More Regulations Swamp Casino Industry

From IT security to individual monitoring of slots, it's the not the same oversight it used to be

Casino operators and slot manufacturers are struggling to manage mounting waves of private, federal and state regulations, industry experts said Tuesday.

The latest concern is new regulations from credit card companies, due out in September, that are designed to protect against the growing national problem of identity theft.

But for the gaming industry, expansion to new jurisdictions and rapidly changing technology-- especially downloadable games and electronic fund transfers -- are also making casinos more complicated and costly to operate.

The new regulations are likely to reinforce market trends that are leading major gaming companies to focus their near-term expansion efforts on Las Vegas, industry experts said.

New regulations from Visa, MasterCard, Discovery and American Express, for example, will require a third-party review of all contracts and systems to ensure the integrity of customer records, said Teresa Worth, marketing director for Solutionary, a Chicago-based corporate security consulting firm.

Moreover, from September on, all consultants and vendors for casinos and other companies involved in the credit card process will have to be certified for their compliance with privacy regulations, she said.

"The gaming industry already has onerous compliancy issues," Worth said, citing the myriad of individual regulations in different jurisdictions and requirements contained in the federal Sarbanes-Oxley financial disclosure legislation.

"In addition to federal and state regulatory compliancy and the concerns of operating a cash-based business, IT security is becoming an even bigger issue for casino operators, equipment manufacturers and regulatory bodies as they continue along paradigm shifts," she said, referring to such coming innovations as downloadable games.

Gaming companies have great opportunities with downloadable games and fund transfers, but the technology will also make operations far more complex and expensive for them, Worth said.

"With added regulations, companies face more vulnerabilities. Management is becoming more onerous. This can become a real nightmare very quickly," she said.

John Pavone, president of Signature Management Group, a national hotel-casino management consulting company, said the complexity and cost of compliance also increases with the number of slot machines casino companies operate and the number of jurisdictions in which they operate.

In Iowa, for example, regulators have gone so far as to set up systems to monitor individual slot machines, a move he predicted may become more common as slot technology becomes more complex.

"And the more complex the technology, the bigger the headaches," he said, as companies wrestle to comply with regulations in each jurisdiction and link systems from different jurisdictions to meet national reporting requirements.

In addition to operators and manufacturers, regulators are also challenged by the new technology, Pavone said.

"As technology changes, regulators want to protect industry revenues and the state taxes they collect. They want to monitor more operations, more closely to make sure it is safe," he said.

University of Nevada history professor Hal Rothman said this is a theme echoed in almost every regulated industry as they scramble to meet statutory obligations, government regulations and private sector contract obligations.

Not all operators agree that new regulations are a growing burden, however.

Rob Stillwell, spokesman for Boyd Gaming Corp., the world's third-largest casino operator, said his company has lived with requirements for years, and is well versed in meeting the challenge when new regulations are adopted or when the company enters new jurisdictions.

"Given the privileged nature of our industry, rules and regulations are an everyday part of our operations. We have worked within that type of environment for a very long time, and over that period, both the industry and government have worked together to make the process better," he said.

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