What Asia can Learn from Las Vegas, and Vice Versa

#144 © Copyright 2009, all rights reserved worldwide. Gambling and the Law® is a registered trademark of Professor I. Nelson Rose, www.GamblingAndTheLaw.com

Macau has been called the Las Vegas of Asia. Since the casino industry in this Special Administrative Region of China has already passed Nevada’s famous Strip in gaming revenue, win per table and handle per machine, perhaps it is Las Vegas that should be dubbed the Macau of the United States.

I have an unique perspective on this development. Like many others, I often act as a consultant and expert witness for governments and industry, in North America and Asia. But I also have taught Gaming Law at the University of Nevada-Reno, in China, Spain, France and Slovenia, and every June at the University of Macau.

So what lessons can the casino capitols of the world learn from each other? Here are a few:

1) Gambling has to be strictly regulated to keep it honest and prevent scandals.

2) Casino regulation requires knowing who the real owners are and the background of everyone involved in the casino’s operation.

3) Casino regulation also requires keeping track of every dollar, or pataca, that goes in or comes out.

4) And watch the hands that handle the money – that means the dealers and up, more than the players.

All these points relate to why we regulate legal gambling at all. Wouldn’t it be easier to just sell the licenses to the highest bidders and then bow out? Most governments don’t do that, in part because they want to make even more money, by selling licenses and then getting a large share of the gaming revenues through taxes. This means that governments have a direct stake in casinos’ profits and are hurt if insiders skim off the top before the profits can be taxed. It also means…

5) Governments always get greedy and raise taxes if you’re successful.

But governments also have a duty to protect patrons. A license is seen as a promise by the government to everyone who enters a casino that they will get an honest game. One problem when organized crime (in the U.S., they call themselves “O.C.”) runs casinos is they have no qualms about rigging games to increase their take. This even happens with dis-organized crime: dealers who steal by slipping chips to a confederate will cheat other players, so their tables won’t have suspiciously low holds.

The decision whether to have casinos is a state, not a federal, issue. But infiltration by O.C. can attract unwanted attention from higher governments. In the 1950s, U.S. Senator Estes Kefaufver held the first televised hearings, which linked Nevada casinos with O.C. The state feared the federal government would step in and kill the industry, so it created the first true regulatory system.

6) Legalization opens the door to an unrelenting push for more gambling: more casinos; additional games, loosening of restrictions on hours, stakes and credit.

7) Regulators start out tough, but can become overly friendly to operators.

8) Over time, almost every decision regulators make is favorable, or at least neutral, to operators.

Casino executives often think regulators are against them, since they may turn down nine out of ten requests. But they do grant that tenth request. And since players aren’t organized, regulators’ decisions almost never favor patrons.

9) The first casinos have fantastic returns on investment, due to pent up demand.

10) This leads inevitably to an over-supply and bankruptcies, if there is no limit to the number of licenses.

11) The situation is made worse, because it is impossible to control neighboring jurisdictions. Monopolies are extremely profitable. That’s why they won’t let you have one.

Iowa legalized low-limit riverboat casinos with the idea of being the only “Las Vegas” between Nevada and New Jersey, living primarily off the Chicago market. It would have worked, if only Illinois would have cooperated and had not authorized high-limit casinos. Iowa had to raise its limits, although some of the boats did sail south.

12) Legalization gives legislators and regulators the chance to be social engineers. Cruising was designed to protect gamblers from themselves. No one thought what it meant to lock a compulsive gambler in a casino for four hours.

13) Experiments sometimes work, and sometimes fail.

14) Conventional wisdom should be followed, and ignored.

The Atlantis went bust in Atlantic, in part for having a three-story casino with large windows. On the other hand, before the Sands opened in Macau, “everyone” said Chinese gamblers hate slot machines. And “everyone” said the Mirage would never work, because casinos in Las Vegas had to have doors opening on the sidewalk.

As the G2E’s, especially the G2E Asia, have shown, slot machines do not always have to be video screens with three symbols down and five across.

15) Be prepared for inevitable problems: Slot machines malfunctioning, players claiming they have won when they have not, minors trying to sneak in, disruptive drunks.

16) And for potential scandals that are not your fault: Patrons leaving children in cars, reporters catching politicians making enormous bets.

17) And for the law changing: Smoking bans, government requiring more reporting of cash transactions.

All this leads to the most important rule:

18) Understand and accept that casinos are not like other businesses. They are not adult Disneylands®.

Amusement parks do not have to worry about restrictions on their rights to advertise, whether their contracts are enforceable, and how to collect debts from patrons. They aren’t normally faced by opposition from churches, or accused of ruining families. No one suggests outlawing all bars because of drunk drivers.

Hire the most experienced personnel you can find, from anywhere in the world. Security and day-to-day operations are most important in the short run. But you also need to retain the best outside experts in fields like marketing and law, or you won’t have any long run.

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© Copyright 2009. Professor I. Nelson Rose is recognized as one of the world’s leading experts on gambling law. His latest books, Internet Gaming Law and Gaming Law: Cases and Materials, are available through his website, www.GamblingAndTheLaw.com.