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IN-DEPTH 27 September 2019
From the ground up: The wind of change
By Tim Poole
Oliver Lovat points to the importance of conventions to Las Vegas in a city that continues to evolve.

This summer, I was visited by multiple colleagues from across Europe, many for business reasons wanting to know more about Las Vegas.

Just 48 hours after they left, I was joined by 35 MBA students from Cass Business School, in town for a five-day seminar on business strategy. On this course, tomorrow’s executives come to study the lessons of Las Vegas, which can then be applied to other industries. As that group exited, 200,000 ravers descended upon Las Vegas for the Electronic Daisy Carnival; a three-day party in the home of US dance music and the most successful nightclubs.

As the cars headed down the I-15 to California, plane-loads of business leaders arrived for the premier real-estate convention - ICSC.

As a surveyor, I was visited by many old friends and colleagues, but this was more than the usual catch up. Shopping mall operators and retailers spent as much time walking around the casinos and hotels as in the convention centre, seeking inspiration in Las Vegas’ success stories that continue to make it one of the world’s busiest destinations.

Then, after another 48-hour break, came the International Conference on Gambling & Risk Taking, where casino owners, managers and academics from all over the globe come to discuss all facets of gaming, and to observe the latest trends taking place in Las Vegas that can then be implemented in their home properties.

As the delegates left, I fled the whirlwind and headed to Utah to spend some time in a remote mountain to collect my many thoughts, before the hundreds of thousands more visitors head to town this week to work, rest and play for the summer. Summer 2019 is an interesting time for Las Vegas.

 There’s no business like business

Here’s Las Vegas’ dirty secret that you don’t see in the marketing. If you took casinos away, the city would probably still be viable. If you took away conventions however, the city would collapse.

The average tourist spends $821 when in Las Vegas. The average conventioneer spends $1,020. The Las Vegas Convention and Visitor Authority reports 6.5 million conventioneers visited Las Vegas in 2018. Conventioneers directly supported c.45,000 jobs, $2bn in wages and economic output of $6.6bn. Including indirect and induced impacts, the totals increase to 70,700 jobs, $3bn in wages and $11.1bn of total economic output.

There is currently more than 3.2 million sq. ft of pure convention space in Las Vegas and 4.2 million sq. ft event space. The Venetian is enhancing its own two million sq. ft of convention and meeting space with the MSG Sphere, an 18,000-seated arena.

The 2.8m sq. ft of convention space under construction includes:

  • MGM Grand, 250,000 sq. ft new space
  • Wynn Las Vegas, 300,000 sq. ft new space
  • Caesars Forum, 550,000 sq. ft new space
  • World Market Center, 315,000 sq. ft new space
  • LVCVA Convention District 1,000,000 sq. ft new space
  • The Drew, 500,000 sq. ft new space

Las Vegas is betting big on business travel being its future.

Las Vegas is the US

I was at a breakfast with pollster Frank Luntz a couple of years ago. Luntz was discussing sampling the diverse population of the US, with the coasts being very different from the centre and thus skewing polls. Rather than setting up a diverse network of offices, Luntz' research base was in Las Vegas, where he could readily find an accurate sample of the country across all demographics.

In terms of customer engagement, it makes so much sense to have your customer come to you. Outside the major population centres, Las Vegas is the only place where you can see leading DJs, chefs and performers. Las Vegas has become an education centre, where brands can launch with enormous reach and be available, commercially viable real estate. Unlike in New York or LA, where there is a large, but static population, 10% of Las Vegas’ population rotates every 72 hours, and stretches across all demographics, incomes and backgrounds.

FOMO: Time-limited events

One of the most powerful marketing tools is creating fear, which coupled with the millennial trend of seeking experience-led entertainment, is the relatively new concept of FOMO - fear of missing out. Las Vegas has become the master of creating must-see, life-enhancing, time-limited events.

The earliest FOMO was The Rat Pack, then Elvis and Celine Dion reinvented the residency. Today, nearly 60% of all under-40s believe seeing a performer live in Las Vegas is more special than in their hometown.

Las Vegas is home to residencies of the greatest entertainers in the world. EDC is the US' leading electronic dance festival and Life is Beautiful is one of the hottest music and arts festivals. Not just confined to music, food festivals are also becoming staples of the calendar, as foodies come from across the US to sample the food hand-cooked by celebrity chefs, and the recently announced Metarama will be a huge esports festival, new to Las Vegas.

Las Vegas also has dozens of stages, including: The 2,000-capacity Brooklyn Bowl, The Joint, The Pearl, The Colosseum at Caesars Palace, the T-Mobile Arena and MGM Gardens, soon to be joined by the MSG theatre and the Raiders Stadium. The success of Las Vegas in enticing customers to get on a plane or make a car trip for a short stay is an example to anyone seeking ways to attract customers to leave their Netflix and social media and venture outdoors.

 Changing customer

The internet has totally changed behaviours, but to a large extent, casinos are the same as they were 50 years ago. People come to a piece of real estate and use cash to play a game, and Las Vegas is remarkably successful in attracting the under-40s and even more successful in drawing the 21-30s.

Part of this is the above FOMO, but the real change came with the opening of The Cosmopolitan, and in this case, partly by accident. In seeking a customer that was not catered for, The Cosmopolitan targeted the urban city-dweller and created a highly desirable offering for the next generation of customer. The design constraints led to clustering and the small footprint improved accessibility. The customer found this neater design more enticing to the labyrinth-like mousetraps that were the hallmarks of past design and more akin to a city centre.

The clustering of restaurants, coffee shops, bars and clubs in close proximity also suits the next generation of customer. For those interested in shopping malls, retail and urban planning, it is a valuable lesson that can be exported across the country.

 It’s only natural

As summer approaches and the tourists arrive to drink and party, locals know the real secrets are the natural environment. Short trips from Las Vegas include: the Grand Canyon National Parks; Valley of Fire National Park; Death Valley National Park; Red Rock Canyon National Park; Bryce Canyon; Zion National Park; Lake Mead; Sloan Canyon; Dixie National Forest; and a mere 45 minutes away is Mount Charleston, which doubles as a ski resort in winter.

Las Vegas is evolving, becoming a major city in the US, so far away from where it was even a decade ago. Credit is due to the city and state leadership for continually reinvesting, with a vision on how the city can thrive and innovate.

However, to quote the infamous British DJs, Mike Smash and Dave Nice: “We ain’t seen nothing yet, let’s rock.”

Oliver Lovat leads the Denstone Group, which offers strategic advice and consultancy on customer-facing, asset-backed investment and development, with a focus on casino resorts. He is a Fellow of the Royal Institution of Chartered Surveyors and visiting faculty at Cass Business School in London. He lives in Las Vegas.

IN-DEPTH 11 October 2019
Landing on a monopoly

Matthew Enderby asks who benefits from a monopoly-driven gambling market and if there is any point in maintaining one.

It can appear anti-capitalist, like the government wants total control. Players are ushered to a single, often state-run operator, and only one supplier is contracted to provide the platform, making the gambling market seemingly easier to manage. But does that hold true? When monopolistic gambling markets are enforced, who is the winner? Do the players benefit from what is meant to be a safer environment? Will the public perception of gambling be more positive than in an open market?

To answer these results-based questions, the motivations behind a monopoly-driven market need to be looked at first. The initial question is always: Why? A few quick answers spring to mind. It might be testing out gambling and observing how its country responds once the option to have a bet is made legal and available. With only one operator in place, player protection seems like a reasonable motivator.

It would be easier to keep track of addiction and factors leading to problem gambling as all the data, theoretically, could be accessed in one location. The main motivator however, is revenue. With the market dominated by a single legal operator, all of the country’s gambling revenue will flow through it and to the government. But for this to be effective, there cannot be any offshore operators present.

The Swedish gambling market was opened up at the start of the year, and private companies were free to apply for a license. The reasoning for this, according to state-run operator Svenska Spel, was to achieve fair market conditions and bring order. Life before the update in legislation was not entirely different to what it is today. Despite being closed to private companies, Patrik Hofbauer, CEO of Svenksa Spel, says the previous market was only a monopoly on paper.

He tells Gambling Insider: “Around 90% to 95% of the companies now operating with licenses in the Swedish market have been here for more than 10 years, so we are already used to competition.”

Offshore operators were present in Sweden for more than 10 years. They did not pay tax and found ways to navigate around the law. Up until the start of the year, there were three legal operators. Svenksa Spel handled betting, ATG specified in horseracing, and Postkodlotteriet managed the lotteries.

A MediaVision study from October showed 60% of Swedes aged between 18 and 74 had a registered account at the end of June 2018; a 12% rise year-on-year. Roughly 58% of these accounts were with one of the three state-run operators.

On the surface, this seems like a success story for the monopolistic market, but where are the rest of them registered? Nearly half of Sweden’s gamblers, 42%, were registered with international operators. These companies held no Swedish license or authority to offer a service in the country.

What’s worse, where the monopoly is concerned, is 60% of all new accounts registered within the 12 months leading up to 30 June were with these businesses. With so many players setting up with unregistered companies, the idea of a monopoly making gambling safer, with upheld regulation, is incorrect.

Now the market has gone through its changes and levelled out, Hofbauer finds order is in place and player protection has improved. He says: “We now have a level playing field for gambling operators, increased revenues for the state, and clear rules to protect customers against excessive gambling thanks to stronger and better consumer protection. It has ultimately benefitted the Swedish customers, which is the biggest win.”

The move away from a monopolistic approach has not exactly produced a goldmine for other operators, and certainly not for Svenksa Spel. A look at its first quarter results shows a 6% year-on-year decline in revenue to SEK 2.05bn ($197.4m). Its land-based operations, Casino Cosmopol & Vegas, fell 17% to SEK416m, while lottery dropped 6% to SEK 1.1bn. It reported SEK 544m in revenue from sport and casino, a 4% increase. Operating profit for the quarter decreased 55% to SEK 519m. Svenska Spel paid SEK 401m in gaming taxes for the quarter.

While it won’t be impressed with revenue for Q1, the operator stressed one of the biggest challenges in the transition was launching three new products. Hofbauer says: “Business wise, it is positive that we now can offer our customers products like online casino and horseracing, and also offer more competitive pricing."

Improved pricing is another reason Swedish customers will be happy with the change in legislation. So who exactly has been benefitting in the monopolistic structure besides state operators making easy tax revenue? Suppliers might have the most to gain from a monopolistic market. Being selected by the government to provide technology solutions for its online or land-based operations signifies trust. Suppliers will have to earn that trust by proving their platforms can generate the most revenue for the government’s operator.

The appeal behind branding in this case is also undeniable and the opportunity for a supplier to be the leading face is not one to be missed. Building brand recognition in a country where you are the only brand is obviously much easier. The competition exists, but only through unlicensed companies that will not want to attract further attention to their operations in that specific location.

In April, Kambi extended its contract with Bulgaria’s National Lottery JSC, parent company of the Moldovan National Lottery, to supply online and retail sportsbook. The operator is expected to enter Moldova in the summer, where a monopoly is in place.

Kambi CCO Max Meltzer spoke exclusively to Gambling Insider after the deal and said: “From a technological standpoint and user experience, it will be like going into an ATG shop in Sweden right now. We are really excited to say this is not a monopolistic situation where players will get a bad experience from a bad solution."

The sports betting supplier was keen to emphasise that players in this monopoly would not be neglected as a result of the structure set out by the government and it would supply the same level of technology as it would to any market across the world. Only time will tell if Moldova’s bettors do receive this standard of solutions. But what we do know is, with a lack of legal competition for market share, the Moldovan National Lottery will not be pushing its supplier as much as it would have in an open market, to develop niche solutions.

The evidence is stacked against monopolies and it is clear governments still using them are doing so in a misguided attempt to stay in total control and generate state revenue. The irony is the complete opposite is true. More state tax is made in the open market and players are being protected better when operators are acting under approved licenses. Drop the monopoly, it’s good for nobody.