Upstart Singapore
outstrips Las Vegas
By Muhammad Cohen
SINGAPORE - The current exhibition at Marina Bay
Sands' ArtScience Museum commemorates this year's centennial of
theTitanic's fateful
voyage. When Singapore began its journey to create the world's two
most expensive casino resorts, many experts expected a
titanic-scale failure. After all, the conservative nature of the
Singapore state could hardly be more different from the
well-deserved Sin City reputation of Las Vegas, until recently the
world's biggest gambling center.
Yet something titanic has happened with Singapore's
casinos - success. In
their first full year of operations last year, Singapore's pair of
casinos likely registered more gambling revenue than the 39 casinos
along the legendary Las Vegas
Strip.
Singapore's minimum
table bets of S$10 (US$7.71), more often S$25, are only part of the
answer.
"While most of us understood that Singapore
possessed unique attributes that would allow it to achieve
prodigious results, no one anticipated how quickly that market
would grow into a US$6 billion a year [gaming] industry,” Gaming
Market Advisors principal Andrew Klebanow
says.
Singapore didn't just get two casinos - it got two
integrated resorts (IRs) with a wide range of attractions. Profits
for 2011 at the two IRs were on track to surpass US$1.5 billion,
ranking them among the most profitable on earth. Exact figures will
be made public when the operators - US and Macau giant Las Vegas
Sands (LVS) and Malaysia's Genting Group - release financial
results in the coming weeks.
In with the in-crowd
Singapore tourism has also benefited grandly. In
2010, the year the IRs opened amid continuing construction,
Singapore's visitor arrivals rose 20% and visitor expenditures rose
49%. The latest figures show additional rises of 15% for arrivals
and 18% for expenditures. Growing visitor numbers also help explain
the double-digit rise in hotel rates and average revenues despite
some 4,000 rooms being added to supply.
"Perhaps 25% of tourism growth is from the IRs,"
HSBC senior gaming and consumer analyst Sean Monaghan estimates. He
adds that the IRs have encouraged other investments, for example, a
boom in new restaurants.
As the statistics suggest, Singapore didn't just
steal a page from Las Vegas; the Lion City has rewritten the book
on casino resort development and has done it so well that people
now speak about a "Singapore model" for gaming
development.
"The Singapore government's approach was to
carefully plan the development of its casinos. Las Vegas' growth
was driven by entrepreneurs - not by government," Klebanow, a
longtime Las Vegas executive who now consults globally,
says.
"From [US entrepreneur] Jay Sarno's development of
Caesars Palace and Circus Circus, to Steve Wynn's Mirage Resort and
Sheldon Adelson's Venetian Casino Resort, each of these individuals
recognized what the market needed and created transformational
properties. Government merely provided the regulatory environment
and infrastructure that allowed the industry to grow and
prosper."
Super model
Even though free markets are presumed to be best for
business, it's the heavy-handed Singapore model that other Asian
destinations and international gaming companies are starting to
envy. "Everyone's saying, 'We don't want to be left behind',"
former Marina Bay Sands chief executive officer Thomas Arasi
observes.
Niall Murray, director of operations development for
Macau market leader Sociedade de Jogos de Macau, adds, "New
destinations have no excuse for getting it
wrong."
Even
so, Chee Soon Juan, chairman of the opposition Singapore Democratic
Party counters, "There are many economic activities that contribute
to societal health and sustainable progress: the gaming industry is
not one of them. Being a model for the gaming industry is not
something we should aspire
to."
There are, in fact, two sides to the Singapore
model, one geared toward the public interest and one that keenly
interests international gaming companies.
In the public interest, the Singapore model's key
feature is tying casino development to a package of non-gambling
attractions to boost tourism and the local economy overall. The
government set up a competitive bidding process for each of the two
designated IR sites with evaluation criteria that drove bidders to
maximize investment and create new facilities to boost Singapore's
tourism appeal.
Wish list
One longstanding government hope was to get a world
class convention center. Marina Bay Sands (MBS) includes 111,500
square meters of convention space. Built at a record cost of US$5.7
billion, MBS also has two theaters, a museum, a mall with 300
predominantly luxury shops headlined by a Louis Vuitton flagship
outlet that appears to float in Marina Bay, and six celebrity chef
restaurants. Its 2,541 hotel rooms in three towers are connected
across the top with the world's largest elevated infinity pool and
an observation deck 57 stories above downtown, a new signature for
the Singapore skyline.
Singapore's government also coveted a world-class
theme park for its designated leisure zone on Sentosa island off
Singapore island's southeastern coast. Resorts World Sentosa (RWS)
brought in Universal Studios as part of a S$6.59 billion IR that
also includes, six hotels, a post-modern circus stage spectacular,
and a maritime museum that later this year will link with what will
be the world's largest aquarium.
The Singapore model also includes strict regulation
designed to discourage local residents from gambling and keep
criminal activities out of the casinos. The tax rate of 15% for
mass market play and 5% for high rollers (plus 7% goods and
services tax [GST] on each) encourages casinos to chase high
rollers rather than small fries.
However, Singapore's Casino Regulatory Authority has
strict licensing criteria for junket operators, the agents that
bring VIP players to casinos and act as money lenders (and
collectors). Those roles have made them crucial cogs in Asia, and
led to suspicions of ties to organized
crime.
Keep it clean
Singapore's requirements include probity checks on
junket agency owners and employees plus full scrutiny of financial
records. So far, no junkets have been licensed. Reports of
unlicensed junket activity persist, but for the most part casinos
have to find their own VIP players and engage them directly,
including by lending them money.
"The challenge for Singapore gaming operators is
collecting on the credit that they extend to players," Klebanow
says. "Since gambling debts are unenforceable in China, there is
always the risk that players will not pay back their obligations.
Uncollectable debts are a cost of doing business in the casino
industry and are factored into operators' financial
statements."
To discourage local players, Singapore citizens and
permanents residents have to pay a casino entry tax of S$100 for 24
hours or S$2,000 for a year. No forms of casino advertising are
permitted in Singapore, and the government keeps restricting their
marketing activities. In 2010, it stopped casino shuttle buses and
last year it barred loyalty card promotions outside the
IRs.
"The government is determined to cap casinos' impact
on the domestic market," Platform Asia senior consultant Felix Ling
says. "Singapore casinos' future scenario: Limited mass gaming
market growth with a direct VIP market. Junkets will not be allowed
to play a major role here as they do in
Macau."
Outstanding qualities
It may seem the Singapore model forces casinos to do
business with one hand tied behind their backs. But in less
apparent ways, the Singapore model provides an ideal business
environment, at least for companies that can afford the
multi-billion dollar price of admission.
For
example, Singapore allows 100% foreign ownership of casinos and
long-term leases on land. Its tax rates are also low compared with
Macau's 39%. Gambling debts are enforceable
in local courts. More basically, there's rule of law. Those
attributes are not common elsewhere in Asia.
Even measures that seem to run counter to casinos'
interests may actually benefit them. The tax on domestic players to
enter the casino appears to be an extreme hindrance, until you
consider the alternative of barring local players. The entry tax
presents markets with a middle ground between open-to-all-approach
of Macau and the Philippines, and the foreigner-only approach of
South Korea and Indochina's mostly tiny
casinos.
Arasi, now president and chief executive officer of
Harbinger Advisors, says South Korea and Japan could attract the
same level of casino-related investment and revenue as Singapore,
but only with domestic player participation. In Thailand,
international gaming companies consider the wagering-mad local
market vital to building what experts say would be fabulously
successful casino resorts in what's already a prime global tourist
destination.
The biggest roadblock to increased gambling revenue
in Singapore remains the lack of licensed junkets, and many
observers believe the government never will grant junket licenses.
Platform Asia's Ling believes that is the way the casinos prefer
it: In Macau, he notes, junkets provide more than two-thirds of
revenue but take more than half of profits.
"Profit margins in Macau for most casinos are real
bad," Ling, a former Macau casino executive, says. "Those operators
basically invest and build casinos for junkets and the government
to make money."
The Singapore model has the best interests of
investors and the government at heart. That's what's put the sin in
Singapore, and makes it more successful than Sin City
itself.
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. Followwww.MuhammadCohen.com for
his blog, online archive and more.
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