IAG 2006-01 Jan - page 12-13

goals, perhaps it will look at awardingmore casino licenses once the ten-
yearmoratoriumon further licenses lapses.Singapore’s initial two IRswill be
impressive,butat least threeor four locationsareneededbeforecriticalmass
emerges,andMacauhasabighead-start in this regard.
Also incontention…
of other Asian jurisdictions that have casinos, or are considering legalizing
Theambitiouscasinos resortsplanned forMacauandSingaporeaim tobring
“stickability”todestinations otherwise lacking in attractions. If adestination
hasexistingdraws,thentheresortscouldbring inevenmorevisitors.Thailand
is aprime case inpoint, though legalizationof casinosmay take longer than
“Everyone seems to thinkThailandwill happen tomorrow. I’mnot sureabout
that.Thegovernmenthasother issueswhichareprobablymorepressing for
them,particularlydown southwith theMuslim issue,”pointsoutMr.Green.
“Bird flu is not great for them either, because you’ve got to attract capital
that’s prepared to assess the risk as acceptable. If you’re showing signs of
political instability, or you’ve got externalities like bird flu or serious issues
like that,peoplehavechoicesaboutwhere they invest theirmoney.”
Mr. Green thinks the push for legal casinos in Thailand is aimed more at
bringing back money Thais gamble overseas than drawing in tourists, as
Singapore hopes to do.“The Thai strategy is probablymore defensive, and
that’s toput Cambodiaout of business,becausemost of theplayerswhogo
toCambodiaare fromThailand.Variousfiguresget thrownaround,but I saw
a report recently that estimated the loss sustained by Thai casino players
inCambodia in 2004was US$2 billion.That’s a couple of percent of GDP in
What has not beendiscussed iswhether Thailand’s future casinoswouldbe
targeted at tourists or locals. The Thai King,whose continued opposition is
provingamajor stumblingblock to introducing casinos to the country,may
beplacated if thecasinosweremadevisitor-only,as inSouthKorea.
South Korea
There are 13 casinos in South Korea, only one of which, Kangwon Land, is
open to locals.Thecasinosdrawabout 600,000gamblersayear,mostly from
JapanandChina,andSouthKorea’sgambling revenue is about half abillion
USdollarsannually—a tenthof that inMacau.
South Korea’s first casinos were targeted primarily at high-roller Japanese
customers,but thenewonesseek todrawmassmarketgamblers fromChina
and Japan.
North Korea
North Korea’s casinos are aimed exclusively at mainland Chinese, and they
are suffering in thewakeofChina’scrackdownongamblingby itscitizens. In
December 2004, Chinese investigators disclosed that a government official
in publicmoney at the Hong Kong-run Emperor Casino located in a North
Korean special economic zone,which catered exclusively tomainlanders. A
stringof similar casespromptedaChinesenational policecampaignagainst
some200 casinosoperatingalongChina’sborders.Yanbian’s travel agencies
and tour guides were banned from organising gambling tours, forcing the
EmperorCasino to shut indefinitely since January2005.
TheMICE tussle
Mr.GreenbelievesSingaporewill poseagreater threat toMacaubydrawing
meetings, incentives, conventions and exhibitions (MICE) visitors, who will
have to come from farther afield.“The conventionsbusiness inChina is very
underdeveloped. I would doubt very much that you could make a lot of
money runningaMICEbusiness justbasedonChina,”heexplains.And inany
case,“by the time people are affluent enough tobe operating conventions
like that, they’ll start to look further afield.”
“Conventionsmaymove to thebiggest andgreatest for awhile,but there’sa
finitegroupof conventioneers andafinitemarket for conventions,”saysMr.
Green.“The other place that’s doing it is Dubai. I wouldn’t discount Dubai
either as a potential source of competition for theMICE business here,”he
continues.“Kerzner arebuildingadevelopment there that’sprobably similar
in quality to the Atlantis in the Bahamas. Plus Dubai has one of theworlds’
biggest and fastestgrowingairlines [Emirates].”
Macau’sedgeover Singapore is that itwill havea lotmorecriticalmass,with
a stringof casinos and resortspresent or under development on theMacau
peninsulaalongFriendshipAvenueandon theCotai Strip (of reclaimed land
betweenTaipaandColoane islands).“Awhole stripwill havemoreattraction
than two isolated resorts,”believesMr.Green.“InVegas,people tend towalk
the strip.Theymight haveadrink somewhere,eat somewhereelse,andplay
somewhere else.Go to a show.There’s nodoubt that a stripof properties is
going tobea lotmoreattractive than standaloneproperties.”
InSingapore’s favour,thecity isaglobal-crossroads forair trafficandappeals
to investors seeking a stable, crime-free environment At present, heMacau
airport offers limited international routes, andMr. Green feels “the airport’s
going to be critical in that regard. Can they get some major international
airlines to startmoving through it?”AndwhileMacaumay have shakenoff
with conviction its previous image as a gangster’s paradise, Singapore sits
comfortablyat the topof the squeaky-clean league.
What Singapore lacks is “stickability.”Mr. Green says “people are either in
transit,orstay forashorttime.There’snotawhole lottodo.”Singapore’sshare
of theAsiapacific travelmarket isdeclining.Tourists coming intoSingapore
stay anaverageof threedays, from four days in1991,and compared to four
days inHongKong,fivedays inLondonandalmost aweek inNewYork.Still,
Singapore hasmore stickability, for themoment at least, thanMacau.Only
around20percentof visitors toMacau stayovernight,and theyaverage just
1.2nights in thecity.It ishoped thiswill changeonceMacau’sambitiousnew
casino resorts comeonline from the secondhalf of 2006onwards.
Singaporehopes its IRswillcreateasmanyas35,000 jobsandhelpmorethan
double its tourist arrivals to17million and triple annual tourism revenue to
S$30 billion (US$18 billion) in the next 10 years. If it doesn’t achieve those
InOctober, theSingaporegovernment released itsCasinoControl Bill forpublicconsultation,spellingout
that casinosand their junketoperatorswouldbeallowed toextendcreditnotonly to foreigners,but also
toSingapore citizensor permanent residentswhoare“premiumplayers”—thosewhomaintainwith the
casinooperator adeposit accountof at least S$100,000 (US$61,100).
Thebill isnot yet final,and the result of thepublic consultation ispending,but the likelyoutcome is that
creditwillbeallowed.Thepressandpublicaremore focusedonmeasures to limit thesocial impactof the
two IRsandensure they remain freeof criminal influenceor exploitation.
Thebillproposesa levyofS$100 (US$61.1)adayorS$2,000 (US$1,222)ayearon localsvisiting thecasinos,
even thoughpotentialoperatorshavecomplained that levieswouldcreatedifficulties in implementation,
andof course,woulddeter locals frommakingcasual visits.
Thebill alsocontainsaclausewhichmaymake itdifficult foronecompanyor joint venture towin thebid
for both sites. Section41of thedraft bill says anypersonwhohas an interest of 20percent ormore in a
casinooperator shall not acquireorholdany share inanother casinooperator.
Perhaps themost contentious of theproposed clauses calls for a reviewof a casino’s operations no later
than three years after it opens its doors.The newly-formedCasino Regulatory Authority (CRA) can then
decidewhether to continue the casino’s licence.This proposal is obviouslynotwelcomebybidderswho
could sink inUS$2.5billionormore intodevelopingeachof the twocasinos.
The bill also says the government will ensure there are not more than two casinos licenses awarded
during the initial 10-year period,but afterwards,more licenses couldbe issued.More troublesome is the
suggested requirement that casinosgive regulatoryauthorities“advancenotice”of arriving junkets,even
thoughhigh-rollers canoftendecide tofly in for anovernight visiton the spurof themoment.
On theplus side for potential IRoperators, thegovernment scrappeda rule requiring resort operators to
limit50percentof total revenuecontributions fromgaming,saying itwassufficient tomake the intention
clear that the IRs shouldhave substantial non-gamingattractions.
Macauhasno stipulationsonnon-gaming revenues (just aswell,asonly5percentof casino revenuesare
currentlynon-gaming), leviesor limitsoncredit to locals.What itdoeshave isaveryhighgaming tax rate,
equivalent to40percent of grossgaming revenue (35percent goes to thegovernment asdirect tax and
anadditional 5percent as compulsory social andwelfarecontributions).
PricewaterhouseCoopers (Macau)GamingPracticeDirectorDavid J.Greenpointsout that Singaporehas
decided tonot only imposea lower rate,but also to split it.The standardgaming tax rateoutlined in the
bill is15percent,but taxon“premium”play, including junkets,will onlybe5percent.The taxonpremium
playwill be the lowest in theworld, and compares to 6.8percent gambling tax inNevada and around 8
percent inAtlanticCity.Mr.Greenexplains the reason for thesplit is thehighercostofbringing inpremium
and junketplayers.
Mr.Greendoes not believe that Singaporewill allowprofit share between casinos andVIP room/junket
operators,asallowed inMacau.Still,with the significantly lowergaming tax rate,Singapore’scasinoshave
arguablygreaterflexibility inoffering inducements to junketsandpremiumplayers.
Mr.Greensays thatbecauseSingaporewill allow thegrantingofcreditandhave lower taxes,the impactof
itscasinosonMacaugamingrevenuecouldbegreaterthanmanythink–thoughhe isconfidentMacauwill
remainAsia’spre-eminentgamingdestination.Theconsensusview is thatgaming revenues inSingapore
will only ever be a fractionof those inMacau,which is long likely toholdgreater appeal to themassive
mainlandChinesemarket,notonlybecauseofgreatergeographicalproximity (abillionpeople livewithin
a threehour flight fromMacau, compared to550millionpeople fromSingapore, and amere150million
fromLasVegas),but alsocultural affiliation.
Evidenceof thatviewcameafteroneof thebidders,theMelco-PublishingandBroadcastingLtd (PBL) joint
venture, announced on January 3 that it was pulling out of the bidding for Singapore’s first integrated
casino resort,bringing thebiddingpack,whichbegan at adozen,down tomerely four. PBL head James
Packerexplained:“Aftercarefullyexaminingallaspectsof theproposedproject,weareof theview that the
expected returns from the (Singaporecasino) resort are insufficient to justify thehigherprojectedcapital
costsof theproject.”
Investors clearly prefer Melco-PBL to focus onMacau, with the share price of Hong Kong-listedMelco
staginga strong rally following theannouncementof thewithdrawal.
Who’s Left?
Las Vegas-based Wynn Resorts and
Australia’s Tabcorp had withdrawn
from the bidding in December. The
remaining four bidders for theMarina
Bayfront IR are, in any case, those
thought most likely to win from the
outset: the consortium comprising
Harrah’s Entertainment Inc (HET) and
Sands (LVS) and City Developments
Ltd; Malaysia’s Genting International
(MGM) and CapitaLand Ltd. All the
remaining consortiums are those that
had secured local partners to boost
LVS, which owns the Venetian in Las
Vegas and Sands in Macau, plans to
spend asmuch as US$2.5 billion on a
project that includes a Guggenheim
museum and a 1.2 million sq. foot
convention centre. Harrah’s, owner
of Caesars Palace in Vegas, has hired
world renowned architect Daniel
Libeskind todesign itsproject.
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