Inside Asian Gaming

INSIDE ASIAN GAMING | Dec 2007 32 Regional Roundup Cambodian civil servant in 2007 was only US$968 for the entire year according to es- timates by the International Monetary Fund (IMF). By that reckoning, US$94 per night for a hotel room in Phnom Penh doesn’t look like such a bargain. The IMF identified the increasing wealth gap spurred by Cambodia’s growing tourism industry as a cause for concern in a report on the country following a fact finding tour in June, though this is a phenomenon that has also affected Macau. Success story Cambodia —for so long the scrawny al- ley cat of the Asian Tiger economies and re- peatedly the focus of negative news report- ing focusing on its Killing Fields past and track record of administrative corruption— has though quietly been getting on with stabilising its society, building its economy and tourism industry, and trying to raise its governance to acceptable international standards. Part of that modernisation process has been the creation of a contemporary gam- ing industry. Deutsche Bank’s recent report, Asian gaming: Big is better , lists Cambodia’s gaming market as having 14 casinos with ca- pacity of around 700 tables and 1,500 slots. Many of these casinos are small operations located in border towns and tourist desti- nations such as Poipet, Bavet, Sihanoukville and Koh Kong. They mainly serve visitors from casino-less Thailand and from Vietnam, which has casinos but bans its own citizens from visiting them. Resort style A world away in terms of product quality from most of the Cambodian border casinos is NagaWorld in the capital Phnom Penh. The site is undergoing extensive redevelop- ment which when completed in early 2008 will include just over 500 hotel rooms, 176 gaming tables, 211 slots and an entertain- ment venue. It’s a project recognisably in the style of Macau’s integrated resorts, albeit on a more modest scale and at a price tag of only US$100 million—just one tenth the av- erage cost of the IR properties developed by American, Australian, Chinese and Malaysian operators in Macau and Singapore. NagaWorld’s operator NagaCorp, is a Hong Kong-listed company which in 1995 was granted a 70-year licence for Cambo- dia including a 40-year monopoly on casino operations within a 200 kilometre radius of Phnom Penh. After a modest start as the op- erator of a floating casino, the company real- ly began to take off after listing on the Hong Kong stock market in October 2006—the first Cambodian company to be listed on any financial market. Listing enabled the company to raise equity via an initial public offering for its first casino hotel in Phnom Penh. The due diligence required by the Hong Kong Secu- rities and Exchange Commission as a con- dition of listing may also have gone some way to reassure international investors that Cambodia is no longer persona non grata to world financial institutions. As we explain later though, the kingdom still has a long way to go to meet international best prac- tice on safeguards against money launder- ing and fraud. Right ingredients Cambodia’s soaring tourism revenues and low operating costs (starting salaries for casino dealers in the kingdom are about US$80 per month compared with as much as US$2,000 in Macau) could be strong in- centives for more foreign direct investment. NagaCorp also owns rather than leases the NagaWorld site unlike its counterparts in Macau. Climbing land prices have seen the site valuation appreciate by 2,000% to US$21 million since the plot was purchased several years ago. Cambodia also has a low tax burden. In 2007, NagaCorp paid an annual gam- ing licence fee equivalent to about 5% of casino revenues, compared to the 35% di- rect tax and the 4-5% mandatory social and welfare contributions paid in Macau. The Cambodian government recently an- nounced a change in the gaming tax regime, with a shift to a product-based monthly tax levied on operators and linked to the num- ber of tables and machines. It’s not clear at this stage whether in practice this will in- crease operators’ tax burdens, reduce them or merely standardise them and make them more transparent. At any rate it is unlikely to have a significant impact on the ability of NagaCorp and other Cambodian operators to offer incentives to junkets. NagaWorld’s average win per junket table per day rose from US$2,959 in 2003 to US$6,550 in 2006, while Macau’s average win per VIP table has steadily declined as ca- pacity explodes.‘Special Tour Groups’ as Na- gaCorp calls its junket trade, accounted for 61.6% (US$52.6 million) of its US$84 million gaming revenue in 2006, up from US$21.6 million in 2003. Revenue from NagaWorld’s public gaming rooms has been stable but static, probably due to capacity limitations. About a quarter of the casino’s mass market visitors are from Korea. Market share In 2006, Malaysian VIPs at NagaWorld kept their traditional top spot, accounting for 5,258 visitors (40%). Chinese VIPs were in second place by head count with 3,343 visitors (25%), but provided a higher check- in value, accounting for US$91.9 million worth of chips.Visits from Chinese VIPs were down from a peak of 5,238 in 2004, possibly because of a crackdown on cross-border gambling by Beijing, but those that are still coming are buying more chips pro rata. Singapore high rollers were the third larg- est component providing 2,884 customers (22%) on a check in value of US$53.7 million, though it’s possible this trade will be dented when The Marina Bay Sands, the first of Sin- gapore’s own IR resorts, opens in 2009. Viet- nam (9%) and Thailand (4%) VIPs accounted for the remainder of NagaWorld’s total, with Thai visitation more than doubling in 2006 compared to 2005. Many tourists come to Cambodia to see the temples of Angkor Wat and the natural NagaWorld in Phnom Penh, Cambodia