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Gaming Guru

Richard N. Velotta

Gaming Parlors are not Producing Desired Results

17 November 2004

When gaming industry lobbyists persuaded the Nevada Legislature, the Nevada Gaming Commission and the state Gaming Control Board to approve a dramatic policy change allowing gamblers to bet behind closed doors, casino executives had dollar signs in their eyes.

But what a difference a couple of years makes. After industry officials said they anticipated gamblers betting millions of dollars in private parlors, casino officials now say only a handful of players have found their way to the special rooms.

Gaming commissioners will hear more about why Thursday and determine whether they want to extend the two-year temporary licenses of two casinos that have international salons, Caesars Palace and Mandalay Bay. The MGM Grand already has had its license extended.

High hopes prevailed when parlors were first under consideration.

There are super-whales out there, backers said, maybe only a few hundred of them, that won't play in Nevada because they would only wager in private parlors offered in foreign countries.

Allowing the establishment of international gaming salons in Nevada could dramatically improve a casino company's bottom line, they argued, and thus, the state's tax take. They said the extra money, and the boost to Strip casinos' ability to compete for the world's biggest bettors, justified the abandonment of the traditional "wide-open gaming" requirement for all Silver State gambling, rules that forced casinos to allow patrons access to every inch of the gaming floor.

Industry leaders talked up the benefits three years ago when the private casino proposal was on the table and a year later when they opened the first salons. But in the two years they've been open at the MGM Grand, Caesars Palace and Mandalay Bay, the salons have been costly duds.

The Gaming Control Board unanimously recommended approval of the licenses earlier this month, but the regulators were clearly disappointed with the results so far.

"There was some uncertainty going in as to just how big this market was going to be," said Control Board Chairman Dennis Neilander. "No one really knew at the time how big it would be."

Neilander said the board is preparing a report for the Legislature outlining exactly how many new gamblers have used the salons, but he said he doesn't have any preliminary numbers. In testimony before the board earlier this month, casino executives said it was less than a dozen.

Neilander said there were several challenges to enticing high-rollers to the salons, including the sluggish economy worldwide and the outbreak of the SARS virus in Asia.

While legislators, board members and commissioners were optimistic that private casinos would help Nevada when proposals were debated in 2001, they also were operating in an uncertain environment, months after terrorists hijacked and crashed airliners on the East Coast, putting the state's tourism industry in a tailspin.

"I thought it was an excellent idea then (when it was first raised in September 2000) and an idea whose time has come, realizing that this is something different and new and gaming had always been open to the public," said Gaming Control Board member Bobby Siller at a Nov. 8, 2001, meeting.

" ... The purpose of the international gaming salon what that we had a market out there of individuals who are high rollers, so to say, very wealthy individuals that did not gamble here in Nevada because of the lack of total privacy," Siller said. "I mean absolute total privacy. And they had their reasons for wanting this privacy, and it seemed logical and acceptable to me at that that time."

Gaming industry lobbyists focused on the financial upside of the proposal when making their case.

"There are certain premium international casino patrons whose fortunes and interest in gaming who wager tens of thousands of dollars per hand," said Bob Faiss, a senior partner with Lionel, Sawyer & Collins, on behalf of his client, MGM Mirage. "Those patrons are accustomed to the highest standards of hospitality, which include security and privacy during their gaming activities. Senate Bill 283 requires the Nevada Gaming Commission to adopt regulations for the licensing and operation of international gaming salons which for the first time will allow Nevada casinos to operate on an equal playing field in attracting these customers to Nevada.

"We are not talking here about thousands of people," Faiss said. "They probably number in the hundreds, but with the capability to generate substantial additional revenues for the different jurisdictions. Nevada has the opportunity to generate substantial revenues by creating this international salon."

How much would it be?

"It could range from hundreds of thousands of dollars up to $20 million, $30 million or $40 million," said Bill Timmins, the former chief executive of the Aladdin.

"Minimum bets of blackjack would be $15,000 to $20,000 per hand and for baccarat, it could be in excess of $100,000 to $150,000 per hand," added Dan Wade, a former MGM Mirage executive.

"It would put us at an extreme competitive disadvantage with the other major jurisdictions of the world, primarily those that have been in operation the longest, which are (in) London," said John Groom, former president of Caesars Palace.

"Once you get into the private casinos in London, there still are private rooms where certain higher-end customers, or in some cases, people that want to remain anonymous for various reasons, perhaps typically they would be travellers from the Middle East, who may be travelling during Ramadan and engage in activities that they would rather not be made public," Groom said. "We in Las Vegas have not been able to significantly cut into that market. That's one market that I would like to see the industry as a whole expand into."

When members of the Gaming Commission heard arguments at their Dec. 20, 2001, meeting, the state was still in recovery mode from 9/11.

"This is a competitive regulation and it's also the more competitive you are and the more revenue that you generate by attracting players and keeping existing players," said Jack Godfrey of Schreck, Brignone & Godfrey on behalf of the Nevada Resort Association. "But we cannot ignore recent events, the tragic events of Sept. 11, and the drastic effect that it's had on the economy in general and the gaming economy specifically."

Bill Bible, president of the Nevada Resort Association, said state lawmakers approved legislation allowing the salons to operate.

"They saw this as a revenue generator for the state, not only good business for the licensee,and as the licensees prosper, the state prospers," he said.