Playing to Win
ABDALLA F. HASSAN | Business Today | February 2000
Various ethical issues ensure that the gambling business practices discretion. But the amount of money it brings in ensures that it is always a
Gambling is hardly a risk, if you’re the government that is. It turns out they’re the money makers in casinos. “In the end, 60% to 70% of all money generated in casinos goes to the government,” says Jean Claude Frings, general manager of El-Salamlek Palace Casino in Alexandria.
Casinos here pay a steep government tax of 50% on the gross gaming revenue, in addition to the obligatory income tax (20% to 32%), import duties and a corporate tax of 42% on end-of-year profits. “A lot of people think that having a casino is like a license to print money,” adds Frings. “It’s not.”
The government appears to have solved the religious and ethical dilemmas that gambling poses rather neatly. Nationals are not allowed to gamble, and of course, the money the government rakes in in taxes eventually makes its way back into the public coffers.
Nationwide, casino revenues hover just over $90 million. The gross gaming revenue for Cairo’s casinos was $72 million in 1999, a mere 6% rise from the 1998 figures of $68 million, according to industry sources. Downtown casinos are the big money makers; the Marriott, Ramses Hilton, Semiramis Inter-Continental and Cairo Sheraton hotels top the list.
Egypt’s gaming industry, which employs an estimated 2,000 people in operations, financials and other support services, is decidedly low key. “It’s simply a cultural difference,” remarks Lucy Bishop, casino director at the Conrad International. “We cater to a market. We do not stimulate gambling. We don’t advertise aggressively. Wherever a casino operates in the world, it has to comply and fit in to the culture.”
Indeed, more than 115 countries around the world have casinos. “In the last 10 to 15 years, a lot of countries have recognized that gaming is an important source of foreign revenues to the country,” adds Bishop, who helped set up casinos in Poland and Finland, later joining Ladbroke for three and a half years as the overseas development manager. Bishop has evaluated potential markets, compiled mini-feasibility studies and set up casinos, including two in Egypt, at the Nile Hilton and the Four Seasons hotels. “[Gambling] is offered as an entertainment and leisure facility for tourists. It is something else that people can do with disposable income. So we compete with restaurants, nightclubs, cinemas and bars.”
The mathematics of the casino business are simple enough. Odds are in the favor of the house. Over the long-term, gamblers in Cairo’s casinos lose roughly 30% of the money they play. But those odds may not be enough. Nineteen casinos are currently operational in Egypt: 15 in Cairo, one in Alexandria, two in Sharm El-Sheikh and one in Taba. Industry insiders believe the market has reached saturation point, but investment continues to surge.
Two new casinos—at the Conrad and the Four Seasons hotels—have opened in Cairo in the past year alone. International casino operator Ladbroke allegedly spent $4.4 million in start up costs on its plush Cairo Four Seasons casino, which opened in July 1999. Looking to double its present size, Cairo’s Mövenpick casino will soon move to a larger, more visible space in the hotel lobby. Presently, three more casinos are expected to open in Sharm El-Sheikh.
“Fifteen is a lot of casinos for Cairo when you are totally dependent on non-Egyptian people coming to your casino,” says Nicholas Crabtree, managing director of Intercasino Management, a division of casino operator London Clubs International. Crabtree contrasts Cairo with London, which has 22 casinos, but the locals are allowed to gamble. Moreover, the gaming industry is dependent on such unpredictable factors as the political and economic climate, the number of tourists and foreign guests entering the country, and the market price of a barrel of oil.
Casinos can be located only in five-star hotels, and only foreign passport holders over the age of 21 (except those with five years of Egyptian residency or more) are permitted to gamble, according to the hotel and tourism legislation (Law No. 1/1973). The owner of a five-star hotel applies to the Ministry of Tourism for a casino license. The license is granted for a period of five to ten years once the terms have been negotiated and the conditions under which the casino will operate have been included in the licensing agreement.
The government’s 50% share of the gross gaming revenue (which is what is left of the total bets placed after the casinos have paid out the winnings, before any operating costs are deducted) is evenly split between the Ministry of Tourism and the Ministry of Finance. Games are played in U.S. dollars.
The gaming industry is regulated at two ends, explains Bishop. “Firstly, we’re regulated wherever the company operating the casino in Egypt has licenses in other parts of the world. For example, Conrad has licenses in the States. So we have our own internal controls that regulate the way we practice. We also have to comply with the regulations of the country that we are in. The movement of internal currency—the chips and the money that goes in the box—is all controlled and overseen by government representatives. They are, in a way, another sort of auditor.”
There isn’t a special government body created to oversee casinos. Instead, bank representatives, who are on hand during casino hours, perform the government’s regulatory function, ensuring the guidelines set by the ministries of tourism and finance are followed. Bank representatives are rotated regularly to avoid the threat of corruption. At the end of the month, the bank representative delivers the government’s share of the casino revenues to the ministries.
Playing the Odds
The job of casino operators is to generate revenue. In some cases the casinos are operated by outside companies that lease the space and pay a rent to the hotel’s owning company, which generally comprises 25% of the gaming revenue with a guaranteed minimum. Some casinos are run by the hotels; in Cairo, the Conrad, Marriott, Sheraton and Mövenpick hotels operate their own casinos.
Three international casino operators have a stake in the local gaming scene: Casinos Austria (Semiramis Hotel in Cairo, El-Salamlek Hotel in Alexandria, Mövenpick Hotel in Sharm El-Sheikh), London Clubs (Ramses Hilton Hotel in Cairo, Taba Hilton Hotel) and Ladbroke (Nile Hilton Hotel and Four Seasons Hotel in Cairo). Ladbroke is a large concern that owns Hilton International Hotels, and operates 26 casinos in England and various gaming operations around the world. A U.K.-based company, London Clubs has an interest in a casino development in Las Vegas and is expanding in South America. Backed by the Austrian government, Casinos Austria is the most multinational of the international casino operators, and has set up gaming operations in 13 countries worldwide, currently operating on four continents. Two other local companies run a string of other casinos: Magdy Ghaly’s M.G. Group (Pyramisa Hotel, Helnan Shepheard Hotel, Mena House Hotel) and Ali Zeaiter’s Lebanese-Egyptian Company for the Management of Casinos and Touristic Projects (El-Salam, Sofitel Hotel).
Popular in the 1960s, Egypt’s first casino was built in the hills of Moqatam. In the early 1970s, the Haramlek Palace in Alexandria’s Montazah Gardens was turned into a gaming arena. An outfit called the Eurocasino Group emerged as the operator of both casinos. Following the passage of Law No. 1 in 1973, the Moqatam casino operation moved Downtown into the Nile Hilton Hotel, and the Haramlek into Alexandria’s Cecil Hotel. The Eurocasino Group expanded casino operations to Luxor, before alleged tax evasion and other shady dealings forced a government shut down in 1997.
Marketing the Game
Aside from service, there is little casino operators can do to keep gamblers loyal. For high rollers (players who bet in the thousands of dollars) casinos offer ‘complimentaries,’ which include drinks, cigarettes, cigars, free hotel stays, waiving the minimum charge at hotel outlets and other discounts. But operators have avoided junkets—paid trips to gambling destinations for free-spending bettors—which are regarded as too costly for too low a return.
A small six-table, 10-slot machine casino is nestled in the verdant grounds of Cairo’s Mövenpick Hotel by the airport. To bring in business to the casino, which depends almost exclusively on hotel visitors who may stay one night or merely a few hours, a $5 casino voucher is handed out to foreign guests. The player uses the voucher with his first $5 wager. If he wins he receives a bonus of $5 on top of his winnings. The practice, a standard marketing tool called “match play,” is popular in stimulating turnover in high-volume environments like Las Vegas. Cedars Casino in Maadi’s Sofitel Hotel and Casino Royale in Sharm El-Sheik’s Mövenpick Hotel also use match play as a way to entice hotel guests to try their luck.
“Keeping a casino profitable is, first and foremost, marketing, marketing, marketing,” says Crabtree. With operations in England, the United States, South Africa, Lebanon and Egypt, London Clubs relies on its expansive database to pull clients in to its Cairo and Taba casinos. “Whereas the rest of the casinos here in Egypt are run predominantly on the basis that whoever comes in through the front door is looked after, London Clubs is proactive and looks for the customers elsewhere in the world and brings them here,” remarks Crabtree. London Clubs advertises its casino in Taba across the border in Eilat, Israel, in hotels and on billboards. To promote the Ramses Hilton Hotel casino, London Clubs sends its marketing team to Kuwait and other Middle Eastern countries.
The quaint, landmark El-Salamlek Palace Casino in Montazah Gardens was formerly a cinema during the reign of King Farouk. Now the building is identified by a large, red, neon sign propped on the roof that reads simply, “Casino.”
Without much effort in the way of marketing, Cairo’s casinos will still attract customers, says Frings, sitting behind his desk, up a narrow spiral staircase, in a small room that housed the old cinema’s movie projectors. “In Alexandria we do not have a lot of international tourists. We do not have that many Arab country guests,” he says. “We have a few Libyans coming back since the boycott has been lifted. But here you do not have the situation where you can just put a casino and people will come. It’s not possible.” Marketing is essential, he says, but it has to be done discreetly and in good taste.
Frings has taken a pioneering approach that tailor-makes the casino to Alexandria’s sleepy lifestyle. “We are trying to offer more than just gambling. We are trying to be a part of social life—organize arts exhibitions, fashion shows—things that are not gambling related, which will make this place part of entertainment in Alexandria.” Last June, the El-Salamlek Hotel Casino organized a well-received charity event for the Cosmopolitan Rotary Club, inviting embassies and other sponsors to take part. The proceeds, about LE 54,000, went to benefit children with epilepsy and heart disease as well as literacy projects.
“Times have changed,” concludes Frings. “We would not be able to do business just by offering gambling.” The new, community-centered approach not only served to reverse the images conjured up by motion picture lore of a tawdry, dimly lit underworld of wheeling and dealing gangsters and free-spending playboys, it had an effect on the casino’s bottom line. The Salamlek Hotel Casino witnessed a 20% increase in revenue in 1999 compared to the previous year. Frings optimistically expects 20% growth for this year as well. “Chances are that we will get a growth in tourists especially from Libya. When the price of oil went down, we noticed because of the reduction in Kuwaiti and Saudi clients. The price of oil is going up so we are expecting more customers to come from the Gulf.”
Casinos often target the business traveler and foreign business residents. Budget-minded vacation travelers aren’t usually the ideal casino customers. Most casino operators are not forthcoming about who frequents their casinos. Still, Arabs from the Gulf and expatriates on short-term business contracts evidently make up the bulk of casino regulars. Frings estimates that of Alexandria casino’s clientele, 25% are Kuwaitis; 25% are Libyans and other Gulf Arabs; 20% are Egyptians with dual nationality; and 30% are Asians, Americans, Canadians and Europeans working in Egypt. Only 10% of all the clients at El-Salamlek casino are tourists.
Nonetheless, not all the gaming establishments that were established in Egypt have fared well. London Clubs was the operator of a casino in Hurghada’s Inter-Continental Hotel. “We closed it down because the level of business made it uneconomical to continue operating,” admits Crabtree. Moreover, the casino faced high operating costs in bringing in its work force from Cairo. Following three years in operation and mounting losses, the casino closed its doors in December 1998.
Why didn’t London Clubs forecast the failure of a casino in Hurghada? “Sometimes you speculate to accumulate,” replies Crabtree. “Hurghada, we believed at the time, was the up and coming place. We thought we would be there at the beginning, so we would be ready to pick it up when the development carried on. But unfortunately, the number of flights coming into the resorts did not grow, and that is out of our hands.”
As famous as Monte Carlo in the 1970s, Lebanon’s ornate Casino du Liban has had an official monopoly on gaming since it was inaugurated in 1959 on a stretch of coastland 80 km north of Beirut. The casino operated illegally on and off during the nation’s civil war and was eventually closed down in 1989. Rivaling the region’s casinos, in December 1996 Casino du Liban was brought back to life following a $50 million renovation. London Clubs was granted a 10-year management contract to operate the gaming rooms (with a first refusal on a further ten years). Last year the casino’s 60 gaming tables and 321 slot machines generated revenues of $100 million, of which the Lebanese government takes a 30% cut, according to Crabtree, who was responsible for setting up the operation. But, he notes, 76% of the clientele are Lebanese.
Initially, Casino du Liban struck a blow to the local casino market. “But in terms of accessibility to the Middle Eastern Gulf areas, it is a little easier to come to Cairo,” says Bishop. “I don’t think it has damaged the industry in Egypt as much as we thought it might. I think it impacted about 20% in the first year on the industry.” London Clubs, which has a well-developed marketing strategy, was able to draw big players to its Lebanon casino.
Only 200 meters from the Egypt–Israel border, the 31-table, 80-slot machine Taba Hilton Hotel casino is frequented predominantly by Israeli customers. The Israeli government forbids casinos on religious grounds. Avid gamblers, many Israelis flocked to Taba just across the border from Eilat. Competition for the lucrative Israeli clientele struck the Taba Hilton Hotel casino in September 1998, resulting in a nearly 50% decline in its gaming revenues. In the West Bank town of Jericho, the world’s oldest known city, a mirrored building of slot machines and blackjack tables, the Oasis, rises from the highway leading from Jerusalem to the Dead Sea. A half-hour drive from Jerusalem, the glitzy, Casinos Austria-run gaming outfit—a $50 million project intended to generate millions in tax revenues for the Palestine National Authority—caters to Israelis and bars Palestinians. Plans are underway to invest $300 million in the next three years to expand the Oasis Casino and construct a tourism complex that includes a five-star hotel, a shopping center and golf course.
According to Haral Baku, head of Accounts, Controlling and Internal Auditing for Casinos Austria, the Jericho operation, which has 123 tables and about 200 slot machines, pulls in around 2,800 visitors a day. Frings contrasts this with the Semiramis Hotel operation, which sees 400 guests on average, and the Salamlek Hotel which sees 50 guests on a good night.
Moreover, illegal gaming boats based in Eilat continue to operate beyond territorial waters in the Gulf of Aqaba. Although Taba is still a 24-hour-a-day operation, “It is not what we would call the glory days of three, four years ago,” says Crabtree, who has his bets on a comeback. “Taba is offering something that Jericho isn’t, which is comfort. It is a lot quieter. Jericho is a very big gambling factory.”
Close by, Morocco, Tunisia, Greece and northern Cyprus have established gaming industries, from the classy and exclusive La Mamounia Hotel’s Le Grand Casino in Marrakech, Morocco, to the region’s largest casino in Thessaloniki, Greece. Turkey shut down its casinos a couple of years ago. Formerly huge moneymakers, casinos in Turkey are rumored to reopen in the next year or two. “This region is very much governed by economic and political factors,” concludes Bishop. “If we have a good year and tourism continues to grow, we can do extremely well. But if anything creates a problem or instability then casinos are the first industry to suffer.”
Placing their bets on tranquility, casino operators expect to hunker down for the long haul. “For the Middle Eastern client, if he is not going to come to Cairo, he will go to Lebanon. If not Lebanon, he will go international: America, Australia, London,” asserts Crabtree. “We see Egypt as the hub of the Middle East. We wouldn’t be here if we didn’t think it would be worth our while.”