#1Attracting Investment to a New Brazil Gaming Industry Presentation in connection with: The Brazilian Gaming Congress SPECTRUM GAMING SGC CAPITAL- June, 2017#2Introduction Brazil has the potential to be one of the largest jurisdictions globally, with gaming revenue potential of up to $20b or more, generating $4b or more just in annual gaming tax revenues, in addition to corporate and personal income tax revenues The purpose of this presentation is to briefly review the market potential, comment on the proposed gaming legislation from the point of view of international casino operators and investors, and illustrate comparable other countries' best practices in regulating gaming We cite key indicators that stakeholders and investors should consider including: • Size of the overall market • State by state demographics in Brazil • How other countries' gaming regimes can be bases for establishing the Brazil "gaming model" The Spectrum Gaming Group of Companies are eager to assist Brazilian government agencies and prospective operators in: Helping to establish the regulatory framework for gaming Establishing partnerships with international casino companies, and Attracting international investment into Brazil SPECTRUM GAMING SGC CAPITAL- 2#3Brazil's Large Populace Would Make it Among the Most Compelling Markets for Foreign Investment Extrapolating from win per adult statistics in other countries and adjusting for relative GDP, Brazil could be a $10-20B+ market GDP Adult Country Brazil ($ Bil.) Pop (M) GGR (1) ($ Mil.) GDP/ GGR/ Adult Adult Brazil GGR Projection $2,183 190 NA $11,491 NA NA United States $19,503 251 $89,685 $77,637 $357 $10,041 Philippines $302 73 $1,443 $4,121 $20 $10,415 United Kingdom $2,545 52 $5,798 $48,942 $112 $4,975 France $2,502 60 $2,459 $41,758 $41 $2,146 Italy $1,880 58 $12,608 $32,408 $217 $14,645 Spain $1,261 38 $4,045 $33,348 $107 $7,007 Canada $1,416 Australia $1,348 19 32 $8,726 $14,369 $44,191 $72,878 $777 $272 $13,459 $23,269 Median $1,348 $7,262 $42,974 $164 $10,228 Mean $1,348 $17,392 $44,410 $238 $10,744 (1) Includes Casino, Gaming Machines and Bingo Source: H2 Gambling Capital, SGC These numbers do not take into account illegal gaming statistics, nor international tourism based gaming markets like Macau and Singapore SPECTRUM GAMING SGC CAPITAL: 3#4Differing State Economic Concentrations Will Allow for Multiple Casino Development Options Integrated resort investment by largest international gaming companies will be concentrated in the most populous and visited states such as Sao Paulo, Minas Gerais and Rio De Janeiro The abundance of opportunities nationally will exceed the capacity of the international casino operator and investment communities This will leave tremendous possibilities for local capital and operators as well. Name Amapa Tocantins SPECTRUM North Region Norheast Region Southeast Region South Region Central West Region GAMING SGC CAPITAL Pop. GDP ($B) GDP (%) Mo HHI/Capita Roraima 0.5 3.4 0.2% $325 Rondonia 1.7 12.0 0.5% $274 0.8 4.7 0.2% $268 1.5 9.2 0.4% $263 Acre Amazonas Para 0.8 4.7 0.2% $232 4.0 30.6 1.4% $225 8.3 43.9 2.0% $216 Subtotal - North 17.7 108.7 5.0% Rio Grande do Norte 3.5 19.1 0.9% $280 Sergipe 2.3 13.2 0.6% $267 Pernambuco 9.4 54.7 2.5% $266 Paraiba 4.0 18.7 0.9% $241 Bahia 15.3 79.0 3.6% $235 Ceara 9.0 44.5 2.0% $229 Piaui 3.2 13.3 0.6% $228 Alagoas 3.4 14.5 0.7% $202 Maranhao 7.0 27.1 1.2% $175 Subtotal - Northeast 56.9 284.0 13.0% Sao Paulo 44.7 706.3 32.3% $525 Minas Gerais 21.0 182.2 8.3% $356 Espirito Santo 4.0 45.4 2.1% $352 Rio De Janeiro 16.6 236.7 10.8% $435 Subtotal - Southeast 86.4 1,170.6 53.6% Rio Grande do Sul 11.3 126.2 5.8% $473 Santa Catarina 6.9 85.5 3.9% $444 Parana 11.2 122.8 5.6% $426 Subtotal - South 29.4 334.5 15.3% Distrito Federal 3.0 163.9 7.5% $716 Mato Grosso do Sul 2.7 27.8 1.3% $391 Mato Grasso 3.3 35.7 1.6% $347 Goias 6.7 58.2 2.7% $347 Subtotal - Central West 15.7 285.6 13.1% Total 206 2,183 100% 4#5Proposed Gaming Legislation in Brazil Includes Many Forms of Gaming, Similar to the US Model Many countries employ multiple gaming business models. The US is the most diversified and generates $260B in economic impact: 1.7M jobs - $75B in wages - $38B in tax revenue Integrated Regional Racinos/ VLT's/ Resorts Casinos Slot Parlors/Bingos Routes Internet Gaming Tax Rate Brazil United States Philippines United Kingdom 7-67% 25% 15-40% France Italy Spain Canada Australia 10-80% 20% 25% 20% 4-20% Macau Singapore 38% 5-15% Source: World Casino Directory, Casinocity.com, H2 Gambling Capital, PWC SPECTRUM GAMING SGC CAPITAL- Source: American Gaming Association 5#6Gaming Policy Needs to Address the Interrelationship of the Various Forms of Gaming Policymakers need to focus on introducing a comprehensive and controlled environment Legislation needs to coordinate and consider the interests of all stakeholders, including public social policy needs. Must include effective regulation, emulating best practices from established gaming jurisdictions, and be backed up by enforcement Focus is needed on creating a supportive investment climate balanced between encouraging capital investment, job creation and overall economic impact Unifying policy needs to address the sometimes conflicting needs of the various forms of gaming: Integrated Resorts, regional casinos, local casinos (Bingos), distributed gaming in local F&B establishments, on-line gaming and lotteries Spectrum, the global leader in gaming policy consulting, has advised governments around the world on such matters, including Singapore and multiple US states SPECTRUM GAMING SGC CAPITAL- 6#7Various Countries Offer Good Templates for Gaming Businesses that Can be Models for Brazil As Brazil Modernizes its Lottery, Implements Sports Betting and Legalizes Casino Gaming it can model off best practices from other markets throughout the world ◉ The US gaming industry can offer good examples on gaming regulatory regimes • . The US offers many of the same forms of casino gaming that are written in Brazil's proposed legislation including integrated resorts, regional land based casinos, slot/bingo parlors, and routes (BR-1 machines) The US has the world's most productive regional casino model generating over $8B in tax revenue and more than 300K jobs; most gaming companies are capitalized by institutional investors with publicly held securities Unlike Brazil's planned federal regulatory model for gaming, US states oversee most gaming regulation - this system has developed over 85 years with vastly differing gaming models by jurisdiction The US has few places that allow internet gaming and sports betting and therefore may not be a good model for Brazil Other markets around the globe can provide models for other gaming sectors Singapore's integrated resort model with only two mega-casinos has been hugely successful with $5B of gaming revenue in 2015 and a 50% increase in tourism since the developments opened in 2010 The United Kingdom has created a $15 Billion online gaming industry over the last 15 years and also has the largest sports betting business in Europe SPECTRUM GAMING SGC CAPITAL- 7#8Modernization of Brazil's Lottery Business will Improve Revenue and Profitability Lotteries around the world face similar problems of losing effectiveness due to aging strategies and infrastructure Lottery modernization takes many forms and is an ongoing need including introduction of: Differing sponsorship such as state lotteries New forms of distribution like instant tickets New games including branded forms, sometimes associated with popular non gambling themes New media for distribution, such as on-line or internet based distribution New bases for game play such as sports based vs random numbers Various forms of wide area progressive accumulations (Powerball) to create more drama and larger prizes Included is modernization of lottery operational infrastructure, strategy, business practices and marketing approaches Recent lottery consulting engagements in Ohio and Massachusetts in the US and the Republic of Georgia demonstrate the broad range of our expertise SPECTRUM GAMING SGC CAPITAL- 80#9Sports Betting Appears to be the First New Gaming Business to be Rolled-out in Brazil On a per-capita basis, the UK has the most developed and productive sports betting industry making it a good business form for study The sports betting business consists of both retail betting shops and online betting For retail, there is no requirement for an operator to prove unsatisfied demand in a certain location prior to opening a licensed retail betting shop Demand tests do exist in Italy and France as a requirement prior to licensing The UK also operates a third of all self-service betting terminals ("SSBT's") in Europe ➤ SSBT kiosks, typically located in betting shops, allow for simple bet placement in different languages For online, the UK regulator does not restrict types of available bets, but provides substantial oversight supported by strong codes of conduct Sports Betting GGR - 2016 # Betting Country GGR (M) Tax Rate Shops GGR/Pop GGR/ Shop United Kingdom 1,080 15% 8,788 23 $122,932 Italy 861 6% 8,100 17 $106,352 Spain 258 25% 4,480 7 $57,568 France 651 9% 13,200 12 $49,329 Australia 158 3% 8,400 9 $18,841 Germany 101 5% 27,800 1 $3,620 Canada China United States 164 ΝΑ NA 6 5,819 NA NA 4 217 7% NA 1 SPECTRUM Source: H2 Gambling Capital, Gaming Economics GAMING SGC CAPITAL: 9#10Proposed Casino Legislation Contains Certain Challenges for International Investors Casinos: Taxes Exclusivity License Duration License Criteria Bingos: Online Gaming: Senate Bill 186/14 GGR - 3.65%; Corporate - 45%; Withholding Tax - 30% 40% of licenses in North, N/East, Midwest 25 years Highest concession fee House Bill 442/91 GGR -3.65%; Corporate - 34%; Witholding - 15% 1 per state, 2 in Rio/Bahia/Minas Gerais, 3 in SP 30 years Prior Experience and highest concession fee 25 year license, 1 lic./200K pop., No operator can have >10% 20 year license, minimum investment based on population, 80% of all licenses Caixa payout ratio Casino/Bingo licenses BR-1 Machines/VLT's: Minimum investment, 5 machines per establishment, 40%/60% profit sharing . • Potential Investor Concerns with Proposed Legislation Massive simultaneous gambling legalization - this will hamper investment in larger projects – gaming businesses need to be "rolled out" over time. The extent of gaming competition needs to be understood as each successively smaller operation detracts from larger ones that are dependent on greater business volumes to support the development cost of more non-gaming amenities and more service jobs Investors need to be able to evaluate extent of competition to assess potential return on investment Awarding licenses based on up front concession fees to the government - Up-front fees diminish project investment - the smaller the project, the less the economic impact and job creation SPECTRUM GAMING SGC CAPITAL- 10 10#11Integrated Resorts Would Thrive in Brazil's Largest Cities and Promote Tourism ☐ The Large Brazil cities such as Rio de Janeiro and Sao Paulo that garner significant tourism and benefit from a wealthy and populous demographic would be natural host cities for large, amenitized, integrated resort casinos In the US, the Las Vegas Strip is home to 20+ integrated resorts, with 42M annual visitors both from the US and internationally - Las Vegas casinos pay a low 6.75% tax rate, allowing for substantial capital investment Singapore allowed two large integrated resorts - Singapore has 5M residents but attracts three times as many tourists - Singapore's low tax rate of 5% for VIP gaming and 15% for mass gaming drove $12B in investment Manila's Entertainment City will provide for four integrated resorts each with a minimum investment of $1B and a 25% tax rate Bellagio, Las Vegas Marina Bay Sands, Singapore Resorts World Sentosa, Singapore SPECTRUM GAMING SGC CAPITAL- CityCenter, Las Vegas Entertainment City, Manila ENTERTAINMENT 11#12Regional Casinos Bring Investment, Jobs and Entertainment to the Nearby Populations Regional casinos offer fewer non-gaming amenities and a smaller scale than integrated resorts These properties generally offer full casinos or just slots, 2-8 food & beverage outlets, and some form of live entertainment facility, often with a small hotel and meeting & events center Regional casinos cater primarily to the local population located between 50-100 mile radius of the casino Investment in regional casinos is less than integrated resorts and may be taxed at higher rates if they are given some geographic exclusivity Although a regional casino will employ less people, it can generate substantial tax revenues When setting the casino tax rates, it is critical to weigh the priorities of economic impact/job creation vs. tax revenue for each size of casino operation River City Casino, St. Louis Casino Estoril, Portugal CASINO ESTORIL RIVACITY Victoria Gate Casino, Leeds, UK SPECTRUM GAMING SGC CAPITAL- 12#13Bingos, Effectively Slots-Only Casinos, Create Jobs and Compete with Regional Casinos Bingos and slot parlors, have relatively less economic impact and capital investment, but can generate significant tax revenue and jobs They are most common in Latin America and Europe In Mexico most bingo halls are part of gaming facilities that operate slot machines alongside traditional bingo products There are 160 bingos, which are taxed at 20% of gross income Caliente, Codere and Televisa are the main bingo/slot operators in the country In Argentina, bingo is prevalent throughout the country and each province sets the rules for licensing The United Kingdom has 500 bingos that generate ~$700M of GGR Bingos are taxed at 10% of gross profits Big Bola Queretaro, Mexico Calder Casino, Miami CASINO SPECTRUM GAMING SGC CAPITAL- 13#14Deployment of Slots (BR-1) in Bars Create a Few Jobs and Some Tax Revenue, but Compete with Local Casinos Can generate substantial tax revenue, but dilute economic effectiveness of other casinos ■ US market offers slots at taverns/bars, restaurants and truck stops in several states including Montana, Nevada, North Carolina and Louisiana Illinois might be the best example of how impactful this business can be Video Gaming was introduced in 2012; by March 2017 there were 26,000 machines in 5,900 establishments generating $1.15B of GGR, but they diminished land-based gaming, taking away all growth Type 2013 2014 2015 2016 CAGR Gross Gaming Revenue Route Ops Land-Based Total $301 $659 $914 $1,108 39% $1,551 $1,463 $1,435 $1,413 -2% $1,852 $2,123 $2,348 $2,522 8% SPECTRUM GAMING SGC CAPITAL GOLD VIDEO POKER PT LAS VEGAS Fuel Level Play 14#15Much can be Learned from the UK, the Leader in Regulated Online Gaming Of the top five European markets, the United Kingdom generates the most internet gaming GGR and the highest GGR/capita The UK has been at the forefront of internet gaming regulation since the passage of the Gambling Act of 2005, which enabled operating an internet gaming business from the UK 15% tax rate on gross profits Major operators include Ladbrokes- Coral, Paddy Power and Betfair Top 4 Euro Markets for Onshore I-gaming United Kingdom Italy France Germany Source: H2 Gambling Capital A UK internet gaming license is seen as a stamp of approval for I-gaming operators The UK model might be a good template for development of this sector in Brazil GGR Adult Pop. GGR/Pop 1,239 52 24 14 1,022 58 18 973 60 16 835 81 10 UK I-Gaming GGR 2003-2016 $4,500 $4,000 $3,500 $3,000 $2,500 $2,000 $1,500 $1,000 $500 $Millions $0 2003 2004 2005 2006 Source: H2 Gambling Capital 2007 2008 2009 5 YR CAGR 18% 2010 2011 2012 2013 2014 Poker 2015 2016 Note: Includes Onshore and offshore 15 SPECTRUM GAMING SGC CAPITAL-#16Investors Will Need to Have Total Confidence in the Brazil Gaming Regulatory Environment The US and Singapore are considered the best models for safe regulatory environments from the institutional investor standpoint Gaming Regulation . Rules of the games • Credit and collection . Required supervision and surveillance Background investigations of casino licensees Financial stability of operators Regulation Enforcement . Government supervision of gaming floor Extensive reporting of operations and rule compliance Special purpose investigative and adjudicative bodies Punishment for regulatory violations Visibility of Gaming Performance Public reporting of individual casino performance Spectrum professionals have decades of global experience in multiple disciplines relating to advising and attracting investors to casino development SPECTRUM GAMING SGC CAPITAL 16#17About The Spectrum Gaming Group of Companies Spectrum Gaming Capital Casino Development Support Strategic partnerships Capital raising Financial planning and analysis Mid-Market Investment Banking and Strategic Advice Capital raising • M&A execution • Valuation Casino Advisory and Litigation Support Valuation Complex analysis Gaming investment advisory ☐ Spectrum Gaming Group Economic Analysis Gaming market analysis and benchmarking Feasibility of casinos, lotteries and gaming related businesses Economic Impact and operational upgrade Regulatory Consulting • Gaming Regime Development Corruption and Anti-Money Laundering Prevention Casino Licensing Investigations Business Intelligence Research and Due Diligence Fraud Detection and Prevention Global database research Evaluations for governments SPECTRUM GAMING SGC CAPITAL- 17#18The SGC Team is Comprised of Professionals with Complementary Skills in the Gaming Industry Robert Heller, President and CEO 30+ year career as an investment banker at Solomon, Bear Stearns, Lehman and UBS specializing in gaming, lodging and resort finance, and M&A $50bn in transactional history - $40bn in financings including 11 project financings in the gaming, lodging, leisure and real estate sectors Founding president and CFO of the developer of the $3.5 billion Baha Mar Resort Adam Steinberg CFA, Senior Vice President 15+ year career as an equity analyst, high yield analyst and investment banker specializing in gaming, lodging and leisure Experience at bulge bracket and boutique investment advisory firms, such as Bear Stearns, CIBC World Markets, Morgan Joseph, and FBR Capital Markets Operational experience as Director of Business Evaluation at GTECH Corporation David Isaacson, Vice President Credit analyst at Moody's Investors Service, covering gaming, lodging and cruise companies Assigned ratings and wrote credit related research on gaming companies including distressed credits and project finance Lilliana Costa, Brazil Advisor, Spectrum Associate Leading government and international relations expert specializing in public policy in complex sectors in challenging markets Her strategic insight into process and policy enables her to create constructive dialogue between all stakeholders in gaming and to advise suppliers and operators on their Latin American and Brazilian expansion and development strategies SPECTRUM GAMING SGC CAPITAL- Contacts: [email protected], [email protected] 18#19Spectrum Gaming Group has Been in Business for 25 Years, Assisting Governments and Operators Globally Fredric Gushin, Managing Director Founded Spectrum Gaming Group in 1993 where he led engagements for public and private sector including the government of Singapore and the State of Massachusetts Served as Assistant Director and Attorney General for the NJ Division of Gaming Enforcement (NJ DGE) At the NJ DGE he oversaw the openings of 12 Atlantic City casinos and managed civil and administrative litigation before the NJ Casino Control Commission Michael Pollock, Managing Director ☐ Oversees a broad portfolio of Spectrum services including policy and impact studies for county, state and local governments and financial and market studies for private-sector clients Served as a spokesman for the NJ Casino Control Commission from 1991-1996 Served as the editorial page editor of the "Press of Atlantic City" and authored the award-winning book From Hostage to Fortune: Atlantic City and Casino Gambling Lee Richardson, Sports Betting and iGaming Advisor/Spectrum Associate 20 year career in sports betting industry, with operational experience in Europe, Asia and North America Held CEO/COO roles with UK Tote, Coral-Eurobet plc and Boyle Sports CEO of Gaming Economics, an international i-gaming consultancy and advisory business Bill Egan, Senior Lottery Associate General Counsel of Massachusetts State Lottery Commission Experienced in several areas including technology, game and concept development, marketing and sales, finance and compliance Key contributor to Spectrum's lottery consulting engagement in the State of Ohio Contact: [email protected] SPECTRUM GAMING SGC CAPITAL- 19