LAS VEGAS OR WALL STREET?

To borrow Mrs Thatcher’s famous observation on being removed from office ‘it’s a funny old world’ (and by the way one wonders what Mr Brown will have to say?) It is indeed a funny old world when Las Vegas expresses publicly its resentment of having their business model compared to Goldman Sachs’s in remarks made during the US Senate’s sub-committee enquiry into that company. [See FT article reproduced below.]

The casino operators claim (with complete justification) that they operate in a closely regulated environment with clear house rules and a transparent business model. In general gambling has come to be seen as perfectly acceptable leisure pursuit in a controlled environment however, gambling as a significant component of a business strategy is not about managing risk, it’s about creating risk, and bubbles inevitably have a habit of bursting.

In the DTC context both qualification and renewal of Sightholder status and supply levels are determined by a rules-based assessment, a process which looks at established performance, the applicant’s differentiated business model and the relevance of their value addition proposal in relation to specific ranges of rough.

However, once the outcome of the process is determined and announced at the beginning of the contract, rough continues to be supplied on the basis of the model presented regardless of whether it is adhered to (even in spirit) during the contract period. It is this disconnect and lack of accountability which exacerbates a lot of the unnecessary problems we experience in our industry and needs to be addressed if we are serious about sustainable and viable price increases and business as our major goal.

This is not about a dealing or a manufacturing model, compliance is expected in terms of business practice to defend the reputation of the diamond industry and to ‘live up to diamonds’ in general. However if companies do not practice the model on which their supply is based then why should companies who have, broadly speaking, complied with the model which earned them their contract be disadvantaged?

It is surely implicit that Sightholders, as part of the prestige that they enjoy, have not just to sell their rough at the highest price possible but to look to the long term value, growth and welfare of the diamond industry and when appropriate they need to be reminded of their responsibilities and obligations during a contract period and that the assessment is not just a theoretical exercise to earn supply but a real commitment which they should at least attempt to honour.

FINANCIAL TIMES ARTICLE
Straight-dealing Vegas bristles at Wall Street gibe
By Matthew Garrahan in Las Vegas
Published: May 1 2010 03:00 Last updated: May 1 2010 03:00
When Goldman Sachs executives faced rhetorical fire from angry members of a US Senate committee this week, much of it invoked a city that had little to do with the bank but everything to do with negative public attitudes towards Wall Street.
Goldman, which has been charged with fraud by the US Securities and Exchange Commission, "had less oversight than a pit boss in Las Vegas", said Claire McCaskill, a Democratic member of the committee. Mark Pryor, a fellow Democrat, was more damning. "You're market-makers but you're also playing in that market," he told the Goldman executives. "Instead of Wall Street, it looks like Las Vegas."
The US investment bank has denied any wrongdoing and been defending itself vigorously. Also taking umbrage, however, are the people of Las Vegas.
America's gambling -magnet is known for many things: garish buildings, excessive behaviour, Elvis Presley and all-you-can-eat buffet breakfasts. But the people who live in the city and work in gambling resent the comparison with Wall Street.
"It's very offensive," said Shelley Berkley, a Democratic congresswoman whose district covers the city's gaming strip and casinos, ranging from the luxurious Bellagio to the rather down-at-heel Binion's Gambling Hall & Hotel.
"Las Vegas casinos might not have clocks but we have rules, we have regulations, we have odds for sports betting," she said. "Everyone knows what the rules are and no one is getting ripped off."
The regulatory framework for casinos in Nevada was established in 1959 - mainly to keep gangsters out of the booming industry. Nevada at that time was the only place in the US to allow gambling.
Robert Faiss, a lawyer with Lionel Sawyer & Collins, a Nevada firm, helped frame those regulations and went on to work in the Nevada Gaming Commission and the White House, where he served in the -Lyndon Johnson administration.
"You don't get to be regulated [in Las Vegas] unless you successfully complete an examination that may take years to complete," he said. "Every aspect of the applicant's life is examined and there are minimal internal control standards [within each company], which are exhaustive."
In 1986, leading organised crime figures including the reputed boss of the Chicago mob, Joseph Aiuppa, were convicted of skimming millions of dollars from Las Vegas casinos. But industry veterans argue that the checks and balances within the current regulatory system have helped the industry shed its past associations with organised crime.
Mr Faiss pointed to the spate of accounting scandals that rocked corporate America in recent years and said: "You won't find any gaming companies among them."
Gamblers who feel they have been the victim of fraud in a casino can make an immediate appeal to the Nevada Gaming Control Board, which, together with the Nevada Gaming Commission, is the main regulatory agency for Las Vegas casinos. The commission wields considerable power in the state: Harry Reid, the Senate majority leader, is a former chairman.
"The reality is the gaming industry is very well regulated," said Ms Berkley. "What happened on Wall Street would never have happened in a Las Vegas casino . . . it's the most well- regulated industry on the planet."
That sentiment is echoed by gamblers interviewed by the Financial Times this week. Most said they were aware of the risks involved when they gambled.
"When you come to Las Vegas you know you'll lose some money," said Cheryl Westland, who was visiting from California and playing slots in the Tropicana. "What I'm not prepared to do is lose half the income on Wall Street that I've spent my life saving - but that's what happened."
Rob Clegghorn, president of a carbon stainless steel company in Ontario, was making his yearly trip to Las Vegas. He enjoyed a drink while playing a slot machine in the Mandalay Bay casino, one of the largest in the city.
"The odds are pretty slim and if you win it's a bonus," he said. "But I know the rules here and they don't change."
Copyright The Financial Times Limited 2010.