Inside Asian Gaming

INSIDE ASIAN GAMING | October 2010 38 The recent news of the closure of Winn Casino in Bavet, on the border with Vietnam, is merely the outward manifestation of a malaise that has been affecting the border casino trade for some time—a chronic oversupply of venues. For a case study of the potential perils that face Cambodia’s border casinos, Bavet is not a bad place to start. It would be lucky to qualify even as a one-pony town. The rationale for its existence is as a border crossing fromMoc Bai in Vietnam into Cambodia’s Svay Rieng Province. Once you pass over the border, you’re on Bavet’s casino strip. There’s no pretence even of locating the properties discreetly some distance from the border gate as there was in the early days of Stanley Ho’s monopoly in Macau. In 2009, Svay Rieng province was ranked 13th out of 24 for its level of poverty according to statistics from the United States Agency for International Development. A total of 76% of its half million populationwork in agriculture. And yet tiny Bavet has 14 casinos, plus at least two more projects apparently under construction. In theory, Bavet has a favourable location for border casino business. It is not much more than an hour by road from Ho Chi Minh City in Vietnam, that country’s biggest urban centre with a population of 7.1 million at the 2009 census. Many of those people are passionate gamblers who aren’t allowed to visit Vietnam’s casinos unless they have access to a foreign passport. In reality, however, an hour’s commute to Bavet can stretch into a much longer journey due to Vietnamese red tape that can vary in length from week to week and even day to day. And there, in essence, is the difficulty with Cambodia’s border casinos. They are marginal operations in more than one sense. Not only are they vulnerable to regional politics, but they also seemmore vulnerable to external economic shocks than core markets such as Macau or even the Philippines—possibly because of their reliance on mostly low rollers. Vietnam’s GDP grew by 6.4% in the second quarter of 2010, according to Vietnam’s General Statistics Office, but that doesn’t seem to be translating into Vietnamese high rollers visiting Bavet. The arrival in the regional market of Singapore’s casino resorts may not be helping Cambodia’s border trade. Hanoi is less than three hours by plane from Singapore. And Sheldon Adelson, the Chairman and Chief Executive of Las Vegas Sands Corp, specifically mentioned during his company’s second quarter earnings call that Vietnamese VIPs were among his early customers at Marina Bay Sands. Cambodia’s tourism sector has also been slower to recover from the global economic shocks of late 2008 than more mainstream markets. The 2008 figures were the first time Cambodia’s tourism growth dipped below 5.5% annual growth since the severe acute respiratory syndrome (SARS) epidemic of 2003. The fact that Bavet’s border casinos are all small-time operations competing among themselves also means they don’t have any critical mass allowing them to organise marketing, promotions and inward transport on a resort-wide basis. Perhaps the key problem facing Cambodia’s border casino trade, though, is a chronic oversupply of venues. That’s due to the apparent willingness of the Cambodian authorities to issue casino licences to all comers outside of the capital Phnom Penh on the understanding that the operators must shoulder the commercial risk that involves. The Cambodian government doesn’t charge specific taxes on gross casino revenues. Would-be operators must pay for a gaming permit issued by the Ministry of Economy and Finance, then pay a flat monthly levy on their business. If the authorities were acting purely in the national interest, they would probably want to consider the sustainability of such border casino businesses, and their impact on the wider economy. If individual officials were motivated by more personal interests, or looking for a quick fix to aid an economically depressed area, then they would have an incentive to issue as many gaming permits as investors are willing to apply for. An oversupply of permits with little regard for strategy mirrors exactly the problems that beset the Phnom Penh gaming clubs market. There, it resulted in cannibalisation of the market. An aggravating factor in that case was that Cambodians were being allowed in the slot clubs in contravention of existing national laws. There may still be some foreign investors who think the roads of Bavet and other Cambodian towns such as Poipet on the border with Thailand are paved with casino gold, but locals with good inside knowledge seem to think differently. Kevin Pham, formerly one of the people running the Winn Casino in Bavet, apparently decided some time ago he could make better money in real estate and decamped to Vietnam to pursue that trade instead. As one industry insider told Inside Asian Gaming : “The situation in Bavet is not good. The gaming ‘pie’ isn’t even the size it was two years ago before the international crash. With the new properties in the market it means that a smaller pie is being cut into even smaller portions.” Welcome to Cambodia—eventually Las Vegas Sun, Bavet—high rollers thin on the ground Cambodia