Thank you for that kind introduction, and good morning. Today I want to give you a look at some of the key issues affecting the gaming entertainment industry on a global scale, as well as a closer look at the U.S. commercial casino market and some trends emerging there that will most likely have an impact in other areas as expansion into other regions of the world continues.
I’ll also discuss Internet gambling, which is an issue that no doubt affects us all. Back in the U.S., Internet gaming has become a hot topic in the media and on Capitol Hill recently, and I hope to shed some light today on what we at the AGA have learned about this pastime that continues to become more popular. Before I begin, I’d like to briefly tell you about the AGA and what we do, and give you an overview of some new economic impact data on our industry in the United States.
There are five types of legal gaming in the United States, including lotteries, pari-mutuel wagering, Native American gaming, charitable gaming, and commercial casinos, which is who I represent. The AGA was formed eleven years ago as the national trade association representing leading U.S. commercial casino operators and equipment manufacturers on federal legislative and regulatory issues.
We serve as the national voice for our segment of the industry, and our mission is to help people better understand gaming-entertainment by bringing the facts to the public, to elected officials and to the media. We also work to address national issues like problem gambling and develop industrywide programs to deal with these critical issues.
Each year the AGA conducts our State of the States survey, which provides in-depth statistics on the national and state economic impact of the commercial and racetrack casinos in the U.S.
The report also includes public opinion polling data on various aspects of casino gaming, as well as polls tracking emerging trends in our industry. Essentially, State of the States gives us a snapshot of the current and potential future state of our industry in the U.S.
2005 heralded a year of strong growth for our industry, despite significant hardships brought about by Hurricanes Katrina and Rita at the end of last summer, which destroyed all the casinos in some of our key gaming markets. In 2005, the 455 U.S. commercial casinos in 11 states achieved a new milestone, generating gross gaming revenues surpassing $30 billion for the first time. In addition, individual gaming markets also witnessed landmark success, with Las Vegas revenues surpassing $6 billion and Atlantic City revenues climbing above $5 billion for the first time. Nationwide, commercial casinos employed more than 354,000 people with wages totaling more than $12.6 billion. And state and local tax contributions made by commercial casinos grew as well, totaling $4.92 billion.
In the U.S., the fastest growing sector of the commercial gaming industry is racetrack casinos—or racinos—which are formed when state governments allow pre-existing racetracks to add slot machines and in some cases table games to their facilities. Last year, our nation’s racetrack casinos also showed continued growth. Employing more than 17,000 people, the 29 racinos in nine states generated $3.12 billion in gross gaming revenues and distributed $1.28 billion in direct gaming taxes to state and local governments last year.
The strong positive results from this State of the States report are extremely encouraging for those of us with a stake in the U.S. industry. With Pennsylvania set to open its first gaming facilities next year and existing markets exhibiting strong growth, there is every indication that gaming entertainment in the U.S. is flourishing. Reconstruction also is well underway along the Mississippi Gulf Coast, and the industry in that region is set to return bigger and better than before the hurricanes last year. Many of the major casino resorts are rebuilding their facilities to feature more high-end amenities like restaurants, golf courses, spas and more.
In fact, the growth in amenities is a major trend of which we should all take note. Properties in the U.S. continue to offer a wider variety of entertainment options, ranging from five-star restaurants and shopping complexes to spas and world-class performance experiences. As you are well aware, Las Vegas has become one of the premier dining destinations in the world. But make no mistake—this trend is not limited to the Strip. It has taken the industry by storm. Other markets are beginning to follow Vegas’ lead, and it’s paying off big.
With so many options, casinos are attracting visitors looking to do more than gamble. In fact, recent reports show that more than half of MGM MIRAGE’s annual revenues now come from non-gaming amenities. This would have been unheard of 15 or even 10 years ago, and it is attracting a whole new kind of customer to gaming markets in our country. In fact, according to a public opinion poll we commissioned last year, Americans by a more than two-to-one margin say they enjoy casinos more for the food, shows and entertainment than for the gambling. This trend no doubt will be mirrored around the world. In fact, it’s already evident here in Macau with the opening of the incredible Las Vegas Sands property. In order to compete in this new environment, global gaming operators must be mindful of creating first-rate entertainment experiences well beyond the casino floor.
Technology is another area driving global gaming business forward. In fact, there are three major technological changes taking place within casinos right now that are having a dramatic impact on the industry. All three are aimed at streamlining the slots management process, increasing security and better serving the needs of our customers.
The first one – ticket-in/ticket-out technology — has been in place for some years, but now has grown so popular that there is a general overall movement toward completely cashless slot floors in most major casinos across the U.S. Ticket-in/ticket-out technology benefits both the customer and the casino operator. Removing coins from the equation is more convenient for customers—keeping them from having to juggle or carry coins, and they no longer have to wait for cash payouts. For the operator, TITO dramatically decreases cash handling costs.
The next great slot advancement is server-based games, which were introduced at Global Gaming Expo last year and have been tested in a handful of gaming facilities around the country, most notably Treasure Island in Las Vegas and Barona Valley Ranch in California.
Rather than having to manually go inside a slot machine to make any desired changes in the game, payout or other function, server-based games allow operators to make the changes from a single secure computer server within the casino. Every machine is electronically linked to this central computer file server, and changes can be made in the time it takes for a software download. Multiple slot machines, or even a whole floor, can be changed at once.
By having the ability to change games instantly, floor managers will be able to analyze what games and denominations would perform best at any particular time of the day. They can also alter hold percentages within regulatory parameters. It also will allow operators to tailor their games to player preference.
Regulations to govern server-based gaming are being developed in individual states back in the U.S. For example, in Nevada, new regulations prohibit the casino from changing the game while a customer is playing. The machine must be idle for four minutes before a change is made, and then after the change, another four minutes must pass before anyone can play the machine. Other jurisdictions that incorporate these new technologies will no doubt have to take a close look at establishing similar regulatory controls.
Another great innovation coming to a casino near you is RFID, or radio frequency identification, a technology that has been used in shipment tracking and other applications for years, but now it is finding new uses in the gaming industry. Several casinos, including Wynn Las Vegas and others, are using RFID technology in their casino chips to help with security, player tracking and increase the rating integrity of both players and dealers. The technology helps increase efficiency on the gaming floor, can help detect cheating or counterfeit chips, and lead to more accurate comping of table game players.
There are several other technologies coming online that will significantly affect the casino gaming industry. One example is mobile gaming, which was approved in Nevada last year and is being considered in other U.S. jurisdictions as well. Players would be able to use devices similar to Blackberries or pagers to play games while they are at the pool or on some other area of the gaming resort property. It remains to be seen what the impact of this and other technologies will be.
Beyond these innovations, it’s clear that the technology having the most impact on the global gaming industry as a whole right now is Internet gambling. Currently, it is illegal for U.S. companies to operate Internet gambling businesses, but the global enterprise is thriving. It’s estimated that 2005 Internet gambling revenues topped 12 billion dollars, and more than half of that revenue came from U.S. customers.
Before I go any further, I’d like to conduct a quick exercise with you. I’m going to read off a list of characteristics, and I’d like you all to think about the type of person that might fit this description.
• Under the age of 40
• Annual household income of more than $60,000
• Uses the Internet to conduct a variety of daily tasks
Sounds like a smart young guy who’s steadily working his way up through the ranks, right? Well that may be, but it may surprise you to know that this also is the profile of the average U.S. Internet gambler. To get a better idea of the prevalence of Internet gambling in the U.S. and exactly who is participating in the activity, the AGA commissioned Peter D. Hart Research Associates, a research firm in the U.S., to conduct a special poll of Internet gamblers for this year’s State of the States report.
That poll, which surveyed 552 Internet gamblers, is where the profile I just described comes from. The survey found that while the number of Americans who gamble online still is relatively small, at 4 percent of the U.S. adult population, it is growing. A full 38 percent of the online gamblers surveyed said they just started the activity within the last year, and 70 percent said they began only within the last two years. And as you may have gathered from the profile I described, online gamblers as a group are younger, more highly educated and have larger annual household incomes than both the general public and the patrons of bricks-and-mortar casinos.
Our survey also found that online gamblers are extremely Internet savvy in their general day-to-day lives, with a huge majority of them going online to do everything from get driving directions, purchase airline tickets, manage their bank and credit card accounts, and more. Nearly half of the respondents – 48 percent – cited convenience as the biggest reason they engage in online gambling activity.
You may be wondering what games these people like to play when they gamble online. According to the survey, 80 percent of respondents played poker for money online last year, and 78 percent said they played casino games. Despite its growing popularity, however, Internet gambling remains a source of confusion and, in a significant number of cases, one of apprehension as well. As you can see, more than half the online gamblers surveyed report they are at least somewhat concerned that online casinos find ways to cheat players, and just under half believe other players who gamble online find ways to cheat.
This apprehension is perhaps fueled by the confusion surrounding current laws applying to Internet gambling in the U.S. According to the our Justice Department, Internet gambling currently is illegal in the United States under the Wire Act of 1961. Yet the survey found that fewer than one in five (19 percent) of online gamblers realize – or are willing to admit – that the activity currently is illegal in the U.S. While a bit higher, the percent of all Americans who think Internet gambling is illegal is still only 38 percent.
It seems that the complex legislative and regulatory environment surrounding this issue has all Americans confused. Some members of the U.S. House of Representatives have sought to clear up this confusion and directly address online gambling during the current legislative session. There are currently two bills in Congress aiming to clarify and make more specific the current laws regarding Internet gambling. The first bill is sponsored by Representative Bob Goodlatte of Virginia. It would amend the Wire Act to explicitly prohibit online gambling and would ban the electronic transmission of funds to pay for gambling bets. It would give law enforcement agencies the authority to block such money transfers and increase penalties for violation of the law.
The second bill, sponsored by Representative Jim Leach of Iowa, would prohibit credit cards and checks from being used to make Internet gambling payments. While both of these bills would currently allow for INTRA-state online wagering within the United States, it’s clear that the implications of each of these bills could be significant for the global online gambling market.
It’s our understanding at the AGA that Congressional leadership has communicated to Goodlatte and Leach that they must work together to combine their two bills so that only one bill will be brought to the House floor for vote, and the current Congressional calendar shows that Internet legislation is scheduled to be discussed on the House floor this week. It is expected that a consensus bill will pass the House before the July 4th recess, but it remains to be seen whether there will be time left in this session of Congress to pass the bill in the Senate before the final the Congress adjourns.
In addition to these Congressional actions, the AGA also has sought to shed some light in this legislative and regulatory gray area with the recent release of a new white paper on Internet gambling that serves as the latest installment of our 10th Anniversary Research Series. The paper was written by David Stewart, an attorney in Washington, D.C., and it provides an overview of the existing online gambling market, explores current U.S. policies, analyzes proposed legislation and its possible impact, and ultimately suggests that a Congressional study commission is needed to properly address the issue.
In the paper, Stewart highlights the growing disconnect between reality and the current regulatory approach to online gambling in the U.S. Stewart says the current policy of prohibition permits a high volume of Internet gaming while imposing no regulatory policies to protect gamblers. And while recent legislative proposals to curb online gambling would take an important step in protecting U.S. customers from the potential hazards of the current illegal, offshore, unregulated online gaming market, these measures alone will not solve the problem. Instead, Stewart advocates the creation of a one-year Congressional study commission to evaluate the impacts of Internet gaming in the U.S.
This suggestion mirrors the AGA’s newly modified position on Internet gambling. We currently are neutral on the current bills advocated by Representatives Goodlatte and Leach, but the AGA board of directors now strongly supports the creation of a one-year Congressional study commission that would evaluate the impacts of online gambling. The fact is that millions of Americans currently gamble online, and they will continue to do so. This reality is perhaps what led Congressman Jon Porter of Nevada to last month introduce a new bill to establish a commission to study the proper response of the U.S. to the growth of Internet gambling. The bill is not expected to pass this session, but its introduction lays the groundwork for it to be reintroduced in future Congresses.
Whether created through this new bill or other means, the AGA board thinks a comprehensive study commission should consider policy issues ranging from how best to protect children and problem gamblers to whether Internet gambling can be effectively legalized and regulated in the United States rather than leaving bettors to fend for themselves on illegal, unregulated offshore sites. The study also should include consideration of recent WTO rulings indicating the United States’ position on Internet gaming may be in violation of international trade obligations. And with a number of foreign nations, including Great Britain, in the process of legalizing, licensing, regulating and taxing Internet gaming operators, it’s time for the U.S. to take a serious look at the issue.
The purpose of the commission should be to evaluate whether legalization, regulation and taxation – on a state-option basis – may be a more viable option than a complete ban on Internet gambling, and then report back to Congress its recommendations on the best way to deal with the issue. Most online gaming companies have said they would welcome legalization, regulation and taxation in the U.S., and that they would come there if that did come to pass. However, some poorly regulated, offshore sites would remain. So it’s important to note that, regardless of whether Internet gambling were to be legalized on a state-option basis in the U.S., the AGA believes legislation similar to the Leach bill would still be necessary to protect online gamblers from these poorly regulated offshore sites.
I’ve often said the first step to controlling online gaming is to understand it, and we at the AGA think a Congressional study commission is the mechanism for that understanding. It is only through careful consideration of all the issues involved in this debate that we can determine the best way to protect the millions of people gambling online.
Clearly, Internet gambling is an issue that affects our industry on a global scale, and we will keep a close eye on developments as they continue to evolve. As I mentioned, Great Britain currently is in the process of legalizing and setting up regulatory structures to govern a robust online gambling market, as well as the first major casino resort in the country. The short list of finalist cities for the first regional casino license were announced last month, and it is expected that additional licenses will soon be up for competition as well.
The advent of world class casino entertainment in Great Britain is the latest salvo of the industry that is showing signs of healthy growth all over Europe. Russia and South America also are major growth markets. And, perhaps nowhere is the excitement and growth potential of gaming more evident than right here in Asia. Singapore recently awarded Las Vegas Sands the first of two gaming licenses in that country, and bids for the second license are due this fall. And here in Macau, the gaming business is booming. This resort city has evolved into a viable rival with Las Vegas as the top gaming destination in the world.
Gaming revenue in Macau has more than doubled in the past four years, and soared to $5.6 billion last year. The growth shows no signs of slowing, and the advent of amenity-filled casino resorts like the recently opened property from Las Vegas Sands have revolutionized the idea of what an Asian casino can be. There is tremendous opportunity here, and I am excited to be a part of it.
As those of you who attended the welcome reception the other night know, the AGA and Reed Exhibitions have purchased the rights to the Asian Gaming Expo and will next year launch G2E Asia, an event that will bring the success and opportunity of Global Gaming Expo in Las Vegas to the Eastern hemisphere. We are committed to building G2E Asia into a truly world class event that will provide unparalleled networking opportunities and access to all that is new and exciting in our industry. As with our flagship show in the United States, the event will evolve each year to keep participants ahead of the latest trends driving the industry. And G2E Asia will put you directly in touch with the people, products and trends that will take your business to the next level.
I look forward to working with AGMMA and all of you as we plan for next year’s inaugural G2E Asia event, which will take plan June 12 and 13 here at Macau Tower. We look forward to building new relationships in this exciting region, and we know that with your help and support, we can grow G2E Asia into just as great a success as we’ve accomplished with the original G2E. Thank you, and I look forward to seeing you here again next year.