Inside Asian Gaming

INSIDE ASIAN GAMING | July 2012 12 13.2% year-on-year in 2011 to a record high of 13.2 million, following on from 20% growth in 2010, according to the Singapore Tourism Board (STB). The opening of the IRs is credited with reversing declining tourist arrivals, which fell 4% and 2%, respectively, in 2009 and 2008. Tourists also brought cash, which they seem to be spending in larger amounts. Tourism receipts hit S$22.2 billion (US$17.5 billion) last year, up 17% year-on-year. But Singapore’s existing hotel infrastructure has failed to keep pace with growth. Hotel occupancy on the island nation is running at 86% during the second quarter, according to a 13th June report from CLSA, with Marina Bay Sands’s 2,561-room hotel proving to be one of the tightest squeezes at 98% occupancy. The skyrocketing occupancy is causing upward pressure on hotel room prices which in turn deter visitors from visiting the country and its casinos. Analysts predict that tourist arrival growth will slow in 2012 on the back of global economic uncertainty, but 2013 could be even bleaker due to the lack of hotel rooms. “The government expect growth of tourist arrivals in 2012 to moderate in light of a weaker global climate (CLSA 12%), and will benefit from the S$905 million added to the tourism development fund that was announced in the latest Singapore government budget,” says CLSA analyst Aaron Fischer in his 13th June report. “However, from 2013 onwards we forecast a declining rate of growth to 6.8% - 6.9% per annum reflecting the lack of additional hotel rooms.” The lack of beds-for-the-night is not the only bottleneck reining in the growth trajectory of Singapore’s gaming market. There is also the issue of gaming capacity, which is restricted by the requirement that the casino areas at the IRs are limited to a maximum 5% of the properties’ total floor space. Thus, any expansion of the gaming floor space at either of the properties will first require expansion of the rest of the resort areas and will take considerable time and investment to achieve. Global economic conditions and local regulation will be important factors to watch. A 9th February report from HSBC analyst Sean Monaghan considers four future scenarios which reflect varying degrees of growth in the Singapore market. The two more optimistic scenarios both include global stability and coordinated stimulus. The two pessimistic ones involve global instability and a China hard landing, respectively. Under a scenario that involves protracted global instability—possibly as a result of a Greek eurozone exit or a failed U.S. economic recovery—and a lack of economic stimulus, Mr Monaghan predicts a 3% decline in the local and foreign mass gaming segments and a 5% decline in the VIP segment. In the case of a China hard landing, Mr Monaghan has mass gaming slumping 10% and VIP gaming plummeting 20%. “China is now facing stronger headwinds and this has implications for the East Asian region and ultimately Singapore casinos,” explains Mr Monaghan. “Visitors from China are the largest source of revenue (33%), ahead of Singapore (30%) and neighbors Indonesia, Thailand and Malaysia. They are also by far the largest contributors to VIP revenue (52%).” Because the Singapore gaming market is so geared towards foreign arrivals, it will always be exposed to global economic crosswinds, with much of the impact lying outside the control of operators and regulators alike. The Singapore government has already helped the two casino operators by fostering what remains a protected duopoly. But it has also hindered casino revenue by enforcing a S$100 (US$79) levy on any Singaporean citizen wishing to enter either of the two casinos and by keeping out the majority of junkets, which Macau thrives on to attract VIP players from China. Analysts expect regulations to evolve both for the better and worse from the casinos’ point of view. The government’s harm-minimization policies could become more stringent as it ponders problem gambling further in 2012. In 2010, Singaporean residents were second only to Australians in total gambling losses per resident adult, according to H2 Gambling Capital. The country’s government may not continue to tolerate this run of bad luck among its populace. But policy makers are also taking some steps welcomed by casino operators, albeit slowly. On 22nd March, the Casino Regulatory Authority (CRA) announced Foreigner dominated—entrance to the casino at Resorts World Sentosa Capacity constrained—the main casino floor at Marina Bay Sands Market Outlook