Inside Asian Gaming

INSIDE ASIAN GAMING | February 2012 2 Ricegate “You can choose your friends but you sho’ can’t choose your family,” says a character in Harper Lee’s novel ‘To Kill a Mockingbird’. Steve Wynn may be wishing one of his former friends had chosen HIS friends more carefully. That former friend is Kazuo Okada, Chairman of Tokyo-based Universal Entertainment Corp and in happier times a vice chairman of Wynn Resorts. The source of the difficulty appears to be the Philippines. One gaming industry source describes doing business in the Philippines as like “Trying to climb Mount Everest in tennis shoes—with someone constantly trying to make off with your shoelaces”. But for a casino entrepreneur with Nevada and Macau gaming licences to protect, the stakes are far higher than mere frustration at trying to bridge a culture gap in business. The risk is that there will be guilt by association. The association part relates to the apparent determination of Mr Okada to have a casino operation in the Philippines, and to involve Mr Wynn in the plan. The ‘guilt’ part relates to the corruption that appears endemic in the Philippines. An aspect of that corruption is an on-going court case in that country. Forty tonnes of rice from a 300-tonne consignment of the grain donated by Mr Okada’s gaming company Aruze for post- typhoon relief in the Philippines allegedly found its way into the political campaigns of two sons of the former chairman of the Philippine Amusement and Gaming Corporation, EfraimGenuino. Dr Genuino is currently the subject of criminal proceedings for ‘Ricegate’ and other alleged misdeeds amounting to graft and ‘malversation’—a fancy way of saying misconduct in public office. Given that until June 2010 Dr Genuino was effectively the go-to guy for any foreign investors interested in a casino operation in the Philippines, it’s not hard to see the perils potentially facing a Las Vegas outfit such as Wynn Resorts if it tried to invest there. Saying that Aruze-donated rice might have been improperly used for political campaigning in the Philippines is not the same as saying Mr Okada or his employees caused this to happen. But it does highlight the dangers of doing business in a country that ranks joint 134th out of 178 in Transparency International’s Corruption Perceptions Index. Any money MrWynn could make in the Philippines is far outweighed by the risk he could face to his existing casino licences. If Aruze were a US company rather than a privately-held subsidiary of a Japanese one, it might potentially be facing an investigation under the US Foreign Corrupt Practices Act. That in turn might lead to uncomfortable questions about how Mr Okada and his businesses came to be the biggest single bloc holdingWynn Resorts’ voting stock. It’s easy to see how ‘unfriending’Mr Okada might help Mr Wynn’s cause. It’s less easy to see how being unfriended by Mr Wynn might help Mr Okada—other than perhaps giving him a handy reason to cash out of Wynn. But as many an ambitious male politician knows to his cost, hell hath no fury like a life partner allegedly scorned. And Mr Okada’s fury seems to be focused on trying to make an issue out of payments made byWynn Resorts toward the development of the new University of Macau (UMAC) campus on Hengqin Island next door to Macau. He’s brought a suit in a Nevada court to compel Wynn to produce spending records. The company describes Mr Okada’s complaint as“preposterous and without merit”. That may be right. But it didn’t stop the Salt Lake City office of the US Securities and Exchange Commission on 8th February launching an informal inquiry into Wynn’s donation to UMAC. The company says it intends to comply fully with the SEC’s request. No doubt high-powered lawyers around the world will be putting their names down for new Aston Martin DBSs at the prospect of fat fees earned from a fiesta of litigation resulting from the fallout between Mr Wynn and Mr Okada. If anything, the sorry saga of Ricegate only reinforces the fact that despite the rising entry price of investment in the Macau and Singapore casino markets, and the volatility sometimes associated with their related equities, they remain— thanks to recent dividend payments—the nearest thing to blue chip gaming stocks that Asia has to offer. Editorial Inside Asian Gaming is published by Must Read Publications Ltd 8J Ed. 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