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December 18, 2014

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Q&A: William Eadington

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Richard N. Velotta

UNR’s Institute for the Study of Gambling and Commercial Gaming leader William Eadington predicts Strip changes.

When gambling went from being a pastime largely offered by organized crime to a leading entertainment industry, academia took notice and wanted to study it.

Thus began the University of Nevada, Reno’s Institute for the Study of Gambling and Commercial Gaming in 1989.

Its leader is William Eadington, an economics professor with an interest in the study of addictive behavior. He had already organized the International Conferences on Gambling and Risk Taking at Lake Tahoe every three years since 1974 and, over time, built a reputation as an expert on the gaming industry.

The UNR institute encourages and promotes research and learning on gambling, and Eadington is internationally recognized as an authority on the legalization and regulation of the industry. He has written and edited several books on the economic and social effects of commercial gaming.

Eadington spoke with In Business Las Vegas about trends and the future of the casino industry:

IBLV: You’re the director of the Institute for the Study of Gambling and Commercial Gaming at UNR. Explain what that is and what you do.

Eadington: The institute was formed in 1989 and we put it together because we were doing a lot of activity on gambling and commercial gaming. I was doing it as a researcher and we had conferences roughly once every three years and we had just published our first book. We felt it was a good way to centralize a lot of the focus. We went to Board of Regents and formed the institute. And I think it turned out to be a good idea because it provided a lot more visibility.

Do you conduct studies? What are some of the things the institute is involved with?

We’ve been involved with the International Conferences on Gambling and Risk Taking since 1974 and had originally run them through the college and through the Bureau of Economic Research. Since 1991, we’ve run a 10-day annual executive development program geared toward senior-level gaming industry executives from around the world. That’s been one of our mainstay programs. We’ve published about 20 books, all focused on gambling or commercial gaming topics. We do an awful lot of contact with the media in various parts of the world, and we coordinate with other centers and institutes in other universities and work fairly closely with them. We’ve been directly involved in the formation of institutes at the University of Salford in the United Kingdom and the University of Macau. We’ve worked closely with the University of Cape Town and Tilburg in the Netherlands and the Australian National University in Australia. So it’s been a pretty good vehicle for that kind of outreach. We’ve done some contract research projects over the years, but not a lot. That’s usually determined by available staff and professionals we have access to. We probably best known for the international conferences. Those have a global reach.

Las Vegas has always been considered the top gaming destination in the world. Is that still true?

One would really have to argue that Macau has stepped into a very substantial position. Gaming revenue in Macau this year probably will exceed $20 billion, which is a little over three times the size of Las Vegas. Ironically, Las Vegas’ only glimmer of good news these days is coming out of Macau-based baccarat play. And I think that’s related to the three major American licensees in Macau all have very substantial Las Vegas Strip properties and the differential tax rate — 40 percent in Macau versus 7 percent in Nevada — is a very strong inducement for them to direct their varied players to Nevada. Las Vegas still has more diversity in its various offerings, but it’s hard to stay that it’s king of the hill in gambling. The Macau market is unusual in its own way and it needs to be analyzed separately. It’s still in an expansion phase, and I think it’s going to have some very interesting growing pains. Nonetheless, volumes are dramatic and the physical appearance of Macau is looking an awful lot like Las Vegas. It’s a very interesting environment and for Las Vegas and the American gaming market, the world changed toward the end of 2007, and it may never go back to what it was before. We’re in a very interesting transition period.

What’s the biggest threat to Las Vegas’ dominance in the industry: Macau? Tribal casinos across the country? Or another venue we haven’t talked about?

I wouldn’t view Macau as a threat. With respect to baccarat play, there’s a lot that’s complimentary. If you take the baccarat players out of Las Vegas, it’s essentially a national market with international overtones. It gets a smattering of European and Asian and other global visitors and that’s been a growing segment over time. But Macau really doesn’t compete against Las Vegas except for, perhaps, at the very high end. I think there’s more complimentary than competition that we’ve seen so far. That may change over time. That said, there is a reasonable argument to be made that what we’re seeing now is the maturing of the American gaming market and, arguably, the gaming market in many other countries as we find the long period of fairly dramatic growth that we had seen in gaming seems to be coming to an end. This may be masked by the recession and the slow recovery. There’s a possibility that what we’re going to see in the future is fairly limited, slow, single-digit growth in gaming revenue, nothing like we’ve seen in the past 30 or 40 years.

How has the casino industry changed as a result of the down economy?

The one striking feature is that virtually every major gaming company found itself caught in overleveraged situations and this was all built around the unbridled optimism that prevailed until 2006 and 2007. In some respects, it was an interesting microcosm of the U.S. and local economies. There was a lot of overleveraging taking place. The gaming industry in particular viewed itself as nearly invulnerable, and Las Vegas, in particular, viewed itself as a place that could continually transform and develop a new destination that would be successful. This time around, it just didn’t work. Very obviously, the transformation of Las Vegas into a place with longer-stay tourist accommodations — condominium development — didn’t work. What was fascinating is the tremendous amount of belief in that particular next generation, not only from the gaming companies themselves, but from the financial institutions that were more than willing to provide the tens of billions of dollars to finance it. What we’re seeing now is a pretty painful shake-up as we go through this and you see a lot of it in Las Vegas. The question is, as we come out of this particular hard time, will we return back toward what was happening before? I think that’s where the interesting debate is. We may never go back to that over-the-top optimism and spending that we saw.

How is Reno faring during the downturn?

Both Reno and Tahoe, you can make a very strong case, have been in long-term decline. For Lake Tahoe, it’s pretty clear if you look at the numbers. You can go back to 1990. From 1990 to 2007, there was roughly a 50 percent reduction in real gaming revenue adjusted for inflation, employment, number of gaming devices and table games provided. There was clear attrition in the number of properties that survived.

Why is it so bad for Lake Tahoe?

Lake Tahoe doesn’t have a local population base and that’s probably its biggest issue and so it happened. One of the surprises for Lake Tahoe was that people who ran the casinos and those who observed thought that people would come to Lake Tahoe because of the beauty of the lake and because of the gaming and accommodations. It was really unprecedented. There was nowhere else in the world that had such a stunning setting for casinos. But the reality was that as more and more gaming became available in tribal casinos in California and the Pacific Northwest and, for that matter, as Las Vegas got easier to get to, we discovered that people who had been going to Lake Tahoe really were motivated more for the gaming than the outdoor beauty and aesthetic. As a result of that, Lake Tahoe really couldn’t effectively compete. The market has really declined. Right now, you’ve got Harrah’s (Entertainment) and Harvey’s with about 80 percent of the market. Montbleau had a nice remodel on the old Caesars and has pretty much struggled ever since they left the Caesars brand. They haven’t done terribly well and the Horizon is effectively closed for all practical purposes, even though contractually it has to remain open for three more years or so. Since 2007, it’s been even more dramatic. It’s a combination of not only the Great Recession, but the opening of Thunder Valley (in California) and much more intense competition among the tribal casinos in the Sacramento area, which makes it difficult for the peripheral properties to survive.

In Reno, you’ve got a similar dynamic. Reno held together with pretty slow single-digit (percentage) growth until about 2000 and then it hit the wall. It’s been pretty dramatic in terms of the decline in both real gaming revenues and nominal gaming revenues with a lot of bankruptcies. There’s always been a lot more pessimism in this market than you see in Southern Nevada. The easy response to it is that the gaming industry in Northern Nevada is increasingly marginalized. It’s pretty explainable in basic economic terms. The quality and availability of facilities in California, Oregon and Washington as well as Las Vegas just overwhelmed the industry that was here, and it was also unable to attract significant financial capital for the past 20 years.

The only significant new casino that was built was the Silver Legacy and when it opened, among others, the Flamingo down the street never recovered and went into bankruptcy. One telling feature is the Flamingo that originally was the Sahara Reno that then became the Reno Hilton, and later the Golden Phoenix was sold in 2000 for $5 million. There are homes in Lake Tahoe that sell for well over that. It really was an indication that this was a market where regardless of the cost of the assets the income-generating capabilities were quite limited.

How long do you expect it to take for the industry to recover from the recession?

It’s a good question and it’s a bit like the housing market. There’s such an oversupply of hotel rooms and these so-called tourist accommodation units, and this is more Las Vegas than the other areas. It’s very much like having mortgages underwater. You’re going to have a continuous supply of rental properties and low-price hotel room rentals that are going to make it very difficult for people to justify buying anything beyond that, which says you’ve got a lot of properties that are going to have to go through changes of ownership or bankruptcy until the value settles back to something that reflects what they’re able to generate. Until 2007, the sense in Las Vegas was that it always was going to have excess demand and the real challenges were all infrastructure-driven — the airport needed to be bigger, the roadways in town were not adequate to sustain tourist traffic on Friday and Saturday nights especially. Since mid-2008 when all this became increasingly aware, it has gone so far to the other side that people can’t conceptualize when the next new casino project would be built.

We’ve already seen a number of projects shut down, canceled or delayed in Las Vegas. When do you think we’ll see a see a new resort?

It’ll take awhile. You’ve obviously got Fontainebleau and Echelon that are partway along. For the Echelon, there’s obviously a question of whether it will physically deteriorate before anything comes about. But the Fontainebleau … it’s still a big number to finish it. And the Cosmopolitan is going to, interestingly, open before the world improves very much so that’s going to add to some of the challenges. The early returns on CityCenter, I gather, are not overly optimistic in terms of solving the problems that Las Vegas has.

The striking feature is that megacasinos had always created a bump in tourism numbers with a sense of curiosity or the “I’ve-got-to-go-see-that-new-property” feeling and be in Las Vegas. When the Palazzo opened and when Encore opened and now when CityCenter opened, we just haven’t seen anything close to that. The best we can say is that on Palazzo, the negative numbers that should have occurred, didn’t. And so its month of opening had very flat numbers in a previous-year comparison. But Encore didn’t get any kind of a bump and CityCenter, from what I’ve seen so far, hasn’t had a very significant impact.

There are a lot of things going on at this point. One of them very well could be that this recession has been so dramatic that people have become much more cautious with their spending than ever before. We’re seeing this in terms of higher savings rates and a lot of this is because of asset values went down so much that people’s perceived wealth has dramatically affected their spending plans. This is all bad news for a place like Las Vegas that for so long had been dependent on over-the-top spending. There were some observations that some of the analysts had made prior to 2007 that are coming to fruition, that everything was being built at the five-star level. It wasn’t a very good mix. Everything was Bellagio or Wynn or Encore or Palazzo style and that market was just not that thick.

Then, there are other interesting little wrinkles like the nightclub scene in Las Vegas that had become an interesting niche in the market and that was the kind of extravagant overspending that had been damaged by the recession and by a lot of people losing ground economically. Interestingly, in another strange twist, Tiger Woods’ problems were focused around the clubs and the thousand-dollar bottles of Cristal, etc. I think his difficulties probably removed a little bit of the fantasy that some of the people that were participating and imbibing in that lifestyle may have gotten a big of a wake-up call.

What do you think is going to happen with Boyd Gaming’s Echelon and the Fontainebleau, which is now under Carl Icahn?

Fontainebleau, I think, someday will open and probably will be the next big property because the shell, which is pretty impressive as a physical structure, is there. Whether Carl Icahn is the guy who completes it or not is going to be an interesting question. There are some design questions. One thing that is happening is that Vegas is becoming more vertical. There’s a question whether Fontainebleau, which is on a pretty small footprint, is going to be a viable property or not. Will that kind of a plant work?

The other challenge is that it’s on the north end of the Strip, which all of a sudden has become a much quieter area than had been anticipated. If you go back three or four years ago, the north end was not only going to have Fontainebleau, it was going to have a rebuilt Sahara, it was going to have the Kerzner-MGM project across the street. Turnberry was there. The Frontier was going to turn into the Plaza, and Crown was going to build next to the Riviera. There was a lot that was going to happen and as far as I can tell now, virtually none of it’s going to happen. The Fontainebleau’s biggest challenge, even if it does build, is that it’s going to be very isolated. The Sahara is probably going to remain in its current state for quite a while so therefore it’s a long way from where the action is. Echelon is a little harder. It’s only half a billion dollars … only. It’s got a lot further to go. It was going to be a $5 billion project when it was first put forward.

You’ve got the issue of exposure to the elements with the steel that has been put up and it’s been two years now. It’s a technological question, I suppose, on how well you can protect that. My suspicion is, at some point, you begin losing the integrity of that product, which means back to bare ground. It is not unlike the Frontier site then. It’s a very expensive piece of real estate for which there may not be a market for a while. I would say it has a less likely probability of coming into existence.

Is there enough expansion in the industry that companies like IGT and Bally Technologies will weather the economic storm?

They’ll probably do OK because the other thing we’ve seen through this recession is increased interest on the part of a lot of jurisdictions in the United States and, to some extent, elsewhere in the world to address some of their fiscal challenges by legalization and expansion and that bodes better for the manufacturers than the gaming companies. A lot of the activity we saw on the East Coast back to the year 2000 of slow but steady expansion and then a much bigger push since 2007 and 2008 will help. The other thing that is going to be of benefit to IGT and Bally and the other manufacturers is just the age of the existing stock of gaming equipment because of the recession. Because of some of the conservatism that started creeping in in 2007, we’ve gone a long time without a significant replacement cycle. Just like used cars, at some point you’ve got to get rid of the clunkers. That will kick in at some point with new gaming devices, that plus whatever new technologies are going to catch on and there’s a lot of new technology floating around.

Besides the economy, what do you consider the biggest issue facing the casino industry today?

The one big issue that might be happening, and this is one I’m sort of pondering and trying to get a good handle on myself, is that it may just be that we have hit a level of maturity of the industry that suggests what we have been watching since the ’60s onward has pretty much culminated and the next big questions may be intergenerational. For example, we have gaming that is built around table games that have been of diminishing importance for everybody but Asia, and gaming devices that are really just increasingly souped-up video games with gambling overtones. Whether those products transform to the next generation or not is going to be an interesting question with all the social networking that is emerging. This is why it will be interesting to hear what some of the technical people have to say. The future of gaming may take a very different direction and it may not be one that ends up with big-box casinos playing little-box video games. It may go more in the direction of much more Internet, remote and networking gaming. One of the observations about Northern Nevada you can make is that it skimmed the cream on easy gaming revenue. It never developed a diversified product like Las Vegas did. So it had casinos that offered very nice gaming, predominantly slot machines, but not a lot of other attractors. The entertainment product was always there, but it was diminishing in importance from about 1980 onward. The food product was OK, but it was very much on the formula of food is a loss leader and it became increasingly obsolete over time. Las Vegas managed to avoid that, beginning with Steve Wynn and the Mirage, and it really started developing in a much more diversified and multidimensional context and did very, very well until 2007 with that formula.

There was lot of hand-wringing over what was going to happen when CityCenter opened, whether the flood of new rooms was going to unfold as overcapacity or whether it’s going to be a must-see attraction that will drive visitation. Give your assessment of what has occurred so far.

What’s happened is one of the challenges. The hope, of course, is that by the time we see full recovery in the economy — and it might still be a year or two away — that CityCenter will be viewed as a very interesting, very attractive place. But the MGM numbers that came out in May were not terribly encouraging for that. Its year-over-year comparison to last year before CityCenter opened was not good on a revenue basis, suggesting that there might be quite a bit of cannibalization of its own properties taking place there. The broad phenomenon is that if you take the timeline and draw a ruler through November of 2007 and view capital decisions that were made before then really were for a different world than we’ve seen since then, and CityCenter got caught on the wrong side of that. It was very ambitious, very high end and very elite on the belief that the market would be there. I also think there was in implicit belief that the synergy with Dubai World would be very strong and all of a sudden there would be a place that brought the Middle Easterners to Las Vegas in droves. I have no idea if any of that dynamic has taken place, and certainly it hasn’t taken place in any visible sense. Obviously, the Middle East and many other parts of the world have had their own difficulties to work with.

What are you seeing as the effect on other properties now that CityCenter has opened?

The company that seems to be showing the strongest so far is Wynn. This is my anecdotal perception, that Wynn is still the top of the market and whatever happened at CityCenter has not pushed them off the block. Then, you move down the street to Las Vegas Sands. It has very nice physical properties, but I think its focus has obviously been on Asia right now. The jury is still out on Singapore (for Las Vegas Sands) for other reasons. The fascinating issue to look at there is the question of the high rollers, the junket operators and the VIP rooms that have made Macau what it is. But so far, the Singapore government pretty much has said, “You’ve got to play by our rules,” and they’ve said, “Well, we’re not interested in playing.” This poses some interesting questions in Singapore. Can they survive off the local market and the mass market and everything but the VIP segment of the market?

Let’s look at some other industry issues. Do you think legalized online gambling will ever become a reality in the United States?

I think it will. I’m getting the sense there’s momentum developing in a number of corners that ultimately will bring about legalization.

Why?

Intrastate Internet poker may be the camel’s nose under the tent. California had hearings on that, and I think there was legislation introduced a few weeks ago by a state senator that would authorize that. Other states have talked about it, too. New Jersey has. Iowa has. If I recall my federal law correctly, if you have a number of states that legalize Internet gambling, you’re probably going to be allowed to go from one state with legalized Internet gambling to another state with legalized Internet gambling without violating the Unlawful Internet Gaming Enforcement Act in the same way that slot machines can be transported across state lines from one legal jurisdiction to another. You may end up getting a domino effect of states desperate for revenue looking at online poker or, for that matter, other online gambling as a revenue source and weakening the arguments against it. That, plus a number of countries in Europe (are) already moving forward on legalizing Internet gambling. So, we’re going to get better information on what are the real social impacts and the legislation that led to the 2006 Unlawful Internet Gaming Enforcement Act. That kind of thing might happen again in the other direction. Legislation at the federal level on gambling is always tricky. It’s a hard one for people to support, (Rep.) Barney Frank notwithstanding. He’s given it a lot of visibility, but it’s tough to get a lot of senators and congressmen to get up and say, “Yeah, I’m voting for gambling.”

How could the regulation of online gambling represent opportunities for Nevada?

I would think there would be. You’d really get into the soul and psyche of the various corporations. As I said earlier, I think a lot of them are still shellshocked, in retrospect, from bad financial positions they found themselves in for the last couple of years. I think companies like MGM and Harrah’s are going to be affected by their financial status for some time. They’re not going to be able to perform in the manner that they have historically done. Harrah’s is a marketing-driven company that’s very customer-service oriented with tremendous sophistication on the technological side of things. It knows its customers. But since its private-equity buyout, I think it’s been so financially strapped that it’s put its marketing technology on the shelf. That’s just my guess. It could very well have a long-term impact on its ability to come out of it on the other end.

Does an absence of significant customer relations and customer interaction for three or four years permanently undermine your ability to get those customers back at the other end? That’s the dilemma they’re going through. (The executives are) banking on Internet gambling, it’s one of their strengths and they’ve been playing a strong political position.

With MGM, the parallel is it’s a bricks-and-mortar company and it likes to build beautiful casinos of which it has done on various occasions. But it’s going to have a lot of trouble getting the capital to do that again, so it seems its emphasis has been shifting to selling the brand and it needs other people’s money to build. So it’s become hamstrung. In their own ways, Las Vegas Sands and Wynn, the other key players, have been affected, but they’ve got Asia to turn to, and if Asia continues to be very, very successful … Steve Wynn said that’s where he’s going. He didn’t say it in the best of ways perhaps, but his message was that’s where the action is.

The long-running debate in Nevada is whether large casinos should pay more in gross gaming winning tax. Our current rate of 6.75 percent is the lowest in the nation. Can they and should they pay more given the state’s budget situation?

If you go back to normal times — there was a lot of discussion about three years when the teachers were pushing for what effectively was a 50 percent increase in the tax rate to finance education — and you view this as a relatively competitive industry, if you put a significant increase in the tax there’s going to be very dampening effects on the ability to attract financial capital. These are all pre-2007 arguments and we’ve seen other dampening effects for attracting financial capital. Right now, there are a lot of questions about survivability. The challenge Nevada has on the tax issue is that this is a state that ranks just about at the bottom in almost every measure, especially on education and negative social impacts. There’s not a lot to be proud of. We just have a tremendous problem stepping up and saying this is the level of public services we need in all of these critical areas and we have to figure out a way of taxing ourselves to pay for it. Our whole approach has been if we can tax the other guy and get away with it, fine. The gaming industry created that opportunity for a long, long time and I think that opportunity has really diminished. To go back and try to turn to the gaming industry one more time when it is in much more dire straits would be a mistake, if only on the concept that you’ve got to have a broader tax base than a single industry.

There’s been a debate about whether gaming companies should pay more in fees to cover the costs of regulating the industry. Is that a reasonable request of the industry that it at least pay all the costs of regulation?

They already do. I don’t want to belabor the point because I think a lot of other pundits and journalists have done so, but the gaming industry directly still pays nearly 30 percent of the general fund revenue and, frankly, with sales tax contributions pushes it up to about half of the revenue to the state. My concern would be that if the gaming industry does not recover — and there are reasons to believe that it may not recover certainly to the extent that it was before — we’ll have a real long-term economic crisis in this state. We’re not going to make it any better by creating a tax structure that continues to push problems onto that same industry. One of the issues, and it has been bigger in the past decade in the north than the south, is that the gaming industry in Northern Nevada has been of diminishing importance. The tax structure for the state is still very gaming-dependent and is not terribly broad based. As a result, if trends continue, the preponderance of population of the state is going to be in Clark County. And Washoe County is heading to become the 16th “cow county.” One of the difficulties I’ve been talking to business groups around here about is given the tax structure, given the fact that Clark County’s per-capita income is about 20 percent higher than here, Clark County’s tolerance to subsidize Northern Nevada is going to get smaller and smaller over time. In your own enlightened self-interest, if you want police and fire and education and infrastructure that is going to be complimentary to high-value-added industry, you better figure out something on the tax side because this is a situation that is heading for disaster. And this was before the economic crisis. The broader issue is that Nevada has a terrible challenge in front of it of trying to come up with something that is fiscally responsible that will work. Given the tone of politics these days, my level of pessimism has really pushed toward the edge of despair.

What’s your take on the regulatory problems in several properties’ nightclubs and lounges?

I think a lot of it was just the absence of controls that were being exercised by the licensees themselves. This was basically subcontracting to nightclub companies that played much faster and looser than casino companies were used to or allowed to. Some of the scandals that broke in Las Vegas were, in retrospect, not terribly surprising.

Should smoking be banned in casinos? Why or why not?

It’s one of those things that should or shouldn’t isn’t the right question. There may be an inevitability to it. One of the interesting dimensions to this, and it’s almost philosophic, is that people who smoke, drink or gamble too much are doing things that are not necessarily good for their health, physical, psychological or spiritual sense. This may be one of these issues that may occur as we come out of this significant recession is that people may show a little more discipline than they may have had in the past, which may be good news for them and good news for public health issues, but not necessarily good news for Las Vegas especially because it’s a city that, obviously, has been built around excess. The smoking issue feeds into that. People oppose smoking for a number of reasons. One is the secondhand smoke issue, another is just aesthetics. Converted smokers and nonsmokers can become evangelical in the way that they preach the worth of nonsmoking. The secondhand smoke issue is a real issue that opens the matter of liability. My suspicion is that at some point, given trends we’re seeing throughout the world, it may be very difficult, even in places like Nevada, to prevent the global trends from somehow occurring here. In the interim, the technology dimensions of rapid recirculation of air are not bad in reducing the risks of secondhand smoke adequately.

I would suspect that in new facilities, probably yes, but going back to our earlier conversation, if we’re not going to have a lot of capital investment in new facilities, I think there may be technologies that are not easily adapted within the casino environment. The other part of this is the obvious evidence that has accumulated that when you ban smoking in casinos you really have dramatic negative impacts on gaming revenue. That goes back to the good-and-bad-behavior discussion. Are you really doing a disservice to someone by saying you can’t smoke in the casino, therefore you’ll have to constrain your gambling to however long you can last without smoking? For many people, that’s an hour or an hour and a half and they leave so they don’t spend three or five or 10 hours in front of a slot machine. I don’t want to make the observation, but some people are going to say, “Yeah, they’re better off. They’re not squandering their money as much, they’re not smoking as much.” We’ve sort of forced them in a paternalistic context to take better care of themselves.

Steve Wynn has announced that he is considering moving his corporate headquarters from Nevada to Macau. What’s your view of that strategy?

I would view it in a couple of ways. One, Steve Wynn is a visionary and his real interest is in the creation of new properties and the creation of new iconic structures. He is not as interested in the operational side. If you look at the United States and for that matter, Las Vegas, versus Macau and Asia, there’s no question where the action is going to be and I thought that part of his statement that made sense. The part that didn’t make sense, of course, was the Obama bashing. He just set himself up for so many interesting pundit observations on hypocrisy and stupidity. But then, he’s never been terribly tactful. He has a long history of speaking his mind, and sometimes his mind runs in unusual directions.

Do you think we’re going to see other companies, such as Las Vegas Sands, considering the same thing?

The Sands is harder to read because Sheldon Adelson is the big physical presence. He’s that much older than Steve Wynn and his health is not as good. There’s a real question of succession with Las Vegas Sands that is more pressing than with Steve Wynn. I would imagine looking at Wynn, he’ll say, “OK, one more phenomenal development,” and he’s getting to the age and with his vision issues that perhaps creates a sense of intensity.

I think Sheldon Adelson made that decision seven or eight years ago (to be heavily invested in Asia) when he committed to the Cotai Strip and to the Venetian Macau and especially to the Singapore project. He’s built his really edgy properties now. It’s a matter of seeing whether they’ll work within that environment. The action is likely to be in Asia for the foreseeable future. There’s still Japan to come forward to legalize if their politics ever stabilize. Thailand has been talked about as a place to attract significant financial capital. Taiwan, of course.

There’s a lot of growing middle class and enthusiasm for gambling in Asia that the American markets may have already gone through. I don’t think they hold the same kind of electricity for people who want to be on the cutting edge. This is assuming that we don’t see significant changes in direction on the technology side or on the direction the gaming companies go.

The other thought, and this is a perspective I’ve had for a long time, is that if we draw parallels between the gaming industry as it has evolved for the last 60 years and the movie and cinema industry as it evolved from the early 20th century to the late 20th century into current times, we used to have the big palaces, the movie theaters that were almost like cathedrals. Effectively, they’re all gone now. They were replaced by multiplexes and increasingly they’re being replaced by home theaters and streaming video and all of the delivery systems that have become second nature. It dramatically changed what prevailed until the 1960s — the Pantages and Grauman’s Chinese and all the architecturally interesting thousand-seat facilities. In some respects, casinos may go the same way. What we’ve seen in Las Vegas and, for that matter, many other places in the United States are the palaces and cathedrals that were built as site-specific centers for people to go to gamble. Given the new technologies that are evolving, it’s quite possible that the tastes and preferences of future generations, perhaps even those immediately upon us, will gravitate toward a very different delivery system on gambling and games. This also gets into the question of whether we’ll have traditional gambling as we’ve gotten used to or will we see some hybrids develop that are more consistent with some of the technologies that are becoming so widespread with people in their teens or even younger?

Does the institute have a role or stance in how well companies participate in “problem gambling” programs?

We monitor it a lot and I’m pretty actively involved in a variety of ways individually. I’m past president of the National Council on Problem Gambling and I’m vice president of the Nevada council and I’ve served on similar boards in South Africa and the United Kingdom. It’s an issue that has picked up a lot of importance in the last decade or so, less in the United States than in other jurisdictions, and it’s an Achilles’ heel for gaming companies. Since the recession, it has fallen down on the priority list in terms of corporate strategies to address it and that’s driven by the necessity for survival by many of the companies. It’s one of those issues, as with alcoholism and the abuse of substances, that’s always going to be with us. Companies can take responsible corporate positions that are partly public relations and are sometimes well motivated, but never totally effectual. I think the interesting dimensions on that entire arena are likely to come out of the neurosciences. We’re likely to learn more about addictions in general and brain wiring in the future. It may enlighten us a lot as to how people become pathological in whatever their area of weakness and therefore what cures and strategies are most effective in dealing with it. I think the thrust of this is it’s going to shift the emphasis more and more to the scientific and medical side of this picture than the moral and ethical side of this issue. It’s always been painted as a moral question. The gambler is morally weak, the casino is predatory and therefore morally bankrupt. That emphasis, I think, is going to go away, especially as gambling becomes increasingly mainstream and this relates back to jurisdictions that will use gambling to patch up their own fiscal problems.

Has the time come for Nevada to reconsider allowing slot machines in grocery stores, convenience stores, even the airport?

Practically, probably not. I guess my reaction there is what we have done is create an entire industry that is not a bar-and-tavern industry or a convenience-store industry. It’s really a bar and tavern with a little casino and a convenience store with a little casino, even a supermarket with a moderate-sized casino. You can’t pull that out without undermining the survivability of a portion of that sector. I did a study on this some time ago. If you look at the proportion of bars and taverns per capita in Nevada compared with other states, it’s around 20 or 30 percent higher. A lot of that is sustained by the gaming revenue that is a very important contributor to the bottom line of those operations. If you didn’t have gambling in bars and taverns, you’d probably have 20 or 30 percent fewer bars and taverns in the state. Pragmatically, if we were to ban slot machines in bars and taverns, you’d cut out 20 or 30 percent of those businesses and believe me, at the Legislature, you would hear about it before it would ever occur. It’s almost a nonissue in Nevada. I think other states is where the interesting question is. We’ve seen a lot of states consider expanding into bars and taverns because they’re desperate for revenue. This gets into the problem gambling issue, in terms of social impact questions based on the experience of New Zealand, Australia, Canada, South Carolina. There’s a lot of evidence that would suggest that if you’re going to have casino-style gambling, of all your choices, that’s probably the least attractive in terms of benefits you might get in terms of job creation and capital creation versus social impacts on various segments of the community.

Tell us about the International Conference on Gambling and Risk-Taking that you conduct every three years in Lake Tahoe. How big is it and what are some of the topics you address?

It’s primarily aimed at academics and researchers. The last time, a year ago, we had about 300 in attendance and 180 professional papers presented. They run the gamut, but I’d say the largest proportion deals with problem and pathological gambling, treatment issues and a lot of technology questions. One of the main unanswered questions is whether there are certain technologies that are more dangerous to susceptible for problem gamblers than others. It parallels the analysis of the effectiveness of drugs. There are certainly some drugs that are more dangerous than others in terms of addictive characteristics or life-threatening characteristics. It’s one of these issues that hasn’t really come up very strongly in gaming, but it may get more attention in the future.

Obviously, the manufacturers don’t like the question and the industry has never has addressed it. Other areas of significant importance that we’ve dealt with at these conferences involved the mathematics of gambling. If you trace back to the beginnings of these conferences, the first few that we had in the 1970s and ’80s, all of the mainstream mathematicians who were doing blackjack analysis often presented their seminal work.

We had a lot of the noteworthy characters, many of whom have passed on. In more recent years, there’s been some very interesting analysis by people who have had computerized systems that have been very, very successful in exploiting inefficiencies in the market. There’s a book out now called “The Quants” by Scott Patterson that’s all about the MIT physicists that went to work on Wall Street and developed all these models based on Newtonian physics applied to the financial markets. That book starts with Ed Thorp and his blackjack analysis as a way where you could systematically analyze a structure and find a way to beat it. The book suggests that Thorp got scared off by some of the bad guys in the gaming industry and shifted his emphasis to Wall Street, but he was the first one to do this kind of work. There are still people who are doing very sophisticated quantitative mathematical analysis around gaming opportunities.

There’s a fellow named Bill Benter who became famous in Hong Kong by exploiting the relatively inefficient betting markets there and made substantial revenue there. He actually started as a card counter in Atlantic City and came to one of our conferences in the early ’80s and picked up a paper by one of the mathematicians on exact probability estimates for horse racing and developed the algorithms himself over a number of years and became very successful at it. One of the hot topics we’ve been seeing more and more in recent years is prediction markets: Using gambling as a way of predicting future events, whether they’re political or economic or social. There’s a whole subarea in economics and quantitative analysis developing around that.

So we have that and we have business analysis in a variety of areas, including marketing management, corporate strategy questions around the gaming industry and social and economic impact questions. So the conference really is a five-ring circus of gaming- and gambling-related topics. We went to the once-every-three-years format in the late 1970s on the argument that if we had conferences too frequently we would burn out all the researchers. Since then, what has happened is the amount of research done on gambling has increased fairly dramatically, but so have the number of conferences at which people could present. We’re still probably the dominant academic conference. There’s a conference in Europe that runs every third year that we schedule around and a conference in China every year that’s been going on for about seven or eight years, but these are much more regional and geared for the challenges in those particular markets. Our next event will be in 2012.

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