The Las Vegas Review-Journal recently published an article on the challenges to innovation in the casino industry. The piece quoted Kent Young of Spin Games. Young said innovation was difficult in gaming because of the heavy costs of regulation. He told the Review-Journal that just the licensing of the company’s executives could cost hundreds of thousands of dollars, making it very difficult for small, start-up companies to get licensed. Mr. Young has a good background in the gaming industry and the licensing process. He started his career in the United States with Australian-based Aristocrat. When Young came to the U. S., Aristocrat had been unable to pass regulatory scrutiny for years and was struggling to get licenses in several states, including Nevada. Nevada objected to the founder, Len Ainsworth and his family, who held the majority of the company’s stock. That made Aristocrat unsuitable for licensing in the eyes of the Nevada regulators.
Eventually, Ainsworth backed away from Aristocrat enough to please Colorado, Mississippi and Nevada. The resistance of regulators to licensing Aristocrat forced the company to build its American business around Indian tribal casinos that for the most part, found little to object to in the company. Aristocrat was the largest and most successful slot machine company in Australia. The Australian club market is highly competitive, forcing Aristocrat to put forth its best efforts. The athletic clubs have regular players and they demand a high level of entertainment. Aristocrat was forced to develop games that kept those players interested and entertained. Those game proved just as popular and successful in Indian country. The cash flow from the Indian casinos allowed Aristocrat to pursue licenses in conventional jurisdictions.
A smaller company than Aristocrat would never have survived the years of isolation in the U. S. It is a subject in which I have some personal experience. In the early 2000’s, I was associated with a small manufacturing company that, like Aristocrat, focused on Indian gaming while applying for conventional licenses. Those license applications were very expensive and burdensome to that small company. The company chose to wait to apply in Nevada until its cash flow improved. In the meantime, it did apply in another major jurisdiction and that process dragged on for nearly five years. By the time that license was finally granted, the company was bankrupted and forced to close down within months of the licensing.
So, at one level, I agree completely with Kent Young. Licensing is expensive and burdensome. However, in the long-run, I think the regulation serves both the industry and its customers well. Gaming regulation has several purposes. It is intended to ensure that the games are conducted fairly and honestly. Key personnel have to pass background checks, owner/operators have to demonstrate the financial ability to operate a casino and all devices and games need to be approved. The most important and underlying principles are to safeguard a state’s reputation and tax revenues; and to protect the gambler. No product reaches the gambler that has not been tested and approved. Of course, that means that all innovation has to pass through a very narrow funnel in a very slow process. It is not a process the encourages creative small companies or quick adaptations to new ideas and trends. And yet, however slow, laborious and expensive it might be, the customers are protected from charlatans and deceptive products and advertising.
