'I' is for Integration

Supercasinos are changing the face of Asian gaming

Modern casinos have evolved from gambling halls into all encompassing entertainment centres run by global operators. Developing them is capital intensive and often requires extended pay back periods.

The principle is illustrated by what’s happening in Macau and Singapore-two jurisdictions now importing what is essentially a Las Vegas business model to Asia. Las Vegas Sands Corp (LVS) claims bragging rights as the pioneer of this Vegas format, which stresses the development of non-gaming revenue through integrated resorts (IR) with conference, retail, and entertainment facilities.

The objective with this mix is to get gaming and leisure to support each other. Giving casino customers multiple reasons to visit a venue alters existing patrons’ discretionary spending habits and brings in new visitors, goes the thinking. Existing players, instead of leaving a casino as soon as their allotted gaming money runs out, are more likely to increase their trip budget for spending on meals, shopping and shows. Consumers who might not previously have considered spending time in a casino come for the shows and shopping, then stay for a flutter. It creates a win-win situation for operators and investors, as gaming and non-gaming revenues rise simultaneously.

This theory appears to be proven by economic trends in Las Vegas. Research suggests that between 1990 and 2000, the development of IR casinos helped non-gaming revenues post a 13% compound annual growth rate (CAGR), while gaming revenue also went up—though with a shallower curve at 7% CAGR.

Multiple models

In Asia, the most clearly identifiable IRs are being developed in Macau (The Venetian Macao, City of Dreams, Macao Studio City and GalaxyWorld) and Singapore (The Marina Bay Sands also from LVS and Genting’s Resorts World at Sentosa). The Singapore sites will though have a different mix of amenities compared to what’s on offer in Macau because of government restrictions on the size of the gaming areas. Under the terms of their government licences, the Singapore resorts are limited to 161,000 sq. ft of gaming space each and 2,500 gaming machines—by comparison, there is 550,000 sq. ft of gaming space at Venetian Macao, making it the biggest casino in the world; 420,000 sq. ft at City  of Dreams and 320,000 sq. ft at GalaxyWorld.

Japan and Taiwan – two countries reportedly considering the legalisation of casinos as a way of keeping their ardent gamblers at home and away from illegal domestic gaming, while simultaneously raising much-needed tax—may also opt for integrated resorts, either with a limit on the amount of gaming space as specified in Singapore, or the more free market Las Vegas model seen in Macau.

A safe sell

The IR model is widely regarded as a safer ‘sell’ than traditional gaming halls, especially in Asia. It is easier to pitch to any domestic opponents of the industry because of its emphasis on stimulating the local economy by boosting tourism and business travel. Supporters of the IR model argue its economic and social benefits outweigh any perceived negative social effects of gambling.

Vietnam, an officially communist country that currently has limited legal gaming, has reportedly authorised the construction of a huge multi-phase US$4.5 billion beachside IR project on a 2.1-mile long piece of land to be called the Ho Tram Strip. The site in Vung Tau province, a two-hour drive from Ho Chi Minh City, may also be known as Vietnam Casino City.

The plan is to build a total of five casino hotels, but gaming is expected to take up only a modest amount of the total 16.1 million sq. ft of gross floor area. The rest will be for hotels, restaurants, theatres, a cultural centre, a country club and a massive swimming pool. Media reports from Vietnam say the resort will also have a 200-acre golf course designed by former world number one golfer Greg Norman. The first phase, said to cost US$500 million and due for completion in late 2009, will have 77,500 sq. ft for gaming. Paul Steelman Design Group—the Las Vegas-based consultants that worked on Sands Macao and Macao Studio City—have

been hired to work with Canadian company Asian Coast Development Ltd (ACDL) on the project. ACDL’s partners in the consortium are Turnberry Associates and Fontainebleau Developments. ACDL says it has also retained former Sands President Al Luciani and the former CFO of Mandalay Resort Group Glenn Schaeffer as advisers on the scheme.

Spending power

Billions of dollars are also being poured into building large-scale integrated resorts in Macau and Singapore. In Macau, which has a history of legal gaming dating back to the 1850s, the IR format is likely to put extra commercial pressure on the traditional gaming halls, many of which have previously relied on the VIP trade for the bulk of their revenues. Access to scale and wide product mix looks likely to be increasingly important for operators if, as forecast by many investment analysts, the IR model takes off in Asia.