The Italian gaming market recently viewed the start of the new video lottery era. Video lottery terminals (VLTs) are server-based gaming machines connected to central control systems that are managed by concessionaires and audited by the Italian gambling authority, AAMS. (For more information on Italian gaming regulation, see the Market Update in the May 2010 issue of CEM.)
VLTs will change the numbers in the Italian gaming market over the next three to five years, because this new gaming offer, even if strongly controlled by the gambling authority since its test phase, is much more flexible than any other Italian gaming product. This is due to the approach taken to this new regulation, which has been in development since 2006 and was finalized within the funding program caused by the Abruzzo earthquake, and is based more on the general Italian government’s approach to online/networked gaming regulation than on the first wave of the Italian gaming machines market, which started in 2003 and is based on a server-monitored system.
This flexibility may be summarized in three freedoms:
• Freedom of games that may be offered, respecting the minimum 85 percent payout. This lets manufacturers and operators offer, for example, any version of video poker, which is the most liked game among Italian players but is still not allowed in Italian gaming machines.
• Freedom of jackpot systems on games, machines or VLT systems, up to 100,000 euros (approximately U.S. $125,000) for each venue and 500,000 euros (approximately U.S. $635,000) for VLT systems. This will surely be one of the boosting tools for wager increases, considering the widespread passion in Italy for lottery jackpots.
• Freedom of business organization in the gaming venue, mixing up to 150 machines with other gambling offerings (bingo or betting) or with different entertainments and food and drink proposals.
The new offer will contribute, along with the more than 320,000 amusement with prizes (AWP) machines (75 percent fixed payout) already operating in Italy, to the huge turnover (total wagers) of the Italian gaming machines market, which is expected to be more than 30 billion euros (approximately U.S. $38 billion) by the end of 2010, accounting for more than 50 percent of the whole Italian gambling market.
Operators’ gross gaming revenues might surpass 7 billion euros (approximately U.S. $9 billion) for 2010 and are expected to generate a CAGR near 3 percent next year, considering sensible shifts between business models.
AWP machines are currently installed in more than 110,000 venues, although only 5 percent of them are dedicated gambling venues, including bingo halls and betting offices, and they are operating less than 20 percent of the machines.
2010 will probably end with no more than 7,000 to 8,000 VLTs operating, but—nearby the already operating bingo halls and betting shops—some new gaming halls, with an average set of 50 to 70 machines each, will be opened to gamblers.
This will change the marketing approach to gaming machine halls in Italy. Prior to the VLT regulation, the maximum number of machines allowed in bingo halls was 70, but only a few halls had enough physical space to place those machines (they had to strictly comply with bingo regulations).
With the new VLT regulation, a gaming hall may offer up to 150 different machines. This regulation, together with the availability of roulette-like and blackjack-like multi-player terminals (presently under AWP regulation, and in the future to be texted into the VLT systems) and the incoming regulation of poker tournaments (which may be managed only by Italian concessionaires under another 2009 Italian gambling law), will let companies operating in the Italian market develop a substantial casino offer.
In fact, live poker tournaments could work as a very powerful promotional tool: More than 2 million people play poker in Italy, and the Italian social attitude might empower new gaming venues’ operation. From the regulatory side, the Ministry of Home Affairs offices, together with the Italian gambling authority, are writing regulations to govern the performance of live poker tournaments nationwide. Operators entitled to run live tournaments will be those companies holding a land-based gambling concession as well as companies meeting requirements necessary to hold an online gaming license.
In such a business environment, even historical Italian casinos are thinking about the new regulated gaming offer. While Casinò di Venezia has been running branded gaming halls with AWP machines far from Venezia since 2007, Casinò di Campione is now working on a joint venture with one of the biggest gaming machines concessionaires, Casinò di Sanremo is still thinking about the new business segment, and Casinò de la Vallèè seems to be less interested in starting a business other than managing the main casino hall.
Many other operators—along with present gaming machines concessionaires, who were already granted VLT rights by paying 15,000 euros per right (half each year in 2009 and 2010, respectively)—are starting new gaming business models and brands, including locations that may be considered “cool,” with the addition of soft entertainment and the gourmet food and drinks that are typical to gaming.
MAG estimates there will be more than 150 large, dedicated gambling halls by 2012 or 2013, operating approximately more than 20 percent of the 60,000 VLTs that are expected to be authorized by that time.
This model, in such a nationwide dimension, is an absolute change in Italian gambling regulation, considering that the only four traditional casinos are located on the country’s northern borders and the only 6-year-old legalization of slot machines in other locations. The same model is, moreover, fully compliant to gambling policies focused on increasing destinations and responsible gaming instead of a diffused convenience gaming offer.
This approach is also pushed by many operators who, at the same time, are planning to launch new online casino and poker websites (in addition to poker tournament websites already launched in late 2008) and could try to cross-market their casino brand in both distribution channels, developing dedicated loyalty programs.
For this reason, in coming years this model may decline in various places and in various dimensions. Meanwhile, the biggest new venues are planned in some of the most interesting business development programs linked with the entertainment and free time in Italy: tourist marinas, football parks and great malls, which are generally located outside Italian historical city centers. And marketing plans are imaging ways to exploit recent opportunities allowed by Italian commercial laws, such as product placement, using those gambling locations for film and sitcoms.
Opportunities may also come from the inclusion of gambling taxes within the progressive federalist approach in the Italian taxation laws, pushing local councils to support new gambling initiatives.
Those projects necessarily need to be developed over several years, considering the legal rights and development investments, but new concessions released by the Italian government should start in 2011 and expire in 2020 (to be renewed until 2029)—a really long time during which some of those new gambling venues might become internationally known entertainment locations.
For the same reasons, this new era is already interesting various financial and investment groups, from the concessionaire side (financing legal rights) and from venue management side (dealing with concessionaires, manufacturers and estate owners); between them, many operators from other European countries, from Russia and from Asia. These investments may also be synergized with those in other countries (like Greece, the latest example) that are currently regulating their gaming markets and seem to be adopting regulatory models based on major components present in the Italian one.
Emmanuele M. Cangianelli is a founder and partner at MAG Consulenti Associati. MAG is a strategy and business advisory firm who assisted Italian gaming and betting authorities in shaping and starting up the Italian gambling regulated market in 2002-2007. Presently, MAG advises some of the major companies involved in Italian and European gambling markets.