Ascent of Diversity and Performance in the New Decade

It was a decade fraught with tremendous possibilities and challenges, one marked both by tragedy and triumph. Natural disasters, volatile politics, the rise of social networking and the fall of the global economy forever changed the way people throughout the world live and work. As the Aughts came to a close, the international gaming community emerged a larger, more diverse – and also a more guarded – industry than before.

The proliferation of gaming worldwide – from Latin America to Asia – was among the most important developments of the past decade. When the Chinese government opened Macau’s gaming industry to competition in 2002, an international phenomenon was born. By 2006, revenues in Macau had surpassed those of Las Vegas, transforming the small sliver of land into the world’s largest gaming market. Simultaneously, casinos blossomed elsewhere across the globe, and hundreds of international gaming jurisdictions swiftly expanded.

In the U.S., commercial gaming was legalized in Kansas, Maryland, Ohio and Pennsylvania – and racetrack casinos were added in Florida, Indiana, Maine, New York and Oklahoma – further securing our industry’s place in the American economic landscape. While casinos still are new to Kansas, and they are not yet operational in Maryland and Ohio, Pennsylvania’s casinos are thriving. Last year, they amassed $1.96 billion in revenue, a 21.6 percent jump from the previous year due to several new properties opening in the state.

In addition, the perception of our industry was altered significantly by the ascent of nongaming amenities. This trend, which began in Las Vegas in the early 1990s, gained significant momentum during the past 10 years. Customers throughout the U.S., and in many other international gaming jurisdictions, now expect multifaceted entertainment experiences – including restaurants, live performances and sports recreation – when they visit casinos.

The debut and subsequent growth of Global Gaming Expo (G2E) marked another major milestone of the past decade. Since its launch in 2001, G2E has become the largest, most comprehensive industry event of its kind. Spurred by the success of G2E, in 2007 G2E Asia debuted in Macau, bringing gaming operators throughout the region together like never before.

Also, as Internet usage skyrocketed, so, too, did the availability of online gambling Web sites. The most recent estimates available indicate that worldwide online wagering generated approximately $21 billion in revenue in 2008. Countries across the globe continue to debate the possibilities and potential problems related to legalizing and regulating online gambling. In the U.S., the controversial Unlawful Internet Gambling Enforcement Act that passed in 2006 had yet to be enacted at press time.

Finally, resiliency was a hallmark of our industry throughout the past decade. When Hurricane Katrina made landfall on the U.S. Gulf Coast in 2005, our industry demonstrated compassion, generosity and resourcefulness. Casinos throughout the region provided shelter for emergency responders and construction crews, and gaming companies supported the more than 14,000 affected casino employees for many months.

And when a different storm – the global financial crisis – hit in 2008, our industry forged ahead, propelled by hard work and innovation. However, despite our best efforts, we could not avoid the fallout from the crisis. The global credit crunch, rising unemployment, depressed consumer confidence and tightened spending took a substantial toll on our industry, from which it is only beginning to recover.

In the U.S., the commercial casino industry’s flagging revenues throughout 2008 and 2009 reflected the perilous state of our overall economy. In 2008, commercial gaming revenues were down 4.7 percent when compared to 2007, and last year’s revenues represented a 5.5 percent drop from 2008 totals. During this time of uncertainty, our industry was forced to make difficult choices to cut costs, including reducing staff and halting development projects that would have helped reinvigorate the communities that surround our properties.

Still, depressed revenues were not universal; while many U.S. gaming states endured substantial losses during the recession, others managed to make modest gains. Casinos in resort destinations like Las Vegas were hit harder than casinos in local communities, which are more easily accessible and require less extensive travel. In addition to Pennsylvania, Colorado, Indiana and Missouri exhibited growth in 2009, thanks largely to new properties opening, as well as changes to gaming laws allowing increased betting in the states.

On the other side of the globe, Macau’s casinos were impacted by both the global recession and the imposition of visa restrictions on travelers from mainland China. During the second half of 2008, visitation to the peninsula dropped sharply and, as a result, gaming revenues tumbled 15 percent. The dip forced some of the region’s casino operators to suspend or postpone new development projects.

However, Macau’s decline was short-lived, particularly after the government relaxed visa restrictions. By the first quarter of 2009, gaming revenues were beginning to climb; when the year came to close, the peninsula reported a 10 percent surge in revenue to a record of more than $14.9 billion.

Despite expansion during much of the past decade, most European markets also could not escape the recent economic downturn. In 2008, land-based casinos in at least 15 countries – particularly France, Germany and Great Britain, which are among the largest European gaming jurisdictions – experienced revenue declines. At the same time, Europe’s multi-billion dollar online gambling industry, which has become the most profitable in the world, contnued to grow.

Burgeoning gaming jurisdictions in Latin America seemed virtually impervious to the sinking global economy. Chile – the region’s most prominent gaming market – far surpassed even the most optimistic expectations for 2009, generating at least $224 million (thorough estimates are not available). Those numbers are expected to jump again in 2010 after three new casinos open. Gaming throughout the region – particularly in Argentina, Colombia and Peru – also continued to expand.

In the U.S., the commercial casino industry is now hard at work to regain its footing. Looking to the future, though many economic indicators portend a very gradual recovery process, several recent developments suggest that, as the American economy continues to improve, gaming will rebound as well. For example, though overall gaming revenues have been slightly down during the first months of 2010, the year-over-year declines have been less significant than during last year, indicating that our industry is turning a corner.

The numbers support what those who know commercial gaming best have long contended: Though the past two years have been challenging, our industry remains fundamentally strong. We have relied on ingenuity and agility – two traits that have long been a part of our industry’s legacy, and that have helped us overcome past challenges. And those traits will not only accelerate our industry’s recovery in the coming months; they also will ensure that we are poised for success in the new decade.

After all, casinos across the U.S. continue to host millions of guests each week. Our customers may be spending less when they visit our establishments, but they still consider gambling an exciting, entertaining activity – even on a budget. Quite simply, even in the aftermath of the most dramatic economic downturn our country has experienced since the Great Depression, the popularity of casino gambling has not abated.

Early data from the American Gaming Association’s (AGA) 2010 State of the States survey – which will be released in May – confirms this notion. It clearly demonstrates that commercial gaming continues to appeal to a broad range of people. Twenty-eight percent of the nation’s adult population visited casinos last year, and more than 80 percent consider gambling an acceptable activity for themselves or others. In addition, 73 percent of our patrons consider gambling a good value for the money when compared with other entertainment options.

But casinos provide more than good value to customers – they also are valued economic engines in communities across the U.S. According to the survey, 64 percent of gaming community residents agree that nearby casinos have had a positive local impact. Likewise, the wide majority of residents – 69 percent – say that nearby casinos have bolstered regional tourism, and 68 percent would vote to support a referendum to keep casino gambling in their communities.

These numbers echo the sentiments our industry has long heard from gaming community residents. Critics’ well-worn claims about the negative impacts of gaming simply don’t hold water when compared to the realities of how the addition of casinos have helped communities across the country. The majority of those who live and work near gaming establishments consider casinos responsible, generous neighbors that foster economic opportunity and growth. It is a message we continue to disseminate widely – particularly among our nation’s most influential policymakers.

Currently, the political climate in Washington is extremely acrimonious. The recent passage of health care legislation – as well as the election of U.S. Senator Scott Brown, which dismantled the Democratic supermajority – portends very competitive midterm elections. As November approaches, many lawmakers will begin spending a significant portion of their time campaigning, which is sure to create a legislative logjam. It is difficult to predict how these obstacles will impact the commercial casino industry, though we expect them to affect almost every policy initiative in which we currently have a stake.

Thankfully, our industry already has won a hard-fought legislative victory this year. In late February, Congress passed the bipartisan Travel Promotion Act, a common-sense solution to dwindling overseas tourism to the U.S. This landmark piece of legislation will create the first-ever public-private partnership to execute a nationally coordinated travel promotion program. It will help bring millions of new visitors to casinos every year, which is essential to our industry’s ongoing recovery.

Unfortunately, the political prognosis for other key issues remains rather murky. Currently, our industry is anticipating the possible passage of the $18 billion jobs bill, which is likely to include tax credits and extenders that will affect businesses of all stripes. In addition, we are monitoring the renewed efforts of Representative Barney Frank (D-MA) and other lawmakers to legalize Internet gambling in 2010.

In fact, the AGA recently revised its position on this issue. The AGA believes the technology now exists to properly regulate Internet gambling with appropriate law enforcement oversight and to provide appropriate consumer protections for those gambling online. However, we also believe that existing laws do not adequately protect the millions of Americans who gamble online every day. Thus, we acknowledge that a properly regulated legal framework for Internet gambling is the best way to protect consumers.

Perhaps nothing will alter the national political playing field this year more than the midterm elections. Though many important elections in gaming states and communities will be extremely hard-fought, longtime Senator Harry Reid’s (D-NV) bid for re-election is sure to be among the most challenging and consequential. It would be difficult to overstate the meaning of Senator Reid’s tenure to our industry. As the majority leader of the Senate, his influence is virtually unparalleled, and his support for the gaming industry over the years has been crucial.

Because we operate in a politically charged world, enhancing our industry’s voice and building a robust network of support in Washington is essential. Throughout 2010, the AGA will work to secure our industry’s place at the table as legislators deliberate the policy issues that are vital to the future success of gaming – both domestically and internationally.

Also in 2010, the AGA will be keeping close watch on gaming developments overseas. We continue to monitor the legislative activities of the European Union, particularly regarding the elimination of state monopolies in favor of a more open marketplace. We also are watching the ongoing efforts of European land-based operators to level the regulatory playing field by ensuring that the online gambling industry is subjected to same types of taxes and controls that govern traditional venues. And we are curious about the potential impacts of new technology, such as mobile gaming, on regional operators.

We also remain avid spectators of Macau’s astonishing growth. Not only did the region shatter gaming revenue records in 2009, but it continues to do so in 2010. In January, year-over-year revenues surged 55 percent to $1.7 billion; the following month, they jumped more than 69 percent to $1.68 billion. And, at press time, March revenues also were poised to break records.

Gaming industry watchers now wonder if recent regulatory changes will temper Macau’s skyrocketing revenues. Chief Executive Fernando Chui is undertaking a variety of efforts to diversify the region’s economy, which currently draws approximately 70 percent of its income from gaming. He recently announced plans to suspend approval of new casino developments and allow only 500 new table games during the next three years. He also intends to create a regulatory body to govern the future growth of the gaming megaregion, and to raise casino age restrictions to 21 from 17. The impact of these proposed provisions – some of which have been met with dissent – remains to be seen.

Gaming jurisdictions elsewhere in Asia – such as Cambodia, where a $100 million luxury casino recently was opened – also are growing at a steady pace. Among the most significant events in Asia during the past decade was the legalization of casinos in Singapore in 2005. Expectations are high for the city-state’s first gaming resorts, which are nearly complete.

Resorts World Sentosa, a $6.5 billion resort that ultimately will include a Universal Studios theme park and the world’s largest oceanarium, opened its casino doors in February. During its first week of operation, it welcomed more than 149,000 visitors. Marina Bay Sands, a $5.5 billion complex that will feature sophisticated convention facilities and a museum, is scheduled to open at the end of April.

These new and growing markets, as well as other critical issues currently facing Asian gaming operators, will be thoroughly canvassed during G2E Asia 2010, scheduled to take place June 8-10 in Macau. The AGA, in partnership with Reed Exhibitions, has once again assembled a top-notch program that includes something for every participant – from a dynamic show floor, to valuable networking events, to the one-of-a-kind gaming management certificate program featuring special interactive educational workshops designed to help new casino managers in Asia further their knowledge of current gaming trends in Macau.

One of the most exciting new programs at G2E 2010 is the “View from the Top: Chief Officers Series.” During this multisession event, chief officers from leading gaming companies – moderated by experts from Deutsche Bank – will gather to discuss pressing concerns related to finance, marketing, operations, regulation and technology. Also sure to be insightful are keynote presentations from two of the region’s most prominent industry figures, Francis Lui, deputy chairman of Galaxy Entertainment, and Len Ainsworth of Ainsworth Gaming, who previously founded Aristocrat Technologies. Ainsworth will receive the 2010 G2E Asia Visionary Award for his innovative contributions to the manufacturing segment of our industry.

Also in 2010, the AGA is initiating a public awareness effort to demystify slot machines. Though not especially popular in Asian gaming jurisdictions, slot machines have long been Americans’ favorite casino game. And while slots are ubiquitous at casinos across the country, many gaming patrons regard their design and development as a complete mystery. Seeking to widen this knowledge gap, gaming opponents often falsely contend that slots are inherently addictive.

In an effort to ensure that public discourse about slot machines is well-informed – and to alleviate any misplaced suspicion of the industry – the AGA is publishing a white paper that investigates slots in great detail.

In addition, the AGA is closely following proposed revisions to the definition of pathological gambling in the forthcoming edition of the Diagnostic and Statistical Manual of Mental Disorders (DSM), psychologists’ comprehensive encyclopedia of mental illnesses. These suggested changes – which largely are the result of the U.S. commercial casino industry’s substantial contributions to the field of gambling research – have the potential to reshape how the disorder is understood and treated. They also are sure to inform our industry’s approach to responsible gaming, which remains a top priority in the new year.

Ultimately, it is difficult to predict what 2010 has in store for the international gaming community; likewise, the new decade is sure to include many unexpected challenges. Still, our experiences during the past 10 years – from industry diversification to the global financial crisis – as well as our proactive efforts to address today’s most compelling issues – from legislative developments in Washington to the continued growth of gaming in Asia – have positioned our industry well to tackle whatever new challenges come our way.