Scientific Game

Referendum Revisited

Taiwan seeks to revive its campaign to bring casinos to its offshore islands

Friday, 01 April 2011 17:32
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Taiwan’s Ministry of Transportation and Communications (MOTC)—which oversees the country’s Tourism Bureau—released its draft casino legislation on 1st April. The MOTC’s next step will be to secure much needed support among the residents of the offshore islands of Kinmen, Matsu and Penghu, which are the most likely locations of the two casinos proposed under the bill.

Taiwan’s parliament voted to legalise casinos on its offshore islands in January 2009. Notably, the decades-old casino ban was maintained on the main island of Taiwan, and lawmakers also stipulated that the residents of the offshore islands needed to approve the development of casinos in their respective backyards in referenda.

The most publicised casino referendum was held in Penghu in September 2009, and resulted in a ‘no’ vote. By law, Penghu will not be able to hold another referendum on the issue until September 2012 at the earliest. Whereas Penghu was originally seen as the frontrunner to host Taiwan’s first casino, the focus has now shifted to Kinmen and Matsu.

Taiwan’s pro-casino lobby claims a major reason for Penghu residents voting against casinos was the government’s failure to come up with detailed measures to counteract concerns about the potential social ills they could create. The MOTC’s draft casino bill should help allay some of those concerns. from 15th April, the Ministry will hold a series of public presentations and hearings on the draft bill in the offshore islands.

Responsible gaming measures

Under the draft bill, Taiwan will impose responsible gaming measures akin to those applied in Singapore, including a NT$2,000 (US$) casino entry levy for locals (while foreigners will be exempt). Those below 20 years of age will be prohibited from entering Taiwan’s casinos, and a Singapore-style exclusion policy will also be implemented. In Singapore, individuals can apply for self-exclusion from casinos, their immediate family members can apply to exclude them, or they can be automatically excluded if they are bankrupt or receiving financial aid from the government.

Other measures designed to prevent the rise of problem gaming among the local population in Taiwan include a ban on casinos extending credit to locals or placing ATMs on their premises, the setting of loss-limits, and restrictions on marketing of casinos to locals.

The draft casino bill also needs to pass muster with the Cabinet and lawmakers. The bill will be presented for review and ratification to the Taiwan National Legislative Council in September. If the bill is ratified, a Commission for Casino Control will be established to regulate the industry.

The draft bill envisages the casinos as being part of large-scale integrated resorts (IRs). Bidding will be held for the two licences, with the winning bidders selected largely on the basis of their investment commitments and previous experience developing successful gaming resorts. Bidders will also be subject to stringent probity checks.

After the two licences are awarded, there will be a 10-year moratorium on the awarding of further licences. The licence period will be 30-years and the successful bidders will each have to pay an upfront franchise fee of NT$3 billion plus a licence fee of NT$200 million for every three years of operation. The operators are expected to face a gaming tax rate (excluding corporate tax and other fees) of 12-15%.

Offshore support

The Ministry cited the need to bolster the economies of the offshore islands in allowing them to introduce casinos. Last month, the Taiwan press reported the Matsu islands, part of Lienchiang County, were preparing to hold a casino referendum, hoping the introduction of gaming could help revive the area’s tourism industry.

The county government is partnering with the Chung-Hua Institution for Economic Research (CIER), which will begin by selecting two locations in the county suitable for the development of large-scale tourism resorts. The CIER will then begin a feasibility study on building casinos at the proposed resorts. Matsu’s referendum is expected to be held by November, after the CIER researchers have identified potential problems and solutions.

Lienchian County has a mere 7,700 eligible voters who need to be convinced of the case for casinos, according to a report in Asia Today, which claims the Matsu referendum therefore has a better chance of success than the earlier one in Penghu, where there are over 70,000 eligible voters.

Kinmen also seems to be considered a stronger contender than Penghu, with China Economic News reporting companies including Taiwan Land Development Corp and gaming machine manufacturer Astro Corp have acquired plots of land on Kinmen suitable for the development of large-scale resorts. The prospects for casinos on Kinmen were seemingly bolstered when in April 2009, the islet township of Lieyu—located west of Kinmen proper and commonly referred to as “Little Kinmen”—passed a casino referendum. Only 1,630 residents voted on the issue (with 1,131 voting in favour), although according to official data there are over 6,000 eligible voters in Lieyu.

Taiwan’s Offshore Island Gambling Law does not stipulate a required minimum turnout for the referendum results to be valid, but potential casino developers are still waiting for Kinmen to hold a countywide referendum—which would cover 72,500 eligible voters—before pursuing their plans.

With a greater number of eligible voters, the outcome becomes less certain. Of Penghu’s 70,000 eligible voters, only 29,000 turned out for the 2009 referendum, with 17,359 voting against the casino plan and 13,397 in favour. It’s quite possible the anti-casino residents were the ones most keen to have their say during Penghu’s referendum, with a large portion of the no-shows undecided  because they were not provided sufficient details about the casino proposal. With the MOTC setting out to ensure the residents of Kinmen, Matsu and Penghu are fully appraised of the measures to mitigate the potential social ills, future referenda could see much better turnouts and, importantly, ‘yes’ votes.

Locals driven

According to a report released by Union Gaming Research Macau, casinos in Taiwan will not have a significant impact on Macau over the medium- or long-term for the following reasons: “1) Any expansion of gaming is likely several years away (5+ in a quickest-case scenario) when accounting for the legislative /referendum process, the RFP (Request for Proposal) process and typical construction timelines. 2) While more mainland PRC residents are travelling to Taiwan these days under a more relaxed visitation scheme, Beijing is incentivized to direct gaming visitation to Macau rather than Taiwan. 3) Taiwanese visitation to Macau only accounted for 5% of total visitation in 2010 (down from 15% in 2000) and likely accounted for only a low-single-digit percentage of gross gaming revenue last year.”

Despite the Taiwan draft casino bill’s Singapore-style measures to dissuade locals from playing at the proposed casinos, the reality is that just as has happened in Singapore, the bulk of Taiwan’s casino revenue is likely to be generated by its own citizens.

Taiwan currently has around 3,000 electronic game arcades offering quasi-gaming, in a similar fashion to Japan’s pachinko industry. While pachinko itself remains popular in Taiwan—a legacy of the Japanese occupation in the early 1900s—the country’s restricted rate arcades have come to be dominated by slots and multi-player machines offering baccarat, sic bo and roulette. Bingo also still enjoys a strong following in Taiwan, particularly among the older generation.

The legal grey-area under which the restricted rate arcade market operates has probably not helped the public perception of gaming in Taiwan. Despite their less-than-ideal operating environment, the restricted rate arcades are estimated to generate over US$5 billion annually. That suggests plenty of pent-up local demand for legal gaming to support an ambitious casino venture, even if, as many fear, mainland China blocks its citizens from playing at Taiwan’s proposed casinos.

Mainland China already has an officially-sanctioned outlet for its citizens’ pent-up casino gambling demand in Macau. Taiwan’s casino properties could also hardly hope to compete with those in Macau, where billions of dollars have been invested since the liberalisation of the industry in 2002 to create a string of dazzling resorts. Even if Taiwan eventually builds its own casinos, Taiwan’s highest-rollers may still continue traveling to Macau to get their gambling fix.

Realistic goal

The Singapore government’s stated intention in legalising casinos in the city state was to boost the local tourism industry. Union Gaming Research Macau believes the Taiwan government’s goal of “jump-starting the economies of the subject areas has some merit (mainly driven by the sheer depth of the potential gaming customer base in Asia).” Union continues: “The physical location and somewhat inconvenient access to the outlying areas could naturally dissuade patronage from Taiwanese citizens. However, there is some infrastructure already in place, like Kinmen airport, that if repositioned to accept international flights could act as a gateway for foreign customers. We believe the stated goals of rebuilding the economies of the outlying islands and generating funds for public-use projects are probably achievable.”

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