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Macau, Hong Kong and the Chinese Dance of Time

Macau and Hong Kong have much in common.  Both are former colonies that have been reclaimed by China.  In 1997, Hong Kong left the shelter of the United Kingdom and submitted to the authority of China.  Macau was transferred from Portuguese control to China in December of 1999.  In the process, both cities became unique governmental entities – Special Administrative Regions of China – with autonomous legal and economic systems.  Hong Kong is a banking, finance and technology center.  Macau’s economy is famously founded on casino gambling.  China embraced the concept of special regions under the slogan: “One Country, Two Systems.” The commercial activity of both cities is important to China’s economy.

The cities may have a common foundation, but in the years since the colonial era ended, Hong Kong and Macau have taken different paths.  Hong Kong has never fully embraced Communist China and its legislature continually resists Chinese laws and authority.  Macau on the other hand seems quite content to be part of the one country with its communist government.  China recognizes the difference in attitudes of the two cities.  On his last visit to the region, Chinese president Xi Jinping, praised Macau and its leaders for the city’s progress in integrating into the greater China identity and embracing the communist party’s vision of the future. In contrast, Xi has issued veiled threats to Hong Kong, telling the city’s citizens they must get aboard the Chinese train.

Hong Kong is undoubtedly frustrating for the Chinese; Hong Kongers act as if they are still citizens of the British Empire and show no inclination of wanting to become more “Chinese.”  Xi would like Hong Kong to begin acting like Macau and has told its citizens exactly that.  The difference between the two cities in their acceptance of the one country, two systems concept was a mystery until on July 21st, Reuters published an article entitled: China reaps payoff from hand-picked team placed in Macau.  The Reuters article described a group of 40 young Chinese trained in leadership and sent to Macau in the early 1990s, long before the transition in 1999.  Those young people were placed in key government departments and today hold important positions of power.  Besides the leadership cadre, over half of the population of Macau has immigrated to the city from China in the last two decades.  The leaders in Hong Kong were not born or trained in China and its residents are not recent immigrants.  Their loyalties are to democracy, a free economy, a free press and independence.  They easily take to the streets to protest and demand independence.  .

The article explains why it has been so easy for China to rule by suggestion in Macau.  There is no opposition; the government and the citizens want to please China.  The governing of Macau includes regulation of the casinos.  The changes in casino operations that fit China’s goals are written into regulations and enforced.  Thus, the casinos are falling in line with President Xi’s plan to make Macau an international destination and to limit or eliminate any dependence on a few VIP gamblers from China.  When the casino licenses come up for review, we can assume the most important factors to be considered will be those that fit the Chinese global plan; amenities and policies meant to attract as many people as possible.   Xi’s China has grand plans for its place in the world’s economy and power structure.  It is building a new silk road to connect China, the Middle East, Africa and Europe and Xi wants Macau to be an active participant.  China is also creating a mega-region that will include Macau.  It will be the 12th largest economy in the world and Macau is expected to be a key player.  The casinos are important in both roles because they will help diversify the region’s economy and drive large numbers of tourists and foreign currency into the region and by extension into China.  They have already invested between $10 and $20 billion in building resorts to meet those goals.

China’s government is well-known for its long term planning.  Its plan for Macau and the casinos is part of a strategy that began over 25 years ago.  It started before the negotiated transfer of power, before the one country, two systems concept, before casinos were fully legalized and before foreign companies were encouraged to apply for licenses.  That was long before any of us had heard of the new Silk Road or a new regional designation in China.  The Chinese are famous for their long-term world view; after all they have been living in the same place for at least 5,000 years.  As the situation in Macau has matured, it has been increasingly obvious that the foreign casino operators are not aware of the exact nature of China’s plan for Macau and its casinos.  But until the article by Reuters, I would never have guessed just how long-term and well thought-out the strategy is.  In fact, without the contrast between Macau and Hong Kong, one might still not believe the strategy existed.  However, when you see Hong Kong constantly striving to be something of its own invention and not a puppet for the Chinese, while Macau does exactly the opposite, it is clear that the foundation China started to build in Macau with those 40 young people has been very effective.  Its casino policies are also proving to be successful.  Macau generates more casino revenue than any other gaming jurisdiction in the world.  And although there was a drastic downturn in gaming revenues after President Xi cracked down on graft and corruption in 2012, the revenue is again growing at double digit rates and is almost back to the pre-crackdown levels.  One word of caution, conditions are about to change again. The crackdown was an outgrowth of the 18th National Congress of the Communist Party of China.  The 19th Congress is set for later this year and Xi is promising a dramatic new direction for China.  It is certain that both Macau and Hong Kong will have assigned roles in the new dance routine.


Piggly Wiggly and Daisy Usher in a New Era

Make no mistake about it, Illinois is a gambling state.  In the Land of Lincoln, there are ten casinos, five horse race tracks, a $3 billion a year lottery and 26,000 VLTs located in 6,000 bars, restaurants, truck stops, fraternal and veterans establishments.  Illinois has more separate places to gamble than any other state.  And yet every year, the legislature debates adding more options for gamblers; this year poker, online gaming, fantasy sports and six more casinos were proposed.  However, the next wave of expansion may be beginning without any discussion on the floor of the House or Senate in Springfield.  In Chicago, a Piggly Wiggly became the first full service grocery in the state to receive a video gaming license.  However, the second license has already been issued to a grocery store in Park Forest.  To qualify for a gaming license, a grocery must have both liquor and food for consumption on the property.  Providing space and prepared food to eat in the store is a growing national trend.   In New York, Wegmans Food Markets offers entertainment and other special events to go with the dining.  Shoppers can make an evening of a trip to their favorite market.

Dining in grocery stores may be relatively new, but putting in slot machines is not a new idea. Nevada has allowed them for years and for the most part it has been a success for the state and the stores.  The machines did very until a law was passed prohibiting smoking in grocery stores and other public places.  When smoking was no longer permitted, revenues and taxes dropped dramatically.  Still, most stores in Nevada have slots that rely on impulsive play of shoppers on the way out the door; they rarely stay and play the way they might in a casino.  In Illinois, a different model is being contemplated.  Piggly Wiggly following a Wegmans-like model is seeking to provide a more complete experience.  In that model, buying groceries is only part of the experience and sometimes only a minor part.  Now in Chicago you can meet your friends for dinner, have a drink and if you feel like it, play the slots.  And on your way out the door, you can pick up milk and bread.  That was not what people imagined might happen eight years ago.

The Video Gaming Act was enacted on July 13, 2009, but the state was not flooded with VLTs immediately.  It took several years to pass the necessary regulations, approve the video games to be played and license the distributors.  Each city or county in the state had a veto right and local elected officials were uncertain they wanted video gaming in their backyard.  They sat on the fence and watched.  Over time attitudes changed, as more and more cities saw advantages in allowing gaming.  In October 2012, the second month of VLT gaming, there were only 169 establishments operating 712 devices in the state; a year later there were 11,000 units in 2100 establishments.  The growth in the next three years was as great as during that first year.  In 2017, it has started to slow and may be approaching its limits.  Now, that could change; I think Piggly Wiggly is going initiate a new trend.  The new trend might not have the growth potential that existed in 2013, but it will give a second wind to the expansion.

Piggly Wiggly also illustrates a shift in creative thinking on the subject.  For the last five years, video gaming has grown because conventional bars and restaurants realized VLTs offered an opportunity to drastically improve their profits.  In fact, Illinois is much like Nevada in one sense, the majority of the VLTs in the state are operated by slot route operators like Penn National, Golden Gaming, Delaware North and Dotty’s; their primary business is gaming.  Grocery stores will not be as reliant on the VLT revenue as other licensees.  Rather the video gaming will be an extension of the services offered.  It will be another new product and a relatively minor addition to the store’s cash flow and profitability.

Another example from Illinois suggests other businesses become creative in using VLTs.  In Joliet, Kathy Wilda applied for a gaming license to compliment the products and services she wants to offer in her Daisy’s.  The not yet open, Daisy’s, is planned to be a place for women to gather and socialize. Wilda hopes to offer food, drink, painting, pleasant companions, conversation and VLTs.  The city council rejected the VLTs; somehow a place for women with gambling was against their standards.  Ms Wilda protested and said the gaming was just an adjunct to the business; the VLTs would provide a little something for hubby to do.  Ironically, that was the conventional wisdom when I started working in casinos. “Real gamblers – the men – played craps and maybe blackjack.  The only reason to have slot machines in a casino was so the little lady had something to do while her husband threw the bones.”

Back to my point and for a minute ignoring the blatant sexism of the Joliet City Council.  Daisy’s and Piggly Wiggly could be the leading edge of the next generation of slot operators in Illinois.  Both are seeking ways to add services, products and create a more social and friendly environment.  Under those circumstances gambling is not the reason the business exists, it complements the core business.  For the bars, restaurants and truck stops that have VLTs, gambling is the most important part of the business.  Any social activity that develops is simply a byproduct of the gambling.  For Piggly Wiggly and others like it, the gambling will be the byproduct of the social activity.

Fantasy Sports Catches a Wave

In the waning days of June, Delaware, New Jersey and Maine passed fantasy sports legislation and Indiana approved regulations.  Those states have joined Arkansas, Colorado, Indiana, Kansas, Maryland, Massachusetts, Mississippi, Missouri, Michigan, New York, Rhode Island, Tennessee, Virginia and Vermont in permitting it in some form, bringing the total to seventeen states that permit fantasy sports.  Another eighteen states have bills in the legislature.  The tide appears to have turned again, this time in favor of fantasy sports.

It has been almost exactly two years since daily fantasy sports entered the national consciousness in a big way.  In September 2015, wagering on imaginary teams online wasn’t new, but it was still in a kind of legal closet.  Suddenly and with a burst of advertising energy, DraftKings and FanDuel announced their presence to the world.  The two came out on national television during a Monday night National Football League game.  To attract the attention of would-be gamblers and in an attempt to out-do each other, they spent millions on television advertising.  DraftKings alone spend $21.8 million on 5,800 ads in the first week of the football season.

Like most people, I was caught completely off guard by the FanDuel and DraftKing advertising and its implication for legal sports wagering in the United States.  I have written two previous columns on fantasy sports.  The first described my shock upon encountering the phenomenon while watching a football game with my sister.  It was stunning to see how much money the two companies were spending on television advertising. During the first week of the 2015 NFL season, DraftKing spent more on television advertising than any company, including car manufacturers and drug companies.  I was certain the CEOs of the two companies would either end up owning the world or in prison.  In the second column I opined that the two major fantasy sports companies had bet everything on one season, their first season operating in full view of public. It seemed to me that it had been a fool’s wager.  At the time, both DraftKing and FanDuel appeared to be headed for bankruptcy.

The sheer number of the advertisements shocked television audiences and caught the attention of law enforcement agencies nationally.  Almost immediately, AGs across the country weighed in with opinions on the legality of daily fantasy sports; most found the activity to be a form of gambling and therefore illegal.  New York reacted immediately insisting that DraftKing, FanDuel and all other providers cease accepting wagers from New Yorkers.  New York is the fourth most populous state and its loss hit both companies hard.  Other states followed closely on New York’s heels.  At that moment things did not look good for the future of fantasy sports.

For at least a year, the tide went against fantasy sports. According to the Wall Street Journal, FanDuel burned through $225 million in 11 months and struggled to keep its head above water.  Only a handful of states had found the activity to be legal and by the end of a year, neither company had enough money to keep up the advertising blitz.  The Journal estimated that every new customer had cost each company $150 as a result of the advertising.  It was too much to sustain and left nothing for operating.  The WSJ and others thought both companies would simply bleed to death; without the advertising they could not recruit new customers nor attract investors. The investors who had been rushing to invest became reluctant to invest in a questionable enterprise.

But as the anniversary of that pivotal Monday night game approached, things began to change.  In August 2016; New York passed legislation to permit fantasy sports.  The law defined the online contests as “games of skill.”  Once again other states followed New York’s lead. It started as a trickle, but the trend to legalize fantasy sports is becoming more of a wave.

That wave is threatening to engulf the entire country, excepting of course the traditional gambling holdouts of Utah, Alaska and Hawaii.  The keys to becoming a true national industry are California, Texas, Florida, New York, Pennsylvania and Ohio because these states represent 45 percent of the national population.  New York has already signed on and the others are in the cue, except for Texas.  There are no guarantees as the process is always very political and each state has separate issues to resolve.  However, once again the future is looking bright for daily fantasy sports.  The Fantasy Sports Trade Association reported a record 59.3 million players in June.  The organization estimates fantasy sports has become a $7.2 billion a year industry.

For the two giants, DraftKings and FanDuel, there are still some major challenges.  First, they have to stay the course and hope the trend toward legalization continues.  However, the most pressing issue at the moment is their merger.  After the initial battle to death, both companies realized there would be no profit for the victor.   Under the circumstances, the most logical course of action was merger.  It would allow a newly formed company to drastically reduce its expenses by reducing duplication of effort thereby achieving the same results at half the cost.

But the Federal Trade Commission issued an unfavorable opinion, stating: “This merger would deprive customers of the substantial benefits of direct competition between DraftKings and FanDuel,” As one might suspect, the companies disagree.  They claim that the FTC’s attempt to block the deal “reflects an unnecessarily rigid and uninformed application of the antitrust laws to an underdeveloped, nascent industry, and largely ignores rigorous economic analysis that has demonstrated unequivocally that prices are not likely to increase as a result of the transaction.”   Just days short of the completion of the merger, a federal court issued a stay, postponing it.  And thus the battle lines are drawn.  Beating the FTC in court is never easy, but it can be done.  It is expensive and it is time consuming.  Still, two years after they first entered onto the public stage, those two giants of daily fantasy sports are in the strongest position yet.

In November a court will hear an appeal to the stay. Coincidentally, the U. S. Supreme Court will be looking at the constitutionality of a New Jersey sports betting law at the same time.  Should the Supreme Court find the law constitutional and DraftKings and FanDuel get final approval to merge, the country could be entering a new era of sports wagering.  The odds seem better now than ever before that it will no longer be illegal to place a bet on sporting events, real or imaginary.

Cheating Slots in the 21st Century

At a meeting recently, an associate asked me about a slot scam that had taken place in 2014. The case was reported by Wired Magazine in February in intriguing detail.   The described incident took place in St. Louis where a man played slots for two or three days always winning, but never winning enough to require an employee to verify the jackpot.  Further investigation led to a team of Russians working casinos around the United States and in other countries.  They worked the same type of slot machines each time – Aristocrat Mark IV and certain models of Novomatic machines.

According to the Wired article, the scam began when Russia outlawed most forms of gambling. The ban forced many owners of slot machines to sell them to whomever was willing to buy them.  Characteristically of the post-communist Russian economy, opportunists saw the used slot machines as a chance to attempt to reverse engineer the games.  In the process, those talented, but under-employed computer engineers discovered a little known fact; random number generators are not truly random.  If you can “see” a large enough segment of data from a slot machine’s random number generator you can find a pattern.  The engineers found those patterns in the Aristocrat and Novomatic games.  An individual could not recognize the pattern as it developed because that required a computer. However, an individual could carry a cellular phone and send the results displayed on the screen of a slot machine to a computer in Russia.

The computers in Russia could analyze the data and send the correct response to players in far off St. Louis or an Indian casino in Southern California.  So, back to my associate’s question. The Russians appear to be laying low in this country – or maybe they have been too busy with elections, credit cards or bank databases to play slot machines – but they have not retired.  In April, the Straits Times reported on an incident that took place over a three day period at both the Marina Bay Sands and Resorts World Sentosa.  The facts were like those in St. Louis with some of the detail flushed out more completely.   The team may have as many as 25 members and is broken into smaller units.  Each unit has a “master” and that person gets 15 to 25 percent of the winnings; the individual players get 10 percent, the remainder is sent back to Russia.  Players are recruited and trained in Russia before being sent out to play.

Thus far only two manufacturers and two models have been hit.  However, that doesn’t mean there are not others that are vulnerable and it doesn’t mean that there is only one team operating in the world.  The issue is a bit unnerving; it indicates that slot machines are not as secure as was once thought.  It turns out that random number generating is not completely random; in fact, the Wired article used the term “pseudorandom” to clarify the difference between truly random number generating and the process used by slot machine manufacturers in modern slot machines.  Exploiting a discernable, non-random pattern is not necessarily a new way to cheat a slot machine. Years ago, a former IGT engineer used a similar system to play keno slot machines in the Midwest. He could, like the computer in Russia, recognize a pattern that indicated an upcoming jackpot.  The industry is lucky that it has happened, to our knowledge, so seldom.  But casino slot machines are not the only place a non-random, random number generating system can be found.

Eddie Raymond Tipton, former information security director of the Multi-State Lottery Association, which runs Powerball and Mega Millions, was convicted of rigging jackpots in Colorado, Wisconsin, Iowa, Kansas and Oklahoma.  Tipton, with his brother and friends, traveled to different states to hit a jackpot; he knew the dates on which some number patterns would be “drawn.”  This week, Tipton is promising to explain to regulators how he was able to predict the lottery outcomes.  That will be a big help, but it will not solve the problem.  The underlying problem is one without a simple solution.  Our entire economy, not just gaming, is dependent on computer technology.  That makes us vulnerable to other computer technology that can “hack” into our system and either manipulate the data or decode it.  It happens daily. This week hackers released data they had stolen from a casino in Canada; it contains the personal information of the casino’s best players.  As serious as that is, it is not as serious as the hackers who recently stopped the English National Health System in its tracks and disrupted dozens of other government and private business around the world.

Everything we own and depend upon is in one way or another tied into the internet and thus vulnerable to others using the same system.  Pacemakers, furnaces, refrigerators, televisions, cars, banks, hospitals, slot machines and lotteries are all hooked up in one big happy bundle.  In a simplistic and nostalgic way, I think I preferred slot machines that could be breached with a screw driver.  A slot cheat could go home with a couple hundred dollars, but no one could make the whole world come to a complete stop or empty slot machines and bank accounts with a cell phone and a computer.  With all of our technology we are much less secure than we were before we had it.  We might be richer, happier and healthier, but we are not more secure.

Every Casino’s Nightmare is Here!

Our worst nightmare has happened; a casino in the Philippines was the target of an armed attacker.  In a world dominated by real and imagined terror attacks, everyone is worried about the potential of an attack in their immediate environment.  As London reels from yet another attack, most cities are trying to devise security plans to protect their citizens.  Particularly at risk are public gatherings like the concert in London or popular meeting places as in Paris.  The first major attack on a casino took place in the Philippines on Friday, June 2nd, when an armed man walked into Resorts World in Manila. Before it was over 37 people were dead and many others suffered harm from smoke inhalation or in a panic induced stampede while attempting to escape.

ISIS claimed responsibility for the attack and praised the martyr for his brave death.  Casinos all over the world started to think seriously about terrorism. Lawmakers in the Philippines are set to begin an investigation into the tragedy.   Regulators in Macau called all the gaming operators to a meeting to discuss increasing security.  Las Vegas had already begun planning to install “bollards” – posts designed to prevent cars from driving onto sidewalks. The Mississippi Gaming Commission issued guidance requiring casinos to submit active shooter response plans. We are certain to see more responses from individual casino operators and from state and national governments and industry regulators.  A series of recent events has pushed the level of angst worldwide to new heights.  In some places fear has reached the point of hysteria; in Turin, Italy 1500 people were injured in a stampede when the crowd at a soccer match “was taken by panic and by the psychosis of a terror attack.”  No one knows exactly what happened, but officials think people heard a loud noise and immediately assumed a terrorist attack was underway. Like the gamblers in Manila they panicked and attempted to flee, killing each other in the process.

The fear is understandable. Just one day after the incident in Manila, three men in London armed with knives entered two different restaurants shouting jihadist messages and proceeded to stab as many people as possible. The knife attacks followed attempts to run down pedestrians on London Bridge; in all, seven people were killed and 48 people were injured in the attacks.  Where will it end?  British Prime Minister, Teresa May says “enough is enough.”  Fine words, but what can be done to stop this seemingly endless stream of assaults on our culture and lives?

We call it terrorism, but that is not always the case.  In Manila the masked man turned out to be a former employee of the Philippine Department of Finance.  He was a gambler who had incurred a very large debt.  In his attack he did not shoot anyone; the injuries and deaths were all from smoke or the stampede.  The smoke came from fires the man set as he moved through the casino collecting about $2.3 million in gaming chips.  In the end he fled to a hotel room, set himself on fire and then put his gun in his mouth and pulled the trigger.  He was not a terrorist, just a deranged person who committed irrational acts that injured and killed other people.

The unhinged, lone assailant is just as common as the terrorist yelling, Allah Akbar.”  On May 26th, in Portland Oregon one such man stabbed and killed two people when they interrupted his verbal assault on two Muslim women riding a city bus. In Charleston South Carolina, a 22 year-old white man shot and killed nine African Americans during a prayer service.  In Orlando, Florida a disgruntled former employee killed five of his former co-workers and then killed himself. The man in Portland wanted to protect Americans from Muslims; the one in South Carolina wanted to protect the white race from the black race. The man in Orlando wanted to punish people he blamed for losing his job. Remember Columbine High School?  Two students attacked their school, killing 13 and wounding 20 more.  Clearly, Islamic terrorists are not the only threat to our society, nor are they necessarily the most pressing threat.  Irrational people who are willing to kill and die to express their hatred are the real threat. Sometimes they can be declared terrorists as they were in London, but at other times the killers are motivated by nothing more than anger and a desire to cause pain.

All public gathering places, including casinos, are going to become more closely regulated.  Las Vegas and possibly Atlantic City are considered the prime targets for attention-seeking terrorists.  However, in truth all casinos are targets.  The man who wishes to get revenge on his wife by killing her and her family in a public place could choose a casino.  Any bigot might seek targets in the local casino and of course the disgruntled gambler is most certainly going to target the source of his pain, a casino.  Years ago, I remember an angry gambler tried to drive his car through the front door of a casino to punish someone for an imagined wrong.  At the time, it was it was terrible occurrence, but in today’s world it would almost be a joke, a caricature of horrendous things being perpetrated by people without compassion or a sense of social justice.

The attacks that kill or injure people are all horrific, but the impact does not end with the slaughter, it continues long afterwards.  Much as 9/11 changed flying forever, the more recent attacks threaten to permanently change our culture.  Since that fateful day in 2001, I have lost my freedom of speech in airports.  I cannot challenge any official or policy; if I do I can be taken off a plane or denied boarding and arrested.  I fear the same thing will happen to all public speech.  Excluding the man in Manila, the other attackers referred to here had been very vocal.  They had openly expressed their anger, hate and desire to harm others.  Each time an incident has occurred, there have been calls for investigations and lawmakers righteously say “something” has to be done.  The easiest first step is to arrest all of those people making inflammatory and dangerous statements.

The event in Resorts World was a terrible tragedy and one that will very likely alter casino gaming in ways we cannot begin to imagine.  I see two changes that almost certainly will be implemented in some jurisdictions.  First, casinos will be required to maintain lists of “do not allow” people. Incidentally, meeting the requirements will require video surveillance with face recognition technology and armed guards at the door checking IDs.  Secondly, some jurisdictions will require metal scanners and other screening devices will be placed at all entrances; rather like the governmental buildings in the aftermath of 9/11.  We are locked in a frightening dilemma between individual freedoms and public safety.  And that, my friend, is my worst nightmare and it is just starting.

A Not So Grand Bargain

The Illinois legislature is attempting to devise a compromise budget bargain that will satisfying both political parties and the governor.  The state is in a two and half year budget crisis that started when Governor Bruce Rauner vetoed the first budget of his term in office in 2015. In fact, no budget has been approved during his administration.  There are some observers who believe there is hope this year, but there are only a few days left in the legislative session.  Much has been written about the backroom, closed door negotiations between the state’s Democrat and Republican lawmakers as they try to reach a compromise that satisfies both parties and addresses the issues important to the Republican governor.  He has said he will veto anything that fails to meet his criteria.  The compromise is being called “The Grand Bargain” and as one might expect, it includes some grand plans for new casinos in Illinois.

“There is a grand bargain being negotiated. I believe new revenues through the casino are part of that grand bargain, and I’ve said I’m open to whatever package can move the needle to a balanced budget, and I’ve said I’m open to local control. So the answer is, if that came as part of a package, I could be supportive of that,” Governor Bruce Rauner said.

Calling the bargain “grand” is rather grandiose as the term connotes some truly Grand things such as the Grand Bazaar, Grand Canal, Grand Place and numerous Grand Hotels.  The Turks started building the Grand Bazaar six hundred years ago; the Grand Canal is as old as Venice. The Grand Place in Brussels began as a market in the 12th century and the hotels for the most part were creations of 18th and 19th century culture.  It is difficult for me to put a political bargain in Illinois in that category.  However, I suppose for those waiting for the state to pay up it would at least be a grand bargain if they get their money.  Illinois currently has $14 billion in unpaid debts because it is operating without a budget.

For the gaming industry, the important elements in the compromise include as many as six casinos, one of which would be in Chicago with another possible in Springfield.  A new and lower casino revenue tax is being suggested which might help the existing industry.  But if Illinois ends up with six additional casinos, a tax break is not going to make up for the revenue lost to those new casinos.  I see no upside to the expansion for the state’s casinos; in the aggregate the state would probably have more total revenue from casinos.  However, the grand bargain’s potential for success does not hinge on the casinos; it is dependent on meeting Governor Rauner’s criteria.  The Republican governor is a first term politician and a businessman.  Bruce Rauner ran on a turnaround platform promising that for any budget to receive his approval it must freeze income and property taxes, change collective bargaining and prevailing wage laws, increase sales tax to areas currently not taxed, consolidate local government bodies and impose term limits.  Thus far it has been a contentious and bitter battle for ideological control between the governor and the lawmakers.

“The governor may have underestimated just how strong the Democrats’ resolve was not to turn their backs on their traditional allies, as well as the Democratic leaders may not have appreciated how strongly the governor felt about trying to impose some of those turnaround agenda items in exchange for a tax increase,” Jak Tichenor, interim director at the Paul Simon Public Policy Institute at Southern Illinois University at Carbondale said. Decatur Herald & Review, 5-21-17

The governor has indicated he is prepared to finish his term in office without a budget.  He is willing to make the issue the centerpiece of his campaign for re-election and in the process blame career politicians, insiders and unions for the deadlock.  Rauner and one other man provided nearly all of the funding for his last campaign and have already put up a reported $100 million for his re-election efforts.  The ability to self-fund the campaign makes him far more independent than most candidates.  The budget has become a very high stakes game that some think is more like Russian roulette than poker.  I can see nothing grand in the making and in particular I can see no grand outcome for the existing industry in Illinois.  The Grand Bazaar has lasted for six hundred years because it has something for everyone.  The Grand Bargain has little of value for anyone and is not likely to survive even one legislative session.


Up, Up and Away – Maybe

The revenue crisis in Macau seems to have ended.  Gaming revenues have been rising for nine months after plunging for twenty-six months.  Until May 2014, casino revenues in Macau had increased month over month for ten years, peaking at $45 billion.  Up to that point there seemed to be no limit on gaming’s growth in Macau.  And then seemingly out of the blue, China decided to rid itself of corrupt officials.  Instantly, casino revenue started to fall as the high-rolling gamblers from Mainland China disappeared.  In retrospect, it seems Chinese government and business officials had been taking illegally gained money from the mainland to gamble in Macau.  To make matters worse, the Chinese economy which had been growing nearly as dramatically as Macau’s gaming economy stalled.  The downward spiral in Macau continued until August 2016 and then as abruptly as the trend began, it stopped and started to reverse directions.

Revenue has risen every month since last August.  At first, no one was willing to say the downward trend had stopped.  However, with each passing month casino operators, professional analysts and government officials have gained confidence in the upward trend. Nobody has been more confident than Lawrence Ho.  He thinks gaming is coming back, all the way back to 2013 levels. Recently Ho said, “Definitely within the next five years, it will grow back to a $45 billion gaming market.  And that’s just the gaming alone, because the non-gaming part is significant.” Ho is the chairman of Melco Resorts, a former partner of James Packer and the son of Stanley Ho, the grandfather of casino gambling; he also has two sisters with senior management positions in Macau.  Ho is Chinese and grew up in Macau and in gaming; he was there when the Macau reverted to Chinese control and he was one of the first recipients of the new licenses in 2003. All of that makes him an expert on gambling in Macau, so it would be foolish to dismiss his opinion offhand.

However, not every experienced observer and insider sees the same rosy future as Ho.  Pansy Ho, a sister, has some grave concerns about an industry built increasingly around non-gaming tourism.  Besides President Xi of China’s policy to eliminate corrupt officials, his government has been adamant that Macau must move past gambling and become an international tourist destination.  To meet that mandate all of the casinos currently under construction and those finished in the last three years have spent billions of dollars each on creating full resorts with hotels, convention facilities, a wide range of restaurants, entertainment and special tourist attractions.  Pansy says making those amenities pay for themselves is not easy.  One of the companies with which she is associated, reported significant losses in its hospitality division.  Ms. Ho thinks the city will to need to find “its own methodology” in diversification because the current one is not working.

The worst part of the campaign against corruption is probably over.   However, there are some dangling issues that connect the current situation to the crackdown and suggest it is not over yet.  In April, a former mainland provisional governor named Chen was removed from office.  The prosecutor in the case used language that suggests there is an unstated political agenda involved in the process.  The prosecutor said “Chen was politically climbing to power, economically insatiable and morally bankrupt. Even after the 18th CPC National Congress, he still showed no sign of restraint and [his wrongdoings] were of a grave nature.”  It is the kind of demonizing language that characterized the purges of Cultural Revolution.

Another indicator that all is not well beneath the surface can be found in the activities of the Commission against Corruption.  The commission has become very visible; in every meeting of officials in Macau a commission representative is present; including meetings with Chinese officials, international tourism gatherings and local cultural functions. There is a press announcement, at least weekly, concerning a new or an ongoing investigation into wrongdoings. I do not know what that means, except it seems like an implied threat.  Reading between the lines is a highly specialized skill in China.

Zhang Dejiang, the Chinese official responsible for oversight of Macau and Hong Kong, was in Macau in  early May.  Zhang stayed three days and made a number of appearances, making a speech each time.  He had one very constant theme saying over and over that government officials and lawmakers needed to commit to the “One Government, Two Systems” policy.  He suggested a loyalty pledge is in order and reiterated that all concerned should become more familiar with the meaning of the policy.  Attempting to read between the lines, it sounds more like a threat, a promise to punish misbehavior rather than a pat on the head for a job well done.  Regardless of the true meaning of his words, he had an instant impact on gaming.  Analysts gave Zhang credit for a decline in revenues during his visit.

In the midst of the turmoil of the last three years, several new properties have opened. The market may be expanding, but all the casinos within the market are not necessarily sharing in the good times.  In fact, recently I came upon an interesting story in the Macau Daily Times.  It suggests that for some properties these are not good times.   According to the article, City of Dreams, one of the latest multi-billion-dollar resorts to open, is having weekly drawings for free airline tickets.  Three times a week at 8 pm gamblers get a chance to win a “Travel without Limits” ticket, allowing them to travel as much as they want for a full year.  Now, I don’t know about your experience, but in mine, drawings like that take place when business is slow.  Oh, and I forgot to mention, City of Dreams is owned by Lawrence Ho’s company.   Regardless of City of Dreams and drawings, gaming revenues in Macau are moving up significantly.  The way the revenue trend in Macau reversed is very rare.  But everything about Macau is rare and different.  The gaming industry has never seen anything quite like it and today it may be up, up and away and tomorrow it could be down, down and down.


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