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Everyone should be happy. Italy’s government is nearly 1bn Euro richer, its leading slot operators have secured all the licences to operate the potentially lucrative video lottery terminals (VLTs) which the country is rather suddenly permitting for the first time, and the citizens of Europe’s biggest gaming market have yet another avenue to pursue their craze.
But is the introduction of VLTs to Italy – with players expected to encounter the first units around March or April – a jackpot for all, or will it simply eat away at revenue from other gaming sectors?
The Italian gaming landscape has been in upheaval for some time, with liberalisation helping to sweep away many of the illegal gambling activities that existed just a decade ago.
It took a shattering natural disaster, however, to eventually bring about the authorisation of VLTs: the L’Aquila earthquake in Italy’s central Abruzzo region, which killed more than 300 people in April 2009. Although the arrival of VLTs on the Italian scene sooner or later was probably inevitable, it was the need for cash to fund reconstruction efforts after the earthquake that quickly led to the new rules, as well as to other proposals such as an opening up of the online market.
Capped licences
By June, the draft VLT rules were in place (see box, “The Rules of the Games”, page 52), and the government began seeking applicants for the nearly 57,000 licences it would grant. Aware that the current big ten operators of slots, most of which are in bars, would be eager to protect against possible threats to their slot revenue by diversifying into VLTs, the regulator AAMS capped the number of licences they could apply for at 14 percent of their installed base of slots (see box, “Who Won What”).
However, with about 400,000 slots in their networks, this meant the slot operators could apply for every single VLT licence on offer – effectively closing the VLT market to new entrants.
And that’s exactly what happened. Although AAMS had indicated that there might be left-over licences available for new entrants to bid on, the ten slot operators – all of them local companies, apart from the Spanish firms Cirsa and Codere, both of which are among the smallest players in Italy – secured control of the VLT market.
That doesn’t, of course, mean that there isn’t scope for others to benefit from the arrival of such a large number of machines. For example, while Italy’s Cogetech has won a licence, it is in fact a partnership between that company and Greece’s Intralot – which owns 51 percent of the joint venture – that will deploy the VLTs, mostly into betting shops owned by Intralot. Said Constantinos Antonopoulos, Intralot’s CEO: “The successful liberalisation model of the Italian market has set an example that many European countries [will] follow…Intralot intends to further enhance its presence in the VLT market in Italy.”
Vendors will win, too, both Italian firms and foreigners – among them Taiwan’s Astro, which says it is already the largest seller of AWPs in Italy, and is now supplying VLT systems to Codere. Italy’s own Lottomatica, meanwhile, not only won the second-largest VLT licence, but its subsidiary Spielo will sell VLTs to Gamenet in a deal estimated to be worth 40-45m Euro. That deal covers its Intelligen, i-Link, prodiGi Vu and WinWave Vu products, as well as Atronic games.
Indeed, there’s unlike to be a corner of the gaming supply market that’s unaffected in some way. At printer maker FutureLogic, for example, Business Development Manager for EMEA Fivos Polymniou says his firm “has spent a great deal of time advising operators on the use of tickets, and providing training on the operation and maintenance of printers, even down to recommending which ticket paper to buy”.
But are there only going to be winners – or will the debut of VLTs in Italy take spend away from other gaming sectors? The category most obviously under threat is slots.
Slots are bigger than ever in Italy. 53.5bn Euro was spent on gaming in Italy in 2009, 24bn Euro of it in the country’s 400,000 slots. The Italian research body Censis says the total market is growing at 15 percent a year, and that a full five percent of family budgets is spent on gaming.
And although others contend that the apparently rocketing figures are in part only showing the transition of gaming revenue from the unrecorded illegal market to the recorded legitimate one, there is no doubt that slots are a thriving part of the gaming economy. For example, the average annual turnover per machine – around 60,000 Euro – increased by nearly 600 percent between 2004 and 2008, or about twice the rate of growth in sports betting.
Maximum payout
Now there is some concern that VLTs, providing a similar but sexier and more modern experience, will eat into slots’ dominance. Their maximum payout and jackpot levels, ranging from 1500 to 50,000 Euro, will also fill a gap that slots – which can offer either 100 Euro jackpots or 100,000 Euro progressive jackpots – don’t cover. As Polymniou puts it, “the lure of wide area progressives paying large jackpots will be difficult for players to resist”.
But most are sanguine that the VLT effect on the slots market will be bearable. As Italian slot manufacturer and operator Magic Dreams’ General Manager Luca Gerardini says, slots in the country are “a solid and mature market. It is a different product, so surely AWP won’t be cannibalised by VLT.”
Hubertus Thonhauser of Casinos Austria agrees, pointing out the restrictions on VLT locations – most importantly, that they won’t be allowed in bars. “AWPs will be less attractive to customers compared to VLTs,” he says “but they are much more dispersed over the country. Therefore I don’t believe that the AWP revenue potential will decline – it will only grow at a smaller pace.”
Less obvious, but perhaps more potent, is the threat that VLTs pose to Italy’s four casinos in Venice, Campione, Saint Vincent and San Remo. Says Thonhauser: “VLT operations are likely to become serious competition for the electronic gaming offer of Italian casinos.”
And the result could be a shift in the casinos’ business models, suggests Magic Dreams’ Gerardini: “The four Italian casinos offer to the player a wide range of different services apart from the gaming machines so probably they will reply to this new law by focusing on their strengths.”
It’s not all about VLTs hammering other gaming markets, however. The fast pace of change in Italian gaming is likely to bring new competitors for the VLT operators themselves – not least online, where legislation authorising up to 200 new on-shore firms is likely to be approved in March. Also on the cards, although less certain to be implemented than the licensing of local online gaming providers, is a proposal to allow luxury hotels to open up to 15 new casinos, vastly increasing the opportunities for casino gaming available to most Italians – many of whom already cross the border to nearby countries such as Slovenia to take advantage of venues there.
Totem crackdown
What’s more, some arcades and bars already offer their customers gaming consoles known as “totems” or dedicated PCs on which to gamble over the Internet, and while authorities will crack down on these, their broad similarity to VLTs is already concerning the new licence holders. So the VLT operators will not be without competition, legitimate and otherwise.
There are more twists in this tale to come. In April, for example, Rome will open up for re-tender the provision of AWP and VLT networks, inviting bids from any EU firm that meets certain conditions of entry – although these conditions make it almost certain that the existing operators will bid, and be looked upon favourably.
They’d be unwise not to, for despite some uncertainty over how different gaming sectors will fare as new competitors arrive, as Casinos Austria’s Thonhauser observes: “The Italian gaming market overall will definitely grow – supply has, by far, not yet matched demand.”
