Scientific Game

Fallen Out of Favor

Sri Lanka’s casinos are operating in a decidedly hostile environment under the new administration of President Mithripala Sirisena

Monday, 15 June 2015 20:53
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High hopes for Sri Lanka’s casino industry at the end of last year were dashed following the surprise result of the 8th January presidential election, which saw Mahinda Rajapaksa defeated by Mithripala Sirisena, who previously had served as Mr Rajapaksa’s health minister before quitting abruptly to run against him just two months before the vote.

Mr Rajapaksa, who governed the country virtually unopposed for 10 years, supported gaming expansion as a means of boosting the island nation’s economy through increased tourism and foreign investment. However, the plan was never popular with influential religious leaders of the country’s Buddhist-Sinhalese majority and was criticized heavily both by opposition parties and segments of Mr Rajapaksa’s own coalition partners, who feared the industry would undermine traditional values and lead to a variety of social ills.

Among Mr Sirisena’s campaign promises was the cancellation of the previous administration’s approval of casinos at three resorts planned for the capital of Colombo—a promise he fulfilled immediately after coming to power. The casinos canceled include one slated for a US$400 million resort planned by Australia’s Crown Resorts in the capital’s popular tourist core, prompting Crown to scrap the entire project. Casinos are also gone from a $300 million resort proposal called Queensbury, backed by local company Vallibel One, which owns three of Sri Lanka’s four existing officially sanctioned casinos, and an $850 million resort called Water Front Properties proposed by hospitality giant John Keells Holdings, the country’s largest publicly traded company.

The government is now set to deal the industry a further blow, moving ahead with the imposition of a US$100 casino entry levy, which, unlike Singapore’s S$100 (US$73) levy, would apply to foreigners as well as locals. According to a proposed amendment to the country’s Betting and Gaming Levy gazetted at the end of March, “Every person who carried on the business of gaming in Sri Lanka for any year commencing on or after January 1, 2015, shall collect a levy of US$100 or its equivalent in any other convertible foreign currency or in Sri Lanka currency from any person who enters such place of business of gaming.” The bill is now being submitted to parliament, where, given the growing anti-casino consensus, it is almost certain to be approved.

The handful of small casinos currently catering to the Colombo tourist trade only gained official recognition at the end of 2010, having operated for years before then as “recreation clubs” under a grayarea arrangement dating back to the British colonial era. The turning point was arguably the decisive end to a bloody 26-year-long civil war pitting the government against ethnic Hindu Tamils in the north of the country, in which Mr Rajapaksa was instrumental. That victory gave his government the mandate to pass legislation to formally recognize the industry through the registration of the casinos with the Inland Revenue Department for tax purposes. Four de facto casino licenses were thus established.

Dhammika Perera, by many accounts the country’s richest individual, is the biggest casino operator in Sri Lanka—though casinos account for only about 4% of the revenue of his holding company, Vallibel One. He owns three licensed gaming establishments. Raji Wijeratne, Crown Resorts’ intended local partner before it pulled out, owns the remaining license, which he has managed to split across two venues. All five casinos are located in Colombo, and the biggest, Mr Perera’s Bally’s, has 80 table games (his Bellagio has 40 and his MGM Colombo another 40).

Though small in size compared to the super-resorts of Macau and Las Vegas, Sri Lanka’s casinos are pleasantly decorated and wellmaintained and offer service on a par with international standards. Indians and Chinese are the main patrons, with Mr Perera claiming they each contribute about 40% of the revenue at his casinos. He told Inside Asian Gaming that locals are responsible for only about 4%, with the remainder generated by other foreigners.

China is the leading source of foreign direct investment in Sri Lanka, bankrolling major infrastructure projects such as ports and power plants, not to mention an expressway opened in October 2013 that slashed the driving time from the airport to Colombo from two hours to a mere 30 minutes. China is playing a big part in the island nation’s tourism boom as well. In 2009, when the civil war still had five more months to run, visitor arrivals to Sri Lanka totaled around 438,000. By 2014, they surged to more than 1.5 million. Chinese visitors accounted for 128,166 of that total, up 136% from the previous year. With the continued strong growth in Chinese visitation, the government has targeted 2.5 million arrivals in 2016.

Before they were cancelled, Colombo’s three prospective casino ventures seemed poised to capitalize handsomely on the growing Chinese presence in the country. Notably, President Sirisena has also sought to scale back China’s growing influence in Sri Lanka, having suspended the US$1.4 billion Colombo Port City project that India considers a security risk and ordering a review of other China-funded projects and loans amid allegations of corruption. According to Sri Lankan political commentator Victor Ivan, “The former government allowed China a free run in Sri Lanka. President Sirisena wants to maintain a normal relationship that will not irritate India.”

Sri Lanka’s casino industry is no doubt steeling itself for more bad news. In addition to cancelling the new approvals and imposing an entry levy, the new administration has said it also intends to review the licenses of current operations.

 

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