Inside Asian Gaming

INSIDE ASIAN GAMING | 20 COVER STORY Resorts World Sentosa The US$150.5 million Las Vegas Sands set aside in 2011 for doubtful accounts was “primarily due,” it said, to its Marina Bay Sands subsidiary. The CRA to date has licensed only three “international marketing agents,” as they’re known locally, all employed by Resorts World Sentosa, where their percentage contribution to VIP volume is in the low single digits. The irony is that about half the rolling chip volume at both properties consists of play out of China, which explains Las Vegas Sands’ characterization of Singapore as the “most challenging credit market”. The US$150.5 million the company set aside in 2011 for doubtful accounts was “primarily due,” it said, to its Marina Bay Sands subsidiary, whose provision alone totaled $65.6 million. Last year, the provision for MBS was raised by more than $57 million, three times the increase allotted the company’s five Macau casinos. At Resorts World Sentosa last year the impairment charge taken on “trade receivables” (the line item covering unpaid markers among other obligations) was up 18% to S$143 million. Another $1.1 million was written off as net bad debt, a 10% increase over the year before. In the first quarter, the charge taken on receivables was up 24% to $45.2 million. It was the second- biggest expense after administrative costs. Managing risk is not an issue on the high-margin mass-market side, but both resorts are having to work harder three years into their existence to grow this lucrative segment, specifically to expand the visitor base to include more higher-limit cash players, the region’s prized “premium mass”. The local population is “essentially maxed out,” in the view of Union Gaming analyst Grant Govertsen, and the same largely goes R esorts World Sentosa ended 2012 on a relative high note, given the challenging year that it was. Casino revenue was up 19% sequentially in the fourth quarter on a substantial pickup in VIP play (+56%), compared with Q1 2011. The top line, however, was down 3% and down 12% for all of 2012, hobbled in no small part by poor luck against those same VIPs. Rolling chip volume continued strong into the first three months of 2013, up 38%, but revenue growth again was plagued by low hold (2.1% as opposed to the average at baccarat of 3% or thereabouts.) Marina Bay Sands likewise had a terrific first quarter in terms of VIP volume, its best three months ever, in fact, but relatively weak hold of 2.51% (compared with 3.58% in Q1 2012) drove EBITDA down 16% on an 8.7% decline in revenue. The impact on Sentosa was similarly profound. Union Gaming Research Macau estimates the property’s bad luck cost it S$150 million in EBITDA, which was down 32% from the fourth quarter and 34% year on year. This is hardly coincidence, of course, VIP play being inherently risky, and Singapore’s risk factor being magnified in the absence of a junket industry like Macau’s to bring in the players and handle credit and collection. And the fewer the players the greater the risks. Yet the city-state’s gaming watchdog, the Casino Regulatory Authority, is famously wary of junkets and their reputed links to Chinese organized crime. for the pool of “high value” Malaysians and Indonesians, “likewise quite well-penetrated,” he says. A recent J.P. Morgan report echoes this assessment, citing “looming concerns” over “rising costs, falling margins and stagnant industry mass market”. Fortunately, both are well-endowed with high-margin non-gaming attractions that generate about 20% of their total revenue. The hotel at Marina Bay Sands, the largest in Singapore, stood at 98.5% occupancy in the first quarter at an average daily rate of S$465. Resorts World Sentosa’s 1,500 rooms were 92% occupied at an ADR of $404. In a review of operations at Resorts World Sentosa published earlier this year, Mr Govertsen warned of “persistently low mass-market growth” in 2013, submitting a forecast in the 4% range for tables and slots, reflecting where both properties stood at the end of the first quarter. (Mass table drop at MBS was up 2.4% year on year, slot handle was largely flat at +1.6%.) Growing the pool of VIPs in a bid to smooth out volatility will likely see both market deeper into China, and Union Gaming, taking the VIP rebound in Macau as a bellwether, expects rolling chip play “to grow nicely” through the balance of 2013 but at a considerably lower volume than was seen in the first quarter, reflecting, among other things, a less aggressive approach to extending credit. The Challenges to Growth SINGAPORE