Gaming Opportunities in Developing Markets Picking Winners

By Andrew MacDonald and Bill Eadington

When considering new gaming developments in a jurisdiction, what are the critical elements that the government and senior officials might be looking for? If there is a strong latent demand for gambling in the region, it is unlikely government would settle for a project that only offered casino gambling. Rather, it is the attractiveness of everything else proposed that would go along with a casino that might ultimately win the day. This has created increasing discussion on the desirability of Integrated Resorts. If government is going to be allocating only a single gaming license, or only a handful of franchises, how should companies position themselves with their own proposed Integrated Resorts to maximize the chance of winning a license which will be economically viable and attractive for their shareholders?

PAINT is an acronym that is useful when considering attributes that need to be promoted and addressed by a gaming company when developing or considering concepts for a new Integrated Resort with casino in a jurisdiction that is considering – or has recently authorized – casino gaming. PAINT stands for Partners, Architecture, Investment, Novelty and Tourism.

For many jurisdictions considering gaming legislation for the first time, it is the Tourism element that really makes this worthwhile. If casinos can generate substantial impacts on their regional or national tourism sectors, then the resulting economic benefits will be both direct (new capital investments, job creation, tax revenue generation, spill-over tourism benefits to the rest of the region) and indirect (multiplier effects as higher incomes earned in the casinos and resorts are spent throughout the jurisdiction; increased local affluence.) One can readily point to the experience of Las Vegas, Atlantic City, Biloxi, Connecticut and Macao to illustrate the strength of these forces.

However, without a significant tourism dimension, the picture might become more one of PAIN, and there may only be limited opportunity for the developers or government to promote the real economic benefits from casinos over the perceived and actual social costs, especially in the face of church opposition or an aggressive anti-gaming constituency. Generally speaking, it is easier to sell the concept of legal casinos when most of the clientele will be coming across state, provincial or national borders.

If, on the other hand, the great majority of customers are locals, then legalization may still be warranted based on freedom of individual choice and import substitution. But clearly, the economic benefits to the region will be markedly less dramatic. This can be seen with most urban casinos (Detroit, Sydney, Montreal), riverboat casinos (Illinois, Indiana, Missouri, Iowa), and other locally oriented casinos (most tribal operations, Colorado, Manitoba, Alberta, provincial casinos in the U.K., etc.)

So what are the component parts of PAINT? 

PARTNERS. Who are the consortium members and content providers? What are their reputations individually and as a group? Do the Partners offer something special or extraordinary? Are they considered “visionary”? Is there a special skill set that the Partners bring to the table that might be useful? Is there a high profile local partner involved? If the Partners win the right to develop an Integrated Resort, how will they be portrayed in the local, national and international media? Is this a long-term integrated partnership or one solely of convenience, created for this particular development? Are there real synergies being delivered by the Partners and other content providers? How important is the group’s track record, or can the project be justified solely on its own merits? Do the Partners instill confidence in their ability to deliver on their promises? Have the partners done careful research into the history, culture and aspirations of the jurisdiction?

ARCHITECTURE. Who are the project facility architects, landscape architects, and interior designers? What is their reputation and what other related projects have they completed? Will the plans they are presenting result in iconic, contemporary and world-class facilities? Do they have a history of “copy cat” or “cookie cutter” design, whereby their last project too often has been the template for their next? Does the project fit in the context of the culture, ambience, and economy of the jurisdiction? Is the development well integrated, rather than just a mixture of non-cohesive elements?

INVESTMENT. What is the total planned investment for the development? Is the budget realistic? Is financing in place; do the Partners already have access to the necessary financing? How will the project’s development be staged? Does it fit together with the jurisdiction’s long-term master plan? How substantial and credible are the projected economic benefits? Will the project disrupt the local economy in negative ways? What are the Partners’ policies on local procurement (jobs, services and merchandise)? Is there a strategy to develop local management talent over time? How profitable will the investment be for the Partners? Is there an appropriate sharing of Economic Rents among the Partners, the government and the citizens of the jurisdiction (i.e., through higher incomes and other spill-over economic benefits?) Will there be adequate incentives for significant reinvestment in the future to maintain and expand the Integrated Resort in a manner that best exploits the market’s potential? What are the risks of failure, and who will bear the brunt of failure if it occurs?

NOVELTY. Is this truly an Integrated Resort where gaming is only part of the over-all picture? Have the Partners and Architects utilized their full creative powers in approaching this project? How unique are their plans? Does the novelty make sense, or is it just “sizzle” and not “steak”? Are there concepts in this project that are clearly more attractive than those of other bidders? Will the development still be impressive in five or ten years? How will people who do not like to gamble look at this project? Is this a development that will make it the place to visit in the region? Can this project be classified as “visionary”? What are its unique attractions, and will they induce visitors to select this venue over other attractive alternatives in the region? Do the unique attractions include activities that would otherwise not be viable in the region? Is it realistic for these non-gaming elements to draw out-of-region or foreign visitors to the region? How sustainable are the novel elements in a global context? Are the gaming licenses going to be awarded based on the Partners’ ability to create novelty in the project development? Can this particular project win a “beauty contest” for a license against partnerships with similar skill sets?

TOURISM. Will this development become the region’s postcard shot? Will the Integrated Resort be a catalyst that promotes incremental tourism to the region? Is there currently an outflow of residents to other jurisdictions with more competitive offerings? Can the gaming portion of the development support and serve as the economic engine for the non-gaming components of the Integrated Resort? To which segments of the tourism market will the development be most attractive? Is this the target audience for the Integrated Resort? Is the development potentially attractive to business travelers? Can the development integrate well with the Meetings, Incentives, Conventions and Exhibition (MICE) market? Is there a definite brand associated with the development, and does it convey a clear brand idea, brand personality or brand identity? Does the brand resonate with the target audience? What are the key attractions within the development that will support repeat visitation? What are the marketing capabilities of the group? How will the development encourage people (particularly tourists) to visit or extend their stays? How much appeal will the development have to high net worth customers? Is this level of attractiveness sustainable?

Why is it so important to paint the right picture? An issue for many governments considering introducing casino gaming for the first time, or substantially altering the character of casino gaming within their jurisdictions, is minimizing their own risks. Gaming is still viewed in some circles as a vice and something which should be opposed, yet for a growing majority worldwide it is seen as an increasingly legitimate entertainment offering. In the past couple of decades, gaming opportunities have become more readily accessible almost everywhere, and with the corporatization of the gaming industry since the 1970s, casinos are now associated with major companies that are listed on the major stock exchanges worldwide.

Compared to the casino resorts and joints of a generation ago, the presentation of casino gaming has changed dramatically. Increasingly we find Integrated Resorts offering casino gaming as only one aspect of their offerings. Such facilities as the Crown Entertainment Complex in Melbourne, Caesars Palace, Bellagio, Wynn Las Vegas, The Venetian and many other Strip casinos in Las Vegas, and Genting Highlands in Malaysia, are multi-faceted, multi-dimensional facilities where the casino still is critical to the entire operation, but architectural splendor, hotel accommodations, restaurants, entertainment, retail shopping and convention facilities are all important features or profit centers. Furthermore, over time, the public perception and acceptance of casino gaming has changed, generally in favorable directions.

Governments, while recognizing this trend, also recognize that there are social costs – and political risks – attached to the introduction of casinos if the product is not presented in a responsible, attractive or economically successful manner. The picture that needs to be painted is one that can be shown to maximize the benefits of casino gaming within an Integrated Resort context.

Take the Singapore government’s evolution of its position on this issue. Singapore has concluded there is a need to reposition its economy away from electronics and manufacturing (where it may have a weak future because of the emergence of China and India as increasingly important economic forces), and into services and tourism. The Business Traveler, Meetings, Incentives, Conventions and Exhibitions (BTMICE) sector, health and well-being tourism, and education-related tourism are all considered to be high-value tourism segments. An issue for Singapore, given its relatively small size and the marketplace’s perception that it is a staid and relatively uninteresting port of call, was how to introduce new projects and facilities that would not only be world-class but which would attract high-value tourists from throughout the region. Their stated target was to double the volume of incoming tourism over a period of 5 to 7 years.

In 2005, Singapore announced it would introduce two Integrated Resorts with casino gambling offered as only part of the overall product mix. Because of the inherent attractiveness of this market – including the interest in gaming by the largely ethnic Chinese Singaporeans, the reputation and integrity of the Singapore government, the relative paucity of quality Integrated Resort casinos in the region, and the aggregate economic growth in Asia – virtually all of the world’s biggest and best casino operators have put forward proposals, hoping to win one or both of the two licenses.

Those proposals will be judged on how best they paint their picture for Singapore. The Singapore government has run the process, quickly, decisively and very wisely (almost in direct contrast to the manner in which the introduction of regional casinos was handled recently in the UK). The ultimate winners will be the Partnerships that best answer the questions noted above and can offer a true masterpiece to government.

For other countries and jurisdictions, the same principles will largely apply. Whether or not they will attract the same level of interest as Singapore has is another matter. From a company’s point of view, they will prefer to pursue licenses in stable political environments with regulatory and other legal structures that prevent corruption; they want a high degree of transparency in any selection process; and they are attracted by good demographics and a high degree of certainty over the business environment in terms of the stability of tax regimes, fees and regulatory imposts. To attract capital, the developments must also be sensibly structured so that the business model can amply support the development costs. There is no point creating a white elephant or having an embarrassment where the operator is financially stretched (think Harrah’s New Orleans when it opened in 1995 and again in 1999 with a huge tax burden and a heavily constrained product offerings).

Thus while it is important to paint the right picture it is important that the government provides the appropriate canvass. To do this they should clearly understand their social and economic objectives and be decisive and clear in their actions. Bringing together the paint, the canvass and the right artist will potentially deliver a masterpiece development that the residents of the jurisdiction are proud to call their own.