Inside Asian Gaming

INSIDE ASIAN GAMING | March 2009 26 In Focus pinning their short-term hopes on an easing of the recent visa restrictions by mainland China, rather than a lowering of the high but consistent gaming tax rate imposed by the local government. Macau has been deluged by mainland Chinesevisitorssincethecentralgovernment beganprogressivelyeasing travel restrictions from the second half of 2003. The mainland floodgates were suddenly shut in the third quarter of last year, causing growth in visitor arrivals to slow drastically, particularly as the impact of the global recession became more pronounced in China. Beijing’s munificence in re-opening the floodgates will play a bigger part in restoring Macau’s spectacular gaming- and tourism-led economic growth than any stimulus measure the local government can enact. As discussed in “Macau Visa Restrictions Now Lifted?” on page 32, it appears the floodgates have already been partially re-opened. Macau’s casino boom between 2003 and last year was driven by the same factors underlying Nevada’s near-uninterrupted casino revenue growth since 1955—demand from a growing and increasingly-affluent feeder market met by steady expansion of capacity at ever-grander andmore expensive crowd-pulling gaming venues. Las Vegas receives visitors from all over the world, but particularly from the US and neighbouring California. Macau’s primary feeder market is neighbouring Guangdong—a wealthy province on China’s southern coast with a resident population of 94.5 million in 2007, along with a floating migrant population of around 16 million. Glitzy new IRs in Singapore paying much lower gaming tax rates and hungry to make a return on their blown-out investment costs will intensify competition at a time when Macau’s casinos are already reeling from a fall in revenue and squeezed margins in the VIP baccarat market, which accounted for 68% of the city’s casino revenue in 2008. Macau will remain the preferred destination for mainland gamblers, however, owing to proximity and cultural affinity. Singapore has a majority Chinese population and will offer a much lower tax rate on high-roller and junket play than Macau, but its indoor smoking ban and stringent financial transaction reporting requirements will keep many mainland VIP gamblers away. Both VIP and mass market players from Guangdong will also be put off by the cost and inconvenience associated neighbouringMalaysia’sCasinodeGenting, where many Singaporean gamblers flock to get their table games fix because there are no casinos at home. The squeaky-clean city-state reversed its four-decade ban on casino gaming in April 2005, and awarded two licenses to develop casino-centred integrated resorts (IRs)—one to LVS on the downtown Marina Bay site and the other to Genting International on the resort island of Sentosa. Although LVS has suspended all construction in Macau, it is committed to opening Singapore’s first IR on schedule at the end of 2009. When the Marina Bay Sands opens, it will become the world’s most expensive casino resort, with the original US$3.6 billion budget having ballooned to US$5.4 billion. Singapore will not only offer a lower gaming tax rate than Malaysia and Macau, but also split the rate for mass market and VIP play. Singapore’s IRs will pay 15%of gross revenue on the main floor as direct tax, but only 5% on “premium” play, covering high- rollers and players brought in by junkets. Neither Malaysia nor Macau offers split rates for standard and “premium” play. Malaysia collects 28% of gross revenue as gaming tax, while Macau collects 35% as direct gaming tax and an additional 3-4% as mandatory social and welfare contributions. Owing to theMacau government’s heavy reliance on gambling tax receipts—which accounted for 77.5% of its total revenue in 2008—there is no discussion of reducing the city’s heavy gaming tax burden, even though Singapore will soon offer much more attractive rates. There is also a growing perception within Macau that foreign casino operators have been expatriating huge profits from the city and not giving back enough to the local community. In light of their suspension of billions in investment in the city, it will be difficult for the casinos to ask the government for further breaks. No lobbying for lower taxes Macau’s casino industry is perhaps more recession-proof than most, and managed to continue growing in the first half of 2008, when other major casino markets were already tumbling. Revenue growth was eventuallyhaltedinSeptember,butonlyafter the central government in Beijing imposed stricter visa restrictions onmainland Chinese wishing to visit Macau. The new restrictions significantly reduced the frequency with which individual travellers from mainland China could visit Macau, and the duration of their stays. Just as Illinois’ riverboat casinos have focused their lobbying efforts on lifting last year’s smoking ban, Macau’s casinos are Marina Bay Sands