Italy has become Europe’s biggest gaming market, with VLTs the icing on the revenue cake. Other countries can now learn from the model it provides – as well as the challenges it has faced, reports Jon Bruford.
It’s official: Italy is now the number one gaming market in Europe, with a combination of AWPs, casinos, online poker and video lottery terminals (VLTs) all creating staggering profits for licence holders and increased revenue for the government. And, if reports are to be believed, for organised crime.
Since the regulation of VLTs in the Italian market in 2010 to bring in revenue for the government’s rebuilding efforts following the Abruzzo earthquake, VLTs have been at the forefront of a gaming revolution in the country. Licensees were able to offer prizes up to €500,000 Euro to players, and with increased gaming machine security and closely monitored taxation, there was the promise of a winner for all involved. In many ways, this has indeed been the case – but lessons must be learned from Italy if other countries such as Greece and Hungary are to follow the same path.
Part of the reason for the success of VLTs in Italy may lie in the economic difficulties that the country has faced as a result of the banking collapse and worldwide recession. People are looking for a get-rich-quick, or certainly a get-a bit-of-cash-quick, in times where jobs are scarce; large numbers of young Italians are unemployed. With attractively large jackpots and the backing of the government – not to mention plentiful advertising – VLTs have flourished, with over 42,000 terminals in operation now.
Yet it’s not only the number of terminals that continues to surprise, but the speed of implementation: deploying VLTs is not just a matter of putting machines into venues. The infrastructure requires all of the following:
• A game server whose tasks include generating the random numbers at the heart of play, managing wins and payments, and remotely maintaining terminals.
• A library of games software.
• Individual gaming machines incorporating banknote readers and TITO printers.
• Inspection units with touchscreens and barcode readers for validating winning tickets.
• Management software for financial reporting, managing loyalty programmes, monitoring possible problem gamblers, calculating tax due, and a host of other tasks.
From zero to 42,000 in 18 months is dazzling growth and it’s no wonder suppliers want to find new markets. The total number of actual licences for Italy is 58,000, so there is room for expansion, with the current crop mainly supplied by Inspired, Novomatic and Lottomatica, a part of Spielo International. The actual installed figure should hit 58,000 in the next 12 months.
VLTs appeal to governments for a number of reasons, but mainly because they offer a hard-to-cheat framework where taxation is simpler. The machines rely on a wide area network as part of the regulatory setup, so taxes are reported on the network, and regardless of how much cash is handled (and how it’s handled) at a location, the government is already aware of taxes due.
Additionally, for treasuries desperate for cash, there is much revenue to be earned from the sale of licences to operate VLTs – as soon as legislation is in place, operators will be there with open wallets (and suppliers with open arms), and the government has an immediate injection of money before a single machine is installed.
In Italy, however, there are now worries because of the high estimated number of problem gamblers – reports coming out of the country suggest upwards of 800,000 people might have become addicted, according to a report from Italian journalist Daniele Poto. Quoted in The Guardian recently, Poto said: “Gambling is not in our DNA, we are not like the British. But the state has encouraged it and advertising has done the rest.”
Italians are also betting instead of saving, with an average €4000 saved by each person every year a decade ago now reduced to €1700. And some are racking up enormous debts; one newspaper report recently told the story of a police officer who donned a balaclava, kidnapped his neighbour’s son and, on his speedy capture, confessed to having lost everything on video poker.
Such bizarre tales, while not exactly the norm, are becoming more common as gambling in Italy has risen from €4bn in wagers just ten years ago to an extraordinary €80bn in 2011. Taking into account winnings, that still equates to €304 gross gaming revenue per head per annum, more than the UK, which was at €232 per annum – and was formerly the biggest market in Europe until Italy’s surge to the top spot.
Finally, no story about Italian business can be complete without mentioning organised crime, and the VLT market is no exception. It is reported that mafia families in the country are benefiting hugely from the new market through back street operations, and even distribution of the machines themselves; Poto’s study suggests 41 mafia clans are involved in the business, manipulating the machines to falsely report tax revenues or bypassing the system completely.
Diana De Martino, an anti-mafia prosecutor, told Bloomberg: “The mafia is very interested in the gambling business, particularly the slot machines, which are often manually manipulated in order to avoid taxation on the cash. Many criminal groups distribute these kinds of slot machines all around the country, so we have tax evasion, unfair competition to the detriment of honest game operators, and material damage to players as controls don’t exist.”
There’s no doubting that gaming can bring much good to communities and states in times of need, as a redistributor of wealth among other things – but Italy is finding that a commonly enjoyed amusement can also become a problem for the very community that feeds it. The rollouts of VLTs have been, from the supplier and operator point of view, swift and impressive, and consumers seem to have welcomed them. Now, tackling the social challenges may be the next task for the Italian regulator AAMS, as well as for other territories about to introduce VLTs.
Greece – if/when?
It still appears to be the case that the Greek government is going to legislate for VLTs and online gaming simultaneously, but whispers from the country say that ministers are confusing the two areas and progress is slow. This is despite a €33,000 daily fine from the EU until its industry is regulated, and the instant benefits that the sale of VLT operator licences would bring to the cash-strapped country.
The market in Greece is nowhere near as large as in Italy, as the country’s population is considerably smaller, but its existing slot market is much smaller too, so the introduction of VLTs could have a much larger impact: the bulk of the target market would be completely new players. There are around 5000 slots in Greek casinos, with a similar number estimated to be in use illegally elsewhere, so any introduction of VLTs would be an entirely new kind of offering to the Greek public.
Moreover, the feeling among operators and suppliers in Italy is that the VLT product has not taken away from the existing AWP (Comma 6a) offering, as they are appealing to a different player, and the same would probably be found in Greece. VLTs would represent new revenue for operators and the state alike.
Hungary – the next Italy?
Hungary’s AWP market has taken a huge hit in recent years for a combination of reasons – largely a massive increase in taxation, and the smoking ban which came into force in January 2012.
In 2004, the country had more than 33,000 machines; in 2010, this was down to just over 25,000. The machines come under two categories, I and II, which actually refer to their locations; Category I machines are in gaming halls, while Category II is for restaurants and bars, which can have a maximum of two machines per site.
The amusement industry in Hungary is also creaking under the weight of a crippling tax of €380 per month, per machine, which is additional to existing taxes and licence costs; add a smoking ban to that and you have the death of a gaming sector.
But of course, governments are unwilling to forsake the tax revenue that gambling can bring, so it seems safe to assume the authorities in Hungary are preparing for a shinier, sexier model of gaming – VLTs. Introducing a fully networked, efficiently monitored and ripe-for-investment new VLT-led sector is the obvious step forward, and Italy provides Hungary with an example to follow.
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