Gaming consultant warns that Singapore IRs may not be profitable
after all
March 17, 2010 by admin
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Written by Our Correspondent
In a sign that the establishment is starting to have doubts on the
profitability of Singapore’s two integrated resorts (IRs), the
Straits Times published an unusual article today containing an
interview with gaming and hospitality consultant Mr Ronald Tan who
sounded the alarm bells of the long-term prospects of the
IRs.
Mr Tan opined that both Genting or Sands are unlikely to exceed
their forecasts of US$1 billion each in revenue from the casinos
within a year due to the high overhead costs of over $13 billion
dollars for both.
Construction of the two IRs began in 2006 amid a construction boom
which saw rising prices of sand and manpower exacerbated by the ban
of the sale of sale to Singapore by neighboring countries such as
Malaysia and Indonesia.
The grand plan to allow casinos in Singapore was announced and
implemented swiftly by Prime Minister Lee Hsien Loong with no
consultation with Singaporeans, a significant proportion remains
opposed to their presence here.
Some are now questioning the wisdom of having two casinos built
together at the same time in a small place like Singapore.
“Instead of allowing both casinos to open in a more relaxed way
during the first few years, the IRs are now under tremendous
pressure…..the road ahead is ‘no bed of roses’,” Mr Tan said.
His pessismistic view was echoed a few weeks ago by Las Vegas Sands
Chief Operating Officer Michael Leven who told Reuters that LVS
will need to generate at least US$400 million in EBITDA from Marina
Bay Sands in a bid to meet debt covenants.
“We’re accumulating cash … the only risk is if Singapore doesn’t do
well. We have to do $400 million in EBITDAR to clear covenants. If
we don’t do that, we’ve made a bad investment in Singapore,” he
added.
(EBITDAR definition: Earnings Before Interest, Taxes, Depreciation,
Amortization and Rent. An approximate measure of a company’s
operating cash flow based on data from the company’s income
statement. Calculated by looking at earnings before the deduction
of interest expenses, taxes, depreciation, amortization, and rent.
Similar to, but less common than, Earnings Before Interest, Taxes,
Depreciation, and Amortization.)
LVS will operate the second casino in Singapore at Marina Bay whose
opening has been delayed repeatedly due to financial problems faced
by the parent company in the United State.
Ronnie Chan, chairman of Hang Lung Properties Ltd., Hong Kong’s
fifth-biggest developer by market value, said last September in a
Bloomberg Forum in Hong Kong that the two casino-resorts in
Singapore will fail because they won’t be able to attract
high-rollers:
“The big rollers are what make money in casinos, they will never
come to Singapore, it’s a family entertainment” location. You think
big-rollers will go to Singapore where they have teeth and fangs
coming out sideways? There are too many rules. I was in Sentosa
island, I really think that it’s going to be a flop…..The whole
integrated entertainment industry, I’m worried for them. The good
thing about Singapore is that if you flop, you’re given a second
chance,” he said.
Mr Tan warned that not all casinos are profitable quoting the
example of Melbourne’s Crown Casino which suffered substantial
losses for two years straight after it opened in 1997.
He also harbored doubts about the profitability of the other
non-casino attractions such as the Universal Theme Park:
“Many Singapore attractions, from Tang Dynasty Village to Haw Par
Villa, flopped because of the heat and humidity. The majority of
Universal’s attractions are outdoors, which means people have to
wait in line under the hot sun. If even Hong Kong, a temperate
country, cannot succeed with Disneyland with its huge China
hinterland,” he was quoted as saying in the Straits Times.
Mr Tan should not worry too much and remember what Ronnie Chan had
said earlier:
“The good thing about Singapore is that if you flop, you are given
a second chance.”
So long the venture is spear-headed by the PAP, it can afford to
flop many times and still given a chance.
