Inside Asian Gaming

INSIDE ASIAN GAMING | October 2008 14 On closer examination of the facts on the ground, the picture begins to look a little less rosy. Licence fever At least three different sources have told Inside Asian Gaming that the Cambodian authorities have issued 70 gaming club licences for PhnomPenh and thesurroundingarea.Thesourcesestimate the market can actually support 25, or at most 30. Everywhere you look in Phnom Penh, you see neon signs advertising these clubs (often within or next door to a hotel or other entertainment venue). In theory the clubs are for slot games only, leaving the field for traditional table games open to NagaWorld. The reality is, however,that the lawhasbeen interpreted pretty liberally, allowing the introduction in some slot venues of a form of hybrid betting involving baccarat machines served by live dealers. No actual money changes hands at the table, as the bets are made using electronic chips placed on a chip-reading panel by the player. When NagaCorp complained, say industry sources, the government decreed that in future the club dealers had to be, quote: “on another level” from the machine.This was interpreted literally by some club entrepreneurs. Visitors now have the spectacle in some clubs of live dealers behind glass screens standing on a slightly raised platform in the centre of the baccarat machine array.This is seen as technically fulfilling the requirement of being“on another level”. An obvious question is why were so many club licences issued in the first place? The answer seems to be that the current licensing regime creates incentives for officials to do so because it’s an important form of government income. Once a gaming business is established, the government’s income curve from it is steady but shallow. This is because the authorities have eschewed a percentage levy on gross gaming revenue (the model used in most legal gaming jurisdictions) in favour of a hybrid system.That consists of an annual flat fee plus a product-based tax per machine for every unit above an agreed threshold of inventory. The official price for a gaming club licence used to be US$120,000 according to industry sources. After complaints and lobbying from among others NagaCorp, the government said earlier this year it was imposing a moratorium on new club licences. In reality, say the sources, licences continued to be issued, but the price went up to as much as US$500,000, including the cost of ‘processing’—widely taken to mean unofficial payments to administrators. Existing licence holders can now potentially make more money trading their permit on the open market than they can from actual gaming activity, according to the sources. One told IAG : “The Phnom Penh market can probably support 25 slot clubs—30 at most. But the government has issued about 70 licences. Some clubs are doing okay and turning over US$1million a month or more. Others are barely bringing in US$100,000 per month [the equivalent of less than US$3,500 per day].” Another source told IAG : “Everyone knows about this but you won’t find it in the prospectus. They need to do something about the number of licences, otherwise in the long run everyone could suffer.” Reality bites When IAG put these claims to the Ministry, the authorities declined to comment. Whether the proposed new casino regulations will get to grips with this issue before the market and investors decide for themselves remains to be seen. NagaCorp’s success shows just what can be achieved in a short time. Cambodia has tremendous potential, though its growing gaming industry has some similarities to a talented young soccer player who spends his evenings in nightclubs. It’s full of promise but also has the potential to go off the rails without firm guidance and a bit of good luck along the way. We must hope for Cambodia’s and the market’s sake, that the wise counsels of experienced managers with international experience, like those at NagaCorp, will prevail. Cover Story