Markets bet big on gaming

First, Macau. Then Singapore. Now at least half a dozen cities in the Asia-Pacific are scrambling to jumpstart their gaming industries and develop their own enclaves to attract the region’s big-spending VIP players and leisure travellers.

Macau, of course, remains the envy of – and model for – Asia’s aspiring casino hubs.

“It’s quite hard to beat Macau’s gaming industry, which grew to five times the size of Las Vegas within a short span of time. We will see pockets of integrated resorts across Asia-Pacific, but most of those will possibly serve the local market,” says Jeremy Tan, an analyst at Kim Eng Securities HK in Hong Kong.

Macau is tipped to remain undisputed champion among gambling cities, but not without hiccups. For example, the effects of the anti-corruption drive in China – in the wake of the leadership transition – have yet to unfold.

“The new China leadership is serious about curbing corruption. We actually saw the VIP gaming growth virtually come to a halt, registering a very low, single-digit growth for most of the end of 2012. This is a big blow because VIP gaming accounts for about 70 per cent of revenue in Macau casinos,” Tan says.

Farther down the road, Tan also fears that Macau casinos may find themselves with more rooms than occupants. All six concessionaires in Macau have expansion projects under construction or about to begin. By 2017, many of these projects will be completed.

“Each casino is making a huge addition to its room inventory, yet new tables are capped at around 3 per cent a year by the government. That’s only 200 tables,” Tan says.

The industry’s silver lining is the buoyant mass-market visitor segment, which has been growing by 20 to 30 per cent a year, says Tan, who believes most of Asia’s gaming markets will rely more on the mass market, like Las Vegas.

“At the rate the mass-market sector is growing, it would eventually even up the VIP-mass market ratio. VIP gaming will not be so important going forward. The Studio City project [of Melco Crown Entertainment] is more likely entertainment-related and could be a major theme park in the future,” Tan says.

The optimism among Macau’s casino operators may be justified. Mass-market growth is expected to be driven by infrastructure development such as the high-speed railway, new ferry facilities, and border-crossing expansion. Macau’s Light Rail Transit (LRT) system, for instance, is set to run by next year, and will be linked eventually to the Guangzhou-Zhuhai intercity rail system. New theme parks in cities around Macau could also boost tourism in the enclave.

“Mass affluence is still on the rise. This could increase gaming penetration and avert an oversupply,” Tan says.

In Southeast Asia, the big casinos and those in the pipeline are combined with theme parks. They are also more likely to focus on entertainment and tourism rather than just gaming.

Singapore’s highly successful integrated resorts – the Marina Bay Sands and Resorts World Sentosa – have boosted Singapore’s tourist appeal on two key fronts: the meetings, incentives, conventions and exhibitions (MICE) sector, and the family and leisure market.

Yet, Singapore is a special case. While most governments favour market growth and VIP junkets, Singapore has proved restrictive.

“The country has a very tough regulatory system that is focused on largely limiting the growth of the market. From a growth angle, regulation could become a challenge in the future,” says an industry analyst from a major bank in Singapore.

In the Philippines, proponents of a sprawling integrated resort along Manila Bay – called Entertainment City – are required to invest at least US$1 billion each. The government is very serious in growing its market just like Macau, but major obstacles are endemic: traffic and security.

“It is something that is very noticeable when you land, and VIPs tend to get quite frustrated with anything to do with getting between them and their gaming table,” says the industry analyst.

“At any Macau casino, there’s almost no security. The guards only look at you to see whether you’re above 21 or not. But when you go into any major hotels in the Philippines, your car gets checked for bombs. You have to be screened and patted down. It’s something that VIPs would definitely notice and find incredibly uncomfortable.”

In the case of Malaysia’s Genting Highlands, the main obstacle is the location of its casinos. “Getting regional VIP players is difficult because it takes a very long time to get to the property,” the analyst says. “It’s on a hill 6,000 feet above sea level in the middle of a jungle. It’s also very much a domestic-focused property.”

Vietnam is still years behind most other governments in terms of working out how to play the casino-resort game.

Taiwan, meanwhile, will be building its first casinos on outlying Matsu Islands, where residents voted last year to allow gambling projects.

So for the next few years, expect East Asia to remain the home of high-rollers, with its attendant demand for hotel and gaming talents.