Inside Asian Gaming

April 2008 | INSIDE ASIAN GAMING 27 Cover Story projects under domestic ownership,but its business elite understand that in a globalised economy they need help from outside. When Efraim Genuino took over as chairman of the gaming operator-cum-regulator in2001,he instituteda series ofmanagement and financial reforms and revamped the operation. As a result, Pagcor’s annual gross revenues (including market access fees in lieu of taxes) have risen 66.6% from US$300 million in 2000 to around US$500 million in 2006. In 2007, they were at least US$600 million. Despite this impressive growth, for political or strategic reasons, Pagcor has been required to book most of the net from its revenue as government income rather than as capital for reinvestment. Audit A report from the country’s Commission on Audit shows that in 2006, Pagcor contributed P10.73 billion (US$260 million) to state coffers, making it the second biggest contributor to the public purse after the Tax Authority. Of that, P9.57 billion was booked as government income, and only P1.17 billion booked to Pagcor itself. TheAsianDevelopment Bank said ina report publishedearlier this year:“In 2007, the Philippine economy grew by 7.3%, a record high in 30 years. However, domestic investment has remained sluggish and its share in GDP continued to decline.This raises the issue of how the recent pace of growth can be sustained and improved further.” Pagcor urgently needs investment from foreign gaming operators to have a hope of keeping up with the standards set by Asia’s new integrated casino resorts. Although the 60:40 ownership rule is politically sensitive and enshrined in the 1987 (i.e., current) constitution, it needn’t stand in the way of the Manila Bay project, as we explain later. Influence Pagcor’s contribution to public revenue gives it considerable influence in a country where the average income is only US$3,400 and where 27.6 million people (32.9% of the population) were living in poverty in 2006 (the most recent reliable figures), according to the government’s National Statistical Coordination Board. When the Philippine national Olympic team parades around the stadium at this summer’s Beijing games, it will have been largely trained and paid for by the 80%subsidy Pagcor gives to the Philippine Sports Commission. This is significant in a country where film and sport stars often have iconic status and frequently run for public office. Manny Pacquiao, the country’s WBC super light featherweight world champion boxer, has already run (admittedly unsuccessfully) for congress once and says he plans to take up politics full time when he retires. It all adds up to the fact Pagcor plays an important role in the public life of the Philippines—one not dissimilar to that of Stanley Ho in Macau in the years of his monopoly. As with Dr Ho’s product offer prior to market liberalisation, Pagcor’s product needs updating if it is to appeal to large numbers of new visitors. The country’s president, Gloria Macapagal-Arroyo, wants to hold rather than bite the Pagcor hand that feeds her and is backing the Manila Bay plan. One slight snag is that her term of office expires in 2010. There’s no guarantee she would get in again even if she was inclined to run for office, as her approval ratings have slumped miserably despite the country’s improved economic performance. There’s also no guarantee her successor will give the Manila Bay plan the same firm backing. Speed This may be why Pagcor seems keen to get moving as quickly as possible. The organisation held a ground breaking ceremony only 4 hours after announcing its first partners. An source familiar with the negotiations told Inside Asian Gaming : “I’m not sure you could describe it as the sort of ground breaking ceremony people are familiar with in Macau, but it is a sign that people want to do something in this market.” Pagcor’s terms of reference for interested parties also convey a sense of urgency. The document states:“The casino proper must be Manila Bay