Inside Asian Gaming

August 2012 | INSIDE ASIAN GAMING 19 project is expected to be no more than $580 million, contributed by a combination of cash, cash flow and debt financing.” Belle Grand Manila Bay is expected to have 880 hotel rooms, 350 table games and 1,900 slots and will open in the second half of 2013. Also expected to open next year is the US$1.2 billion Solaire, developed by Bloomberry Resorts Corp., which is ownedby yet another Filipino tycoon—port operator Enrique Razon. Bloomberry has contracted Global Gaming Asset Management, run by former senior Las Vegas Sands Corp. executives Bill Weidner and Brad Stone, to manage the casino operation at Solaire. Manila Sentiment Booster It’s clear much of the positive sentiment on Entertainment City’s outlook is based on the strong performance at Resorts World Manila following its August 2009 opening. In 2011, RWM generated US$659 million in net revenue (accounting for over 40% of the Philippines market) and $214 million in EBITDA, which Union Gaming’s Grant Goversten calculates works out to a nearly 40% return on investment. Most of the action at RWM is generated by locals, and the property has naturally prospered by offering superior service and surroundings to PAGCOR’s sites. Even the bullish analysts agree the majority of RWM’s business derives from locals (though they also point to significant though unquantified business from Koreans, Japanese and Chinese), noting the new IRs could significantly grow the overall market by drawing more international gamblers. There are legitimate concerns, however, that the Philippines may not be able to attract sufficient international volume to support four major new integrated resorts. Mr Goversten offers four compelling factors in support of that view: • “ Location : Manila is a 2.5 hour flight from Guangdong and a 3.5 hour flight from Singapore. Prospective gamblers from China and Southeast Asia (Singapore, Malaysia, Indonesia) would have to bypass the casinos in their own backyards, which also happen to have superior product relative to the planned Philippines IRs (as measured by invested capital). • “ Perception is reality : Manila has a reputation as being unsafe, unclean, and impoverished. While this might represent an unfair generalization of the area, we think it could be enough to dissuade customers, especially those from countries like Japan, South Korea and Singapore, from making a purpose- based trip to a Manila IR. • “ Language barrier : outside of the IRs, Chinese is generally not spoken, nor is signage in Chinese. We believe this could dissuade Chinese patronage, which we believe is the demographic that most of the new IRs believe will be their primary customer. • “ Government hostilities : there is an on- going rift between the governments of China and the Philippines over disputed ownership of an island in the South China Sea. In May 2012, many Chinese travel agencies temporarily suspended the operation of package tours to the Philippines as the dispute heated up.This being said, China was the #4 inbound source of visitation to the Philippines in 2011 with 243k visitors, having grown 30% from 2010. In Singapore, 1.4mm Chinese visited in 2011, or almost 6x the amount to the Philippines. On a positive note, however, Mr Goversten notes the Manila IRs should be able to offer higher commission rates given that the local gaming tax rate is favorable relative to Macau (15% vs. 39%), but is a bit higher than in Singapore (~12%). Steve Wynn and Sheldon Adelson have legitimate grounds for their aversion to getting involved in the Philippines. But Kazuo Okada has potentially much more to gain from pursuing a venture in Manila Bay than either of thosemen, and that is a shot at vying for the right to independently develop a casino property in Japan if and when that country legalizes casino gaming. Messrs Wynn and Adelson have already cut their teeth developing internationally renowned casino resorts, while Mr Okada is better known for having provided financial backing to Mr Wynn’s efforts, as well as his involvement in Japan’s grey-area pachinko industry and most recently for supplying highly innovative electronic gaming machines. Although Mr Okada’s Manila Bay project offers uncertain returns, it is an opportunity to prove he is equally capable of building and operating an impressive IR. PAGCOR is making grandiose claims that the Philippines could within a few years become the second biggest gaming hub in the region, after Macau, but Japan clearly stands a much better chance of one day clinching that title. One could question whether Mr Okada may have lost too much in his pursuit of a Manila Bay project by alienating Steve Wynn in the process, but if his ultimate goal is to secure a larger share of a potentially massive Japan casino market for himself, his vision could ultimately prove more profitable than even Mr Adelson’s on Cotai. Another piece of reclaimed land—the stretch of Manila Bay slated for Pagcor City Going it alone—Kazuo Okada Dream project—rendering of Kazuo Okada’s US$2 billion Manila Bay project In Focus