Scientific Game

Singapore at the Crossroads

The glow of the early days definitely has faded, and concerns are mounting over the impact of amendments to the Casino Control Act that could make the market’s tough regulatory environment even tougher

Thursday, 18 October 2012 14:03
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View from the Marina Bay Sands SkyPark

It may have only been just over two years, but Singapore gaming seems more like a middle-aged man than a toddler. No longer feeling its way, it is now the second most profitable gaming market in the world after Macau. It is a key revenue generator for the gaming operators in the market—Las Vegas Sands Corp and Genting—and a huge tourism draw for its city-state home.

Its proud but sometimes recalcitrant parents also seem at ease in regulating their prodigious offspring and profiting from their success. But things are not as simple as they seem. The battle over casino regulation in Singapore will mean the government performing a finely tuned balancing act, trying to reap rewards and support the market on one hand, while trying to prevent gambling addiction and criminal activities on the other.

Several issues are vying for attention before the nation’s Casino Regulatory Authority and lawmakers: the issue of junkets (which are often said to be a necessary part of attracting VIP gamblers and have been a boon for Macau), the manner in which credit is extended to VIPs, and restrictions on citizens and permanent residents wanting to gamble.

Two junket approvals were given last year—both linked to Genting’s Resorts World Sentosa—but these are relatively small operators and have not moved the needle much in terms of the bottom
line.

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Limited junket uplift—Resorts World Sentosa

“The two junkets haven’t really had an impact in any way whatsoever,” says one Malaysia-based gaming analyst.

Operators may be hoping for more junket approvals next year, but these might also require more disclosures and a tightening of lending practices. And it is yet unclear whether the much more controlled atmosphere of Singapore versus the freewheeling Macau market can actually sustain larger-scale junkets that prosper.

“From my understanding there should be more approvals next year,” says the analyst. “How that works is, junkets that didn’t make the cut could disclose more next year and could partner with more savory chaperones that will [help] them to get the licenses.”

Another factor that could help approvals gain momentum is Singapore’s status as a renminbi (RMB) trading hub. Beijing signed a memorandum of understanding with Singapore in July indicating that two mainland banks currently operating in the city-state will be granted full RMB licenses, with one acting as a clearing bank—a role that Bank of China already fulfills in Hong Kong.

“Clearing RMB transactions and taking RMB deposits in Singapore will help the flow of currency of RMB to Singapore, but that’s more of a 2013 story, and the identities of the two banks haven’t been revealed yet,” says the analyst. “The next round of [junket] approvals is important, but it’s also equally important for Singapore to be set up as a RMB trading hub. Those two come hand in hand. If one happens without the other then there won’t be much impact.”

An improved position for Singapore in global RMB flows and a financial infrastructure that helps smooth the Chinese currency into the Lion City would help mainland gamblers access the market and could pave the way for further regulatory easing in the future— especially if links and investment between the two countries improve.

And this could in theory make it easier for middlemen that dabble in credit, like junket operators, to gain a legitimate foothold in the city-state.

But as the analyst points out, for now this is pie in the sky. Only one clearing bank exists outside mainland China—and that is in Hong Kong—and it is far from assured that RMB clearing in Singapore would translate into junket approvals and regulatory loosening.

And while the junket debate continues there is evidence that the CRA is already cracking down on operators on entirely different grounds. Resorts World Sentosa recently was fined S$600,000 (US$487,132)—  the highest single financial penalty ever imposed by the regulator—for rebating portions of the annual entry levies the government requires of Singapore citizens wishing to enter the casinos. The CRA charged that about 3,400 Singaporeans were reimbursed in the form of tickets to the resort’s Universal Studios theme park, concert tickets and hotel accommodations during the first and second quarters of this year.

The government is sensitive to circumvention of the laws it has in place to protect the local population from the scourge of problem gambling. Despite evidence to the contrary—the National Council of Problem Gambling says the overall gambling rate actually fell to 47% in 2011 from 54% in 2008— many among the local population believe gambling is on the rise.

This is in part fueled by sensationalist reports in the local media of lower-income Singaporeans developing gambling addictions and turning to crime, a phenomenon that statistically remains practically immaterial. But a 5th September report by The Wall Street Journal, citing the National Addictions Management Service, noted that gambling among lower-income Singaporeans is on the rise, as is the number of people seeking help for problem gambling.

“We note from [the NCPG survey] that problem gambling issues in Singapore are largely contained,” Singapore’s Ministry of Community Development, Youth and Sports told the paper. “However, we prefer to be proactive [in tackling gambling-related social problems]. The experience from other jurisdictions tells us that it usually takes three to five years for the situation to stabilize.”

Twenty to 30% of the casinos’ visitors are estimated to be local. But while tougher regulations on locals could hurt operators, analysts don’t believe the impact will be felt in the mass market, where lower-income players usually participate.

“I’m not so much concerned about the impact on the mass market,” says the Malaysia-based analyst. “The reason being that if you look at the number of visitors that go to the Singaporean casinos and look at the number of tables available there, taking a simple average number of visitors divided by the number of tables, on average about 75 visitors visit one gaming table. In Malaysia it’s about 100 because there’s only one casino. In Macau the number is 15. So 75 is not too bad. Even if they crimp visitation by Singaporeans it won’t affect their business too much because if there’s one visitor that can’t make it there’s another one that will fill their place.”

The analyst notes that Las Vegas Sands Corp’s Marina Bay Sands may be hurt more than its counterpart in Sentosa if the mass market does suffer from further restrictions— simply due to the ease of access at MBS—but he also believes that the VIP segment of the market is where operators are likely to have greater regulatory anxiety.

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In July, the government announced a slew of proposed changes to the Casino Control Act and invited feedback from the public. The changes include a higher maximum fine for serious violations of the act—up to 10% of gross gaming revenue from the current S$1 million—and restrictions on junket operators.

But it’s the amendment concerning VIP credit that could carry the most risks for operators. Currently, high rollers have to put down a deposit of S$100,000 before taking credit in VIP areas. But it only acts as collateral in case gamblers fail to repay. Under the proposed new regulations, they would have to draw down that $100,000 before credit could be extended at all.

“I think that has a psychological impact on gamblers,” says the Malaysia-based analyst. “If they run out of their deposit then they’re not inclined to gamble anymore.”

The credit amendment was enough cause for several banks to downgrade the stock of Genting Singapore after the announcement. But its parent company in Malaysia could well be the beneficiary of any negative impact on VIP volumes. For while mass-market players would have less flexibility and inclination to make the trip over the border and all the way to Genting’s Casino de Genting in the mountains north of Kuala Lumpur, VIP players could find it easier to shift back to what was an old stomping ground for many of them prior to the opening of Marina Bay Sands and Resorts World Sentosa.

And the gaming landscape in Asia is changing quickly with greater competition on the horizon. A major resort casino opens in southern Vietnam next year. A US$4 billion casino and resort complex is under construction in Manila, a new foreigners-only casino is expected to break ground in South Korea next year, a new casino is planned for Cambodia’s border with Thailand, and Russian officials are touting a proposed resort complex in the country’s Pacific Far East near Vladivostok.

All of these are aiming to capture more of the lucrative Chinese market. And the current world leader in gaming revenue, Macau, shows no signs of slowing down its pace of large-scale resort development.

Singapore is committed to not licensing any new casinos until 2017. In a market that already seems mature, it is difficult to see where the growth will come from— especially given the increasing regional competition. And with observers wondering about the impact of slowing economic growth in China, it is clear the city-state cannot necessarily rely on the pie expanding enough to grow everyone’s slice.

The city-state has made tightrope-walking seem easy so far—problem gambling is not a credible threat, and the market’s stunning growth has turned heads from Tokyo to Wall Street—but it’s only getting more difficult. Now that the gaming tiger is out of its cage, Singapore’s lawmakers have some difficult choices to make.

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