exclusive hotels that have been perceived as places for tourists. For those with more meager funds, casinos offering lower stakes have been hidden away in basements or above shops, out of view, and perceived as far from de rigueur. These casinos, with their average man-on-the-street membership, have certainly suffered from an image problem. But things are changing. Both international companies and single owner-operators are beginning to invest heavily to transform the reputation and image of casinos.

In recent years, international corporations, such as the Malaysian companies Genting Group and Guoco Leisure Ltd., have been buying into Britain. One would think that the 50 percent tax levied on gaming would have taken their breath away, but that isn’t the case. 

Rank, who since last year had been owned by Guoco Group Ltd., has been rebranding its Grosvenor casinos as G-Casinos. These new venues offer large-screen video games for hire and light entertainment alongside dealer games and slots, which have been a great attraction for younger players. Last year, footfall rose by 11 percent on the previous year and operating profits increased by 12.8 percent, which in these times of financial uncertainty shows remarkable success within a targeted growth area. Grosvenor believes that the G-Casino format makes for an exciting, approachable entertainment venue that is as appealing to women as it is to men. There are now 19 G-Casinos across the U.K., and there are plans to convert one more traditional existing club to the G format in the next 12 months. Plus, two more new G-Casinos will be opening, whether Rank buys Gala Casinos or not. Should Rank be successful in its bid for the acquisition of Gala’s 24 casinos, it will give the company a total of 59, plus licenses to build another 10 venues, making it the biggest U.K. casino operator, overtaking the current holder of that accolade, Genting.
The U.K. is also pulling investors from other continents. The Australian company Crown Ltd. has been the sole owner of Aspinalls since 2011 and is a major shareowner of Aspers, one of the fastest-growing large casino groups. 

These big investments clearly show confidence in the U.K.’s casino market. However, it’s not just big corporations that are influencing and heavily investing in the British market. The father-and-son team Jimmy and Simon Thomas is the owner-operator of London’s newest adult entertainment venture, The Hippodrome, which is billed as being the first international-style casino. The curtain rose on July 13 at The Hippodrome, a venue that now has a renowned reputation as being the place for great entertainment. Its particular unique selling point is offering gaming alongside a nightly cabaret show starring big names in the entertainment business. Situated in Leicester Square in the heart of London, its backdoor opens into Chinatown, making it very convenient for some of London’s best players.

What led Simon Thomas to sell his established bingo hall and risk £40 million in a different area of the gaming market? He says: “Having been the president of a trade association, BACTA (British Amusement Catering Trade Association), between 1999 and 2000, I took part in the discussions with the Gaming Commission that led to the 2005 Gaming Act. It was during this phase that I began to be drawn toward the casino-style of gaming, especially as the restrictions on advertising and mixing entertainment with gaming were about to be lifted. I decided it was a no-brainer.”

Simon Thomas knew that casinos had “reputation issues” because of their location and, in the past, their members-only restrictions. But that wasn’t all; for him, London casinos lacked showmanship. Having visited Singapore, he knew that he wanted to bring that style of entertainment and gaming into London. “Many British tourists have played in casinos abroad but would not think to come to a casino in London,” he says. “The Hippodrome is a category changer. In principle, it’s a sort of mini-IR. And IRs are fun!” 

But it’s not just London that is seeing investment in casinos. Tracy Cohen, AGEM’s director of Europe, feels that London has definitely been a draw for tourism this year. “With the focus this summer on the Olympics and the Queen’s Diamond Jubilee, the U.K. casino industry is currently enjoying a resurgence,” she says. “Starting with the opening of the very successful Aspers Westfield Stratford City Casino last December, the next 18 to 24 months will see Genting open a casino in Birmingham NEC (National Exhibition Centre), Apollo Resorts and Leisure Ltd has been awarded a licence by Hull City, Aspers will also be operating a 36,500 square-foot casino in Milton Keynes, which will include gaming tables, electronic slot machines, a restaurant and a sports bar and finally Jomast Developments has recently been awarded the Middlesbrough large casino license, which forms part of a £25 million leisure complex.”

The market in the U.K. is clearly buoyant with the surge of these new style “destination casinos,” but what is happening in the rest of Europe?

Apart from cultural prejudices, the biggest problem hitting Europe at this moment is, of course, the economic crisis. Problems with the euro have obviously affected European countries and, for some, just keeping ahead of the game has forced them into deregulation. But their stranglehold on gaming, via taxation, makes it a difficult growth area. This seems particularly true of Italy.

Italy
When you consider that Italy invented baccarat in the 15th century, held the first lottery in the 16th century, and offered the first style of casinos in the 18th century, you would expect gaming to be quite prolific. But that hasn’t been the case. Italy only has five casinos. To be precise, there are only four casinos in operation at any one time, as Casino Municpale di Venezia runs its summer and winter casinos in two different locations. 

The lack of gaming facilities is due to cultural traditions and influences. The Italians have always had a negative outlook on all gaming, due to it being perceived as a mafia-run business. So while there are five casinos, all owned by the local authorities, playing in them has not been considered an attractive pursuit. However, the market for mini-casinos that offer VLTs and AWPs is booming.

Since the changing of the gaming laws in 2010, mini-casinos, housing more than 57,000 gaming machines, have sprung up all over Italy. All gaming realities are closely regulated by the state authority, Amministrazione Autonoma dei Monopoli di Stato (AAMS) - the Independent Administration of State Monopolies. All AWPs, known locally as Comma 6a and VLTs, are directly linked to the AAMS system. This allows them to monitor gaming and to deduct the correct amount of tax from the operators. 

Damien Connelly, marketing manager at Gaming Support, said: “Italy as a market opportunity is coming close to finalizing its expansion of VLTs into new mini-casinos. These are venues with anywhere from 10 to 150 machines that are located either in high footfall areas, such as a High Street, or in hotels. This mini-casino model appears to have worked very well for both the Italian government and for Italian operators; but that’s because Italy started from a weak base. Prior to its recent VLT expansion, Italy had five casinos operated by four municipalities. To put it bluntly, these casinos were not very good; evidenced by how many Italian gamblers chose to cross the border to gamble in Swiss or Slovenian casinos because these foreign casinos offered a lot more fun and entertainment.”

Dr. Emmanuele Cangianelli, executive partner of MAG, a leader in the gambling industry advisory in Italy and the largest independent consulting company dedicated to gambling in Europe, agrees that gaming machines have grabbed the nation’s attention. “The public gaming market is led by gaming machines (almost 49 percent of market GGR), still increasing after VLTs launched in 2010,” he said. “Historical (the original five) casinos are suffering because of public gaming competition but are still the only places where is possible to play table games, including poker. The number of public gaming locations has increased due to changes in the law so, in the future, it will be possible to organize poker rooms in dedicated venues throughout Italy.”

I asked Cangianelli if further deregulation, in light of the global financial downturn, would help the Italian market. He said: “From my point of view, considering the high level of gray (illegal) markets in some European countries, regulation may only help a gaming market. Deregulation must not be driven by the pursuit for tax; gaming is not a cash cow but a modern industry, to be taxed on net revenues. This is particularly true in the Italian market: Too many products are taxed on turnover. Currently the tax stands at 11.8 percent on AWPs and 4 percent on VLTs on the money bet, after which the companies are taxed again on profit.”

And Cangianelli’s forecast on gaming in Italy? “Euro problems do not seem to have influenced the national market, but there has been an economic downturn in recent months, which has reduced player spending. Online gaming has made an impact on the casinos, which have taken a 4 percent drop in revenues, to date, in 2012.” However, he does forecast that—while the publicly owned historic casinos are limited in their expansion—there will be a very decent market growth in the Italian residual gaming sectors over the next three to five years.

Luca Gerardini, the general manager of Magic Dreams, an Italian manufacturer of slot machines for the casino and AWP markets, also has a very optimistic outlook, commenting: “The new deregulation redefined the gaming in Italy. From a player’s point of view, the new segment gives the player a greater choice. Obviously each new gaming reality, whether land-based or online, upsets the equilibrium of the market, but everybody is well aware that after a first period of destabilization, the market will find new stability. Definitely, from a manufacturer’s point of view, the competition has been increased.”

So with a flexible approach, the growth of the gaming market in Italy is still on the rise, but heavy taxation is a real problem. But that’s not the same in every European country, especially those not suffering from the effects of the Eurozone. 

Russia 
Russia’s unique location, being on the edges of Europe and Asia, ideally allows it to enjoy the benefits of both worlds. Having its own natural resources also helps to keep the country buoyant. But is that good for the gaming market? Not really. As Connelly explains, “Russia is not a growth market. Reason being, it doesn’t need the tax revenues offered by casinos; the wealth of natural resources it has (iron ore, natural gas, coal, etc.) means it can earn more than enough money for its government operations from these industries without having casino gambling.”

Lenar Kashapov, director of Azov-City Gambling and Resort, a non-commercial organization that represents the interests of gambling business in the special gambling zone of Azov-City in Southern Russia, Krasnodar region, explained how the taxation works. “According to Russian gaming legislation, casinos must pay a fixed amount of tax for each unit of gaming equipment,” he explains. “The tax rates are established by the legislative bodies of those regions that have gambling zones. The casinos pay 125,000 roubles ($3,837 USD) per gaming table and 7,000 roubles ($250 USD) per slot machine per month. The Russian authorities let gambling operators have effectively zero taxes on gross gambling revenues in exchange for creating jobs and developing the area’s tourism industry.”

Kashapov believes that the crisis in the Eurozone hasn’t affected the Russian gaming industry. “Russian gamblers don’t depend on the euro,” he said. “There are four gambling zones in Russia: in Kalinigrad Oblast, Krasnodar, Altai and Primorsky regions. According to their business models, two of them—Altai and Primorsky—are orientated to Asian gamblers, primarily due to their geographical location. There is even a special room with Chinese-speaking staff in Primorsky’s first casino. The management of the gambling zone in Primorsky has asked the Russian federal government for a special visa-free regime for Asian gamblers, particularly as Asians were the first foreign investors in Altai and Primorsky.”

However, it’s Europeans and those from the Black Sea area, who are targeted in the biggest region of Kaliningrad. “But,” Kashapov said, “the most important people in the market are the Russian gamblers.”

Casinos Oracle and Shambala will undergo some major redevelopment next year to incorporate an integrated entertainment center, as will the casino in Primorsky. All this makes it sound as though the Russian gaming market is really developing, but there are some setbacks. 

While some of the legal gambling zones are developing, there has always been the problem of the notorious illegal casinos. Kashapov explained: “The main competitors of gambling zones in Russia are illegal gambling facilities in the cities all over Russia and, of course, online gambling. There are also several factors hindering development of gambling zones, such as lack of legislation, regulation, infrastructure and organized crime within the gaming industry. However, every day the police close down illegal gambling facilities in large Russian cities. All these measures have a positive effect on legal gambling and the number of clients in legal casinos is permanently increasing.”

But where Russia has its problems, others are able to benefit, particularly Georgia.


Georgia 
Gaming is most certainly legal in Georgia, the sovereign state of Caucasus in the region of Eurasia, and offers a range of different style casinos, some with only gaming machines and others with dealer games. It is ideally located to draw gamblers from neighboring countries and, because of the oil industry, it’s already a natural draw for affluent businessmen. 

Cohen also believes that this is the case, stating, “Batumi, a coastal resort in the Republic of Adjara sitting on the Black Sea in Georgia, is a rapidly developing tourist and casino market that enjoys huge government support. With visitors from across Turkey, Eastern Europe, the Caucuses and the Middle East, there is a huge range of opportunities. 

“As a result, the Government of the Autonomous Republic of Adjara is inviting investors to attend the first Casino Investors Conference (CIC) from Sept. 4-6, 2012, to learn exactly what businesses can gain in Batumi. AGEM will be sponsoring the CIC.

“Some 43 percent of total investments made in Adjara have been targeted at the tourism sector. The rapidly developing hospitality infrastructure already features international hotel brands including Sheraton, Radisson, Hilton, Trump, Kempinski and Holiday Inn. While gambling is prohibited in neighboring countries, Georgia has implemented gambling legislation that is both liberal and progressive.”

Europe’s Future
The future of integrated resorts would appear to be expanding throughout Europe. But how big will they become? Cohen says, “It’s impossible to generalize, as there continue to be projects of all sizes in development. Las Vegas Sands has made clear its intention to develop what has come to be known as EuroVegas, a project about half the size of the Las Vegas Strip that seeks to capitalize on substantial tourism business in Europe. There are sectors that have experienced growth, such as online gaming. Live casino video play is proving to be extremely popular and profitable. Many traditional table game players are enjoying this online option, as the experience mirrors that of being seated at a casino table.”

Connelly agrees: “Any such European project would not realistically ever become as large as the Las Vegas Strip—or the Cotai Strip—but I have the very distinct feeling that we Europeans crave such a multi-casino, multi-facility resort complex to help legitimize the casino gambling industry, at least in our own eyes! Tomorrow’s Europe will, I predict, look quite similar to today’s United States of America. If you think about it, the words ‘United States’ gives the game away. As in the U.S. where there are federal and state level laws, taxes, etc., and certain states are economically much more powerful and important than other states, so shall it be in tomorrow’s European Union.”

And on another positive note for manufacturers, Gerardini, states, “For sure the gaming market rewards all the companies that have the ability to better adapt themselves to market and regulations changes.”

The image of European casinos is changing in many countries, and location plays a big part in the success of the operation. Operators, as always, have to be quick enough to adapt to new situations that arise from changes within legislation. The investment in the U.K. has been great. 
Deregulation in Italy has boosted the market in gaming machines, but the image of traditional casinos remains the same—as it does in Russia—therefore we could see speculators “betting on the neighbors.”

Alison OReilly

www.casinoenterprisemanagement.com