THE BACK PAGE: Sex, drugs and regulation
When it’s more difficult to make a buck the natural temptation is to take more risks. What was the financial meltdown at the end of a day other than human beings doing what they always do, trying to make something out of nothing because the alternative, for the people closest to the action, felt like nothing. Collateralized debt obligations were a mystery wrapped in a riddle inside an enigma, but they made an awful lot of people an awful lot of money, and that’s what mattered. Until it didn’t.
But of course the story didn’t end there. The financial markets are still plagued by many things, not least of which is a loss of confidence. Lots of cash remains parked on the sidelines, its holders content not to lose any money rather than bemoan missed profit opportunities as they would have in the past. Behavior has changed. The Wall Street “brand” is in tatters.
Then there is the Deepwater Horizon oil spill, which teaches us that the oil industry has gotten very good at finding and tapping oil in remote locations, but it doesn’t have a very good idea of what to do when the well blows. (Well, they could drill companion relief wells, but that costs money.) Billions have been invested in discovery, nothing, for the last 20 years at least, in new clean-up technologies. Again, major consequences for the decision-makers. BP, a global behemoth with $17 billion in annual profits prior to the spill, could be on the hook for anything from $20 billion to $60 billion in clean-up costs, and its very survival has been put into question. Beyond that, a loss of confidence (that phrase again) in the integrity of deepwater drilling has led to a moratorium, changing the entire outlook for oil companies and, ultimately, their gasoline-hungry consumers.
In both cases the failure of government regulators to do their job has been highlighted, but it’s hard to shed a tear for industries that when they are not lobbying for the least amount of oversight possible are pushing for friendly faces in government roles.
Consider all of the above a cautionary tale for any industry, including gaming, where some obvious potential parallels can be drawn. Take Las Vegas, which is faced with the phenomenon of slowly rising visitor volumes and slowly declining gaming revenues (against some very easy comps, it should be noted). What to do in a world of increasingly compelling at-home entertainment options and shaky consumer confidence?
Well, ramp up the sex, obviously.
So we have the example of day clubs, party pools and racy nightclubs which are designed to entice the young (age-specific) and the restless (a somewhat larger group) to come to Vegas and let their hair down. Which is fine. Except when things veer off into illegal activity, which, for instance, cost Planet Hollywood $750,000 in fines last summer.
Randall Sayre of the Nevada Gaming Control Board is focused on this area of oversight, and he told the Las Vegas Sun that some companies are operating with the understanding that they are going to allow illegal acts “until they get caught,” behavior which he compared to “playing Russian roulette with your business”. Of course, these folks are risking the image of Las Vegas, not just their own hides. The last thing needed by a jurisdiction that depends in no small part on the return of the mid-week convention business is media-enhanced tawdriness tainting the brand.
Another looming area of temptation is the Internet and/or interactive wagering, which more and more people in the industry feel is coming to America. All well and good, but let’s never forget the potential for disaster. As much ridicule as it occasionally still receives from the outside world, the gaming industry grew in the United States, and globally, on the strength of its regulatory integrity, which remains well intact. “If man created it, he can cheat it” is the phrase that always rings in my ears when it comes to claims of invulnerability. As U.S. states continue to rack up debts at a record pace (one forecast puts the figure at $375 billion more for state governments over the next 10 years), and the gaming industry faces its own ongoing growth problems, new and potentially riskier forms of growth will be put on the table. The industry could do worse than proceed from a position of extreme caution.