A fiscal growth fuelled by casinos - 14th June 2015

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Slowing down: Casino chips displayed at the Global Gaming Expo Asia in the world’s biggest gambling hub of Macau. With casino revenues plummeting, Macau is seeking to reinvent itself as a family-friendly mass market destination. — AFP

THE Asian gaming industry is going through a shake-out as China’s corruption crackdown and slowing economic growth are scaring off its golden goose from Macau – high-stakes Chinese gamblers.

But casino operators are betting that the downturn is temporary and that the drop in VIP gaming revenues will bottom out. Across Asia, the race is on to open more integrated resorts in the region.

By 2020, analysts say the Asia-Pacific region, including Russia, could see at least 17 casino projects coming online – six in Macau, three in South Korea and at least two each in the Philippines, Australia, New Zealand and Russia’s integrated entertainment zone.

As for Singapore, it has seen its share of VIP gamblers shrink in recent quarters, but analysts do not see this rash of new projects coming onstream as a threat to the Republic. The market is big enough, they say.

Why the boom in gaming projects in Asia? The answer lies in two words: Chinese customers.

Outbound tourism from China topped 100 million travellers for the first time last year.

Hong Kong and Macau remain the biggest beneficiaries of the travel boom, but North Asia, particularly Japan, has seen rising Chinese tourist flows due to the weaker yen and relaxed visa policies.

For Singapore, even though some Chinese gamblers are shying away, its two casinos are still profitable, owing to steady mass gaming growth from Malaysia and Indonesia.

Macau is betting on new projects to stimulate demand, by appealing, for example, to a fresh fad for all things French among affluent Chinese.

That’s where Las Vegas Sands’ US$2.7bil (RM10.28bil) Parisian comes in, with its half-scale replica of the Eiffel Tower.

There is also a Louis XIII casino resort, named after the French king who built the hunting lodge that eventually became the Palace of Versailles.

This strategy is based on the belief that the market can withstand additional supply as long as there is a compelling product.

South Korea is also getting into the game. Mainboard-listed Genting Singapore is in a US$1.8bil (RM6.76bil) joint venture with Landing Jeju Development to build Resorts World Jeju, to be completed by 2017.

That is one of three new casinos in the works in South Korea.

But South Korea still has some way to go before it can catch up with Singapore. Last year, it generated US$2.4bil (RM8.99bil) in casino revenues, a little over one-third of Singapore’s revenues.

As for another new kid on the block – the Philippines – its revenue reached US$2.5bil (RM9.36bil) last year, according to regulators.

Japan is the unknown factor in this equation.

If it takes off, as several casino operators hope it does, it could be a massive market. With estimated annual revenues of between US$15bil (RM56.18bil) and US$30bil (RM112bil), it could potentially be the second-largest market in Asia, behind Macau.

But attempts to legalise casino gaming in Japan have been delayed repeatedly by lawmakers concerned about addiction and organised crime.

Many industry experts do not see the rash of new integrated resorts as a significant threat to Singapore’s gaming industry.

“It is unlikely that new entrants to the casino market in Japan, Korea, Cambodia, Vietnam or the Philippines will significantly cannibalise the Singapore market. The biggest threat to Singapore would likely be if Thailand or Indonesia were to legalise gaming, but that is unlikely to happen in the near term,” said Paul Bromberg, CEO of Spectrum Asia, a regional gaming consultancy.

Even if competition is still not as dire as some make it out to be, there is no denying gaming revenue growth in Singapore has stagnated, analysts say. Would a third IR (integrated resort) help Singapore regain its mojo?

Industry experts say there appears to be little support among Singaporeans for a third IR.

Neither does the government seem to have any plans in the offing, going by comments from Senior Minister of State for Trade and Industry Lee Yi Shyan in Parliament last month, even with the moratorium on such licences ending in 2017.

Also, the economic case for a third IR has not been made.

Gaming operators themselves now also recognise that casinos alone do not necessarily bring additional visits and have stepped up efforts to offer more innovative retail and family-oriented entertainment.

So, rather than build more IRs, perhaps Singapore can look closely at how to beef up its non-gaming offerings.