Inside Asian Gaming

INSIDE ASIAN GAMING | March 2010 Malaysia faces the greatest cannibalisation from the Singapore IRs at its Genting Highlands casino—Malaysia’s monopoly casino—which Merrill estimates could be cannibalised to the tune of US$202 million, or approximately 20% of its forecast US$1.1 billion gaming revenue for 2010. The US$155 million cannibalisation forecast for Macau, on the other hand, is equivalent to just under 1% of forecast 2010 revenue. Merrill’s belief that the arrival of casinos in Singapore will have a limited impact on Macau is predicated on the continued dominance of junkets in the latter market. VIP baccarat accounted for two thirds of Macau’s US$14.9 billion casino revenue in 2009, and of that, an estimated 90% was generated by players brought in by junket operators. Junkets are indispensable to Macau’s VIP gaming trade because China’s currency controls prevent mainland Chinese high rollers bringing large sums of money out of the mainland into Macau to play with. Casinos are also reluctant to extend credit to mainland Chinese, since gambling debts are not legally enforceable in China. The casinos are happy to leave the junkets—which boast wide and influential networks across the mainland—to handle the extension and collection of credit to mainland Chinese. Though Macau casino operators are boasting of increasing their proportion of direct VIP players relative to those brought in by junkets, direct players are still estimated to account for only 10% of all VIP players in the city. The junket players also account for disproportionately more turnover, according to IAG ’s junket sources, presumably because the direct players who do not have credit relationships with the casinos are limited by the funds they have physically brought with them, while junkets stand at the ready to extend more credit to the players they bring. There is also the matter of geography, giving Macau and Singapore distinct and separate markets. Macau boasted 21.8 million visitors in 2009, though the average length of stay in Macau is only about 1.4 days, compared to around 3.5 days in Singapore. Just over half of Macau’s visitors last year were from mainland China, another 30% from Hong Kong and about 6% from Taiwan. Thus, over 86% of visitors to Macau hail from Greater China, and of themainland Chinese visitors, an estimated 80% come from just across the border in neighbouring Guangdong province. Last year, Singapore’s tourist arrivals were down 4.3% year on year to 9.7 million. The casino-centred integrated resorts (IRs) have hopefully arrived just in time to halt the decline in tourism. Given the explosion of Macau’s visitor numbers since the opening of its first glitzy foreign operated casino in 2004, the IRs could indeed help the Singapore government achieve its objective of raising arrivals to 17 million a year by 2015. Currently, Malaysia is by far the largest source of visitor arrivals to Singapore. It should be noted, however, that because Singapore’s visitor statistics only count arrivals by sea or air, they do not properly Potential cannibalization amount US$mn 2010 2011 Estimated Sg casino market 1,900 2,800 Cannibalization Malaysia 202 158 Australia 55 40 Macau 155 155 Other markets* 65 65 Estimated amount Cannibalized 477 418 Potential new market 1,423 2,382 % Cannibalized 25% 15% % new market 75% 85% Source: BofA Merrill Lynch Global Research estimates * mainly cruise ships Tourist arrivals growth between 2003 and 2008 Macau Malaysia Hong Hong Taiwan Singapore Philippine Japan Thailand Korea Source: CEIC, CLSA Asia-Pacific Markets 0 5 10 15 20 25 (%) Singapore’s casinos could help achieve the government’s objective of raising tourist arrivals to 17 million a year by 2015 10 Cover Story