Scientific Game

Stormy Weather

Are politicians about to rain on Singapore’s casino parade? A gaming executive gives a personal forecast

Friday, 01 October 2010 16:36
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If you visit Singapore regularly, you will know that the city-state gets some spectacular thunderstorms. It doesn’t just rain, it literally ‘buckets down,’ often accompanied by spectacular lightning strikes. Now a different storm looks as though it could be on the horizon. It’s a political one that could curtail the way Singapore’s multibillion dollar casinos operate. That could have a negative impact on the spectacular financial performance expected of the properties by some analysts.

So far, Singapore casinos have performed very well, smashing early estimates. That, in turn, has led to a tendency among commentators to talk up the market on behalf of the two casino operators: Las Vegas Sands Corp and Genting Singapore, a unit of Malaysia’s Genting Bhd. unit of Malaysia’s Genting Bhd. Something similar happened in Macau prior to 2007. Some of those who talked up Macau as a ‘pot of gold’ ran for cover when the market spectacularly fell back for political as well as economic reasons just a year later. In Singapore’s case, what you see right now may not be what materialises over the mid-term. There are emerging issues that could mean the local casino business will not be as lucrative as it promises to be at present. A major factor could be the opinion of the Singapore public, and not necessarily those members of it who visit the casinos regularly. A growing number of ordinary Singaporeans seem to be questioning the benefit to the community of the two integrated resort projects.

A recent comment left by a citizen on the Singapore government’s official Internet forum, ‘Reach’, may sound paternalistic to outsiders, but captures aspects of the public mood quite well.

“I would like to propose a ban on all work permit holders [Malaysian and other foreign migrant workers in Singapore] from entering the casinos,” said the contributor.

“These migrant workers typically earn low incomes and have a debt to repay for coming to Singapore. By allowing them into the Casinos, we are not helping their financial situations.

“Should they lose money, we may face a greater crime rate. Foreigners with S Pass [SingPass, the identification system for transactions with government departments] etc can enter.”

Red sky at night

The casino operators’ eagerness to tell a good news story for their investors and lenders by publicising ‘telephone number’ revenue figures and profits may have backfired with many Singaporeans. Some are starting to become very suspicious of the companies, questioning whether the effort to attract local players is in some cases disproportionately greater than the effort to attract foreign ones. LVS has said that about one-third of the visitors to its Singapore casino are local. Although Genting has not publicly stated the number of locals visiting RWS, some analysts think the proportion of locals there is greater than at MBS.

In early September, Singapore’s Casino Regulatory Authority (CRA) ordered the city-state’s two casino operators to stop providing free buses from residential districts of Singapore to the casinos with immediate effect.

When Vivian Balakrishnan, Singapore’s Community Development, Youth and Sports Minister spoke on the issue in the Singapore parliament a few days later, the message was clear.

“This signal is to reinforce the point that they [the casino operators] are not supposed to go after the low-hanging fruit which the local market represents, but instead to focus their effort on winning additional tourists from abroad,” stated the minister.

“The IR operators have been reminded that they must comply strictly with our rules against casino advertising to locals.

“These rules will be tightened as necessary in the light of experience,” Mr Balakrishnan added somewhat ominously.

The case against the industry

Since Resorts World Sentosa (RWS) and Marina Bay Sands (MBS) opened, they have both targeted Singapore slot club players, one more so than the other. RWS had membership stalls set up in what is known locally as ‘The Heartland’. This is the zone where many low- to middle-income Singaporeans live in Housing and Development Board (HDB) apartments. These are areas like Ang Mo Kio and Toa Payoh, where RWS had stalls offering free membership focussing on residents. The population in these areas is predominantly Chinese.

Singapore’s 70 or so licensed slot clubs have certainly been hit by the opening of the IRs, experiencing a fall of 30% to 50% in their takings. Part of the problem affecting the clubs is the way they are taxed. Clubs are paying upwards of 55% on average on gaming profits. Even if an individual machine is not making a profit, the clubs are still taxed on the coins collected in the drop box. The casinos, by contrast, pay only 15% gaming tax on their handle. At present, the clubs can’t use bill acceptors or run cashless systems. The casinos can.

The Singapore Government is currently reviewing the clubs’ operations and taxation, and it’s hoped that a new system proposed for early 2011 will allow the clubs to compete, but most agree that will only happen if the government taxes the clubs on gaming profits, not turnover.

If the slot clubs get a break and are taxed on profits, they can fight back, especially if they are allowed to use bill acceptors or cashless operations just like the casinos. Even though they are limited to a maximum 40 machines per venue, they can still stand and fight, and have the opportunity to win back some or all of the ground lost to the casinos.

In the meantime, the fall in club business is blamed squarely on the casinos, and not just by the club owners. Some locals see the casinos as outsiders who have come to the market to kill the clubs off. There are more than one million Singaporeans associated with clubs in Singapore, either through membership or regular attendance. As the clubs suffer, so discontent is bred in local hearts regarding the casinos.

Tourists versus locals

The Singapore government originally heralded the two casinos as a way of bringing extra tourism to the city. That reasoning is being questioned now that figures reported in Singapore’s parliament show a million Singaporeans entered the casinos in the first seven months of their operation. This shocked the general public.

Possibly reflecting or tapping in to this mood of public unease is a rising tide of negative publicity in the media. This includes not just reports about people being caught committing crimes within the casinos, but also stories about spectacular levels of problem gambling. Perhaps the most notorious example is a report about a local wholesaler of fish who lost S$26 million (US$19.8 million) in just three days and is taking legal action against one of the casinos.

It is well known that sections of the Singapore media have been running negative stories about casino gambling ever since the idea of legalisation was first proposed back in 2004. Potentially more troubling for the operators is the way that influential publications such as The Straits Times have recently begun highlighting not just individual incidents but questioning the fundamental issue of whether the IRs represent good value for Singapore. The operators ignore this mood at their peril. The Singapore government may have overruled a vocal opposition to get the casino policy instituted in the first place, but it has shown in the past that it is willing to alter important policies in response to public pressure. That could potentially include measures to control casinos’ perceived ‘exploitation’ of local players.

If the casinos don’t police themselves and work on their local image in terms of toning down aggressive targeting of local players, the Singapore government may be forced by popular opinion to act. Once politics comes into play in that way, the operators’ ability to influence government policy could be considerably reduced.

Achilles’ heel

The area of the casinos’ operations that is potentially most vulnerable to curtailment action is the high roller or VIP segment. Recent claims that junket operators from outside Singapore are masquerading as players and sub-letting chips to their customers to get round the city’s tough probity checks on Macau-style gambling agents are difficult to prove. But the CRA is well aware of the claims, and could potentially seek amendments to the Casino Control Act or its attached gambling credit regulations that could involve any VIP player being subjected to detailed background checks. This could have the effect at the very least of making the casinos’ management of the VIP segment more bureaucratic and cumbersome, potentially depressing volumes of play.

If the rules of engagement in either the mass market or the VIP market are changed by the government, it could have the overall effect of depressing the profits of the IRs, or at least reducing them to the more conservative estimates quoted by some financial analysts before RWS opened in February.

Red sky in the morning

History has shown that whenever Singapore has embarked on a social or economic reform, it has always retained ownership and control of that process, rather than allowing commercial interests to dictate policy. There is no reason to suppose that the casino liberalisation policy will be an exception to this rule. The writing is on the wall for the industry.

When a government minister in another recent speech to parliament referred to the “profit motivation” of the two casinos, he did so not in a flattering way. Those who simply think Singapore is another Asian ‘pot of gold’ for the global casino industry may be in for an unpleasant surprise. Right now the medium range forecast is for storm clouds gathering over both IRs. What’s still to be determined is quite how much rain will fall and how hard.

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