HOW TO WIN A CASINO CONCESSION: A PRAGMATIC LOOK AT THE DYNAMICS OF GAMING LEGALIZATION WITHIN INTEGRATED RESORTS
2020; Mary Ann Liebert, Inc.; Volume: 24; Issue: 4 Linguagem: Inglês
10.1089/glr2.2020.0001
ISSN2572-5327
Autores Tópico(s)Marriage and Sexual Relationships
ResumoGaming Law ReviewVol. 24, No. 4 ArticlesFree AccessHOW TO WIN A CASINO CONCESSION: A PRAGMATIC LOOK AT THE DYNAMICS OF GAMING LEGALIZATION WITHIN INTEGRATED RESORTSJorge GodinhoJorge GodinhoJorge Godinho is a visiting professor of gaming law at the Faculty of Business Administration, University of Macau; and visiting professor of gaming law and criminal law at the Faculty of Law, University of Macau, in Macau, China.Search for more papers by this authorPublished Online:14 May 2020https://doi.org/10.1089/glr2.2020.0001AboutSectionsPDF/EPUB Permissions & CitationsPermissionsDownload CitationsTrack CitationsAdd to favorites Back To Publication ShareShare onFacebookTwitterLinked InRedditEmail IntroductionThis article tries to document trends and debates on the legalization of land-based casino games of chance in the first decades of the twenty-first century, especially in the largest gaming jurisdictions of East Asia and the world by revenue, the Macau Special Administrative Region of the People's Republic of China, and also the Republic of Singapore.As usually happens in gaming studies, this theme is interdisciplinary: it sits at the crossroads of morals, law, politics, economics, and public administration. The approach taken is mostly pragmatic, and therefore the legal analysis undertaken in this discussion is only introductory in nature, as much more could and should be said on the technical legal concepts involved, such as on concessions and public procurement.The discussion is divided in three parts, linked by two interludes.The first part presents current frameworks for gaming legalization and focuses on the concept of “integrated resort.” At the end of this part, interlude α illustrates possible gaming legalization dynamics.The second part looks more closely at the decisive moment in which gaming is authorized and concessions are won or lost—the public tender process—and the criteria specifically used to decide who wins the coveted right to operate gaming. There are various references to the experience of Macau of over 170 years in this field. At the end of this part, interlude β exemplifies policy objectives, claims, and promises that may be expressed or agreed during the process.The third part presents the experience of Singapore in this field, as a very important and influential case of casino gaming legalization in the context of large-scale integrated resorts.Conclusions and final observations follow, from interdisciplinary points of view, including on the role of players, and the services offered to them, in gaming legalization processes. Observations are also offered from political and business perspectives.I. Why do we have Gaming ConcessionS?1. Why is gambling legal?Gambling has always been a very controversial and sensitive topic. For many centuries it was a pure criminal law problem. It was regarded as a social evil, to be repressed and punished.Things have substantially changed. There is sustained demand for gaming in every society, and prohibition efforts attempted over many centuries across various countries and civilizations never worked. Morality evolved; entertainment, leisure, and tourism gained prominence in modern societies. Gambling is no longer seen in an extremely negative manner. Economic crises and needs have provided incentives and opportunities. Somewhat reluctantly, gambling has expanded, and the legalization of land-based operation of casino games of chance is being used to further various specific goals.How is this exactly happening? This article tries to capture the dynamics of gaming legalization from a practical perspective. Much could and should be said, from a conceptual point of view, on why gambling should be legal. As this article has a mostly pragmatic approach, such discussion will not be engaged.1Still, it should be stated that, in the author's opinion, the sustained demand of gaming services by consumers that exists in every society should be met by means of an adequate and properly regulated offer, for reasons of principle and practice.On the latter, prohibition efforts do not work and tend to create large black markets and organized crime; gambling prohibitions may generate much more serious social problems. Therefore, the realistic approach is to have a legal offer of gaming, the design of which should remove as much as possible the incentive to use illegal operators.2As a matter of principle, in the author's opinion the rationale for the legalization of commercial gaming should be debated and found in a principled manner, that is, independently, as an end in itself. Legal gaming should be viewed fundamentally as the regulation of a perennial activity that ought to be lawful regardless of economic considerations, and regardless of whether one likes it or not or considers it as “low culture,” a waste of time and money, or a corruption of the work ethic. Gambling prohibitions often are “laws not only designed to protect people from themselves, but are part of a greater moral framework designed by policy-makers to create an imagined ideal society.”3 Such purely ideologic, moral, religious, or economic arguments should never be the deciding factor in this discussion. Modern gaming law is the regulation of an area of freedom of entertainment that must exist and be openly recognized as such. Its authorization is an exercise in tolerance and openness, that is, liberalism. The same is true in the field of smoking or alcoholic beverages, which also have a special risk of harm to the consumer but cannot be eliminated in the name of moral or paternalistic considerations. Gaming has a constant demand, which must be met in the context of an intelligent, dynamic, balanced, and effective regulatory framework.This also means that the legalization of gambling should not be justified only in a utilitarian way, as an effective instrument to achieve various noble goals or support “good causes,” meet social security, develop tourism, provide financial assistance to sports, trigger urban regeneration of depressed areas, or other valid aims that may be identified in a political process.In particular, the authorization to operate gambling should not be approached as little more than a business deal between a government and a private sector operator, in which the government seeks to obtain the maximum tax revenue and/or other goals such as developing tourism and the economy, and the private sector seeks to obtain conditions to extract maximum profits. Economic and financial calculations are an inevitable part of the legalization picture but should not be everything there is to it. There are other values to consider, starting of course with the perspective of the consumer/player, who should be given a central role. The authorization of gaming should have a substantive basis that is more than an operation by which, in the words of Gomes Canotilho, “yesterday as today, gaming mutates from private addiction to public virtue if it can contribute to solve endemic shortages of public coffers.”4 Accordingly, the basis for gambling legalization should dispense with the argument of the state's financial needs.But this is never what happens.2. Legalized gambling: the primacy of the secondaryWhat always happens is that the land-based operation of casino games of chance is authorized, regulated, and taxed among an often-confusing mix of stated and unstated economic goals and moral concerns. This is mostly due to its very sensitive nature. As gaming is a “toxic topic,” there is a need for fundamental decisions on how to exactly structure the gaming industry to be carefully handled, and the result must be politically acceptable.A comparative study shows that—while accomplishing the basic objective of legalizing games of chance to meet sustained demand—public policies on the gaming sector are invariably tailored to target precise economic or social goals, for which the offer of gaming is seen or presented as an appropriate tool by political decision makers. Such goals are sometimes not totally clarified, and there should be precision about what is the main instrumental objective that the legalization of the gaming industry tries to pursue.5 Is it primarily to generate income for public services, “good causes” and social support? Is it to develop the economy, so that the land-based casino industry may potentially become a major direct and indirect source of economic growth and tax revenue? Is it basically to create integrated resorts, increase inbound tourism, and project a certain image? Is it to promote a casino-led process of “regeneration,”6 that is, economic development in depressed or very specific areas or regions in need of investment and employment? Often a variety of these objectives are presented, in no specific order of priority. It is regularly observed that it is not possible to pursue all these objectives at the same time, as they are partly incompatible.7The focus on various secondary or instrumental objectives may distract from the main goal, which, in our opinion, as mentioned, should be to meet the demand that always exists, by offering gaming within a safe, regulated, and controlled environment, so that any incentives for illegal gambling are reduced and excessive gambling is lowered as much as possible.In many cases, there are obvious tensions if not contradictions in the manner the process is formulated and presented. For example, in Portugal, the dictator António de Oliveira Salazar (1889–1970; finance minister 1928–1940; prime minister 1932–1968) was staunchly against casino gambling, which was legalized in the wake of a law passed in December 1927, just months before he took office as finance minister in April 1928. Salazar saw gaming as fundamentally incompatible with his conservative view of the work ethic and lifestyle of the Portuguese people, and a corruption of the “moral fiber.” Still, his regime never managed to fully outlaw casino gaming and accepted it as useful to develop tourism—and for propaganda, to project internationally a favorable image of the country, the regime, and the flagship resort towns of Estoril and Funchal.8In practice, economic crises are usually the trigger of gaming legalization. When there is a desperate need for money, new and reliable sources of revenue must be found quickly, and moral hesitations set aside.9 As just mentioned, casino gaming was legalized in Portugal in 1927—amidst a major economic crisis.10 The same happened in Nevada in 1931,11 and after the 1991–1993 recession,12 and also after the recent “Great Recession,” both in land-based and online gaming.In this context, the fundamental matter of principle does not seem to matter much. No politician in her right mind would speak openly that gambling should be legalized and be available because this is the right thing to do from a philosophical and principled point of view.3. Enter the “integrated resort”The modern trend in parts of Asia, where a major expansion of land-based casino gaming is underway, is to go one step further and simply not talk about “casinos.” The word “casino” is apparently often seen almost as a dirty word, and such “C-word” should be avoided at all costs. Instead, a concept was coined in Singapore that seems much safer for politicians to handle: the “integrated resort” or IR. It played a major role in Singapore and is now being widely used in Japan.An “integrated resort” is a concept somewhat vague and imprecise, which originated in tourism studies. It generally means an interdisciplinary or multifunctional and complete (“integrated”) offer. This concept encapsulates the primacy of the secondary goals, as the legalization of gaming in the framework of an IR tries to suggest that the operation of gaming is almost secondary and what really matters is everything else: the “non-gaming” parts.13Politically, this notion embodies an extremely cautious approach to gambling, where the central objective is to promote consensus on the introduction of legalized gambling and better align with public policies, especially on tourism. The IR notion serves basically as a political marketing tool, to stress that the introduction of casino gaming is not just about creating table games and slot machines, but rather vast tourism complexes with various functions or “experiences.” The casino is a relatively small part of the property, and accordingly it may have lower taxation to allow it to generate the resources needed to recover the investment and to finance other activities within the integrated resort. These may be seen as highly desirable (meetings, incentives, conferences, and exhibitions [MICE] facilities, entertainment or cultural activities, for example) but may be a lot less or not profitable. In this sense, gaming is seen as the bread and butter of the operation, which will make everything else possible, and the central decisions to be taken revolve around the “non-gaming” offer.To make this point very clear, a classification of gaming establishments has been advanced. An integrated resort is just one of several categories or types of gaming operations and it is important to distinguish them.14 An IR differs from smaller or gaming-only operations, in descending order: “limited offering destination casinos,” “urban or suburban casinos,” “gaming saloons or slot arcades,” and “convenience gaming locations.” The key point is that, in debating the possible benefits of gaming, it is important to analyze each separately and not treat them as if they were all the same: “it is imperative that policy discussions regarding casinos distinguish among what type of casino is under consideration. If the discussion is only about casinos in general, then many of the important benefits and costs are going to be misunderstood.”15 One of the suggestions that flows from this separation of different types of gaming operations is that taxes on large-scale IRs may be lower.16Interlude α: The life and death of a gaming concessionAfter seeing the paradoxical primacy given to secondary (non-gaming) issues in gaming legalization, as currently pursued within the envelope of “integrated resorts,” it is now useful, as an interlude, and to keep with the pragmatic focus of this text, to illustrate some of the possible practical dynamics of gaming concessions. These can be encapsulated in the long-term evolution of an imaginary jurisdiction, the Republic of Aleatoristan, drawing from elements observed in various jurisdictions and in different historical periods, especially in the world's largest jurisdiction for land-based casino games of chance, Macau.17 This serves to highlight some of the practical issues and concerns that the process may encounter, from the start to many years later, using basically the Macau model of concessions.1. A gaming concession, like anyone, has a life cycle. The decision to legalize the operation of gaming in the Republic of Aleatoristan was a very difficult step, adopted among doubts, fears, and protests. It was a tough choice, forced by harsh economic facts that included a full-blown crisis involving severe difficulties in financing the public coffers and balancing the budget. During bad times “abnormal” things happen, which otherwise would never see the light of the day. The rates of existing taxes are increased, new taxes are introduced, and brand-new sources of revenue must be discovered—for example in the field of gaming, which therefore, reluctantly, was legalized.Not that the demand for gaming was absent. Gambling had always existed: when it was not formally legal, it was offered illegally by criminals. It was therefore much more rational to have this problematic business offered transparently, in a controlled environment, with proper regulation to limit the downside as much as possible. And, of course, with interesting levels of taxation.Thus, among moral doubts, and under the weight of financial needs, the debate on the legalization of gaming began in the Republic of Aleatoristan. It was necessary to overcome the recession, boost the economy, create jobs, leverage tourism and, above all, obtain desperately needed tax revenue.2. The concept of a gaming concession started to take shape. Studies and economic forecasts were prepared; models and detailed options were discussed. Where to locate the operation? What investment is required? Who can operate gaming? On what terms and conditions? How to check suitability? How about smoking in gaming areas? And credit for gaming and junkets? How to prevent money laundering? How much to tax? How to control the gross gaming revenue? And where is the public support for all this?It was proposed to create a monopoly concession, to be awarded to the winner of an international public tender process. The concessionaire had to make massive capital investments within a certain deadline. The new operation would greatly increase tourism and the local economy. “Build it and they will come” was the prevailing view.Everything started to accelerate. Large international gaming companies woke up to the new emerging market and made favorable public statements. Suddenly everyone had firm opinions on what should be done. Lobbying started. Articles appeared in newspapers and magazines. Speeches were made in specialized conferences on how the Republic of Aleatoristan should regulate gaming. Ideas were floated about tax rates, the future regulatory agency, whether joint ventures should be required, and many other topics. In order to facilitate the approval and gain public support, politicians talked only about the opening of “integrated resorts” and never about “casinos.” The future operation was not going to be simply a casino; it would offer all kinds of amazing experiences.The companies interested in the gaming concession positioned themselves firmly. They started by opening representative offices and then organized shows, sponsored artistic events, and did everything they could to prove to the indigenous people how much they could do, including for the local culture. With them, the future would be brilliant. The pinnacle was reached at conferences where the many interested companies presented impressive architectural projects of the future “integrated resort,” which would create an unstoppable, extraordinary, unprecedented tourist attraction effect.The process progressed steadily, but sometimes with delays. The local politicians tried to educate themselves on the specific technicalities of the gaming sector, in order to make the best decisions. Some were against all forms of gambling on religious grounds.After long debates, reports, public consultations, and complex negotiations, parliament reached an agreement and passed the necessary laws. At the decisive meeting, the finance minister was asked how much this was going to generate in taxes. After hearing the answer, members of the opposition proposed higher taxes. It was explained that excessive taxation had counterproductive effects, but they did not seem convinced. Soon after, the government prepared the regulations and detailed specifications. Gaming was really going to happen.3. A non-binding request for concepts (RFC) was issued, to which many companies responded. Soon after, a formal request for proposals (RFP) starting the international public tender process was launched. This was the moment of maximum speculation and enthusiasm, but also nervousness. Teams worked around the clock to get the proposals ready.On the last day of the deadline, a Friday, journalists photographed and interviewed a long list of competitors with their lawyers, at government offices, delivering heavy boxes containing their proposals and all the necessary documents. Alea iacta est.The following Monday the boxes were unsealed, and a press release revealed the names of all participants. The list was quite long and interesting, but also included unknown entities. The tender committee then started its extensive and decisive work, by studying the proposals, listening to presentations by the tenderers, and then measuring the proposals against the applicable standards, using a complex system for scoring points. Journalists and analysts tried to understand what was happening in the tender committee and commented on who had better projects, more capital, experience, and chances. Some observers claimed they were sure about who would win.A few months later, the historic day arrived. At a press conference, the minister in charge announced the results: tenderer ABC Ltd scored more points in total and therefore won. On that day, the shares of ABC Ltd skyrocketed to historic highs, and then fell on profit-taking. In economic and financial television channels and newspapers, the size of the investment and the potential revenue of this new market was discussed at length.A gaming concessionaire had been found.The concessionaire immediately gave a press conference. The room was packed. She expressed her thankfulness for having been chosen. She felt extremely honored and would do everything possible to fully comply with the commitments made in the concession contract to be signed. She would make a major contribution to the economic development of this country. With her, there would be diversification, non-gaming offerings, and service quality like this place had never seen.On the other hand, for a long list of well-known international competitors the moment was of defeat and shattered hopes. All the studies, preparation, positioning, and marketing was in vain. They gambled and lost. Their shares sank, causing a mini-crash. Some did not accept the decision and sued, but the disputes did not produce any result: courts gave reason to the government, as the process was conducted transparently and fully within the law, without any kind of corruption, conflicts of interest, or interference. In a short time, the dust settled.With everything clear, it was time to start working on architectural and works projects, issues of accessibility, new roads, transportation, land use, infrastructures—a million things to solve, given that the new integrated resort would be like a small town. And above all, there was the problem of financing this enormous investment.4. Many months passed. However, the concessionaire did not start the construction work. Nothing happened, apparently.Various commentators began to ask whether there was any serious problem. Articles appeared in newspapers raising the issue. In social networks and newspaper commentary boxes many people claimed that the company was unreliable, and that they knew this would happen. Therefore, the government should act immediately and terminate the concession. Lots of questions were asked. Does the concessionaire have a secret agenda? Does she want to sell the concession to third parties, and pocket a fabulous profit, without building anything? Is the real aim to get a good position for a jurisdiction other than ours? Everyone was asking what exactly was going on.The concessionaire apologized publicly and endeavored to explain that the delays were due to technical reasons, the sheer complexity of the project, and to small changes in the plans in order to improve them and make the integrated resort even more beautiful. There were also some issues on funding, which would be resolved very soon by a syndicated loan about to be signed.It was amid this atmosphere of nervousness and mistrust that the foundation stone was formally laid. The construction of the integrated resort would finally start.5. Years passed until one fine day when, with pomp and circumstance, fireworks, firecrackers, and dancing waters, and with all local leaders in attendance, the integrated resort was opened to the public. The building was magnificent. Gaming was going to start.Large crowds of tourists arrived, some attracted by false rumors that lots of goods would be given away, including free gaming chips. In the casino, the baccarat dealers smiled; they had been training for months and today it was for real. Cheaters and card counters were also around, trying to exploit unexperienced dealers in the mass market section. At the hotel reception there were endless queues for check-in. The shopping mall, a real labyrinth, was invaded by hordes of tourists eager for new luxury goods stores and tax-free purchases. There was a lot of excitement. Some gamblers stayed in the casino for more than 24 hours.The opening day went well, and all local and regional television stations covered the event in detail. It was also a financial success. The concessionaire started to cash in very significant amounts. The tax revenue of the first quarter was much higher than initially anticipated. Very soon, the old government budget problems started to disappear, and with this finally some long-delayed public works were able to move ahead.6. The hotels around the integrated resort were all fully booked on holidays and weekends, and very well attended on weekdays due to a constant stream of conferences and trade shows. The casino did roaring business. Many small businesses and service providers worked as suppliers to the integrated resort, filling every conceivable need. The local economy had been transformed. There were occasional stories about persons who gambled too much.The concessionaire quickly became the largest employer of the entire area. She acquired economic power and considerable political influence. She operated casinos, various hotels, many restaurants, a fleet of ferries, some aircraft and many luxury cars for VIP players, dozens of buses for the mass market, in addition to real estate projects, shopping malls, shows, and the largest convention center in the country.The senior managers of the concessionaire attended all major public events. They financed other activities, supported sports events and research projects in universities. The main shareholder became known as a philanthropist. As years went by, the concessionaire acquired an increasingly important status.7. Time passed. In fact, the concession had a very long duration, of twenty years, or more if it was extended. What would happen next was for another generation and other leaders to solve, when such time arrived. They would see what to do then.However, time inexorably goes by. What at first was a very distant prospect gradually approached. There was now little time left before the end of the concession. Scholars, analysts, and bankers began to question the future. How would it be now? The pressure increased rapidly. Everyone wanted answers.After a period of silence, a government that recently took office finally announced that, as anticipated under the law, a new public tender for a monopoly concession was about to take place. Once again, a merciless moment of decision would have to happen.Analysts and commentators returned in force. The performance of the concessionaire was evaluated. Would she be able to continue? Was she going to be defeated by stronger competition?Some newspapers published opinion articles clearly linked to the concessionaire, full of warnings, stressing the need to be extremely careful and not embark on any foolish adventures. People should not believe in empty promises made by outside opportunists. This concessionaire had been here for many years, and she was the only company that could be trusted. The government should not be naive.It became very clear what everyone already knew: the concessionaire had changed a lot during these years. Before, she was like a very elegant and beautiful, but fragile, young woman. Now she was older, stronger, and heavier. She spoke with greater conviction, in a louder voice. She gained power.However, in her heart, she felt weak and fragile. She knew very well that this was, from the beginning, a marriage with a firm deadline attached and without any commitments whatsoever after that. She was now vulnerable to all kinds of influences and demands. She wanted to ensure continuity at all costs. She wanted to be in the good graces of the decision makers and tended to accept all impositions made to her. She was keenly aware that she could be unceremoniously dispatched—exchanged for another with more seductive promises. She despaired: “I do not want to die! I want to be born again and continue in the new cycle that will open! I can do so much more … ”8. And the time came for a new public tender. The concession would not be extended. We were going back to square one. The problem was that the new public tender was not an examination of the past work, like a school exam at the end of the academic year. It was a discussion around future projects, much like a job interview. The concessionaire insisted that no irresponsible decisions should be made. However, the tender committee would only look at the projects presented, as required by the public interest.And at this point a new decision was made, and we returned to the beginning.II. Awarding and Winning a Concession1. Market structureThe fundamental parameters of gaming legalization selected by governments range among a variety of legal frameworks, including the Macau-style concessions illustrated in the previous interlude, which then generate a specific dynamic. The political and administrative policies and traditions of each jurisdiction play a role in shaping the way gaming is operated.The basic question is the ownership of the industry, which may belong to the public sector (state, province, region) or to the private sector.Public ownership—such as by public charities or public companies—generally aims at restricting, “slowing,” or limiting the offer available, with direct government control. This system may also serve to provide more tax revenue.Pure private ownership, with casino licensing open to applicants at all times and free market competition, is rare (Nevada being the best example), as it may enable a potentially limitless expansion of the gaming industry. Licenses indicate an e
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