The Macau success story has seen operators turn their focus to Asia’s emerging markets in search of their own golden moment. But with untested waters come unexpected challenges.
As the saying goes, “With great risk comes great reward.” Yet rarely are the extremes so disparate as in the casino gaming industry.
Fourteen years after the liberalization of the Macau gaming industry, Caesars Entertainment Corp. is still paying the price for failing to secure one of the six Macau licenses being offered at the time, while the likes of Sands and Wynn have spent most of those years laughing all the way to the bank.
Macau’s incredible success, which saw gross gaming revenue rise from US$3.6 billion in 2003 to more than US$45 billion 10 years later, has resulted in operators from around the world – both old and new – looking for Asia’s next emerging market in the hope of finding their own golden goose.
But for all the upside should they succeed, entering new and largely untested markets can be fraught with danger.
If you’re a company that really looks towards emerging markets or frontier markets it is very different to an established market like Singapore, Macau or Las Vegas,” explains Tim McNally, Chairman of NagaCorp, which opened Cambodia’s only integrated resort, NagaWorld, in 2003. “You need to be wary of the regulatory environment. More often than not you’re going into an underregulated environment. You’re going into an environment where if you have legal disputes you may not have the right environment to be successful in litigation, so you have to be aware of the risks you are undertaking.”
Gaming regulation has been gaming’s buzzword in recent times, due in part to the huge disparity in laws and processes employed by the various nations across Southeast Asia.
Korea, for example, boasts 17 casinos nationwide but only one in which locals are allowed to play. Vietnam has 11 casinos of which none are yet locals friendly. Of India’s 36 states and Union territories only three allow casino gaming. And Thailand bans casinos altogether.
But various factors complicate those matters further. While Korea has tried to protect its citizens by restricting locals play to just one remote property, Kangwon Land, that property makes more profit annually than the 16 foreigners-only casinos combined – around US$400 million. Vietnamese spend around US$800 million a year gambling outside of their home country, with an average of 3,000 people crossing the border to Cambodia to gamble every single day. Likewise Thailand, where border casinos in Cambodia and Laos welcome their arrivals in the thousands.
Clearly all of these countries represent markets as yet either untapped or only fulfilling a tiny part of their potential, which is what makes them so attractive. But investing heavily in these markets based purely on potential is a dangerous game.
Nevertheless, one company convinced it has struck gold is Silver Heritage. Founded by Tim Shepherd and Mike Bolsover in 2003, Silver Heritage is the only foreign company to be granted a gaming license in Nepal and has spent the past two years running a number of mini-casinos in one-star hotels along the Nepal-India border.
But its watershed moment will be the opening of Tiger Palace Resort in Bhairahawa in early 2017 – Nepal’s first five-star resort and one of two Silver Heritage has planned for the region targeted directly at players from India.
“There are 430 million Indians within a day’s drive of Tiger, so it’s about developing a product for them closer to home,” explains Shepherd.
“The Nepal-India border is 1,000km long and although we don’t have a monopoly, we happen to be the first by many years on that border.
“We see India as the next big thing. Gaming is legal in Goa and also in Sikkam but the facilities are modest. A number of states have discussed legalizing gaming. The fact is that Indians culturally and generally do like gaming.
“So I do believe there is plenty of opportunity along that border. And the fact is that border casinos are a thing. Macau technically is a border casino town. It is on the border of an enormous country but it is still a border town.
“We are the first operators on that border but we won’t be the last. I think we will be very successful and when we do, more people will see that and come in very quickly.”
Shepherd points out, though, that Silver Heritage has worked closely with the Nepalese government to get to where it is today. Its promised US$100 million investment makes the company the largest foreign investor in tourism Nepal has ever had, while it will also become the country’s largest single employer of locals outside of the government itself.
Of course, winning government approval isn’t always so easy. Long before NagaWorld launched its land-based operation in Phnom Penh, its predecessor, Naga Casino Resorts, began life in 1995 as a floating cruise ship on the Mekong River. Its original purpose was simply to help owner Ariston raise the funds to build a proposed US$1.3 billion entertainment hub along the Sihanoukville coastline.
That deal, signed in the same year Naga Casino set sail, included a 20-year monopoly to operate casinos nationwide and an eight year tax exemption, but also caused tremendous division within the government which ultimately culled progress. Fortunately, Ariston’s floating casino was performing so well that moving to solid land was a no-brainer – the government throwing in exclusivity for NagaWorld to operate within a 200km radius until 2035 to soften the Sihanoukville blow.
“When this company commenced operations, there was a great deal of concern about the political stability of the country as well as a lot of economic uncertainty,” says McNally of NagaWorld’s deal.
“So it is important to assess very carefully the license that you receive – can you protect it? How long will the license be? How many tables and machines can you have? The facilities you can offer, the types of games you can operate – those things are very much part of the front end assessment.
“You also have to look at the existing market size and valuation and then I think you have to look at the reach and what kind of dynamics are coming into the country in terms of infrastructure – the basic roads as well as the air and rail services. Can you run a successful operation? Can you make enough money to cover the cost of your investment while the country is going through that process?
“And how much money are you going to have to invest on the front end? I think it is a killer in many jurisdictions where new laws are passed and the government tries to implement a minimum investment – US$1 billion or whatever it might be. Quite honestly, that may take a significant amount of time to recover if you can recover it at all … and if you are in an environment with some political uncertainty that can be a dangerous game to play.”
A case in point is Ho Tram Resort Casino in Vietnam – the first integrated resort to accept the government’s terms of a minimum US$4 billion investment in order to be granted a casino license.
The first phase, opened in 2013, cost US$600 million and boasts a five-star, 550-room hotel and Greg Norman designed golf course, while the upcoming second tower, due for completion in late 2017, will bring the total number of rooms to 1,100 and push expenditure over US$1 billion.
But Ho Tram was a gamble predicated on the expectation that Vietnam was close to overturning its ban on locals gambling. That gamble appears to have backfired.
In September, the government finally agreed to let locals gamble in two Vietnamese casinos on a trial basis for three years – and Ho Tram isn’t one of them. Instead, new resorts in the Von Don Special Economic Zone in the north and in Phu Quoc Island in the south will be the ones to benefit – the main stipulation being that locals must pay a daily fee of US$50 to enter or buy a monthly pass for US$1,100.
It is believed Ho Tram missed out because the government sees it as better suited to tourists – the irony being that getting there requires a flight into Ho Chi Minh City then a two-and-a-half hour drive to the coast. Hardly an appealing prospect for visitors.
“One of the first things any operator must look at is infrastructure and ease of access because you know from every piece of research on consumers around Asia, convenience is critical for any form of integrated resort,” says Galaxy Macau Chief Marketing Officer Kevin Clayton.
“If you look at Singapore as an example and how successful Marina Bay Sands has been for the operator, there was very clear intent by the government in regards to tourism for the country. There was a clear goal from the Minister for Tourism about what they wanted, including being close to a transport location.
“They’ve achieved that and I think if you’ve got that platform, that agreement and support it becomes a lot easier to put the ideas together and to focus on the financial forecasting.”
In Cambodia, NagaWorld has also benefited from the country’s growing tourism profile. From just 450,000 visitors to Cambodia in 2000, more than five million will arrive this year while the number of international flights arriving each week has grown from 143 in 2010 to 450 this year and more than 500 in 2017.
Yet even if the conditions are right, warns Clayton, the rapidly increasing competition for players all across Asia means the key driver for success is standing out from the crowd.
“The most successful IRs in Macau have a core idea, whether that’s Parisian’s Eiffel Tower or the palatial qualities and architecture of Galaxy,” he says.
“You need headline attractions. If you’ve got the headline it’s far easier to market – and when we’re talking about the Asian market, you need to look regionally not just locally.
“If you look at Singapore and Marina Bay Sands, you could argue that much of its success comes down to the iconic nature of the building and everything that stands for in the context of Singapore and tourism. In fact, if you look at Singapore tourism ads now, it is the most iconic feature in their advertising.
“Likewise when it comes to Macau, there are some very iconic features here that naturally get coverage in the media but more importantly get a huge amount of coverage on social media.
“Lessons can always be learnt from Macau, even if the investment total in other markets is much lower. You do need a product that resonates with your audience and is very effective with that audience irrespective of whether it is VIP, Direct, Premium Mass or Mass. You have to look at yourself and ask, ‘What is going to be distinctive about us?’
“You have to be able to differentiate yourself.”