Inside Asian Gaming

Dec 2007 | INSIDE ASIAN GAMING 31 C ambodia might seem a surprising prediction as the next hot destina- tion for casino investment and mar- ket growth. Bad press about the country being a hopelessly rackety financial ju- risdiction with an extremely bloody past have tended to push it firmly into the fi- nancial shadows. A lot can happen in a year though, and in a region with booming economies and a huge amount of liquidity looking for invest- ment opportunities, it doesn’t pay to dwell on the past, however dark and imperfect it may have been.There’s a lot at stake. Gross gaming revenue from legal ca- sinos across Asia was roughly US$13bn in 2006, a year on year rise of 20% according to Las Vegas-based market research firm Globalysis. Despite the high stakes, dur- ing 2007 three Asia Pacific countries widely considered much safer bets for developing casino industries worthy of international investment dropped out of the race due to internal political turmoil. Mice and men When former British prime minister Harold Macmillan was asked years ago by a journalist what was most likely to upset his government’s plans, he replied:“Events, dear boy, events.” Events have conspired against Thailand, Japan and Taiwan—all previously tipped to legalise casinos before 2010 possibly with help from foreign investors. A military coup inThailand in late 2006,three primeministers in quick succession in Japan and a near im- peachment of a president in Taiwan have all combined to push three supposedly strong and stable countries towards uncertainty and introspection.They are now focusing on domestic political issues rather than looking outward at the more exotic elements of for- eign direct investment such as gaming. Blessing or curse Events couldalso conspire againstMacau in the medium to long term. The territory is arguably becoming a victim of its own suc- cess, with the explosion in gaming capacity combined with high taxes and wage infla- tion getting too far ahead of even China’s booming economy and the spending power of its citizens. The cost rises and increased competition are putting a squeeze on mar- gins and on player incentives particularly in the low- to mid-VIP market. By contrast, junket operators in Cambo- dia have a much lower tax burden, giving them greater freedom to create attractive packages for VIPs. Just like Macau, Cambodia has no shortage of potential visitors. Three billion people live within a five hour plane ride of the capital Phnom Penh, and hotel and entertainment costs are much lower than in Macau. Just as important from an in- ternational investor’s point of view, the most forward looking Cambodian casino opera- tor, NagaCorp, a Hong Kong-listed compa- ny with a franchise monopoly covering a 200-kilometer radius around Phnom Penh, has no restrictions on its future expansion in terms of locations, number of tables or size of premises. Macau is limited in terms of available land and each new gaming venue needs government permission. Macau is also get- ting expensive for developers. Las Vegas Sands Corp said in February that construc- tion costs at The Venetian Macao were up to a third higher than originally estimated because of rising commodity, plant and la- bour charges. Pricing Critically, Macau’s point-of-sale costs for consumers are also rising, which is par- ticularly an issue for price sensitive middle- income visitors from mainland China wish- ing to graduate from the day-trip market to overnight stays. Inside Asian Gaming found that a room midweek at a run-of-the- mill three-star hotel in Macau will cost you HK$800 (US$100) per night. Even in Guang- dong, which has the highest GDP of any Chi- nese province and accounts for around 80% of Macau’s mainland visitors, the minimum wage in metropolitan areas is only Rmb850 (US$115) per month. By contrast, a night at the five-star (if slightly run down) Cambodiana Hotel in Phnom Penh was available in the week be- foreChristmas for onlyHK$732 (US$94)when booked online, and many decent three-star hotels are available in the kingdom’s capital for US$50 or less.Even these prices represent a significant premium though set against lo- cal earning power. The average wage of a Hare and Tortoise Race Countries tipped for casino liberalisation have fallen by the wayside in 2007 Regional Roundup Rendering of the planned Ho Tram Strip resort in Vietnam