Inside Asian Gaming

goals, perhaps it will look at awarding more casino licenses once the ten- year moratorium on further licenses lapses. Singapore’s initial two IRs will be impressive,but at least three or four locations are needed before critical mass emerges, and Macau has a big head-start in this regard. Also in contention… David Green dons his tour-guide hat and takes us on a quick whistle-stop tour of other Asian jurisdictions that have casinos, or are considering legalizing them. Thailand The ambitious casinos resorts planned for Macau and Singapore aim to bring “stickability” to destinations otherwise lacking in attractions. If a destination has existing draws,then the resorts could bring in evenmore visitors.Thailand is a prime case in point, though legalization of casinos may take longer than many expect. “Everyone seems to think Thailand will happen tomorrow. I’m not sure about that.The government has other issues which are probably more pressing for them, particularly down south with the Muslim issue,”points out Mr. Green. “Bird flu is not great for them either, because you’ve got to attract capital that’s prepared to assess the risk as acceptable. If you’re showing signs of political instability, or you’ve got externalities like bird flu or serious issues like that, people have choices about where they invest their money.” Mr. Green thinks the push for legal casinos in Thailand is aimed more at bringing back money Thais gamble overseas than drawing in tourists, as Singapore hopes to do. “The Thai strategy is probably more defensive, and that’s to put Cambodia out of business, because most of the players who go to Cambodia are from Thailand.Various figures get thrown around, but I saw a report recently that estimated the loss sustained by Thai casino players in Cambodia in 2004 was US$2 billion. That’s a couple of percent of GDP in Thailand.” What has not been discussed is whether Thailand’s future casinos would be targeted at tourists or locals. The Thai King, whose continued opposition is proving a major stumbling block to introducing casinos to the country, may be placated if the casinos were made visitor-only, as in South Korea. South Korea There are 13 casinos in South Korea, only one of which, Kangwon Land, is open to locals.The casinos draw about 600,000 gamblers a year, mostly from Japan and China, and South Korea’s gambling revenue is about half a billion US dollars annually—a tenth of that in Macau. South Korea’s first casinos were targeted primarily at high-roller Japanese customers,but the new ones seek to drawmass market gamblers from China and Japan. North Korea North Korea’s casinos are aimed exclusively at mainland Chinese, and they are suffering in the wake of China’s crackdown on gambling by its citizens. In December 2004, Chinese investigators disclosed that a government official fromYanbianinChinahadgambledawayalmost3.5millionyuan(US$420,000) in public money at the Hong Kong-run Emperor Casino located in a North Korean special economic zone, which catered exclusively to mainlanders. A string of similar cases prompted a Chinese national police campaign against some 200 casinos operating along China’s borders.Yanbian’s travel agencies and tour guides were banned from organising gambling tours, forcing the Emperor Casino to shut indefinitely since January 2005. The MICE tussle Mr. Green believes Singapore will pose a greater threat to Macau by drawing meetings, incentives, conventions and exhibitions (MICE) visitors, who will have to come from farther afield.“The conventions business in China is very underdeveloped. I would doubt very much that you could make a lot of money running a MICE business just based on China,”he explains.And in any case,“by the time people are affluent enough to be operating conventions like that, they’ll start to look further afield.” “Conventions may move to the biggest and greatest for a while, but there’s a finite group of conventioneers and a finite market for conventions,” says Mr. Green. “The other place that’s doing it is Dubai. I wouldn’t discount Dubai either as a potential source of competition for the MICE business here,” he continues.“Kerzner are building a development there that’s probably similar in quality to the Atlantis in the Bahamas. Plus Dubai has one of the worlds’ biggest and fastest growing airlines [Emirates].” Macau’s edge over Singapore is that it will have a lot more critical mass, with a string of casinos and resorts present or under development on the Macau peninsula along Friendship Avenue and on the Cotai Strip (of reclaimed land between Taipa and Coloane islands).“A whole strip will have more attraction than two isolated resorts,” believes Mr. Green.“In Vegas, people tend to walk the strip.They might have a drink somewhere, eat somewhere else, and play somewhere else. Go to a show. There’s no doubt that a strip of properties is going to be a lot more attractive than standalone properties.” In Singapore’s favour, the city is a global-crossroads for air traffic and appeals to investors seeking a stable, crime-free environment At present, he Macau airport offers limited international routes, and Mr. Green feels “the airport’s going to be critical in that regard. Can they get some major international airlines to start moving through it?” And while Macau may have shaken off with conviction its previous image as a gangster’s paradise, Singapore sits comfortably at the top of the squeaky-clean league. On stickability What Singapore lacks is “stickability.” Mr. Green says “people are either in transit,or stay for a short time.There’s not a whole lot to do.”Singapore’s share of the Asia pacific travel market is declining. Tourists coming into Singapore stay an average of three days, from four days in 1991, and compared to four days in Hong Kong, five days in London and almost a week in New York. Still, Singapore has more stickability, for the moment at least, than Macau. Only around 20 percent of visitors to Macau stay overnight, and they average just 1.2 nights in the city.It is hoped this will change once Macau’s ambitious new casino resorts come online from the second half of 2006 onwards. Singapore hopes its IRs will create as many as 35,000 jobs and helpmore than double its tourist arrivals to 17 million and triple annual tourism revenue to S$30 billion (US$18 billion) in the next 10 years. If it doesn’t achieve those However, Mr. Oliveira could be wrong. In October, the Singapore government released its Casino Control Bill for public consultation, spelling out that casinos and their junket operators would be allowed to extend credit not only to foreigners, but also to Singapore citizens or permanent residents who are “premium players”—those who maintain with the casino operator a deposit account of at least S$100,000 (US$61,100). The bill is not yet final, and the result of the public consultation is pending, but the likely outcome is that credit will be allowed.The press and public are more focused on measures to limit the social impact of the two IRs and ensure they remain free of criminal influence or exploitation. A mixed bill The bill proposes a levy of S$100 (US$61.1) a day or S$2,000 (US$1,222) a year on locals visiting the casinos, even though potential operators have complained that levies would create difficulties in implementation, and of course, would deter locals from making casual visits. The bill also contains a clause which may make it difficult for one company or joint venture to win the bid for both sites. Section 41 of the draft bill says any person who has an interest of 20 percent or more in a casino operator shall not acquire or hold any share in another casino operator. Perhaps the most contentious of the proposed clauses calls for a review of a casino’s operations no later than three years after it opens its doors. The newly-formed Casino Regulatory Authority (CRA) can then decide whether to continue the casino’s licence. This proposal is obviously not welcome by bidders who could sink in US$2.5 billion or more into developing each of the two casinos. The bill also says the government will ensure there are not more than two casinos licenses awarded during the initial 10-year period, but afterwards, more licenses could be issued. More troublesome is the suggested requirement that casinos give regulatory authorities “advance notice”of arriving junkets, even though high-rollers can often decide to fly in for an overnight visit on the spur of the moment. On the plus side for potential IR operators, the government scrapped a rule requiring resort operators to limit 50 percent of total revenue contributions from gaming, saying it was sufficient to make the intention clear that the IRs should have substantial non-gaming attractions. Macau has no stipulations on non-gaming revenues (just as well, as only 5 percent of casino revenues are currently non-gaming), levies or limits on credit to locals.What it does have is a very high gaming tax rate, equivalent to 40 percent of gross gaming revenue (35 percent goes to the government as direct tax and an additional 5 percent as compulsory social and welfare contributions). PricewaterhouseCoopers (Macau) Gaming Practice Director David J. Green points out that Singapore has decided to not only impose a lower rate, but also to split it. The standard gaming tax rate outlined in the bill is 15 percent, but tax on“premium”play, including junkets, will only be 5 percent.The tax on premium play will be the lowest in the world, and compares to 6.8 percent gambling tax in Nevada and around 8 percent in Atlantic City.Mr.Green explains the reason for the split is the higher cost of bringing in premium and junket players. Mr. Green does not believe that Singapore will allow profit share between casinos and VIP room/junket operators, as allowed in Macau. Still, with the significantly lower gaming tax rate, Singapore’s casinos have arguably greater flexibility in offering inducements to junkets and premium players. Mr.Green says that because Singapore will allow the granting of credit and have lower taxes,the impact of its casinos onMacau gaming revenue could be greater thanmany think–though he is confident Macauwill remain Asia’s pre-eminent gaming destination.The consensus view is that gaming revenues in Singapore will only ever be a fraction of those in Macau, which is long likely to hold greater appeal to the massive mainland Chinese market,not only because of greater geographical proximity (a billion people live within a three hour flight from Macau, compared to 550 million people from Singapore, and a mere 150 million from Las Vegas), but also cultural affiliation. Evidence of that view came after one of the bidders,the Melco-Publishing and Broadcasting Ltd (PBL) joint venture, announced on January 3 that it was pulling out of the bidding for Singapore’s first integrated casino resort, bringing the bidding pack, which began at a dozen, down to merely four. PBL head James Packer explained:“After carefully examining all aspects of the proposed project,we are of the view that the expected returns from the (Singapore casino) resort are insufficient to justify the higher projected capital costs of the project.” Investors clearly prefer Melco-PBL to focus on Macau, with the share price of Hong Kong-listed Melco staging a strong rally following the announcement of the withdrawal. Who’s Left? Las Vegas-based Wynn Resorts and Australia’s Tabcorp had withdrawn from the bidding in December. The remaining four bidders for the Marina Bayfront IR are, in any case, those thought most likely to win from the outset: the consortium comprising Harrah’s Entertainment Inc (HET) and Singapore’s Keppel Land Ltd;LasVegas Sands (LVS) and City Developments Ltd; Malaysia’s Genting International and Star Cruises Ltd; and MGM Mirage (MGM) and CapitaLand Ltd. All the remaining consortiums are those that had secured local partners to boost their bids. LVS, which owns the Venetian in Las Vegas and Sands in Macau, plans to spend as much as US$2.5 billion on a project that includes a Guggenheim museum and a 1.2 million sq. foot convention centre. Harrah’s, owner of Caesars Palace in Vegas, has hired world renowned architect Daniel Libeskind to design its project. 11 10