Inside Asian Gaming CEO Andrew W Scott sits down with Bloomberry Resorts Chairman and CEO Enrique K Razon Jr to discuss the company’s growth ambitions and the state of the Philippines gaming market (just before the coronavirus outbreak impacted regional tourism).
Andrew W Scott: Let’s begin with the ongoing growth of Solaire in Entertainment City. What was your assessment of 2019?
Enrique K Razon: It was a pretty decent year. It was okay. We maintained the lead in market share in all categories – VIP, mass gaming, slots and mass tables. We led the market in all those categories and the market grew quite healthily.
AWS: Where do you see room for improvement?
EKR: Our main expansion program now is, as you know, the resort building in Quezon City, that’s where we’re making the movement. But we also have a big area for expansion here at Solaire, so once we are done with Quezon City we’ll probably start again here.
AWS: Other than the cruise port that you are about to start developing, what other plans do you have for Solaire?
EKR: Well our Phase 2, we’re expanding the retail area by quite a bit – probably tripling in size. Retail has become quite popular at the top end of luxury.
We’ll also have a much bigger gaming area and probably another 1,500 hotel rooms at least.
AWS: You mentioned the fact that Solaire continues to lead the way in all market segments in the Philippines. In terms of VIP versus mass, how important is VIP to you and what is your relationship like with the big Asian junkets?
EKR: We have relationships with them, but our focus is really on mass. While we maintain those relationships, VIP is just one segment of the business. We’re geared towards the mass market, whether foreign or local.
AWS: What about your premium mass?
EKR: Yes, that’s part of it. Premium mass and mass is what we’re focused on.
AWS: Macau has experienced a real slowdown in the last 12 months in VIP. Has that been felt by Solaire as well? Is this an Asia-wide thing?
EKR: Macau doesn’t have a direct impact, but the VIP growth has been pretty slow here too. The last couple of years there has been growth, but it’s in the single digits here. But again, like I said, our priority is not in that space. It’s mass and premium mass.
AWS: What do you think Manila particularly needs to do to explode more as a tourism destination?
EKR: Two things: the airport and the subway. The government is focused on building the Clark Airport, they’ve approved the airport in Bulacan and one here, in Cavite, so we may end up like London, with three or four. The problem here in Manila is runway capacity – the airport only has a single runway. It’s similar to Kai Tak in Hong Kong before. They built the new airport and now it all works. That’s what we need to do.
AWS: So you would prefer to see new airports built rather than fixing Ninoy Aquino International Airport?
EKR: They are fixing the airports and terminals, but NAIA will end up being like Haneda maybe. The new airports have to be done. And then you have that kind of situation like London or Tokyo. I mean, nobody wants to go to Narita, it’s just too far. But Bulacan or Cavite are probably closer than Hong Kong airport to downtown.
AWS: Do you think it’s practical for international flights to fly into Clark when the destination is Manila?
EKR: It will get closer. Once the infrastructure is improved it will get closer and give people more options. Now, if you’re in Clark you are just in Clark and if you’re here you are here. But if you get people to circulate more with better infrastructure, I think everybody wins. If you have the proper roads and railways Clark isn’t that far away at all. I mean, just look at all the other cities. Look at Heathrow with a proper highway. I mean, you can’t land in downtown Knightsbridge or something like you can in Manila. It’s inside the city. It’s not close to the city but actually on the inside.
AWS: IAG recently spent a week in Clark and saw first-hand how much development is taking place there regarding casino expansion. Is Clark a threat to Entertainment City?
EKR: I don’t think so. The density is in Metro Manila.
AWS: So when they build that highway that goes all the way to Clark and it becomes quite easy to get there, you don’t expect that to affect your figures?
EKR: People thought when City of Dreams opened it would affect our figures, but it grew the market. People said when Okada opened it would affect the figures but it grew the market. Each year when a new property has opened our revenue has grown. A new property expands the market. That seems to be the way in this business.
AWS: So you must be a believer in the cluster effect like, for example, Macau or Las Vegas?
EKR: If I wasn’t before, I am now.
AWS: Have you considered a property in Clark?
EKR: Maybe once we’re done with all our capital expenditure here. Once we are done with Quezon City we’ll probably have the time to look at something else.
AWS: And that would be Clark?
EKR: It may not be. Whichever we feel is the place to be. I’m not ruling anything out.
AWS: Does Bloomberry actively get involved with government in regards to infrastructure?
EKR: Absolutely. We’ve been pushing for infrastructure like the airports. We’re very active in that, it’s just that these things take a long time to do and they’ve been neglected for so long that the government has a lot of work on its hands.
AWS: Is there an organization comprising all the Entertainment City properties to actively promote the area as a whole?
EKR: We have an association, but that pays more attention to security, to traffic, to beautification and also dealing with the regulator. That’s been going on from day one.
AWS: What’s the current status of Solaire North? What can we expect from it, and why Quezon City?
EKR: Well, it’s the biggest population area in Metro Manila and it’s quite difficult to get from the north to the southwest here, given the traffic and so on. So we think there’s a huge market over there. It will serve all the way to Bulacan, Clark, that area, which would be quite accessible.
AWS: The Quezon City mayor came out last year and said that she wants to impose an entry fee. What are your thoughts on that?
EKR: I think that’s more or less in the past. And she wanted to do that for residents of Quezon City. I think that’s an issue for the regulator. It’s not our issue.
AWS: Let’s look at international expansion. You’ve shown an interest in Japan.
EKR: Yes. It’s becoming a bit of a joke, though.
AWS: How so?
EKR: Well, the process is pretty much muddled still and nobody really knows what’s going on. And the investment numbers people are talking about are just so big. I know in Japan pachinko is very popular, but do they actually play baccarat? We don’t see much of that here, even though there’s a lot of Japanese in the Philippines. You don’t see that much anywhere actually, so there are still question marks. Is it going to be an integrated resort with a massive floor of pachinko? Is that how it is going to end up? There are still a lot of questions to be answered.
AWS: There is no doubt the landscape in Japan is changing almost daily. How do you navigate that as an operator?
EKR: It’s hard, a prefecture will be going for an IR and then they suddenly back off. Some of them are very serious, but the numbers are quite mind boggling.
AWS: Bloomberry is one of three companies currently linked to Wakayama. Why did you choose Wakayama and would you consider other locations?
EKR: We would definitely consider other locations, it’s just that Wakayama seems determined to develop an IR whereas some of the others are kind of iffy. Tokyo doesn’t want one, Yokohama maybe, maybe not. Chiba said they wanted one, and now they say they don’t want one. So what is this process anyway? Where’s the clarity? It’s a US$10 billion investment. I don’t know, if I had US$10 billion sitting on me, if I would build that casino. So who knows really?
AWS: What message would you give to the Japanese government?
EKR: To come up with a very clear process, how they are going to shortlist candidates and locations. Are we going to end up with 20 IRs in Japan or just four or five? What can the market absorb? These are unknowns. It could be the greatest thing in the world, right? Nobody knows.
AWS: If Bloomberry did win in Wakayama, what could we expect from your IR?
EKR: Something in the US$3 billion to US$4 billion range. Japan does get a lot of Chinese tourists and that almost guarantees there would be some players from China, but if at some point there was a conflict in one of those disputed islands, you know, that could disappear overnight. So there are many factors to look into.
AWS: Would it look something like Solaire or would it look different to Solaire?
EKR: It would look something Japanese.
AWS: How do you rate your chances in Japan?
EKR: Things are still not clear, so I can’t really read that yet.
AWS: Is it a high priority for you?
EKR: It’s a market that is very attractive, so it has to be a high priority. But we’re still waiting for the rules to come out. But, of course, we’re highly interested.
AWS: It’s very interesting to conjecture, isn’t it? What would the gaming floor of a Japanese IR actually look like?
EKR: It’s an unknown. There is a tendency to gamble because you have the boating, horse racing, pachinko, so there is use potential. It’s just that we don’t know yet exactly what the Japanese want to play.
AWS: Let’s move onto your property in Korea – Jeju Sun Hotel and Casino. How do you feel about that property now? Was it a wise investment and what are your future plans for it?
EKR: It wasn’t a wise investment because so far it’s foreigners only. If locals cannot play, then you can never make a real property, a real resort. It will always be small, sort of like a niche player, and you’ll probably have difficulty growing from there.
AWS: So what do you plan to do with it?
EKR: Just keep it at the moment.
AWS: There are a lot of properties on Jeju.
EKR: At some point there won’t be anymore, and if the Chinese really come back in the millions like they used to in Jeju, there’s some potential. But at the moment, it’s something we just have to accept. We’ve renovated the property and it looks very nice now. We’ve renovated hotel rooms, the entire hotel, casino, everything looks good. So we’ll see if we can just grow that.
AWS: A property in Japan, the property in Korea. Any further expansion internationally on the horizon?
EKR: Depends where gaming is legalized. In many countries it’s not legal, but if some other Asian countries legalized gaming, that would be very interesting.
AWS: You do have ports all around the world, some of them in interesting and quite exotic locations.
EKR: Yes, but it’s easier to expand in the ports. And ports are legal everywhere, in every country in the world. Gambling is not.
AWS: But it gives you a background in international expansion.
EKR: Yes, we’re very comfortable with that. Anywhere in the world except maybe the more developed countries.
AWS: Why do you say that?
EKR: Well, those are very difficult labor environments, very heavy in regulation. Some of them are not really markets for the gaming space. It would be hard to develop a big IR in Western Europe, for example, or even Eastern Europe. So it really depends on the area. Brazil would be an excellent market. Thailand, Vietnam, Cambodia, places like this.
AWS: In the Philippines we’ve seen a massive explosion in GGR over the past few years in a market that just keeps growing. What are your expectations for 2020?
EKR: I think there will continue to be steady growth although maybe not that explosive growth. I think we’ve gone through that phase. The Philippines is attracting more and more tourists and once we improve our infrastructure it will provide a good platform. So the future looks good, especially on the infrastructure side.
AWS: What’s your guess on annual growth rate for the next five years?
EKR: That’s very difficult. I have to see whether the airports are being built and the roads are getting done. If that does happen I’ll be very, very bullish on growth.
AWS: How about the future of Entertainment City. Do you think there is room for more IRs here?
EKR: Property is extremely expensive here, so buying a property sizable enough is the question, does that even exist? It probably costs more than the construction itself. Property prices have multiplied here by more than 15 times since we opened.
AWS: Surely the right property would be profitable in the long run though?
EKR: The problem is finding a seller and a sizable enough property to do a proper IR. The government has frozen any licenses here for five years since I think two years ago or three years ago, because they’re trying to make any growth happen in an orderly fashion. But there will be a time for new licenses.
AWS: Could you see this becoming like a Cotai or Las Vegas with five, six, seven, eight properties?
EKR: Over time anything is possible.
AWS: The Philippines, over the years, has suffered a reputation for being dangerous and lacking infrastructure. And you hear this all the time in places like Hong Kong …
EKR: Well, maybe Hong Kong shouldn’t be talking anymore!
AWS: As one of the most prominent Filipinos in the country, do you feel honestly, deep down in your heart, this is genuinely still the case or do you think it’s better than it was?
EKR: It’s definitely so much better. Just look at that economic growth. The lack of infrastructure is a valid point which the government is addressing now with a lot of programs to catch up on.
AWS: How do you feel about those programs? Do you feel they are successful?
EKR: Yes, they’re taking a while, but they’re coming along at least. Many of them will get started, which is what you really want to see. You’ll have some pain and the disruption while all of this is getting done, but at least there’s light at the end of the tunnel.