Inside Asian Gaming

INSIDE ASIAN GAMING | April 2013 8 clubs comprise today a little over 7,100 slots and 650 table games.Three private operators have since joined the mix. Panama-based Thunderbird Resorts operates two similarly smallish casinos under its Fiesta brand in San Fernando City about 65 kilometers north of Manila and in Rizal, just east of the city. Macau’s Jimei Group, which over the years has run junkets, gambling cruises and travel and tour groups through the Philippines, operates Fontana Hot Spring Leisure Park in San Fernando City, featuring a casino, a golf course and family entertainment. Then in 2009 Resorts World Manila opened across from Terminal 3 of Ninoy Aquino International Airport, and everything changed, or certainly perceptions did. For as the property gradually ramped up to 1,800 slots and 300 tables and collected around itself 1,574 rooms and suites in three hotels and a 30,000-square-meter shopping mall with cinemas and dozens of restaurants, bars and fast-food outlets, Philippines gaming revenue doubled to nearly US$2 billion. Over its first full 18 months, from 1Q2010 to 3Q2011, average daily visitation went from 5,966 to 16,140, according to research compiled by CLSA Asia-Pacific Markets, COVER STORY Margin Play There is a casino for every gambler, and Solaire aims to be it S olaire Resort & Casino opened with 95 VIP tables last month and an aggressive strategy for leveraging the Philippines’ low tax rates on rolling chip revenues—17% on the domestic segment, 15% on the foreign—to out-price Macau for high rollers. With commissions on rolling chip volume set in the initial going in the 1.40% range and a revenue split exceeding 50% for those junkets operating on a share of the win in their respective rooms, Solaire figures to be a very rewarding place to do business. Actually, at a blended tax rate of 16%, versus the 39% applicable in Macau, assuming comparable operating expenses (5-6% is the consensus among investment analysts), it can cut its junkets in for 55% and still operate at margins better than double Macau’s. Not surprisingly, five junkets were on board before the doors opened on 16th March—two of them, which Solaire declines to name, among Macau’s market leaders. It’s also a lot easier to get to by air. Manila’s Ninoy Aquino International Airport is within a four-hour radius of Hong Kong and a good bit of eastern China and Japan, Korea and most of Southeast Asia. More than 190 flights run through it weekly from Singapore, Bangkok, Kuala Lumpur and Jakarta, cities that Solaire sees as potentially comprising an entirely new gaming market. Hong Kong, Seoul, Tokyo and Taipei are serviced by more than 200 flights per week. There are more than 15 per week between Manila and Beijing. Then there is Solaire itself, a jewel of a destination designed to cosset high rollers in an experience as exclusive as anything available to them in Macau, Singapore, Australia or the Las Vegas Strip. “Even though the tax advantage for junkets has existed in the Philippines for years it hasn’t been very popular because the junkets haven’t found a place that makes the customers happy,” said Chief Operating Officer Michael French. “So now they see this facility and they go, ‘OK, I can bring people here.’” Equity partner Global Gaming Asset Management, which is running the property under contract with Bloomberry Resorts Corp., will look to make the most of Solaire’s considerable assets. Its management fee of 2-6% share of EBITDA shoots up to 6-40% based on incentives for achieving certain thresholds on earnings derived from“Foreign High Roller Tables” and “Foreign Junket Players,” according to Bloomberry filings. Realistically, though, GGAM expects VIP play to generate less than half of total gaming revenue in the early going, maybe less than 40%. But that’s alright, says President Brad Stone. “People say, ‘Oh, the Philippines, the next Macau.’ We’re not going to be the next Macau. But we’re going to do extremely well here and be very successful as a tourism destination. I think we can do very well against a segment of the market. It is about the experience.” The game plan calls for Solaire to “immediately dominate” the domestic mass market, the lucrative premium-mass in particular, via the targeted marketing of its 200 main-floor tables, 1,200 slot machines and a wealth of amenities, and to leverage the aforementioned tax benefits to properly mine the Philippines’“undeveloped” VIPs. CLSA expects domestic gaming revenue in the Philippines to increase to $1.7 billion by 2015, a robust growth rate of 24% compounded annually that will raise the total market to $3 billion-$3.5 billion, of which Solaire should easily capture $715 million-$900 million. At a blended tax rate of 21-23%, EBITDA margins could be the envy of the region at upwards of 38%. That’s $310 million-plus in pre-tax profit a year for Solaire. Mr Stone says Solaire would be more than satisfied to capture just 6-7% of a burgeoning Asian gaming market whose size is estimated currently at about $30 billion. That would be around $1.8 billion. It’s optimistic, but looking ahead over the next few years, given the product, and given the diamond in the rough that is the Philippines, it is not out of the realm of possibility. Wolfgang Fischer was lured from his post as executive chef of Emirates Palace in Abu Dhabi, reputedly the most expensive hotel in the world, to serve as culinary director. His goal, he has said, is nothing less than Michelin status, something no eatery in the Philippines has ever achieved.