Asian operators look to Europe
Asia’s casino operators look to Europe amid dwindling opportunities closer to home.Tuesday, 26 July 2016 07:50
By Muhammad Cohen| Editor at large
More Chinese tourists are coming to Europe and Asian casino operators are following. Chinese tourists come to Europe to broaden their horizons, enabled by rising incomes at home. Asian casino operators also come to Europe to broaden their horizons, but they’re driven by falling incomes at home. Like the tourists, casino operators find Europe vastly different and more difficult to navigate than their home turf. Those obstacles don’t preclude a successful trip, but it does make the journey far more challenging.
This year, mainland Chinese visitors to Western Europe alone will reach 5.1 million according to investment bank CLSA, topping 10 million in 2020.
“Over the years there has been a continuing fascination between Asian punters from this part of the world and Europe,” Neptune Group Executive Director and Chief Executive Officer Nicholas Niglio says. “Whether it be a new adventure, a change of luck or visiting the kids in boarding school, they will make the journey. Of course, a repeat visit is another story given the flight time, potential culinary disappointments and language confusion.”
“Chinese people are willing to go to Europe, not necessarily to gamble, but may do it while they’re there,” Union Gaming Group Head of Asia Equity Research Grant Govertsen says.
“I don’t think enough Asian players can come to Europe to make a business plan [that is] based on them make sense,” Global Market Advisors Managing Partner Steve Gallaway says. “For Asia operators, Europe isn’t for Asian customers. It’s about identifying new players, diversifying holdings and markets.”
Asian casino companies’ interest in the wider world is being driven at least in part by a lack of profitable prospects close to home.
“Look at Asia: where you do expand?” Spectrum Asia CEO Paul Bromberg asks. “Right now, with the anti-corruption campaign in China affecting VIP play around the region, there are no really good opportunities for the major operators in Asia.”
Global Betting and Gaming Consultancy (GBGC) CEO Warwick Bartlett says Asian casino companies are looking at Europe “by default” rather than by choice. GBGC’s new report, The European and Asian Casino Sectors, indicates Asia’s share of the global casino market shrank by 8.4 percentage points last year to 30.2% due to Macau’s US$15 billion decline in gross gaming revenue to US$28.9 billion. Rather than buck the trend, no fewer than a half-dozen Asian casino operators own or hope to acquire European casinos.
Genting Group, through its Malaysian arm, Genting Berhad, took over Stanley Leisure in 2006 with 41 casinos across the UK, five of them in London including Crockford’s, the world’s oldest private gaming club in the British capital’s Mayfair hub. Last October, Genting UK opened a 42nd gaming property, Resorts World Birmingham, billed as Europe’s first IR. The £150 million resort with 31 gaming tables, over 100 slot machines, a 147 room hotel, 11 screen Cineplex and retail mall, adjacent to the 16,000 seat Genting Arena, is big for Europe but rather puny by Asian standards and has drawn mixed reviews.
In its 2016 first quarter report, Genting Berhad says that in the UK it will “focus on stabilizing the operations at Resorts World Birmingham and grow[ing] the business.” The reports adds, “With respect to the [UK] premium players business, the Group remains cautious of its volatility and continues to introduce additional strategies to reposition this part of the business.”
Lawrence Ho’s Melco International, majority owner of Melco Crown, aims to engage Europe at two ends of the Mediterranean Sea – Spain and Cyprus.
“To capture the opportunities in Europe, we are striving to replicate our success stories in [Asia], leveraging our distinctive experience and proven track record in creating the most spectacular integrated resorts in Asia,” Melco said in response to questions from Inside Asian Gaming. “We wish to introduce world-class gaming and non-gaming entertainment experiences to Europe by offering a perfect blend of Asian and European cultures.”
Melco is an approved bidder for what could become Europe’s first US$1 billion-plus IR project, on the Spanish coast near Barcelona. At the east end of the Mediterranean, Melco is one of three finalists to create what would be Europe’s largest casino resort to date on Cyprus. They have partnered with Hard Rock International, which has a hotel at Melco Crown’s Macau flagship City of Dreams. Philippine billionaire Enrique Razon Jr’s Bloomberry Resorts and Hong Kong listed Phnom Penh casino operator NagaCorp are the other Cyprus contenders. Bids were due at the beginning of this month, but have been delayed until October with a decision expected before the end of the year.
Last July, Macau’s Galaxy Entertainment Group took a 5% stake in Société des Bains de Mer et du Cercle des Étrangers à Monaco, SBM for short, which operates the iconic casinos in Monte Carlo as well as hotel and other tourist facilities in the principality.Galaxy calls the US$44 million Monaco buy-in a strategic investment and assigned GEG President Michael Mecca to take its seat on SBM’s board of directors.
“Monte Carlo is an established and well reputed gaming destination,” Mr Gallaway says, applauding Galaxy’s move. “On a much smaller scale, it’s the Las Vegas of Europe.”
Mr Bartlett concurs, noting, “75% of the world’s super yachts are moored in Monte Carlo and it will always be an attraction to the super rich, [but] they are clearly looking to future growth from the Far East.”
“We have met them, and we have some high-end Chinese VIPs going to Monaco for tourism,” Pacific Financial Group founder Tony Tong, an investor in junkets promoters and advisor to them, says.
Genting’s partner in an IR on South Korea’s Jeju Island, Landing International, has become a rival in London. Late last year, Landing paid £137 million for Mayfair’s Les Ambassadeurs Club, which dates to the early 19th century and has 45 tables.
“Les Ambassadeurs Club is a promising overseas project with an extensive customer base of ultra-high net worth individual customers in Europe and the Middle East,” Landing Chairman and Executive Director Yang Zhihui said in an April statement marking completion of the deal. “Looking ahead, we plan to attract more Chinese customers with high betting leveraging the group’s strengths to further enrich Les Ambassadeurs Club’s customer base to maximize returns of the project.”
According to the GBGC report, Les Ambassadeurs moved in this direction by raising its membership fee in a single step from £500 to £25,000 and upping its maximum bet/differential from £25,000 to £300,000. Overall from the UK’s 2008/09 fiscal year to 2014/15, gross gaming revenue from baccarat has tripled, from £67 million to £194 million, reportedly largely driven by Chinese players from across Asia.
“London casinos which are more boutique in style are popular with [Asian] VIPs,” Mr Bartlett says, adding Britain’s departure from the European Union won’t change London’s lure. “They have children at school in London, own property there, and can find the food they like. The casinos can also cater for the big bets they are prepared to make.”
Monaco and London are places that have global cachet and potential appeal to serious gamers from Asia as well as holiday makers, but they are exceptions, not the rule, for the continent. “Europe is not a compelling opportunity,” Mr Bartlett says. “Europe does not have a high spending casino market. There is no pent up demand and Europe only has a population of 738.6 million, whereas Asia has a population of 4.1 billion.”
“There’s no China next door, no built-in market,” adds Union Gaming’s Govertsen. He also cautions about labor costs and “entrenched” unions that have demonstrated “the ability and willingness to strike at any time.”
Last year, gaming revenue for Europe’s approximately 560 land based casinos grew marginally to US$10.5 billion, GBGC states in its report, just over a quarter of Asia’s casino revenue of US$39 billion. France, at US$2.8 billion, is Europe’s largest market. But it is still just a tenth of the size of Macau, even after the global gaming capital’s US$15 billion crash last year. Europe’s market has been experiencing its own troubles since the 2008 GFC. GGR for the continent has fallen 40% from 2007, the most recent year its casino revenue topped Asia’s with US$17.5 billion to $13.9 billion. After that, Asia’s casino revenue more than tripled by 2011 and last year, at US$39 billion, was three-and-a-half times that of Europe, the GBGC report states. Mediterranean casinos have been especially hard hit by recession, with Spain’s casino revenue down more than 40% and Greek casinos down nearly two-thirds from their 2007 peaks.
Europe has roughly one casino for every 1.4 million people, the GBGC report says, while Asia has one for every 53 million people. The report points out that nearly every jurisdiction in Europe allows casinos, so the market is fragmented, with lots of small, convenience casinos scattered around the continent rather than larger casinos with more amenities or casinos in clusters, as on the Macau peninsula. France’s gaming revenue was about the same as South Korea’s, but South Korea’s revenue came from 17 casinos (half of it from the only casino open to local players), while France’s revenue was split among 198 casinos.
“It is a more competitive market [than Asia],” Mr Bartlett, who founded GBGC in 1999, says. “The UK, for example, has 146 casinos serving a population of 63 million, plus 9,500 betting shops, racetracks and a booming internet business.”
Genting Berhad recorded 24.2% of its Leisure and Hospitality category revenue from the UK last year, but just 17.8% of its adjusted EBITDA. Margins for the category are 34.5% in Malaysia and 18.6% in the UK.
Despite Europe’s proliferation of betting opportunities, there’s still a cultural stigma against casinos. “Casinos are viewed like porn shops in Europe,” Mr Gallaway says. “Tax rates are onerous in many jurisdictions [reaching up to 80% on France’s staggered scale], so operators can’t spend money on marketing. Because you’re focusing on operations, you can’t get out positive messages.”
Lobbying and public relations can change that image, Mr Gallaway says, but there’s a catch. “European operators don’t have the money for that; Asian and American operators do. But they have to be sensitive to the culture,” the US-based consultant cautions. “You have to be subtle and have a more European approach.”
Noting how US operators went after UK casino licenses with “all guns blazing, proposing 4,000 machine casinos in residential areas,” Mr Gallaway thinks Asian companies will approach European markets with greater sensitivity.
Another way to improve casino returns in Europe is through convergence between online gaming and land-based casinos. Again, Asian and American casino companies have the capital but US operators have shown reluctance to pursue online gaming, he notes, whether due to online gaming frequently operating in legal gray areas or the influence of Las Vegas Sands Chairman Sheldon Adelson, a vehement online gaming opponent.
“Convergence will help bricks and mortar casinos,” Mr Gallaway says – and a test case is underway.
Last year Genting Group moved its Genting Aldeney online gaming subsidiary, licensed in the British Channel Islands, under the Genting Berhad’s Genting UK umbrella. Aldeney operates betting sites using Genting and other group brand names. The parent company’s 2016 first quarter report, echoing previous announcements, states that “plans are currently underway for both the Group’s land-based casinos and the recently acquired online gaming operation to be streamlined as an integrated online, mobile and retail gaming business under the focus of a single management to provide a seamless multi-channel experience for its customers.”
OLD BUT NEW
“Europe is an old market, but it’s still virgin in some ways,” Mr Gallaway observes, highlighting the absence of any mass gaming and entertainment hub or world-class integrated resort. Monte Carlo is large for Europe, but it’s small by world standards, with €189 million in gaming revenue last year from four casinos, including the iconic Casino de Monte Carlo, which opened the doors of its present location in 1863.
“A true IR would be a game-changer,” Macomber International President Dean Macomber says. “How big a game changer an IR might be, and what would be the driving characteristics of such an IR would be highly situational – all IRs are not created equal.”
Mr Macomber, who has worked on casino projects in Europe and Asia as well as the US, acknowledges IRs are not the best approach to all opportunities but concludes the European market area “is long overdue for an IR, if for no other reason than they work – patrons, players and tourists like and respond to them.”
Las Vegas Sands proposed EuroVegas outside Madrid as a US$30 billion complex with a dozen hotels, six casinos, multiple golf courses, a 20,000 seat indoor arena and sports facilities. But the project was scrapped in 2013 amid disagreements over regulatory issues, including the European Union-wide smoking ban in enclosed public places. (As a work around, some casinos now feature outdoor gaming areas, including Les Ambassadeuers with fire pits when London weather warrants).
Citing EuroVegas, Mr Govertsen says, “Clearly, some of the smartest people in gaming think there is an opportunity if they get the regulatory structure right.”
Mr Bartlett believes a successful European IR project “needs a 15,000 seat indoor stadium, large conference and exhibition facilities, marina (if possible), multiplex cinema and 3,000 guest rooms.”
A location around Tarragona, on the coast outside Barcelona, where Melco International hopes to continue the bidding process, “would work,” Mr Bartlett says. “It has an international airport with connecting flights all over Europe … Catalonia is Spain’s most prosperous region, it’s close to France’s Cote D’Azur, has a port taking ocean-going cruise ships and could become Europe’s largest MICE offering.”
“We are patiently waiting for the local government’s advice on the next steps and disclosure of timeline on the Tarragona proposal,” Melco International says. “We intend to keep working together with the Catalan government and all concerned stakeholders to make this project a reality of which Tarragona and its people can be proud.”
Mr Macomber says an IR developer from anywhere can create a successful project in Europe. But Mr Govertsen notes, “Asian operators bring a book of Chinese business.” Travelers know a good book can be very comforting when traveling far from home.