PAGCOR responds—in its own words—to industry allegations of heavy-handedness and inconsistency reported in Inside Asian Gaming
The current debacle between the Philippine Amusement and Gaming Corporation (PAGCOR) and one of its licensees, Thunderbird Resorts, which operates two casinos outside the Philippines’ capital city of Manila, has understandably generated attention in the local press and in international publications. The article that appeared in the July 2011 issue of Inside Asian Gaming contained inaccuracies that depicted PAGCOR as a heavy-handed regulator with inconsistent policies. Nothing can be farther from the truth.
No licence to operate
The statement that PAGCOR “unilaterally tore up a revenue share agreement” is incorrect. Thunderbird simply did not have any authority to operate casinos after their licence expired in 2008. They were granted monthly extensions through 2009 but failed to obtain a regular licence until the new PAGCOR board of directors was installed in June 2010. Since then, Thunderbird had been unable to convince the new board that it is eligible for a regular licence after reneging on their original obligations to bring in foreign players and invest long-term capital. Precisely to give Thunderbird the opportunity to remedy their non-compliant status, PAGCOR offered to review their situation under a set of new guidelines that are intended to improve transparency and integrity in the entire gaming industry.
PAGCOR hopes that the implementation of common guidelines will create a level playing field among licensees and establish predictability of licence compliance policies. PAGCOR has embarked on an evolution into an orderly regulatory environment and will not be deterred by the recalcitrance of Thunderbird.
Failure to comply with investment commitments
From 2006 to 2010, Thunderbird invested a total of PHP2.4 billion (US$56.5 million at current exchange rates) in both of their Philippine properties. That represents only 69% of the amount they originally undertook to invest during the period. In other words, the company failed to comply with their original agreement with PAGCOR. In the eyes of the regulator, that represents an anaemic capital flow. To exacerbate that, Thunderbird paid a total of PHP1.4 billion out of operating income as management fees to related companies outside the Philippines from 2005 to 2010. And this excludes the settlement of other types of intercompany accounts such as interest payments for shareholder advances.
The 2010 Annual Report of Thunderbird Resorts Inc., the BVI parent of the Philippine operations, paints a difficult financial picture for the group. Noteworthy among several disclosures are serious problems associated with construction and start-up funding delays for their India casino project and the weight of over US$120 million in corporate debt. Such is the seriousness of the situation for the parent that in 2010 the group unloaded a 64% interest in its flagship Panama operations and four hotels in Peru, among the many measures being made in an apparent move to mitigate further financial difficulties. Nothing can be more telling than the statement by their external auditors that certain matters “indicate the existence of a material uncertainty that may cast significant doubt on the ability of the Group to continue as a going concern”.
The 2010 Annual Report shows that both Philippine properties are the largest income producer for the group worldwide. It is therefore not surprising that Thunderbird has taken an extremely aggressive defence against PAGCOR because the Philippine cash flows are clearly subsidising the shortfalls elsewhere. Given this situation, it is unlikely that Thunderbird would be able to fulfil its investment commitments in the Philippines. For Thunderbird to say that “it felt it had kept its side of the bargain with the Philippine government, PAGCOR and the people of the country” is obfuscating the deployment of cash and capital to other projects that can otherwise be used to comply with their investment commitments in the Philippines.
Pre-emptive legal manoeuvres
While PAGCOR officials kept the door open for discussions to find a mutually acceptable solution up to the eve of the deadline imposed on Thunderbird, the latter took the offensive strategy of seeking injunctive relief from the court to constrain PAGCOR from exercising its regulatory prerogatives. PAGCOR had no desire to immediately close the Thunderbird casinos while discussions were taking place. But the aggressive and pre-emptive legal manoeuvres undertaken by Thunderbird left PAGCOR with little choice but to serve notice of closure. Thus, to say that PAGCOR’s officials “turned up in the middle of the night” to “claim unspecified breaches of the resort’s operating terms” is obviously twisting the facts and the real sequence of events. As a consequence of the notice of closure, PAGCOR withdrew its resident monitoring teams in the Thunderbird casinos. Without these monitoring teams, PAGCOR could no longer guarantee the fair conduct of games played in the casinos and, as a result, a warning to the general public was published in the newspapers.
Tracking a banner year
The statement that “in a region where most casino jurisdictions are quarterly setting new gross revenue records, PAGCOR appears to be going backwards” is patently false. On the contrary, Chairman and CEO Mr Cristino L. Naguiat, Jr is steering PAGCOR towards achieving a banner year in 2011. The PHP3.1 billion total income recorded in July represents the biggest ever earned in a single month in PAGCOR’s history. The July performance is the third month in a row where income records were broken after robust earnings in May and June. PAGCOR’s revenues for the first seven months of this year of over PHP20 billion is almost PHP2 billion higher than the 2010 performance. By improving facilities and employing prudence in operating resources, Mr Naguiat fully expects to track strong growth throughout the rest of the year and beyond.
And it is not just PAGCOR that has been riding the wave. Resorts World Manila (RWM), the first licensee to open an integrated resort across from Terminal 3 of the Manila International Airport, has been enjoying substantial revenue growth since its 2009 opening. In the first seven months of 2011 alone, RWM earned nearly the same level of revenues that it did for the whole of 2010.
Licensees
PAGCOR takes strong exception to the insinuation that the Thunderbird issue is a “precedent so that it could tear up its existing revenue share agreement with Resorts World Manila”. This is malicious and grossly unfair. PAGCOR and four of its licensees (which includes RWM) are actively engaged to bring to fruition by 2014 Entertainment City Manila (ECM), a master planned complex to be comprised of four integrated resorts within more than a hundred hectares of prime seaside property along the famed Manila Bay. To avoid ambiguous interpretations of the broad provisions of the licences granted to each proponent, PAGCOR recently released a set of guidelines to clearly establish development prerequisites to casino opening. PAGCOR’s efforts to lay down clear rules for the casinos at ECM have been welcomed by industry analysts as well as by the proponents themselves.
Operator vs. Regulator
PAGCOR does not hide its dual role as an operator of 13 casinos nationwide on one hand, and as a government agency authorised to issue casino and other gaming licences to private sector proponents on the other. In spite of this dichotomy, PAGCOR is deliberately and consciously keeping its regulatory role distinct and insulated from its operating personality. There are clear internal delineations between units exclusively dedicated to the regulatory side and the operating units. It is PAGCOR’s intention to further strengthen the ‘Chinese wall’ to maintain the integrity and independence of the regulatory units and prevent potential conflicts of interests.
Conclusion
PAGCOR prides itself in upholding the highest standards of professionalism and competence in the gaming industry. It is actively pursuing initiatives to improve the local regulatory environment and will not be cowed by isolated actions such as the ones being orchestrated by Thunderbird. By and large, the gaming industry in the Philippines continues to be a bright spot for investment and PAGCOR is determined to position the Philippines as a preferred gaming destination in the region within the next five years.
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This article was contributed by the Philippine Amusement and Gaming Corporation (PAGCOR). It is in response to Inside Asian Gaming’s July 2011 story ‘Ball of Confusion’ reporting on a legal dispute between Thunderbird Resorts and PAGCOR.
