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The Battered Gaming Industry: A Case Study for Our Times?

In The Battered Gaming Industry, IGI Executive Director Bo Bernhard makes an interesting observation: the moment that the Las Vegas-based gaming industry finally "cleaned up" via strong regulation was, in retrospect, the very moment that gambling became globally popular (and massively profitable). Typically, economists associate "strict regulation" with "profit killing" -- but in the gaming industry the opposite was true. Both of these events (the regulatory cleanup and the meteoric rise in profits) took place in the mid-1980s, and though Las Vegas' popularity can be attributed to a number of factors during that period, one of these factors can be traced to the fact that once gambling became "clean," it became socially acceptable for a much larger population to gamble. And any time you can open your store's doors to a larger customer base, that is, by definition, a good business day.

Bo J. Bernhard, Ph.D.




Industry Comment
An occasional opinion piece highlighting gaming industry issues
and insights, legal developments, economic aspects, and other topics of
concern to executives, managers and policy makers.
In this issue:
The Battered Gaming Industry:
A Case Study for Our Times?
Bo J. Bernhard, Ph.D.
These are times of turmoil; ergo, these are times of finger-pointing.
The gaming industry has certainly been on the receiving end of its share of pointed
fingers. Take, for instance, this quote excerpted from the US national media:
Like a gambler on a prolonged winning streak. Las Vegas had the feeling
its run of luck couldn't end... but when the excitement died down, the
town looked at its new places where customers were scarce and the
betting light, and wondered: Has Las Vegas pushed its luck too far?
The headlines ofthe article are no less predictable: "Has Las Vegas Overextended
Itself? Gambling Town Pushes Its Luck."
The arguments in the article make some intuitive sense: like a gambler intoxicated
on his own success and overly confident that this bodes well for his future (laws of
probability be damned), the Las Vegas-based segment ofthe gaming industry finds itself
in a bind not unlike that of its less fortunate customers. Now, like an unlucky gambler
after a long losing streak. Las Vegas finds itself questioning its own foundations, and
indeed wondering about its own long-term sustainability.
The punch line here, however, is a temporal one, and one that is familiar to those
who have followed the industry through its ups and downs over the years. The date that
these seemingly timely accusations were published in the national news media?
June 20...
1955.
In a cover story in LIFE magazine, no less - a venerable journalistic institution that
was among the most influential and widely-read in its day. So certainly, the negative
attention that the gaming industry has received of late is not new.
This does not make it any less damning, however, and the most recent attacks come from
a surprisingly wide variety of voices - from the political right, from the political left, and
even from the new US president.
John McCain, himself a famously passionate casino gambler, made a point of giving
gambling a center-stage appearance on his presidential campaign's web site. As was the
case in 1955, his arguments have what researchers call "face validity" - they make sense
in our gut and on the surface. McCain vehemently decried the "casino culture" that has
replaced the (presumably Puritan) foundations of our national economy, and blamed the
current economic downturn on Wall Street types drunk on speculation (Mason, 2008).
These perspectives are not limited to conservative commentators. Even
York Times
conservatives are to be believed - has published an anti-gambling critique entitled "Keep
It in Vegas." And it comes from no less revered a voice than Thomas Friedman - perhaps
the most influential editorial columnist ofthe 2000s:
The Neweditorial page - purported to be the most liberal in the American media, if
UNLV Gaming Research & Review Journal
Volume 13 Issue I 55
Now is the time for coolly sorting out what markets can do best and
what governments need to do better... In sum, government's job is to
police that fine line between the necessary risk-taking that drives an
innovation economy and crazy gambling with other people's savings
in ways that threaten us all. We need to make sure that what happens
in Vegas stays in Vegas - and doesn't come to Main Street. We need
to get back to investing in our future and not just betting on it (A'lT,
September 16,2008).
Once again, few would argue with Friedman's logic: the fundamental question before
us requires "coolly sorting out what markets can do best and what governments need to
do better," and it seems to go without saying that "crazy gambling" is not the answer.
The "what happens in Vegas stays in Vegas" quote might have served as a cheap and easy
writing device, but the metaphor is clear even if it was not meant as a direct, literal attack
on the city.
However figurative these kinds of arguments might be, though, they still can have
real effects on the actual gaming industry. To see this, of course, we need only observe US
President Baraek Obama's recent off-hand comment that during these times of trouble,
he did not want to see stimulus package dollars supporting Las Vegas jaunts - a statement
that sent Goldman Sachs, among others, scrambling for less offensive (and ironically,
significantly more expensive) meeting locations such as San Francisco (Friess, 2009).
What is so often missed in the race to "point" and blame, however, is the (admittedly
more tortoise-like) quest to understand. But understanding is vital in the gaming industry -
perhaps now more than ever, as in 2009 and beyond, the industry (and many others) may no
longer have the luxury of relying upon a "consumption-consumed" customer base.
So let us try to invoke the spirit of research - let us try, through sober empirical
inquiry, to understand. To start, let's put forth a simple proposition that runs exactly
counter to the spirit of these media attacks: perhaps the gaming industry provides a "howto"
map rather than a "how-not-to" admonition for our times.
Rather than pointing fingers at "gambling" or "Las Vegas" or "casinos" as illustrative
of what is
illustration of some things that are
right now. If Thomas Friedman is correct (and I think he is), the
key question of our day is this: what can markets do best and what
can governments do better? And I would modestly propose that the
gaming industry is one industry that has been surprisingly effective
in forcing a graceful "dance" between its allegedly nimble
private sector interests and the presumably awkward government
metronomes that dictate the beat.
To explain why this might be the case, it helps to tum to the history of this oftmaligned
industry in the United States. This history is dotted with sparkling examples of
eye-catching moments of entrepreneurial genius - sprung forth from the minds of famous
dreamers from Bugsy Siegel to Steve Wynn. More quiet but no less important, however,
was the behind-the-scenes transformation ofthe government's role in regulating this
industry. "Quiet pioneers" such as Grant Sawyer, Shannon Bybee, the not-so-currentlyquiet
Harry Reid, and even our own International Gaming Institute's Patty Becker helped
develop a regulatory model admired the world over for its thoroughness, effectiveness,
and perhaps most importantly, what we might call its "cleanliness." The victories in this
sphere were alternately plodding and sudden, and have been outlined in greater detail
elsewhere (see
of these quiet pioneers). Unquestionably, these efforts reached a vital pinnacle in the
mid-1980s, when the last remnants of organized crime were removed from the executive
suites on the formerly dusty boulevard known as the Las Vegas Strip.
Looking back with the benefit of hindsight today, here's what's noticeable about
the mid-1980s in the gaming industry: it was from almost exactly this moment that
wrong in America right now, we might be better off fingering this industry as anright -^ and "right" in ways that are remarkably timelyNevada Gaming Law, 3rd edition for a summary authored by several
Perhaps the gaming industry
provides a "how-to " map rather
than a "how-not-to " admonition
for our times.
56
UNLV Gaming Research & Review Journal Volume 13 Issue 1
The Battered Gaming Industry: A Case Study for Our Times?
the industry took off, and indeed became a truly global economic force. Now to be
clear, this "takeoff' happened for a lot of reasons - from the aforementioned Wynn's
entrepreneurialism to relatively monopolistic market conditions to the transformation
of access to capital (another development that looks different today with the benefit of
hindsight). But
effectively "cleaned up" via govemment regulation.
Here's why this happened: for the gaming industry, cleaning up was not just a
masterful govemmental stroke - it proved to be a brilliant stroke of marketing genius.
Once the Nevada-based gaming industry began to demonstrate that it could operate and
regulate cleanly, it became more socially acceptable for, say, conservative church-goers
to dip their toes in Las Vegas' alluring waters (and then to return to their pews and tell
their fellow congregants about it). Somewhat unwittingly, this opened Las Vegas' doors
to a much larger market - one that included a much bigger swath of the population. There
are few ironclad "laws" in business, but this might be one of them: anytime you can
dramatically broaden your market, this tends to be a good business "thing" for virtually
any business entity. In this case, gaming opened up, and the world in tum became
more open minded, at least as it pertained to gambling as a socially and economically
acceptable activity.
For their part, other governments watched these successful developments and
gradually warmed to the possibility of offering gaming in their jurisdictions. This
process took place over and over, and arguably reached its zenith in 2006, when even
the prohibition-prone government of Singapore -
purchase chewing gum and bans all sorts of "deviant" behaviors - decided to open up its
doors to welcome two of the largest, most spectacular casinos on the planet.
While many economists tend to assume that the equation is straightforward, and
more aggressive government regulation inevitably leads to lesser profits for the regulated
industry, for the gaming industry it did not exactly work this way. The industry figured
out an effective balance between govemment regulation and free market principles
- or put more precisely, govemment provided the appropriate (but make no mistake,
more stringent) regulatory framework that in tum allowed the free market to do what it
does best. It bears re-emphasizing that this is a gross oversimplification, but it remains
a useful one: the gaming industry's historical chapters without serious, effective
government regulation yielded a relatively small-time, shunned industry. The chapters
when the industry got serious about regulation, meanwhile, have helped usher in an
era of unprecedented global economic growth. As was the case in the Progressive Era
of the early twentieth century, govemment and business worked together to produce
regulation—and the end result, while hardly perfect, emerged as a marked improvement
over the past.
Rather than pointing to the industry as an example of what's wrong, then, perhaps we
might use it as an imperfect-but-informative "how to" case study in academic, research,
and policy settings. Today, those who criticize America's "gambling problem" might
be well advised to take a closer look at the targeted industry itself. What they may see
is a highly-regulated industry, where customers have been protected from unscrupulous
operators. In contrast, regulators of the banking and securities industry are accused
of, at a minimum, misfeasance in allowing toxic assets, sub prime loans, complicated
derivatives, and credit swaps to run wild (and essentially unregulated) — while its
customers have stood by largely unprotected by govemment or industry. If you are one
of the many consumers who has misplaced her confidence in 2009, which of these two
approaches inspires trust?
And while the gaming industry no doubt faces massive challenges today (with
too much debt and not enough inflows in a time of precipitous economic declines
worldwide), this broader, longer historical trajectory remains clear. This is why today's
gaming leaders are often quick to point out that theirs is the rare US industry that
one clear reason why the industry was able to take off was because itSingapore, where it remains illegal towants
strong regulation. Put simply, this is an industry that has effectively grappled with
UNLV Gaming Research & Review Journal
Volume 13 Issue I 57
the complex dance between government and the free market - or to put it in Thomas
Friedman's terms, this is one sector that has to a significant degree addressed the key
question facing our times. This is especially ironic given that in one breath, Friedman
aims his editorial sword at "crazy gambling," and in the next, he wonders where on earth
we might find a sober answer to the government-private sector quandary that baffles our
best minds today.
If we want to "coolly" figure out what the private sector can do best and governments
can do better, we could start by coolly studying gambling.
And that, for readers of this journal, is pretty... well, "cool" as my students might say.
References
Friedman, T. (2008, September 16). Keep it in Vegas.
March 15, 2009 at http://www.nytimes.com/2008/09/17/opinion/17friedman.html
Friess, S. (2009, February 14). Las Vegas sags as conventions cancel.
Times.
html?_r= 1 &scp=3&sq=obama%201as%20vegas&st=cse
Gambling town pushes its luck. (1995, June 20).
The New York Times. RetrievedThe New YorkRetrieved March 15, 2009 at http://www.nytimes.com/2009/02/15/us/15vegas.Life.
Lionel Sawyer & Collins. (2000).
authors.
Mason, J. (2008, September 18). McCain, Obama seek reform amid economic turmoil.
Nevada gaming law (3rd ed.). Las Vegas, NV: The
Reuters.
idUSN12345561200809]7
Retrieved online March 15, 2009 at http://www.reuters.com/article/topNews/
Acknowledgement I
for their thoughtful critiques of earlier drafts of this essay.
58
would like to thank Bill Eadington, Tony Lucas, and Michael GreenUNLV Gaming Research & Review Journal Volume 13 Issue 1

Las Vegas and Houston: Global Command Centers in the Sun Belt

University of Nevada, Las Vegas | Copyright 2011
Bo J. Bernhard, Ph.D., Mikael Ahlgren, Ph.D. (candidate)
Download PDF | Read Press Release (PDF)
UNLV International Gaming Institute Report Urges Las Vegas to Embrace
Global Gaming Ventures, Invest in Intellectual Capital
LAS VEGAS—November 18, 2011— Las Vegas could learn a lot from Houston.
Much like Las Vegas, Houston was a one-industry town. When Houston’s main
economic engine – oil production – moved overseas, the city suffered an economic
downturn. However, Houston’s slump ended when it began exporting its intellectual
capital.
Las Vegas should look to Houston for cues on how to get itself out of economic peril,
according to a new study published by Bo Bernhard, executive director of the
International Gaming Institute
Bernhard and Ahlgren’s report is available in this month’s
Review Journal
With Houston’s oil and reserves depleting, the study notes, companies began searching
internationally for business opportunities. Houston capitalized on its expertise in
manufacturing, operations, engineering and finance developed around the oil industry.
Houston’s strategy worked and Las Vegas is well poised to follow suit, Bernhard said.
Las Vegas’ casino-resorts have developed a rich base of local executives and industry
experts.
Las Vegas’ international influence is apparent, Bernhard said. Las Vegas has established
relationships with Macau and Singapore – both of which have adopted Las Vegas’
casino-resort model and iconic architectural design and have flourishing tourism
economies. Now, Las Vegas could leverage its gaming expertise abroad by investing
locally in career, cultural, and educational programs that would spur intellectual
development, Bernhard said.
“While many lament that the gaming industry seems to have moved overseas, this is not
necessarily a sad historical chapter for the city,” Bernhard said. “Las Vegas’ integrated
casino resort model is admired the world over, and local executives, government
officials, and companies are seen as the most qualified experts to develop these types of
gambling assets.”
Already, much of Macau and Singapore’s revenues are linked to Las Vegas-based
companies. According to the report, Las Vegas-based companies now generate 40
University of Nevada, Las Vegas Page 2 of 2
percent of Macau’s casino revenues. Las Vegas Sands has a market share of 15 percent,
while Wynn Resorts has 13 percent and MGM has 11 percent of the share.
But Bernhard urges Las Vegas to do more to attract talented individuals who will want to
work and create a home in Las Vegas. He urges officials to invest locally in career,
cultural, and educational programs that would further spur intellectual capital.
According to the report, below is an overview of Houston’s turnaround:
UNLVand UNLV hotel college graduate student Mikael Ahlgren.UNLV Gaming Research and.
Companies began to search internationally for new business opportunities
manufacturing, operational, engineering and financial knowledge
Houston invested in intellectual capital and capitalized on its expertise in
Alternative energy firms like wind and solar power came to Houston
Downtown offered four major sports teams in brand new arenas
Houstonians adapted to globalizing economy
Houston became a global command center for international energy industry
Leaders invested in civic/cultural programs to improve quality of life for residents
According to the report, below are ways Las Vegas can follow Houston’s example:
complexity of the gaming/entertainments industry’s future
Invest in educational programs that will develop local talent to handle the
companies that would like to create a stronger online gambling presence
Build upon technology base already established with gaming manufacturing
a region likely to increase gaming activity
Boost airport connectivity to Asia, where gaming is thriving, and to Latin America,
local arts and cultural programs
Commercial gaming industry could attract a higher level of talent by investing in
The report is available online on
###
IGI’s web site.
UNLV is a doctoral-degree-granting institution of 27,000 students and 3,300 faculty and
staff. Founded in 1957, the university offers more than 220 undergraduate, masters and
doctoral degree programs. UNLV is located on a 332-acre campus in dynamic Southern
Nevada and is classified in the category of Research Universities (high research activity)
by the Carnegie Foundation for the Advancement of Teaching.

Media Contact: Afsha Bawany, UNLV Office of Media Relations, (702) 895-5515

LEARNING FROM HOUSTON: HOW LAS VEGAS CAN
TURN ITS ECONOMY AROUND

Research

Internet Gambling in Nevada

University of Nevada, Las Vegas | April 2007
Bo J. Bernhard, Ph.D., Anthony F. Lucas, Ph.D., and Elena Shampaner, Ph.D. (candidate)
Download PDF
UNLV International Gaming Institute Report Urges Las Vegas to Embrace
Global Gaming Ventures, Invest in Intellectual Capital
LAS VEGAS—November 18, 2011— Las Vegas could learn a lot from Houston.
Much like Las Vegas, Houston was a one-industry town. When Houston’s main
economic engine – oil production – moved overseas, the city suffered an economic
downturn. However, Houston’s slump ended when it began exporting its intellectual
capital.
Las Vegas should look to Houston for cues on how to get itself out of economic peril,
according to a new study published by Bo Bernhard, executive director of the
International Gaming Institute
Bernhard and Ahlgren’s report is available in this month’s
Review Journal
With Houston’s oil and reserves depleting, the study notes, companies began searching
internationally for business opportunities. Houston capitalized on its expertise in
manufacturing, operations, engineering and finance developed around the oil industry.
Houston’s strategy worked and Las Vegas is well poised to follow suit, Bernhard said.
Las Vegas’ casino-resorts have developed a rich base of local executives and industry
experts.
Las Vegas’ international influence is apparent, Bernhard said. Las Vegas has established
relationships with Macau and Singapore – both of which have adopted Las Vegas’
casino-resort model and iconic architectural design and have flourishing tourism
economies. Now, Las Vegas could leverage its gaming expertise abroad by investing
locally in career, cultural, and educational programs that would spur intellectual
development, Bernhard said.
“While many lament that the gaming industry seems to have moved overseas, this is not
necessarily a sad historical chapter for the city,” Bernhard said. “Las Vegas’ integrated
casino resort model is admired the world over, and local executives, government
officials, and companies are seen as the most qualified experts to develop these types of
gambling assets.”
Already, much of Macau and Singapore’s revenues are linked to Las Vegas-based
companies. According to the report, Las Vegas-based companies now generate 40
University of Nevada, Las Vegas Page 2 of 2
percent of Macau’s casino revenues. Las Vegas Sands has a market share of 15 percent,
while Wynn Resorts has 13 percent and MGM has 11 percent of the share.
But Bernhard urges Las Vegas to do more to attract talented individuals who will want to
work and create a home in Las Vegas. He urges officials to invest locally in career,
cultural, and educational programs that would further spur intellectual capital.
According to the report, below is an overview of Houston’s turnaround:
UNLVand UNLV hotel college graduate student Mikael Ahlgren.UNLV Gaming Research and.
Companies began to search internationally for new business opportunities
manufacturing, operational, engineering and financial knowledge
Houston invested in intellectual capital and capitalized on its expertise in
Alternative energy firms like wind and solar power came to Houston
Downtown offered four major sports teams in brand new arenas
Houstonians adapted to globalizing economy
Houston became a global command center for international energy industry
Leaders invested in civic/cultural programs to improve quality of life for residents
According to the report, below are ways Las Vegas can follow Houston’s example:
complexity of the gaming/entertainments industry’s future
Invest in educational programs that will develop local talent to handle the
companies that would like to create a stronger online gambling presence
Build upon technology base already established with gaming manufacturing
a region likely to increase gaming activity
Boost airport connectivity to Asia, where gaming is thriving, and to Latin America,
local arts and cultural programs
Commercial gaming industry could attract a higher level of talent by investing in
The report is available online on
###
IGI’s web site.
UNLV is a doctoral-degree-granting institution of 27,000 students and 3,300 faculty and
staff. Founded in 1957, the university offers more than 220 undergraduate, masters and
doctoral degree programs. UNLV is located on a 332-acre campus in dynamic Southern
Nevada and is classified in the category of Research Universities (high research activity)
by the Carnegie Foundation for the Advancement of Teaching.

Media Contact: Afsha Bawany, UNLV Office of Media Relations, (702) 895-5515

LEARNING FROM HOUSTON: HOW LAS VEGAS CAN
TURN ITS ECONOMY AROUND

Responsible Gaming Device Research Report

Prepared by the International Gaming Institute


University of Nevada, Las Vegas | Copyright 2006
Bo J. Bernhard, Ph.D., Anthony F. Lucas, Ph.D., and Dongsuk Jang, Ph.D. (candidate)