Inside the NJ casino overhaul

As promised, I’ve taken a deeper look at the recent casino regulatory overhaul that passed the New Jersey legislature. My comments are based on version of the bill that was current as of 1/10/11. You can find it right here.

First of all, the bill codifies into law the current existential angst the industry is facing:

(18) As recognized in the July 2010 Report of the Governor’s Advisory Commission on New Jersey Gaming, Sports, and Entertainment, and as confirmed in subsequent legislative hearings held throughout the State, legalized casino gaming in New Jersey presently stands at a crossroads, facing critical challenges that jeopardize its important role in the State economy, and it is in the public interest to modernize and streamline the current outdated casino regulatory structure in order to achieve efficiencies and cost savings that are more appropriately directed to marketing and infrastructure improvement efforts while, at the same time, maintaining strict integrity in the regulation of casino operations.

(19) The ability of the legalized casino gaming industry in New Jersey to compete in an ever-expanding national gaming market requires a regulatory system that is sufficiently flexible to encourage persons and entities holding casino gaming licenses outside of New Jersey to participate in casino gaming in Atlantic City, to allow licensees to take full and timely advantage of advancements in technology, particularly in information technology, and business management, and to encourage the efficient utilization of resources between and among affiliated New Jersey licensees operating casinos located in Atlantic City and between and among a New Jersey affiliate and its licensed affiliates in other jurisdictions.

There are some small but interesting changes throughout the bill.

It broadens the definition of “family” to include domestic partners and partners in a civil union in addition to the traditional array of blood and marriage relations.

Non-cashable credits are explicitly defined as “not gross gaming revenue,” and therefore not taxable/

Adds a definition:

Multi-casino employee” – Any registered casino employee or licensed casino key employee who, upon the petition of two or more affiliated casino licensees, is endorsed by the commission or division, as applicable, to perform any compatible functions for any of the petitioning casino licensees.

Which suggests we’ll be seeing more cross-staffing in multiple-owner casino groups.

The bill changes virtually every mention of “commission” in the existing Casino Control Act to “division,” reflecting the big shift in regulation.

The bill gives the following responsibilities to the Division of Gaming Enforcement:

conducting investigative hearings on the conduct of gaming and
gaming operations and the enforcement of the casino control act;
issuing reports and recommendations to the commission on entities or persons required to qualify for a casino license, on applications for interim casino authorization, or on petitions for a statement of compliance;
examining records and procedures, and conducting periodic
reviews of operations and facilities, to evaluate provisions of law;
collecting certain fees and assessments;
issuing operation certificates to casino licensees;
accepting impact statements submitted by casino license applicants;
issuing emergency orders;
taking action against licensees or registrants for violations of the act;
imposing sanctions and collecting penalties;
accepting and maintaining registrations for casino employees and certain vendors;
receiving complaints from the public;
certifying the revenue of a casino or simulcasting facility;
creating and maintaining the list of excluded patrons;
and
using private contractors to process criminal history record background checks.

The Commission still actually issues licenses and hears appeals on Division decisions. One notable change: neither DGE agents nor Commission inspectors will have to be present in casinos anymore. I wonder what they’ll do with the CCC podiums in the casinos. Taking a cue from Vegas casino party pits, I suggest “cage dancers.” Bonus points if they dress in Commission garb before stripping it off. Extra bonus points if a patron interrupts their dance to file a dispute.

The Commission also loses the right to have an in-house legal counsel, and instead has to contract that work out.

The Division’s office must be in Atlantic City, although it’s allowed to have a secondary office in Trenton, too.

The amount of fines are doubled.

From its signing, the CCC has 90 days to make an “orderly” transfer of its powers to the DGE.

The moves will have a definite fiscal impact, but according to the fiscal estimate, the exact impact can’t be determined yet. The Office of Legislative Services offers some good reasons why:

It should be noted that estimating the cost or possible savings to the Casino Control Fund resulting from the transfer of various regulatory functions from the CCC to the DGE would require the Executive Branch to provide a strategic reorganization plan that details the functions and regulations being transferred and any changes in scope and importance of those functions and regulations. In addition, an estimate of the costs or savings would require the Executive Branch to provide a workload analysis describing how the functions that are transferred will be handled by the DGE in terms of staffing and position restructuring. For example, will the DGE hire new employees to perform the transferred functions, will the existing DGE staff absorb the new job duties by having their job duties expanded to include the new functions, or will some functions be eliminated entirely? Furthermore, because the bill changes the language in current law requiring the DGE to be principally located in Atlantic City, will the State incur new building or facility costs?

In other words, it’s anyone guess how all this will play out. It could save money, but it might cost money in the short term.

G2E evolves in the Las Vegas Business Press

In this week’s Las Vegas Business Press, I offer a long view of the Global Gaming Expo:

The conference panels are finished though they have been recorded for posterity, and the last of the exhibit booths have been disassembled at the Las Vegas Convention Center. It is an appropriate time to consider how the industry has changed since the first G2E — and how the conference has adapted to suit it.

via Las Vegas Business Press :: David G. Schwartz : Expo keeping pace as gaming evolves globally.

When you look back it, there really have been a lot of changes over the past decade. Many of them didn’t seem that game-changing at the time, but together they’ve made for a vastly different casino landscape.

Smoke free in SD

As a former casino employee, smoking used to be one of my major occupational hazards, so smoking in casinos in an issue that I’ve always been interested in. On one hand, governments telling people what they can do with their time and money seems like a manifestation of the nanny state. On the other, I’d like to think that everyone has the right to breath air free of carcinogens and all sorts of other nasty gunk. So I can see the merit on both sides of the pro- and anti-smoking arguments. Still, something inside me cheers to learn that, according to Smoke-Free Gaming, South Dakota casinos are going smokeless today:

South Dakota voters approved a law Nov. 2, 2010 that will require all casinos to be 100% smoke free. The law also applies to all bars and video lottery establishments. Tribal casinos, which are exempt, will become designated smoking casinos. The law goes into effect on Nov. 10, 2010.

In 2009, the legislature voted to extend the state's current ban on smoking in most workplaces, but a coalition of bars and gambling businesses gathered enough signatures to force a statewide vote.

Referred Law 12 will protect workers from secondhand smoke exposure which causes heart disease, lung cancer and many other illnesses and disease

via South Dakota Casinos Go Smoke Free! | Smoke-Free Gaming.

Smoke-Free Gaming also has a listed of states with complete or partial bans on smoking in gaming establishments that I thought I’d share:

California
Colorado
Connecticut
Delaware
Florida
Illinois
Maine
Maryland
Massachusetts
Michigan
Montana
Nevada– locations with 15 or less slot machines
Fernley Nugget–located in Fernley, NV is voluntarily smoke free
New Jersey—75% of the casino gaming floors are non smoking. Smoking areas are not enclosed and not contiguous
New York
Ohio
Pennsylvania–Up to 50% of casino gaming floor areas are non smoking. Smoking areas are not enclosed
South Dakota
Washington
West Virginia (Only the counties of Cabell, Calhoun, Gilmer, Jackson, Kanawha, Mason, Pleasants, Ritchie, Roane, Wirt, Wood and the City of Parkersburg)
Puerto Rico–U.S. Commonwealth

Source: www.smokefreegaming.org

So this smoke-free trend seems to be gathering speed. Anyone want to guess when the last state will ban all smoking on casino floors?

It’s (possibly) a faaake!

Really good piece in the LV Sun today about the rise of phony online hotel reviews, and what travel sites are doing about them:

The rise of traveler-generated online reviews has forced hotel managers to contend with anonymous posts from angry or disappointed customers.

For people in the business of promoting Las Vegas hotels, it has also opened the door for sneak counterattacks in the form of bogus positive reviews created to boost their clients’ image among the traveling public.

via Customer may not have written that online hotel review – Tuesday, June 22, 2010 | 2:01 a.m. – Las Vegas Sun.

The potential for industrial espionage is just about unlimited with online reviews. With a lot of money at stake, I’m not surprised that some people would try this.

Looking at a few out-of-market hotels recently, I saw that one hotel owner responded to a negative review by claiming it was put there by rivals trying to ruin him/her. While that may have been true, it came across as paranoid.

When I look at online casino reviews, I assume that you’re always going to have a small percentage of cranks who aren’t happy with anything. Looking at all the reviews, though, you see trends emerge: if most people say that hotel is noisy, or has bad service, or has the best blueberry muffins in the state, it’s a fair bet that this is a genuine response.

As far as TripAdvisor goes, it judges just how happy guests were with their stay, rather than the amenities or value a property provides. For the top 20 Las Vegas hotels (as of right now), there are just 7 five-star hotels–the rest are 3, 4, and even lower.

That being said, unless there’s a widespread campaign to sabotage Aria, you’ve got to consider that they’re tracking far below the other resorts in their class on TripAdvisor–ranked at #66 in the market, they are below the Four Queens and Planet Hollywood. While some of this may be because guests at the Four Queens have lower expectations, the fact that other five-star properties are ranked sixty places ahead of Aria should be a red flag that there are, at the very least, customer service issues at the resort.

I’d agree with Professor Erdem that casinos should really be using the negative reviews to engage their guests. At the very least this will help to weed out the bogus reviews, and at best it will help them resolve some issues.

Evolution of AC: locals

Interesting article in today’s AC Press about local casinos’ new focus on…locals:

The sluggish economy and fierce competition from Pennsylvania’s slot parlors for out-of-state customers have forced Atlantic City casinos to fine-tune their marketing strategies to focus more on the local area. In doing so, they have discovered there is a lucrative market right in their back yard. The four women, all from Atlantic or Cape May counties, like catching up on their gossip, but they are also drawn to the casino by food and drink specials aimed at local customers on what is typically a slow weeknight.

“You can have the same thing here Monday night at a special low price as you could on a Saturday night for a higher price. That makes it great for the locals,” said Essick, 46, who lives in Upper Township, Cape May County, and works as a saleswoman for a radio station.

“We have some affluent customers locally. Obviously, all customers have value to us,” said Dave Coskey, vice president of marketing at Borgata.

via Atlantic City casinos look closer to home for new customers – pressofAtlanticCity.com.

It’s a definite sign of the times, but if Atlantic City casinos are going to rely on the 300,000 adults that live locally for a significant chunk of their customer base, it’s hard to see how the industry can sustain itself at its current level. Marketing more to locals to fill otherwise-slow periods is a smart idea, though. Unfortunately, those slow periods are getting longer and longer.

Finding a reason other than gambling for people to visit Atlantic City is imperative.

Details of AC “overhaul”

Here are more details about the proposed regulatory changes in Atlantic City, which seem to make the tax process even more byzantine. Ah, I just wanted an excuse to use “byzantine” in a sentence. It’s one of those words that I don’t get to use enough. From Business Week:

The new casinos would have to pay a tax rate of more than 14 percent to compensate for the lesser amount they would have to spend, compared to existing, larger casinos, which pay just over 9 percent.

The bill has incentives to entice casino owners to add hotel rooms. Those who build 200-room hotels would be permitted 20,000 square-feet of casino space. If they expand to 500 rooms within five years, they would get 30,000 square feet of gambling, and would get back the extra 5 percent in taxes they paid to enter the market.

Conversely, if the owners of a 200-room hotel kept it that size after five years, the money they paid would be used for other casinos' expansion or infrastructure projects in Atlantic City.

Owners could opt for slot machines alone — which account for two-thirds of Atlantic City's casino revenue — or offer table games as well, which cost more to staff.

via Atlantic City eyes adding 4 small casinos – BusinessWeek.

This isn’t easing the regulatory burden: it’s adding another layer to it. Capping the number of “mini-casinos” at 4 seems like an unnecessary intrusion into the market. There’s no statutory cap on casinos now, and the market’s done a good job of limiting itself.

I don’t know exactly how you can justify using taxes paid by these new casinos to fund “other casinos’ expansion.” That seems like it’s subsidizing poor operators. Why should the Chelsea (for example), have to pay taxes that the Hilton uses to expand? Is that where this is going, or did I read it wrong?

As far as the cap on casino size at 20,000 square feet, that’s tiny. The average casino size in 2008 was 121,388 square feet, with seven casinos well over 100,000 square feet. The statistical average number of hotel rooms is 1,325. But it works out almost perfectly, at least mathematically: a 20,000 square foot casinos is 16.5% the size of the industry average, and 200 rooms is 15% of the industry average. So at least it’s scaled correctly.

Just how much money would a 20,000 square-foot casino make in Atlantic City? I’m going to do some really rough calculations. First, I’ll assume that with 15% of the floor space, the casino will have 16.5% of the gaming equipment. It would have about 24 table games and 512 slot machines.

Using 2008 revenue numbers as a guide* gives us a total approximate table win of $21.1 million, and a total slot win of about $46.9 million. That’s about $68 million in win a year, if the win is truly scalable.

With four total, that’s $272 million in total revenue; taxed at at 14%, that’s an extra $38 million in tax revenue for the state.

Keep in mind that if I’d have had 2009 numbers to work with, the win totals would be about 14% lower, so the total win per mini-casino drops to about $59 million. Considering the amount of money and effort that will be invested in starting up the casino and regulatory compliance, as well as staffing and promotional costs, there doesn’t seem to be much room for a good return on investment. If you’ve got 16.5% of the floor space, you’ll have a far smaller selection of games, which means that you’re going to have to work harder to attract customers.

Talk about “Monte Carlo-type” casinos is about 30 years out of date. Sure, some of the big Nevada casinos are doing well at baccarat, but is a $25,000/hand player really going pass up Wynn or Aria (or, for that matter, Borgata) to play at the Chelsea? If you can’t get that level of player, you’ve got to make your profit on volume, and that’s going to be very hard to do in this case.

It’s great that people are thinking about ways to attract investment, but I don’t think this is going to lead to the rebirth of the city. Bottom line, you need to look at what works for other destinations, and see how it can be adapted or improved. Lowering regulatory costs would be another great incentive, and this doesn’t seem to do that.

______________________________
*I did these calculations by using the historic win statistics to find average win per casino, then multiplied it by 16.5%. A crude method, but an effective one with the info that’s available.
Average numbers of table games (2008): 148
Average number of slots (2008): 3,102
Average table win:$128.4 million
Average slot win:$284.7 million

AC in decline

Casinos in Atlantic City continue to post revenue declines, as the July number prove. From the AC Press:

Casino revenue sank to its lowest level in 12 years in July, another ominous sign that there will be no summer turnaround for the troubled gaming industry.

In what is ordinarily the biggest money-making month on the casino calendar, revenue generated by slot machines and table games fell 12.7 percent compared with July 2008, according to figures released Monday by the New Jersey Casino Control Commission.

Altogether, the 11 casinos took in $383 million in winnings, the worst July since 1997. An even more dramatic comparison is this July versus July 2005, when casinos posted an all-time record of $504.8 million in revenue. The 2005 figure is 24 percent higher than this July.

Only Trump Taj Mahal Casino Resort saved the industry from the ignominy of having every gaming hall in town suffer a decline. Boosted by a 45 percent jump in table game revenue, the Taj Mahal was up 8.7 percent overall for July.

Atlantic City has stumbled through 11 straight months of declining revenue and is heading for its third straight down year – a stunning slide considering that the first 28 years of casino gambling were consecutively higher.

Atlantic City casino revenue takes 12-year tumble, July figures show

Not good at all, and I don’t see any signs of this getting better any time soon. The institutional response seems to be “Batten down the hatches, ride out the storm.” That would be a great approach if things weren’t changing, but it’s obvious that the gaming landscape of the Northeast has changed considerably in the past two years, and will consider to do so. Further down in the article, there’s a statement that the hotel rooms are full, but day-trippers are staying away. Given that slot parlors have opened across Pennsylvania, one of the city’s primary day-tripper markets, that should be surprising. So maybe it’s time to build more hotel rooms?

Things just look bad. It doesn’t help that the UAW has put up billboards reading “EVERYONE LOSES” in giant type, with smaller type saying “At Bally’s and Caesars,” with a tiny, nearly invisible header that says “When workers are treated unfairly.” Seriously, I didn’t see that header until maybe the tenth time I saw one of those billboards. And they’re everywhere, from US 95 just north of the Philly airport to up and down the Expressway. If that’s not enough, they even had it on a banner plane, flying over the ocean for all of the beach-goers to enjoy. I’m not exaggerating at all when I say that, from a distance and at high speeds, you can only catch “EVERYONE LOSES” before you’ve driven past.

I’m not saying dealer unionization is good or bad–that’s for dealers and only dealers to decide. This just seems like the UAW is just poisoning the waters down in Atlantic City. I can’t think of too many things that are more demoralizing to potential visitors than a big sign saying EVERYONE LOSES. I guess this is the approach that’s brought prosperity and success to the American auto industry, so it should work wonders for Atlantic City casinos.

About the only bright spot for the city is the opening of Revel, which should bring in multi-day visitors who aren’t going to settle for a few hours at a Pennsylvania slot parlor instead. If it’s successful, it’s possible that other operators will finally embrace the “resort model” and join Borgata and Harrah’s. The key, I think, will be doing this in a way that’s not too upscale for the market. There are plenty of people who want to have a few days vacation and don’t mind gambling a bit, but don’t want to pay $200/night for a room or $100 for dinner. Atlantic City could position itself as a mid- to high-market destination resort, with some amenities for high rollers but the bulk of its room and f&b inventory geared at a slightly less affluent demographic. For the foreseeable future, it looks like everyone’s going to be slightly less affluent, anyway.

New UNLV Gaming Podcast: Casinos and New Media

Not much time to write because of a big project I’m working on, but I’ve posted the latest UNLV Gaming Podcast: it’s an interview done at the Casino Marketing Conference with Nichole Barker and Hetty Fore, who share their expertise about casinos using the “new media” to talk to patrons and potential customers.

You can subscribe in iTunes here, visit the podcast page, or just listen to the mp3 here.

I’ve had reports of troubles with iTunes that I’ve hopefully ironed out, so if you subscribe to the UNLV Gaming Podcast and there aren’t 13 episodes available, please let me know.

Also, this episode marks the debut of opening and closing music and narration. It’s still a work in progress, so I’m open to any and all thoughts on the content and audio quality. Ditto for the interview itself. They were breaking down the room as we started it, so there is some background noise for the first five minutes or so, but it quiets down after that.

And if you’re curious about what I’m working on that’s got me too busy to share my thoughts on Episode V: The Donald Strikes Back, it involves the big project references above and cold-calling several casinos where I don’t have a contact to get some distribution. Since cold-calling is about my least favorite thing to do, I give it another hour or so before I retreat back to analyzing sold hold numbers.

By the way, I don’t recall reading this anywhere, but as far as the Trump stuff goes, there is a connection between Beal Bank and gambling. Andy Beal, the guy who owns Beal Bank Nevada, is a big poker player whose exploits in a famous series of games against some of Vegas’ best players were chronicled in Michael Craig’s The Professor, the Banker, and the Suicide King.

Gambling history in Colorado

Colorado casinos are getting ready to start play with more games and higher betting limits. From the Colorado Springs Gazette:

At the Colorado Grande Casino in Cripple Creek, the last security cameras are being placed over the roulette table.

At Bronco Billys Casino, gamblers are laying wagers on blackjack table in the new table games pit.

At the Wildwood Casino, general manager Kevin Werner is planning a pajama party to welcome the changes taking effect at the stroke of midnight Thursday morning.

Thats when the first dice will tumble on the craps tables, the roulette wheel will spin, and bettors will lay down Cripple Creeks first $100 wager. Like the stakes, anticipation is high and a lot is riding on the states Amendment 50 bet.

The changes Colorado voters approved by a wide margin in November could make Colorados three gambling towns destination attractions, high altitude Vegases drawing in the high rollers. At the very least, casino owners and workers are counting on the new games and limits to reverse the slide that started last year.

“Its history,” said Eric Rose, general manager of the Colorado Grande. “Its the biggest thing to happen to Colorado gaming in 17 years.”

via State to launch new games, new limits on Thursday – Colorado Springs Gazette, CO.

I just hope that they keep the popcorn. Colorado casinos are the only ones I’ve ever been in that have complimentary popcorn. It’s the saltiest popcorn I’ve ever had in my life, but it’s still popcorn, which means that it’s good.

On a more analytical note, it remains to be seen if the newly-liberalized gaming rules bolster revenues. This is still a regional market, at best, which isn’t so bad these days, since regional markets are facing the recession better than destination ones. Also, the industry is still pretty small, with gambling only in 3 towns. This may be more of a case of Colorado becoming another Indiana, not another Nevada, or even Mississippi.

Utah gambling ahead?

Utah is one of two states that has no legal gambling, but that might be changing–online at least. From the Salt Lake Tribune:

Prominent poker players have teamed with big Las Vegas casinos to push for a law legalizing — and heavily regulating — online gambling.

Utah Attorney General Mark Shurtleff likes the idea, as long as it doesnt lead to tribal casinos or other forms of gambling in Utah.

"It is going to happen anyway, lets put some regulation in place," he said.

Shurtleff heard a pitch from the Poker Players Alliance during the spring meeting of the National Association of Attorneys General in Washington, D.C.

Shurtleff on legalized gambling: Deal me in – Salt Lake Tribune.

The article is unclear about whether this means online gaming would be OK in Utah, or whether Utah would agree to online gaming as a state option, much as terrestrial gambling is now. If its the former, that’s quite a change from past policies.