Casinos in Italy May Be an Endangered Species By Andrew Tottenham, Managing Director, Tottenham & Co August 3, 2018 at 3:00 am Italy, with a population of nearly 70 million, has only four casinos, all of which are located in the north of the country and are owned and regulated by local municipalities. Despite their shared monopoly they have fallen on hard times. In 2007 total gross gaming revenue (GGR) for all of the casinos was €550 million (US$ 640 million), but last year the total was only €290 million. All four are facing their own challenges, with one in bankruptcy. So what has caused this 47% decline? Italian casino managers will tell you that it is the rise of online gambling, which became operational in 2011 and last year generated about €500 million in revenues. But I think that the casinos have been battered by a number of external forces, some of their own making, of which online gambling is relatively small. Italy introduced a smoking ban in casinos in 2005. The immediate impact of a smoking ban is to reduce casino GGR by anywhere between 10% and 20%. This is hardly surprising when you consider that when smoking is banned in casinos, smokers will still spend time smoking, but they won’t spend that smoking time in casinos. Casinos make money based on the time that people spend in casinos, gambling; less time is less revenue. The second thing to hit Italian casinos was the Government’s desire to stamp out the black economy, or at the very least attempt to minimise it. An Italian law passed in 2008 limited all cash payments to €12,500. Businesses were to refuse to do anything in excess of this on pain of a 40% fine. Obviously, casinos are cash businesses and such limitations take their toll. In May 2010 the limit was reduced to €5000; in August 2011 it was reduced again to €2500. Not content with this restriction, the government in power in Italy at the time used the budget process in December 2011 to reduce the maximum to €1000, with a carve-out for overseas visitors, who could transact up to €15,000 in cash in touristic businesses. As mentioned, in January 2011 the Government legalised internet gambling. More importantly, it oversaw a massive increase in the number of Comma 7a (VLTs) and Comma 6a (low stake/low prize) machines in Italy. Last year there were about 460,000 Comma 6a and 7a machines up and down the country, producing over €10 billion in revenue. In my mind there is no doubt that the expansion of these two types of machines had the biggest impact on casino revenues in Italy. The ubiquity of the machines has led to a public backlash, so much so that the last government ordered a one-third reduction in the number of Comma 6a machines and the current government is toying with further curbs. This reduction should clearly have a positive impact on revenues for the casinos. But for the Campione Casino, any reduction in machines will come too late. Last week a court in Como decided that the plan put forward to save the casino would not be effective and placed the company managing the casino in bankruptcy with debts of over €132 million. This has caused a furore, with local politicians and unions declaring the casino must be saved (a far cry from the UK where politicians are usually shouting that casinos should be closed down!). Campione is a small Italian municipality (1.6 square kilometres; 0.6 square miles) completely surrounded by the Swiss canton of Ticino, an accident of history. It belongs to Italy and not Switzerland due to Lord of Campione leaving it in his will to the Archbishop of Milan in 777. (Ticino was transferred from the ownership of the Bishop of Como to Switzerland by Pope Julius II in 1512.) Campione, whose main source of income was the casino, became one of the richest municipalities in Italy. With the closure of the casino the municipality is now nursing a rather large black hole in its accounts, with no revenue coming in from gambling. The whole affair has been bungled, nobody really wanting to offer a realistic solution to the problem. The truth is that without tackling the amount the casino must pay to the municipality and the staff overhead, the casino was doomed to fail. Previous management thought they could get out of trouble by finding new revenue streams. They made an investment in an Asian-themed VIP area which was hoped would lure more Chinese gamblers to the casino. Until recently, they did manage to stem the reduction in revenues, but with all of the problems being publicly discussed in the media revenues have been suffering. The casino closed on July 27; its monthly GGR was €5 million, down more than 30% compared to last year. The other three casinos have their own challenges. Casino di Venezia has been struggling with mounting losses; management has put forward a proposal to keep the casino afloat, which included negating its agreement with the unions and to reduce the pay of its personnel. It was only a small cut but was met with resistance from some of the local politicians and the unions who sued. Last week a court found that the casino had not exceeded its powers by imposing its plan. More importantly, the casino has had six months of year on year growth, with July seeing a 10% lift over the previous year. Still, without a serious pruning of overhead, of which personnel are the lion’s share, the casino will continue to limp along until the next crisis. St. Vincent Casino, in the beautiful Val d’Aosta (if you never have been there, I thoroughly recommend it), is currently going through a restructuring, which the municipality has approved. Management has been in upheaval – a sole director has been appointed to sort out the casino’s problems, with lawsuits having been filed against previous management for fraudulent accounting regarding financial statements and applications for loans. The trial will come to court in September this year. For the first seven months of 2018 revenues are down about 3.5% on the same period in the previous year. Casino de San Remo, the smallest casino by revenue in Italy, is situated on the Ligurian coast, about a 60-minute drive from Nice on the French Riviera. It used to depend on wealthy French patrons who would travel across the border to enjoy the relative anonymity at the casino as compared to Nice, but the enforcement of anti-money laundering regulations has put them off. The casino has suffered revenue declines but has managed to avoid the scandals of its fellow casinos and does produce a profit, albeit a small one, of about €400,000. Revenues for the first half of 2018 are down 2.5% on the same period in the previous year. I think all of this shows that the local Italian politicians want two things – a thriving casino that generates revenues for their municipalities, and to avoid any hard decisions when things go bad. These days, those two objectives tend to be mutually exclusive. There needs to be debate about the role of casinos in Italy, and politicians have to decide whether they are commercial or social enterprises. Even if they are the latter, inevitably pay and/or staff reductions will be needed at some point and politicians will either have to bite the bullet or find themselves with a bankrupt casino.