Reversing a legacy of Asia failures, Caesars President for International Development Steve Tight successfully secured a casino license for the company in South Korea. And its disappointments in Macau may prove helpful in Japan. As Caesars emerges from lengthy US bankruptcy proceedings and its growth possibilities expand, Mr Tight spoke with IAG’s Editor at Large Muhammad Cohen about the company’s ambitions.
By Muhammad Cohen
Muhammad Cohen: Why is Caesars the right choice for Japan?
Steve Tight: A number of differentiators position Caesars well for Japan. The first would be addressing the government’s overwhelming focus on creating the most regulated integrated resorts in the industry with the most stringent regulatory standards. Because Caesars operates in the most jurisdictions of any of the major operators, nearly 20, and because all of our regulators in these jurisdictions have the ability to opine on our compliance anywhere we operate in the world, we basically have to operate to the highest common denominator, which I think reassures the Japanese government that we have the highest levels of integrity and that we would operate within the sort of standards that they would want and expect.
In our discussions with the government, they’ve spoken specifically about one of our biggest advantages, which many will argue has been disadvantageous, being that we are not in Macau. The Diet members that we’ve spoken to have said that the fact that you are not in Macau is a huge advantage because in Japan they are not looking to replicate the Macau model – in fact anything but that, given their perception of how things operate in Macau. So we come with a clean sheet.
We know that the government has concerns about addictive gaming behavior and criminal activities that the public perceives to be associated with our industry, which we know in reality is anything but the truth, both in terms of the addiction and crime. On the addiction side, I think the Japanese misunderstand gaming addiction behaviors. They’ve talked about the current state of addiction in Japan as quite high but I point to the fact that they have the opportunity for gambling via pachinko and other forms of gambling, yet they’ve never funded any programs to address gaming addiction.
In our integrated resort industry, we were the first to adopt reasonable responsible gaming standards, where we put in place programs to identify problem gamblers who have addiction issues. We train our employees to identify them. We provide those who have gaming addiction issues with information to address their gaming issues. Most importantly, we fund programs to address the addiction.
As a result, you find over and over in jurisdictions in which integrated resorts have been introduced recently, levels of addiction have actually gone down since the integrated resorts were open because there have been programs brought to the market to help address gaming addiction. In Japan I think bringing in integrated resorts will go a long way to trying to address an issue that has always existed but never been actually addressed, never been adequately treated.
[Point] three is the strength of the brand. The government’s objective is to drive tourism and Caesars is still the legacy brand of the gaming industry, certainly in Las Vegas and throughout the US. If the government’s intent is to drive incremental tourism, having the opportunity to create a world class Caesars branded resort would be one of the most effective drivers of that tourism. The fact that we are not in Macau gives us a strategic advantage in terms of tourism inducement because Chinese tourists today cannot come to Caesars projects in this part of the world.
Finally, Caesars has more experience partnering in our developments, whether it’s partnering with fellow investors or operating partners for third party owners such as the tribal casinos in the US. About one in five of our properties is managed in partnership, and that sort of DNA for collaboration is obvious when you deal with the Caesars organization.
We embrace collaboration – that’s not true with several of our big competitors – and I think in Japan that collaboration is going to be the key to success. The Japanese people appreciate that perspective, that we aren’t looking to necessarily control this development. We bring a strong expertize in operations, but we also recognize that the Japanese companies that are interested in this industry have a tremendous amount to share and to bring into this partnership and to benefit the partnership.
MC: Is Caesars focusing on a particular area in Japan?
ST: At this point it’s early in the process. The regulatory act hasn’t yet been passed, so we don’t yet know all the specific details such as tax rates, procedures around junkets, credit facilities and that sort of thing. The industry in general is waiting to see how these all shake out.
We clearly have an interest in both large urban destinations and regional markets. Given our broad portfolio of properties that we currently manage – we have nearly 50 of them around the world – we have experience with the large scale integrated resorts like Caesars Palace in Las Vegas, which are multibillion dollar investments and drive a significant tourist market. But we also have experience in regional markets. I think it’s too early to focus in on one at this point, just as I think Japanese investors aren’t focusing on one single operator for their consortium.
It’s like a dating game where we are all out there trying to inform the Japanese market of who we are, what our expertize is and where our strength lies. Ultimately it will be the investors, the consortium, who will select their operator and have the greatest leverage on the bid.
MC: Is Japan’s lack of public support for integrated resorts a cause for concern?
ST: It doesn’t cause me concern because so much of it is misunderstandings because the Japanese have never been exposed to the integrated resort industry today, so all they have to go by is what they’ve read about or what they’ve seen in the movies. From an industry perspective, our obligation is to help educate the public with enough independent research and facts that help them get their head around the opportunities and the implications of the industry and how best to manage the introduction of integrated resorts into Japan. We are committed to this education process and I am very optimistic that as the process progresses, we will gain additional support.
When Prime Minister Abe visited Washington DC, a number of us met with him and offered our support, and he basically asked us to do exactly that: to help educate the public. We’ve done so in a recent symposium on responsible gaming that was held with the US and Japan Business Councils.
I think ultimately the government is committed to integrated resorts as an economic engine for Japan and they are extremely sensitive to minimizing any social cost associated with the industry. I have full faith in the government to manage the process judiciously and diligently, as they have so far, and I’m convinced that they will be successful in demonstrating to the public that there’s nothing to be feared and tremendous benefits to be gained.
MC: What about Caesars’ finances? Does it have the financial ability and stability to be part of a multibillion dollar IR project in Japan or anywhere else?
ST: The restructuring of Caesars Entertainment Operating Company will be completed in the first week of October.
The operating performance of the business has been far greater than many peers and continues to be quite strong. With the restructuring complete, our leverage is well within the type of ranges in our industry and we think we will have as we exit one of the strongest balance sheets of any of the major players. The completion of the restructuring will give Caesars the ability to invest more freely in growth opportunities.
MC: How does Caesars’ recent hiring of former Hard Rock International Chief Development Officer Marco Rocas as President for Global Development impact your role and Caesars’ global profile?
ST: It doesn’t change my role at all. I think it reflects the company’s commitment to global expansion as we emerge from restructuring. In addition to domestic and international IR development, Marco will be looking at opportunities to expand Caesars’ brands into non-gaming hospitality.
MC: Let’s look at some other markets in Asia. Is Caesars watching developments in Vietnam?
ST: We have been for the last five or six years. If the market ever opens to locals – as you know now they are opening this pilot program [for local play in selected locations] – then yes, we are interested in Vietnam. Yes, we continue to monitor developments there. We will be interested to see how the locals’ pilot program evolves and how that impacts the availability of new licenses where locals might be able to play. It’s just now starting to come together and there will be more clarity over time, but it’s certainly on our radar screen.
MC: What makes Vietnam attractive to Caesars?
ST: One, locals have a strong proclivity to gamble. You see it in all forms of gambling, either outside of the existing borders or in other forms of gambling around the World Cup or whatever it might be. Two, the growing demography and their growing population, their interest in the gaming industry and, for the tourist market, of course their proximity to China and North Asia and the growing tourism coming to Vietnam from Southeast Asia and really throughout the world. Their tourism is growing very significantly. They are certainly an appealing destination.
MC: Is Caesars open to partnering with Vietnamese?
ST: We will absolutely consider joint ventures with Vietnamese partners and we’ve been in discussions with several.
MC: What about Australia? Queensland has an IR license available.
ST: Our objective is to expand Caesars’ presence, as we have in the US, in all sort of markets. Queensland is another market that we are exploring and continue to explore. If there was the right opportunity there and the market supported an additional integrated resort, that’s a place that we will continue to explore.
MC: What about the IR project Caesars proposed for Manila’s Ninoy Aquino International Airport?
ST: The government decided that they want to reserve the land at the airport for expansion opportunities, so if we ended up in Manila it wouldn’t be at the airport. The biggest issue right now is [Philippine regulator] Pagcor’s concern that the market and the existing operators, those who invested in the integrated resorts, need to stabilize before they offer another license. I think it will take some time for that, for the government to get comfortable with an additional license.
MC: If there are additional Manila licenses, would Caesars be interested?
ST: It has some potential, it’s building critical mass. It’s well positioned if the government continues to reform. Pagcor is talking about selling off their commercial facilities which then prevents the conflicts of interest which concern a lot of the compliance groups about investing in the market. If they can get through all of that and you comfort those groups that are investigating opportunities in the Philippines from the compliance perspectives, then I think it could be interesting.
MC: Any Caesars interest in buying Pagcor’s casinos?
ST: Not at this time.