Inside Asian Gaming

INSIDE ASIAN GAMING | June 2009 26 In Focus rates when we make our decisions.” Straight and level On Mr Chen’s fourth point for success—a predictable and stable regulatory environment—it’s too early to tell how Taiwan will perform, suggests Mr Liu of Jumbo Technology. “We really have to do more homework. We don’t have a regulatory agent right now. We don’t have government institutions; we don’t have equipment-testing labs. We have no experience of the international gaming industry,” he states. Given the often-volatile nature of Taiwan’s domestic politics, there must be some concern among potential investors that Taiwan’s gaming industry could be a hostage to political fortune. Legalisation of an industry is not the same thing as liberalisation. Economic nationalism—of necessity so long a feature of Taiwan life— could remain an important factor in the development of a local casino sector. Taiwan in this regard is a very different animal from Macau. The latter has been used to foreign as well as Chinese influences in trade and culture for more than four centuries. Taiwan, by contrast, has got used to doing things her own way, largely as a result of six decades of economic, political and cultural isolation caused by her estrangement from Mainland China. There have been reports that Taiwan actively considered a barter deal with a native American tribal casino in Canada, whereby the tribe would be allowed to operate a casino in Taiwan in return for giving Taiwan access to oil produced on the tribe’s lands. This might sound bizarre, but taken in the context of Taiwan’s perennial outsider status internationally, it makes some sense. Taiwan may well be looking for practical benefits from allowing external investors access to its would-be casino market, beyond the mere provision of development capital. In that respect an external, symbolic partner such as a local government body in Mainland China, might make more political if not financial sense than, say, a Las Vegas operator. Such a scenario might not be too far fetched if Kinmen is chosen as a casino location and a bridge to the Mainland city of Xiamen is indeed built. Whether even President Ma and his healthy parliamentary majority could sell such a sensitive proposal to a prickly Taiwanese public is another matter. Licence to thrill, not kill The fifth characteristic identified by Mr Chen of Harrah’s for a new casino market’s success is what he terms the “right sized licensing paradigm”. This sounds rather complicated, but it boils down to a simple principle. Don’t issue too many licences. “Wewould suggest that for everyUS$500 million of potential market, governments should give out one licence,”saysMr Chen. By that reckoning, based on Mr Liu’s suggested US$2 billion domestic valuation of a Taiwan casino industry, then Taiwan could have the potential for up to four casino licences. “Not every market is going to be like Macau and Las Vegas and be worth US$7 billion to US$10 billion [annually],” explains Mr Chen. “So what do you do with a market like Singapore that’s worth US$1 billion to US$2 billion annually?What the government there said was ‘We’ll create a duopoly. We’ll only give out two licences’,” he explains. “That meant two operators were allowed to share a US$1 billion toUS$2 billionmarket. That allowed them to invest. As a result you have breathtaking investment amounting combined to about US$10 billion,” he adds. Given the currently bearish credit and investment markets, Taiwan may have to show some flexibility on its market access terms if it is to generate significant interest from overseas operators. None of the major North American operators appear to have any cash to spare for new projects. They are already stretched—either by ambitious expansion in emerging and domestic markets (Las Vegas Sands Corp., Wynn and MGM MIRAGE in Macau and the US) or by the double whammy of heavy debt at home combined with a bearish domestic consumer market (Harrah’s et al). TwopotentialAsianplayersinaliberalised Taiwan market—Malaysia’s Genting Group Berhad and Japan’s ARUZE Corp., already have their hands full in Singapore and the Philippines respectively. In fact Genting also has a fewfingers in the Philippines pie as well via a joint venture involving its subsidiary Star Cruises. Culture Clash Foreign investors may take time to understand Taiwan’s gaming market