Uk Land-Based Casinos

Euro’s Impact on UK’s Casino Industry

The UK’s adoption of the Euro would have a profound impact on its land-based casino industry. The use of the Euro will stimulate demand and draw direct investment while lowering business expenses. Currently, the UK’s land-based casinos (LBC) are facing major changes with new government liberalizations. The adoption of the Euro complements the opening of the industry.

Government Liberalization

UK’s Gaming Act of 1968 erected tough restrictions on LBCs. Prior to 1968 the industry was essentially unregulated. This legislation enacted a number of restrictions and limitations on the number of slot machines, entertainment venues, and advertising outlets (Wright, 2). The law also stated that alcohol could not be served after midnight, casinos could not be open beyond 4 a.m., and debit cards could not be accepted. In addition maximum payouts were limited to Ð'Ј250, and 48-hour waiting period were introduced for new members. (This severely limited tourist gambling.)

While prohibitions on marketing and the use of live entertainment were maintained, the new legislation relaxed the others restrictions. The maximum number of slot machines was increased from two to ten; alcohol serving times were extended to 2 a.m. (3 a.m. in London), debit cards were allowed, maximum payouts were increased substantially, the 48-hour period was reduced to 24, and thirteen new permits were granted for new casinos (based on population). These liberalizations are making the industry more attractive to consumers and investors; this new interest will be aided by the adoption of the Euro.

Porter’s Analysis

First, let’s look at the Euro will affect the competitive environment of LBCs. Supplier power will be reduced. The main suppliers are the employees (dealers and executives), slot machine and table manufacturers and retailers, and banks. Employee wages, especially for dealers should come down since the skills are basically a commodity. Europe’s freedom of movement has already drawn many dealers from Eastern European countries (as seen in the Grand Casino in St. Gallen, Switzerland). In addition specialist wages, such as statisticians and other technical employees, might flatten from skilled labor from abroad. The adoption of the Euro would give greater wage transparency will advance this movement, keeping wages flat. Suppliers of fixed assets will also see prices flatten. Local manufacturers of game tables and slot machines will also face greater price transparency and increased competition from the EU zone, decreasing their overall market power. This same principle applies to the providers of capital.

Likewise, the adoption of the Euro will bring greater transparency in banking and loans. Casinos are capital intensive industries. The purchase of real estate (often with adjacent hotels) requires a large initial investment. According to finance.yahoo.com, the US gaming industry has an average of 2.58 debt-to-equity ratio as compared to 0.68 for the broader service sector (finance.yahoo.com). With the Euro, UK banks will face greater competition, and banking fees and interest rates will converge across Euro zone. The same advantages increased price transparency and competition will extend to buyers.

Buyer power will increase with the adoption of the Euro. Greater price transparency will allow for greater competition. Now gamblers (buyers) will have more gambling (or in a broader senseвЂ"entertainment) options. When they gamble, there will be greater clarity on the amounts of the their bets (and unfortunately losses).

The threat of substitutes would decrease. Casinos compete with all other forms of entertainment from tourist attractions and sporting events to movies and television. Bringing in the Euro though will be one less barrier to potential EU tourists.

The threat of new entrants will increase. New legislation has allowed for thirteen new casinos; however few will be added in the near future. Large multinationals (with existing European operations) will probably enter the market. For example, Harrah’s is vigorously fighting for building permits, especially “casino resort” permits with local monopolies in smaller UK cities. Outside the UK, other European countries are liberalizing (Ireland) and expanding their casino industries (Greece and Portugal) increasing. With increased price transparency and competition, this threat along with rivalry will increase markedly.

The rivalry among firms would increase. Within and among large cities across Europe, LBC multinationals vigorously compete using member discounts, live entertainment, big jackpots, and exotic menus to differentiate their product. However, in the smaller cities with local monopolies do not have to compete on the same scale. The rivalry increase from macroeconomic factors.

Industry Effects

According to the HM Treasury report examining the impacts of UK switching to the Euro, the casino industry should experience several financial gains. First, let’s take the impact of swapping interest rates. Currently, the 10-year bond rates are 4.21% and 4.78% for the EU and UK, respectively (Bloomberg.com). Essentially, UK firms would get a 57 basis point savings on long-term debt. Given