CASINOS & GAMING · 2020-05-08 · industries: Casinos & Gaming, Hotels & Lodging, and Restaurants....

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CASINOS & GAMING Research Brief Sustainable Industry Classification System (SICS ) #SV0202 Research Briefing Prepared by the Sustainability Accounting Standards Board ® December 2014 www.sasb.org © 2014 SASB

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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™

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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.

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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

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• 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

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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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10, 2014. http://www.cecc.gov/sites/chinacommission.house.gov/files/AR13DJ.PDF.

99 “Anti-money laundering policies beat back Macau stocks,” Want China Times, July 22, 2014, accessed

October 10, 2014. http://www.wantchinatimes.com/news-subclass-

cnt.aspx?id=20140722000123&cid=1103&MainCatID=11.

100 Brett. Wolf, “IRS agents head to Macau as U.S. steps up scrutiny of casinos,” Reuters, June 25, 2014,

accessed October 10, 2014. http://www.reuters.com/article/2014/06/25/usa-gambling-irs-

idUSL2N0P61CR20140625.

101 Gregory A Baldwin, and Kathleen M. Nilles. “United States: FinCEN Doubles Down On Casinos With

Heightened Regulatory Expectations,” Mondaq, June 26, 2014, accessed October 15, 2014.

http://www.mondaq.com/unitedstates/x/323206/Money+Laundering/FinCEN+Doubles+Down+on+Casinos+with

+Heightened+Regulatory+Expectations.

102 Caesars Entertainment, FY 2013 Form 10-K for the Fiscal Year Ending December 31, 2013 (filed March 17,

2014).

103 Las Vegas Sands, FY 2013 Form 10-K for the Fiscal Year Ending December 31, 2013 (filed February 28,

2014).

104 Howard Stutz, “Las Vegas Sands to return $47.4 million, avoid criminal charges,” Las Vegas Review-Journal,

August 27, 2013, accessed February 12, 2014. http://www.reviewjournal.com/business/casinos-gaming/las-

vegas-sands-return-474-million-avoid-criminal-charges.

105 Jesse McKinley, “As Casino Vote Nears, Bishop Warn of Social Risks,” The New York Times, September 29,

2013, accessed January 14, 2014. http://www.nytimes.com/2013/09/30/nyregion/as-casino-vote-nears-bishops-

warn-of-social-risks.html.

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106 “About Us,” Interactive Gaming Council, November 24, 2013, accessed January 28, 2014.

http://www.igcouncil.org/index.php?option=com_content&view=article&id=1&Itemid=107.

107Cassandra LaRussa,, “Industry: Casinos/Gambling – Background,” Updated May 2010, accessed January 28,

2014

108 “Influence & Lobbying: Interactive Gaming Council,” Open Secrets, accessed January 28, 2014.

http://www.opensecrets.org/lobby/clientsum.php?id=D000052249&year=2009.

109 “Influence & Lobbying. Casinos / Gambling,” OpenSecrets.org, accessed October 15, 2014.

http://www.opensecrets.org/industries/indus.php?ind=N07.

110Thomas Kaplan, “Casino Referendum Led Gambling Industry to Spend Richly in Albany, The New York Times.

October 15, 2013, accessed January 28, 2014.

111 Laura Nahmias, “Casino bidders spend $11M on lobbying and legislators,” Capital New York, July 7, 2014,

accessed October 17, 2014. http://www.capitalnewyork.com/article/albany/2014/07/8548410/casino-bidders-

spend-11m-lobbying-and-legislators.

112 Nahmias, “Casino bidders spend $11M on lobbying and legislators.”

113 Nahmias, “Casino bidders spend $11M on lobbying and legislators.”

114 Nahmias, “Casino bidders spend $11M on lobbying and legislators.”

115 Annmarie. Timmins, “Latest casino bill bans political contributions and sets other limits,” Concord Monitor,

March 31, 2013, accessed October 17, 2014. http://www.concordmonitor.com/home/5378179-95/latest-

casino-bill-bans-political-contributions-and-sets-other-limits.

116 Campbell Robertson, “11 Arrests in Alabama Bingo Investigation,” The New York Times, October 4, 2010,

accessed October 17, 2014. http://www.nytimes.com/2010/10/05/us/05alabama.html?_r=0.

117 Sebastian Kitchen, “Politicians, casino owner exonerated in corruption trial,” USA Today, March 7, 2012,

accessed October 17, 2014. http://usatoday30.usatoday.com/news/nation/story/2012-03-07/alabama-casino-

politicians-corruption-trial/53400330/1.

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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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iiiI 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 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

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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.

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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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SUSTAINABILITY ACCOUNTING STANDARDS BOARD®

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San Francisco, CA 94111

415.830.9220

[email protected]

www.sasb.org

ISBN#: 978-1-940504-40-7

The content made available in this publication is copyrighted by the Sustainability Accounting Standards Board. All rights reserved. You agree to only use the content made available to you for non-commercial, informational or scholarly use within the organization you indicated you represent to keep intact all copyright and other proprietary notices related to the content.  The content made available to you may not be further disseminated, distributed, republished or reproduced, in any form or in any way, outside your organization without the prior written permission of the Sustainability Accounting Standards Board.  To request permission, please contact us a [email protected].