CASINOS & GAMINGResearch Brief
Sustainable Industry Classification System™ (SICS™) #SV0202
Research Briefing Prepared by the
Sustainability Accounting Standards Board®
December 2014
www.sasb.org© 2014 SASB™
™
I N D U S T RY B R I E F | C A S I N O S & G A M I N G
SASB’s Industry Brief provides evidence for the material sustainability issues in the Casinos &
Gaming industry. The brief opens with a summary of the industry, including relevant legislative
and regulatory trends and sustainability risks and opportunities. Following this, evidence for each
material sustainability issue (in the categories of Environment and Social Capital) is presented.
SASB’s Industry Brief can be used to understand the data underlying SASB Sustainability
Accounting Standards. For accounting metrics and disclosure guidance, please see SASB’s
Sustainability Accounting Standards. For information about the legal basis for SASB and SASB’s
standards development process, please see the Conceptual Framework.
SASB identifies the minimum set of sustainability issues likely to be material for companies
within a given industry. However, the final determination of materiality is the onus of the
company.
Related Documents
• Casinos & Gaming Sustainability Accounting Standards
• Industry Working Group Participants
• SASB Conceptual Framework
INDUSTRY LEAD
Nashat Moin
CONTRIBUTORS
Andrew Collins
Stephanie Glazer
Anton Gorodniuk
Jerome Lavigne-Delville
Himani Phadke
Arturo Rodriguez
Jean Rogers
Evan Tylenda
Gabriella Vozza
CASINOS & GAMING Research Brief
SASB, Sustainability Accounting Standards Board, the SASB logo, SICS, Sustainable Industry Classification System, Accounting for a Sustainable Future, and Materiality Map are trademarks and service marks of the Sustainability Accounting Standards Board.
INTRODUCTION
In the past few decades, gambling has been
legalized in many states resulting in substantial
growth in a number of casino and gaming
establishments. American casino operators now
operate both domestically and globally. There is
mass appeal for the entertainment provided by
the Casinos & Gaming industry; Americans
regularly buy lottery tickets and casinos draws
visitors to play table games and slot machines.
As legalized gambling continues to grow in
popularity, there is much debate about the
economic and societal costs and benefits of the
industry.
While many enjoy gambling, there is still moral
opposition to it. Many groups view the industry
in a negative light and associate it with many
social ills. For those reasons, the role that
federal, state, and local governments play in
determining the number and type of gambling
establishments is unique to the industry. While
there is no general consensus among
academics whether the negative social impacts
of the industry outweigh the positive ones,
industry players may face difficulties obtaining
licenses to operate due to highly regulated
environments. Therefore, the ability of casino
operators to improve the industry’s reputation
and promote responsible gambling among
patrons will determine the industry’s prospects
in expanding to new markets.
Management (or mismanagement) of material
sustainability issues, therefore, has the
potential to affect company valuation through
impacts on profits, assets, liabilities, and cost of
capital.
Investors would obtain a more holistic and
comparable view of performance with the
Casinos & Gaming companies reporting metrics
on the material sustainability risks and
opportunities that could affect value in the
near- and long-term in their regulatory filings.
This would include both positive and negative
externalities, and the non-financial forms of
capital that the industry relies on for value
creation.
Specifically, performance on the following
sustainability issues will drive competitiveness
within the Casinos & Gaming industry:
SUSTAINABILITY DISCLOSURE TOPICS
ENVIRONMENT
• Energy Management
SOCIAL CAPITAL
• Responsible Gaming
HUMAN CAPITAL
• Smoke-free Casinos
LEADERSHIP AND GOVERNANCE
• Internal Controls on Money Laundering
• Political Spending
• Improving energy efficiency of casino
facilities;
• Promoting responsible gambling among
customers;
• Adapting to the changing regulatory
environment around smoking in public
places;
• Complying with anti-money laundering
laws and regulations; and
• Ensuring transparency around political
contributions and lobbying.
INDUSTRY SUMMARY
Publicly held casinos and gaming companies
operate gambling facilities or platforms
including brick-and-mortar casinos, riverboat
casinos, and racetracks as well as gambling
websites. The industry is characterized by large
players like Las Vegas Sands, MGM Resorts, and
Penn Gaming, which operate hotels on the
same premises as their commercial casinos.I
In the U.S., the Casinos & Gaming industry has
grown significantly in the last three decades. In
1978, Atlantic City, New Jersey became the
first jurisdiction outside of Nevada to legalize
gambling.1 With the exception of Hawaii and
Utah, some form of gambling is now legal in
every state, and 85 percent of Americans –
more than any time in the past decade – view
gambling as an acceptable activity.2 The
I Industry composition is based on the mapping of the Sustainable Industry Classification System (SICSTM) to the
industry is dominated by Native American
casinos, which significantly outnumber
commercial casinos.3 Native American casinos
are owned and operated mostly by tribes,
which have recently begun to expand their
casinos outside of reservation lands.4 Some
tribal casinos may be managed by commercial
casino operators or other management
companies.5 According to the American
Gaming Association’s State of the States 2013
report, brick-and-mortar and riverboat casinos
now operate in 17 states, racetrack casinos in
14 states, and Native American casinos in 28
states.6
The global Casinos & Gaming industry
generates more than $146 billion in revenue.
The largest share, more than 70 percent of the
industry, comes from casino operators, while
the rest is divided among mobile and online
gambling, lottery services, gaming equipment
manufacturers, racetracks, and betting
services.7 Companies traded on U.S. exchanges,
as well as those primarily traded over-the-
counter, generate $116 billion from the
industry where $88 billion is coming from
casino operators. In 2013, the median
operating margin for U.S.-traded companies
across the industry was 13.2 percent, while the
median net profit margin was 7 percent. Casino
operators tend to have slightly lower margins,
with 11.3 percent and 6.5 percent operating
and net profit margins, respectively. The
industry has recovered from the recent financial
Bloomberg Industry Classification System (BICS). A list of representative companies appears in Appendix I.
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crisis, when operating margins were suppressed
to around 3 and 5 percent, and many firms
experienced negative net profit margins.8
Regardless of whether they operate hotels,
casinos, make up the most labor-intensive
segment of the industry; wages are their largest
operating expense at 20 to 25 percent of
revenue. Food, beverages, and equipment are
the next largest expense, accounting for up to
20 percent of revenue. Gambling licenses, taxes
and fees also represent a significant expense
for casinos.9
The Casinos & Gaming industry is cyclical and
positively correlated with economic activity. A
prosperous economy leads to an increase in
international and local travel and higher
expenditures on entertainment and gambling.10
Domestic consumer spending on commercial
casinos (land-based, riverboat, dockside, and
racetrack casinos) increased 4.8 percent
between 2011 and 2012, to $37.34 billion.11
However, the industry is unique in that
government decisions, rather than market
forces, have largely determined the location
and size of markets. The industry is also mature
and facing saturation.12
Online casinos, Native American casinos, casino
with hotels on the premises, and other
entertainment tourism options compete
intensely. Casinos compete on the variety of
services offered as well as quality of the
services and facilities overall.13 The industry is
undergoing waves of consolidations, as casinos
look to increase competitiveness and maintain
profitability. In 2005, MGM Resorts merged
with Mandalay Bay, and Harrah’s merged with
Caesars Entertainment.14 More recently, in
August 2013, Pinnacle Entertainment
completed an acquisition of Ameristar Casinos
for $2.8 billion. The sale made the company
the fifth largest casino operator in the U.S.,
accounting for more than 11 percent of the
market.15 As a result of acquisitions across the
industry, U.S.-traded casino companies are
highly concentrated. The top five companies
generate almost 60 percent of revenue from
the casino segment, which does not include
revenue from hotel services.16 However,
competition from private small and medium
size Native American casinos means that overall
concentration is significantly lower.
New entrants to the industry may experience
moderate to high barriers to entry, including
high initial capital outlays for casino
development as well as expensive licensing and
other regulatory compliance costs. Government
regulations restrict the number of casino
operators, while some states may not allow
casinos at all due to potential negative social
impacts.17
States charge license fees and taxes based on
gross revenue earned and the number of
gaming devices or tables operated, often
accounting for more than 10 percent of a
casino’s annual revenue.18 There have
traditionally been strict limits on the number of
gaming licenses in a geographic area, which
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often provided operators with relief from
competition, but, as states looked for new
revenue sources to fill budget deficits, they
have relaxed limits to increase tax revenue from
gaming. As of 2013, 17 states have
implemented racetrack casinos and cross-state
lottery games, such as Powerball and Mega
Millions.19 Consequently, competition is at an
all-time high, and the geographic distribution is
shifting. In 2007, Nevada was the largest
gaming state, accounting for 34 percent of
total industry revenue. By 2012, significant
increases in gaming in Ohio, Kansas, and
Maryland cut Nevada’s market share by four
percent, to 29 percent of total US industry
revenue.20 The rapid expansion of the industry
has resulted in some states placing a
moratorium on new gaming licenses.21
The proliferation of Internet gambling, which
currently generates more than $4 billion in
annual revenue in the United States alone, has
also created competition for commercial
casinos. It is currently illegal throughout the
U.S., except for in Nevada, Delaware, and New
Jersey, but internationally operated casinos can
still be accessed online from the US. What’s
more, additional states are considering allowing
online gambling to generate tax revenue.22 In
2006, there were an estimated 14 to 23 million
players, 28 to 35 percent of which were from
the U.S., while 49 percent were from the Asia-
Pacific regions, and 23 percent were from
Europe. Online casinos attract certain segments
of gamblers, particularly high stakes gamblers,
threatening a significant source of revenue for
In developing this briefing and determining
material disclosure topics and accounting
metrics for Casinos & Gaming companies,
SASB used a “pure-play” definition of the
industry, which assumes that Casinos &
Gaming companies do not offer
accommodation or prepare food and
beverages. Therefore, the issues discussed
here focus on gaming rather than issues
associated with provision of
accommodations and preparation of food.
SASB treats separately the following
industries: Casinos & Gaming, Hotels &
Lodging, and Restaurants. While this
approach is necessary to ensure a coherent
understanding of industry drivers and
challenges, it does not always reflect the
current structure of the industry, as many
Casinos & Gaming companies operate
lodging facilities and provide food and
beverages.
Therefore, depending on the specific
activities and operations of Casinos &
Gaming companies, sustainability issues and
accounting metrics associated with Hotels &
Lodging and Restaurants industries may also
be material.
NOTE ON INDUSTRY STRUCTURE
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brick-and-mortar casinos. Furthermore, online
operators have lower operating costs, and, as a
result, can afford to give players better odds.23
This may drive online growth further,
potentially hurting the industry and
constraining revenue.24 As Internet casinos have
captured an increasing share of the gambling
market over the five years from 2008 to 2013,
brick-and-mortar companies are positioning
themselves to take advantage of the explosion
of internet and mobile gaming trends.25 The
first Native American online casino and poker
room was launched in November 2012, making
the transition ahead of its Nevada-based large
commercial counterparts.26
Commercial casinos are also looking to
Southeast Asia, Mexico, and South America to
increase their presence in higher-growth
markets.27, 28 As domestic providers expand to
international markets, they are also facing
increased competition from a growing list of
international competitors. In 2007, Macau
overtook Las Vegas as the world’s largest
gambling region. MGM Resorts International,
Las Vegas Sands, and Wynn Resorts Limited
have already established casinos in Macau.29
Industry operators face significant business and
regulatory risks as the legal environment in
their home states fluctuates, and as they look
to international markets and online gaming for
growth.
II This section does not purport to contain a comprehensive review of all regulations related to this industry, but is
LEGISLATIVE AND REGULATORY TRENDS IN THE CASINOS & GAMING INDUSTRY
The following section provides a brief summary
of key regulations and legislative efforts related
to this industry.II Government involvement,
mainly at the state level, has significantly
shaped the industry, as operators are required
to obtain and maintain gaming licenses in each
jurisdiction.
Commercial, or non-Native American, casinos
are regulated at the state level, where there are
typically two approaches: states like Nevada are
fairly uninvolved; states like New Jersey stay
heavily involved to mitigate the potentially
harmful impacts of casinos. In New Jersey,
legalization of casino gambling was accepted
mainly as a means to revive commerce in
declining Atlantic City. Strict and
comprehensive gambling oversight is believed
to have limited the growth of the industry in
Atlantic City.30
While gaming operations are generally
regulated at the state level, the federal
government has been involved in setting a
framework for gambling activities when they
involve interstate commerce or criminal
activities. In 1951, the federal government
enacted the Gaming Devices Act in response to
the prolific activity of organized crime in the
intended to highlight some ways in which regulatory trends are impacting the industry.
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gaming industry. In 1962, the Act was
amended to require registration by any
individual involved in the manufacture and
transportation of such devices in interstate and
international commerce.31 In 1961, federal
government took regulations a step further, as
the Interstate Wire Act prohibited the use of
wire communications to transmit wagers or
information that assists in placing wagers or
bets.32 Most recently, the Unlawful Internet
Gambling Enforcement Act of 2006 extended
the prohibition of the transmission of wagers
through wire to include the Internet, in cases
where such activity is prohibited where the
wager was initiated and received.33
Gambling addiction is one of the main sources
of concern regarding the social effect of
casinos. Critics claim that states’ pursuit of
gaming tax revenues has come at the expense
of public welfare.34 In several jurisdictions,
including Illinois, Louisiana, Indiana and
Singapore, casino operators must comply with
responsible gambling regulations. For example,
all Illinois casinos are required to check the
identification of guests who appear to be under
the age of 30 in an effort to prevent those
enrolled in the Illinois Board’s Self-Exclusion
Program from gaining access to casinos.35 In
California, responsible gambling programs
work with card rooms and casinos, and the
state also promotes public awareness and
assistance through its Office of Problem
Gambling.36 Companies have also instituted
responsible gaming programs, such as Caesars’
Operation Bet Smart and Project 21, which
increase awareness about safe practices.37
Moreover, companies may only promote their
restaurant and entertainment components
rather than their gambling facilities. Native
American tribes, however, may advertise church
bingo nights and state-run lotteries.38
The National Council on Problem Gambling
(NCPG) advocates for problem gamblers and
their families and has a neutral position on
legalized gambling. The Council’s programs
provide problem gambling education to
Federal, state, tribal, and international
government agencies.39 To address the growth
of online gaming, NCPG launched a
Responsible Gaming Compliance Program for
Internet Gaming Websites.40
By the nature of their business, casinos handle
large amounts of cash. Therefore, the federal
government has enacted legislation to prevent
money laundering. In 1985, the casino industry
was brought under the Bank Secrecy Act (BSA),
which seeks to prevent money laundering by
‘cash-intensive’ businesses. Casinos with gross
annual gaming revenues (GAGR) over
$1,000,000 are considered financial institutions
by the IRS and are subject to the requirements
of the BSA provisions under Title 31.41 The Act
lays out special requirements for financial
transparency, including the reporting of each
deposit, withdrawal, exchange of currency or
token, or any transfer of payment greater than
$10,000. Subsequently, the Money Laundering
Control Act was enacted in 1986 to bolster
previous anti-money laundering (AML) efforts,
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and the Treasury Department’s Financial
Crimes Enforcement Network (FinCEN) was
created to detect and prevent money
laundering.42 Under AML regulations, casinos
are required to “develop and maintain a robust
risk-based anti-money laundering program”
and implement procedures for “using all
available information to determine… the
occurrence of any transactions or patterns of
transactions required to be reported as
suspicious.” In order to comply, casinos are
expected to inquire about sources of funds.
Companies are exposed to greater risks if
significant amounts of money are coming from
jurisdictions with higher crime or corruption
rates.43
On a global level, the intergovernmental
organization Financial Action Task Force on
Money Laundering (FATF), was founded in
1989 to develop and promote policies to
protect the global financial system against
money laundering and terrorist financing.
Casinos, along with other financial institutions,
are covered by the FATF Recommendations,
which define criminal justice and regulatory
measures as well as international co-operation
and preventative measures that should be
implemented as a solution for corrupt
activities.44
SUSTAINABILITY-RELATED RISKS AND OPPORTUNITIES
Industry drivers and recent regulations suggest
that traditional value drivers will continue to
impact financial performance. However,
intangible assets such as social, human, and
environmental capitals, company leadership
and governance, and the company’s ability to
innovate to address these issues are likely to
increasingly contribute to financial and business
value.
Broad industry trends and characteristics are
driving the importance of sustainability
performance in the Casinos & Gaming industry:
• Need for public acceptance: While
there is growing acceptance of
gambling as a recreational activity,
casinos are still associated with many
social ills. To combat this, the industry
has been promoting responsible
gambling.
• Scrutiny from regulators: There is
ongoing interest in the industry’s
lobbying activities and continued
scrutiny by regulators into potential
money laundering activities.
As described above, the regulatory and
legislative environment surrounding the
Casinos & Gaming industry emphasizes the
importance of sustainability management and
performance. Specifically, recent trends suggest
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a regulatory emphasis on environmental and
customer protection, which will serve to align
the interests of society with those of investors.
The following section provides a brief
description of each sustainability issue that is
likely to have material implications for
companies in the Casinos & Gaming industry.
This includes an explanation of how the issue
could impact valuation and evidence of actual
financial impact. Further information on the
nature of the value impact, based on SASB’s
research and analysis, is provided in Appendix
IIA and IIB. Appendix IIA also provides a
summary of the evidence of investor interest in
the issues. This is based on a systematic analysis
of companies’ 10-K and 20-F filings,
shareholder resolutions, and other public
documents. It is also based on the results of
consultation with experts participating in an
industry-working group convened by SASB.
A summary of the recommended disclosure
framework and accounting metrics appears in
Appendix III. The complete SASB standards for
the industry, including technical protocols, can
be downloaded from www.sasb.org. Finally,
Appendix IV provides an analysis of the quality
of current disclosure on these issues in SEC
filings by the leading companies in the industry.
ENVIRONMENT
The environmental dimension of sustainability
includes corporate impacts on the environment.
This could be through the use of natural
resources as inputs to the factors of production
(e.g., water, minerals, ecosystems, and
biodiversity) or environmental externalities and
harmful releases in the environment, such as air
and water pollution, waste disposal, and GHG
emissions. In the casino industry, environmental
issues revolve around efficient management of
energy and water.
A high concentration of people in closed,
windowless environments such as casino
facilities requires extensive ventilation and air
conditioning. Therefore, operating a casino is
an energy intensive process. As energy prices
experience volatility and legislation seeks to
address externalities, companies need to
manage these risks and innovate to reduce the
environmental impacts of their operations in
order to protect shareholder value.
Energy Management
Fossil fuel based energy production and
consumption contribute to significant
environmental impacts, including climate
change and pollution, and have the potential to
indirectly yet materially impact the financial
results of casino operators. It is becoming
increasingly important for companies that rely
on electricity consumption to manage their
overall energy efficiency, as well as their
reliance on different types of energy and the
associated risks, and to access to alternative
energy sources.
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With many of the facilities open 24 hours a
day, the Casinos and Gaming industry requires
large amounts of energy to operate. Casino
facilities are often characterized by a lack of
windows, and depend on the building’s
mechanical systems for heating, ventilation, air
conditioning, (HVAC) and lighting. Many of the
casino facilities allow smoking, which, together
with dense concentration of customers, puts a
high load on HVAC to comply with regulated
air quality standards. Moreover, the Electronic
Gaming Machines (EGMs) and lighting used on
casino floors for entertainment or navigation
purposes consume substantial amounts of
energy and raise ambient temperatures, further
increasing the need for air conditioning.
By redesigning casino floors and using
advanced technologies, companies in the
industry may create more economically and
environmentally sustainable casinos, achieving
substantial long-term reduction of operating
expenses.
Company performance in this area can be
analyzed in a cost-beneficial way internally and
externally through the following direct or
indirect performance metrics (see Appendix III
for metrics with their full detail):
• Total energy consumed, percentage
grid electricity, percentage renewable.
Evidence
Casinos are extremely energy-intensive
commercial buildings, using up to five times as
much energy per square foot as the average
large hospital, which has significant energy
needs.45 According to the CDP data, purchased
electricity is the primary source of energy as the
global Scope 2 emissions are on average exceed
Scope 1 emissions by approximately four times
for the largest companies in the industry. For
example, in 2012, MGM and Las Vegas Sands
hit global Scope 2 emissions of 764,135 metric
tons of CO2e and 821,527 metric tons of CO2e
respectively.46 In 2010, there were 566
commercial casinos in the United States.47
Casinos are heavily dependent on
uninterrupted electricity - a utility blackout can
cost casinos more than $1 million a day in lost
revenue.48 The U.S. Environmental Protection
Agency (EPA) Combined Heat and Power (CHP)
Partnership is a voluntary program aimed at
reducing the environmental impact of power
generation through promotion of the use of
CHP.49 The EPA finds large casinos to be a good
market for capturing the benefits of CHP
systems – efficient and simultaneous
generation of electricity and heating. The
payback period for the investment may be five
years or fewer. In 2004, The Rio All-Suite Hotel
& Casino in Las Vegas installed a CHP system
that generated 40 percent of its electricity
needs and 60 percent of hot water for the
hotel, reducing the $9 million annual energy
bill by $1.5 million. The CHP provides reliable
electricity for gaming venues, even during
utility blackouts.50
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Energy retrofits can also provide significant cost
savings. Harrah’s Rincon Resort and Casino
saved more than $570,000 annually in energy
and labor costs by updating approximately
10,000 lighting fixtures.51 Moreover, Harrah’s
benefits from the use of renewable energy by
powering its HVAC system with solar energy.
The company replaced AC units on the roof of
its San Diego Rincon casino with a central
system, which 90 percent powered by the solar
plant. Aside from the energy savings, Harrah’s
may receive approximately $4.5 million in
incentives from the California Solar Initiative.52
Reliance on sources of renewable energy can
protect companies from volatile energy grid
prices. In 2013, MGM Resorts International and
NRG Energy installed the world’s largest
rooftop solar photovoltaic array at the
Mandalay Bay Resort Convention Center in Las
Vegas. The 6.4-megawatt project will provide
enough electricity to power 1,000 U.S. homes.
It is expected to reduce the company’s carbon
footprint by approximately 6,300 metric tons of
CO2, producing close to 20 percent of Mandalay
Bay’s total energy demand.53
There are many other cases where energy
improvement projects helped casino operators
achieve financial savings. Black Bear Casino in
Fond du Lac, Wisconsin saved $30,100 annually
after replacing 1,000 old bulbs with LEDs.
Konocti Vista Casino in Lakeport, CA upgraded
494 slot machines with LEDs and reduced
energy consumption and labor costs by other
means to save a total of $16,190 annually with
a 2.2 years payback period of the project. A
lighting upgrade at the Chumash Casino and
Resort in Santa Fe, CA saved the company
$46,000 per year.54 Top players in the industry
operate facilities significantly larger than the
ones mentioned above, so casino operators
that make these improvements may achieve
greater savings and operational efficiency.
Several companies in the industry have already
acknowledged their reliance on energy in their
Form 10-Ks. Caesars and MGM Resorts, for
example, report that they are “large consumers
of electricity and other energy” while Boyd
Gaming reports using “significant amounts of
electricity and natural gas.” These companies
identify higher energy prices as potential risks
to their operating results. 55 Disclosure on the
positive financial impacts resulting from
properly managing this issue is also starting to
appear in SEC filings. Boyd Gaming, for
example, reports in its FY 2012 Form 10-K that
maintenance and utilities expenses decreased
by $12.8 million, in part due to “cost
reductions associated with the company’s
energy savings initiatives”.56
Value Impact
Energy-intensive operations and volatile energy
prices create incentives for companies in the
industry to reduce their electricity consumption.
Projects aimed to reduce energy consumption
are likely to pay off in the form of lower
operating expenses and improved profitability.
While retrofitting existing facilities or building
new ones that use resources more efficiently
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involves additional capital expenditures,
payback periods for these investments are
relatively short. While the cost of energy
consumption is already captured in financial
results, overall energy consumption levels
provide a sense of firms’ exposure to possible
future increase in energy price. Moreover,
casino operators that reduce their reliance on
energy from the grid by investing in alternative
sources of energy will be better positioned to
face increases in energy prices driven by climate
change regulations. The percentage of energy
used from renewables indicates a firm’s ability
to mitigate its environmental footprint and its
exposure to energy cost increases.
SOCIAL CAPITAL
Social capital relates to the perceived role of
business in society, or the expectation of
business contribution to society in return for its
license to operate. It addresses the
management of relationships with key outside
stakeholders, such as customers, local
communities, the public, and the government.
Of the social costs that are attributed to
gambling, pathological gambling is one of the
most noticeable. Pathological gamblers may
represent a substantial economic problem for
society. Public concerns about the perceived
social cost of casinos and regulations can
prevent casino operators from entering new
markets within the U.S. Proper management of
issues related to social capital will enable
investors to assess whether companies are
positioned to assuage public and customer
concerns about responsible gaming.
Responsible Gaming
Nearly one percent of U.S. adults meet the
criteria for pathological gambling, which is a
progressive addiction characterized by
increasing preoccupation with gambling.
Another two to three percent are problem
gamblers, i.e., they meet one or more (but not
all) of the criteria for pathological gambling.57
Problem gambling, like other addictions, can
hamper personal relationships and professional
pursuits.
The gaming industry is taking voluntary steps to
deal with pathological and problem gambling.
The American Gaming Association (AGA),
which includes Caesars, MGM, Las Vegas
Sands, and Churchill Downs, among others, has
enacted a Code of Conduct for Responsible
Gambling. AGA members pledge to promote
responsible gaming “in every aspect of the
casino business, including employee training,
customer education, the prevention of
underage gambling, responsible alcohol service,
and responsible marketing and advertising.“58
In addition, since 1996 the industry has
committed $22 million to the National Center
for Responsible Gaming, an AGA affiliated
charity that funds research to increase
awareness of pathological gambling and find
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effective methods of treatment for the
disorder.59
The issue of responsible gambling is becoming
increasingly challenging as Internet gambling is
becoming a source of new growth for the
industry. While the industry’s revenue from
online gambling is still small, it is gaining
traction due to “convenience, access to credit,
physical comfort, anonymity, and privacy.”60
However it also presents a greater risk of
problematic gambling behaviors. While casinos
may have trained staff to identify problem
gambling, it is more difficult to monitor on the
Internet. Several studies have found evidence of
a strong relationship between Internet
gambling participation and problem gambling
behaviors.61
Company performance in this area can be
analyzed in a cost-beneficial way internally and
externally through the following direct or
indirect performance metrics (see Appendix III
for metrics with their full detail):
• Percentage of gaming facilities
implementing the Responsible
Gambling Index; and
• Percentage of online gaming
operations implementing National
Council on Problem Gambling’s
Internet Responsible Gambling
Standards.
Evidence
A University of Chicago study estimated that
between five and 15 percent of gross gaming
revenue comes from problem and pathological
gamblers. While casinos do not cause problem
gambling, they do provide opportunities to
gamble and can thus exacerbate the issue.62 A
1999 report from the National Gambling
Impact Study Commission found that the
prevalence of problem and pathological
gamblers is twice as high within 50 miles of a
casino as within 50 to 250 miles. Additionally,
such gamblers are more likely to have declared
bankruptcy, and been on welfare or arrested or
incarcerated.63 People in the age groups 18 to
29 and 40 to 49 are the most likely to report
gambling problems.64
In addition to complying with states’
regulations, many AGA members have
developed responsible gaming programs,
including self-exclusion lists and trained
personnel to identify problem gambling.65
Players can put themselves on restriction or
exclusion lists, which restrict their ability to
enter or play at casinos. In 1995, Caesars
helped fund the nation’s first helpline for
problem gambling. The company is considered
a pioneer in promoting responsible gaming.66
In several jurisdictions, like Illinois, Louisiana,
Indiana and Singapore, casino operators must
comply with responsible gambling regulations.
However, the obligations imposed on casinos
and the mechanisms that ensure compliance
differ by government. For example, all Illinois
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casinos are required to check the identification
of guests who appear to be under the age of
30 in an effort to prevent those enrolled in the
Illinois Board’s Self-Exclusion Program from
gaining access to casinos.67 However, casinos in
that state are only required to make a
reasonable effort to prevent self-excluders from
entering their facilities, and self-exclusion forms
contain similar language. Similarly, in Indiana, a
judge determined that casinos have no “duty of
care” to its patrons and absolved Aztar, a
riverboat casino, of any legal liability to a self-
excluded patron who came back to gamble.68
By contrast, the Pennsylvania Gaming Control
Board fined several casino operators in the
state anywhere from $10,000 and $40,000 for
not preventing self-excluded patrons from
accessing the floor and gambling.69 According
to the Board’s annual report, 6,930 people
requested self-exclusion between 2013 and
2014.70
The Ontario Lottery and Gaming Corporation
settled out of court several major lawsuits
launched against it by compulsive gamblers.
Many of the plaintiffs claimed they were
allowed to gamble despite signing self-
exclusion forms. In Ontario, pictures of banned
(self-excluded) patrons are circulated to security
guards at each venue to alert them. Other
jurisdictions have imposed more effective
methods of preventing banned guests from
gambling. The Netherlands has guests swipe
their identification to gain access, while British
Columbia uses facial recognition cameras to
detect self-excluders.71
With the increasing popularity of online
gambling, the National Council on Problem
Gambling (NCPG) has focused its attention on
gaming websites. In 2014, it launched the
Responsible Gaming Compliance Program for
Internet Gaming Websites to perform
independent evaluations of the sites by
performing ‘mystery shopping by trained
testers’.72 The program is aimed at informing
consumers and helping them to make safe
choices through self-exclusion and setting
personal limits, among other means. Targeted
companies would be required to ensure regular
staff training to teach employees “to respond
to situations where a player contacts the site,
requests information, and discloses they may
have a gambling problem”.73
In its 2012 Form 10-K, International Game
Technology, a gaming machine manufacturer
and online gaming company, mentioned the
incorporation of responsible gaming
functionality in its product design.74 Allegations
that online gaming promotes gambling
addiction are receiving attention from product
liability lawyers. In April 2013, lawyers and
academics gathered to discuss possible legal
strategy for a suit against online gambling
companies modeled after the class action
lawsuits that required tobacco companies to
pay $206 billion over 25 years to compensate
those with smoking-related illnesses for medical
care and to fund anti-smoking advocacy
groups.75
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Value Impact
The casino industry is under constant public
pressure for its perceived role in problem and
pathological gambling. While casinos
themselves do not cause the problem, they are
expected to uphold certain industry best
practices for responsible gaming, including self-
exclusion lists, responsible advertising, and
preventing gambling by minors. Strong
performance on responsible gambling can have
positive impacts on market share and growth in
new markets, as it can attract new customers
and facilitate approval for gaming licenses.
Company performance in responsible gambling
can be assessed through the percentage of
gaming operations that are implementing
industry best practices.
The probability and magnitude of these impacts
is likely to increase in the near future, as online
gambling is increasing in popularity and brings
a new set of challenges around compulsive
gambling, as well as a renewed regulatory
focus.
HUMAN CAPITAL
Human capital addresses the management of a
company’s human resources (employees and
individual contractors), as a key asset to
delivering long-term value. It includes factors
that affect the productivity of employees, such
as employee engagement, diversity, and
incentives and compensation, as well as the
attraction and retention of employees in highly
competitive or constrained markets for specific
talent, skills, or education. It also addresses the
management of labor relations in industries
that rely on economies of scale and compete
on the price of products and services. Lastly, it
includes the management of the health and
safety of employees and the ability to create a
safety culture for companies that operate in
dangerous working environments.
Casino dealers have to spend excessive hours in
crowded environment where patrons are
sometimes allowed to smoke. Secondhand
smoke at casino facilities is a primary threat to
the health of employees. Long-term exposure
to smoke may result in chronic heart diseases.
This may expose casino operators to class
action lawsuits. To protect the health of
employees and patrons, many states impose
smoking bans at public locations. However,
smoking bans could have an adverse impact on
companies’ revenue.
Smoke-free Casinos
Casino facilities are usually characterized as
closed, windowless environments with a
relatively high concentration of people at any
time. While anti-smoking campaigns help states
to enact smoking bans in public places, many
American casinos remain exempt from the
bans. Smoke exposes employees and patrons to
risks of heart attacks and cancer. Casino
dealers tend to have higher than average
respiratory illnesses.
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Companies that derive a significant portion of
their revenue from smoking customers may be
negatively affected by smoking bans that have
become more common in the U.S. On the other
hand, by creating smoke-free facilities, casino
operators may be better positioned to capture
the market of non-smoking patrons.
Company performance in this area can be
analyzed in a cost-beneficial way internally and
externally through the following direct or
indirect performance metrics (see Appendix III
for metrics with their full detail):
• Percentage of gaming floor where
smoking is allowed; and • Percentage of gaming facility staff that
work in areas where smoking is
allowed.
Evidence
The Centers for Disease Control and Prevention
(CDC) estimate that since 1964, 2.5 million
nonsmokers have died from exposure to
secondhand smoke. Between 2005 and 2009,
secondhand smoke exposure caused about
34,000 heart disease deaths annually.76 UCSF
researchers calculate that deaths from
secondhand smoke represent 600,000 years of
potential life lost and $6.6 billion in lost
productivity.77
Secondhand exposure in casinos can be 2.4 to
18.5 times higher than exposure in offices, and
up to 11.7 times higher than in restaurants.78
According to a study by scientists from
Stanford and Tufts universities, 50 million
nonsmoking casino patrons and 400,000 casino
employees are exposed to secondhand smoke
at casino facilities every year. Less than two
hours of exposure to secondhand smoke at half
of the casinos surveyed is enough to impair the
heart's ability to pump blood. Secondhand
smoke puts workers and guests at acute risk of
heart disease. Older people are at an even
greater risk of exposure to secondhand smoke,
as the population of Americans over 45 has
higher gambling rates. The study also
concluded that ventilation and air cleaning do
not control indoor smoke levels: “The only
effective control for secondhand smoke was
reducing the number of smokers. The fewer
smokers, the less polluted the air. If you switch
to a nonsmoking casino, your exposure to
harmful fine particulate matter levels indoors
will be reduced by 90 percent, and your
exposure to carcinogenic PPAH levels will
decrease by 80 percent.”79
State and local governments have continued to
enact Smoke-Free Laws in public areas such as
bars and restaurants to protect workers and
patrons from secondhand smoke exposure.
Currently, 28 states and the District of
Columbia have statewide smoking bans,80 but
only 20 of those states have extended the ban
to casinos.81
A according to a study by UCSF professor
Stanton Glantz, since 2006, when smoking was
banned in Colorado bars and restaurants, the
number of ambulance-summoning phone calls
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from any location dropped by 22.8 percent,
except the calls from casinos, which remained
the same.. After smoking was banned in
Colorado casinos in 2008, the number of
emergency calls from casinos dropped by more
than 19 percent. According to Glantz, while
the study only shows correlation rather than
causation and may miss some additional
factors, other studies have found a link
between smoking bans and a decrease in
emergency calls.
Studies aimed to determine whether smoking
bans have had effect on gaming revenue yield
different results. According to a study
conducted in nine states, business owners
didn’t experience negative economic impacts
on bars and restaurants from smoking bans.82
Other studies also show there was no impact
on gaming revenue in Delaware and Kentucky
from smoking bans.83 On the other hand, a
2005 study by Michael R. Pakko found that the
implementation of Delaware’s Clean Indoor Air
Law reduced the state’s gaming revenue by 13
percent, or $6.5 million per month.84
Some states and municipalities have enacted
partial bans on smoking at casino facilities. For
example, since 2007, only 25 percent of
gaming areas in Atlantic City’s casinos can
allow smoking. However, enforcement of the
ban has been virtually non-existent, in part
because of a lack of inspectors. By 2011, the
city’s Department of Health and Human
Services had issued only one smoking ordinance
violation on a casino floor.85
In Macau, where the most industry growth is
occurring, smoking will be banned starting in
October 2014. MGM Resorts International,
Wynn Resorts, and Las Vegas Sands lobbied for
the regulation. Private gaming rooms are
exempt from the rule and casinos can build
smoking rooms on gaming floors without table
games or slot machines. Analysts’ opinion
about potential impacts of the rule differ -
some don’t expect to see any negative impact
on gaming revenue86 - while others believe it
will add to the recent market-wide softening of
gross gaming revenue (GGR)87
Major players in the industry also identify the
risks associated with potential smoking bans at
their facilities in SEC filings. According to MGM
Resorts International , “Illinois has enacted a
ban on smoking in nearly all public places,
including bars, restaurants, work places,
schools and casinos and, in January 2013,
casinos in Macau, including MGM China,
implemented a smoking ban in which a portion
of casino floors are to be designated non-
smoking. The likelihood or outcome of similar
legislation in other jurisdictions and
referendums in the future cannot be predicted,
though any smoking ban would be expected to
negatively impact our financial performance.”
According to Las Vegas Sands “the
implementation of such legislation may deter
potential gaming customers who are smokers
from frequenting casinos in Macao, which
could negatively impact our business, financial
condition, results of operations or cash
flows.”88 In its 2013 Form 10-K Penn National
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Gaming states that the smoking ban passed in
Illinois “adversely affected revenues and
operating results” at the company’s facilities in
the state.89
In August 2014 Hancock County in West
Virginia passed the Clean Air Regulation Act,
banning smoking at local casinos effective July
1, 2015.90 Mountaineer Casino, Racetrack and
Resort, the county’s largest employer, opposed
the ban, claiming that it could cost the
company 20 percent of its business.91
On the other hand, there is evidence that
smoke-free casinos can strengthen profits
through lower costs and higher revenue.
Allowing smoking at casinos can lead to
additional costs associated with higher health
and life insurance premiums for employees,
increased fire premiums, and higher workers’
compensation payments. Smoke-free casinos
reduce the risk of employees developing
diseases, and therefore the cost of employer-
provided health insurance.92
On the revenue side, evidence suggests that
the proportion of smokers in casinos is the
same as the general population, and that
patrons usually prefer a smoke-free
environment. According to the CDC,
approximately 18 percent of all adults in the
U.S. smoke.93 Studies estimate that percentage
of smokers among gamblers is not significantly
higher than that of general population. In 2006
a study by a University of Nevada, Reno
researcher concluded that only about 21.5
percent of Las Vegas gamblers were smokers.
In Reno/Sparks the number was 22.6 percent,
while in Tahoe, it was only 17 percent. The
percentage of smokers at rural casinos is
higher, at 36.5 percent.94 According to a J.D.
Power and Associates 2008 Southern California
Indian Gaming Casino Satisfaction Study, 85
percent of gamblers at Native American casinos
in Southern California prefer smoke-free
casinos.95 In a survey conducted in Delaware in
2003, 83 percent of respondents stated that
they found their visits to restaurants, bars, and
casinos to be “more enjoyable” since the Clean
Indoor Air Act went into effect in 2002.96 In
2007, 69 percent of survey respondents in New
Jersey favored the state’s smoke-free air law’s
expansion to casinos. At the same time, 85
percent agreed that "All New Jersey casino
workers should be protected from exposure to
secondhand smoke in the workplace." Eighteen
percent also stated that they would visit casinos
more often if they were smoke free, while 74
percent said that their habits wouldn’t be
affected by smoking bans at casinos.97
Value Impact
As regulators continue to establish smoking
bans, casinos that have larger smoking sections
may have a greater risk of exposure. Evidence
shows that smoking bans can have a significant
negative impact on gaming revenue.
Companies in the industry may lose some of
their market share as smoking patrons switch
to competing Native American casinos where
smoking is allowed. At the same time,
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companies that expand non-smoking areas
ahead of mandated standards can better attract
new markets of ‘mainstream’ consumers and
are better positioned to face strengthening
regulations. As the non-smoking population in
the U.S. increases, companies that dedicate
more of their facilities to smoke-free areas may
see an uptick in their revenue and market
share. Creating an image of casinos as smoke-
free environments may attract more non-
smoking patrons and strengthen their revenue
growth in the long term.
Secondhand smoke has a significant negative
impact on the health of casino employees. The
increased risk of smoke-related diseases may
result in extraordinary legal expenses and
contingent liabilities, as well as higher workers
comp premiums. The percentage of staff that
works in smoking areas highlights a company’s
risk exposure to potential lawsuits from
employees.
LEADERSHIP AND GOVERNANCE
As applied to sustainability, governance
involves the management of issues that are
inherent to the business model or common
practice in the industry and are in potential
conflict with the interest of broader stakeholder
groups (government, community, customers,
and employees). They therefore create a
potential liability, or worse, a limitation or
removal of license to operate. This includes
regulatory compliance, lobbying, and political
contributions. It also includes risk management,
safety management, supply chain and resource
management, conflict of interest, anti-
competitive behavior, and corruption and
bribery. For the Casinos and Gaming industry,
this includes regulatory compliance, lobbying,
political contributions, and anti-money
laundering.
Internal Controls on Money Laundering
By nature of its business, the Casinos & Gaming
industry has to deal with large amounts of
money. Therefore, companies in the industry
need to ensure the presence of internal
controls to prevent violation of various
reporting and money laundering regulations.
Casino operators that fail to ensure a robust
framework to detect and prevent money
laundering activities may open themselves to
investigations. Violations of AML laws and
regulation could result in criminal prosecution
and substantial regulatory penalties.
Company performance in this area can be
analyzed in a cost-beneficial way internally and
externally through the following direct or
indirect performance metrics (see Appendix III
for metrics with their full detail):
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• Description of anti-money laundering
policies and practices; and • Amount of legal and regulatory fines
and settlements associated with money
laundering.
Evidence
A large share of industry revenue is currently
coming from Macau, where compliance with
anti-money laundering laws may be at a lower
level than in the U.S. According to estimates,
$202 billion worth of “ill-gotten funds” are
channeled through Macau annually. Reported
ties of the gambling industry in Macau to
corruption and money laundering prompted the
Chinese government to strengthen the
regulation of the industry.98 In 2014, the
People’s Bank of China signed a memorandum
with the Monetary Authority of Macau to
combat money laundering. The memorandum
announcement negatively affected several of
the largest casinos stocks, including Galaxy
Entertainment Group, Sands China Limited,
MGM China Holdings Limited, and SJM
Holdings Limited.99
The U.S. is also stepping up its efforts to
investigate money-laundering activities to
ensure that U.S. casinos with operations in
Macau are not being used as a channel to
funnel illegal funds into the U.S. financial
system. According to Reuters, agents of the
U.S. Internal Revenue Service (IRS) traveled to
III A process in which a customer leaves the casino with a large amount of chips or stores them on-site in a lock box for an extended period of time.
Macau in May 2014 to gather relevant
information. Federal law enforcement officials
have said that there is a possibility that IRS
Criminal Investigation (CI) is probing the Macau
operations of a U.S. company for failing to
police transactions for money laundering. The
anti-money laundering unit of the U.S. Treasury
Department also has been examining money
flow from Macau casinos.100
In the U.S., in June 2014, FinCEN Director
Jennifer Shasky Calvery publicly addressed
increasing concerns about casinos compliance
with the BSA, and emphasized the need for
compliance with the AML programs by tribal
casinos. FinCEN expects casinos to comply with
the following requirements:
• knowledge of the source of their
customers’ gambling funds;
• development of effective risk-based
AML compliance programs based on
solid written risk assessments;
• mandatory and voluntary information
sharing; and
• awareness of “chip walking”III as a “red
flag”.101
In their annual filing with the SEC, companies
in the industry recognized the risks associated
with intensifying AML regulations targeting the
gaming industry. For example, Caesars
Entertainment stated that one of the
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company’s subsidiaries, Desert Palace, Inc. (the
owner of Caesars Palace), is currently under
investigation by FinCEN. The investigation
relates to alleged violations of the BSA based
on the examination of Caesars Palace by the
IRS. FinCEN will determine whether a civil
penalty is appropriate and if there is a need for
additional enforcement action against the
company. Furthermore, “there is an ongoing
federal grand jury investigation regarding AML
matters.”102 In its FY2013 Form 10-K Las Vegas
Sands indicated a possible financial impact of
the incompliance with AML regulations: “Any
violation of anti-money laundering laws or
regulations, or any accusations of money
laundering or regulatory investigations into
possible money laundering activities, by any of
our properties, employees, customers could
have a material adverse effect on our financial
condition, results of operations or cash
flows.”103
Maintaining business ethics is likely a material
issue for casino operators as the industry is
subject to scrutiny by regulators. Top gaming
companies including Las Vegas Sands, Caesar’s
Entertainment, MGM Resorts, Wynn Resorts,
International Game Technology, and Pinnacle
Entertainment all report that they are subject to
anti-money laundering regulations due to the
significant amounts of cash that is typical in the
industry.IV In August 2013, Las Vegas Sands
Corp. reached a deal with federal prosecutors.
The company will pay more than $47.4 million
IV Author’s analysis based on disclosures by top gaming companies in their FY2012 Form 10-K.
to the U.S. government to avoid criminal
charges over alleged money laundering
activities.104
Value Impact
Companies that fail to implement effective
internal controls on money laundering are at an
increased risk of legal and regulatory action.
This can have a chronic impact on value
through increased legal expenses, as well as an
acute impact from adverse decisions in the
form of extraordinary expenses, contingent
liability, and a negative reputation. In extreme
cases, legal action can impact companies’
current and future gaming licenses, with a
direct impact on revenue in existing and new
markets.
Internal policies and procedures to prevent
money laundering—including record-keeping
and high-risk customer diligence procedures—
indicate the strength of a company’s risk
management systems and helps assess
companies’ risk profile and the probability of
legal action.
Legal and regulatory fines associated with
money laundering give an indication of how
well companies manage this issue and provide
an understanding of the probability and
magnitude of incidents.
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Political Spending
Casinos are often perceived to be associated
with social ills like embezzlement, drunk
driving, and personal bankruptcies in nearby
communities.105 This negative perception makes
it complicated for casino operators to grow
their business and obtain permits for new
casinos. Therefore, lobbying is particularly
relevant to the Casinos & Gaming industry,
where the industry’s existence depends on local
and federal regulations.
The issue of political contributions and lobbying
is related to the interaction of companies with
the regulatory environment. Lobbying on
specific issues, like evolving online gaming
regulations or new site permitting, could have
positive outcomes for companies and their
shareholders in the short-term. However, these
same actions could have the opposite outcomes
for society by increasing the magnitude of the
social impacts of the industry, including those
mentioned in the Responsible Gaming section
above. Ultimately, these impacts could
negatively affect the financial performance of
companies in the industry. For example,
spending on lobbying for new sites in a
particular state may increase a company’s
market share if they are able to enter or expand
in those markets. However, in the long term,
excessive industry influence over the political
outcome may result in regulations that are
perceived to unfairly protect industries to the
detriment of society. This, in turn, can result in
subsequent limitations on licenses to operate or
additional regulation.
The overall level of political spending in the
casino and gaming industry is high and rising,
and generally revolves around the legalization
of gambling and casino licenses. However, the
indirect nature of some of the contributions
makes it hard to track political spending to
ensure that it is transparent and legal. Laws
exist at the federal and state level to promote
transparency of political spending or restrict
political influence over gaming licenses, which
can lead to criminal charges.
Furthermore, the SEC signaled that it might
consider formally proposing a rule requiring the
disclosure of political contributions. While the
Commission recently dropped the issue from its
list of priorities for 2014, it is not precluded
from acting on the matter. There are other
regulatory efforts underway to require
disclosure on this issue, including legislation
introduced by some senators and the Treasury
Department indicating that it might restrain
certain tax-exempt groups if they do not
disclose their donors.
Company performance in this area can be
analyzed in a cost-beneficial way internally and
externally through the following direct or
indirect performance metrics (see Appendix III
for metrics with their full detail):
• Amount of political campaign
spending, lobbying expenditures, and
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contributions to tax-exempt groups
including trade associations; and • Five largest political, lobbying, or tax-
exempt group expenditures.
Evidence
The rise of Internet gaming has brought an
increase in legislative activity and industry
responses to regulation. The Interactive Gaming
Council (IGC), founded in 1996, is an
organization aimed at advancing the global
interactive gaming industry.106 The IGC lobbies
for online gaming regulations and consumer
protection in an effort to reduce the risk of
regulations or prohibition for its casino and
gambling funders.107 Until 2007, IGC’s annual
spending never exceeded $400,000, and was
steady at $240,000 from 2004 through 2006.
However, in 2007 spending increased 500
percent to $1.26 million, and reached just
under $2.5 million in 2009. The recent spike in
IGC’s expenditures highlights the increasing
threat that regulations pose for the industry
and the reliance on political influence to
control risk.108 In total, in the three years
between 2011 and 2013, the industry spent
more than $100 million on lobbying, both at
the state and federal levels.109
In November 2013, New Yorkers voted in favor
of a constitutional amendment allowing the
approval of up to seven new casinos in order to
bring more jobs into economically distressed
parts of the state. The constitutional
amendment came to a vote after years of
political spending by the industry and lobbying
in Albany. Over the last seven years, gambling
and horse racing groups have spent more than
$59 million on political contributions and
lobbying in the state of New York. A similar
magnitude of spending has been happening
around the country in states that are
considering the approval of new gambling
sites. At the Federal level, the industry spent
$34 million in Washington in 2012.110
Political contributions also occur through
holding companies. For example, companies
affiliated with KT Lim, CEO of Malaysian casino
company Genting, spent $2.47 million during
between 2012 and 2013. Lim also owns a stake
in Empire Resorts, the company that is bidding
to build Montreign Resort Casino in Orange
County, and which spent $665,977 on
lobbying during the two-year period.111
Total lobbying expenditures include not only
casino operators’ money, but also contributions
from individuals and companies that are
associated with the operators and have vested
interest in expansion of casinos. For example, in
addition to the $319,123 that Caesars spent in
2012-2013 on lobbying for its proposed $880
million casino in Woodbury, NY, Caesars’
partner on the bid, David Flaum, spent
$211,925 over the same period. The total
contributions to New York state and local
political committees from individuals and
companies involved in the casino bids
amounted to $4.32 million over the two-year
period. Among them, the New York Gaming
Association, which lobbies for statewide casino
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expansion, spent $553,114 on lobbying. The
New York Jobs Now Committee was the single
largest recipient, with $1.9 million. This
industry-backed political action committee
lobbied in support of the statewide ballot
referendum that legalized casino gambling in
the fall of 2013. In some cases campaign
donations come through vague holding
companies or intermediary organizations that
are difficult to link to the publicly identified
bidders.112 Recent filings with the New York
state’s ethics commission indicate that many of
the casino bidders engaged lobbying firms -- a
total of 31 different lobbyists since 2012113.
In addition to efforts at the SEC, several states
have enacted rules to either promote
transparency around political contributions or
specifically limit the ties between casinos and
the political process around casino licenses.
New York state lobbying laws require
companies to disclose their political
contributions. But the amount of political
contributions is not completely transparent, as
New York state’s lobbying laws do not require
companies to report their contributions in
towns or municipalities with a population of
less than 50,000 people.114
In contrast, in New Jersey and Massachusetts,
casino owners and their principal employees
are prohibited from contributing money to any
political party or group. In Pennsylvania, public
officials, party leaders, and their immediate
family members are not allowed to have a
financial interest in a casino or work for one.115
These protections are aimed to prevent illegal
activities and can lead to criminal charges. In
2010, 11 people, including four state senators,
three lobbyists, and two powerful and
politically connected businessmen were
arrested in Alabama. The federal investigators
charged the individuals with participating in a
wide-ranging conspiracy in which lawmakers
were offered generous campaign contributions
in exchange for pro-gambling votes.116 In 2012,
six defendants in the case, including a casino
owner and three politicians, were acquitted on
charges of trading bribes for votes on gambling
legislation. Two lobbyists and a developer
pleaded guilty before and after the arrest in
2010.117
Value Impact
In the current economic and political
environment, companies that are seen as
having undue influence on regulators and
policymakers are likely to face reputational
damage. This is especially relevant in cases
where corporate lobbying is potentially
misaligned with societal interests, or reflects
controversial issues, such as legal gambling.
Furthermore, as many jurisdictions prohibit any
contributions to state, legislative, or local
candidates, companies that are unable to
properly manage this issue may face
extraordinary expenses and contingent liabilities
due to penalties and fines. Lastly, though
excessive political spending may procure new
I N D U S T R Y B R I E F | C A S I N O S & G A M I N G | 23
casino permits in the short term, it may create
long-term risk to the social license to operate.
Exposure to risk of political spending may be
assessed through the magnitude and recipients
of a company’s political spending.
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iI N D U S T RY B R I E F | C A S I N O S & G A M I N G
APPENDIX I: Five Representative Casinos & Gaming CompaniesV
COMPANY NAME (TICKER SYMBOL)
Las Vegas Sands (LVS)
MGM Resorts (MGM)
Caesars Entertainment (CZR)
Wynn Resorts (WYNN)
Melco Crown Entertainment [ADR] (MPEL)
V This list includes five companies representative of the Casinos & Gaming industry and its activities. This includes only companies for which the Casinos & Gaming industry is the primary industry, companies that are U.S.-listed but are not primarily traded Over-the-Counter, and for which at least 20 percent of revenue is generated by activities in this industry, according to the latest information available on Bloomberg Professional Services. Retrieved on September 30, 2014.
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APPENDIX IIA: Evidence for Sustainability Disclosure Topics
Sustainability Disclosure Topics
EVIDENCE OF INTERESTEVIDENCE OF
FINANCIAL IMPACTFORWARD-LOOKING IMPACT
HM (1-100)
IWGsEI
Revenue & Cost
Asset & Liabilities
Cost of Capital
EFIProbability & Magnitude
Exter- nalities
FLI% Priority
Energy Managment 44 92 3 Medium • • Medium • Yes
Responsible Gaming 50* 85 2 High • • • High • Yes
Smoke-free Casinos 38 - - N/A • • Medium No
Internal Controls on Money Laundering
100* 92 1 High • • • High No
Political Spending 25 92 4 Medium • • • Medium No
HM: Heat Map, a score out of 100 indicating the relative importance of the topic among SASB’s initial list of 43 generic sustainability issues; asterisks indicate “top issues.” The score is based on the frequency of relevant keywords in documents (i.e., 10-Ks, 20-Fs, shareholder resolutions, legal news, news articles, and corporate sustainability reports) that are available on the Bloomberg terminal for the industry’s publicly-listed companies; issues for which keyword frequency is in the top quartile are “top issues.”
IWGs: SASB Industry Working Groups
%: The percentage of IWG participants that found the disclosure topic to likely constitute material information for companies in the industry. (-) denotes that the issue was added after the IWG was convened.
Priority: Average ranking of the issue in terms of importance. One denotes the most important issue. (-) denotes that the issue was added after the IWG was convened.
EI: Evidence of Interest, a subjective assessment based on quantitative and qualitative findings.
EFI: Evidence of Financial Impact, a subjective assessment based on quantitative and qualitative findings.
FLI: Forward Looking Impact, a subjective assessment on the presence of a material forward-looking impact.
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APPENDIX IIB: Evidence of Financial Impact for Sustainability Disclosure Topics
Evidence of
Financial Impact
REVENUE & EXPENSES ASSETS & LIABILITIES RISK PROFILE
Revenue Operating Expenses Non-operating Expenses Assets Liabilities
Cost of Capital
Industry Divestment
RiskMarket Share New Markets Pricing Power
Cost of Revenue
R&D CapExExtra-
ordinary Expenses
Tangible Assets
Intangible Assets
Contingent Liabilities & Provisions
Pension & Other
Liabilities
Energy Management • • •
•
Responsible Gaming • • • • • • •
Smoke-free Casinos • • • •
Internal Controls on Money Laundering
• • • • •
Political Spending • • •
H IGH IMPACTMEDIUM IMPACT
ivI N D U S T RY B R I E F | C A S I N O S & G A M I N G
APPENDIX III: Sustainability Accounting Metrics | Casinos & Gaming
TOPIC ACCOUNTING METRIC CATEGORYUNIT OF MEASURE
CODE
Energy Management
Total energy consumed, percentage grid electricity, percentage renewable
Quantitative Gigajoules (GJ), Percentage (%)
SV0202-01
Responsible Gaming
Percentage of gaming facilities implementing the Responsible Gambling Index
Quantitative Percentage (%) by revenue
SV0202-02
Percentage of online gaming operations implementing National Council on Problem Gambling’s Internet Responsible Gambling Standards
Quantitative Percentage (%) by revenue
SV0202-03
Smoke-free Casinos
Percentage of gaming floor where smoking is allowed Quantitative Percentage (%) of gaming floor area
SV0202-04
Percentage of gaming staff that work in areas where smoking is allowed
Quantitative Percentage (%) of man-hours
SV0202-05
Internal Controls on Money Laundering
Description of anti-money laundering policies and practices
Discussion and Analysis
n/a SV0202-06
Amount of legal and regulatory fines and settlements associated with money laundering*
Quantitative U.S. Dollars ($) SV0202-07
Political Spending
Amount of political campaign spending, lobbying expenditures, and contributions to tax-exempt groups including trade associations
Quantitative U.S. Dollars ($) SV0202-08
Five largest political, lobbying, or tax-exempt group expenditures
Discussion and Analysis
U.S. Dollars ($) SV0202-09
*Note to SV0202-07: Disclosure shall include a description of fines and settlements and corrective actions implemented in response to events.
vI N D U S T RY B R I E F | C A S I N O S & G A M I N G
APPENDIX IV: Analysis of SEC Disclosures | Casinos & Gaming
The following graph demonstrates an aggregate assessment of how representative U.S.-listed Casinos & Gaming companies are currently reporting on sustainability topics in their SEC annual filings.
Casinos & Gaming
Energy Management
Responsible Gaming
Smoke-free Casinos
Internal Controls on Money Laundering
Political Spending
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
TYPE OF DISCLOSURE ON SUSTAINABILITY TOPICS
NO DISCLOSURE BOILERPLATE INDUSTRY-SPECIF IC METRICS
92%
85%
N/A
92%
92%
IWG Feedback*
*Percentage of IWG participants that agreed topic was likely to constitute material information for companies in the industry.
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