Integrated Resort Casino Development and its Impact on Tourism in Slovenia

Institute for the study of gambling Faculty of Economics, Unviersity of Ljubljana

dr. Hugo Zagorek

Institute for the study of gambling

Overview of the presentation 1. What is the relationship between casinos and tourism? 2. What are the specifics of the Slovenian gambling market? 3. Case study: Hit-HET integrated resort casino: what went wrong?

Institute for the study of gambling

Linkages between casinos and tourism

Several categories of tourists exist Primary purpose of visit
Gambling tourists General tourists Regular (overnight) tourists

1. Casino-style gambling has potential for attracting out-ofregion visitors

Length of stay 2. It is attractive, because its supply is severely limited.

Day-trip tourists

3. Significant tourism enhancing benefits can occur only if majority of the customers come from outside the region

Border Border casinos casinos as as tourist tourist attractions? attractions?

Institute for the study of gambling

Factors that influence the degree of developmental impact of casinos on a tourist destination
1 2 3 4 Casino is the additional (secondary) attraction General and gambling Out of state tourists that spend at least one night at the destination Stand alone casino, integrated resort-casino Moderate impact

Level Relative importance of casino in relation to other tourist attractions on the destination Category of visitors

Casino is the main attraction

Casino is the main attraction

Casino is the main attraction

Gambling

Gambling

Mostly gambling Out of state tourists that spend at least one night at the destination

Predominant type of visitors

Local visitors

Out of state day-trip visitors

Possible types of venue

Stand alone casino, urban casino

Stand alone casino, resortcasino, border casino Moderate impact

Integrated resort-casino

Degree of tourism and developmental impact on the destination

No impact

Significant impact

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Geographic distribution of casinos in Slovenia

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Total gambling market in Slovenia

489 435
110

500 450 400 Gross gaming revenues (mio ) 350

Casino parlors Regular casinos Sportrs Lottery (betting) National Lottery

373 311
38 60

77

298
300 250 200 150 100 50 0
15 55 72 178

264
16

21

239 240 207 187 193

Gambling parlors and sports betting segments exhibit fastest growth

18

25 19 60 81

34

52

85

88

2001

2002

2003 Year

2004

2005

2006

Casinostyle gambling holds 72% market share

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Number of visitors in gambling parlors is increasing; it is stagnating in casinos

Domestic visitors in gambling parlors Foreign visitors in gambling parlors Domestic visitors in regular casinos Foreign visitors in regular casinos 2.830 2.546 2.583 3.392 3.842 4.336 4.830

5.000 4.500 4.000

Number (in thousand)

3.500 3.000 2.500 2.000 1.500 1.000 500 0 2001

Foreign visitors represent 68% of all visitors

2002 2003

Year

2004

2005

2006

2007

Source: Office for Gaming Supervision, 2007.

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Market shares in the Slovenian casino industry

0

Market shares in 2006 4 8 12 16

Trni de le v letu 2006 (v % )

20

24

28

32

C. Perla (N.Gorica) C. Park (N.Gorica) C. Korona (Kr.Gora) C. Lipica (Seana) C. Portoro (Portoro) I.S. Princess (Nova Gorica) I.S. Vrtojba (empeter pri Gorici) I.S. Paquito (Volja Draga) I. Kobarid (Kobarid) I.S. Astraea (Lipica) I.S. Larix (Kr.Gora) I.S. Gold (Seana) I.S. Karneval (kofije) I.S.Kongo (Grosuplje) I.S. Joker (Maribor) C.Ljubljana (Ljubljana) I.S. Lev (Ljubljana) C. Bled (Bled) I.S. Fortuna (Nova Gorica) I.S. Koper (Ljubljana)

Hit is the largest player with 54% market share. Two biggest casinos create 45% of all gross gaming revenues Several gambling parlors are bigger than regular casinos
Source: Office for Gaming Supervision, 2007.

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Export versus domestically oriented casinos: spending per visitor

107 110
Regular casinos Gambling parlors

120 100
Averate revenue per visitor ()

100 89 83 94

80 64 60 58 40 20 0 2001 2002 2003 2004 2005 2006 2001 2002 2003 2004 2005 2006 Export-oriented Domestically-oriented 45 37 23 26 30 38 66 59 62 64 60 57 60 54 53

44

Year and type of casino

Source: Office for Gaming Supervision, 2007.

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Domestic spending for gambling is growing rapidly (17% per year)

Slovenian residents spent 67% of their gambling budged on lottery and sports betting in 2006. Casino-style gambling expenditures are the fastest growing segment
90 77 31 60 57 17 59 70 73
Spending per resident for lottery and sports betting

140

Average gambling related spending per resident (in )

123 104 50 35

120

Average total gambling spending per resident

100

Spending per resident for casinotype gambling

80

60

24

48 13

15

40

20

35

45

53 40

0 2001 2002 2003 2004 2005 2006 2007* * Projection

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Gambling expenditures of foreign tourists represent 30% of total tourism service purchases
Non-specific products Connected products 6.2-Gambling 6.1-Sports and recreational sport services 5-Cultural services 3-Passanger transport services 2-Food and beverage serving services 1-Accomodation services

Inbound tourism consumption

Domestic tourism consumption

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The contribution of gambling sector to Slovenian tourism

1. Tourism represents approximately 4,9% of GDP. 2. Gambling expenditures of foreign tourists: 196 million 1. 30% of total tourism service purchases 2. 19% of total foreign tourists expenditures 3. Casino-style gambling industry generates the highest value added percentage: 75% 4. Multipliers for gambling industry are high: 1,43 & 2,05 1. However, 92% of all foreign tourists are day trip tourists 2. Major challenge of casino industry: to increase tourism component of their offering

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Overview of the proposed Hit-HET project (I)

Hit begins discussing megacasino project Hit begins talks with Harrahs entertainment Public announcement of the negotiations Government cautiously supportive, but not taking the leading role Negotiations between Hit HET Final version of integrated resort casino project is released to public Government prepares changes in the legislation, but does not send them to the parliament

1999 2005 2005 2005 2006 2007 2007

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Overview of the resort-casino project (II)

Existing gambling capacity in Nova Gorica 1. 2.270 slot machines 2. 105 gaming tables 3. 1,6 million visitors

Basic facts about project: 1. Investment: up to 850 million 2. Hotel with 1.500 2.000 rooms 3. 3.000 slot machines 4. 120 tables 5. Plenty of other facilities 6. Full capacity in 5th year 7. 562 of total revenue in 5th year 8. 25% of non-gambling revenue 9. 3.250 employees 10. 4,4 million visitors per annum

Impact of resort on tourism sector in Slovenia: 1. 11% - 15% increase in the number of hotel rooms 2. 50% increase in total gambling capacity

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Benefits of the resort casino

Positive economic benefits occur because majority of visitors come form abroad export of services. Economic benefits may be direct and indirect. Indirect effects emerge because of: spending of the resort-casino for goods and services in the country Spending of the resortcasinos employees in the country Spending of the tourists outside the resort-casino

1. Increase in tourism, increase in visibility and attractiveness of Slovenia as a tourist destination 2. Economic development of the region 3. Development of the economy and growth of GDP 1. Increased revenues of companies 2. Increased houshold income 3. Increase in employment 4. Increased value added 5. Increased tax income

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Total impact of the proposed resortcasino

Construction phase* Direct Indirect 144,5 76,6 2.481 18,6 Total 262,8 111,8 4.241 31,8 Operations phase (5 year) Direct 550,9 445,2 2.896 56,5 68,7 33,9 19,0 53,0 75,2 Indirect 307,2 169,7 6.048 43,4 62,4 Total 858,2 614,9 8.944 100,0 68,7 137,6
th

Type of effect

Output Value added Employment Net household income Gambling privilege tax** Other taxes and contributions

118,4 35,2 1.760 13,1

** Gambling privilege tax was calculated assuming the 18% total effective tax rate.

in mio EUR

Costs of the resort-casino

Institute for the study of gambling

Substitution effects Impact of resort-casino Cannibalization of Hit on changes in values of Cannibalization of other casinos local communities and society as a whole? Increased social costs caused by gambling Players: Problem gambling Employees: difficult working conditions, night shifts, Most of the Society: increased crime ? social costs Increased social costs caused by mass tourism associated Strain on local infrastructure (traffic, water, ) with Damage to the environment gambling Immigration of workers as a burden on local infrastructure ? are exported abroad. Potential negative impact on other tourism sectors, associated with image of gambling destination

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Problematic issues

1. Who will have majority ownership in the Hit-HET resort? Legal manipulations? In mid 2007 2. Lack of transparency letter of 3. Role of the government? intent was 4. Resort opened out a broader debate in Slovenia on signed the merits of gambling became focal point of between anger for anti-gambling interest groups Hit and HET but 5. Unrealistic business plan? was not revealed to 6. Fear of cannibalization of existing casinos the public. 7. Public opinion grew more and more negative
Opposition to gambling in general Opposition to foreigners in this sector Fear for local casino companies

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Leassons learned
1. Need for open and broad public debate BEFORE the investment. 2. Need for transparency of process on all levels. 3. Need for clear objectives (strategy) from the government regarding gambling sector. 4. Government should lead the process: international public tender instead of trilateral negotiations. 5. Large foreign direct investments may be difficult in jurisdictions with well developed domestic casino industry. 6. Public opinion does matter!

In the begging of 2008 Hit and HET announced that they are stopping the negotiations

Integrated Resort Casino Development and its Impact on Tourism in Slovenia

Institute for the study of gambling Faculty of Economics, Unviersity of Ljubljana

dr. Hugo Zagorek

Institute for the study of gambling

Substitution effects
Degree of substitution
Output Value added Employment Net household income Gambling privilege tax Other taxes and contributions

0%
858,2 614,9 8.944 100,0 68,7 137,6

20%
794,3 569,0 8.308 92,6 56,0 127,5

40%
730,4 523,1 7.672 85,2 43,3 117,3

60%
666,6 477,2 7.036 77,8 30,7 107,2

* Degree of substitution refers to the percentage reduction in revenues of two largest casinos in the regions, operated by the Hit. ** Gambling privilege tax was calculated assuming the 18% total effective tax rate.

Institute for the study of gambling

Strategic considerations and implications

1. The resort-casino is focusing on day-trip visitors. 2. Optimistic revenue projections? 3. The project is only possible in the low gambling tax rate environment. 4. Questionable merits of partnership in the joint venture. 5. The project might provoke retaliation from the other side of the border. Conclusion: Largest tourism investment, increasing total tourism revenues in the country by 15%. Benefits far outweigh the costs. Various stakeholders (negotiating parties) may influence the size of total net impacts (upwards or downwards).

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What can we learn

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Thank you!
Studies of the Slovenian gambling industries and the impact of proposed casino-resort are available at: Ministry of Finance:

http://mf.gov.si/slov/zakon/predlogi_igre_sreca.htm
and Institute for the study of gambling:

http://www.ef.uni-lj.si/enote/ipig