The Slovenia Times

Gaming Industry Comes Up Trumps



However, this spending spree is far from over: just last week, the largest Slovenian casino operator, HIT, and its American counterpart, Harrah's Entertainment, announced that they would soon sign a letter of intent, paving the way for what is to be the biggest greenfield investment ever made by a foreign investor in Slovenia. Hitting the jackpot: Slovenia's gaming giant expands The two companies plan to build an EUR 800 m mega gaming and tourism centre in the western town of Nova Gorica. Each would contribute equally to the investment and consequently hold a 50% stake in the joint venture. HIT's chairman, Mr Branko Tomazic, believes that the project will enable the Slovenian company to more than double its clientele - from 1.5 million to 3.1 million a year - and raise its revenues from EUR 240 m in 2004 to EUR 420 m by 2008. While this joint venture will probably be the most important step in making HIT one of the most important casino operators on the continent, it is certainly not the first. HIT has been actively pursuing an ambitious expansion strategy for the last two years: after it had acquired the Kompas hoteli hotel chain at the end of 2004 - an investment worth EUR 29 m, HIT set out to redefine its market image and bring it into line with its vision and strategy. As the management explained, the old trademark no longer met the market needs; given that at this moment HIT not only operates casinos and slot machines but also manages 2200 hotel beds, the new corporate logo "HIT Universe of Fun" seems appropriate. While the HIT Group makes the majority of its revenues from gaming, a considerable chunk (21%) comes from related activities such as tourism and event management. Accordingly, the new gaming brand will be "Hit Stars", while the hotels and the rest of the services that HIT has to offer will be marketed under "Hit Holidays". "We wanted a name that would convey a sense of richness and adventure to our guests who mainly come from demanding western European markets," HIT's marketing director, Mr Andrej Sluga, explained. Today, casino aficionados can indulge themselves in HIT's two large gaming and entertainment centres in Nova Gorica (Perla and Park), its Kranjska Gora complex or its two smaller casinos in Rogaska Slatina and Otocec. Approximately 1.5 million guests - 79% of them Italian, 8% Austrian and 8% Slovenian - visit these facilities each year. The HIT Group does not shy away from foreign direct investment either: in November 2001, HIT took over the operation of the Caribe Casino on Bonaire, a constituent island of the Netherlands Antilles, and in July 2002, it opened a gaming and entertainment centre, the Coloseum, in Sarajevo (Bosnia and Herzegovina). Its biggest foreign investment so far has been the renovation and expansion of the Maestral Resort in yet another former Yugoslav republic, Montenegro. This focus on continuous investment activity certainly seems to be paying off. HIT has seen its half-yearly net profit rise by 48% over last year to EUR 12.94 m. According to figures released in September, the profit was made on the back of revenues of EUR 108.1 m, which is 17% more than in the first six months of last year. The company also said that 758,000 people visited its gaming and entertainment centres in first six months of the year, a rise of 5.4% on last year. Sharing the spoils: bringing the state back in These figures must have brought smiles not only to the faces in HIT's boardroom but also to the face of Slovenia's Finance Minister, Mr Andrej Bajuk. Not only is the state HIT's major shareholder, it also gets its - some say more than fair - share of the profits and revenues by imposing special taxes and licence fees on companies in the gaming industry. The leading Slovenian daily, Delo, recently highlighted the fact that HIT is the largest single contributor to Slovenia's coffers: with EUR 107 m paid in taxes in 2004, HIT's contributions accounted for 1.7% of the state's revenues. As HIT's CEO, Mr Tomazic explains, Slovenia's tax policy allows the company to operate profitably at its current level, but it makes investment into new infrastructure or into the development of new products risky. Because tax rates are applied progressively - i.e. higher tax rates are applied to those companies that make more money, successful firms such as HIT are discouraged from making large investments as they are unable to accumulate enough profits to finance them. Observers point out that the average tax rate in HIT's case amounts to 33%, which also discourages foreign investors from regarding Slovenia as an investor friendly country. Slovenia's gaming legislation has also influenced the make-up of the aforementioned joint venture between Harrah's Entertainment and HIT. Harrah's has already called on Mr Bajuk and the government to relax the tax legislation and lift restrictions on new gaming licenses. Harrah's would like to hold more than a 20% stake in the new casino, which however exceeds the allowable limit under Slovenia's current legislation. The latter limits the shareholdings of non-EU firms in the gaming industry to 20%, a barrier that can be surmounted only with the government's help. It is not yet clear whether the government will make an exception in Harrah's case or change the law altogether, but Slovenia's Prime Minister, Mr Janez Jansa, has nevertheless expressed his willingness to consider the matter. Last month, while attending a business conference organised by The Economist newspaper in Bled, Mr Jansa suggested that the government would consider amending the legislation if it got the right assurances from the companies involved. Realizing the industry's potential The gaming industry generated EUR 292 m in revenues and over EUR 83.4 m in direct taxes and licence fees during 2004. Although a part of these latter funds is allocated, by law, to encourage tourism growth, many localities have been, at least at one time or another, embroiled in disputes over how to spend the money allocated to them. This is entirely understandable given that the law does not clearly define the purposes for which the money should be spent. Because only localities which host the gaming facilities are entitled to the proceeds from licence fees, some observers - and of course the gaming industry - have already proposed that these funds should only be invested into gaming-related tourist activities. This seems like a good idea: the Slovenian gaming industry is facing considerable competitive pressures from companies operating casinos in neighbouring countries, especially in Italy and Austria. Austrian casino operators have managed to persuade the Austrian government to prohibit the advertising of foreign gaming services, so the least the Slovenian government could do is to channel some fresh finance into the development of gaming-related services. HIT, which is eagerly awaiting Austrian customers in its casino in the mountain resort of Kranjska Gora, is considering other courses of action. According to the company, the Austrian law is discriminatory and violates EU rules on the freedom of movement of services. Whether that means that HIT will take the Austrian government to the European Court of Justice remains to be seen, but in any case a bit more concern on the part of the Slovenian state would certainly be in order.


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