Scientific Game

Out of Africa

Surprisingly, the cradle of humanity is also a test bed for casino slot products aimed at Asians

Thursday, 19 February 2009 00:00
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Africa may seem an unlikely testing ground for slot machines targeted at Asian players. Globalisation has, though, made big changes to the way the gaming industry operates, and Africa is no exception, says John A. Robbins.

Mr Robbins is a gaming executive with more than 30 years of experience, including an executive role with Sol Kerzner's Sun International group, which has extensive gaming and leisure interests across southern Africa.

Recently, Mr Robbins, chairman of a Gibraltar-based company called KaiRo International, has been travelling in Asia looking at possible gaming business opportunities in Indochina. The idea is to transfer the knowledge he's gained in serving the many East Asian customers found in African casinos back to Asia proper.

Inside Asian Gaming spoke to Mr Robbins in Hong Kong on one of his recent visits to Asia.

"The guys I've been talking to about possibly doing business in Asia, they say 'You don't know how things work out here.' I disagree with that. I left the UK in the 1970s, and I've been in and out of Africa for 30 years. In that time most of my customers have been Indians or East Asians," he says.

"When I first worked in southern Africa in the late 1970s, most of the Chinese people I knew were from families who had been there for several generations and were established as professionals.

"Then when I worked in Lesotho and Swaziland with Sun International, the Chinese people we saw were mainly Taiwanese who went out there because of the textile industry. They kept to themselves but liked to gamble. They generally visited the casinos in a group of 20 to 30, and actually became the main clients," recalls Mr Robbins.

In 1991, Mr Robbins and a business partner, Tommy Kai, who also happens to be ethnic Chinese, set up KaiRo International, an independent management company, in order to develop casinos at several Hilton Hotels venues in Turkey. The name of the company, formed from the surnames of the partners, also turned out to be prophetic, as Mr Robbins was soon back in Africa. In 1996 KaiRo sold its Turkish casino business to a local group called TGI, spotting instead a gap in the market for small club-style casinos in some of the newly liberalised African economies. The countries targeted were Ghana in the west and Tanzania in the east, away from the more developed southern tip of the continent.


Turn of the Cards

How sub-Saharan Africa changed from a table to a slots market

"The first opportunity we spotted outside southern Africa was in Dar es Salaam, Tanzania," says John A. Robbins of KaiRo International.

"We started with the shell of an old hotel ballroom. We converted it and put in all the latest technology, which hadn't been seen outside southern Africa. Until then, the tendency in the rest of Africa was to open venues with second hand equipment, such as old electro mechanical slots. But we decided if we're going to do it, let's do it with the latest technology and see what we can achieve."

At that time, the market for modern slots outside southern Africa wasn't proven.

"Equipment suppliers don't typically offer credit or deals to operators based outside southern Africa. You pay cash for machines up front and take your chances. Once we got established, though, we had all the major companies knocking on our door saying 'Try this machine'."

Mr Robbins says Novomatic is now an important supplier for KaiRo International in Africa.

"We work very closely with Novomatic and have a very good relationship with them. They were the leaders in that market for us. Then we came in with Aristocrat, IGT etc. We've always had Ballys and Universals over the years, but I would say Novomatic has taken the major share. We're not big operators, more like a club operator—200 or 300 slot machines, that sort of size, in a few biggish cities."

And this is where the unlikely story of the test bed for Asian slot players comes into play. A few years after the company's first African venue, The New Africa Hotel and Casino, opened in Tanzania, there was an explosion in the number of Chinese nationals travelling the globe in search of commodities, trade and investment opportunities as China's economy took off.


Eastern Promise

How the rapid growth in Asian players changed the African casino scene

"When we opened in Dar es Salaam in 1997, the clientele was mainly Asian people from the Indian sub-continent, from the communities that have been in east Africa for many generations. The product mix at that time was 80-20 in favour of table games," explains John A. Robbins of KaiRo International.

"I would say in about 2000 to 2001, we started seeing more Chinese people coming in, beyond just the local owners of businesses that we would see previously.

"The first group were mainly involved in agriculture. They didn't have a lot of money, but they'd come into the casino and look around. Now in Africa there are many, many, wealthy people from East Asia—I would say mostly Mainland Chinese. I would estimate the number of Chinese and East Asians in Africa is in the high 30s of millions.

"As well as Chinese, there are also Korean and Japanese businessmen. I would say the mix is 70% East Asian. It's our main source of business in Tanzania and in Ghana. We have built a room in our Ghana venue, the La Palm Casino in Accra, called the Saigon Lounge, with karaoke bars and a noodle bar and mainly slot machines," adds Mr Robbins.

The biggest change heralded by the arrival of Mainland Chinese customers was a dramatic shift in the business model for sub-Saharan casinos, from live table games to slots, he explains.

"What we've found is that although they play the live games, the Chinese in Africa are really into the slot machines. The mix is now probably 70-30 in favour of slots."

The reason, thinks Mr Robbins, is that Chinese business people travelling abroad are quite a sophisticated group who understand the good returns offered by slots.

"We offer returns to player of about 97%, because that's the way we have promoted it and marketed it," he states.

"The Chinese and other east Asian players understand the return to player available on slots. The popularity of slots is quite surprising though. From all research I've done in Macau, it's very much a live game town.

"Having said that, we have the loosest machines in Africa. They're even looser than the machines of the public gaming companies in southern Africa. The big companies have big volumes and they have a lot of day-trippers that come in to their venues. We actually work in cities that don't have tourism.

"We have [slot] customers that come in every day. The way we have the machines set up is simply giving them longer playing time. If they win big jackpots, we're quite comfortable with that," explains Mr Robbins.

The company claims the New Africa Hotel and Casino in Dar es Salaam boasts the highest maximums available on gaming machines in the city and that this attracts a high calibre of player.

The casino offers 78 gaming machines including eight of Novomatic's Super V+ Gaminators© linked to a Mega Mystery Jackpot reaching up to US$100,000. It also has other new video slots and video poker machines with three major linked progressive units the company says ensures constant player activity on the gaming floor. In the Malawi market, the company offers wide area progressives as well as other jackpots.

"I would say that in Africa the video slots and mystery jackpots are popular because they do work if you're prepared to put your money into them," says Mr Robbins.

"If, on the other hand, you go to these very new machines and sit there with one coin, you're not going to do much. But if you go and max your play and have the bankroll to do it, they offer tremendous entertainment and tremendous wins.

"I talk to the guys who come in and they sit there, put the machines on automatic, they have their coffee and sandwiches and sit around and chat. It's great entertainment for them," states Mr Robbins.

Asian gamblers also love sports betting, and KaiRo International has tapped into that market by linking up with the online betting company Ladbrokes.com to offer sports betting at KaiRo's venues in Accra, Ghana, and Dar es Salaam in Tanzania.

"The gaming boards are very flexible," says Mr Robbins.

"If you come along and say 'This is a new thing on the market', as long as they can understand it and police it, they will generally say yes. Anything that is legal in South Africa is legal in our sub-Saharan markets, plus a few other products besides."


Junket-free gaming

Outside of southern Africa, the Macau-style VIP gaming model is rare

The VIP and mass-market live table games so popular in Macau are only a small part of the mix in sub-Saharan Africa, explains Mr Robbins of KaiRo International.

"Our top players have a bankroll of US$50,000 [comparable to the mid-level VIPs who go to NagaWorld in Cambodia]. They don't want anything in the form of comps. What they want is to play and to be offered a fair game.

"In our African venues, the table games are basically American roulette, blackjack and poker. There was also a game of African pontoon, though that's dying out now. We did have punto banco, but that's died back quite a bit.

"We don't run junkets or have to fly people in. It was different when I was working for Sun International. We used to fly people in from all over the world, including from the Far East, on junkets. That's obviously an expensive exercise and you have to accommodate the players for four or five days because of the distance. The players are usually men, so you have to cater for their wives or girlfriends as well, and then make sure the men don't get distracted and that they spend enough time in the casino. You also have to pay expenses, and provide a certain amount of credit, etc.

"The unique thing about Africa outside southern Africa is you don't really go looking for customers. They come to you. There isn't much nighttime entertainment. If you want a late night, the only place to go really is a casino. Asians find out from their communities where the place is to go," he explains.

"With our venues, we're not looking to compete with anyone. We're looking at a new [business] model where you come in and it's a slot machine based thing—more of an electronic casino—where the returns are very, very, favourable to the customer. We're not really looking at hardened gambling. It's more like entertainment.

"In our world, a person with two or three hundred bucks in his pocket is a VIP. That's the way we train our staff. Our casinos are not very big, but we have big players, in terms of hit frequency and big payouts.


Brave New World

Modern gaming technology keeps Africa's old enemy, corruption, at bay

A common query among institutional investors regarding gaming businesses in emerging markets is concern over due diligence issues such as fraud by employees or customers, and money laundering by criminals. Mr Robbins stresses the credentials of his management team, who have experience of working for public gaming companies. He adds that because KaiRo International's African venues are focused on slot play and managed by state of the art slot management systems, the opportunities for criminals to abuse the casinos have been eliminated.

"I would say our SMS [slot management system] is even more advanced than Vegas. We have full online systems, including tracking. You name it, we've got it," he states.

Slot machines at KaiRo's venues are fitted with online smart card technology and bill acceptors that the company says guarantees client satisfaction by keeping up to date with modern trends.

"We also have the governments and the taxation systems to comply with, and the regulators via the gaming boards etc, so everything is at the press of button," adds Mr Robbins.

"We use cashless systems. Everything's sealed and under good surveillance.

"We do have very experienced, long-serving management. Most of us have come out of a PLC company in Sun International, so we run our operations like that. At floor level, middle management runs our business under systems and controls. We are very comfortable about that. A lot of other operators in Africa are owner operators that actually sit in the casinos and more or less have their families involved," he says.

"We have full-on audited accounts with major auditing companies, etc. Sometimes running things this way gives us a bit of a handicap compared to some competitors who may not have the official overheads. They have cash power and can develop much quicker. But doing things the correct way is not only essential, it has also worked for us commercially and our reputation is very, very, good. In Africa, our brand is not as big as the big public companies, but our reputation is up there with them. The big public companies speak very well of us. They know us all personally as we were in senior executive level jobs with them, and they support us."


Taxing Times?

KaiRo International says African politicians are doing their best to help the fledgling industry

Africa isn't generally noted for the ease or transparency of its tariff and taxation systems. John A. Robbins of KaiRo International says, however, that politicians in Ghana and Tanzania have been extremely helpful in keeping duties on the gaming industry simple and effective.

"In Tanzania, which was a communist country until it began reforms in the early 1990s, they were very clever," says Mr Robbins.

"They started with a system where you paid a licence fee for a machine and a licence fee for a table. The policing of that simply involved a guy coming round to count the number of machines and then multiplying it by the fee. Over the years with our help, they've now come to a levy system. They're comfortable that the market has now found its level and are happy with the gaming management systems, which have been approved by the gaming boards in southern Africa. The systems allow a high level of monitoring without the operator needing to have a high powered casino management team in place locally," he explains.

"Now with the levy system in Tanzania, we pay a basic licence fee, then on top of that a 13% levy on gross gaming win. Because of the automated gaming systems, you can't avoid declaring what should be declared. We started off the system-based gaming model outside southern Africa, and now the opposition casinos also have to use the same systems, so that the gaming boards are comfortable about being able to collect their revenues. The beauty of that is that we have to pay VAT and other import duties, but no corporation tax, so you get to a level where the returns for the business are very good still.

"With an annual licence fee, plus 13% levy monthly, plus operational costs, you are still going to get returns of 30-36%. It depends on what you put back into the business. I'm sure that with time—they've allowed ten years to get to this level—the next thing they will do is to introduce corporation tax," says Mr Robbins.

"In Ghana, there's no levy, but there is corporation tax, so it balances itself out. The returns there are still good."


If the Price is Right

KaiRo International's business model is to build and sell

"In Africa, I see the big public gaming companies moving beyond southern Africa," says John A. Robbins.

"I can see us merging or being bought out at some stage. In South Africa, there are 40 [gaming] licences and they are making a lot of money. It's a very, very, good business, but they can't expand. A lot of them looked at the UK, until that became a farce," he adds.

"All over the world, Sol Kerzner, for example, has been looking at other markets. He looked at Singapore. He's got involved in The Atlantis, a leisure resort in Dubai, though there's obviously no casino there.

"Build, operate and sell. That was the plan and that's what we've done. I think we've been involved in setting up more than 20 casinos over the last 15-16 years. If someone comes and offers you the right price, why not?


Credit Where Due

Asian players in Africa are not so focused on credit and freebies as their counterparts in Macau

"In Asia, I think the gaming industry is mainly about management style," says Mr Robbins.

He suggests this is because gaming in East Asia itself is driven not only by table games, but also by advancing credit to players. This 'giveaway' ethos also translates itself to elements of mass segment marketing in Asia, he believes.

"In Asia, they market and promote by giving stuff away. If you buy in for a hundred dollars they give you another hundred dollars worth of credit," points out Mr Robbins.

"In Africa, we operate very differently to that, even with our Asian players. We offer more on payback. To the guys that I've met in many Asian markets, such as Cambodia, I think 92% return to player [on slots] seems to be the upper level. If you talk to managers in some places in Asia about offering 95%, people start saying 'Why are you giving so much?' But at KaiRo International, we're focused on giving win opportunities to our players.

"In east Asia, it's still mainly about the live game, the touch of the card and the feeling of making a decision—should I have a card, should I not have a card?

"It's that feeling: 'I'm a lucky guy'. There's a lot of that in this part of the world, with the squeezing of the cards etc. It takes a lot to compete with that in terms of the slots experience. I think it means you have got to give value."

Asian players playing in Africa think differently, points out Mr Robbins.

"They have quickly buttoned on to new slot machines, and realised they are very, very, good value for money," he explains.

"I think the slot machine business in the next five years will really swing around in Asia. I think that just from my experience in Africa. Asians playing slots in Africa will come back home and educate players here, and venues such as Wynn Macau I think will help us by educating a new generation of Asian players about slots. Many of those people may go on to work in or visit Africa, so that's good news all round."


KaiRo International's African journey

1997 - KaiRo International opens its first African casino, The New Africa Hotel and Casino, in the refurbished New Africa Hotel, situated close to the centre of Dar es Salaam, the largest city in Tanzania.

The site offers 78 gaming machines including eight of Novomatic's Super V+ Gaminators© linked to a Mega Mystery Jackpot reaching up to US$100,000. It offers other new video slots and video poker machines. The offer of three major linked progressive units ensure constant player activity on the floor, says the company. The machines are fitted with online smart card technology and bill acceptors.

The venue's eight gaming tables include four American roulette and four card tables. The casino also operates an online sports betting lounge in collaboration with Ladbrokes.com.

2000 - KaiRo expands into northern Tanzania by opening the Safari Casino. The venue, at the Arusha Hotel in Arusha, a gateway town to the tourist attractions of the Ngorongoro Crater and the wildlife of The Serengeti National Park, has 19 video slots, four pokers and one roulette machine.

December 2002 – KaiRo opens The Colony Club Casino, set in gardens on a hillside overlooking Blantyre, Malawi's second city, following an invitation by the Malawi Development Corporation to help build the country's gaming sector.

The gaming floor offers three American roulette and four card tables as well as 42 gaming machines including the latest video slots, video pokers and a variety of reel slots.

December 2003 – KaiRo launches the La Palm Casino at the La Palm Royal Beach Hotel in Accra, Ghana. It offers three American roulette and five card tables and a total of 56 gaming machines. In partnership with Ladbrokes.com, the venue also offers online sports betting.

Late 2008 – KaiRo opens the Saigon Lounge at La Palm Casino, featuring 20 of Novomatic's Super V+ Gaminator slot machines, an eight station Novomatic Multi Roulette, two karaoke rooms and a noodle bar.

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