A quick European tour By Andrew Tottenham, Managing Director, Tottenham & Co January 23, 2018 at 7:00 pm The French land-based casino industry saw another year of growth in 2017. Overall gross gaming revenues (GGR) increased by 2.4% to €2.3 billion, but within that there were definite winners and losers. Lucien Barriere, the country’s largest operator by GGR, saw its gaming revenues increase by 3.6% to €695 million. Groupe Partouche, the second largest operator, was almost flat, and Groupe Joa, the third largest was up 3.2% to €211 million. One of Lucien Barriere’s casinos, Enghien les Bains, accounts for almost 25% of the operator’s total gaming revenues. Enghien les Bains sits in the suburbs of Paris, the only casino in a city with a population of over 12 million in the metro area. Clearly the casino could be much larger, but the government imposes a maximum number of slot machines, in this case 450. Enghien’s luck stems from a law of 1907 which allowed casinos only in “spa” or “resort” towns; the idea being that casinos should only be in places frequented by the rich. Enghien managed to obtain a designation as a spa town – the only spa town in the Paris metro area – and the rest is history. Switzerland is starting to see some improvement in gambling revenues. Switzerland saw GGR fall from almost €1.9 billion in 2008 to just under €1.6 billion in 2015, but 2016 saw a 7% increase to €1.7 billion. The casino in Baden, one of the largest in the country saw revenues increase in 2017 by 1.3%, admittedly not much but at least not a decrease as with the years before. Swiss casino operators have been very quick to blame falling revenues on cannibalisation by online casinos who target Swiss players, even though online gaming is illegal in Switzerland. It’s not clear what happened in the past two years, but the online casinos are still there and still targeting Swiss customers, so it looks as if the operator’s protestations do not hold up to scrutiny. Of course, one might argue that the revenues might have been higher had there not been any online casinos. However, analysis of gambling revenues tells me that apart from regulatory shocks (smoking bans, imposition of access controls, tax increases) the thing that impacts gaming revenues above all others is economic conditions. The old story that casino revenues are not impacted by economic recessions does not hold water. Generally, in a recession, as many people gamble as before but the amount they spend is reduced. Has Switzerland been suffering from a recession since 2008? No, it suffered a very short one in 2009 and its economy has grown ever since. So, how, you might ask, do I justify my comment about the impact of general economic conditions? In the case of Switzerland there is one other factor that comes into play. Many of Switzerland’s casinos cater to customers from other countries – those who live just across the Swiss borders in France, Germany, Austria, and Italy, as well as those who visit the country on business. Those other countries did suffer from the impact of the global financial crisis, but all have returned to growth in recent years. However, most customers from other countries get their income in Euro, or in US dollars, but the casinos transact only in Swiss Francs. Since 2008, demand for Swiss Francs has been high, and the Euro has devalued significantly against the Franc. In 2008, one Euro would have bought you 1.65 Swiss Francs; today it buys you around 1.17, a decrease of almost 30%. US dollars have devalued by 16% over the same period compared to the Swiss Franc. In my opinion, rather than attack other sectors of the gambling industry, operators’ time and money is best spent lobbying for change that can positively impact their business. Usually, any mud that is thrown finds its way back in one way or another. In Campione, a part of Italy but completely surrounded by Switzerland, the casino is in trouble. This year Casino di Campione failed to pay about €30 million to the municipality. Prosecutors from the Public Prosecutors’ office of Como have served a winding up order on the casino, making various allegations against management. They believe that after years of losses it is impossible for the casino to fulfil its “social purpose” as is required by law, to pay a fixed amount each year into the municipal budget of Campione. Italian casinos, losses? I’m shocked! There are only four legal casinos in Italy, all in the north of the country. A few years ago the casino in Venice was put up for sale because it had become a drain on public resources, with the municipality paying money into the casino to prop it up. A public auction ensued but no one bid – the terms were too onerous, especially since there could be no salary or staff reductions for seven years. No serious operator could see their way to making a return on their investment. Italian casinos are owned by the municipalities. Mayors like to reward their voters by increasing the number of jobs in the casinos. Unions are strong and threaten strikes for mainly unjustified reasons, as for example the introduction of change machines on the casino floor. In some instances, jobs have been created specifically for certain people. Municipal officials will not take on their voters and avoid strikes at all costs, wage bills increase but rarely decrease. I seem to remember that the Venice casino’s labour costs were in excess of 50% of annual GGR. Only when faced with a real crisis will mayors act. In the case of Campione, the mayor has suggested an across-the-board 20 percent cut in salaries. Will this be enough? The court hearing to determine whether the winding up order should go ahead will be held on March 12. Casino di Campione’s balance sheet doesn’t look to good; assets €18 million, liabilities €56 million. Ouch!