Inside Asian Gaming

inside asian gaming September 2014 56 Cristino Naguiat has had his hands full keeping PAGCOR competitive as it adapts to new, more challenging market conditions in the Philippines. President Benigno Aquino handpicked Mr Naguiat, a former hospital executive, to head the government-owned casino operator/regulator in 2010. At that point, he’d served 15 years in its finance and audit departments and had the unenviable task of cleaning up his predecessor Efraim Genuino’s corruption-plagued administration. When he took office, Resorts World Manila was already up and running in direct competition with PAGCOR’s Casino Filipino outlets, and plans were well under way for the licensing of four new integrated resorts at Entertainment City, the PAGCOR-administered district on Manila Bay designed to transform the Philippines into a major player in resort gaming in Asia. Entertainment City’s first licensee, Solaire Resort &Casino, debuted last year and is expanding. The district’s second IR, City of Dreams Manila, is slated to open later this year. Mr Naguiat forecasts Philippine gaming revenue could double to US$4.5 billion this year and reach $7 billion within the next five years, and the changing landscape finds PAGCOR moving to make its regulatory and operations responsibilities more distinct, and there has been talk of eventually exiting the operations side altogether. Entertainment City has already presented PAGCOR with major regulatory challenges. Kazuo Okada’s US$2 billion Manila Bay Resorts complex is due to open next year, but Mr Okada is under investigation in the Philippines on bribery allegations, and some of his Philippine subsidiaries have been implicated in an alleged scheme to evade laws mandating Philippine ownership of at least 60% of all land. Those subsidiaries have twice agreed to partnerships with local companies to satisfy the requirement only to have them fall apart. The latest one is in litigation, and the subsidiaries currently are under a court order enjoining them from negotiating with new partners. PAGCOR has remained adamant that Manila Bay Resorts cannot open without resolution of the ownership issue. The word has come, repeatedly, from Mr Naguiat himself. “Even if they finished it, they still cannot open it if they do not have a local partner. Before opening, they should abide by all Philippine laws,” he told a local newspaper in June. Mr Naguiat is also facing challenges from the government’s Bureau of Internal Revenue, which won a Supreme Court ruling last year subjecting PAGCOR and the private casinos it licenses to corporate income tax of 30%. PAGCOR had previously been Cristino Naguiat Chairman and CEO Philippine Amusement and Gaming Corporation exempt and had negotiated its license fees—effectively the gaming tax rate—with private operators on that basis. The BIR ruling gave ammunition to skeptics who branded PAGCOR and the Philippines unreliable. But from the outset, PAGCOR promised to mitigate the impact of the ruling, and in May it delivered, reaching a deal with the Entertainment City licensees that cut their fees on gaming revenue by 10 percentage points—to 5% for VIP play and 17% for mass market. It was a stellar save for PAGCOR’s credibility. PAGCOR has also repaid more than half of US$140 million in back taxes and dividends owed to the government by the Genuino administration. Finding a formula to revive PAGCOR’s fortunes on the operating side is proving more difficult. In July, the competition from Resorts World Manila forced it to shutter its Casino Filipino outlet near the airport, its second casino closing in the capital in 15 months. PAGCOR’s casino revenue fell nearly 10% last year, while the country’s private operators grew theirs by nearly 20%. Nationally, total gaming revenue grew 8.5% in peso terms in 2013, but PAGCOR’s share of it shrank from 41% to 35%. This year, PAGCOR’s first-half revenues dipped to PHP19.96 billion (US$455 million), compared to PHP21.06 billion in the same period a year earlier, and the company missed its net income target by 14%. Gaming revenue actually improved slightly (+1.1% year on year) but fell shy of the company’s forecast by 6.1%. PAGCOR remains a major revenue generator for the Philippine government and beat H1 2013’s PHP9.1 billion contribution to state coffers with PHP10.5 billion through the first six months of 2014. The government is expecting 14 billion this year and the same next year. Faced with City of Dreams Manila, an energized Solaire and an expanding Resorts World Manila, it will take everything Mr Naguiat has to meet it.