Casino players keep the faith

Jun 15, 2011
By Muhammad Cohen
Asia Times Online

NagaCorp, with a 70-year license and 40-year monopoly in Cambodia's capital, Phnom Penh, listed on the Hong Kong stock market in 2006. Chairman Timothy McNally told G2E Asia delegates the casino's mass market revenue grew 69% last year.

MACAU - A mass meeting of the Optimists Club took place here last week. They called the event Global Gaming Expo Asia 2011.

In the mock splendor the Venetian Macao casino resort, hundreds of gaming company executives, financial analysts, gaming equipment suppliers and manufacturers - deploying bevies of Asian beauties to demonstrate the virtues of their products - gathered to hear about the incredible growth and even more incredible potential of Asia's gaming industry. Adding to the throng were gaming industry observers, and envious leisure and hospitality decision-makers from as far away as South Africa.

Skeptics need not apply.

"In the US, gaming has been flat. In Asia, it's boom time," American Gaming Association (AGA) president and chief executive Frank Fahrenkopf said. AGA initiated the Macau conference and trade show as an adjunct to the larger annual Global Gaming Expo (G2E) in Las Vegas. Ironically, G2E Asia made its debut in 2006, the same year Macau surpassed the Las Vegas Strip as the world's highest revenue gaming destination.

To be honest, naysayers - and this columnist has been one for years - have been routed. Macau's gaming revenue grew 57.8% in 2010 from 2009 to 188 billion patacas (US$23.5 billion), or four times the revenue of the Las Vegas strip.

And 2009 was a slow year, with growth barely in the double digits; surely things would slow down in 2011. Growth has indeed slowed this year - to 43.1%, when new gaming revenue records set monthly since February. May's record was 24.3 billion patacas, within shouting distance of the total for all of 2003, the year before the first new casinos opened after the end of Stanley Ho's Sociedade de Jogos de Macau monopoly.

After April's record revenue, CLSA analyst Aaron Fischer upped his Macau growth estimate for this year to 35% with revenue of 255 billion patacas, more than five times the Vegas Strip, with 25% growth forecast for next year. Following May's figures, HSBC analyst Sean Monaghan estimated this year's growth at 39%, to 263 billion patacas, or 5.5 times the Vegas Strip, and 27% next year.

For the decade to 2020, Monaghan forecasts compound annual growth of 17%, with 12% in the worst scenario, 25% in the best case. That worst case would leave Macau in the neighborhood of US$75 billion, or 15 Las Vegas strips.

Meet Mr Cotai

Fahrenkopf, a former US Republican Party national chairman, presented the 2011 G2E Asia Visionary Award to Las Vegas Sands chairman and chief executive Sheldon Adelson, the man who kicked off Macau's boom, opening Sands Macao in 2004. Three years later, Adelson opened Venetian Macao, the first major property on landfill now called Cotai between Macau's outer islands of Coloane and Taipa.

A Las Vegas Sands subsidiary, Sands China - listed on the Hong Kong Stock exchange, as are all other Macau operators following last month's MGM China IPO - operates the company's Macau properties and will open the fourth mega resort in Cotai early next year.

The focus of resort development has shifted from the traditional heart of gaming on the Macau peninsula to Cotai. Wynn Macau, MGM China, Melco Crown, SJM, Galaxy and Sands China are all awaiting the go-ahead on new Cotai projects.

"I looked at the swamp on the bay here, and I saw Las Vegas," Adelson recalled. "It fit hand in glove with my idea to bring the Las Vegas strip here." The world's third-richest man before the 2008 US financial crash, Adelson told celebrants he first got the inspiration for a Las Vegas in Macau on the toilet.

"When we first began, I said you could take 10 locations and build a full Las Vegas with 150,000 hotel rooms around Asia, and you still wouldn't satisfy demand."

Adelson has scaled back to some extent: "Now, I am of the opinion you could build five." For once the gaming billionaire may have been guilty of understatement. Across Asia, there's a rush to emulate Macau's extraordinary success.

Joining the parade

Singapore's two casinos have extended the boom to a second major front in Southeast Asia. In their incomplete inaugural year - Resorts World Sentosa opened in February and Marina Bay Sands in April - the city's gross gaming revenue was an estimated US$5.1 billion. With a full year of operations under their belts, the two resorts are expected to book more revenue than the Las Vegas strip.

In the Philippines, multi-billion resorts are under construction to create an Entertainment City on Manila Bay with casinos amid a range of attractions. Government-owned PAGCOP - the Philippine Amusement and Gaming Corporation - may be privatized, and private operators are already allowed into the market. International operators like the market because Philippines citizens are allowed to gamble, unlike the situation in most markets beyond Macau and Singapore, where Singapore citizens and permanent residents pay a casino entry tax.

Casinos for foreigners at present operate in six of the other Association of Southeast Asian Nations countries, with Brunei, Indonesia and Thailand the lone exceptions. Cambodia and Laos have seen hundreds of millions of US dollars in investment to draw customers from their neighbors and even dip into the China and Hong Kong markets.

NagaCorp, with a 70-year license and 40-year monopoly in Cambodia's capital, Phnom Penh, listed on the Hong Kong stock market in 2006. Chairman Timothy McNally told G2E Asia delegates the casino's mass market revenue grew 69% last year.

In Vietnam, where there are scattered small casinos, Asian Coast Development Ltd (ACDL) is building the Ho Tram Strip, a beachfront complex on 164 hectares slated to house five casino resorts, 127 kilometers north of Ho Chi Minh City, the former Saigon. MGM Grand Ho Tram, with 541 rooms, is scheduled to open in 2013, and Pinnacle Entertainment, a US gaming operator, is signed on for the second resort. The site will also include convention space and golf courses.

Filling the gap

"I doubt there's such a thing as unlimited demand," ACDL chief executive Lloyd Nathan, a 20-year veteran of the gaming industry in the US and beyond, said. "No doubt demand exceeds supply in Asia. It has 50% of the world's population but only 5% of licensed gaming venues. It's going to take a long time to fill that supply gap."

In South Korea, where 19 casinos operate but only one is open to Koreans, police uncovered a plot to obtain Ecuadorian residency permits to enable Koreans to enter foreigner-only venues. There's talk - but only talk and it's been going on for years - about loosening the residency restriction in a market where combined legal and illegal wagering is estimated at US$53 billion. That talk has international casino operators salivating. Steve Wynn said he'll build a US$1 billion-plus casino there; "The only condition is that it's no foreigners-only," the Las Vegas and Macau top shelf resort operator stated.

Japan is moving slowly toward legal casinos. Osaka University gaming expert and advisor to parliament Toru Mihara said it will take "three to four years" to draft a gaming law, leaving development years away. But, according to Mihara-san, a basic consensus has emerged among 138 members of parliament including four former prime ministers, on the shape of a future gaming industry and elements of the civil service are on board. LVS and Wynn, whose main partner is a leading pachinko (a form of pinball) operator, have already expressed their interest.

Faith-based gaming

The outlook is sunny as far as the eye can see. The only clouds on the horizon worth discussing are the clouds over how Asia's gaming businesses operate. In Macau, 70% of revenue comes from VIP rooms run by junket promoters bringing in high rollers mainly from China, out of public sight. "In Vegas, I can hang around in the casino and get an idea how they're doing," an analyst who asked not to be named said. "Here, what matters happens behind closed doors."

"What drives the junket liquidity?" Macquarie Securities senior vice president and regional head of consumer and gaming research asked rhetorically. "All of us have very little understanding of what drives this market."

Singapore is even less transparent than Macau, releasing no official figures on gaming, local resident participation, or anything else that matters. All analysis is based on extrapolating numbers from the US-standard filings on Marina Bay Sands. In Vietnam, Cambodia, Laos and other markets, don't expect miracles.

The record shows there's every reason for optimism but you're going to need one more thing - faith, the belief in something in the absence of real evidence. Asian gaming, at least for now, rewards players with faith. For investors, though, it's really still a matter of rolling the dice. Oh, but look at the odds.

Macau Business magazine special correspondent and former broadcast news producer Muhammad Cohen told America's story to the world as a US diplomat and is author of Hong Kong On Air, a novel set during the 1997 handover about television news, love, betrayal, financial crisis, and cheap lingerie. See his blog and more at MuhammadCohen.com.