insid e asian gaming M ay 2016 4 EDITORIAL Steven Ribet We crave your feedback. Please email your comments to
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[email protected] or call +853 6688 7214 or +853 6280 8737 Printed by Cochin Advertising Printing Service Co., Ltd. Est. Nova da Ilha Verde 180 r/c R www.asgam.com ISSN 2070-7681 Chief Executive Officer Andrew W Scott Managing Editor Steven Ribet Editor at Large Muhammad Cohen Other Regular Contributors Paul Doocey, Kareem Jalal, Rui Pinto Proença, I Nelson Rose, Andrew W Scott Graphic Designer Rui Gomes Photography Ike, Gary Wong, James Leong, Wong Kei Cheong Founder and Adviser Kareem Jalal ◊ Chief Marketing Officer Derrick Tran Chief Sales Officer Paul Lee Chief Operating Officer Michael Mariakis Director and Administrator Cynthia Cheang Administrative Assistant Suie Ng Asia’s casino bubble I n a referendum this coming November, residents of New Jersey will decide whether or not to support a plan to end Atlantic City’s state monopoly on gambling. A big part of the motivation for doing so, ironically, will be to save Atlantic City. The gaming industry in Las Vegas’ one-time rival collapsed after neighboring states allowed casinos of their own, starting with Pennsylvania in 2006. The plan is to allow two new casinos in New Jersey’s north bordering New York City, then use a portion of the extra revenues from taxing them to pull the seaside resort town back from bankruptcy. Last month, however, New York’s Rockefeller Institute of Government published a report that should give pause for thought; not just to New Jersey citizens casting their ballot, but to governments in Asia too. The think-tank’s paper looked at the effect of America’s two-decade gaming industry expansion on government revenues there. For cash-strapped states looking for extra income, it concluded, opening new casinos has now reached a stage of “short-run yields and longer-run deterioration.” Nevada and New Jersey were the only two states to legalize casino gambling before 1989. In that year, South Dakota and Iowa followed suit. Nine more states went the same way between 1990 and 2007, generally in response falling tax revenues caused by periods of economic downturn. A further six states joined them after the Great Recession. Since 2008, according to the Rockefeller Institute, total government income from taxing casinos in the US has fallen by 0.2% on average per year. Last year alone the decline in real terms was 1.5%. “The recent geographic expansion of gambling created stiff competition as facilities vie for the same pool of consumers, particularly in the northeastern region of the nation, where weakened growth has been partly attributable to market saturation and industry cannibalization,” said the paper. The growth in capacity is not about to let up. New York, for example, legalized casino operations in 2014 and expects to open four destination resorts. Massachusetts legalized in 2011 and will also soon have four casinos of its own, including the US$950 million MGM at Springfield, and the US$2 billion Wynn Boston Harbor. Now pan across the Pacific. Could the Rockefeller report’s analysis of competition for the same customer pool, market saturation and cannibalization soon apply to Asia too? Steve Wynn’s investors, who are reportedly nervous about Boston Harbor, might fret more about his biggest ever project, which is now nearing completion in Macau. The US$4.1 billion Wynn Palace will be joined not just by MGM Cotai soon after it opens in August, but two further mega-resorts (the Parisian and Grand Lisboa Palace), each costing in excess of US$3 billion. All of this as the Macau market enters its third year of declining revenues. Outside of Macau, Asia is seeing an explosion of integrated resort (IR) construction. The Philippines, for example, is building two big projects to add to its three existing ones, while Vietnam says it will take its total to five. Korea recently gave the go-ahead for its third IR, in Incheon. Australia is in the process of adding three, including one in Cairns with a price tag of US$7 billion – the same sum earmarked for a project on the Pacific island of Saipan. Investors even want a second Cambodian IR, in coastal Sihanoukville. Russia, meanwhile, is building more casinos in its far eastern Primorye region. The upbeat assessment underlying this mania seems to be that the Chinese market, which to be honest is what all the new projects are aimed at, is bottomless; much bigger than America’s and full of fanatical gamblers to boot. But now there are reasons to doubt this. Firstly, the enthusiasm of Chinese for games of chance may be beginning to wane. A people deprived of a forbidden fruit for decades will gorge themselves with it when their first opportunity arises. After doing so, however, they will learn the hard way why their paternal government forbade it in the first place. The lessons of binges in Macau and other Asian gaming destinations may slowly but surely be working their way into common Chinese understanding. Second, Xi Jinping’s crackdown on corruption might just be the beginning of a backlash following the decade-long boom (some might say excesses) that followed Macau’s gaming liberalization. Chinese police have already carried out raids against casinos in Cambodia. The arrests of Koreans carrying out illegal promotions in China last year nearly became an international incident when it turned out the casino they were marketing was state-owned. Just like the US war on drugs in Latin America, it’s not inconceivable the goliath nation might start pressuring neighboring suppliers of a product it perceives as damaging its society. And China’s tolerance could be approaching its limit. The above two points may prove groundless exaggerations. If valid, however, they will only act to hasten the unravelling of Asia’s casino bubble.