Each year, the world’s casino gaming industry leaders gather in Macau for G2E Asia. They see firsthand what is happening in a market whose revenue story resembles the dollar signs dreams are made of. Some executives travel to the up-and-coming markets in Asia to see the new success stories for themselves. Others fly to locations they want to see as the next new booming gaming markets.
For those of you on this journey, and the rest of you staying back at the office, there is a lot to know in this ever-changing story. So we’re breaking it down for you to get caught up and prepared to discuss the latest happenings and reports.
Emerging Markets: Where to Next?
Investors continue to be extremely interested in emerging gaming markets in Asia, and for good reason. Experts believe any new Asian gaming jurisdiction is likely to be successful. Grant Govertsen, managing partner, principal and analyst at Union Gaming Group, lives in Macau and studies the Asian gaming market every day. He says South Korea, Japan and Taiwan are still on the wish list for nearly all global gaming operators. However, Govertsen says, “It is extremely difficult to gauge when these jurisdictions will approve gaming (Japan, Taiwan), or change existing regulations (South Korea) in order to move forward with integrated resort development.”
Let’s take a closer look at the markets everyone is watching.
On the top of the list: Japan. Govertsen says it is the “crown jewel greenfield gaming opportunity.” He adds, “Given the excellent transportation infrastructure, high per-capita income, a proclivity to gamble and a sophisticated consumer, we think Japan could become the second-largest gaming market in the world, second only to Macau.”
Ken Jolly, as executive vice president of Asia for Shuffle Master Asia, is on top of the buzz surrounding Japan. He points out that while Japan is still living with the damage bill of an earthquake and tsunami, the prospect of two to three casinos there is in the news more now than ever before. “A number of industry players have already traveled to Japan to review its market potential and prepare for favorable legislation,” Jolly says. “The Japanese market potential will be highly successful given the population size, size of the economy compared to other Asia countries, and the desire of the Japanese people to gamble, as currently seen in the pachinko halls.”
Steve Walther, vice president of marketing at Aruze Gaming, also points to the current gaming options in Japan when asked about how profitable the market could be. “With pachinko and pachislot in Japan already a very successful enterprise, the transition into other forms of electronic gaming machines and table games will be a natural evolution.” Walther says he believes Japan will be a strong electronic gaming market.
Govertsen and the Union Gaming Group team believe the government of Japan is focused on using integrated resorts as a key lever to increase tourism, similar to what is being done by the government in Singapore. Singapore has shown how a new gaming market in Asia can provide tax revenue and create jobs in gaming and other sectors on top of boosting tourism revenues.
Govertsen believes the initial number of licenses in Japan could be initially limited to a small handful, but could eventually reach nine or 10.
Casino operators have been unsuccessfully trying to break ground in Taiwan for years. In 2009, an amendment to the Offshore Islands Development Act legalized the establishment of casinos on Taiwan’s six offshore islands to support development in those areas. It specified that a casino would only be allowed if local voters approve the project first. The government’s hope was that casinos on the islands would increase tourism and improve infrastructure. The amendment does require that a casino must be attached to an international resort along with an international hotel, tourist attractions, conference facilities and shopping malls.
Penghu Island, the largest of the six, put the casino vote to residents in 2009 and it was rejected. Penghu cannot hold another referendum vote until September 2012 at the earliest, which is the end of the three-year period required by law between referendums.
More recently, in April 2011, a draft of the gaming act was released and subsequently discussed at various conferences and hearings. The act was to provide the legal and regulatory framework to regulate gaming in Taiwan. Marcus Clinch, of counsel at Eiger Law, works with clients in Taiwan with intellectual property, regulatory and commercial matters and other gaming industry-related issues. He says the act disappointed many when it was released because it only provided a bare framework, leaving most of the substantial elements to be filled in with regulations later. Some of the questions have been answered since the initial release, while others have not. Initially, it was expected that the act could be approved by June 2012, but Clinch tells us everything was stalled leading up to Taiwan’s January elections. “We understand that the draft of the act has now been submitted to the Ministry of Transportation and Communication by the firm hired for the project where it remains,” Clinch says. “It must now officially clear Ministry of Transportation and Communication and the Executive Yuan (Cabinet) before being submitted to the Legislative Yuan.”
Clinch also says the report commissioned to analyze the tourism aspect of integrated resort developments is still being considered by the government. It is also being questioned by some in the industry.
Jolly believes the chances may be better now than ever before to get gaming approval moving in Taiwan. There are, once again, referendums in the works. There are two public referendum votes expected on two islands in Taiwan that could open the way for casinos to be built there. Jolly says that due to the re-election of the government in Taiwan, it is expected that the casino on Kinmen Island and the casino on Matsu Island will progress. The islands are just off the coastline of China and visiting casinos there would only require a short ferry ride for residents of China, if allowed.
Clinch tells us Matsu Island plans to hold a referendum in late May 2012. “They are still officially in the process of collecting signatures to petition for the referendum,” he adds. “It will go ahead likely prior to the passing of the gaming act.” He expects Kinmen Island to wait until after the gaming act has been passed to hold its vote.
Jolly has also heard from more international operators who are interested in building casino resort projects in Vietnam. “The Vietnam government seems keen to support an integrated resorts methodology for casinos, similar to Singapore,” Jolly says. “This is obviously in response to the success of the two integrated resorts in Singapore.”
MGM Resorts International is opening the first luxury integrated resort with a casino in Vietnam in 2013. Its subsidiary, MGM Hospitality, and Asian Coast Development (Canada) Limited are working together to open this first property in Vietnam with the MGM Grand brand. The resort is the first of five being developed by Asian Coast Development (Canada) Limited on the Ho Tram Strip in Vietnam. The resorts will be on more than 400 acres of land and a beach in Ho Tram. The development will focus on providing opportunities for tourists to find excitement, relaxation, entertainment, shopping and recreational facilities.
John Shigley is the president and COO of MGM Grand Ho Tram, and is leading its development and opening next year. The resort will open with 541 luxury guest rooms, with plans to increase to 1,100. The gaming area will feature 90 live table games and 500 electronic games. Plans also call for world-class restaurants, a championship golf course, beach-front activities, VIP accommodations and a conference center.
Las Vegas Sands has also openly expressed interest in building an integrated resort and casino in Vietnam.
The Wall Street Journal has reported that Vietnam officials are looking to legalize sports betting, to cut down on the harm caused by underground gambling pools. According to the Wall Street Journal, Vietnam’s Finance Minister Vuong Dihn Hue visited Singapore to observe how sports betting works in the country.
People’s Republic of China
Gaming companies are looking for and developing non-gaming development opportunities in the People’s Republic of China.
MGM Resorts International, through its joint venture Diaoyutai MGM Hospitality Limited, in agreement with Suning Real Estate Group, is opening the Suning Bellagio Shanghai Bund hotel on a prime site in the People’s Republic of China. The hotel is expected to open in 2015 with 200 rooms and retail and entertainment amenities.
MGM Resorts Chairman and CEO Jim Murren says: “This strategic partnership with Suning further extends our reach into China, one of the fastest-growing hospitality markets in the world. Along with our Diaoyutai JV partners, we believe relationships like this with Suning create new opportunities to expand our brand reach into this strategically vital marketplace.”
MGM Hospitality President Gamal Aziz says, “We believe that the hotel will be the centerpiece of a unique property on one of the best sites in one of the world’s gateway cities.”
Desmond Lam, an associate professor of marketing at the University of Macau, studies gaming psychology and behavior with a special focus on Chinese gaming culture, management and policies. He points out that MGM still does not have an extremely strong brand in Macau or mainland China, so its moves to open hotels and thus the MGM brand to mainland Chinese customers will bring greater awareness of the brand to that part of the world. “It will help establish the quality of MGM’s brand and products in the eyes of Chinese customers,” Lam says. “This, I feel, will certainly benefit the company and its gaming operations.”
Jolly says companies building hotels in China will benefit as the middle class in China continues to grow. “Gaming companies building non-gaming facilities in China are obviously doing so due to the potential growth and returns in the marketplace as the Chinese patrons’ personal wealth grows.” He adds that opportunities to market Las Vegas and Macau properties to the Chinese visitor are extremely exciting.
Macau: How Good Can it Get?
Fortunately, there is not a new headline when it comes to revenues in Macau, because the story is still amazing. The market continues to beat expectations. In February 2012, revenues increased 22.3 percent to $3.03 billion. SJM continues to top the market, with Las Vegas Sands and Galaxy Entertainment in a close second and third.
Analysts expect positive trends to continue through 2012. Lam bases his outlook on conversations with casino executives in Macau. He expects trends to continue, despite warnings from the government that there will be a slowdown in late 2012.
It appears this success story may not be too good to be true. “Macau remains incredibly robust, driven, of course, by Chinese consumers,” says Govertsen. Although the growth rates may moderate, when compared to 2010 and 2011, Govertsen points out, “Still, growth will be at a level that is still quite strong and would be considered a miracle in the United States.”
Jolly points out that development plans approved by local and regional authorities as well as the Central China Government make it clear that Macau and the gaming industry play a major role in the future planning for growth in the region. That is a comforting thought when the government plays such an important role in Macau’s success. “The development of infrastructure in Macau, and nearby on Henqin Island and Zhuhai, signal a future far greater than we see today,” Jolly says. “Infrastructure projects, in relation to transportation to the region—including fast trains, the Hong Kong/Macau/Zhuhai Bridge and increased immigration border crossings—suggest further growth for the Pearl River delta where Macau is located.” He adds, “The Cotai Strip, where the largest casinos including the Venetian, City of Dreams and Galaxy Macau are built in Macau, continues to grow as the market focus moves from Macau Peninsula to Cotai.”
Govertsen agrees with the positive impact these projects will make, expecting solid revenue growth in the coming years because of the attention being paid to infrastructure. “The reality is that the penetration rate of China is remarkably low and as transport infrastructure is built out over the next five to 10 years, we would not be surprised to see Macau’s gaming revenues double or triple,” he explains.
As far as new gaming properties coming online in the Macau region, Sands Cotai Central is the development of the moment. On its website, the property invited vacationers to “Be at the Centre of it all” and join them for the grand opening on April 11, 2012. The property features two casinos and three international hotel brands, making up 5,800 hotel rooms. It offers more than 20 dining options, meeting space and 100 stores.
Lam looks to the opening of Sands Cotai Central to provide stimulus and draw new crowds to Macau. “With the impending opening of Cotai Central, the Cotai region would achieve a critical mass of must-see properties and hence a must-go for visitors to Macau.”
Govertsen adds, “The thousands of hotel rooms it brings are much-needed, given that occupancy rates at most casino hotels typically run in the high-90 percent range. For Sands China, it is the perfect mousetrap as no other operator has as many hotel rooms or mass market gaming supply.”
Of course table games have ruled the casino floors in Macau. Because of that, player preferences are one specific and interesting metric for suppliers as the market grows. Walther is interested in watching the table games to slot play ratio evolve, as well as the growth of electronic table games like Lucky Sic Bo and Lucky Big Wheel. “We see this trend continuing as players become more familiar with the electronic products,” Walther says. Table games will continue to be strong, but players are responding well to the engaging entertainment offered by the machines.”
Recently Opened Markets: An Update
The gaming market in Singapore was put on the map in a big way two years ago, with two major integrated resort openings. Resorts World Sentosa, by Genting Singapore, began its phased opening in February 2010, and Marina Bay Sands, by Las Vegas Sands, opened through the second half of 2010.
The market is even bigger than many people expected. The two casino resorts generated more than $6 billion in gross gaming revenue in 2011. Now leaders throughout Asia are looking to what is happening in Singapore as a model to follow, that will hopefully lead to their own successes. Walther calls Singapore an “inspirational example for gaming expansion in Southeast Asia.”
As in the beginning, the Singapore government remains sensitive to the political and social aspects of gambling. It took care to create rules that protected citizens, protect the game and control growth. Govertsen points to the lack of junket operators as an example. “We believe that the government has intentionally slow-played junket approval as a way of controlling and managing growth relative to the more laissez faire approach of Macau.”
In late March 2012, Singapore’s Casino Regulatory Authority (CRA) announced the approval of two junket operators, for the first time in the country, at Resorts World Sentosa. The junkets will be granted one-year licenses and will only be allowed to target foreign players. Jolly says, “While the new junketeers will have to follow the CRA’s rigid guidelines, we anticipate that they will have a positive impact on the operators’ bottom line moving forward.”
Even with carefully crafted rules, local Singaporeans are spending money at the casinos more than expected or initially desired by the government there. Because of this, Govertsen believes the locals’ entry fee might be reexamined. He explains: “The argument can be made that either raising or lowering the entry fee might have similar impacts, namely moderating the locals gaming market. A higher entry fee results in the privilege of gambling becoming more expensive, which would therefore keep lower-income players on the sidelines. Conversely, lowering the entry fee might result in more casual gaming, rather than forcing a local to play against a ticking clock and feeling the need to get their money’s worth.”
Gaming equipment suppliers are learning their own lessons in Singapore. Jolly says slots and electronic versions of table games have adopted faster there than initially expected. Walther agrees, saying Aruze Gaming’s products are “resonating nicely” with players there. Jolly says electronic gaming acceptance is higher in Singapore than Macau. He believes this is because the majority of players there have accessed these types of electronic games before, at clubs in Singapore or Malaysia, the floating casinos off Singapore or Genting Highlands Casino in Malaysia.
As the two resorts in Singapore opened two years ago, the industry was buzzing with the two different approaches they were taking. Marina Bay Sands played off its MICE (meetings, incentives, conferences and events) business, and Resorts World Sentosa focused on fun for the entire family. Some thought Resorts World Sentosa was making the bigger gamble and wondered how successful it would be. Clearly both approaches are working. Lam believes that Genting’s experience with Star Cruises (its subsidiary) has helped it create a strong family-focused resort.
The success of both types of casinos, Govertsen says, is due in part to their observance of traditions in the culture of gaming customers in the region. “They exhibit a very different behavior insofar as it is much more of a family-oriented activity and a much longer length of stay is desired,” Govertsen says. “We believe that new jurisdictions like Japan will follow suit.”
Jolly credits the properties for establishing the words “integrated resorts” (IR) in the world of casino gaming. “The integrated resort approach at Resorts World Sentosa, catering for all aspects of entertainment, has certainly been successful,” Jolly says. “The IR model with multiple hotels, shopping and a themed entertainment park (Universal Studios) has made this project a success.”
Malaysia has the right to say it is home to the first integrated resort in the world. Genting Highlands Casino continues to upgrade and hold its own in a fiercely competitive industry and region. Lam says, “Genting has been a popular destination for local Chinese and foreign visitors (e.g. Singaporeans) for many decades and is one of Malaysia’s most popular destination for families.”
Jolly notes that Genting continues to expand electronic table gaming and slot operations, while meeting competition from Singapore head on. The property currently offers 19,000 square meters of gaming space and Jolly looks forward to continued expansions.
Meanwhile, the club market in Malaysia still exists. Small properties continue to operate, with a maximum number of 15 slot machines each.
Naga World in Phnom Penh continues to be the main gaming destination in Cambodia, and the only one that operates in the interior of the country. Jolly reminds us that the property went from being a barge on the Mekong River downtown to being a larger regional land-based casino.
“This casino continues to develop in size, facilities and gaming offerings,” Jolly adds.
Other casinos do operate on the borders of Cambodia. These types of properties rely heavily on visitation from the countries they border.
Entertainment Gaming Asia (formerly Elixer Gaming) is in the process of opening two of those border properties under the Dreamworld brand—the Pailin Project near the Thailand border and the Kampot project near the Vietnam border.
The Pailin Project is about a four-hour drive from Phnom Penh. It is expected to open with 26 table games and 40 electronic gaming machines in May 2012. Additional phases are planned to add an expanded gaming floor, hotel rooms and a spa.
The Kampot Project, opening in late 2012, will have 14 table games and 25 gaming machines. It is located near one of southern Cambodia’s busy border crossing checkpoints with Vietnam. Company leaders discussed the property on their earnings call in March, saying that they’re excited about this property and other plans to expand gaming operations in the emerging markets of Indo-China.
It is clear, from talking with experts from various aspects of the casino gaming industry in Asia, that emerging markets are learning from what is being done now and what has happened in recent history. The primary success story everyone seems to be watching, outside of Macau, is Singapore. Jolly says, “Regional governments across Asia are looking at the Singapore model as a way to increase the attraction for the tourism dollar.”
Lam says there have also been lessons learned from the behavioral perspective since the opening of Singapore’s gaming market. “There is a huge demand for legalized casino gaming in other parts of Asia besides mainland China. In fact, in the mass gaming market segment, overseas Chinese (Chinese Singaporeans, for example) exhibit similar high risk-taking propensity as mainland Chinese (while in Macau). That being said, Lam makes it clear that “Not all Chinese are alike; game preference can differ significantly between jurisdictions and among Chinese players.”
Another lesson learned emphasizes the importance of a social protection system, including responsible gaming measures. Lam says this topic must be addressed, with a system proposed or complete prior to legislation in order to get support from local residents. “Casino operators who are thinking of setting their operations in Asia must address the social impact of their operations (i.e. problem gambling and gambling crimes) as this is a major concern for countries in Asia.”
Lam has also observed the importance of an open bidding system for licenses to operate casinos in Asia. “The buzz created by a transparent system can generate strong interest and anticipation among local and regional population; this is a potential ingredient for a strong opening.”
Our experts look forward to watching more markets open and blossom, and we’ll continue be here to keep you updated on the booming casino business in Asia.