Italian gaming machines market: Regulation model and his effects

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Italian gaming machines market: Regulation model and his effects

ITALIANGAMING MACHINESMARKET: REGULATIONMODEL AND HIS EFFECTSSeptember 2010Emmanuele M. CangianelliMAG CONSULENTI ASSOCIATI


Why we are here• To synthesize the Italian Electronic Gaming Machines regulatorymodel as the first and the major realization of the Italian approachto gambling regulation• To explain an experience in changing figures from a dramatic greymarket to a regulated, monitored and profitable market within asocial, economic and competitive sustainable business environment• To shape next market developments and regulatory targets• To consider this experience in shaping new jurisdictions ‘sgam(bl)ing regulatory and business models (i.e. Greece, Poland…)September 20102


Shaping the marketSeptember 20103


How change figures from a dramatic greymarket to a regulated, monitored andprofitable market?• In 2002 – 2003, after some uninspired attempts to regulate thegaming machines market, Italian Parliament approved for the firsttime electronic gaming machines (AWP) regulation guidelines• AAMS (State monopolies and gambling authority) drafted operativeregulation; in the meanwhile grey machines were legitimized to havea first significant tax income and to evaluate market dimensions• Therefore, was published the first new AWP regulation and launchedthe tender for concessions allowing the right of operating gamingmachines in the Italian market by controlling all administrative andoperational data• The AWP regulation in 2004 was the first result of the AAMSapproach to reach a social, economic and competitive sustainablebusiness environment in Italian gambling marketsSeptember 20104


Social, economic and competitivesustainable business environment• Shift State monopoly approach (maintaining and managing gamblingtax revenues as a policy tool): from direct management or ban to concession and progressive opening to all gambling markets(2006: betting and online skill games \ poker; 2010: online casinogames)• Introduce (lotteries exception) multi-operators markets• Develop online managing \ auditing systems for any gamblingactivity• Enhance distribution chain responsibilities, confirming revenueslevelsSeptember 20105


Gaming machines allowedAWP2Server monitoredMultiplayerAWP2(roulette-like, black jack-like)VLTServer basedSeptember 20106


Competitive, economic and sustainablebusiness environment10%15%75%Systemcertification(SOGEI)CentralControl SystemsAAMSEGM ManagementMoney collectionConcessionaire (fully integrated)Concessionaire (integrated)Concessionaire(system provider)AWP owner \commercialoperatorAWP certification(laboratories)Venue ManagementVenue \AWP gamespoint of saleVenue \AWP gamespoint of saleThe model permits a significant role to operators differentthan “game owners” concessionaires (near 70% of NGR)A competitive marketwith:• 10 concessionaires• more than 100 licensedmanufacturers• more than 1.500commercial operators• more than 110.000 AWPvenuesNetworked AWPs systemsallows to constantlymonitor how manymachines are operatingand how much turnoverand GGR is generated7


ResultsSeptember 20108


Present Italian (legal) gambling marketsturnoverGamingmachines;25.200;43%Betting;6.151; 10%20094HistoricalCasinos*4.5558%Lotteries;18.874;32%Bingo;1.512; 3%OnlineCard andskillgames;2.348; 4%Presently, nearly half of the italiangambling market turnover isgenerated by EGMGamingmachines;15.137; 47%Betting;3.384; 11%H1 20104 HistoricalCasinos; 2.230;7%Lotteries;8.850; 27%Bingo; 948; 3%Online Cardand skillgames; 1.654;5%€ mln – Market turnover.For Casinos* , estimated handle. Casinos EGM are different than AWPsSource: AAMS, ANIT, MAG AnalysisSeptember 20109


Gaming machines market evolution400.000AWP1 machinesAWP2 machines30.000350.00025.20025.000300.000250.00018.60821.46620.000200.000150.000100.00050.000-120.0002.451275179.00010.705226.00015.2271.199 1.705275.000348.000 340.0002.346 2.715 3.0792004 2005 2006 2007 2008 2009operating AWP Turnover (€ mln) NGR (€ mln)€ mln EGMSource: AAMS, MAG Analysis September 201015.00010.0005.000010


Gaming machines market evolution500.000Operating EGM in Italy(including grey and black machines)35.000EGM turnover in Italy(including grey and black machines)450.000400.000350.000300.000250.000200.000150.000100.00050.00030.00025.00020.00015.00010.0005.00017.5512.45120.70510.70523.727 25.350 26.449 29.01115.22718.60821.46625.20002004 2005 2006 2007 2008 2009Operating EGM in Italy* Legal EGM02004 2005 2006 2007 2008 2009EGM turnover in Italy*Legal turnoverOperating EGM, € mln turnoverSource: AAMS, MAG Analysis - * 4 historical casinos EGM not consideredSeptember 201011


Social sustainable business environment• Dampen illegal \ grey market to around 15% of the whole marketEnsure games rules and payouts to playersExpel illegal organizations from one of their core marketsMore effects in fighting grey market will come in 2010 (AWP market entirelyworks with AWP2 machines, operating with encrypted data \ smart cards onmotherboard)• (some) responsible gaming tools on AWPs (self setting of time \wagers limits)• limits to machines operating by venue typology (since 2003)• (some) communication programs to distribution chainSeptember 201012


Next targetsSeptember 201013


Present business scenario• Italian gaming market started the new Video Lottery Terminals era VLTs are server-based gaming machines connected to central controlsystems, managed by concessionaires and audited by AAMS approach taken to this new regulation - in development since 2006 andfinalized within the funding program caused by the Abruzzo earthquake(2009) - is based much more on the general Italian approach toonline/networked gaming regulation than AWPs VLTs payouts (RNG determined, including jackpot systems) starts from 85%(rather than fixed 75% in AWPs) terminals may be installed only in dedicated gambling venues and mayworks with cashless systems• VLTs segment aims to:cover the last mile to the total public control of the EGM market, fightingillegal offer with an even more competitive offerpush players more to dedicated gambling venues than from the presentlypredominant street venues (coffe bars)September 201014


Expected EGM market turnover bybusiness model20092012Streetoffer69%Streetoffer40%Dedicated venues15%4HistoricalCasinos16%Dedicatedvenues52%Around 2012, gross gaming revenues of EGM dedicatedvenues should go over 40% of the whole market4HistoricalCasinos8%% turnover (handled wagers) – Casinos EGM are different than AWPs and VLTsSource: MAG AnalysisSeptember 201015


Italian EGM market positioning evolutionWorld ofentertainmentLocal targetReality ofgamingmachines andcasinoenvironmentworldwideItaly 2012Italy 20xxTourist targetItaly 2010Italy 2005GamblingSource: MAG elaboration on a E. Bidault layout16


Next regulatory challenges• What we expect:More skill-based gaming (with introduction of poker tournaments indedicated venues)More cashless operation, with higher security and opportunity (formarketing and RG objectives) for player tracking and consumer behavioranalysisHigher commitment from gaming companies (rather than to streetoperators) to prove their socially responsible approach• Enhance responsible gambling programs• Effective under age gambling control in dedicated venuesDedicated venues to become a strength in harm minimization• All those targets needs:maintaining low taxes and a stable regulatory environmentnational policies targeted to local and\or social destination of gamingtaxesSeptember 201017


In this paperShaping the market• How change figures from a dramatic grey market to aregulated, monitored and profitable market?• Social, economic and competitive sustainable businessenvironment• Gaming machines allowed• Competitive, economic and sustainable businessenvironmentResults• Present Italian (legal) gambling markets turnover• Gaming machines market evolution• Social sustainable business environmentNext targets• Present business scenario• Expected EGM market turnover by business modelItalian EGM market positioning evolution• Next regulatory challengesMAGis a strategy and business advisoryfirm.MAG assisted Italian gaming andbetting authorities in shaping andstarting up the Italian gamblingregulated market in 2002-2007.Presently, MAG advises some ofthe major companies involved inItalian and European gamblingmarkets.For further informationemcangianelli@mag-ca.itinfo@mag-ca.it19

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