Inside Asian Gaming

INSIDE ASIAN GAMING | February 2010 32 Macau Policy Watch Singaporean laws are a negative for Macau’s direct play market … While most have taken the onerous junket regulations to mean Macau is unlikely to be affected by Singapore (ie, junkets will not move), junket regulations do not apply to internal junkets operated by casinos (ie, casinos bringing in direct play customers). These customers are bound by significantly less onerous restrictions stipulated under the Casino Control Act (2006). Given the tough external junket regulations, we believe that Singaporean concessionaires will target internal junkets (or direct play customers). They will also have the benefit of a low tax environment in Singapore (12%) and will leverage this to be more aggressive in attracting regional direct play customers who might currently be frequenting Macau. The bulls’ argument on why Singapore will not affect Macau … The bulls will argue that Macau’s non-SE Asian direct play customers (who are predominantly from HK, mainland China and north Asia) are unlikely to travel to Singapore for a number of reasons, including the following: • Proximity: Macau is closer to HK, mainland China and north Asia. As a result, direct play customers are unlikely to travel all the way down to Singapore for gambling. • Onerous information requirements: Singapore has onerous information requirements, which will not make it attractive for direct play customers. • Cautiousness of credit extension: Given some of the customers will be mainland Chinese direct play customers, the Singaporean casinos will not extend them credit. … and our argument as to why it will affect Macau While some of these points have merit, we present our views which differ on these points, suggesting Macau’s direct play customers will be at risk: • Proximity: While Macau is closer than Singapore for many of the non-SE Asian direct play customers, it is unlikely that Macau will lose all of the gambling spend from these customers. Instead, we believe that Macau will have to start sharing the gambling wallet of these customers with the Singaporean properties. • Proximity: Many of the direct play customers will most likely frequent Singapore on a regular basis for work purposes. This will make it even more compelling for them to direct play towards the Singaporean properties. • Onerous information requirements: Our discussions with investors suggest that this is a common misconception. The junket regulations do not apply to direct play customers brought to Singapore by the concessionaires. As a result, requirements to disclose information are far less than for junket customers and in fact, are similar to many other jurisdictions (such as Australia, New Jersey). • Cautiousness of credit extension: This stems from the fact that some of the direct play customers will be mainland Chinese and hence concessionaires will be uncomfortable in extending credit. The first point to make with regard to this is that if Macau casinos are extending credit to these operators, so will Singaporean casinos. Furthermore, if credit is being extended to these players, then they are most likely VIPs with foreign identities and assets, which means they are unlikely to be concerned about anonymity. The fight has already started The competition from Singapore has already kicked off, with a number of marketing personnel from western operators in Macau being recruited by Singaporean casinos. These personnel usually come with an extensive customer list and relationships that they will leverage to attract customers. Lastly, even if we accept the point that Singapore is further away, many of these inconveniences can be offset by the fact that Singapore is a lower tax environment, which means that concessionaires will be able to compensate players with higher rebates, better properties and better amenities (such as premium transportation). Implication 4: Diversification benefits Duringthe10thanniversary of Macau returning to Chinese rule, the Chinese government and Macau’s new chief executive made clear its intent to diversify Macau’s economy away from gaming (which currently accounts for 70–80% of Macau’s GDP). The new policy initiatives are aimed at positioning Macau as a world class tourism and leisure destination and a regional business services platform. Important steps have already been made to achieve this, including infrastructure upgrades and the opening up of ferry licences to other eligible contenders. Tourist numbers into Macau resume their climb A key initiative to diversify Macau’s economy is to promote the growth of multi-night stay tourism. We believe this will help the developments on Cotai to build critical mass. The government has also shown its intention to support this by announcing progress on certain infrastructure projects around Cotai, such as the new permanent ferry terminal in Taipa and the light rail project. It is also interesting to note that every new casino opening on Cotai has driven a shift in market share of gaming revenues to Cotai—illustrating its growing popularity. Singapore offers several draws for high rollers, including premium transportation